<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 2000
REGISTRATION NO. 333-31732
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ACCELERATED NETWORKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
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
</TABLE>
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. [ ]
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 MARCH 28, 2000
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 $ and
$ 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
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 4.
<TABLE>
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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
------------------
TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 4
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 20
USE OF PROCEEDS....................... 21
DIVIDEND POLICY....................... 21
CAPITALIZATION........................ 22
DILUTION.............................. 23
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 25
</TABLE>
<TABLE>
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PAGE
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<S> <C>
BUSINESS.............................. 34
MANAGEMENT............................ 50
CERTAIN TRANSACTIONS.................. 60
PRINCIPAL STOCKHOLDERS................ 63
DESCRIPTION OF CAPITAL STOCK.......... 66
SHARES ELIGIBLE FOR FUTURE SALE....... 69
UNDERWRITING.......................... 71
NOTICE TO CANADIAN RESIDENTS.......... 72
LEGAL MATTERS......................... 73
EXPERTS............................... 74
ADDITIONAL INFORMATION................ 74
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 digital subscriber line, or DSL, T1, NxT1, or DS3 technologies.
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 over DSL, or VoDSL, and frame relay over DSL, or FRoDSL, 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 currently sell our products primarily through our direct sales force and
one original equipment manufacturer, or OEM. Service providers who 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 and Primary
Network Communications.
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................ shares
Common stock outstanding after this
offering............................ shares
Use of proceeds..................... We intend to use the net proceeds from
this offering for working capital, and
other general corporate purposes
including expenditures for research and
development, sales and marketing
efforts, and potential acquisitions or
investments in complementary
businesses, technologies or products.
Proposed Nasdaq National Market
symbol.............................. ACCL
The number of outstanding shares of our common stock as of , 2000
excludes:
shares subject to outstanding options and warrants as of
, 2000;
shares reserved for future issuance under our stock
incentive and stock purchase plans; and
shares which are subject to the underwriters' over-allotment
option.
------------------
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.
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.
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<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
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STATEMENT OF OPERATIONS DATA:
Net revenue................................................. $ -- $ -- $ 8,466
Cost of revenue............................................. -- -- 6,312
------- -------- --------
Gross profit................................................ -- -- 2,154
Loss from operations........................................ (1,611) (10,163) (22,257)
Net loss.................................................... $(1,488) $ (9,711) $(21,227)
======= ======== ========
Net loss per share(1)
Basic and diluted......................................... $ (0.42) $ (2.00) $ (3.29)
======= ======== ========
Weighted average shares................................... 3,550 4,853 6,447
======= ======== ========
Pro forma net loss per share(1)
Basic and diluted......................................... $ (0.58)
========
Weighted average shares................................... 36,789
========
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<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 15,207 $53,699 $
Working capital........................................ 18,241 56,733
Total assets........................................... 28,678 67,170
Capital lease obligations and credit facilities, less
current portion...................................... 1,932 1,932
Redeemable convertible preferred stock................. 49,857 --
Total stockholders' equity (deficit)................... (28,565) 59,784
</TABLE>
- ---------------
(1) See notes 2 and 12 of notes to 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, the
estimated charge to equity of $9,882,000 relating to the beneficial
conversion feature on the Series D preferred stock and proceeds of
$38,492,000 received in connection with the issuance of the Series D
preferred stock. For a further description of the Series D preferred stock
transaction, see note 13 to the consolidated financial statements.
(3) As adjusted to reflect sale of shares of common stock offered hereby
at the initial public offering price of $ per share after deducting the
underwriting discount and estimated offering expenses payable by us. See
"Use of Proceeds" on page 21 for more information on our intended use of the
proceeds from this offering and "Capitalization" on page 22 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 UPON WHICH TO BASE YOUR INVESTMENT DECISION.
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 for us 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 December 31, 1999, we had an accumulated deficit of
approximately $32.5 million. Although our net revenue has grown from zero for
the quarter ended March 31, 1999 to approximately $4.3 million for the quarter
ended December 31, 1999 and approximately $8.5 million for the year ended
December 31, 1999, we cannot be certain that our net revenue will continue to
grow, or that we will generate sufficient net revenue in the future 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 our most significant customers, 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. 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 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.
4
<PAGE> 8
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.
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. 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.
A NUMBER OF FACTORS COULD CAUSE OUR OPERATING RESULTS TO FLUCTUATE SIGNIFICANTLY
AND CAUSE OUR STOCK PRICE TO BE VOLATILE.
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;
5
<PAGE> 9
- our ability to manage product transitions and adapt to technological
advancements;
- 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.
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.
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. As a result, 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.
Due to the foregoing, we believe that quarterly and annual comparisons of
our operating results should not be used 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.
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
6
<PAGE> 10
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.
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.
7
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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.
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.
In addition, 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. Siemens ICN also sells products that compete with our products. We
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.
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 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.
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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. To date, 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;
- 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 AND BE SUBJECT TO PRODUCT
LIABILITY CLAIMS.
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;
- product liability claims and legal actions by our customers;
- negative publicity regarding us and our products;
- unexpected expenses to remedy errors;
- diversion of our development resources;
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- 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. In particular, 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, 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.
WE DEPEND UPON A SMALL NUMBER OF OUTSIDE CONTRACTORS TO MANUFACTURE OUR
PRODUCTS.
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
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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 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.
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In addition, our ability to achieve market acceptance for our products will
also depend on the timing of the adoption of industry standards for new
technologies in our markets. Many technological developments occur prior to the
adoption of the related industry standard. 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 which use new technologies prior to the adoption of
industry standards related to these technologies. Consequently, our products may
not comply with the eventual industry standard, which could hurt our ability to
sell these products and also require us to quickly design and manufacture new
products that meet the eventual standard. Even after industry standards are
adopted, the future success of our products depends upon widespread market
acceptance of their underlying technologies.
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, respectively, 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.
OUR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY WILL ADVERSELY AFFECT OUR
ABILITY TO COMPETE.
Our success and ability to compete substantially depend on our proprietary
technology. 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. Despite our efforts to protect our
proprietary rights, existing copyright, trademark and trade secret laws afford
only limited protection. 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.
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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 49.
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 currently have product development activities in India. As a result, our
financial results could be affected by factors such as political instability,
adverse changes in foreign currency exchange rates or weak economic conditions
in India. Our operating results are also exposed to changes in exchange rates
between the U.S. dollar and Indian Rupee. To date, our results have not
materially been affected by any changes in currency exchange rates.
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.
WE MAY BE SUBJECT TO RISKS RELATED TO THE YEAR 2000 ISSUE.
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
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competitors are able to devote greater resources to the development, promotion,
sale and support of their 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. and of Newbridge Networks Corp. by Alcatel.
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 48 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
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are able to charge. In addition, international regulatory bodies are beginning
to adopt standards and regulations for the broadband access industry. If 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.
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;
- 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
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- 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.
WE MAY ENGAGE IN FUTURE ACQUISITIONS OR STRATEGIC INVESTMENTS THAT DILUTE OUR
STOCKHOLDERS, CAUSE US TO INCUR DEBT AND ASSUME 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.
17
<PAGE> 21
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL TO FUND OUR OPERATIONS WHEN
NEEDED.
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. If additional funds are
raised through the issuance of equity securities, the percentage ownership of
our stockholders will be reduced. In addition, stockholders may experience
further dilution, or these equity securities may have rights, preferences or
privileges senior to those of the 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 holders of common stock and
the term of such debt could impose restrictions on our operations. 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.
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 shares of common stock outstanding. See "Capitalization"
beginning on page 22 for a discussion of shares included and excluded from this
number. The 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>
NUMBER OF SHARES DATE OF AVAILABILITY FOR SALE
- ---------------- -----------------------------
<C> <S>
(Date of prospectus)
(180 days after prospectus)
</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 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 shares of common stock reserved
for issuance under our 2000 Stock Incentive Plan. On the date 180 days after the
effective date of this offering, at least shares will be subject
to immediately exercisable options, based on options outstanding on December 31,
1999. Sales of a large number of these shares could have an adverse effect on
the market price for our common stock.
18
<PAGE> 22
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" on page 70 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 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" on page 64 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 21 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 our common stock has in the past been sold at prices substantially
less than the initial public offering price that you will pay, you will suffer
immediate dilution of $ per share in pro forma net tangible book value,
based on an assumed initial offering price of $ per share of common stock.
The exercise of outstanding options and warrants may result in further dilution.
See "Dilution" on page 23 for more information on the dilution you will
experience by purchasing shares in this offering.
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.
19
<PAGE> 23
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.
20
<PAGE> 24
USE OF PROCEEDS
Our net proceeds from the sale of the shares of common stock
sold in this offering are estimated to be approximately $ million, or
$ million if the underwriters exercise their over-allotment option in
full, based upon an assumed offering price of $ per share and after
deducting 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
business, 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.
21
<PAGE> 25
CAPITALIZATION
The table below sets forth the following information with respect to our
capitalization:
- the actual capitalization as of December 31, 1999;
- the actual capitalization at December 31, 1999 after giving pro forma
effect to (1) the issuance of an aggregate of 3,455,267 shares of Series
D preferred stock for approximately $38.5 million in February and March
2000, including an estimated charge to equity of approximately $9.9
million relating to the beneficial conversion feature on the Series D
issuance, and (2) 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
shares of common stock at the assumed initial public
offering price of $ 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 DECEMBER 31, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ---------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C> <C>
Capital lease obligations and credit facilities, net of
current portion........................................... $ 1,932 $ 1,932 $ 1,932
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.................................. -- -- --
Stockholders' equity (deficit):
Common Stock, $.001 par value; actual -- 75,000,000 shares
authorized and 10,166,166 shares issued and
outstanding; pro forma -- 90,000,000 shares authorized
and 45,271,929 shares issued and outstanding; pro forma
as adjusted -- shares authorized and
shares issued and outstanding........... 579 45
Additional paid-in capital................................ 13,481 112,246
Deferred stock compensation............................... (10,165) (10,165)
Accumulated deficit....................................... (32,460) (42,342)
-------- -------- --------
Total stockholders' equity (deficit)................... (28,565) 59,784
-------- -------- --------
Total capitalization................................... $ 23,224 $ 61,716 $
======== ======== ========
</TABLE>
This table excludes the following shares:
- 3,859,000 shares subject to options outstanding as of December 31, 1999
under our stock option plans;
- 617,000 shares reserved for future issuance under our stock option and
employee stock purchase plans; and
- 29,000 shares of common stock issuable upon exercise of outstanding
warrants.
22
<PAGE> 26
DILUTION
The pro forma net tangible book value of our common stock on December 31,
1999, after giving effect to the issuance of an aggregate of 3,455,267 shares of
Series D preferred stock at $11.14 per share in February and March 2000,
including the related estimated beneficial conversion feature charge of
approximately $9.9 million to equity, was $59.8 million, or approximately $1.32
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 December
31, 1999.
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 shares of common stock offered by this prospectus at the
assumed initial public offering price of $ 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 $
million, or approximately $ per share. This represents an immediate increase
in pro forma net tangible book value of $ per share to existing stockholders
and an immediate dilution in net tangible book value of $ per share to new
investors.
<TABLE>
<S> <C> <C>
Public offering price per share............................. $
Pro forma net tangible book value per share as of December
31, 1999............................................... $1.32
Increase per share attributable to new investors
-----
Pro forma net tangible book value per share after the
offering.................................................. $
-----
Dilution in pro forma net tangible book value per share to
new investors
=====
</TABLE>
This table excludes all options and warrants outstanding as of, or issued
subsequent to, December 31, 1999. 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 December 31,
1999, 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 $ per share (in thousands,
except percentages and per share data).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------ ---------- ------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders................ 45,217 % $89,120 % $1.97
New Investors........................ % % $
------ --- ------- ---
Total.............................. 100% 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 or
approximately % of the total number of shares of our common stock
outstanding after this offering.
23
<PAGE> 27
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
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)
THROUGH FISCAL YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------
1996 1997 1998 1999
---------------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue.......................................... $ -- $ -- $ -- $ 8,466
Cost of revenue(1)................................... -- -- -- 6,312
------ ------- -------- --------
Gross profit......................................... -- -- -- 2,154
Operating expenses
Research and product development(2)................ 20 1,126 7,378 12,061
Sales and marketing(3)............................. -- -- 1,979 7,500
General and administrative(4)...................... 13 485 754 1,747
Amortization of deferred stock compensation........ -- -- 52 3,103
------ ------- -------- --------
Total operating expenses......................... 33 1,611 10,163 24,411
------ ------- -------- --------
Loss from operations................................. (33) (1,611) (10,163) (22,257)
Other income (expense)............................... -- 124 453 1,031
Provision for income taxes........................... 1 1 1 1
------ ------- -------- --------
Net loss............................................. $ (34) $(1,488) $ (9,711) $(21,227)
====== ======= ======== ========
Basic and diluted net loss per share................. $(0.09) $ (0.42) $ (2.00) $ (3.29)
====== ======= ======== ========
Weighted average shares.............................. 393 3,550 4,853 6,447
====== ======= ======== ========
Unaudited pro forma basic and diluted net loss per
share.............................................. $ (0.58)
========
Weighted average shares used to compute unaudited pro
forma basic and diluted net loss per share......... 36,789
========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------
1996 1997 1998 1999
---- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 17 $ 3,704 $ 3,507 $ 15,207
Working capital............................................. 18 3,579 7,797 18,241
Total assets................................................ 20 4,180 11,291 28,678
Redeemable convertible preferred stock...................... -- 5,490 19,918 49,857
Total stockholders' deficit................................. (26) (1,498) (11,005) (28,565)
</TABLE>
- ---------------
(1) excluding $100,000 amortization of deferred stock compensation for 1999.
(2) excluding $20,000 and $873,000 amortization of deferred stock compensation
for 1998 and 1999, respectively.
(3) excluding $31,000 and $1,498,000 amortization of deferred stock compensation
for 1998 and 1999, respectively.
(4) excluding $1,000 and $632,000 amortization of deferred stock compensation
for 1998 and 1999, respectively.
24
<PAGE> 28
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 DSL, T1, NxT1, or DS3 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. 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
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
25
<PAGE> 29
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 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
26
<PAGE> 30
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 $13.3 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 $3.1 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 expect to incur an estimated non-cash charge to equity of
approximately $9.9 million relating to the beneficial conversion feature on the
Series D preferred stock. This charge is 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 will be adversely impacted for the three months ending March
31, 2000.
RESULTS OF OPERATIONS
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.
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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
development expenditures are essential to our future success and we expect that
these expenses will significantly increase in future periods.
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. We expect sales
and marketing expenses to significantly increase in future periods as we
continue to expand our domestic and international sales and marketing
organizations.
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.
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. 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.
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
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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 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
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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,
1999 1999 1999 1999
--------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue........................................ $ -- $ 1,245 $ 2,883 $ 4,338
Cost of revenue.................................... -- 1,167 2,478 2,667
------- ------- ------- -------
Gross profit....................................... -- 78 405 1,671
Operating expenses:
Research and product development................. 2,467 2,200 3,280 4,114
Sales and marketing.............................. 952 1,648 1,963 2,937
General and administrative....................... 389 420 462 476
Amortization of deferred stock compensation...... 238 408 661 1,796
------- ------- ------- -------
Total operating expenses...................... 4,046 4,676 6,366 9,323
Loss from operations............................... (4,046) (4,598) (5,961) (7,652)
Other income (expense)............................. 201 378 313 139
------- ------- ------- -------
Loss before provision for income taxes............. (3,845) (4,220) (5,648) (7,513)
Provision for income taxes......................... -- -- -- 1
------- ------- ------- -------
Net loss........................................... $(3,845) $(4,220) $(5,648) $(7,514)
======= ======= ======= =======
AS A PERCENTAGE OF NET REVENUE:
Net revenue........................................ NM 100% 100% 100%
Cost of revenue.................................... -- 94 86 61
------- ------- ------- -------
Gross profit....................................... -- 6 14 39
------- ------- ------- -------
Operating expenses:
Research and product development................. -- 177 114 95
Sales and marketing.............................. -- 132 68 68
General and administrative....................... -- 33 16 11
Amortization of deferred stock compensation...... -- 33 23 41
------- ------- ------- -------
Total operating expenses...................... -- 375 221 215
Loss from operations............................... -- 369 (207) (176)
Other income (expense)............................. -- 30 11 3
------- ------- ------- -------
Net loss........................................... NM (339)% (196)% (173)%
======= ======= ======= =======
</TABLE>
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. 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, assemble, introduce, ship and
support new products and product enhancements;
- our ability to manage product transitions and adapt to technological
advancements;
- announcements, new product introductions and reductions in the price of
products offered by our competitors;
- the mix of products sold and the mix of distribution channels through
which our products are sold;
- the amount and timing of our research and product development expenses;
- our ability to control costs;
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- 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.
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 $49.9 million of redeemable convertible preferred
securities as well as through a $2.5 million term loan 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 December 31, 1999, we had cash and cash equivalents of approximately
$15.2 million, approximately $41,000 in outstanding capitalized lease
obligations, $2.5 million of outstanding debt under our term loan with Comerica
Bank, and approximately $303,000 of outstanding obligations under our equipment
loan facility with Phoenix Leasing.
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 $4.1 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
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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 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 $2.4
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.
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We have no specific contingency plan to address the effect of Year 2000
noncompliance. 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.
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. As a result, our
financial results could be affected by factors such political instability,
changes in foreign currency exchange rates or weak economic conditions in India.
Our operating results are also exposed to changes in exchange rates between the
U.S. dollar and Indian Rupee. To date, our results have not been materially
affected by changes in currency exchange rates.
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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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 DSL, T1, NxT1, or DS3 technologies. Our comprehensive family of
multiservice broadband access products include our POP 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 CLECs, IXCs, RBOCs, 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
63 million Internet users in the U.S. at the end of 1998 and anticipates that
this number will increase to approximately 177 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 $4.6 billion in 1998
to approximately $39.0 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 8100% 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. 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-effective broadband access to their customers. 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.
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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]
[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.
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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 VoDSL and FRoDSL,
over a single broadband access facility.
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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 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, standards, which facilitates 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 their networks and service
offerings. We also believe there is a significant opportunity to sell to other
voice
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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 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, 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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<PAGE> 45
- 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) FirstWorld Communications
Coast-to-Coast (through Siemens ICN) MCIWorldCom
Cooperative Communications Onvoy
CTC Communications Primary Network Communications
</TABLE>
Sales to our three largest customers, 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. No other
customer accounted for more than 10% of our total sales for that period.
Many service providers 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.
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
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<PAGE> 46
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 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.
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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. For example, in conjunction with MCI WorldCom, we have jointly submitted
this 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.
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
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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 DS-3, 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 $20.6 million
for the period from inception through December 31, 1999 and $12.1 million for
the year ended December 31, 1999. All of our software development costs have
been expensed as incurred. As of December 31, 1999, we had 92 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.
- 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.
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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.
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
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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 December 31, 1999, we employed 20 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.
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.
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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 us, 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 and ADC Telecommunications recently announced that it will
acquire PairGain 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
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," and "AccessPilot." We also use the trademarks
"AcceleratedStart," and "AcceleratedTAC" and are in the process of filing
applications for these marks.
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EMPLOYEES
As of December 31, 1999, we employed 174 full-time employees, including 28
in sales and marketing, 21 in manufacturing, 92 in engineering, 13 in finance
and administration and 20 in customer support, systems engineering and
professional services. Most of our employees are located in the United States;
however, we have approximately 24 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 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 December 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Suresh Nihalani........................... 47 Chairman, Chief Executive Officer, President, and
Director
Frederic T. Boyer......................... 55 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
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, Digital Insight, ADC Telecommunications,
Cambio Systems and Rapid Text. 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, Inc. 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.
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
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<PAGE> 54
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. 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 Ventures, a venture capital firm, since
1987. He also serves as a director of Euphonix, Inc., Gadzoox Networks, Inc.,
and several private companies. Mr. Kuhling serves on our board as a
representative of
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<PAGE> 55
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., Virata Corporation 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., MediaRing.com, Inc., Integrated Silicon Solution, Inc. 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 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" on page 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.
BOARD COMMITTEES
We have established an audit committee, a compensation committee and a
secondary compensation committee.
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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 certain
limitations.
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, directors are reimbursed for all
reasonable expenses incurred by them in attending board and committee meetings.
See "Certain Transactions" beginning on page 61 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>
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,
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<PAGE> 57
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 61 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, 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 new 2000 Stock Incentive Plan was adopted
by the board in March 2000 and was approved by the stockholders in ,
2000. The 2000 Stock Incentive Plan 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.
As of March 3, 2000, options to purchase approximately 1,978,355 million shares
of common stock remained available for grant under the our existing stock
option/stock issuance plan. The share reserve under our 2000 Stock Incentive
Plan will automatically increase on the first trading day in January of each
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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 different number
of option shares with an exercise price per share based upon the fair
market value of our common stock on the new grant date.
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- 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 options which are so assumed may vest in whole or in part
on an accelerated basis 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 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 common stock on the grant date. The option will have an exercise
price per share equal to one-third of the
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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 a series of 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 director
fee option grant programs will immediately vest if we are acquired by a
merger or asset sale or if there is a successful tender offer for more
than 50% of our outstanding voting stock or a change in the majority of
our board through one or more contested elections.
- Limited stock appreciation rights will automatically be included as part
of each grant made under the salary investment option grant, 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 calendar year 2001, by
an amount equal to one percent (1.0%) of the total number of outstanding shares
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<PAGE> 61
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 directors. Under the Delaware General Corporation Law, the
directors have a fiduciary duty to Accelerated
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<PAGE> 62
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, upon their continued service.
ISSUANCE OF PREFERRED STOCK
Since our inception, we have issued redeemable convertible preferred stock
as follows:
In May 1997, we issued 11,220,000 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;
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 February 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
would be determined by dividing $8.912 by our initial public offering price.
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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
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 upon the optionee's continued service.
(2) The option shares vest over 38 equal monthly installments from the vesting
commencement date.
(3) The option shares vest over 36 equal monthly installments from the vesting
commencement date.
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(4) The option shares vest over 12 equal monthly installments from the vesting
commencement date.
(5) The option shares vest over 48 equal monthly installments from the vesting
commencement date.
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 % 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 69 for more information regarding this agreement.
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<PAGE> 66
PRINCIPAL STOCKHOLDERS
The table on the following page sets forth information regarding the
beneficial ownership of our common stock as of March 2, 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 below 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 45,434,945 shares of common stock outstanding
as of March 2, 2000, and 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 2, 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)............................. 6,321,800 13.70% %
Frederic T. Boyer(2)........................... 300,000 *
Kiran P. Munj(3)............................... 1,438,200 3.15
Hitendra Sonny Soni(4)......................... 457,953 1.01
Kevin T. Walsh(5).............................. 450,000 *
Brig. Gen. H. R. Johnson USAF (Ret.)(6)........ 144,953 *
Steven M. Krausz(7)............................ 6,623,473 14.58
Robert F. Kuhling, Jr.(8)...................... 3,297,105 7.26
Anthony T. Maher(9)............................ 9,202,648 20.22
Peter T. Morris(10)............................ 6,613,522 14.56
Lip-Bu Tan(11)................................. 3,297,105 7.26
All directors and executive officers as a group
(14 persons)(12)............................ 39,271,469 83.27
OTHER 5% STOCKHOLDERS
Entities associated with Siemens AG(13)........ 9,142,648 20.11
Hofmannstrasse 51, D-81359
Munich, Germany
Entities associated with New Enterprise
Associates(14).............................. 6,623,522 14.58
2490 Sand Hill Road
Menlo Park, CA 94025
</TABLE>
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<PAGE> 67
<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 14.58
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
Onset Enterprise Associates III, L.P. ......... 3,297,105 7.26
2490 Sand Hill Road
Menlo Park, CA 94025
Entities affiliated with The Walden
International Investment Group(16).......... 3,297,105 7.26
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, and (d) 8,400 shares held by other members of Mr. Nihalani's
immediate family.
(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.
(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 15,000 shares issuable upon the exercise of immediately
exercisable options.
(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.
(10) Includes (a) 6,463,522 shares held by New Enterprise Associates VII, L.P.
and (b) 150,000 shares held by NEA Presidents Fund, L.P. Mr. Morris is a
general partner of these entities. Mr. Morris disclaims beneficial
ownership in such shares, except to the extent of his proportionate
partnership interest therein.
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<PAGE> 68
(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 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 New Enterprise Associates VII, L.P.,
(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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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 3, 2000, there were 45,434,945 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
shares of common stock in this offering, there will be
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 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.
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.
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
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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.
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
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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 % 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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<PAGE> 72
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
3, 2000, we will have outstanding 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 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
shares sold in this offering, and additional shares,
will be immediately available for sale in the public market;
- beginning 90 days after the effective date, additional shares
will be available for sale in the public market; after 180 days following
the date of this prospectus, additional shares will become
eligible for sale under Rule 144 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 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
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<PAGE> 73
person who is not deemed to have been an affiliate of Accelerated Networks at
any time during the three 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, 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 shares of common stock
subject to outstanding options or reserved for future issuance under our stock
plans. As of March 3, 2000, options to purchase a total of shares were
outstanding and shares were reserved for future issuance under our
stock plans. 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 restricted shares and
certain holders of warrants to purchase shares of common stock will be
entitled to certain registration rights. See "Description of Capital
Stock -- Registration 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.
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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
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.
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The underwriters have reserved for sale, at the initial public offering
price, up to 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.
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
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<PAGE> 76
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.
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 2, 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.
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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).
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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> 79
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> 80
ACCELERATED NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
-------------------- DECEMBER 31,
1998 1999 1999
-------- -------- -----------------
(UNAUDITED)
(NOTES 10 AND 13)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 3,507 $ 15,207
Short-term investments................................ 5,954 --
Accounts receivable, net of allowance for doubtful
accounts of $110 at 1999........................... -- 3,277
Amounts due from related party........................ -- 1,104
Inventories........................................... -- 3,811
Prepaid and other current assets...................... 502 296
-------- --------
Total current assets.......................... 9,963 23,695
Property and equipment, net............................. 1,328 4,840
Other assets............................................ -- 143
-------- --------
Total assets.................................. $ 11,291 $ 28,678
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses................. $ 1,893 $ 3,567
Accrued payroll....................................... 56 756
Capital lease obligations, current.................... 55 28
Credit facilities, current............................ 162 884
Deferred revenue...................................... -- 219
-------- --------
Total current liabilities..................... 2,166 5,454
Capital lease obligations, net of current portion....... 37 13
Credit facilities, net of current portion............... 175 1,919
-------- --------
Total liabilities............................. 2,378 7,386
-------- --------
Commitments and contingencies (Note 9)
Redeemable convertible preferred stock, $.001 par value;
authorized -- 23,100 shares (1998) and 31,946 shares
(1999); issued and outstanding -- 22,805 shares (1998)
and 31,651 shares (1999); liquidation preference of
$20,091 (1998) and $50,091 (1999)..................... 19,918 49,857
Stockholders' equity (deficit):
Common stock, authorized -- 48,500 shares (1998) and
75,000 shares (1999); issued and outstanding --
9,172 shares (1998) and 10,166 shares (1999); pro
forma -- $.001 par value; 90,000 shares authorized;
45,272 shares issued and outstanding............... 176 579 $ 45
Additional paid-in capital............................ 817 13,481 112,246
Deferred stock compensation........................... (765) (10,165) (10,165)
Accumulated deficit................................... (11,233) (32,460) (42,342)
-------- -------- --------
Total stockholders' equity (deficit).......... (11,005) (28,565) $ 59,784
-------- -------- ========
Total liabilities and stockholders' equity.... $ 11,291 $ 28,678
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 81
ACCELERATED NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Net revenue (includes related party revenue of $1,332)...... $ -- $ -- $ 8,466
Cost of revenue (excluding $100 amortization of deferred
stock compensation for 1999).............................. -- -- 6,312
------- -------- --------
Gross profit................................................ -- -- 2,154
Operating expenses:
Research and product development (excluding $20 and $873
amortization of deferred stock compensation for 1998
and 1999, respectively)................................ 1,126 7,378 12,061
Sales and marketing (excluding $31 and $1,498 amortization
of deferred stock compensation for 1998 and 1999,
respectively).......................................... -- 1,979 7,500
General and administrative (excluding $1 and $632
amortization of deferred stock compensation for 1998
and 1999, respectively)................................ 485 754 1,747
Amortization of deferred stock compensation............... -- 52 3,103
------- -------- --------
Total operating expenses............................... 1,611 10,163 24,411
------- -------- --------
Loss from operations........................................ (1,611) (10,163) (22,257)
Other income (expense):
Interest income........................................... 129 494 1,131
Interest expense.......................................... (5) (41) (100)
------- -------- --------
124 453 1,031
------- -------- --------
Loss before provision for income taxes...................... (1,487) (9,710) (21,226)
Provision for income taxes.................................. 1 1 1
------- -------- --------
Net loss.................................................... $(1,488) $ (9,711) $(21,227)
======= ======== ========
Basic and diluted net loss per share........................ $ (0.42) $ (2.00) $ (3.29)
======= ======== ========
Weighted-average shares outstanding used to compute basic
and diluted net loss per share............................ 3,550 4,853 6,447
======= ======== ========
Pro forma basic and diluted net loss per share
(unaudited)............................................... $ (0.58)
========
Weighted-average shares outstanding used to compute basic
and diluted net loss per share (unaudited)................ 36,789
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 82
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)
Beneficial conversion feature on Series D
preferred stock (unaudited)................ -- -- 9,882 -- (9,882) --
Assumed conversion of mandatory redeemable
convertible preferred stock (unaudited).... 35,106 88,349 -- -- -- 88,349
Reincorporation into Delaware (unaudited).... -- (88,883) 88,883 -- -- --
------ -------- -------- -------- -------- --------
Balance at December 31, 1999, pro forma
(unaudited).................................. 45,272 $ 45 $112,246 $(10,165) $(42,342) $ 59,784
====== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 83
ACCELERATED NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $(1,488) $(9,711) $(21,227)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 45 283 1,028
Provision for bad debts................................. -- -- 110
Issuance of warrant in connection with purchase order... -- -- 161
Issuance of options for services........................ -- -- 17
Amortization of deferred stock compensation............. -- 52 3,103
Issuance of Series A redeemable convertible preferred
stock for services.................................... 25 -- --
Changes in current assets and liabilities:
Accounts receivable................................... -- -- (4,491)
Inventories........................................... -- -- (3,811)
Prepaid and other current assets...................... (36) (464) 63
Accounts payable and accrued expenses................. 122 1,771 1,674
Accrued payroll....................................... 29 27 700
Deferred revenue...................................... -- -- 219
------- ------- --------
Net cash used in operating activities.............. (1,303) (8,042) (22,454)
------- ------- --------
INVESTING ACTIVITIES:
Purchase of available-for-sale securities................. -- (5,954) (2,000)
Maturity of available-for-sale securities................. -- -- 7,954
Purchase of property and equipment........................ (444) (1,071) (4,535)
------- ------- --------
Net cash provided by (used in) investing
activities....................................... (444) (7,025) 1,419
------- ------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 5 -- --
Repurchase of common stock................................ -- (5) (5)
Proceeds from issuance of redeemable convertible preferred
stock................................................... 5,585 14,481 30,000
Offering costs............................................ (120) (53) (61)
Proceeds from exercise of stock options................... 11 158 391
Proceeds from issuance of notes payable................... 205 -- --
Repayment of notes payable................................ (250) -- --
Payments under capital lease obligations.................. (2) (48) (57)
Proceeds from credit facilities........................... -- 458 2,828
Repayments on credit facilities........................... -- (121) (361)
------- ------- --------
Net cash provided by financing activities.......... 5,434 14,870 32,735
------- ------- --------
Net increase (decrease) in cash and cash
equivalents...................................... 3,687 (197) 11,700
Cash and cash equivalents at beginning of year.............. 17 3,704 3,507
------- ------- --------
Cash and cash equivalents at end of year.................... $ 3,704 $ 3,507 $ 15,207
======= ======= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest................................................ $ -- $ 36 $ 100
Income taxes............................................ $ 2 $ 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> 84
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 February 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.
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.
F-7
<PAGE> 85
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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."
F-8
<PAGE> 86
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 (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.
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") 96-18.
ADVERTISING
Advertising costs are expensed as incurred and amounted to $48,000 and
$132,000 for the years ended December 31, 1998 and 1999, 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, accrued product warranty costs amounted to $201,000, 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. 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 the first 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.
F-9
<PAGE> 87
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 and C
Redeemable Convertible Preferred stock. (See Note 13).
UNAUDITED PRO FORMA NET LOSS PER SHARE
Unaudited pro forma net loss per share for the year ended December 31,
1999, 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 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.
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 operated within one discrete
reportable business segment for the years ended December 31, 1997, 1998 and
1999.
F-10
<PAGE> 88
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 at December 31 consist of the following:
<TABLE>
<CAPTION>
1998 1999
---- ------
(THOUSANDS)
<S> <C> <C>
Raw materials............................................... $ -- $1,735
Work-in-process............................................. -- 710
Finished goods.............................................. -- 1,366
---- ------
Total............................................. $ -- $3,811
==== ======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1999
------ -------
(THOUSANDS)
<S> <C> <C>
Computer equipment and software, including assets under
capital leases of $141 for 1998 and $127 for 1999......... $ 587 $ 2,087
Machinery and equipment, including assets under capital
leases of $0 for 1998 and $19 for 1999.................... 771 3,339
Furniture and fixtures...................................... 152 355
Leasehold improvements...................................... 146 415
------ -------
1,656 6,196
Less: Accumulated depreciation and amortization, including
amounts related to assets under capital leases of $33 for
1998 and $74 for 1999..................................... (328) (1,356)
------ -------
Total............................................. $1,328 $ 4,840
====== =======
</TABLE>
F-11
<PAGE> 89
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. 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
F-12
<PAGE> 90
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. CREDIT FACILITIES (CONTINUED)
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 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
F-13
<PAGE> 91
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CONCENTRATION OF CREDIT RISK, SIGNIFICANT CUSTOMERS AND SEGMENT REPORTING
(CONTINUED)
losses based upon the expected collectibility of accounts receivable. To date,
such losses have been within management's expectations.
For the year ended December 31, 1999, net revenue and accounts receivable
from significant customers were as follows (in thousands, except percentages):
<TABLE>
<CAPTION>
NET % OF NET ACCOUNTS % OF ACCOUNTS
REVENUE REVENUE RECEIVABLE RECEIVABLE
------- -------- ---------- -------------
<S> <C> <C> <C> <C>
Customer A............................... $4,565 54% $2,923 67%
Customer B............................... $1,722 20% -- --
Customer C............................... $1,332 16% $1,104 25%
</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 operations during the year
ended December 31, 1997 and 1998. Net revenue and long-lived assets by
geographical location for the year ended December 31, 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
UNITED
STATES INDIA TOTAL
------ ----- ------
<S> <C> <C> <C>
Net revenue................................................ $8,466 -- $8,466
Long-lived assets.......................................... $4,378 $462 $4,840
</TABLE>
8. RELATED-PARTY TRANSACTIONS
During 1999, the Company sold product of approximately $1,332,000 to a
significant stockholder (the "Stockholder") of the Company. At December 31,
1999, amounts due from the Stockholder totaled $1,104,000.
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. 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.
F-14
<PAGE> 92
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 was approximately $50,000, $184,000 and
$412,000, 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. There were no royalty expenses for the years ended December
31, 1997 and 1998, and $88,000 for the year ended December 31, 1999.
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 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
F-15
<PAGE> 93
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CAPITALIZATION (CONTINUED)
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, 1,124,000 shares of the aforementioned common stock
were subject to repurchase, of which 897,000 shares related to unvested shares
under the Agreements and 227,000 shares related to unvested warrants exercised.
REDEEMABLE CONVERTIBLE PREFERRED STOCK
Redeemable convertible preferred ("Preferred Stock") stock at December 31,
1999 consisted of the following (in thousands, except per share data):
<TABLE>
<CAPTION>
VALUE
SHARES SHARES LIQUIDATION REDEMPTION PER
SERIES AUTHORIZED OUTSTANDING AMOUNT AMOUNT SHARE
------ ---------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
A................................. 11,500 11,220 $ 5,610 $ 5,610 $0.50
B................................. 11,600 11,585 14,481 14,481 1.25
C................................. 8,846 8,846 30,000 30,000 3.39
------ ------ ------- -----------
Total........................... 31,946 31,651 $50,091 $ 50,091
====== ====== ======= ===========
</TABLE>
The holders of Series A, Series B, and Series C 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.
Dividends
Each share of Series A, Series B, and Series C provides for discretionary
noncumulative dividends of $0.03, $0.075, and $0.203 per share per annum
respectively.
Voting
Each share of Series A, B, and C 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
F-16
<PAGE> 94
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CAPITALIZATION (CONTINUED)
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
$25,046,000 each.
Liquidation Preference
Upon liquidation, the holders of Series A, Series B and Series C Preferred
Stock would receive $0.50, $1.25 and $3.39 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 Series A, Series B, and Series C
preferred stockholders and common stockholders ratably, based on the number of
shares held by each; with a maximum per share amount of $1.50, $3.75 and $5.09,
respectively to the preferred stockholders.
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 October 1999, options to
purchase 8,000,000 shares of common stock were reserved. As of December 31,
1999, 617,000 options to purchase shares of common stock were available for
future grant.
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 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.
F-17
<PAGE> 95
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CAPITALIZATION (CONTINUED)
A summary of the status of the Company's stock options, as of December 31,
1997, 1998 and 1999, and the changes during the year ended on those dates, is
presented below (shares in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------------------ --------------------- ------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- --------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year......... -- $ -- 2,613 $0.05 1,989 $0.09
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
Exercised.............................. 272 0.04 2,200 0.07 1,052 0.48
Cancelled.............................. -- -- 145 0.07 91 0.60
----- --------- -----
Outstanding at year-end.................. 2,613 $0.05 1,989 $0.09 3,859 $2.00
===== ========= =====
Options exercisable at year-end.......... 2,613 $0.05 1,989 $0.09 3,859 $2.00
===== ===== ========= ===== ===== =====
</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.
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 1998 and 1999, the Company granted stock options to directors,
consultants, employees and officers at exercise prices below the fair market
value of the Company's common stock at the date of grant. Accordingly, the
Company recorded deferred compensation of $716,000 and $12,503,000,
respectively, to be amortized over the related vesting periods (generally four
years). The Company recognized compensation expense of $52,000 and $3,103,000
relating to these stock option grants during 1998 and 1999, respectively.
F-18
<PAGE> 96
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CAPITALIZATION (CONTINUED)
The Company calculated the minimum fair value of each option grant 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..................................... 6.0% 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 and basic and diluted net
loss per share 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.................................................... $(21,227) $(21,404)
======== ========
Basic and diluted net loss per share........................ $ (3.29) $ (3.32)
======== ========
For the year ended December 31, 1998:
Net loss.................................................... $ (9,711) $ (9,727)
======== ========
Basic and diluted net loss per share........................ $ (2.00) $ (2.00)
======== ========
For the year ended December 31, 1997:
Net loss.................................................... $ (1,488) $ (1,495)
======== ========
Basic and diluted net loss per share........................ $ (0.42) $ (0.42)
======== ========
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts, and additional awards in future years are
anticipated.
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-19
<PAGE> 97
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. NET LOSS PER SHARE
The following table sets forth the computation of basic, diluted and pro
forma net loss per share for the years ended December 31 (thousands, except per
share data):
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
HISTORICAL PRESENTATION
Numerator:
Net loss available to common stockholders................. $(1,488) $(9,711) $(21,227)
======= ======= ========
Denominator:
Weighted average common shares outstanding................ 6,108 8,266 9,816
Adjustment for common shares issued subject to
repurchase............................................. (2,558) (3,414) (3,369)
------- ------- --------
Denominator for basic and diluted calculations............ 3,550 4,853 6,447
======= ======= ========
Basic and diluted net loss per share........................ $ (0.42) $ (2.00) $ (3.29)
======= ======= ========
PRO FORMA PRESENTATION (unaudited)
Denominator:
Shares used above......................................... 6,447
Weighted average effect of pro forma conversion of
securities (unaudited):
Series A redeemable convertible preferred stock........ 11,220
Series B redeemable convertible preferred stock........ 11,585
Series C redeemable convertible preferred stock........ 7,537
Series D redeemable convertible preferred stock........ --
--------
Denominator for pro forma basic and diluted calculation
(unaudited)............................................... 36,789
========
Pro forma basic and diluted net loss per share
(unaudited)............................................... $ (0.58)
========
</TABLE>
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>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Weighted average common stock equivalents:
Series A preferred stock.................................. 6,609 11,220 11,220
Series B preferred stock.................................. -- 7,300 11,585
Series C preferred stock.................................. -- -- 7,537
Unvested shares of common stock subject to repurchase..... 2,558 3,414 3,369
Stock options............................................. 980 1,129.. 2,353
------ ------ ------
10,147.. 23,063 36,064
====== ====== ======
</TABLE>
13. SUBSEQUENT EVENTS -- UNAUDITED
In March 2000, the Company sold approximately 3,455,000 shares of
redeemable convertible Series D preferred stock for approximately $38,492,000,
or $11.14 per share. In connection with the issuance of the Series D preferred
stock, the Company expects to incur an estimated noncash charge to equity of
$9,882,000 relating to the beneficial conversion feature on the Series D
preferred stock. This charge is 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 shares of common stock into
F-20
<PAGE> 98
ACCELERATED NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SUBSEQUENT EVENTS -- UNAUDITED (CONTINUED)
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
attributable to common stockholders will be adversely impacted for the three
months ending March 31, 2000.
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, and the Series D Preferred Stock issued in 2000 will
automatically convert into shares of common stock. The conversion of the
Preferred Stock has been reflected in the accompanying unaudited pro forma
consolidated balance sheet at December 31, 1999.
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.
From January 1, 2000 to March 1, 2000, the Company granted 1,456,000
options to purchase common shares at exercise prices ranging from $7.00 to
$10.50 per share. In connection with these grants, the Company has recorded an
estimated deferred compensation amount of approximately $6,252, which will be
amortized over the respective four year vesting period.
F-21
<PAGE> 99
[ACCELERATED NETWORKS, INC. LOGO]
<PAGE> 100
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.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- ----------
<S> <C>
Registration fee............................................ $17,001.60
NASD filing fee............................................. *
Nasdaq National Market listing fee.......................... *
Blue sky fees and expenses.................................. *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer Agent and Registrar fees........................... *
Miscellaneous............................................... *
----------
Total..................................................... *
==========
</TABLE>
- -------------------------
* To be filed by amendment.
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,
II-1
<PAGE> 101
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 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 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 11,220,000 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.
(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 February 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 December 31, 1999, we granted
options to purchase an aggregate of 7,147,851 shares of common stock to our
directors, executive officers, employees and consultants at a weighted
exercise price of $1.10. As of December 31, 1999, options to purchase
57,120 shares at an exercise price of $.00182 per share, options to
purchase 2,890,724 shares at an exercise price of $0.05 per share, options
to purchase 1,474,750 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 328,000 shares at an exercise price of $1.00 per share,
options to purchase 355,500 shares at
II-2
<PAGE> 102
an exercise price of $1.75 per share, options to purchase 95,000 shares at
an exercise price of $2.50 per share, options to purchase 1,076,757 shares
at an exercise price of $3.50 and options to purchase 523,500 shares at an
exercise price of $4.50 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. 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* Form of Director Indemnification Agreement.
10.2* Form of Founder/Employee/Shareholder Agreement between the
Registrant and the founders, and amendments thereto.
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.
</TABLE>
II-3
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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.
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.
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.
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.
II-4
<PAGE> 104
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> 105
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, we have duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Moorpark,
State of California, on the 28th day of March, 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. 1 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 March 28, 2000
- -------------------------------------------------------- Officer and Director
Suresh Nihalani (Principal Executive Officer)
/s/ FREDERIC T. BOYER Vice President, Finance and March 28, 2000
- -------------------------------------------------------- Administration and Chief
Frederic T. Boyer Financial Officer (Principal
Financial and Accounting
Officer)
H.R. JOHNSON* Director March 28, 2000
- --------------------------------------------------------
Brig. Gen. H.R. Johnson, USAF (Ret.)
STEVEN M. KRAUSZ* Director March 28, 2000
- --------------------------------------------------------
Steven M. Krausz
PETER T. MORRIS* Director March 28, 2000
- --------------------------------------------------------
Peter T. Morris
ROBERT F. KUHLING, JR.* Director March 28, 2000
- --------------------------------------------------------
Robert F. Kuhling, Jr.
LIP-BU TAN* Director March 28, 2000
- --------------------------------------------------------
Lip-Bu Tan
ANTHONY MAHER* Director March 28, 2000
- --------------------------------------------------------
Anthony Maher
</TABLE>
* Power of attorney
By: /s/ FREDERIC T. BOYER
- --------------------------------------
Frederic T. Boyer
Attorney-in-Fact
II-6
<PAGE> 106
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. 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* Form of Director Indemnification Agreement.
10.2* Form of Founder/Employee/Shareholder Agreement between the
Registrant and the founders, and amendments thereto.
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.
10.23+ OEM Orbix Development and Runtime Agreement dated December
17, 1999, by and between the Registrant and IONA.
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.24+ Letter Agreement regarding licenses dated as of December 30,
1999 by and between the Registrant and WindRiver Systems,
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.
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 10.6
WARRANT ISSUANCE AGREEMENT
THIS WARRANT ISSUANCE AGREEMENT (the "Agreement") is made effective as of
December 16, 1999, by and between Accelerated Networks, Inc., a California
corporation (the "Company") and Siemens Information and Communication Networks,
Inc., a Delaware corporation (the "Purchaser").
R E C I T A L S
A. Company develops and manufactures certain network integration
products ("Products").
B. Purchaser desires to purchase Products from the Company, and the
Company and Purchaser have entered into an Agreement for Purchase of Products
dated January 21, 1999 (the "OEM Agreement") pursuant to which Purchaser may
purchase Products from the Company;
C. To provide an incentive to Purchaser to purchase its Products,
Company desires to issue Purchaser warrants to purchase the Company's Common
Stock, based on the amount of Products purchased by Purchaser pursuant to
purchase orders issued under the OEM Agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereby agree as follows:
1. Issuance of Warrants.
1.1 Warrants. Subject to the terms and conditions of this
Agreement, Company agrees to issue to Purchaser at each Determination Date (as
defined below), a warrant ("Warrant") to purchase shares of Common Stock of the
Company. The form of each such Warrant shall be as set forth in Exhibit A
hereto. The exercise price for, and the number of shares of, Common Stock
issuable upon exercise of each Warrant shall be determined pursuant to Sections
1.3 and 1.4 below, respectively. Notwithstanding anything to the contrary
herein, the aggregate number of shares of Common Stock issuable pursuant to the
Warrants issued under this Agreement shall not exceed 150,000 (as adjusted for
stock splits, dividends and recapitalizations, and excluding any additional
shares issuable pursuant to anti-dilution adjustments contained herein).
1.2 Determination Dates. Beginning with the fiscal quarter ending
December 31, 1999 and ending with the fiscal quarter ending December 31, 2000,
the Company shall, within forty-five (45) days after the end of each fiscal
quarter within such period, determine in good faith (each such date of
determination, a "Determination Date") whether Siemens' (as that term is defined
in the OEM Agreement, including its permitted successors and assigns thereunder)
Net Purchases for such fiscal quarter meets or exceeds the applicable Minimum
<PAGE> 2
Threshold. If Siemens' Net Purchases meets or exceeds the applicable Minimum
Threshold, the Company shall promptly issue Purchaser a Warrant to purchase the
number of shares of Common Stock determined pursuant to Section 1.4 at the
exercise price determined pursuant to Section 1.3. As used herein, the "Minimum
Threshold" shall be (a) $4.0 million for the fiscal quarter ending December 31,
1999, (b) $6.0 million for the fiscal quarter ending March 31, 2000, and (c)
$8.0 million for each fiscal quarter ending thereafter, up to and including the
fiscal quarter ending December 31, 2000. Siemens' "Net Purchases" for any fiscal
quarter shall mean the aggregate net purchase price of Products purchased by
Siemens from the Company for such fiscal quarter, based on the date of shipment
by the Company under the terms of the OEM Agreement and of any purchase order
issued by Siemens thereunder; provided, that any purchases made by Siemens
pursuant to that certain Purchase Order No. 8299000014 dated December 16, 1999
shall be deemed to have been made for the fiscal quarter ending December 31,
1999, even if the Products subject to such purchase order are shipped after
December 31, 1999. If the Net Purchases for a fiscal quarter do not meet or
exceed the applicable Minimum Threshold for such fiscal quarter, such purchases
shall not be credited towards any future fiscal quarter in determining whether
the Minimum Threshold for such future fiscal quarter is met.
1.3 Exercise Price. If, on any Determination Date, the Company is
required, pursuant to Section 1.2, to issue a Warrant to the Purchaser, the
exercise price for each share of Common Stock issuable upon exercise of such
Warrant shall be the price as determined below (as of the Determination Date):
(a) If the Common Stock is traded on a securities exchange or
through the Nasdaq National Market, the price shall be eighty
percent (80%) of the average of the closing prices of the
Common Stock on such exchange over the thirty (30) calendar
day period ending three (3) days prior to the Determination
Date;
(b) If the Common Stock is not so traded but is actively traded
over-the-counter, the price shall be eighty percent (80%) of
the average of the closing bid or sale prices (whichever is
applicable) of the Common Stock over the thirty (30) calendar
day period ending three (3) days prior to the Determination
Date; and
(c) If there is no active public market, the price shall be one
hundred percent (100%) of the fair market value of the Common
Stock, as determined in good faith by a majority of the Board
of Directors.
1.4 Number of Shares. If, on any Determination Date, the Company
is required, pursuant to Section 1.2, to issue a Warrant to the Purchaser, the
number of shares of Common Stock such Warrant shall be exercisable for shall be
determined as follows:
(a) If the Determination Date is for the fiscal quarter ended
December 31, 1999, the number of shares shall be equal to the amount determined
by multiplying the Siemens' Net Purchases for such period by 0.05 and dividing
the product thereof by the applicable Exercise Price determined pursuant to
Section 1.3.
2
<PAGE> 3
(b) If the Determination Date is for any fiscal quarter of the
year 2000, the number of shares shall be equal to the amount determined by
multiplying Siemens' Net Purchases for such period by 0.03 and dividing the
product thereof by the applicable Exercise Price determined pursuant to Section
1.3.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser that:
2.1 Organization, Corporate Power and Licenses. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of California and is duly qualified to do business in every jurisdiction in
which the failure to be so qualified would have a material adverse effect on the
business or properties of the Company. The Company possesses all requisite
corporate power and authority and all material licenses, permits and
authorizations necessary to own and operate its properties, to carry on its
business as now conducted and as proposed to be conducted and to carry out the
transactions contemplated by this Agreement.
2.2 Authorization. The execution, delivery and performance of this
Agreement and the Warrants have been duly authorized by the Company. This
Agreement constitutes, and each of the Warrants issuable hereunder will
constitute, a valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, subject, as to enforcement of
remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and
similar laws affecting creditors' rights generally and to general equitable
principles.
2.3 No Conflicts. The execution, delivery and performance by the
Company of this Agreement and compliance herewith and the sale and issuance of
the Warrants and the shares of Common Stock issuable upon exercise of the
Warrants (collectively, the "Securities") will not result in any violation of
and will not conflict with, or result in a breach of any of the terms of, or
constitute a default under, any provision of state or federal law to which the
Company is subject, the Company's Articles of Incorporation or Bylaws, each as
amended, or any provision of any material mortgage, indenture, agreement,
instrument, judgment, decree, order, rule or regulation or other restriction to
which the Company is a party or by which it is bound, the breach of or default
under which would have a material adverse effect upon the Company's business, or
result in the creation of any mortgage, pledge, lien, encumbrance or charge upon
any of the properties or assets of the Company pursuant to any such term;
provided, however, that Securities may be subject to restrictions on transfer
under state and/or federal securities laws and under that certain Investors'
Rights Agreement dated as of May 15, 1998, as amended (the "Rights Agreement"),
among the Company and certain of its shareholders, and that certain Amended and
Restated Voting Agreement dated as of February 24, 1999 (the "Voting
Agreement"), among the Company and certain of its shareholders.
2.4 Valid Issuance of Stock. The Warrants, when issued and
delivered in accordance with the terms of this Agreement for the consideration
provided for herein, will be, duly and validly issued, fully paid and
nonassessable and will be free of any liens or encumbrances created by the
Company. The shares of Common Stock issuable upon exercise of the Warrants have
been duly and validly reserved for issuance, are not subject to any preemptive
3
<PAGE> 4
rights or rights of first refusal, and upon issuance in accordance with the
terms of the Warrants, this Agreement and the Company's Articles of
Incorporation, will be duly and validly issued, fully paid and nonassessable.
2.5 Governmental Consents. Except for filings of notices required
or permitted to be filed with certain federal and state securities commissions
(which the Company agrees to timely file), no consents, approvals, orders,
authorizations or registrations, qualifications, designations, declarations or
filings with any federal or state governmental authority on the part of the
Company is required in connection with the valid execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein. Based in part on the representations of Purchaser set forth
in Section 3 below, the offer, sale and issuance of the Securities in conformity
with the terms of this Agreement are exempt from the registration and prospectus
delivery requirements of the Securities Act of 1933, as amended (the "Securities
Act"), and have been qualified or are exempt from qualifications under all
applicable state securities qualification requirements.
2.6 Third Party Consents. Except as set forth above in Section
2.5, all third party consents, approvals, orders or authorizations required to
be obtained by the Company in connection with the consummation of the
transactions contemplated herein have been obtained.
3. Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company that:
3.1 Authorization. It has full power and authority to enter into
this Agreement and this Agreement constitutes its valid and legally binding
obligation, subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, moratorium, reorganization and similar laws affecting creditors'
rights generally and to general equitable principles.
3.2 Purchase Entirely for Own Account. This Agreement is made with
the Purchaser in reliance upon the Purchaser's representation to the Company,
which by the Purchaser's execution of this Agreement the Purchaser hereby
confirms, that the Securities will be acquired for investment for the
Purchaser's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that the Purchaser has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, the Purchaser further
represents that the Purchaser does not have any contract, undertaking, agreement
or arrangement with any third party to sell, transfer or grant participations to
such third party or to any third person, with respect to any of the Securities.
3.3 Reliance Upon Purchasers' Representations. The Purchaser
understands that the Securities are not registered under the Securities Act on
the ground that the issuance of the Warrants hereunder and the issuance of
Common Stock upon exercise thereof is exempt from registration under the
Securities Act pursuant to section 4(2) thereof, and that the Company's reliance
on such exemption is predicated on the Purchasers' representations set forth
herein. The Purchaser realizes that the basis for the exemption may not be
present if, notwithstanding such representations, the Purchaser has in mind
merely acquiring the Securities for a fixed or determinable period in the
future, or for a market rise, or for sale if the market does not rise. The
Purchaser does not have any such intention.
4
<PAGE> 5
3.4 Receipt of Information. The Purchaser believes it has received
all the information it considers necessary or appropriate for deciding whether
to acquire the Securities. The Purchaser further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the issuance of the Securities and the business,
properties, prospects and financial condition of the Company and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to it or to which it had access.
3.5 Investment Experience. The Purchaser represents that it is
experienced in evaluating and investing in securities of companies in the
development stage and acknowledges that it is able to fend for itself, can bear
the economic risk of its investment, and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Securities. Purchaser also represents it has not
been organized for the purpose of acquiring the Securities.
3.6 Accredited Investor. The Purchaser is an "accredited investor"
within the meaning of SEC Rule 501 of Regulation D, as presently in effect.
3.7 Restricted Securities. The Purchaser understands that the
Securities may not be sold, transferred, or otherwise disposed of without
registration under the Securities Act or an exemption therefrom, and that in the
absence of an effective registration statement covering the Securities or an
available exemption from registration under the Securities Act, the Securities
must be held indefinitely. In particular, the Purchaser is aware that the
Securities may not be sold pursuant to Rule 144 promulgated under the Securities
Act unless all of the conditions of that Rule are met. Among the conditions for
use of Rule 144 is the availability of current information to the public about
the Company. Such information is not now available and the Company has no
present plans to make such information available.
3.8 Legends. To the extent applicable, each certificate or other
document evidencing any of the Warrants (and, as applicable, the shares of
Common Stock issued upon exercise of the Warrants) shall be endorsed with the
legends set forth below, and the Purchaser covenants that, except to the extent
such restrictions are waived by the Company, the Purchaser shall not transfer
the Securities represented by any such certificate without complying with the
restrictions on transfer described in the legends endorsed on such certificate:
(a) The following legend under the Act:
"THIS WARRANT AND THE SHARES INTO WHICH IT IS EXERCISABLE
HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF
UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH
ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL,
SATISFACTORY TO
5
<PAGE> 6
THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
(b) "THE TRANSFER OF THIS WARRANT IS SUBJECT TO
RESTRICTIONS CONTAINED IN THE WARRANT ISSUANCE AGREEMENT DATED AS
OF DECEMBER __, 1999, BETWEEN ACCELERATED NETWORKS, INC. AND
SIEMENS INFORMATION AND COMMUNICATION NETWORKS, INC."
(c) Any other legend required by applicable state or federal
securities laws.
3.9 Public Sale. Without in any way limiting the representations
set forth above, the Purchaser further agrees not to make any disposition of any
Securities unless and until the transferee has agreed in writing for the benefit
of the Company to be bound by this Section 3.9, the Rights Agreement and the
Voting Agreement; provided, and to the extent, this Section and such agreements
are then applicable, and:
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(b) Purchaser shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, Purchaser shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company that such disposition
will not require registration of such shares under the Securities Act. It is
agreed that the Company will not require opinions of counsel from the Purchaser
for transactions made pursuant to Rule 144 under the Securities Act except in
unusual circumstances and will not require opinions of counsel in transactions
involving the transfer or distribution of Securities by the Purchaser to any
direct or indirect subsidiary, parent or affiliate of the Purchaser.
4. General Provisions.
4.1 Construction. This Agreement shall be governed, construed and
enforced in accordance with the internal laws of the State of California.
4.2 Notices. All payments, notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given at the earlier of (i) the time of actual delivery or (ii) one day
following the date sent by reputable overnight courier, or (iii) on the third
business day following the date deposited with the United States Postal Service,
postage prepaid, certified with return receipt requested, to the parties at the
following addresses or at such other address as shall be given in writing by a
party to the other parties:
Purchaser: Siemens Information and Communication Networks, Inc.
900 Broken Sound Parkway
Boca Raton, Florida 33487
Attn: Executive Vice President and Chief Financial
Officer
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The Company: Accelerated Networks, Inc.
301 Science Drive
Moorpark, CA 93021
Attn: Chief Financial Officer
4.3 Successors and Assigns. This Agreement, and the rights or
obligations hereunder, may not be assigned without the prior written consent of
the parties hereto, provided that an assignment by the Company of its rights and
obligations hereunder to any person acquiring the Company by merger or acquiring
all or substantially all of the assets of the Company shall not require the
written consent of the Purchaser (without prejudice to any rights of Purchaser
as a stockholder of the Company or under any other agreement with the Company),
and provided that any assignment by the Purchaser of its rights and obligations
hereunder to any Affiliate of the Purchaser shall not require the written
consent of the Company. As used in this Section 4.3, an "Affiliate" of the
Purchaser shall mean any entity which directly or indirectly wholly owns the
Purchaser, is wholly-owned by the Purchaser, or is under the common ownership of
all of the entities owning, directly or indirectly, all of the interests of each
of the Purchaser and such other entities. An assignment by the Purchaser of its
rights and obligations under this Agreement shall not imply, or be conditioned
on, an assignment (to the same assignee or otherwise) of Siemens' rights and
obligations under the OEM Agreement, the assignability of which shall be
governed by the OEM Agreement. Subject to the foregoing sentence, this Agreement
shall inure to the benefit of, and shall be binding upon, the parties and their
successors and assigns.
4.4 Severability. If any term, covenant or condition of this
Agreement is held to be invalid, void, or otherwise unenforceable by any court
of competent jurisdiction, the remainder of this Agreement shall not be affected
thereby and each term, covenant and condition of this Agreement shall be valid
and enforceable to the fullest extent permitted by law.
4.5 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.
4.6 Amendments and Waivers. Any term of this Agreement may be
amended only with the written consent of the Company and the Purchaser. The
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only by the
party who is otherwise adversely affected by the failure to observe such term.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Securities, each future holder of all such
Securities, and the Company.
4.7 Each Party to Bear Own Costs. Each of the parties shall pay
all costs and expenses incurred or to be incurred by it in negotiating and
preparing this Agreement and in closing and carrying out the transactions
contemplated by this Agreement.
4.8 Representation. By executing this Agreement, Purchaser
acknowledges and agrees that Brobeck, Phleger & Harrison LLP represents the
Company solely and that
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Purchaser has had an opportunity to consult with its own attorney and tax
advisor in connection with this Agreement and that Purchaser is responsible for
determining the tax consequences of this transaction on Purchaser.
4.9 Entire Agreement. This Agreement, together with the agreements
and documents referred to herein, constitute the entire agreement between the
parties hereto with respect to the subject matter hereof and supersede all prior
and contemporaneous agreements and understandings.
4.10 Option to Terminate. Notwithstanding anything herein to the
contrary, in the event of the transfer of all or substantially all the assets of
the Company to, or consolidation or merger of the Company with or into, any
other entity, such other entity shall have the option to immediately terminate
this Agreement and none of the parties hereto shall have any further obligation
to any other party pursuant to this Agreement; provided, the foregoing shall not
have any force or effect on any previously issued Warrants.
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<PAGE> 9
IN WITNESS WHEREOF, the undersigned have executed this Agreement to be
effective as of the date first written above.
COMPANY:
ACCELERATED NETWORKS, INC.,
a California corporation
By: /s/ Frederic T. Boyer
----------------------------------
Print Name: Frederic T. Boyer
Title: Chief Financial Officer
PURCHASER:
SIEMENS INFORMATION AND
COMMUNICATION NETWORKS, INC.
By: /s/ Dieter Diehn
----------------------------------
Print Name: Dieter Diehn
Title: Exec. V.P. & CFO
Address: 900 Broken Sound Parkway
Boca Raton, FL 33487
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EXHIBIT A
FORM OF WARRANT
THE TRANSFER OF THIS WARRANT IS SUBJECT TO RESTRICTIONS CONTAINED IN THE WARRANT
ISSUANCE AGREEMENT DATED AS OF DECEMBER __, 1999, BETWEEN ACCELERATED NETWORKS,
INC. AND SIEMENS INFORMATION AND COMMUNICATION NETWORKS, INC.
THIS WARRANT AND THE SHARES INTO WHICH IT IS EXERCISABLE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED
UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
ACCELERATED NETWORKS, INC.
Warrant Certificate
Warrant Certificate No. ___
VOID AFTER 5:00 P.M.,
PACIFIC TIME
December 31, 2001
THIS CERTIFIES that, for value received, Siemens Information and
Communication Networks, Inc. (the "Holder"), or its permitted assigns hereunder,
is entitled, subject to the terms and conditions set forth below, to purchase
from Accelerated Networks, Inc., a California corporation (hereinafter called
the "Company"), at the Warrant Price (as defined below), from time to time, but
in any event at or prior to 5:00 p.m. Pacific time on December 31, 2001, the
Warrant Shares (as defined below).
1. Definitions.
(a) The "Warrant Price" shall be $_____ per Warrant Share.
(b) The "Warrant Shares" issuable upon exercise of this Warrant
shall be ____ shares of the Company's Common Stock.
(c) The "Issuance Date" shall be the date this Warrant is issued
as indicated on the signature page hereof.
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2. Exercise of Warrant.
(a) The exercise of the purchase rights in whole or in part
evidenced by this Warrant shall be effected by: (a) (i) the surrender of this
Warrant, together with a duly executed copy of the form of Notice of Exercise
attached hereto, to the Company at its principal offices and (ii) the delivery
of the Warrant Price by check or bank draft payable to the Company's order or by
wire transfer in immediately available funds for the number of shares for which
the purchase rights hereunder are being exercised; or (b) the surrender of this
Warrant, together with a duly executed copy of the form of Notice of Net
Exercise attached hereto, to the Company at its principal offices (the "Net
Exercise Right"). Upon exercise of this Net Exercise Right, the Holder shall be
entitled to receive that number of shares of the Company's Common Stock computed
by using the following formula:
Y = X(A-B)
------
A
Y = the number of Warrant Shares to be issued to the Holder based on this
exercise.
A = the Fair Market Value (as defined below) of one share of the Company's
Common Stock on the date of exercise of this Warrant.
B = The Warrant Price for one Warrant Share under this Warrant.
X = The number of Warrant Shares purchasable under this Warrant or, if only
a portion of the Warrant is being exercised, the portion of the Warrant
being canceled (at the date of such calculation).
If the above calculation results in a negative number, then no Warrant
Shares shall be issued or issuable upon exercise of this Warrant pursuant to the
Net Exercise Right.
"Fair Market Value" of a Warrant Share shall mean:
(1) If the Common Stock is traded on a securities exchange or
through the Nasdaq National Market, the value shall be deemed
to be the average of the closing prices of the Common Stock on
such exchange over the thirty (30) calendar day period ending
three (3) days prior to the exercise date;
(2) If the Common Stock is not so traded but is actively traded
over-the-counter, the value shall be deemed to be the average
of the closing bid or sale prices (whichever is applicable)
over the thirty (30) calendar day period ending three (3) days
prior to the exercise date; and
(3) If there is no active public market, the value shall be the
fair market value thereof, as determined in good faith by a
majority of the Board of Directors.
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In the event of any exercise of the rights represented by this Warrant, a
certificate or certificates for the Warrant Shares so purchased, registered in
the name of the Holder, or its nominee or other party designated in the purchase
form by the Holder hereof, shall be delivered to the Holder as soon as is
reasonably practicable after the date in which the rights represented by this
Warrant shall have been so exercised; and, unless this Warrant has expired or
has been exercised in full, a new Warrant representing the number of shares
(except a remaining fractional share), if any, with respect to which this
Warrant shall not then have been exercised shall also be issued to the Holder
within such time. (All other terms and conditions of such new Warrant shall be
identical to those contained herein, including, but not limited to the effective
date hereof.) The person in whose name any certificate for shares is issued upon
exercise of this Warrant shall for all purposes be deemed to have become the
Holder of record of such shares on the date on which this Warrant was
surrendered and payment of the Warrant Price, except that, if the date of such
surrender and payment is a date on which the stock transfer books of the Company
are closed, such person shall be deemed to have become the Holder of such shares
at the close of business on the next succeeding date on which the stock transfer
books are open. No fractional shares shall be issued upon exercise of this
Warrant and no payment or adjustment shall be made upon any exercise on account
of any cash dividends on the shares issued upon such exercise. If any fractional
interest in a share would, except for the provision of this Section 2, be
delivered upon such exercise, the Company, in lieu of delivery of a fractional
share thereof, shall pay to the Holder an amount in cash equal to the current
fair market value of such fractional share as determined as provided above.
3. Stock Splits, Consolidation; Reservation of Shares; Issuance Tax and
Closing of Books.
3.1 If the Company at any time while this Warrant, or any portion
thereof, remains outstanding and unexpired shall, by stock split, combination,
reclassification or otherwise, change any of the securities as to which purchase
rights under this Warrant exist into the same or a different number of
securities of any other class or classes, this Warrant shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities which
were subject to the purchase rights under this Warrant immediately prior to such
stock split, combination, reclassification or other change and the Warrant Price
therefore shall be appropriately adjusted, all subject to further adjustment as
provided herein.
3.2 The Company will at all times through the expiration of the
Warrant term, reserve and keep available out of its authorized capital stock
solely for the purpose of issue upon the exercise of this Warrant as herein
provided, such number of shares as shall then be issuable upon the exercise of
this Warrant. The Company shall from time to time in accordance with applicable
law increase the authorized amount of its capital stock if at any time the
number of shares remaining unissued and available for issuance shall not be
sufficient to permit exercise of this Warrant. The Company covenants that all
shares which shall be so issued shall be duly and validly issued and fully paid
and nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, and, without limiting such action as may be necessary to assure
that all such shares may be so issued without violation of any applicable law or
regulation, or of any requirement of any national securities exchange upon which
shares of capital stock of the Company may be listed.
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3.3 The issuance of certificates for shares upon exercise of this
Warrant shall be made without charge to the holder of this Warrant for any
issuance tax in respect thereof provided that the Company shall not be required
to pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of Holder of
this Warrant.
3.4 The Company will at no time close its transfer books against
the transfer of the shares issued or issuable upon the exercise of this Warrant
in any manner which interferes with the timely exercise of this Warrant.
3.5 (a) If the Company shall issue, after the Issuance Date, any
Additional Stock (as defined below) without consideration or for a consideration
per share less than the Warrant Price, the Warrant Price shall forthwith (except
as otherwise provided in this clause (i)) be adjusted to a price determined by
multiplying the then-existing Warrant Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issuance plus the number of shares of Common Stock that the
aggregate consideration received by the Company for such issuance would purchase
at the then-existing Warrant Price; and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issuance
plus the number of shares of such Additional Stock. Upon any adjustment of the
Warrant Price as provided above, the holder hereof shall thereafter be entitled
to purchase, at the Warrant Price resulting from such adjustment, the number of
shares of Common Stock obtained by multiplying the number of shares of Common
Stock purchasable hereunder immediately prior to such adjustment by a fraction,
the numerator of which is the Warrant Price in effect immediately prior to such
adjustment, and the denominator of which is the Warrant Price resulting from
such adjustment. For purposes of the foregoing computation, the number of shares
of Common Stock outstanding shall be deemed to include all shares of Common
Stock actually outstanding and all shares of Common Stock deemed to be
outstanding as a result of the application of Section 3.5(e).
(b) No adjustment of the Warrant Price shall be made in an
amount less than one cent per share, provided that any adjustments which are not
required to be made by reason of this sentence shall be carried forward and
shall be either taken into account in any subsequent adjustment made prior to 3
years from the date of the event giving rise to the adjustment being carried
forward, or shall be made at the end of 3 years from the date of the event
giving rise to the adjustment being carried forward. Except to the limited
extent provided for in subsections (e)(iii) and (e)(iv), no adjustment of the
Warrant Price pursuant to this Section 3.5 shall have the effect of increasing
the Warrant Price above the Warrant Price in effect immediately prior to such
adjustment.
(c) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by the Company for any underwriting or otherwise in connection with
the issuance and sale thereof.
(d) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be
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deemed to be the fair value thereof as determined by the Board of Directors
irrespective of any accounting treatment.
(e) In the case of the issuance of options to purchase or
rights to subscribe for Common Stock, securities by their terms convertible into
or exchangeable for Common Stock or options to purchase or rights to subscribe
for such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this Section 3.5.
(i) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in subsections
3.5(c) and 3.5(d), if any, received by the Company upon the issuance of such
options or rights plus the minimum exercise price provided in such options or
rights (without taking into account potential antidilution adjustments) for the
Common Stock covered thereby.
(ii) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (assuming the satisfaction
of any conditions to convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into account potential
antidilution adjustments) for any such convertible or exchangeable securities or
upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the Company for any such securities and
related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Company (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in subsections 3.5(c) and 3.5(d).
(iii) In the event of any change in the number of shares
of Common Stock deliverable or in the consideration payable to the Company upon
exercise of such options or rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Warrant Price, to the
extent in any way affected by or computed using such options, rights or
securities, shall be recomputed to reflect such change, but no further
adjustment shall be made for the actual issuance of Common Stock or any payment
of such consideration upon the exercise of any such options or rights or the
conversion or exchange of such securities.
(iv) Upon the expiration of any such options or rights,
the termination of any such rights to convert or exchange or the expiration of
any options or rights related to such convertible or exchangeable securities,
the Warrant Price, to the extent in any way affected by or computed using such
options, rights or securities or options or rights related
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to such securities, shall be recomputed to reflect the issuance of only the
number of shares of Common Stock (and convertible or exchangeable securities
which remain in effect) actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the exercise
of the options or rights related to such securities.
(v) The number of shares of Common Stock deemed issued
and the consideration deemed paid therefor pursuant to (e)(i) and (e)(ii) shall
be appropriately adjusted to reflect any change, termination or expiration of
the type described in either subsection (e)(iii) or (e)(iv).
(f) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to Section 3.5(e) by the Company
after the date this Warrant is issued other than
(i) Common Stock issued pursuant to a transaction
described in Section 3.5(g) hereof,
(ii) shares of Common Stock or Common Stock Equivalents
(as defined below) issuable or issued to employees, consultants, or directors
(if in transactions with primarily non-financing purposes) of the Company
directly or pursuant to a stock option plan or restricted stock plan approved by
the Board of Directors of the Company,
(iii) shares of Common Stock or Common Stock Equivalents
issued in connection with a bona fide business acquisition of or by the Company
approved by the Board of Directors, whether by merger, consolidation, sale of
assets, sale or exchange of stock or otherwise,
(iv) shares of Common Stock or Common Stock Equivalents
issued in connection with a bona fide lease transaction or bank financing
approved by the Board of Directors,
(v) shares of Common Stock or Common Stock Equivalents
issued to persons or entities with which the Company has a potential or existing
customer or supplier relationship, so long as such issuance is approved by the
Board of Directors, or
(vi) shares of Common Stock issued or issuable in a
public offering in connection with which all outstanding shares of the Company's
Preferred Stock will be converted to Common Stock.
(g) In the event the Company should at any time or from time
to time after the Issuance Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of
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Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Warrant Price shall be appropriately decreased so
that the number of shares of Common Stock issuable on exercise of this Warrant
shall be increased in proportion to such increase of the aggregate of shares of
Common Stock outstanding and those issuable with respect to such Common Stock
Equivalents with the number of shares issuable with respect to Common Stock
Equivalents determined from time to time in the manner provided for deemed
issuances in Section 3.5(e).
(h) If the number of shares of Common Stock outstanding at
any time after the Issuance Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Warrant Price shall be appropriately increased so that the
number of shares of Common Stock issuable on exercise of this Warrant shall be
decreased in proportion to such decrease in outstanding shares.
(i) In the event the Company shall declare a distribution
payable in securities of other persons, evidences of indebtedness issued by the
Company or other persons, assets (excluding cash dividends) or options or rights
not referred to in Section 3.5(g), then, in each such case for the purpose of
this Section 3.5(i), the Holder shall be entitled to a proportionate share of
any such distribution as though it were the holder of the number of shares of
Common Stock of the Company into which this Warrant is exercisable as of the
record date fixed for the determination of the holders of Common Stock of the
Company entitled to receive such distribution.
(j) If at any time or from time to time there shall be a
recapitalization of the Common Stock (other than a subdivision, combination or
merger or sale of assets transaction) provision shall be made so that the Holder
shall thereafter be entitled to receive upon exercise of this Warrant the number
of shares of stock or other securities or property of the Company or otherwise,
to which a holder of Common Stock deliverable upon exercise would have been
entitled on such recapitalization. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 3.5(j) with
respect to the rights of the Holder after the recapitalization to the end that
the provisions of this Section 3.5(j) (including adjustment of the Warrant Price
then in effect and the number of shares purchasable upon exercise of this
Warrant) shall be applicable after that event as nearly equivalent as may be
practicable.
(k) In case of any reclassification, change or conversion of
securities in the class issuable upon exercise of this Warrant (other than a
change in par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination), or in case of any
merger of the Company with or into another corporation (other than a merger with
another corporation in which the Company is a continuing corporation and which
does not result in any reclassification or change of outstanding securities
issuable upon exercise of this Warrant), or in case of any sale of all or
substantially all of the assets of the Company, unless this Warrant shall have
been exercised or terminated in accordance with its terms, the Holder of this
Warrant shall continue to have the right to exercise this Warrant in accordance
with its terms and upon such exercise to receive, in lieu of each share of
Common
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Stock theretofore issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, change or merger by a holder of one share of Common Stock. The
provisions of this subparagraph shall similarly apply to successive
reclassifications, changes, mergers and transfers.
(l) Within fifteen (15) days following the occurrence of
each adjustment or readjustment of the Warrant Price pursuant to this Section 3,
the Company, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to the
Holder a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based. The
Company shall, upon the written request at any time of the Holder, furnish or
cause to be furnished to the Holder a like certificate setting forth (A) such
adjustment and readjustment, (B) the Warrant Price at the time in effect, and
(C) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the exercise of the Warrant.
4. Notice of Record Dates. In the event of:
4.1 any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution (other than cash
dividends out of earned surplus), or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
4.2 any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or into any other entity, or
4.3 any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
4.4 then and in each such event the Company will give notice to
the Holder of this Warrant specifying (i) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right and stating
the amount and character of such dividend, distribution or right, and (ii) the
date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the Holders of
record will be entitled to exchange their shares for securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up. Such notice shall be given at least 20 days and not more than 90
days prior to the date therein specified, and such notice shall state that the
action in question or the record date is subject to the effectiveness of a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") or to a favorable vote of stockholder, if either is required.
5. No Stock Rights or Liabilities. Except as expressly provided herein,
this Warrant shall not entitle the Holder to any voting rights or other rights
as a stockholder of the Company.
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No provision hereof, in the absence of actual exercise hereof by the holder
hereof as provided herein, and no mere enumeration hereon of the rights or
privileges of the Holder hereof, shall give rise to any liability of such Holder
for the Warrant Price or as a stockholder of the Company, whether such liability
is asserted by the Company or by creditors of the Company.
6. Notice of Proposed Transfers. The Holder, by acceptance hereof,
agrees to comply in all respects with the provisions of Section 3.9 of the
Warrant Issuance Agreement with respect to this Warrant and any Warrant Shares
issued upon exercise thereof.
7. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is
lost, stolen, mutilated or destroyed, the Company shall, on such terms as to
indemnity or otherwise as it may in its discretion reasonably impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new Warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated or destroyed. Any such new Warrant shall constitute an original
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.
8. Presentment. Prior to due presentment of this Warrant together with
a completed assignment form attached hereto for registration of transfer, the
Company may deem and treat the Holder as the absolute owner of the Warrant,
notwithstanding any notation of ownership or other writing thereon, for the
purpose of any exercise thereof and for all other purposes, and the Company
shall not be affected by any notice to the contrary.
9. Notice. Notice or demand pursuant to this Warrant shall be
sufficiently given or made, in accordance with the notice provisions set forth
in Section 4.2 of the Warrant Issuance Agreement.
9.1 Disputes. If the parties are unable, after good faith
negotiations, which each hereby covenants to undertake, to resolve any dispute
arising between them within fifteen (15) days after notice is given of such
dispute, then the dispute will be referred to arbitration (which the parties
agree is the exclusive means of resolving any such dispute) before one (1)
arbitrator in Los Angeles County, California, or any other place mutually agreed
upon by the parties hereto, in accordance with the applicable commercial
arbitration rules then in effect of the American Arbitration Association (the
"AAA Rules") (or any other form of arbitration mutually acceptable to the
parties). The determination made in accordance with the AAA Rules shall be
delivered in writing to the parties hereto and shall be final, binding and
conclusive on the parties hereto, and the amount of the claim, if any,
determined to exist shall be a valid claim and no further remedy shall be
available to either party with respect to such dispute and judgment may be
entered upon such decision in accordance with applicable law in any court having
jurisdiction thereof. The arbitration award shall include (i) a provision that
the prevailing party in such arbitration recover its costs relating to the
arbitration and reasonable attorneys' fees from the other party, (ii) the amount
of such costs and fees, and (iii) an order that the losing party pay the fees
and expenses of the arbitrator.
10. Governing Law. The validity, interpretation and performance of this
Warrant shall be governed by the laws of the State of California without regard
to principles of conflicts of laws.
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11. Successors, Assigns. Subject to the restrictions on transfer by
Holder set forth in Section 7 hereof and in the Warrant Issuance Agreement, all
the terms and provisions of the Warrant shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns of the
parties hereto.
12. Amendment. This Warrant is one of a series of warrants being issued
pursuant to that certain Warrant Issuance Agreement dated as of December ____,
1999 (the "Warrant Issuance Agreement"). This Warrant may be modified or amended
only by a writing signed by the Company and the holder of this Warrant.
13. Severability. Should any part but not the whole of this Warrant for
any reason be declared invalid, such decision shall not affect the validity of
any remaining portion, which remaining portion shall remain in force and effect
as if this Warrant had been executed with the invalid portion thereof
eliminated, and it is hereby declared the intention of the parties hereto that
they would have executed the remaining portion of this Warrant without including
therein any such part which may, for any reason, be hereafter declared invalid.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and delivered on and as of the day and year first above written by one
of its officers thereunto duly authorized.
Dated: December ___, 1999 ACCELERATED NETWORKS, INC.
a California corporation
By:
----------------------------------
Print Name:
--------------------------
Title:
-------------------------------
A-10
<PAGE> 20
[SIGNATURE PAGE TO WARRANT CERTIFICATE]
A-11
<PAGE> 21
NOTICE OF EXERCISE
(To be executed by the Warrant holder if he desires to exercise the Warrant in
whole or in part)
To: ACCELERATED NETWORKS, INC.
The undersigned, whose Social Security or other identifying number is
_____________, hereby irrevocably elects the right of purchase represented by
the within warrant for, and to purchase thereunder, ___________________________
___________________shares of securities provided for therein and tenders payment
herewith to the order of
ACCELERATED NETWORKS, INC.
in the amount of
$_______________
The undersigned requests that certificates for such shares be issued as follows:
Name:
--------------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
Deliver to:
--------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
A-12
<PAGE> 22
and, if said number of shares shall not be all the shares purchasable hereunder,
that a new Warrant for the balance remaining of the shares purchasable under the
within Warrant be registered in the name of, and delivered to, the undersigned
at the address stated below:
Address:
-----------------------------
-----------------------------
-----------------------------
Dated: , 19
---------------------- ----
Signature:
---------------------------
Print Name:
--------------------------
(Signature must conform in all
respects to the name of the Warrant
holder as specified on the face of
the Warrant, without alternation,
enlargement or any change whatsoever)
A-13
<PAGE> 23
NOTICE OF NET EXERCISE
To: Accelerated Networks, Inc.
301 Science Drive
Moorpark, CA _________.
1. The undersigned hereby elects to exercise that portion of the
attached Warrant representing the right to purchase __________________ shares of
Common Stock of Accelerated Networks, Inc. ("Accelerated") and thereby acquire
such number of shares of Common Stock as is determined pursuant to Section 2 of
such Warrant, which exercise shall be effected pursuant to the terms of the
attached Warrant.
2 Please issue a certificate or certificates representing said
shares in the name of the undersigned.
3. The undersigned represents that the aforesaid shares being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
4. If exercise of the attached Warrant is in connection with a
merger or initial public offering of Accelerated, exercise shall occur upon the
condition of, and simultaneously with, the consummation of such merger or
initial public offering, as the case may be.
Date: SIEMENS INFORMATION AND
------------------------
COMMUNICATION NETWORKS, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
A-14
<PAGE> 1
EXHIBIT 10.7
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
This Series D Preferred Stock Purchase Agreement ("Agreement") is made
this __th day of _________ 2000, by and between Accelerated Networks, Inc., a
California corporation (the "Company"), and each of the investors listed on the
Schedule of Investors attached as Schedule A hereto (hereinafter referred to
individually as an "Investor" and collectively as the "Investors"). The parties
hereto agree that after the date hereof additional persons may be added to or
deleted from the signature pages of this Agreement and Schedule A hereto may be
revised, and any such additional persons shall be deemed to be "Investors"
hereunder.
In consideration of the mutual promises, covenants and conditions hereinafter
set forth, the parties hereto agree as follows:
1. AUTHORIZATION AND SALE OF SHARES
1.1 Authorization. As of the Closing (as defined below), the Company
will have authorized the issuance, pursuant to the terms and conditions of this
Agreement, Three Million Six Hundred Thousand (3,600,000) shares of the
Company's Series D Preferred Stock, $.001 par value, having the rights,
preferences, privileges and restrictions set forth in the Amended and Restated
Articles of Incorporation of the Company attached to this Agreement as Exhibit A
(the "Restated Articles").
1.2 Agreement to Purchase and Sell.
(a) The Closing. Subject to the terms and conditions hereof, at
the Closing, the Company will issue and sell to each Investor, and each such
Investor will purchase from the Company, that number of shares of the Company's
Series D Preferred Stock set forth opposite each Investor's name on Schedule A
hereto for a purchase price of $11.14 per share. The aggregate number of Shares
that may be sold by the Company pursuant to this Agreement shall not exceed
3,600,000.
(b) Payment of Purchase Price for Shares. All shares of Series D
Preferred Stock to be sold to the Investors pursuant to this Agreement are
hereinafter referred to collectively as the "Shares." The purchase price for the
Shares shall be paid by each Investor by way of check or by delivery of a wire
transfer of funds made to the order of the Company in the amount of such
Investor's portion of the aggregate purchase price for the Shares.
2. CLOSING DATE; DELIVERY
2.1 The Closing. The purchase and sale of the Shares pursuant to Section
1.2(a) shall be held at the offices of Brobeck, Phleger & Harrison LLP in
Irvine, California, on _________ __, 2000, or at such other time and place as
the Company and Investors acquiring the aggregate more than half of the shares
of Series D Preferred Stock sold pursuant hereto mutually agree upon in writing
(the "Closing"). The Company may, but shall not be obligated to, accept delivery
of funds from Investors (or additional persons who shall be added to the
signature page and shall be deemed to be Investors hereunder) for up to thirty
(30) days following the Closing,
<PAGE> 2
or such longer period as may be approved by the Investors acquiring in the
aggregate more than half of the shares of Series D Preferred Stock sold pursuant
hereto.
2.2 Delivery. The Company will deliver to each Investor a certificate
representing the Shares to be purchased by such Investor against payment of the
amount required by Section 1.2(b).
3. COMPANY REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to each Investor that, except
as set forth in the Schedule of Exceptions ("Schedule of Exceptions") attached
to this Agreement as Schedule B, the statements in the following Sections of
this Section 3 are all true and correct:
3.1 Organization and Standing. The Company is a corporation duly
organized and validly existing under, and by virtue of, the laws of the State of
California, and is in good standing under such laws. The Company has all
corporate power and authority to own, lease and operate its properties and to
conduct its business as currently conducted and as proposed to be conducted. The
Company is qualified to do business as a foreign corporation in each
jurisdiction in which the conduct of its business requires such qualification
except where failure to be so qualified would not have a material adverse effect
on its financial condition, business or operations. The Company has made
available to each Investor true, correct and complete copies of its Articles of
Incorporation and Bylaws.
3.2 Capitalization. Immediately prior to the Closing (and after the
filing of the Restated Articles with the California Secretary of State), the
authorized capital stock of the Company will consist of (i) Ninety Million
(90,000,000) shares of Common Stock, of which Ten Million Three Hundred Three
Thousand One Hundred Sixty-Six (10,303,166) shares are issued and outstanding,
and (ii) Thirty-Five Million Five Hundred Forty-Five Thousand Six Hundred
Forty-Eight (35,545,648) shares of Preferred Stock, of which (A) Eleven Million
Five Hundred Thousand (11,500,000) shares have been designated Series A
Preferred Stock, Eleven Million Two Hundred Twenty Thousand (11,220,000) of
which shares are issued and outstanding, (B) Eleven Million Six Hundred Thousand
(11,600,000) shares have been designated Series B Preferred Stock, Eleven
Million Five Hundred Eighty-Four Thousand Eight Hundred Forty-Eight (11,584,848)
of which shares are issued and outstanding, and (C) Eight Million Eight Hundred
Forty-Five Thousand Six Hundred Forty-Eight (8,845,648) shares have been
designated Series C Preferred Stock, Eight Million Eight Hundred Forty-Five
Thousand Six Hundred Forty-Eight of which shares are issued and outstanding and
(D) Three Million Six Hundred Thousand (3,600,000) shares have been designated
Series D Preferred Stock, all of which may be sold to the Investors pursuant to
this Agreement. The Company has reserved Three Million Six Hundred Thousand
(3,600,000) additional shares of its Common Stock for possible issuance upon the
conversion of the Shares (the "Conversion Shares"). After the filing of the
Restated Articles with the California Secretary of State, except for (i) the
conversion privileges of the Shares, the Company's Series A Preferred Stock, the
Company's Series B Preferred Stock and the Company's Series C Preferred Stock,
(ii) the rights provided in that certain Second Restated Investors' Rights
Agreement among the Company and certain of its shareholders in the form attached
hereto as Exhibit B, which agreement amends and restates that certain Restated
Investors' Rights Agreement dated as of May 15, 1998, among the Company and
certain of its
2
<PAGE> 3
shareholders, as amended by an amendment dated February 24, 1999, as further
amended by an amendment dated December 16, 1999 (as so amended, the "Restated
Investors' Rights Agreement"), (iii) the Company's obligation to issue warrants
pursuant to a Warrant Issuance Agreement dated as of December 16, 1999 with
Siemens Information Communication Networks, Inc., of which warrants to purchase
28,575 shares of Common Stock have previously been issued and warrants to
purchase up to an additional 121,425 shares of Common Stock may be issued and
(iv) the Eight Million Six Hundred Fifty Thousand (8,650,000) shares of Common
Stock authorized for issuance under the Company's 1997 Stock Option/Stock
Issuance Plan (the "Plan"), of which Three Million Four Hundred Ninety-Eight
Thousand One Hundred Sixty-Six (3,498,166) shares have been issued and are
outstanding pursuant to the exercise of options and Five Million Forty-Six
Thousand Forty-Two (5,046,042) shares are issuable upon exercise of outstanding
options as of the date hereof, there are no options, warrants, conversion
privileges or other rights, or agreements with respect to the issuance thereof,
presently outstanding to purchase any of the capital stock of the Company. All
shares are duly authorized, validly issued, fully paid and nonassessable and
have been issued by the Company in compliance with the registration requirements
of securities laws. Apart from the exceptions noted in this Section 3.2, no
shares of the Company's outstanding capital stock, or stock issuable upon
exercise or exchange of any outstanding options or other stock issuable by the
Company, are subject to any rights of first refusal or other rights to purchase
such stock (whether in favor of the Company or any other person), pursuant to
any agreement or commitment of the Company.
3.3 Subsidiaries. The Company has no subsidiaries and does not presently
own or control, directly or indirectly, any interest in any other corporation,
partnership, trust, joint venture, association, or other entity.
3.4 Due Authorization. All corporate action on the part of the Company,
its officers, directors and shareholders, necessary for the sale and issuance of
the Shares and the Conversion Shares and the performance of the Company's
obligations under this Agreement and the Restated Investors' Rights Agreement
has been taken or will be taken prior to the Closing. This Agreement and the
Restated Investors' Rights Agreement are valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, subject,
as to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium,
reorganization and similar laws affecting creditors' rights generally and to
general equitable principles. The Shares are not subject to any preemptive
rights or rights of first refusal pursuant to any agreement or commitment of the
Company. The execution, delivery and performance by the Company of this
Agreement and compliance herewith and the sale and issuance of the Shares and
Common Stock issuable upon conversion of the Shares will not result in any
violation of and will not conflict with, or result in a breach of any of the
terms of, or constitute a default under, any provision of state or federal law
to which the Company is subject, the Company's Articles of Incorporation or
Bylaws, each as amended, or any provision of any mortgage, indenture, agreement,
instrument, judgment, decree, order, rule or regulation or other restriction to
which the Company is a party or by which it is bound, the breach of or default
under which would have a material adverse effect upon the business or operations
of the Company, or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company
pursuant to any such term; provided, however, that the Shares (and the Common
Stock issuable upon conversion thereof) may be subject to restrictions on
transfer under state and/or federal securities laws. The shares of Common Stock
issuable upon conversion of the Shares have been
3
<PAGE> 4
duly and validly reserved and are not subject to any preemptive rights or rights
of first refusal and, upon issuance, will be validly issued, fully paid and
nonassessable.
3.5 Valid Issuance of Stock. The outstanding capital stock of the
Company are, and the Shares, when issued, sold and delivered in accordance with
the terms of this Agreement for the consideration provided for herein, will be,
duly and validly issued, fully paid and nonassessable and are and will be free
of any liens or encumbrances created by the Company. The Conversion Shares have
been duly and validly reserved for issuance, are not subject to any preemptive
rights or rights of first refusals and upon issuance in accordance with the
terms of the Restated Articles, will be duly and validly issued, fully paid and
nonassessable.
3.6 Financial Statements; Absence of Changes. The Company has made
available to each Investor its audited financial statements at December 31, 1997
and for the fiscal year then ended, its audited financial statements at December
31, 1998 and for the fiscal year then ended, its unaudited financial statements
at December 31, 1999 and for the fiscal year then ended (collectively, the
"Financial Statements"). Except that the unaudited Financial Statements do not
contain footnotes, the Financial Statements (i) are complete and correct in all
material respects and (ii) accurately set out and describe in all material
respects the financial condition and operating results of the Company as of the
dates, and for the periods, indicated therein. Except as set forth in the
Financial Statements, the Company has no liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business
subsequent to December 31, 1999 and (ii) obligations under contracts and
commitments incurred in the ordinary course of business, which, in both cases,
are not individually or in the aggregate in excess of $1,000,000 or otherwise
material to the financial condition or operating results of the Company. The
audited financial statements, which will be available following the Closing,
will not be different in any material respect from the unaudited Financial
Statements at December 31, 1999 and for the fiscal year then ended. Since
December 31, 1999, there has not been (i) any sale, assignment or transfer of
any patents, trademarks, copyrights, trade secrets or other intangible assets
owned by the Company; (ii) any resignation or termination of employment of any
key officer of the Company; (iii) any mortgage, pledge, transfer of a security
interest in, or lien, created by the Company, with respect to any of its
material properties or assets, except liens for taxes not yet due or payable;
(iv) any loans or guarantees made by the Company to or for the benefit of its
employees, officers or directors, or any members of their immediate families,
other than travel advances and other advances made in the ordinary course of its
business; (v) any declaration, setting aside or payment or other distribution in
respect of any of the Company's capital stock, or any direct or indirect
redemption, purchase or other acquisition of any of such stock by the Company;
or (vi) any other event or condition of any character which is reasonably likely
to materially and adversely affect the assets, financial condition, properties,
operating results or business of the Company.
3.7 Title to Properties and Assets. The Company has good and marketable
title to its properties and assets held in each case subject to no mortgage,
pledge, lien, encumbrance, security interest or charge of any kind, except such
mortgage, pledge, lien, encumbrance, security interest or charge that arises in
the ordinary course of business and does not materially impair the Company's
ownership or use of such property. With respect to the property and assets it
leases, the Company is in compliance with such leases and, to the Company's
knowledge, the
4
<PAGE> 5
Company holds valid leasehold interests in such assets free of any liens,
encumbrances, security interests or claims of any party other than the lessors
of such property and assets.
3.8 Intellectual Property. To the Company's knowledge, the Company has
sufficient title, license and/or ownership of all patents, trademarks, service
marks, trade names, copyrights, trade secrets, information, proprietary rights
and processes necessary for its business as now conducted without any conflict
with or infringement of the rights of others. As used in the foregoing sentence,
the word "knowledge" shall mean the Company's actual knowledge and such
knowledge that the Company's senior management should reasonably have known
about (but without having conducted any special investigation or patent search
other than searches in connection with the filing of patent applications).
Except for the agreements with its own employees or consultants referenced in
Section 3.9 and licensing agreements entered into by the Company in the ordinary
course of its business, there are no outstanding options, licenses, or
agreements of the Company relating to the foregoing, and the Company is not a
party or bound by any options, licenses or agreements with respect to the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights and processes of any other person or
entity. Neither the Company, nor to its knowledge any of its employees, has
received any communications alleging that the Company has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. The Company warrants that to
the actual knowledge of its executive officers, no employee of the Company is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would conflict with his obligation to
use his best efforts to promote the interests of the Company or that would
conflict with the Company's business. Reasonable security measures have been
taken to protect the secrecy, confidentiality and value of the proprietary
information referred to in this Section 3.8.
3.9 Material Contracts and Obligations. The Company has made available
to counsel for the Investors accurate copies of all agreements, contracts,
leases, licenses, instruments, commitments, indebtedness, liabilities and other
obligations, written or to the knowledge of the Company, oral, absolute or
contingent, to which the Company is a party or by which it is bound that are (i)
material to the conduct and operations of its business and properties; (ii)
involve any of the officers, consultants, directors, employees or shareholders
of the Company; or (iii) obligate the Company to share, license or develop any
product or technology (except licensing agreements entered into by the Company
in the ordinary course of its business). All employees of the Company have
executed a "Proprietary Information and Inventions Agreement" concerning
non-disclosure of confidential information and assignment of inventions to the
Company in a form previously delivered to counsel for the Investors. For
purposes of this Section 3.9, "material" shall mean any agreement, contract,
indebtedness, liability or other obligation committing either party in an amount
in excess of $500,000.
3.10 Litigation. There are no actions, proceedings or investigations
pending or, to the Company's knowledge, threatened, against or affecting the
Company or its property, that, either in any case or in the aggregate, might
result in any material adverse change in the business, prospects, condition,
affairs or operations of the Company or in any of its properties or assets, in
any material impairment of the right or ability of the Company to carry on its
business as now
5
<PAGE> 6
conducted and as proposed to be conducted, or in any change in the current
equity ownership of the Company, and none that questions the validity of this
Agreement or any action taken or to be taken in connection herewith.
3.11 Governmental Consents. Except for filings of (i) the Restated
Articles with the Secretary of the State of California and (ii) notices required
or permitted to be filed with certain federal and state securities commissions
(which the Company agrees to timely file), no consents, approvals, orders,
authorizations or registrations, qualifications, designations, declarations or
filings with any federal or state governmental authority on the part of the
Company is required in connection with the valid execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein. Based in part on the representations of each Investor set
forth in Section 4 below, the offer, sale and issuance of the Shares in
conformity with the terms of this Agreement are exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and have been qualified or are exempt from qualifications
under all applicable state securities qualification requirements.
3.12 Third Party Consents. Except as set forth above in Section 3.11, all
third party consents, approvals, orders or authorizations required to be
obtained by the Company in connection with the consummation of the transactions
contemplated herein have been obtained.
3.13 Compliance with Other Instruments. The Company is not in violation,
breach or default of any term of its Articles of Incorporation or Bylaws or, in
any material respect, of any term or provision of any mortgage, indenture,
contract, agreement or instrument to which the Company is a party or by which it
may be bound, or of any provision of any foreign or domestic state or federal
judgment, decree, order, statute, rule or regulation applicable and material to
the Company. The execution, delivery and performance of, and compliance with,
this Agreement and the consummation of the transactions contemplated hereby will
not result in any such violation or default, or be in conflict with or
constitute, with or without the passage of time or the giving of notice or both,
(i) a default under the Company's Articles of Incorporation or Bylaws, or under
any agreement or contract of the Company, (ii) to the Company's knowledge, a
violation of any statutes, laws, regulations or orders, or (iii) an event which
results in the creation of any lien, charge or encumbrance upon any asset of the
Company.
3.14 Disclosure. No representation or warranty by the Company in this
Agreement or in any written statement or certificate signed by the President of
the Company furnished pursuant to this Agreement contains or will contain any
untrue statement of a material fact, or omits to state a material fact, in each
case which would cause the statements made herein or therein in the light of the
circumstances under which they were made to be materially misleading. The minute
books of the Company contain complete and accurate records of all meetings and
other corporate actions of its shareholders and its Board of Directors and
committees thereof. The stock ledger of the Company is complete and accurate and
reflects all issuances, transfers, repurchases and cancellations of shares of
capital stock of the Company.
3.15 Registration Rights. Except as provided in the Restated Investors'
Rights Agreement, the Company has not granted or agreed to grant any person or
entity any rights (including piggy-back registration rights) to have any
securities of the Company registered with
6
<PAGE> 7
the United States Securities and Exchange Commission ("SEC") or any other
governmental authority.
3.16 Tax Matters. To the Company's knowledge, the Company has no unpaid
federal, state, county or local taxes. There have been no examinations or audits
of any tax returns or reports of the Company by any applicable federal, state or
local governmental agency. The Company has duly filed all federal, state, county
and local tax returns required to have been filed by it and paid all taxes shown
to be due on such returns. There are in effect no waivers of applicable statutes
of limitations with respect to taxes for any year.
3.17 Tax Elections. The Company has not elected pursuant to the Internal
Revenue Code of 1986, as amended (the "Code"), to be treated as a Subchapter S
corporation or collapsible corporation pursuant to Section 1362(a) or Section
341(f) of the Code, nor has it made any other elections pursuant to the Code
(other than elections which relate solely to matters of accounting, depreciation
or amortization) which would have a material adverse affect on the Company, its
financial condition, its business as presently conducted or presently proposed
to be conducted or any of its properties or material assets.
3.18 Shareholders, Directors and Officers. To the actual knowledge of the
Company's executive officers and without any inquiry of any of the following
individuals, none of the officers or directors or significant employees or
consultants of the Company, has, individually or collectively, a material
interest in any entity which is a competitor, customer or supplier of (or has
any existing contractual relationship with) the Company, other than holdings of
less than 1% of publicly-held entities. To the actual knowledge of the Company's
executive officers and without any inquiry of the following individuals, no
employee, officer, or director of the Company or member of his or her immediate
family is indebted to the Company, nor is the Company indebted (or committed to
make loans or extend or guarantee credit) to any of them other than (i) for
payment of salary rendered, (ii) reimbursement for reasonable expenses incurred
on behalf of the Company, and (iii) for other standard employee benefits made
generally available to all employees (including stock option agreements
outstanding under any stock option plan approved by the Board of Directors of
the Company).
3.19 Employees. To the Company's knowledge, no employee of the Company is
in violation of any term of any employment contract, patent disclosure
agreement, non-competition agreement, or any restrictive covenant to a former
employer relating to the right of any such employee to be employed by the
Company because of the nature of the business conducted or presently proposed to
be conducted by the Company or to the use of trade secrets or proprietary
information of others. There is neither pending nor, to the Company's knowledge,
threatened any actions, suits, proceedings or claims, or to its knowledge any
basis therefor or threat thereof, with respect to any contract, agreement,
covenant or obligation referred to in the preceding sentence. The Company does
not have any collective bargaining agreement covering any of its employees. No
employee of the Company has an employment agreement or a severance arrangement
with the Company and such employees are employed on an "at will" basis. There is
no strike, labor dispute or union organization activities pending or, to the
Company's knowledge, threatened between the Company and its employees. None of
the Company's employees belongs to any union or collective bargaining unit. The
Company is not aware that any officer or key employee, or that any group of key
employees, intends to terminate their employment with the
7
<PAGE> 8
Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing.
3.20 Permits. To the Company's knowledge, the Company has such material
permits, licenses, franchises, authorizations and clearances of governmental or
regulatory authorities ("Permits") as are necessary to own its properties and to
conduct its business as presently conducted. The Company has fulfilled and
performed all its material obligations with respect to its Permits, and no event
has occurred that allows or would allow revocation or termination thereof or
results or would result in any other material impairment of the rights of the
Company.
3.21 Employee Benefit Plans. To the Company's knowledge, the Company is
and has been in compliance with all applicable laws, rules and regulations
relating to employment and employment practices, terms and conditions of
employment, wages and hours and the provisions of all laws or rules or
regulations applicable to any employee benefit compensation, stock option or
other similar plan, maintained or contributed to by it for the benefit of its
employees, the failure of which would have a material adverse effect on the
Company and its financial position. There are no claims (other than routine
claims for benefits) pending or threatened with respect to any of such plans or
arrangements.
3.22 Environmental and Safety Laws. To the Company's knowledge, the
Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and is not aware
of any material expenditures that are or will be required in order to comply
with any such existing statute, law or regulation.
3.23 Manufacturing and Marketing Rights. The Company has not granted any
material rights to manufacture, produce, assemble, license, market, or sell its
products to any other person and is not bound by any agreement that materially
affects the Company's exclusive right to develop, manufacture, assemble,
distribute, market, or sell its products.
3.24 Business Plan. The Business Plan dated August 6, 1999 (the "Business
Plan") was prepared in good faith by the Company and does not contain any untrue
statement of a material fact nor does it omit to state a material fact necessary
to make the statements made therein not misleading, except that with respect to
assumptions, projections, and expressions of opinions or predictions contained
in the Business Plan, the Company represents only that such assumptions,
projections, expressions of opinion and predictions were made in good faith and
that the Company believes there is a reasonable basis therefor.
3.25 Insurance. The Company has in full force and effect fire and
casualty insurance policies sufficient in amount (subject to reasonable
deductibles) to allow it to replace any of its properties that might be damaged
or destroyed. The Company also has in full force and effect broad form
comprehensive general liability insurance in the minimum amount of $5,000,000
per year. The Company also has in full force and effect term life insurance,
payable to the Company, on the life of key personnel, in an amount in excess of
$2,000,000.
3.26 Powers of Attorney. To the Company's knowledge, there are no
outstanding powers of attorney executed on behalf of the Company.
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<PAGE> 9
4. REPRESENTATIONS AND WARRANTIES OF INVESTOR
Each Investor represents and warrants to the Company as follows:
4.1 Due Authorization. All corporate action on the part of such
Investor, and its officers, directors, partners and shareholders (as
applicable), necessary for the purchase of the Shares and the performance of
such Investor's obligations under this Agreement and the Restated Investors'
Rights Agreement has been taken or will be taken prior to the Closing. This
Agreement and the Restated Investors' Rights Agreement are valid and binding
obligations of such Investor, enforceable in accordance with their terms,
subject, as to enforcement of remedies, to applicable bankruptcy, insolvency,
moratorium, reorganization and similar laws affecting creditors' rights
generally and to general equitable principles.
4.2 Investigation. Such Investor acknowledges that it has had an
opportunity to discuss the business, affairs and current prospects of the
Company with the Company's officers. The Investor further acknowledges having
had access to information about the Company that it has requested or considers
necessary for purposes of purchasing the Shares.
4.3 Purchase for Own Account. The Shares that such Investor will
purchase hereunder and the Conversion Shares issuable upon conversion of such
Shares will be acquired by such Investor, not as a nominee or agent, and not
with a view to or in connection with the distribution of any part thereof within
the meaning of the Securities Act. Such Investor is an "accredited investor"
within the meaning of Regulation D of the Securities Act.
4.4 Exempt from Registration. Such Investor understands that the Shares
and the Conversion Shares (collectively, the "Securities") will not be
registered under the Securities Act, on the ground that the sale provided for in
this Agreement is exempt from registration under the Securities Act, and that
the reliance of the Company on such exemption is predicated in part on
Investor's representations set forth in this Agreement.
4.5 Economic Risk. Such Investor acknowledges that it is experienced in
evaluating and investing in securities of companies in the development stage and
acknowledges that it is able to fend for itself in the transactions contemplated
by this Agreement and has the ability to bear the economic risks of its
investment pursuant to this Agreement.
4.6 Restricted Securities. Such Investor understands that the Securities
may not be sold, transferred, or otherwise disposed of without registration
under the Securities Act or an exemption therefrom, and that, in the absence of
an effective registration statement covering the Securities or an available
exemption from registration under the Securities Act, the Securities must be
held indefinitely. In particular, such Investor is aware that the Securities may
not be sold pursuant to Rule 144 promulgated under the Securities Act unless (i)
adequate information concerning the Company is then available to the public,
(ii) such Investor has held the Securities for the applicable holding period
specified in Rule 144 and (iii) all other terms and conditions of Rule 144 are
satisfied.
4.7 Restrictive Legends. It is understood that each certificate
representing (i) the Shares, (ii) the Conversion Shares, and (iii) any other
securities issued in respect of the Shares upon any stock split, stock dividend,
recapitalization, merger or similar event (unless no longer
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<PAGE> 10
required in the opinion of counsel for the Company) shall be stamped or
otherwise imprinted with legends substantially in the following forms (in
addition to any legend that may now or hereafter be required by applicable
federal or state law):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS. 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,
THE AVAILABILITY OF CERTAIN EXEMPTIONS FROM SUCH REGISTRATION
REQUIREMENTS, 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."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN THAT CERTAIN SECOND RESTATED INVESTORS'
RIGHTS AGREEMENT, AS MAY BE AMENDED FROM TIME TO TIME, A COPY OF
WHICH MAY BE OBTAINED BY THE HOLDER, UPON REQUEST AND WITHOUT
CHARGE, AT THE PRINCIPAL OFFICE OF THE CORPORATION."
4.8 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, such Investor further agrees not to make any
disposition of all or any portion of the Shares or Conversion Shares unless and
until the transferee has agreed in writing for the benefit of the Company to be
bound by this Section 4 and the Restated Investors' Rights Agreement; provided,
and to the extent, this Section and such agreements are then applicable, and:
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(b) (i) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, Investor shall have furnished the Company
with an opinion of counsel, reasonably satisfactory to the Company that such
disposition will not require registration of such shares under the Securities
Act. It is agreed that the Company will not require opinions of counsel from an
Investor for transactions made pursuant to Rule 144 under the Securities Act
except in unusual circumstances and will not require opinions of counsel in
transactions involving the transfer or distribution of the Shares by an Investor
to any direct or indirect subsidiary, parent or affiliate of such Investor.
4.9 Governmental Consents. All consents, approvals, orders,
authorizations or registrations, qualifications, designations, declarations or
filings with any U.S. federal or state governmental authority on the part of
such Investor required in connection with the
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<PAGE> 11
consummation of the transactions contemplated herein shall have been obtained
prior to and be effective as of the Closing.
4.10 Third Party Consents. All third party consents, approvals, orders or
authorizations required to be obtained by such Investor in connection with the
consummation of the transactions contemplated herein have been obtained.
5. CONDITIONS TO INVESTORS' OBLIGATIONS AT THE CLOSING
The obligation of the Investors to purchase the Shares at the Closing is
subject to the fulfillment to the satisfaction of the Investors on or prior to
the Closing of the following conditions:
5.1 Representations and Warranties Correct; Performance of Obligations.
The representations and warranties made by the Company in Section 3 hereof shall
be true and correct when made, and shall be true and correct as of the Closing
with the same force and effect as if they had been made on and as of said date,
subject to changes contemplated by this Agreement.
5.2 Performance. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing and
shall have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
5.3 Restated Articles. The Restated Articles shall have been duly
adopted by the Company by all necessary corporate action of its Board of
Directors and shareholders, and shall have been duly filed with and accepted by
the California Secretary of State.
5.4 Opinion of Company's Counsel. The Investors shall have received from
counsel to the Company, an opinion, in substantially the form attached hereto as
Exhibit C addressed to the Investors, dated the date of Closing.
5.5 Compliance Certificate. At the Closing there shall have been
delivered to the Investors a certificate, dated as of such date of Closing,
signed by the Company's President certifying that the conditions specified in
Sections 5.1 and 5.2 of this Agreement have been fulfilled.
5.6 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing hereby and all
documents and instruments incident to such transactions shall be satisfactory in
substance and form to the Investors, and the Investors shall have received all
such counterpart originals or certified or other copies of such documents as the
Investors may reasonably request.
5.7 Restated Investors' Rights Agreement. The required parties shall
have executed the Restated Investors' Rights Agreement, and shall be in full
force and effect.
5.8 Authorizations. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body (including, without limitation,
federal and state securities commissions) that are required in connection with
the lawful issuance and sales of the
11
<PAGE> 12
Shares pursuant to this Agreement shall have been duly obtained and shall be
effective on and as of the Closing.
6. CONDITIONS TO COMPANY'S OBLIGATIONS AT THE CLOSING
The obligations of the Company under this Agreement are subject to the
fulfillment at or before the Closing of the following conditions:
6.1 Representations and Warranties. The representations and warranties
of the Investors contained in Section 4 hereof shall be true and correct when
made, and shall be true and correct as of the Closing with the same force and
effect as if they had been made on and as of said date, subject to changes
contemplated by this Agreement.
6.2 Payment of Purchase Price. Each Investor, shall have delivered to
the Company the purchase price for the Shares set forth opposite each such
Investor's name on Schedule A hereto.
6.3 Restated Articles. The Restated Articles shall have been duly
adopted by the Company by all necessary corporate action of its Board of
Directors and shareholders, and shall have been duly filed with and accepted by
the California Secretary of State.
6.4 Restated Investors' Rights Agreement. The required parties shall
have executed the Restated Investors' Rights Agreement, and such agreement shall
be in full force and effect.
6.5 Board of Directors Approval. The Company's Board of Directors and
shareholders shall have approved the sale of the Company's Series D Preferred
Stock pursuant to this Agreement.
6.6 Authorizations. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body (including, without limitation,
federal and state securities commissions) that are required in connection with
the lawful issuance and sales of the Shares pursuant to this Agreement shall
have been duly obtained and shall be effective on and as of the Closing.
7. MISCELLANEOUS
7.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California, without
regard to the conflict of law provisions thereof. All unresolved disputes
arising under this Agreement shall be submitted to, and resolved exclusively by,
arbitration to be held in Los Angeles County, California. The arbitration shall
be conducted under the then-prevailing rules of the American Arbitration
Association. The award of the arbitrator shall be binding and may be entered as
a judgment in any court of competent jurisdiction. Each party shall bear the
cost of preparing and presenting its case. The costs of the arbitration,
including the fees and expenses of the arbitrator, will be paid by the
non-prevailing party, as determined by the arbitrator. This provision shall not
be construed to prohibit either party from seeking preliminary or permanent
injunctive relief in any court of competent jurisdiction
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7.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by any party hereto and the
closing of the transactions contemplated hereby for a period of one (1) year
from the Closing.
7.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the respective successors and assigns of the parties hereto. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
7.4 Entire Agreement. This Agreement and the other documents and
agreements referred to herein, constitute the entire understanding and agreement
between the parties with regard to the subject matter hereof.
7.5 Notices. 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 an Investor, at such Investor's address set forth below its signature, or at
such other address as such Investor 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 Investor in writing.
7.6 Amendments and Waivers. This Agreement and any term hereof may be
amended, waived, discharged or terminated by a written instrument signed by the
Company and holders of sixty-six and sixty-six hundredths percent (66.66 %) or
more of the shares of Common Stock issued or issuable upon conversion of the
Series D Preferred Stock issued under this Agreement. In no event shall the
obligation of any Investor to purchase shares hereunder be increased, except
upon the written consent of such Investor.
7.7 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to the Company or to the Investors upon a breach or
default of any party hereto under this Agreement shall impair any such right,
power or remedy of the Company or Investor, nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of any
similar breach or default thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of the Company or the Investors of
a breach or default under this Agreement, or any waiver on the part of the
Company or any Investor of any provisions or conditions of this Agreement, must
be in writing and shall be effective only to the extent specifically set forth
in such writing. All remedies, either under this Agreement or by law or
otherwise afforded to the Company or Investor, shall be cumulative and not
alternative.
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<PAGE> 14
7.8 Each Party to Bear Own Costs. Except as otherwise provided in
Section 7.10, each of the parties shall pay all costs and expenses incurred or
to be incurred by it in negotiating and preparing this Agreement and in closing
and carrying out the transactions contemplated by this Agreement.
7.9 Third Parties. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third person to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action against any party to this Agreement.
7.10 Finder's Fees.
(a) The Company hereby agrees to indemnify and to hold the
Investors harmless of and from any liability for commission or compensation in
the nature of a finder's fee of any broker or other person or firm (and the
costs and expenses of defending against such liability or asserted liability)
for which the Company, or any of its employees or representatives, is
responsible.
(b) Each Investor hereby agrees to indemnify and to hold the
Company harmless of and from any liability for any commission or compensation in
the nature of a finder's fee to any broker or other person or firm (and the
costs and expenses of defending against such liability or asserted liability)
for which such Investor, or any of its employees or representatives, is
responsible.
7.11 Titles and Subtitles. The titles of the Sections and subSections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
7.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.13 Severability. Should any provision of this Agreement be determined
to be illegal or unenforceable, such determination shall not affect the
remaining provisions of this Agreement.
7.14 Confidentiality. Each of the parties hereto agree that, except with
the prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish, or make accessible to anyone any
confidential information, knowledge, or data concerning or relating to the
business or financial affairs of the other party to which said party has been or
shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, or the performance of its obligations hereunder;
provided, the foregoing restrictions shall not apply to any information,
knowledge or data which (a) is already in the public domain at the time of
disclosure or becomes publicly available through no breach of this provision by
said party; (b) was lawfully in said party's possession prior to receipt from
the other party without obligation of confidentiality; (c) is received
independently from a third party free to lawfully disclose such information to
said party; (d) is subsequently independently developed by said party; or (e) is
required to be disclosed by court order or applicable law.
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<PAGE> 15
SIGNATURE PAGE TO THE SERIES D
PREFERRED STOCK PURCHASE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year hereinabove first written.
THE COMPANY:
ACCELERATED NETWORKS, INC.
By:
----------------------------------
Suresh Nihalani, President
Address: 301 Science Drive
Moorpark, CA 93021
THE INVESTORS:
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
Address:
----------------------------
----------------------------
----------------------------
<PAGE> 1
EXHIBIT 10.8
----------------------------
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
----------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. REGISTRATION RIGHTS..................................................................3
1.1 Definitions...................................................................3
1.2 Request for Registration......................................................3
1.3 Company Registration..........................................................5
1.4 Obligations of the Company....................................................6
1.5 Furnish Information...........................................................7
1.6 Expenses of Demand Registration...............................................7
1.7 Expenses of Company Registration..............................................8
1.8 Underwriting Requirements.....................................................8
1.9 Indemnification. .............................................................9
1.10 Reports Under Securities Exchange Act of 1934................................11
1.11 Form S-3 Registration........................................................12
1.12 Assignment of Registration Rights............................................13
1.13 Limitations on Subsequent Registration Rights................................13
1.14 "Market Stand-Off" Agreement.................................................13
1.15 Termination of Registration Rights...........................................14
2. COVENANTS OF THE COMPANY............................................................14
2.1 Delivery of Financial Statements.............................................14
2.2 Inspection...................................................................15
2.3 Termination of Information and Inspection Covenants..........................15
2.4 Right of First Offer.........................................................15
2.5 Right of First Refusal.......................................................16
2.6 Co-Sale Right................................................................18
2.7 Employee and Other Stock Arrangements........................................20
3. MISCELLANEOUS.......................................................................20
3.1 Successors and Assigns.......................................................20
3.2 Governing Law................................................................21
3.3 Counterparts.................................................................21
3.4 Titles and Subtitles.........................................................21
3.5 Notices......................................................................21
3.6 Amendments and Waivers.......................................................21
3.7 Severability.................................................................22
3.8 Aggregation of Stock.........................................................22
3.9 Entire Agreement.............................................................22
</TABLE>
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
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<PAGE> 3
THIS SECOND RESTATED INVESTORS' RIGHTS AGREEMENT is made as of
the 18th day of February, 2000, by and between ACCELERATED NETWORKS, INC. a
California corporation (the "Company"), Suresh Nihalani and Kiran Munj (each, a
"Founder" and collectively, the "Founders"), each of the investors in Series D
Preferred Stock of the Company listed on Schedule A hereto (each of which is
referred to herein as a "Series D Investor"), and each of the shareholders
listed on Schedule B hereto (each of which is referred to herein as a "Prior
Investor"). The Series D Investors and the Prior Investors sometimes are
referred to herein as the "Preferred Stock Investors." The Founders and the
Preferred Stock Investors sometimes are referred to herein as the "Investors."
This Agreement will become effective upon the consummation of the transactions
contemplated by of the Series D Purchase Agreement (as defined below).
RECITALS
WHEREAS, the Company, the Founders and certain of the Investors
are parties to the Restated Investors' Rights Agreement dated as of May 15, 1998
(the "Restated Investors' Rights Agreement"), which agreement governs the rights
of such Investors to cause the Company to register shares of Common Stock issued
to the Founders and issuable to such Investors and certain other matters as set
forth therein;
WHEREAS, the Restated Investors' Rights Agreement was
subsequently amended by that certain Amendment No. 1 to Restated Investors'
Rights Agreement dated February 24, 1999 (the "First Amendment") and that
certain Amendment No. 2 to Restated Investors' Rights Agreement dated December
16, 1999 (the "Second Amendment");
WHEREAS, the Company and the Series D Investors have entered into
that certain Series D Preferred Stock Purchase Agreement dated February 18, 2000
(the "Series D Purchase Agreement"), pursuant to which the Series D Investors
will purchase shares of the Company's Series D Preferred Stock;
WHEREAS, in order to induce the Company to consummate the
transactions contemplated by the Series D Purchase Agreement and to induce the
Series D Investors to invest funds in the Company pursuant to the Series D
Purchase Agreement, the Investors and the Company hereby agree that the Restated
Investors' Rights Agreement, as amended by the First Amendment and the Second
Amendment, shall be of no further force and effect and that this Agreement shall
govern the rights of the Investors to cause the Company to register shares of
Common Stock issued to the Founders and issuable to the Preferred Stock
Investors and certain other matters as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein, the parties hereto agree as follows:
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<PAGE> 4
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
(c) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 1.12 hereof.
(d) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(e) The terms "register," "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(f) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock, Series B
Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock,
(ii) the Six Million Eight Hundred Thousand (6,800,000) shares of Common Stock
held by the Founders, and (iii) the Common Stock issued or issuable upon
exercise of any Warrants granted from time to time pursuant to that certain
Warrant Issuance Agreement dated as of December 16, 1999, between the Company
and Siemens Information and Communication Networks, Inc., and (iv) any Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of the shares
referenced in (i), (ii) and (iii) above, excluding in all cases, however, any
Registrable Securities sold by a Holder in a transaction in which such Holder's
rights under this Section 1 are not assigned.
(g) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
(h) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 Request for Registration.
(a) If the Company shall receive at any time after the earlier of
(i) July 1, 2002 or (ii) six (6) months after the effective date of the first
registration statement for a public offering of securities of the Company (other
than a registration statement relating either to the
3
<PAGE> 5
sale of securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a SEC Rule 145 transaction) a written request from
the Holders of sixty-six and sixty-six hundredths percent (66.66%) of the
Registrable Securities (not including Founders Stock) then outstanding that the
Company file a registration statement under the Act covering the registration of
at least twenty percent (20%) of the Registrable Securities (not including
Founders Stock) then outstanding (or such lesser number of shares as shall have
an anticipated aggregate offering price to the public of at least $10,000,000,
net of underwriting discounts and commissions), then the Company shall:
(i) within ten (10) days of the receipt thereof, give
written notice of such request to all Holders; and
(ii) use its best efforts to effect as soon as
practicable, the registration under the Act of all Registrable Securities (not
including Founders Stock) which the Holders request to be registered, subject to
the limitations set forth in subsections 1.2(b), (c) and (d), within twenty (20)
days of the mailing of notice by the Company set forth in (i) above in
accordance with Section 3.5.
(b) The Holders initiating the registration request hereunder
("Initiating Holders") shall, in accordance with subsection 1.2(f) distribute
the Registrable Securities covered by their request by means of an underwriting
and the Company shall include such information in the written notice referred to
in subsection 1.2(a)(i). The underwriter will be selected by the Company and
shall be reasonably acceptable to a majority in interest of the Initiating
Holders. The right of any Holder to include such Holder's Registrable Securities
in such underwritten registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
1.4(e)) enter into an underwriting agreement in usual and customary form with
the underwriter or underwriters selected for such underwriting. Notwithstanding
any other provision of this Section 1.2, if the underwriter advises the
Initiating Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Company shall so advise all
Holders of Registrable Securities which would otherwise be underwritten pursuant
hereto, and the number of shares of Registrable Securities that may be included
in the underwriting shall be eliminated or allocated among all Holders thereof,
including the Initiating Holders, in proportion (as nearly as practicable) to
the amount of Registrable Securities of the Company owned by each Holder.
(c) Notwithstanding subsection 1.2(b), if the Company shall
furnish to Holders requesting a registration pursuant to this Section 1.2, a
certificate signed by the Chief Executive Officer or President of the Company
stating that in the good faith judgment of the Board of Directors of the Company
it would be detrimental to the Company and its shareholders for such
registration statement to be filed and it is therefore essential to defer the
filing of such registration statement, the Company shall have the right to defer
taking action with respect to such filing for a period of not more than sixty
(60) days after receipt of the request of the
4
<PAGE> 6
Initiating Holders; provided, however, that the Company may not utilize this
right more than twice in any twelve-month period.
(d) Notwithstanding anything else set forth in this Section
1.2, the Company shall not be obligated to effect, or to take any action to
effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two (2) registrations
pursuant to this Section 1.2 and such registrations have been declared or
ordered effective;
(ii) During the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.3 hereof; provided, however, that the Company
is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective;
(iii) Within twelve (12) months of the effective date of
another registration effected pursuant to this Section 1.2; or
(iv) If the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form S-3
pursuant to Section 1.11 and the Company proceeds with such registration.
(e) The Company may include in any underwritten registration
under this Section 1.2 any other shares of Common Stock (including, without
limitation, issued and outstanding shares of Common Stock as to which the
holders thereof have contracted with the Company for "piggyback" registration
rights) so long as the inclusion in such registration of such shares (i) will
not, in the opinion of the managing underwriter of such registration, interfere
with the successful marketing in accordance with the intended method of sale or
other disposition of all the shares of Registrable Securities sought to be
registered by the Holder or Holders of Registrable Securities pursuant to this
Section 1.2 and (ii) will not result in the exclusion from such registration of
any Registrable Securities. If it is determined as provided above that there
will be such interference, the other shares of Common Stock sought to be
included shall be excluded to the extent deemed appropriate by the managing
underwriter of such registration.
(f) Notwithstanding anything else set forth in this Agreement,
the Company shall not be required to effect a registration under this Section
1.2 unless such registration is a firm commitment underwritten offering with a
nationally recognized underwriter.
1.3 Company Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for shareholders other than the Holders) any of its stock or
other securities under the Act in connection with the public offering of such
securities solely for cash (other than (i) a registration relating solely to the
sale of securities to participants in a Company stock or stock option plan, (ii)
a registration pursuant to a SEC Rule 145 transaction, or (iii) a registration
in which the only Common Stock being registered is Common Stock issuable upon
conversion of debt securities
5
<PAGE> 7
which are also being registered) the Company shall, at such time, promptly give
each Holder written notice in accordance with Section 3.5 of such registration.
Upon the written request of each Holder given within twenty (20) days after
mailing of such notice by the Company, the Company shall, subject to the
provisions of Section 1.8, cause to be registered under the Act all of the
Registrable Securities that each such Holder has requested to be registered.
1.4 Obligations of the Company. Whenever required under this Agreement
to use its best efforts to register any Registrable Securities, the Company
shall as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred twenty (120)
days or until the distribution contemplated in the Registration Statement has
been completed; provided, however, that (i) such 120-day period shall be
extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of the
managing underwriter and (ii) in the case of any registration of Registrable
Securities on Form S-3 which are intended to be offered on a continuous or
delayed basis, such 120-day period shall be extended, if necessary, to keep the
registration statement effective until all such Registrable Securities are sold,
provided that Rule 415, or any successor rule under the Act, permits an offering
on a continuous or delayed basis, and provided further that applicable rules
under the Act governing the obligation to file a post-effective amendment
permit, in lieu of filing a post-effective amendment which (I) includes any
prospectus required by Section 10(a)(3) of the Act or (II) reflects facts or
events representing a material or fundamental change in the information set
forth in the registration statement, the incorporation by reference of
information required to be included in (I) and (II) above to be contained in
periodic reports filed pursuant to Section 13 or 15(d) of the 1934 Act in the
registration statement.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions,
unless the Company is already subject to service in such jurisdiction and except
as may be required by the Act.
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(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereto to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereto and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
1.5 Furnish Information.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.11 if, due to the
operation of subsection 1.5(a), the number of shares does not equal or exceed
the number of shares required to originally trigger the Company's obligation to
initiate such registration as specified in subsection 1.2(a) or Section 1.11,
whichever is applicable.
1.6 Expenses of Demand Registration. All expenses (other than
underwriting discounts and commissions) incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including,
without limitation, all registration, filing and qualification fees, printers'
and accounting fees, reasonable fees and disbursements of counsel for the
Company (including reasonable fees and disbursements of counsel for the Company
in its capacity as counsel to the selling Holders hereunder; provided, however,
if Company counsel does not make itself available for this purpose, the Company
will pay the reasonable fees and disbursements of one counsel for the selling
Holders selected by them) shall be borne by the Company; provided, however, that
the Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 1.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority in interest
of the Registrable Securities to be registered or fails to close (in which case
all Holders initiating such registration
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shall bear such expenses pro rata based upon the total number of Registrable
Securities requested to be included therein by each such Holder), unless such
Holders agree to forfeit their right to one demand registration pursuant to
Section 1.2; provided further, however, that if at the time of such withdrawal
or failure to close, (a) the Holders proposing to participate in the
registration have learned of a material adverse change in the condition,
business, or prospects of the Company not known to such Holders at the time of
their request other than a change resulting from market factors or other matters
over which the Company has no control, (b) the facts producing such change were
known to the Company at the time of the request or the Company's delay in
disclosing such facts resulted in substantial additional expense, and (c) in the
case of withdrawal, such Holders have withdrawn the request with reasonable
promptness following disclosure by the Company of such material adverse change,
then such Holders shall not be required to pay any of such expenses and shall
retain their rights pursuant to Section 1.2.
1.7 Expenses of Company Registration. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to registrations pursuant to Section 1.3
for each Holder (which right may be assigned as provided in Section 1.12),
including, without limitation, all registration, filing, and qualification fees,
printers and accounting fees relating or apportionable thereto and the
reasonable fees and disbursements of counsel for the Company in its capacity as
counsel to the selling Holders hereunder (provided, however, if Company counsel
does not make itself available for this purpose, the Company will pay the
reasonable fees and disbursements of one counsel for the selling Holders
selected by them), but excluding underwriting discounts and commissions relating
to such Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering involving
an underwriting of shares of the Company's capital stock, the Company shall not
be required under Section 1.3 to include any of the Holders' Registrable
Securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the managing underwriter(s) selected by
it (or by other persons entitled to select the underwriters), and then only in
such quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata (A) first to the Company (B) second, pro
rata among the selling Holders according to the total amount of Registrable
Securities owned by each such Holder, and (C) to the extent additional
securities may be included therein, pro rata among the other selling
shareholders according to the total amount of securities owned by each such
selling shareholder, or in such other proportions as shall mutually be agreed to
by such selling shareholders); provided that in no event shall the amount of
Registrable Securities included in the offering be reduced below twenty-five
percent (25%) of the total amount of securities included in such offering,
unless such offering is the initial public offering of the Company's securities
in which case such Registrable Securities may be excluded if the underwriter(s)
make
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the determination described above and no other shareholder's securities are
included. For purposes of the preceding parenthetical concerning apportionment,
for any selling shareholder which is a holder of Registrable Securities and
which is a partnership or corporation, the partners, retired partners and
shareholders of such holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "selling shareholder" and any
pro rata reduction with respect to such "selling shareholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder," as defined in
this sentence.
1.9 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement,
including, without limitation, any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Act, the 1934 Act, any
state securities law or any rule or regulation promulgated under the Act, the
1934 Act or any state securities law; and the Company will pay to each such
Holder, underwriter or controlling person any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 1.9(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person;
provided, further, that if any losses, claims, damages or liabilities arise out
of or are based upon a Violation which did not appear in the final prospectus,
the Company shall not have any liability with respect thereto to (i) the Holder
or any person who controls such Holder within the meaning of Section 15 of the
Act if the Holder delivered a copy of the preliminary prospectus to the person
alleging such losses, claims, damages or liabilities and failed to deliver a
copy of the final prospectus, as amended or supplemented if it has been amended
or supplemented, to such person at or prior to the written confirmation of the
sale to such person or (ii) any underwriter or any person who controls such
underwriter within the meaning of Section 15 of the Act, if such underwriter
delivered a copy of the preliminary prospectus to the person alleging such
losses, claims, damages or liabilities and
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failed to deliver a copy of the final prospectus, as amended or supplemented, if
it has been amended or supplemented, to such person at or prior to the written
confirmation of the sale to such person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will pay any
legal or other expenses reasonably incurred by any person intended to be
indemnified pursuant to this subsection 1.9(b), in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this subsection 1.9(b) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Holder, which consent shall not be unreasonably withheld; provided further,
that, in no event shall any indemnity under this subsection 1.9(b) exceed the
gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.9, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.9.
(d) If the indemnification provided for in this Section 1.9 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable
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by such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this Section
1.9 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.10 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after sixty (60) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder at any time after ninety (90) days
following the effective date of the first registration statement filed by the
Company, so long as the Holder owns any Registrable Securities, forthwith upon
request (i) a written statement by the Company that it has complied with the
reporting requirements of SEC Rule 144, the Act and the 1934 Act (at any time
after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably
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requested in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration or pursuant to
such form.
1.11 Form S-3 Registration. In case the Company shall receive from any
Holder or Holders who own at least fifteen percent (15%) of (i) the Registrable
Securities then outstanding or (ii) the Series A Preferred Stock (including the
Common Stock issued upon conversion thereof) then outstanding, a written request
or requests that the Company effect a registration on Form S-3 and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, use its best efforts to effect such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within fifteen (15) days after receipt of such written
notice from the Company; provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance, pursuant
to this Section 1.11: (1) if Form S-3 is not available for such offering by the
Holders; (2) if the Holders, together with the holders of any other securities
of the Company entitled to inclusion in such registration, propose to sell
Common Stock at an aggregate price to the public (including any underwriters'
discounts or commissions) of less than $1,000,000; (3) if the Company shall
furnish to the Holder or Holders a certificate signed by the Chief Financial
Officer or President of the Company stating that in the good faith judgment of
the Board of Directors of the Company, it would be detrimental to the Company
and its shareholders for such Form S-3 Registration to be effected at such time,
in which event the Company shall have the right to defer the filing of the Form
S-3 registration statement for a period of not more than sixty (60) days after
receipt of the request of the Holder or Holders under this Section 1.11;
provided, however, that the Company shall not utilize this right more than twice
in any twelve (12) month period; (4) if the Company has, within the six (6)
month period preceding the date of such request, already effected one (1)
registration on Form S-3 pursuant to this Section 1.11; or (5) in any particular
jurisdiction in which the Company would be required to qualify to do business or
to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Act.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests set forth in this Section 1.11 of the Holder or Holders. The
Company shall bear and pay all expenses incurred in connection with
registrations requested pursuant to this Section 1.11, including, without
limitation, all registration, filing, qualification, printer's and accounting
fees and the reasonable fees and disbursements of counsel for the Company
(including reasonable fees and disbursements of counsel for the Company in its
capacity as counsel to the selling Holders hereunder; provided, however, if
Company counsel
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does not make itself available for this purpose, the Company will pay the
reasonable fees and disbursements of one counsel for the selling Holders
selected by them), but excluding any underwriters' discounts or commissions
associated with the Registrable Securities. Registrations effected pursuant to
this Section 1.11 shall not be counted as demands for registration or
registrations effected pursuant to Sections 1.2 or 1.3, respectively.
1.12 Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Section 1 may be assigned
(but only with all related obligations) by a Holder to a transferee or assignee
of such securities who, after such assignment or transfer, holds at least
400,000 shares of the Company's capital stock; provided, however, that (a) the
Company is, within a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee or assignee and the securities
with respect to which such registration rights are being assigned; (b) such
transferee or assignee agrees in writing to be bound by and subject to the terms
and conditions of this Agreement, including, without limitation, the provisions
of Section 1.14 below; and (c) such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act. Any such assignee
shall be subject to all rights and obligations hereunder and, if requested by
the Company, shall agree in writing to be bound by the terms of this Agreement.
The foregoing share limitation shall not apply to transfers to affiliated
entities of the transferor or to distributions from a partnership to partners if
the partner holds at least one percent (1%) of the Company's outstanding capital
stock following such distribution.
1.13 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of sixty-six and sixty-six hundredths percent (66.66%) percent of
the Registrable Securities then outstanding, enter into any agreement with any
holder or prospective holder of any securities of the Company which would allow
such holder or prospective holder (a) to include such securities in any
registration filed under Section 1.2, 1.3 or 1.11 hereof, unless under the terms
of such agreement, such holder or prospective holder may include such securities
in any such registration only to the extent that the inclusion of such holder's
securities will not reduce the amount of the Registrable Securities of the
Holders which is included or (b) to make a demand registration which could
result in such registration statement being declared effective within one
hundred twenty (120) days of the effective date of any registration effected
pursuant to Section 1.2.
1.14 "Market Stand-Off" Agreement. Each Investor hereby agrees that, for
a period of one hundred eighty (180) days following the effective date of the
first registration statement of the Company filed under the Act or ninety (90)
days following the effective date of any other registration statement of the
Company filed under the Act, it shall not, to the extent requested by the
Company and such underwriter(s), directly or indirectly sell, offer to sell,
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 held by it at any
time during such period except Common Stock included in such registration;
provided, however, that such Investor shall be subject to the market stand-off
provisions of this Section 1.14 only if the officers and directors of the
Company are subject to
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similar arrangements and the Company uses reasonable efforts to have all holders
of at least one percent (1%) of the Company's capital stock also subject to
similar arrangements.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period. Notwithstanding the
foregoing, the obligations described in this Section 1.14 shall not apply to a
registration relating solely to employee benefit plans on Form S-l or Form S-8
or similar forms which may be promulgated in the future, or a registration
relating solely to a SEC Rule 145 transaction on Form S-4 or similar forms which
may be promulgated in the future.
1.15 Termination of Registration Rights. The right of any Holder to
request registration or inclusion in any registration pursuant to Section 1.2,
1.3 or 1.11 shall terminate and such Holder's securities shall no longer be
deemed to be Registrable Securities at such time as (i)(A) such Holder holds
less than 1% of the Company's outstanding Common Stock (including the Common
Stock issued or issuable upon conversion of the Company's outstanding Preferred
Stock) and (B) such Holder's Registrable Securities may be sold pursuant to Rule
144(k) or (ii) the expiration of three years after the closing of the first
Company-initiated firm commitment underwritten public offering of Common Stock
of the Company.
2. COVENANTS OF THE COMPANY.
2.1 Delivery of Financial Statements. The Company shall deliver to (i)
each Preferred Stock Investor who holds (whether directly or by application of
Section 3.8) at least 1,650,000 shares of the Company's Series A Preferred
Stock, 1,000,000 shares of the Company's Series B Preferred Stock, 1,000,000
shares of the Company's Series C Preferred Stock, 1,000,000 shares of the
Company's Series D Preferred Stock (as adjusted for subsequent stock splits,
stock dividends or recapitalizations of the Company's capital stock) (each, a
"Major Investor") and (ii) MCI WorldCom Venture Fund, Inc., a Delaware
corporation ("MCI") for so long as MCI holds at least 800,000 shares of the
Company's Series D Preferred Stock (as adjusted for subsequent stock splits,
stock dividends or recapitalizations of the Company's capital stock):
(a) as soon as practicable, but in any event within one hundred
twenty (120) days after the end of each fiscal year of the Company, an income
statement for such fiscal year, a balance sheet of the Company and statement of
shareholders' equity as of the end of such year, such year-end financial reports
to be in reasonable detail, prepared in accordance with generally accepted
accounting principles and audited and certified by independent public
accountants.
(b) as soon as practicable, but in any event within forty-five
(45) days after the end of each of the first three (3) quarters of each fiscal
year of the Company, an unaudited profit or loss statement, and an unaudited
balance sheet and a statement of shareholders' equity as of the end of such
fiscal quarter.
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(c) within thirty (30) days of the end of each month, an
unaudited income statement and schedule as to the sources and application of
funds and balance sheet for and as of the end of such month, in reasonable
detail.
(d) as soon as practicable, but in any event thirty (30) days
prior to the end of each fiscal year, a budget and business plan for the next
fiscal year showing the Company's projected monthly financial statements and, as
soon as prepared, any other budgets or revised budgets prepared by the Company.
2.2 Inspection. The Company shall permit MCI, for so long as MCI holds
at least 800,000 shares of the Company's Series D Preferred Stock (as adjusted
for subsequent stock splits, stock dividends or recapitalizations of the
Company's capital stock), and each Major Investor, at such Investor's expense,
to visit and inspect the Company's properties, to examine its books of account
and records and to discuss the Company's affairs, finances and accounts with its
officers, all at such reasonable times as may be requested by the Investor;
provided, however, that the Company shall not be obligated pursuant to this
Section 2.2 to provide access to any information which it deems in good faith to
be a trade secret or similar confidential information.
2.3 Termination of Information and Inspection Covenants. The covenants
set forth in Sections 2.1 and 2.2 shall terminate as to any Major Investor and
MCI and be of no further force or effect (i) in conjunction with or at any time
subsequent to the sale of securities pursuant to a registration statement filed
by the Company under the Act in connection with the underwritten offering of its
securities to the general public, (ii) in conjunction with or at any time
subsequent to the acquisition of more than fifty percent (50%) of the Company's
equity securities by another entity by means of any transaction or series of
related transactions (including, without limitation, any reorganization, merger
or consolidation), or a sale of all or substantially all of the assets of the
Company, or (iii) after the Company first becomes subject to the periodic
reporting requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever
event shall first occur.
2.4 Right of First Offer. Subject to the terms and conditions specified
in this Section 2.4, the Company hereby grants to each Major Investor a right of
first offer with respect to future sales by the Company of its Shares (as
hereinafter defined). Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for any shares of, any class of its
capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail ("Offer
Notice") to the Major Investors stating (i) its bona fide intention to offer
such Shares, (ii) the number of such Shares to be offered, and (iii) the price
and terms, if any, upon which it proposes to offer such Shares.
(b) By written notification received by the Company, within
thirty (30) calendar days after giving of the Offer Notice, each Major Investor
may elect to purchase or obtain, at the price and on the terms specified in the
Offer Notice, up to that portion of such Shares which equals the proportion that
the number of shares of Common Stock issued and held,
15
<PAGE> 17
or issuable upon conversion of the Preferred Stock then held, by such Major
Investor bears to the total number of shares of Common Stock of the Company then
outstanding (assuming full conversion and exercise of all convertible or
exercisable securities).
(c) If all Shares referred to in the Offer Notice are not elected
to be obtained as provided in subsection 2.4(b) hereof, the Company may, during
the 90-day period following the expiration of the period provided in subsection
2.4(b) hereof, offer the remaining unsubscribed portion of such Shares to any
person or persons at a price not less than, and upon terms no more favorable to
the offeree than those specified in the Offer Notice. If the Company does not
enter into an agreement for the sale of the Shares within such period, or if
such agreement is not consummated within thirty (30) days of the execution
thereof, the right provided hereunder shall be deemed to be revived and such
Shares shall not be offered unless first reoffered to the Major Investors in
accordance herewith.
(d) The right of first offer in this Section 2.4 shall not be
applicable (i) to the issuance or sale of Shares (or options therefor) to
employees, consultants, directors, directly or pursuant to a stock option plan
or restricted stock issuance plan approved by the Board of Directors of the
Company, (ii) to or after consummation of a firm commitment underwritten public
offering of shares of Common Stock, registered under the Act pursuant to a
registration statement, (iii) the issuance of securities pursuant to the
conversion or exercise of convertible or exercisable securities, (iv) the
issuance of securities in connection with a bona fide business acquisition of or
by the Company, whether by merger, consolidation, sale of assets, sale or
exchange of stock or otherwise, (v) the issuance of stock, warrants or other
securities or rights to persons or entities with which the Company has a
potential or existing customer or supplier relationship, or (vi) to or after the
acquisition of the Company by another entity by means of any bona fide
transaction or series of related transactions (including, without limitation,
any reorganization, merger or consolidation), or a sale of all or substantially
all of the assets of the Company unless the corporation's shareholders of record
as constituted immediately prior to such transaction or series of transactions
will, immediately after such transaction or series of transactions (by virtue of
securities issued as consideration in the transaction or series of transactions)
hold at least 50% of the voting power of the successor to the corporation's
business.
(e) The right of first offer set forth in this Section 2.4 may
not be assigned or transferred, except that (i) such right is assignable by each
Major Investor to any wholly owned subsidiary or parent of, or to any
corporation or entity that is, within the meaning of the Act, controlling,
controlled by or under common control with, any such Major Investor, and (ii)
such right is assignable between and among any of the Major Investors.
2.5 Right of First Refusal. Before any shares of capital stock of the
Company registered in the name of a Founder may be sold or transferred (other
than transfers set forth in paragraph (g)), such shares shall first be offered
to the Company and the Major Investors in the following manner:
(a) The Founder or his transferee shall deliver a notice by
certified mail ("Transfer Notice") to the principal business office of the
Company and to each Major Investor stating (i) his bona fide intention to sell
or transfer such shares, (ii) the number of such shares to
16
<PAGE> 18
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 (if known).
(b) The Company shall have the right at any time within twenty
(20) calendar days of the giving of the Transfer Notice to purchase some or all
of the shares to which the Transfer Notice refers at the price per share
specified in the Transfer 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 ("Company Exercise Notice") and delivered by certified mail to the
Founder, which notice shall specify the time, place and date for settlement of
such purchase (but in no event shall such date be more than sixty (60) calendar
days from the date the Transfer Notice was delivered to the Company). If the
Company does not exercise its right to purchase all of the shares to which the
Transfer Notice refers, the Company shall within twenty-five (25) calendar days
of the giving of the Transfer Notice deliver by certified mail to each Major
Investor a copy of the Company Exercise Notice or a statement that the Company
has elected not to purchase any of the shares subject to the Transfer Notice.
(c) In the event the Company does not, for any reason, exercise
its right to purchase all of the shares to which the Transfer Notice refers in
accordance with subsection 2.5(b), then each Major Investor shall have the
option, exercisable by written notice (the "Investors Exercise Notice")
delivered by certified mail to the Founder and the Company within forty-five
(45) calendar days of the giving of the Transfer Notice, to purchase up to that
portion of such shares which equals the proportion that the number of shares of
Common Stock issued and held, or issuable upon conversion of the Preferred Stock
then held, by such Major Investor bears to the total number of shares of Common
Stock of the Company then outstanding (assuming full conversion and exercise of
all convertible or exercisable securities). Such purchase shall be at the price
per share specified in the Transfer Notice, or if no price is specified therein,
at the fair market value thereof as determined by the Board of Directors in good
faith. The Investors Exercise Notice shall specify the time, place and date for
settlement of such purchase (but in no event shall such date be more than sixty
(60) calendar days from the date the Transfer Notice was received by the
Company).
(d) If some or all of the shares to which the Transfer Notice
refers are not purchased, as provided in subsections 2.5(b) and 2.5(c) hereof,
the Founder may sell such shares at the price and terms specified in the
Transfer Notice, provided that such sale or transfer is consummated within one
hundred twenty (120) calendar days from the date of said Transfer Notice to the
Company, and provided, further, that any such sale is in accordance with all the
terms and conditions hereof. If the Founder does not consummate the sale or
transfer within such one hundred twenty (120)-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 foregoing, the right of first refusal of
the Major Investors provided in this Section 2.5 shall not apply to (i) any
pledge of Common Stock made pursuant to a bona fide loan transaction that
creates a mere security interest, (ii) transfers by gift, will or intestate
succession of a Founder to a Founder's spouse or lineal descendants or ancestors
17
<PAGE> 19
or a trust for the benefit of such persons, (iii) any bona fide gift, or (iv)
any transfer by operation of law or other involuntary transfer; provided that,
with respect to clauses (i), (ii) and (iii) above, (A) the Founder shall inform
the Major Investors of such pledge, transfer or gift prior to effecting it and
(B) the pledgee, transferee or donee shall furnish the Major Investors with a
written agreement to be bound by and comply with all provisions of this
Agreement. Such transferred Common Stock shall remain "Founders Stock"
hereunder, and such pledgee, transferee or donee shall be treated as a "Founder"
for purposes of this Agreement.
(f) Notwithstanding the foregoing, neither the Company nor any
Major Investor shall have any right under this Section 2.5 (i) in conjunction
with or at any time subsequent to the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
underwritten offering of its securities to the general public, (ii) in
conjunction with or at any time subsequent to the acquisition of more than fifty
percent (50%) of the Company's equity securities by another entity by means of
any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation), or a sale of all or
substantially all of the assets of the Company, or (iii) after the Company first
becomes subject to the periodic reporting requirements of Sections 12(g) or
15(d) of the 1934 Act, whichever event shall first occur.
2.6 Co-Sale Right.
(a) Each Founder agrees that in the event it reaches an agreement
to sell more than twenty percent (20%) of the Founders Stock owned by such
Founder by means of any transaction or series of related transactions, it will
provide written notice (the "Co-Sale Notice") to each Major Investor at least
twenty (20) days prior to the closing of such sale or transfer. The Co-Sale
Notice shall describe in reasonable detail the proposed sale or transfer
including, without limitation, the number of shares of Common Stock to be sold
or transferred, the nature of such sale or transfer, the consideration to be
paid, and the name and address of each prospective purchaser or transferee. In
the event that the sale or transfer is being made pursuant to the provisions of
paragraph (g) or (h) hereof, the Co-Sale Notice shall state under which
paragraph the sale or transfer is being made.
(b) Each Major Investor shall have the right, exercisable upon
written notice to the Founder delivered by certified mail, within fifteen (15)
days after the giving of the Co-Sale Notice to the Major Investor, to
participate in such sale of Common Stock on the same terms and conditions. To
the extent a Major Investor exercises such right of participation in accordance
with the terms and conditions set forth below, the number of shares of Common
Stock that the Founder may sell in the transaction shall be correspondingly
reduced.
(c) Each Major Investor may sell all or any part of that number
of shares of Common Stock equal to the product obtained by multiplying (i) the
aggregate number of shares of Common Stock covered by the Co-Sale Notice by (ii)
a fraction the numerator of which is the number of shares of Common Stock issued
and held on the date of the Co-Sale Notice, or issuable upon conversion of the
Preferred Stock then held, by such Major Investor and the denominator of which
is the total number of shares of Common Stock (on an as-converted basis)
18
<PAGE> 20
owned by all the Preferred Stock Investors and the selling Founder on the date
of the Co-Sale Notice.
(d) A Major Investor shall effect its participation in the sale
by promptly delivering to the Founder for transfer to the prospective purchaser
one or more certificates, properly endorsed for transfer, which represent:
(i) the type and number of shares of Common Stock which
the Major Investor elects to sell; or
(ii) that number of shares of Preferred Stock which is at
such time convertible into the number of shares of Common Stock which the Major
Investor elects to sell; provided, however, that if the prospective purchaser
objects to the delivery of Preferred Stock in lieu of Common Stock, the Major
Investor shall convert such Preferred Stock into Common Stock and deliver Common
Stock as provided in subparagraph (i) above. The Company agrees to make any such
conversion concurrent with the actual transfer of such shares to the purchaser.
(e) The stock certificate or certificates that a Major Investor
delivers to the Founder pursuant to paragraph (d) shall be transferred to the
prospective purchaser in consummation of the sale of the Common Stock pursuant
to the terms and conditions specified in the Co-Sale Notice, and the Founder
shall concurrently therewith remit to such Major Investor that portion of the
sale proceeds to which the Major Investor is entitled by reason of its
participation in such sale. To the extent that any prospective purchaser or
purchasers prohibits such assignment or otherwise refuses to purchase shares or
other securities from a Major Investor exercising its rights of co-sale
hereunder, the Founder shall not sell to such prospective purchaser or
purchasers any Common Stock unless and until, simultaneously with such sale, the
Founder shall purchase such shares or other securities from such Major Investor.
(f) The exercise or non-exercise of the rights of the Major
Investors hereunder to participate in one or more sales of Common Stock made by
the Founder shall not adversely affect their rights to participate in subsequent
sales of Common Stock subject to paragraph (a).
(g) Notwithstanding the foregoing, the co-sale rights of the
Major Investors provided in this Section 2.6 shall not apply to (i) any pledge
of Common Stock made pursuant to a bona fide loan transaction that creates a
mere security interest, (ii) transfers by gift, will or intestate succession of
a Founder to a Founder's spouse or lineal descendants or ancestors or a trust
for the benefit of such persons, (iii) any bona fide gift, or (iv) any transfer
by operation of law or other involuntary transfer; provided that, with respect
to clauses (i), (ii) and (iii) above, (A) the Founder shall inform the Major
Investors of such pledge, transfer or gift prior to effecting it and (B) the
pledgee, transferee or donee shall furnish the Major Investor with a written
agreement to be bound by and comply with all provisions of this Agreement. Such
transferred Common Stock shall remain "Founders Stock" hereunder, and such
pledgee, transferee or donee shall be treated as a "Founder" for purposes of
this Agreement.
19
<PAGE> 21
(h) Notwithstanding the foregoing, the provisions of this Section
2.6 shall not apply to the sale of any Common Stock by a Founder (i) to the
public pursuant to a registration statement filed with, and declared effective
by, the SEC under the Act, or (ii) to the Company, or (iii) if prior to such
sale, the Founder held less than five percent (5%) of the Company's outstanding
capital stock.
(i) Notwithstanding the foregoing, the co-sale right set forth in
this Section 2.6 shall terminate and be of no further force or effect (i) in
conjunction with or at any time subsequent to the sale of securities pursuant to
a registration statement filed by the Company under the Act in connection with
the underwritten offering of its securities to the general public, (ii) in
conjunction with or at any time subsequent to the acquisition of more than fifty
percent (50%) of the Company's equity securities by another entity by means of
any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation), or a sale of all or
substantially all of the assets of the Company, or (iii) after the Company first
becomes subject to the periodic reporting requirements of Sections 12(g) or
15(d) of the 1934 Act, whichever event shall first occur.
2.7 Employee and Other Stock Arrangements.
(a) Except as determined otherwise in the discretion of the Board
of Directors, each acquisition of any option or right to acquire any shares of
capital stock of the Company by an employee, consultant, or director of the
Company pursuant to a Company stock or stock option plan shall be subject to a
four (4)-year vesting schedule, with twenty-five percent (25%) of the shares
vested upon the first anniversary of the commencement of service and the
remaining shares subject to monthly vesting thereafter; provided, however
(except as otherwise determined by the Board of Directors), if the Board of
Directors allows an option holder to exercise an option prior to full vesting,
the unvested shares shall be subject to a repurchase option in favor of the
Company which shall provide that upon termination of employment, with or without
cause, the Company may repurchase, at cost, any unvested shares held by such
shareholder.
(b) Notwithstanding the foregoing, the provisions set forth in
this Section 2.7 shall terminate and be of no further force or effect after (i)
the sale of securities pursuant to a registration statement filed by the Company
under the Act in connection with the underwritten offering of its securities to
the general public, (ii) the acquisition of more than fifty percent (50%) of the
Company's equity securities by another entity by means of any transaction or
series of related transactions (including, without limitation, any
reorganization, merger or consolidation), or a sale of all or substantially all
of the assets of the Company, or (iii) the Company first becomes subject to the
periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act,
whichever event shall first occur.
3. MISCELLANEOUS.
3.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended
20
<PAGE> 22
to confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within California
without regard to the conflicts of law provisions thereof. The parties hereto
agree to submit to the jurisdiction of the federal and state courts of the State
of California with respect to the breach or interpretation of this Agreement or
the enforcement of any and all rights, duties, liabilities, obligations, powers,
and other relations between the parties arising under this Agreement.
3.3 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.
3.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement 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 an Investor, at such
Investor's address set forth below its signature, or at such other address as
such Investor 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 each Investor in writing.
3.6 Amendments and Waivers.
(a) Any term of Section 1 or Section 3 (other than this Section
3.6) of this Agreement may be amended and the observance of any term of Section
1 or Section 3 (other than this Section 3.6) of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of (i) the Company, (ii) the
holders of sixty six and sixty six hundreds percent (66.66%) of the Registrable
Securities then outstanding and held by the Preferred Stock Investors, and (iii)
the holders of a majority of the Registrable Securities then held by the
Founders.
(b) Any term of Section 2 (other than Section 2.6) of this
Agreement may be amended and the observance of any term of Section 2 (other than
Section 2.6) of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of (i) the Company, and (ii) the holders of a majority of the
Registrable Securities then outstanding and held by the Major Investors.
21
<PAGE> 23
(c) Any term of Section 2.6 may be amended and the observance of
any term of Section 2.6 may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of (i) the holders of a majority of the Registrable Securities then
outstanding and held by the Major Investors, and (ii) the holders of a majority
of the Registrable Securities then outstanding and held by the Founders;
provided, however, any such amendment or waiver that would affect the rights of
any Major Investor or Founder in a manner different than the other Major
Investors or Founders (as applicable) shall also require the written consent of
such differently affected Major Investor or Founder.
(d) Any term of this Section 3.6 may be amended and the
observance of any term of this Section 3.6 may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the parties whose consent is required to amend or waive a
particular provision.
(e) Any amendment or waiver effected in accordance with this
Section 3.6 shall be binding upon the Company and each Investor, and their
respective successors and assigns.
3.7 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
3.8 Aggregation of Stock. All shares of Registrable Securities held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
3.9 Entire Agreement. This Agreement (including the Exhibits hereto, if
any) constitutes the full and entire understanding and agreement between the
parties with regard to the subjects hereof. This Agreement supersedes and
replaces the Restated Investors Rights Agreement and, to the extent necessary,
the execution and delivery of this Agreement constitutes a waiver of the
provisions of Section 2.4 of the Restated Investors Rights Agreement.
22
<PAGE> 24
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE COMPANY:
ACCELERATED NETWORKS, INC.
By: /s/ Suresh Nihalani
------------------------------------
Suresh Nihalani, President
Address: 301 Science Drive
Moorpark, CA 93021
<PAGE> 25
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
SURESH NIHALANI
/s/ Suresh Nihalani
----------------------------------------
Suresh Nihalani
Address: c/o Accelerated Networks, Inc.
301 Science Drive
Moorpark, CA 93021
KIRAN MUNJ
/s/ Kiran Munj
----------------------------------------
Kiran Munj
Address: c/o Accelerated Networks, Inc.
301 Science Drive
Moorpark, CA 93021
<PAGE> 26
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
THE INVESTORS:
MCI WORLDCOM VENTURE FUND, INC.
By: /s/ Susan Mayer
------------------------------------
Name: Susan Mayer
Title: President
Address: 1801 Pennsylvania Avenue
Washington, DC 20006
<PAGE> 27
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
WINDWARD VENTURES, L.P.
By: Windward Ventures Management, L.P.
General Partner
By: /s/ David Titus
----------------------------------------
David Titus
General Partner
Address: 12680 High Bluff Drive, Suite 200
San Diego, CA 92130
ONSET ENTERPRISE ASSOCIATES III, L.P.
By: OEA III MANAGEMENT, LLC
Its: General Partner
By: /s/ Robert Kuhling
----------------------------------------
Name: Robert Kuhling
Title:
Address: 2490 Sand Hill Road
Menlo Park, CA 94025
<PAGE> 28
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
SIEMENS INFORMATION AND COMMUNICATION
NETWORKS, INC.
By: /s/ Dieter Diehn
----------------------------------------
Name: Dieter Diehn
Title: Executive V.P. & CFO
Address: 900 Broken Sound Parkway
Boca Raton, FL 33487
<PAGE> 29
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
SIEMENS AG
By: /s/ Anthony Maher
-----------------------------------------------
Name: Anthony Maher
Title: Member of the Group Board ICN
By: /s/ Georg Vollmuth
-----------------------------------------------
Name: Georg Vollmuth
Title: Vice President ICN RU
Address: Hofmannstrasse 51, D-81359
Munich, Germany
Attn: Helmut Hoffmann
NEW ENTERPRISE ASSOCIATES VII, Limited Partnership
By: NEA Partners VII, Limited Partnership
Its: General Partner
By: /s/ Peter Morris
-----------------------------------------------
Name: Peter Morris
Title: General Partner
Address: 2490 Sand Hill Road
Menlo Park, CA 94025
<PAGE> 30
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
WALDEN-SBIC, L.P.
WALDEN TECHNOLOGY VENTURES II, L.P.
WALDEN MEDIA & INFORMATION TECHNOLOGY
FUND, L.P.
WALDEN EDB PARTNERS, L.P.
WALDEN JAPAN PARTNERS, L.P.
By: /s/ George Sarlo
-----------------------------------------------
George Sarlo
General Partner
Address: 750 Battery Street
Seventh Floor
San Francisco, CA 94111
<PAGE> 31
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
WALDEN EDB PARTNERS, L.P.
WALDEN JAPAN PARTNERS, L.P.
By: /s/ Lip-Bu Tan
----------------------------------------------
Name: Lip-Bu Tan
Title: General Partner
Address: 750 Battery Street
Seventh Floor
San Francisco, CA 94111
PACVEN WALDEN VENTURES III, L.P.
By: Pacven Walden Management, L.P.
General Partner
By: /s/ Lip-Bu Tan
-----------------------------------------
Lip-Bu Tan
Director
Of Pacven Walden Management Co., Ltd.
As General Partner of Pacven Walden
Management, L P.
As General Partner of Pacven Walden
Ventures III, L.P.
Address: 750 Battery Street
Seventh Floor
San Francisco, CA 94111
WALDEN-NIKKO MAURITIUS CO.
By: /s/ Lip-Bu Tan
----------------------------------------------
Lip-Bu Tan
Director
Address: 750 Battery Street, Seventh Floor
San Francisco, CA 94111
<PAGE> 32
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
U.S. VENTURE PARTNERS V, L.P.
USVP V INTERNATIONAL, L.P.
2180 ASSOCIATES FUND V, L.P.
USVP V ENTREPRENEUR PARTNERS, L.P.
By: Presidio Management Group V, L.L.C.
By: /s/ Steve Krausz
-----------------------------------------
Name: Steve Krausz
Title: General Partner
Address: 2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
<PAGE> 33
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
U.S. VENTURE PARTNERS VII, L.P.
By: Presidio Management Group, L.L.C.
Its: General Partner
By: /s/ Steve Krausz
-----------------------------------------
Name: Steve Krausz
Title: General Partner
Address: 2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
<PAGE> 34
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
H.R. JOHNSON AND STEVEN C. JOHNSON, AS
TENANTS IN COMMON
By: /s/ H.R. Johnson
---------------------------------
H. R. Johnson
Address: 11105 Bellavista Drive
Potomac, MD 20854
By: /s/ Steven C. Johnson
---------------------------------
Steven C. Johnson
Address: 5707 Ridgefield Road
Bethesda, MD 20816
<PAGE> 35
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
BRUCE R. HALLETT
/s/ Bruce R. Hallett
------------------------------------
Address: 1115 Ebbtide
Corona del Mar, CA 92625
GABRIELLE WIRTH
/s/ Gabrielle Wirth
------------------------------------
Address: 212 Via Eboli
Newport Beach, CA 92663
JIM DIBERNARDO
/s/ S. James DiBernardo
------------------------------------
Address: 14110 Baleri Ranch Road
Los Altos Hills, CA 94022
ZAITUN POONJA
/s/ Zaitun Poonja
------------------------------------
Address: 630 Milverton Road
Los Altos, CA 94022
JOSEPH H. CHI
------------------------------------
/s/ Joseph H. Chi
Address: 1223 Via Visalia
San Clemente, CA 92672
<PAGE> 36
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
ELIZABETH T. HALL
/s/ Elizabeth T. Hall
------------------------------------
Address: 12441 N. LaCoste Drive
Tustin, CA 92782
CRAIG S. GUNTHER
/s/ Craig S. Gunther
------------------------------------
Address: 25476 Rodeo Circle
Laguna Hills, CA 92653
BARBARA MILLER
/s/ Barbara Miller
------------------------------------
Address: 6515 Park Royal Circle
Huntington Beach, CA 92648
LISA GOON
/s/ Lisa Goon
------------------------------------
Address: 1412 Seacrest Drive
Corona del Mar, CA 92625
<PAGE> 37
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
UMB BANK, N.A., TRUSTEE OF THE
BROBECK, PHLEGER & HARRISON LLP
RETIREMENT SAVINGS PLAN FBO
GABRIELLE WIRTH
/s/ Melissa Whited
------------------------------------
Address: 1010 Grand Blvd.
Kansas City, MO 64106
UMB BANK, N.A., TRUSTEE OF THE
BROBECK, PHLEGER & HARRISON LLP
RETIREMENT SAVINGS PLAN FBO
JOSEPH H. CHI
/s/ Melissa Whited
------------------------------------
Address: 1010 Grand Blvd.
Kansas City, MO 64106
<PAGE> 38
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
PETE PATEL
/s/ Pete Patel
------------------------------------
Address: 4337 Clearwood Road
Moorpark, CA 93021
HITENDRA SONI
/s/ Hitendra Soni
------------------------------------
Address: 11443 Amber Ridge
Moorpark, CA 93021
KEVIN WALSH
/s/ Kevin Walsh
------------------------------------
Address: 11850 Silvercrest
Moorpark, CA 93021
<PAGE> 39
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
PAUL FERRIS
/s/ Paul Ferris
------------------------------------
Address: 375 Green Street
San Francisco, CA 94133
RYAN DRANT
/s/ Ryan Drant
------------------------------------
Address: 1119 St. Paul Street
Baltimore, Maryland 21202
TONY FISCH
/s/ Tony Fisch
------------------------------------
Address: 17027 Adlon Road
Encino, CA 91403
<PAGE> 40
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
RIVER OAKS INVESTMENTS, L.L.C.
/s/ Timothy R. Huff
------------------------------------
By: Timothy R. Huff, Member
Address: 131 Jefferson Street
St. Charles, Missouri 63301
ROBERT J. FABBRICATORE & PARTNERS
/s/ Robert J. Fabbricatore
------------------------------------
Address: c/o CTC Communications
220 Bear Hill Road
Waltham, MA 02451
<PAGE> 41
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
ANTARES INVESTMENTS, LLC
/s/ Ari J. Spar
------------------------------------
By: Ari J. Spar
Its: President
Address: Antares Investments, LLC
c/o Ari Spar
604 Douglas Road
Chappaqua, NY 10514
<PAGE> 42
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
MMK INVESTMENTS, LLC
/s/ Alan M. Schrager
----------------------------------------------
By: Alan M. Schrager
Its: Manager
Address: c/o National Registered Agents, Inc.
9 East Loockerman Street
Dover, County of Kent, DE 19901
<PAGE> 43
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
UA VENTURES, LLC
/s/ S. Andrew McKay
----------------------------------------
By: S. Andrew McKay
Address: 1401 Elm Road
Louisville, Kentucky 40223
Attention: S. Andrew McKay
<PAGE> 44
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
ROY WILKENS
/s/ Roy Wilkens
-----------------------------------
Roy Wilkens
Address: 8 Courtney Circle
Emory, Texas 75440
<PAGE> 45
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
BRUCE AND SUSAN YUILLE, HUSBAND AND WIFE
/s/ Bruce Yuille
-----------------------------------------
Bruce Yuille
/s/ Susan Yuille
-----------------------------------------
Susan Yuille
Address:
-------------------------------
-------------------------------
<PAGE> 46
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
SAUL AND LINA ANUZIS, HUSBAND AND WIFE
/s/ Saul Anuzis
--------------------------------------
Saul Anuzis
/s/ Lina Anuzis
--------------------------------------
Lina Anuzis
Address: 5 Locust Lane
Lansing, MI 48911
<PAGE> 47
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
JMI, INC.
/s/ Charles Noell
-------------------------------------------
By: Charles Noell, President
Address: 12680 High Bluff Drive, Suite 200
San Diego, CA 92130
<PAGE> 48
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
WEATHERS INVESTMENTS, LLC
/s/ Helen D. Weathers
------------------------------------
By: Helen D. Weathers, Manager
Address: 1967 Willeo Creek Point
Marietta, GA 30068
<PAGE> 49
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
FRANCIS X. DZUBECK AND KATHRYN A.
DZUBECK, JTWROS
/s/ Francis X. Dzubeck
-----------------------------------
Francis X. Dzubeck
/s/ Kathryn A. Dzubeck
-----------------------------------
Kathryn A. Dzubeck
Address: 2440 Virginia Avenue, NW
Suite D-309
Washington, DC 20037
<PAGE> 50
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE
VIKRAM & MAYA SHETH FAMILY TRUST
DATED FEBRUARY 9, 1994
/s/ Vikram K. Sheth
-----------------------------------
Vikram K. Sheth
/s/ Maya V. Sheth
-----------------------------------
Maya V. Sheth
Address: 18153 Chatham Lane
Northridge, CA 91326
<PAGE> 51
SCHEDULE A
SERIES D INVESTORS
NAME OF INVESTOR
MCI Worldcom Venture Fund, Inc.
Windward Ventures, L.P.
Siemens AG
New Enterprise Associates VII, Limited Partnership
US Venture Partners VII, L.P.
ONSET Enterprise Associates III, L.P.
Pacven Walden Ventures III, L.P.
Walden EDB Partners II, L.P.
Walden-Nikko Mauritius Co.
H.R. Johnson & Steven C. Johnson, as Tenants in Common
Pete Patel
Hitendra Soni
Kevin Walsh
Bruce R. Hallett
UMB Bank, n.a., Trustee of the Brobeck, Phleger & Harrison LLP Retirement
Savings Plan FBO Gabrielle
Wirth
Gabrielle Wirth
Jim DiBernardo
Zaitun Poonja
UMB Bank, n.a., Trustee of the Brobeck, Phleger & Harrison LLP Retirement
Savings Plan FBO Joseph H. Chi
Joseph H. Chi
Elizabeth T. Hall
Craig S. Gunther
Barbara Miller
Lisa Goon
Paul Ferris
Ryan Drant
Tony Fisch
River Oaks Investments L.L.C.
Antares Investments, L.L.C.
Robert J. Fabbricatore & Partners
MMK Investors, LLC
UA Ventures, LLC
Roy A. Wilkens
Bruce and Susan Yuille, husband and wife Saul & Lina Anuzis, husband and wife
JMI, Inc.
Weathers Investments LLC
Francis X. Dzubeck and Kathryn A. Dzubeck, JTWROS
Vikram and Maya Sheth Family Trust dtd February 9, 1994
<PAGE> 52
SCHEDULE B
PRIOR INVESTORS
<TABLE>
<S> <C>
Brobeck, Phleger & Harrison LLP Stanford University
Brobeck Investment Company V, L.P. Deepak Samtani
Susan N. Cayley Ashok Samtani
Rob Coneybeer Bharat Samtani
Michael R. D'Amour, Trustee of the D'Amour 2180 Associates Fund V, L.P.
Family Trust
Defta Partners U.S. Venture Partners V, L.P.
Richard A. Fink USVP V International, L.P.
Lee J. Leslie USVP V Entrepreneur Partners, L.P.
NEA Presidents Fund, L.P. Pacven Walden Ventures III, L.P.
NEA Ventures 1997, Limited Partnership Walden EDB Partners, L.P.
New Enterprise Associates VII, Limited Walden Japan Partners, L.P.
Partnership
Rajesh Nihal Walden Media & Information Technology
Fund, L.P.
Chandi Nihalani and Ishwari Nihalani Walden-Nikko Mauritius Co.
Onset Enterprise Associates III, L.P. Walden-SBIC, L.P.
Frederic A. Randall, Jr. Walden Technology Ventures II, L.P.
United Missouri Bank of Kansas City, Windward Ventures, L.P.
Successor Trustee for Brobeck, Phleger &
Harrison LLP Retirement Savings Trust,
F.B.O Frederic A. Randall, Jr.
Siemens AG
Siemens Information and Communication
Networks, Inc.
</TABLE>
<PAGE> 53
AMENDMENT NO. 1 TO
SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDMENT NO. 1 TO SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
(this "Amendment") is made as of March 2, 2000, by and between Accelerated
Networks, Inc., a California corporation (the "Company") and Williams
Communications, Inc., a Delaware corporation ("Williams"). This Amendment will
become effective upon the date hereof. All capitalized terms used herein without
definition shall have the meanings ascribed to them in that certain Second
Restated Investors' Rights Agreement dated as of February 18, 2000 (the
"Existing Rights Agreement"), among the Company and certain of its shareholders.
WHEREAS, the Company and Williams have entered into a Second Series D
Preferred Stock Purchase Agreement dated as of February 24, 2000, pursuant to
which the Company will issue to Williams, and Williams will purchase from the
Company, shares of the Company's Series D Preferred Stock;
WHEREAS, as a condition precedent to such issuance and purchase, the
Company and Williams are required to enter into this Amendment;
WHEREAS, the consent of the following shareholders of the Company is
required to approve this Amendment: (a) holders of a majority of the outstanding
Registrable Securities held by the Major Investors, (b) the holders of 66.66% of
the Registrable Securities currently outstanding and held by the Preferred Stock
Investors, and (c) the holders of a majority of the Registrable Securities
currently held by the Founders; and
WHEREAS, the Company has obtained such requisite consent to approve this
Amendment.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby the parties hereto agree
as follows:
1. The Existing Agreement is hereby amended as follows:
(a) The term "Preferred Stock Investor" as used therein shall be deemed
to include Williams.
(b) The portion of Section 2.1 of the Existing Rights Agreement which
immediately precedes subsection (a) thereof shall be amended and restated in its
entirety as follows:
3.11 "Delivery of Financial Statements. The Company shall deliver
to (i) each Preferred Stock Investor who holds (whether directly or by
application of Section 3.8) at least 1,650,000 shares of the Company's
Series A Preferred Stock, 1,000,000 shares of the Company's Series B
Preferred Stock, 1,000,000 shares of the Company's Series C Preferred
Stock, 1,000,000 shares of the Company's Series D Preferred Stock (as
adjusted for subsequent stock splits, stock dividends or
recapitalizations of the
1
<PAGE> 54
Company's capital stock) (each, a "Major Investor") and (ii) each of MCI
WorldCom Venture Fund, Inc., a Delaware corporation ("MCI") and Williams
Communications, Inc., a Delaware corporation ("Williams") and for so
long as MCI or Williams, as the case may be, holds at least 800,000
shares of the Company's Series D Preferred Stock (as adjusted for
subsequent stock splits, stock dividends or recapitalizations of the
Company's capital stock):"
(c) Section 2.2 of the Existing Rights Agreement shall be amended and
restated in its entirety as follows:
"Inspection. The Company shall permit each of MCI or Williams, for so
long as MCI or Williams, as the case may be, holds at least 800,000
shares of the Company's Series D Preferred Stock (as adjusted for
subsequent stock splits, stock dividends or recapitalizations of the
Company's capital stock), and each Major Investor, at such Investor's
expense, to visit and inspect the Company's properties, to examine its
books of account and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as
may be requested by the Investor; provided, however, that the Company
shall not be obligated pursuant to this Section 2.2 to provide access to
any information which it deems in good faith to be a trade secret or
similar confidential information."
(d) Section 2.3 of the Existing Rights Agreement shall be amended and
restated in its entirety as follows:
3.12 "Termination of Information and Inspection Covenants. The
covenants set forth in Sections 2.1 and 2.2 shall terminate as to any
Major Investor, MCI and Williams and be of no further force or effect
(i) in conjunction with or at any time subsequent to the sale of
securities pursuant to a registration statement filed by the Company
under the Act in connection with the underwritten offering of its
securities to the general public, (ii) in conjunction with or at any
time subsequent to the acquisition of more than fifty percent (50%) of
the Company's equity securities by another entity by means of any
transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation), or a sale of
all or substantially all of the assets of the Company, or (iii) after
the Company first becomes subject to the periodic reporting requirements
of Sections 12(g) or 15(d) of the 1934 Act, whichever event shall first
occur."
2. In all other respects, the Existing Rights Agreement shall remain in
full force and effect and shall apply to the parties hereto.
2
<PAGE> 55
AMENDMENT NO. 1 TO SECOND RESTATED INVESTORS' RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
THE COMPANY:
ACCELERATED NETWORKS, INC.
By: /s/ Suresh Nihalani
------------------------------------------
Suresh Nihalani, President
Address: 301 Science Drive
Moorpark, CA 93021
WILLIAMS:
WILLIAMS COMMUNICATIONS, INC.
By: /s/ Delwin L. Bothoff
------------------------------------------
Name & Title: Delwin L. Bothoff,
President, Domestic Strategic Investments
Address: One Williams Center
Tulsa, OK 74172
<PAGE> 1
EXHIBIT 10.9
ACCELERATED NETWORKS, INC.
1997 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1997 Stock Option/Stock Issuance Plan is intended to promote the
interests of Accelerated Networks, Inc., a California corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two (2) separate equity programs:
(i) the Option Grant Program under which eligible persons may,
at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock, and
(ii) the Stock Issuance Program under which eligible persons
may, at the discretion of the Plan Administrator, be issued shares of
Common Stock directly, either through the immediate purchase of such
shares or as a bonus for services rendered the Corporation (or any
Parent or Subsidiary).
B. The provisions of Articles One and Four shall apply to both equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any or all
administrative functions otherwise exercisable by the Board may be delegated to
the Committee. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.
B. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such interpretations of, the Plan and any
outstanding options or stock issuances thereunder as it may
<PAGE> 2
deem necessary or advisable. Decisions of the Plan Administrator shall be final
and binding on all parties who have an interest in the Plan or any option or
stock issuance thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Plan are as follows:
(i) Employees,
(ii) non-employee members of the Board or the non-employee
members of the board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall have full authority to determine, (i)
with respect to the option grants under the Option Grant Program, which eligible
persons are to receive option grants, the time or times when such option grants
are to be made, the number of shares to be covered by each such grant, the
status of the granted option as either an Incentive Option or a Non-Statutory
Option, the time or times at which each option is to become exercisable, the
vesting schedule (if any) applicable to the option shares and the maximum term
for which the option is to remain outstanding, and (ii) with respect to stock
issuances under the Stock Issuance Program, which eligible persons are to
receive such stock issuances, the time or times when those issuances are to be
made, the number of shares to be issued to each Participant, the vesting
schedule (if any) applicable to the issued shares and the consideration to be
paid by the Participant for such shares.
C. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Option Grant Program or to effect stock
issuances in accordance with the Stock Issuance Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed
10,650,000(1) shares.
B. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at the option exercise price paid per share, pursuant to the
Corporation's repurchase rights under the Plan shall be added back to the number
of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be
- -----------------------
(1) This number reflects the reverse 1-for-0.544 split of the Common
Stock effected by the Corporation on May 27, 1997.
2
<PAGE> 3
available for reissuance through one or more subsequent option grants or direct
stock issuances under the Plan.
C. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan and (ii) the number and/or class of securities and the exercise
price per share in effect under each outstanding option in order to prevent the
dilution or enlargement of benefits thereunder. The adjustments determined by
the Plan Administrator shall be final, binding and conclusive. In no event shall
any such adjustments be made in connection with the conversion of one or more
outstanding shares of the Corporation's preferred stock into shares of Common
Stock.
3
<PAGE> 4
ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:
(i) The exercise price per share shall not be less than
eighty-five percent (85%) of the Fair Market Value per share of Common
Stock on the option grant date.
(ii) If the person to whom the option is granted is a 10%
Shareholder, then the exercise price per share shall not be less than
one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Four
and the documents evidencing the option, be payable in cash or check made
payable to the Corporation. Should the Common Stock be registered under Section
12(g) of the 1934 Act at the time the option is exercised, then the exercise
price may also be paid as follows:
(i) in shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date,
or
(ii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions (A)
to a Corporation-designated brokerage firm to effect the immediate sale
of the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes required
to be withheld by the Corporation by reason of such exercise and (B) to
the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
4
<PAGE> 5
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option grant. However, no option shall have a term in excess of ten (10)
years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Should the Optionee cease to remain in Service for any
reason other than Disability or death, then the Optionee shall have a
period of three (3) months following the date of such cessation of
Service during which to exercise each outstanding option held by such
Optionee.
(ii) Should Optionee's Service terminate by reason of
Disability, then the Optionee shall have a period of twelve (12) months
following the date of such cessation of Service during which to exercise
each outstanding option held by such Optionee.
(iii) If the Optionee dies while holding an outstanding option,
then the personal representative of his or her estate or the person or
persons to whom the option is transferred pursuant to the Optionee's
will or the laws of inheritance shall have a twelve (12)-month period
following the date of the Optionee's death to exercise such option.
(iv) Under no circumstances, however, shall any such option be
exercisable after the specified expiration of the option term.
(v) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate
and cease to be outstanding with respect to any and all option shares
for which the option is not otherwise at the time exercisable or in
which the Optionee is not otherwise at that time vested.
2. The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following Optionee's cessation of Service or death from the
limited period otherwise in effect for that option to such greater
period of time as the Plan Administrator shall deem appropriate, but in
no event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of
vested shares of Common
5
<PAGE> 6
Stock for which such option is exercisable at the time of the Optionee's
cessation of Service but also with respect to one or more additional
installments in which the Optionee would have vested under the option
had the Optionee continued in Service.
D. SHAREHOLDER RIGHTS. The holder of an option shall have no
shareholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. UNVESTED SHARES. The Plan Administrator shall have the discretion
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, all or (at the discretion of the Corporation and with the consent of the
Optionee) any of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right. The Plan Administrator may not impose a vesting schedule upon
any option grant or any shares of Common Stock subject to the option which is
more restrictive than twenty percent (20%) per year vesting, with the initial
vesting to occur not later than one (1) year after the option grant date.
F. FIRST REFUSAL RIGHTS. Until such time as the Common Stock is first
registered under Section 12(g) of the 1934 Act, the Corporation shall have the
right of first refusal with respect to any proposed disposition by the Optionee
(or any successor in interest) of any shares of Common Stock issued under the
Plan. Such right of first refusal shall be exercisable in accordance with the
terms established by the Plan Administrator and set forth in the document
evidencing such right.
G. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death.
H. WITHHOLDING. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of any options granted under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of the Plan shall be applicable to Incentive Options. Options which
are specifically designated as Non-Statutory Options shall not be subject to the
terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
6
<PAGE> 7
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one (1) calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% SHAREHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Shareholder, then the option term shall not exceed five (5)
years measured from the option grant date.
III. CORPORATE TRANSACTION
A. The shares subject to each option outstanding under the Plan at
the time of a Corporate Transaction shall automatically vest in full so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for all of the shares of Common Stock at
the time subject to that option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. However, the shares subject to an
outstanding option shall not vest on such an accelerated basis if and to the
extent: (i) such option is assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and the Corporation's repurchase rights
with respect to the unvested option shares are concurrently assigned to such
successor corporation (or parent thereof) or (ii) such option is to be replaced
with a cash incentive program of the successor corporation which preserves the
spread existing on the unvested option shares at the time of the Corporate
Transaction and provides for subsequent payout in accordance with the same
vesting schedule applicable to those unvested option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction, had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class
7
<PAGE> 8
of securities available for issuance under the Plan following the consummation
of such Corporate Transaction and (ii) the exercise price payable per share
under each outstanding option, provided the aggregate exercise price payable for
such securities shall remain the same.
E. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration (in whole or in part) of
one or more outstanding options (and the automatic termination of one or more
outstanding repurchase rights, with the immediate vesting of the shares of
Common Stock subject to those terminated rights) upon the occurrence of a
Corporate Transaction, whether or not those options are to be assumed or
replaced (or those repurchase rights are to be assigned) in the Corporate
Transaction.
F. The Plan Administrator shall also have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to structure such option so that the shares subject
to that option will automatically vest on an accelerated basis should the
Optionee's Service terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which the option is assumed and the
repurchase rights applicable to those shares do not otherwise terminate. Any
such option shall remain exercisable for the fully-vested option shares until
the earlier of (i) the expiration of the option term or (ii) the expiration of
the one (1)-year period measured from the effective date of the Involuntary
Termination. In addition, the Plan Administrator may provide that one or more of
the Corporation's outstanding repurchase rights with respect to shares held by
the Optionee at the time of such Involuntary Termination shall immediately
terminate on an accelerated basis, and the shares subject to those terminated
rights shall accordingly vest.
G. The portion of any Incentive Option accelerated in connection with
a Corporate Transaction shall remain exercisable as an Incentive Option only to
the extent the applicable One Hundred Thousand Dollar limitation is not
exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of such option shall be exercisable as a Non-Statutory Option under the
Federal tax laws.
H. The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.
8
<PAGE> 9
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the issue date. However, the purchase
price per share of Common Stock issued to a 10% Shareholder shall not be less
than one hundred and ten percent (110%) of such Fair Market Value.
2. Subject to the provisions of Section I of Article Four, shares
of Common Stock may be issued under the Stock Issuance Program for any of the
following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent or
Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance Program
may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. However, the Plan Administrator may not impose a vesting schedule
upon any stock issuance effected under the Stock Issuance Program which is more
restrictive than twenty percent (20%) per year vesting, with initial vesting to
occur not later than one (1) year after the issuance date.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
9
<PAGE> 10
3. The Participant shall have full shareholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further shareholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to such shares. Such waiver
shall result in the immediate vesting of the Participant's interest in the
shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
C. FIRST REFUSAL RIGHTS. Until such time as the Common Stock is first
registered under Section 12(g) of the 1934 Act, the Corporation shall have the
right of first refusal with respect to any proposed disposition by the
Participant (or any successor in interest) of any shares of Common Stock issued
under the Stock Issuance Program. Such right of first refusal shall be
exercisable in accordance with the terms established by the Plan Administrator
and set forth in the document evidencing such right.
II. CORPORATE TRANSACTION
A. Upon the occurrence of a Corporate Transaction, all outstanding
repurchase rights under the Stock Issuance Program shall terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, except to the extent: (i) those repurchase
rights are assigned to the successor corporation (or parent thereof) in
connection with such Corporate Transaction or (ii) such accelerated vesting is
precluded by other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights with respect to those shares remain
outstanding, to provide that those rights shall automatically terminate on an
accelerated basis, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not
10
<PAGE> 11
to exceed eighteen (18) months) following the effective date of any Corporate
Transaction in which those repurchase rights are assigned to the successor
corporation (or parent thereof).
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
11
<PAGE> 12
ARTICLE FOUR
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price or the purchase price for shares issued to such person
under the Plan by delivering a full-recourse, interest-bearing promissory note
payable in one or more installments and secured by the purchased shares.
Promissory notes may be authorized with or without security or collateral.
However, any promissory notes delivered by a consultant must be secured by
property other than the purchased shares of Common Stock. In no event shall the
maximum credit available to the Optionee or Participant exceed the sum of (i)
the aggregate option exercise price or purchase price payable for the purchased
shares plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
II. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan became effective when it was initially adopted by the
Board on April 15, 1997. The Plan was approved by the Company's shareholders on
April 15, 1997. The aggregate number of shares reserved for issuance under the
Plan was originally 3,125,000. On May 27, 1997, the Board approved a reverse
one-for-0.544 split of the Common Stock, as a result of which the number of
shares of Common Stock approved for issuance under the Plan was reduced to
1,700,000 shares. On August 15, 1997, May 15, 1998, November 5, 1998, October 5,
1999, January 10, 2000 and March 1, 2000 the Board approved share increases of
2,3000,000, 500,000, 1,500,000, 2,000,000, 650,000 and 2,000,000 shares,
respectively in the total number of shares of Common Stocks authorized for
issuance under the Plan.
B. The Plan shall terminate upon the earliest of (i) the
expiration of the ten (10)-year period measured from the date the Plan is
adopted by the Board, (ii) the date on which all shares available for issuance
under the Plan shall have been issued or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. All options and
unvested stock issuances outstanding at that time under the Plan shall continue
to have full force and effect in accordance with the provisions of the documents
evidencing such options or issuances.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require shareholder approval
pursuant to applicable laws and regulations.
B. Options may be granted under the Option Grant Program and
shares may be issued under the Stock Issuance Program which are in each instance
in excess of the number of shares of Common Stock then available for issuance
under the Plan, provided any excess
12
<PAGE> 13
shares actually issued under those programs shall be held in escrow until there
is obtained shareholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan. If such
shareholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and
the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
V. WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock upon
the exercise of any options or upon the issuance or vesting of any shares issued
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options under the
Plan and the issuance of any shares of Common Stock (i) upon the exercise of any
option or (ii) under the Stock Issuance Program shall be subject to the
Corporation's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the options granted under it and
the shares of Common Stock issued pursuant to it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
VIII. FINANCIAL REPORTS
The Corporation shall deliver a balance sheet and an income statement
at least annually to each Optionee and Participant, unless such individual is a
key Employee whose duties in connection with the Corporation (or any Parent or
Subsidiary) assure such individual access to equivalent information.
13
<PAGE> 14
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
C. COMMITTEE shall mean a committee of two (2) or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean Accelerated Networks, Inc., a California
corporation.
G. DISABILITY shall mean the inability of the Optionee or the
Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment and shall be determined by
the Plan Administrator on the basis of such medical evidence as the Plan
Administrator deems warranted under the circumstances.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.
J. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price
is reported by the National Association of Securities Dealers on the
Nasdaq National Market or any successor system. If there is no closing
selling price for the Common Stock on the date in question,
14
<PAGE> 15
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem
appropriate.
K. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
L. INVOLUNTARY Termination shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or
her level of compensation (including base salary, fringe benefits and
target bonuses under any corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected without the
individual's consent.
M. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
N. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
O. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
15
<PAGE> 16
P. OPTION GRANT PROGRAM shall mean the option grant program in effect
under the Plan.
Q. OPTIONEE shall mean any person to whom an option is granted under the
Plan.
R. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
S. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
T. PLAN shall mean the Corporation's 1997 Stock Option/Stock Issuance
Plan, as set forth in this document.
U. PLAN ADMINISTRATOR shall mean either the Board or the Committee
acting in its capacity as administrator of the Plan.
V. SERVICE shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non--employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
W. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
X. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
Y. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.
Z. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
AA. 10% SHAREHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
16
<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 [***]. 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.
- -------------
*** 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> 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 [***] ("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 [***] 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.
3
<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.
4
<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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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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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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<PAGE> 1
EXHIBIT 10.14
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.
- --------------------------------------------------------------------------------
MATERIALS AND MANUFACTURING AGREEMENT
BY AND BETWEEN
ARROW ELECTRONICS, INC.
AND
ACCELERATED NETWORKS, INC.
DATED
MARCH 15, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
MATERIALS AND MANUFACTURING MANAGEMENT AGREEMENT
BOARD ASSEMBLY (ACTIVE)
This Agreement is entered into as of 15 MARCH, 1999, by and
between ACCELERATED NETWORKS, INC. ("Customer") with its principal place of
business at 301 Science Drive, Moorpark, CA 93021 and the SEMICONDUCTOR GROUP of
Arrow Electronics, Inc. ("Arrow") with its principal place of business at 25 Hub
Drive, Melville, New York 11747-3509.
The Customer and Arrow hereby agree as follows:
1. WORK, ENGINEERING CHANGE ORDERS, ATTRITION KITS, MANUFACTURING YIELD,
PAYMENT, PRICE, TAXES AND SUBCONTRACTORS
1.1 WORK. Arrow agrees to use reasonable commercial efforts to perform
the work ("Work") pursuant to purchase orders or changes to purchase orders
issued by Customer and accepted by Arrow. Work shall mean to procure components
and other supplies ("Components") and to engage a subassembly house (the
"Subcontractor") to manufacture or assemble products ("Products") pursuant to
detailed, written specifications ("Specifications") for each such Product which
are provided by Customer and accepted by Arrow and to deliver such Products to a
Customer designated location. For each Product or revision thereof,
Specifications shall include but not be limited to bill of materials,
schematics, assembly drawings, test specifications, current revision number, and
a Customer approved Subcontractor and vendor list. All printed circuit boards
(PCBs) to be provided hereunder are listed in APPENDIX 1 hereto, and will amend
from time to time as mutually agreed upon.
1.2 ENGINEERING CHANGE ORDERS. Any engineering change order or other
change that results in any revision to the Specifications for any Product
("ECO") must be in writing, signed and dated by Customer. Arrow will make a
reasonable best effort to acknowledge receipt of, and impact of and to sign and
return a copy of the revised Specifications to Customer within forty-eight (48)
hours of receipt by Arrow of such written notice. In the event that the price,
or delivery schedule, or both, are affected by the ECO(s), Arrow shall make a
reasonable best effort to notify Customer within forty-eight (48) hours as to
the impact of any such changes and shall provide Customer with the date when any
such ECO will become effective. Components that are affected by any ECO shall be
treated in accordance with Section 4.3 hereof. Arrow shall not take action on
any ECO from Customer until Customer has indicated in writing to Arrow that such
request is acceptable to Customer.
1.3 INTENTIONALLY OMITTED (NOT APPLICABLE).
1.4 MANUFACTURING YIELD. As part of the manufacturing process there will
be completed Products that the test procedures and equipment or
manufacturability will not "yield" as good. After review of the test procedures,
the supplied test equipment, and manufacturability by the Subcontractor, this
"yield" loss is not expected to exceed [***] of the total Products produced. The
Subcontractor will use available troubleshooting techniques and equipment, but
after due diligence the defective Products within this percentage will be
shipped
- --------------------
*** 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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separately from the "good" Products, marked as "Assembly Rejects" and invoiced
to the Customer at the contracted pricing. Product loss due to manufacturing or
handling errors or losses greater than the above percentage will be the
responsibility of the Subcontractor. After Customer's receipt and review of
these Assembly Rejects, if the defect was due to material defects or
manufacturing process errors the Customer's account will be credited for the
invoiced Product price.
1.5 PAYMENT. Terms of payment shall be [***] from the date of invoice,
payable in U.S. Dollars.
1.6 PRICE. Price for the Work shall be as agreed upon by Arrow and
Customer from time to time as set forth in purchase orders issued by Customer
and accepted by Arrow. Preliminary prices shall be as set forth in Appendix 1,
attached hereto, and made a part hereof. Arrow agrees to review pricing as set
forth in Appendix 1, with Customer, every ninety (90) days during the term of
this Agreement. Price reductions or increases (if applicable) shall be
negotiated on a case by case basis. In the event the parties are unable to
mutually agree on any such price change(s), within a thirty (30) day period from
notification thereof, unless otherwise mutually agreed, any such item(s) shall
be removed from Appendix 1, within the terms of this Agreement.
1.7 TAXES. Customer shall be responsible for payment of all taxes
relating to the sale of the Products including but not limited to any license
fees and sales taxes.
1.8 SUBCONTRACTORS. The Work may be performed, in whole or in part, by
third parties selected by Arrow and approved by Customer.
2. COMPONENTS, WARRANTY AND RETURNS
2.1 COMPONENTS. All Components, other materials and equipment required
in connection with the Work acquired or supplied by Arrow will be in compliance
with the Specifications, except Components, other materials or equipment which
are supplied by Customer ("Customer Components"). Arrow shall bear the risk of
loss for Customer Components while in Arrow's care and custody, while
Subcontractor shall bear the risk of loss for Customer Components while in its
care and custody.
2.2 WARRANTY. Seller warrants to Buyer that Products purchased hereunder
will conform to the applicable manufacturer's specifications for such Products
and that any value-added work performed by Seller of such Products will conform
to the applicable Buyer's specifications relating to such work. Seller makes no
other warranty, express or implied, with respect to the Products. IN PARTICULAR,
SELLER MAKES NO WARRANTY RESPECTING THE MERCHANTABILITY OF THE PRODUCTS OR THEIR
SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR USE OR RESPECTING
- --------------------
*** 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
INFRINGEMENT. However, Seller will transfer to Buyer whatever transferable
warranties and indemnities Seller receives from the manufacturer of the
Products. With respect to Products which do not meet applicable manufacturer's
specifications and with respect to value-added work by Seller which does not
meet applicable Buyer's specifications, Seller's liability is limited (at
Seller's election) to (1) refund of Buyer's purchase price paid for such
Products (without interest), (2) repair of such Products, or (3) replacement of
such Products; provided, however, that such Products must be returned to Seller,
if Seller is unable to repair or replace despite diligent efforts, Seller shall
refund Buyer's purchase price paid for such Products (without interest) along
with acceptable evidence of purchase, within twenty (20) days from date of
delivery, transportation charges prepaid. NEITHER PARTY SHALL IN ANY EVENT BE
ENTITLED TO, AND NEITHER PARTY SHALL BE LIABLE FOR INDIRECT, SPECIAL, INCIDENTAL
OR CONSEQUENTIAL DAMAGES OF ANY NATURE INCLUDING, WITHOUT BEING LIMITED TO, LOSS
OF PROFIT, PROMOTIONAL OR MANUFACTURING EXPENSE, OVERHEAD, INJURY TO REPUTATION
OR LOSS OF CUSTOMERS. A PARTIES' RECOVERY FROM THE OTHER FOR ANY CLAIM SHALL NOT
EXCEED THE PURCHASE PRICE FOR THE PRODUCTS IRRESPECTIVE OF THE NATURE OF THE
CLAIM, WHETHER IN CONTRACT, TORT, WARRANTY, OR OTHERWISE. THE FOREGOING
LIMITATIONS SHALL NOT APPLY TO EITHER PARTIES INDEMNITY OBLIGATIONS OR BREACH OF
CONFIDENTIALITY UNDER SECTION 8 HEREUNDER.
The attached A-Plus Manufacturing warranty statement (APPENDIX 4) is
incorporated by reference, and made a part hereof.
2.3 RETURNS. Customer may return to Arrow any Product that does not
comply with the above warranty, provided that: (i) Customer obtains a return
material authorization ("RMA") from Arrow prior to returning the Product; (ii)
the Product is returned within applicable warranty period; and (iii) the product
deficiency is identified and attached to the Product. Any Product so returned to
Arrow shall be promptly repaired or replaced, or the purchase price therefor
refunded or credited price paid, at Arrow's option. Product determined to be
defect free after inspection will be returned to Customer and Customer will be
responsible for any inspection charges from Subcontractor. This shall be
Customer's sole and exclusive remedy for any breach of any warranty provided in
this Agreement. Seller agrees to make a reasonable best effort to replace
non-conforming material within ten (10) business days of return, freight
prepaid.
3. LICENSE
3.1 GRANT. Customer grants to Arrow, with the right to sublicense to the
Subcontractor or any replacement therefor, a license under any copyright,
patent, trade secret or other proprietary right necessary or useful for the
manufacture or assembly of the Products, solely for the purpose of performing
the Work pursuant to purchase orders issued by the Customer.
3.2 OWNERSHIP. Customer represents and warrants that: (i) it owns the
entire right, title and interest to the Customer Components; (ii) the
performance of the Work does not infringe the proprietary rights of any third
party; and (iii) the Customer has the right and power to
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<PAGE> 5
enter into this Agreement. Customer agrees to indemnify Arrow and hold Arrow
harmless from and against any and all claims, losses, liabilities, damages,
expenses and costs (including attorneys' fees and court costs) that result from
a breach or alleged breach of any of these representations and warranties or
other obligations contained in this Agreement, or incurred in the settlement or
avoidance of any such claim.
4. PURCHASE ORDER COMMITMENTS, SCHEDULE AND QUANTITY CHANGES,
CANCELLATION, MINIMUM ORDER QUANTITY AND SAFETY STOCK
4.1 PURCHASE ORDER COMMITMENTS. Customer will issue a purchase order
once per calendar month which specifies all Work to be completed within a
minimum of a 60 day period commencing on the date of the purchase order.
Included with each purchase order shall be a 90 day non-binding forecast
covering the period of beyond the aforementioned 60 day firm requirement. Each
purchase order shall reference the applicable Specifications.
4.2 SCHEDULE AND QUANTITY CHANGES. Any change by Customer in the
quantity of Products or delivery date as contained in a purchase order shall be
subject to the prior written approval of Arrow except, however, Customer may
reschedule delivery of Products to a date no later than [***] beyond the
originally scheduled delivery date. Any change by Customer in the scheduled
delivery date to a date in excess of [***] from the originally scheduled
delivery date shall be deemed to be a cancellation unless otherwise agreed to by
Arrow in writing. Customer may not change the quantity of Products or delivery
date of Products within [***] of the scheduled delivery date. Customer shall be
liable for any additional costs or expenses incurred by Arrow as a result of any
change in the quantity of Products or delivery date by Customer.
4.3 CANCELLATION. Except with respect to Components of Products which
have been previously identified to Customer as long lead time Components ("Long
Lead Time Components") listed in APPENDIX 2 or custom Components ("Custom
Components") listed in APPENDIX 3, Customer may cancel delivery of Products with
written notice at least 60 days prior to the scheduled delivery date without
cost or penalty. If Customer cancels delivery of Products less than 60 days
prior to the scheduled delivery date, or if the affected Components are Long
Lead Time Components or Custom Components, Arrow shall make reasonable
commercial efforts to: (i) return the affected Components to their manufacturer
(the "Supplier") or otherwise utilize any such Components; or (ii) cancel
Arrow's orders for such Components. Customer is not obligated to pay Arrow for
Components that are returned or Components on order which are canceled at no
cost to Arrow. In the event Arrow cannot return Components to their Supplier,
otherwise utilize or cancel future orders, Arrow will ship completed Products
and affected Components to Customer and Customer shall pay: (i) for all Products
that are in Arrow's or Subcontractor's possession as of the cancellation date
that have been produced for the canceled order; and (ii) Customer's resale price
of all of the affected Components. Customer authorizes
- --------------------
*** 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.
4
<PAGE> 6
Arrow to bill these charges within sixty (60) days of the effective date of
Customer's cancellation. Should Customer fail to place an order for any Product
for any continuous period of 60 days, the Components of such Product shall be
considered canceled and shall be treated in accordance with this Section 4.3.
Further, in the event that Arrow shall have actually purchased any Customer
Components from Customer, and any such Customer Components shall not have been
repurchased by Customer hereunder within sixty (60) days of their purchase by
Arrow, such Customer Components shall be considered canceled and Customer
authorizes Arrow to bill Customer Arrow's purchase price plus a management fee
of [***] for same.
4.4 MINIMUM ORDER QUANTITY. Upon termination of this Agreement,
completion of any purchase order, or cessation of Customer's demand for any
Component, Customer shall pay Customer's resale price for all Excess Components.
Excess Components shall mean those Components specified by Customer which: (i)
are in Arrow's or Subcontractor's possession on the referenced date of
termination, completion or cessation of demand; (ii) were procured by Arrow as a
result of minimum order quantities for such Components established by their
Supplier; and (iii) cannot be returned to their Supplier or otherwise utilized
to fulfill any other Customer purchase order. Once each month Arrow shall
provide Customer with a listing of all such goods.
4.5 SAFETY STOCK. Arrow shall maintain a stock ("Safety Stock") of
Products in an amount which is mutually determined, in writing, by Arrow and
Customer. Such Safety Stock of Products will involve the assembly of Products
separate from those Products assembled for the purpose of fulfilling Customer's
purchase orders. Upon termination of the Agreement, or cessation of Customer's
demand for any Product, Arrow shall deliver, and Customer shall accept delivery
of and pay for, such Safety Stock.
5. SHIPPING
Products will be shipped F.O.B. Subcontractor's facility, which
shall constitute delivery hereunder, with title and risk of loss or damage to
pass to Customer upon shipment. No single shipment shall exceed [***] in total
unless Customer has been notified Manager of Purchasing at least three (3)
business days prior to shipment. Products are deemed accepted by Customer unless
Customer notifies, Arrow within fifteen (15) days of delivery of Product
shortage, damage, or non-conformance.
6. TERM AND TERMINATION
6.1 TERM. This Agreement shall begin upon the date hereof and shall
continue in force for a initial twelve (12) month period, unless otherwise
terminated as provided for hereunder. This Agreement may be extended for
additional twelve (12) month terms by the mutual written consent of the parties
hereto
- --------------------
*** 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.
5
<PAGE> 7
6.2 TERMINATION. This Agreement may be terminated by either party, in
whole or in part, with or without cause, upon sixty (60) days prior written
notice to the other party. The provisions of Section 4.3 hereof shall apply as
of the effective date of any termination. Termination of this Agreement shall
not affect the obligations of either party that exist as of the date of
termination.
6.3 TERMINATION FOR DEFAULT. This agreement may be terminated
immediately for cause by either party in the event the other party; (i) shall
become insolvent; (ii) ceases to function as a going concern, or; (iii) fails to
perform any of its material obligations hereunder so as to be in default and
fails within thirty (30) days cure after prior written notice thereof.
7. LIABILITY LIMITATION
NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT, NEITHER PARTY WILL BE
LIABLE UNDER ANY SECTION OF THIS AGREEMENT OR UNDER ANY CONTRACT, NEGLIGENCE,
STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR INCIDENTAL, SPECIAL,
CONSEQUENTIAL OR PUNITIVE DAMAGES, LOST PROFITS, LOST BUSINESS, OR COST OF
PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES.
8. CONFIDENTIALITY
It is understood and agreed that the terms of this Agreement are
confidential, and no news release, advertisement or public announcement, or
denial or confirmation of the same, concerning any part of the subject matter of
this Agreement shall be made by either party hereto without the prior written
consent of the other party in each instance. Further, the parties hereto
acknowledge that, during the term hereof, they may become aware of confidential,
secret or proprietary information pertaining to the other party and its
operations (including, without limitation, information with respect to bidding,
pricing, suppliers and customers, or lists thereof, research, development and
engineering, and internal operations, inventory control, data processing,
technical data, and other procedures and systems) and that disclosure of such
information would materially and adversely affect the affected party. Each party
hereto agrees to maintain such confidentiality and secrecy and not to disclose
any such information to any person, firm or other entity, or to utilize the same
in any manner or form, except as may be expressly required by the terms and
conditions of this Agreement, or is required to be disclosed by judicial or
legal proceeding. Notwithstanding anything to the contrary, the confidentiality
provisions set forth in this Section 8 shall survive any termination of this
Agreement. Information extracted from a secured and encrypted area on either
parties Internet/Intranet web site, shall be considered confidential information
under the terms of this Agreement.
9. MISCELLANEOUS
9.1 GOVERNING LAW, DISPUTE RESOLUTION. This Agreement shall in all
respects be governed by and construed in accordance with the laws of the State
of California, excluding that body of laws known as conflict of laws. The
prevailing party in any legal action
6
<PAGE> 8
or proceeding to enforce this Agreement shall be entitled to recover from the
non-prevailing party its reasonable attorneys' fees, and related costs and
disbursements, incurred in connection with such proceeding or the enforcement of
this Agreement. Both parties agree to waive trial by jury.
9.2 FORCE MAJEURE. Nonperformance under this Agreement will be excused,
and neither party will bear any resulting liability to the other, to the extent
that such performance is rendered commercially impracticable or delayed by an
act of God or any other cause beyond the reasonable control of the nonperforming
party. The time for performance shall be extended for the time period lost by
reason of the delay, provided such delay shall not exceed sixty (60) days, or
this Agreement has been terminated as provided for in sub-section 6.3 hereunder.
9.3 RELATIONSHIP OF PARTIES. The parties are and shall be independent
contractors to one another, and nothing herein shall be deemed to cause this
Agreement to create an agency, partnership, joint venture or any other
relationship between the parties.
9.4 ASSIGNABILITY. Customer may not assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement without Arrow's
prior written approval, which shall not be unreasonably withheld.
9.5 NOTICES. Notices or other communications under this Agreement shall
be in writing and shall be effective when delivered personally or by overnight
courier, or mailed, postage prepaid, by certified or registered mail to each
party at the address set forth below (or to such other address as either party
may from time to time provide the other):
Arrow Electronics, Inc. Accelerated Networks, Inc.
Semiconductor Group 301 Science Drive
25 Hub Drive Moorpark, CA 93021
Melville, NY 11747
Attention: Manager of Purchasing
Attention: Contracts Group Chief Financial Officer
9.6 ENTIRE AGREEMENT; AMENDMENT; SEVERABILITY; AND WAIVER. This
Agreement represents the entire agreement between the parties concerning the
subject matter hereof, and may not be modified except in a writing signed by
both parties. This Agreement supersedes all proposals or quotations, oral or
written, and all negotiations, conversations, or discussions between or among
the parties relating to the subject matter of this Agreement. When interpreting
this Agreement precedence shall be given to the respective parts in the
following descending order: (i) this Agreement; (ii) any exhibits to this
Agreement; and (iii) if purchase orders are used to release Product, those
portions of the purchase order that are not pre-printed. Any waiver of any
provision of this Agreement must be in writing and signed by the party alleged
to have waived such provision, and any single waiver shall not operate to waive
subsequent or other defaults. The unenforceability of any provision of this
Agreement shall not affect the remaining provisions or any portions thereof.
7
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their duly authorized representatives as of the day and year
first above written.
ACCELERATED NETWORKS, INC. ARROW ELECTRONICS, INC.
ON BEHALF OF ITS SEMICONDUCTOR GROUP:
By: /s/ Frederic T. Boyer By: /s/ A. Streber
--------------------------------- --------------------------------
Name: Frederic T. Boyer Name: A. Streber
------------------------------- ------------------------------
Title:: Chief Financial Officer Name: President
----------------------------- ------------------------------
Date: March 25, 1999 Date: April 1, 1999
------------------------------- ------------------------------
8
<PAGE> 10
APPENDIX I
TO ACCELERATED NETWORKS, INC./ARROW/SEMICONDUCTOR
MATERIALS AND MANUFACTURING MANAGEMENT AGREEMENT
BOARD ASSEMBLY (ACTIVE) DATED MARCH 15TH, 1999
UNIT PRICE MINIMUM RELEASE
PCB# DESCRIPTION (USS) QUANTITY
- ------------ ----------- ---------- ---------------
460-0003-001 COMBO CARD [***] [***]
- --------------------
*** 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.
<PAGE> 11
APPENDIX 2
TO ACCELERATED NETWORKS, INC./ARROW/SEMICONDUCTOR
MATERIALS AND MANUFACTURING MANAGEMENT AGREEMENT
BOARD ASSEMBLY (ACTIVE) DATED MARCH 15TH 1999
LONG LEAD TIME COMPONENTS
<TABLE>
<CAPTION>
ACCELERATED P/N MFG MFG P/N LEADTIME
- --------------- --- ------- --------
<S> <C> <C> <C>
001-00070-0641 SEEQ LQ80224 [***]
000-00002-0241 Dallas DS1687-3 [***]
000-00003-0321 MSYSTEMS MD2200DO8 (WAS 8PB) [***]
100-00020-1052 AVX 1206YG105ZA [***]
101-00805-1046 AVX 08055G104MA [***]
101-00805-1052 AVX 0805YG105MA [***]
</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.
<PAGE> 12
APPENDIX 3
TO ACCELERATED NETWORKS, INC./ARROW/SEMICONDUCTOR
MATERIALS AND MANUFACTURING MANAGEMENT AGREEMENT
BOARD ASSEMBLY (ACTIVE) DATED MARCH 15TH 1999
CUSTOM COMPONENTS
<TABLE>
<CAPTION>
ACCELERATED P/N MFG MFG P/N LEADTIME NC/NR - Y/N
- --------------- --- ------- -------- -----------
<S> <C> <C> <C> <C>
001-00068-3884 Lucent LUC4ABO1388 [***] Y
083-00001-001 Vicor VI-JNO-EX-F3 [***] Y
141-00010-0140 AMP 5-179010-6 [***] Y
161-00001-0032 AMP 822273-1 [***] Y
060-00002-16665 Abracon ACHL-16.667mhz [***] Y
023-002-0065 IDEA G1831B/3EG [***] Y
062-0002-0025 Epliptek EC11OOHSTS-25.OOOMG [***] Y
023-00001-0023 IERC 603-14/Q3 [***] Y
140-00045-0008 AMP 406549-4 [***] Y
023-00001-0023 Lumex 5ML-LX120GG [***] Y
101-00603-1041 Kemet C0603C104M8 [***] Y
121-01206-0R12 Dale WSL1206-.12 [***] Y
140-00016-0002 Samtec DW-02-16-L-S-300 [***] Y
</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.
<PAGE> 13
APPENDIX 4
TO ACCELERATED NETWORKS, INC./ARROW/SEMICONDUCTOR
MATERIALS AND MANUFACTURING MANAGEMENT AGREEMENT
BOARD ASSEMBLY (ACTIVE) DATED MARCH 15TH 1999
MANUFACTURING SERVICES AGREEMENT
WARRANTY FOR ACCELERATED NETWORKS
- --------------------------------------------------------------------------------
This Agreement effective as of this 18th day of March, 1999, by and between
A-Plus Manufacturing Corporation with offices at 2381 Bering Drive, Milpitas, CA
95131 ("Subcontractor") and Arrow Electronics, Inc., North American Component
Operations, with offices at 25 Hub Drive, Melville, NY 11747 ("Contractor").
"A-Plus Manufacturing Corporation warrants to Contractor and/or its Customer
that all products/services provided by it: (a) shall be of good quality and
workmanship and free from workmanship defects, (b) shall conform to all
specifications, drawings, description furnished, specified or adopted by Buyer
for a period of fifteen (15) months from the date of shipment."
IN WITNESS WHEREOF, the parties have duly executed this Agreement effective as
of the date set forth above.
Arrow Electronics, Inc. A-Plus Manufacturing Corporation
(Contractor) (Subcontractor)
By: /s/ A. Streber By: /s/ Bill Yee
-------------------------- --------------------------------------
Name: A. Streber Name: Bill Yee
------------------------ ------------------------------------
(Typed or Printed) (Typed or Printed)
Title: President Title: Senior V.P. of Operation
----------------------- -----------------------------------
Date: 4/1/99 Date: March 18, 1999
------------------------ ------------------------------------
<PAGE> 14
ACCELERATED NETWORKS, INC.
(Customer)
By: /s/ Frederic T. Boyer
Name: Frederic T. Boyer
-----------------------------------
(Typed or Printed)
Title: Chief Financial Officer
----------------------------------
Date: March 25, 1999
-----------------------------------
<PAGE> 1
EXHIBIT 10.15
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.
- --------------------------------------------------------------------------------
STANDARD AGREEMENT
BY AND BETWEEN
POWER-ONE, INC.
AND
ACCELERATED NETWORKS, INC.
DATED
JUNE 1, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
POWER-ONE POWER SUPPLIES
POWER-ONE STANDARD AGREEMENT
Between
POWER-ONE, INC.
740 CALLE PLANO
CAMARILLO, CALIFORNIA
and
ACCELERATED NETWORKS
301 SCIENCE DRIVE
MOORPARK, CA 93021
Agreement Log # 97-028
I. PURPOSE
This Agreement sets forth the terms and conditions between Power-One,
Inc. (hereinafter called "SELLER") and Company (hereinafter called
"BUYER"), for the purchase of power supplies as specified in Exhibit
"A," which satisfies all of the requirements of this Agreement.
II. TERM OF AGREEMENT
The term of this Agreement shall be effective during the period starting
June 1, 1999 (Effective Date) and ending December 1, 2000 with part
numbers, quantities and prices as specified in Exhibit "A."
III. PRODUCTS
SELLER shall manufacture and ship to BUYER, and BUYER shall accept and
pay for, at the prices set forth in Exhibit "A," products in accordance
with purchase order releases by BUYER hereunder. All such purchase
orders shall be governed by the terms of this Agreement. Additional
products may be added to this Agreement by mutual written consent.
IV. DELIVERY
Shipment of product to BUYER is FOB point of shipment. Title to Product
shall pass from SELLER to BUYER upon delivery to common carrier.
1
<PAGE> 3
V. PRODUCT IDENTIFICATION
Each unit provided to BUYER by SELLER will be identified by date code
identifying date of manufacture.
VI. RELEASES AND SCHEDULE ADJUSTMENTS
Production releases will be made only by issuance of Purchase Orders
from BUYER. SELLER will acknowledge all Purchase Orders in written form.
BUYER is responsible for taking all quantities released via purchase
orders within the terms of this Agreement.
BUYER may elect to purchase products during the term of this Agreement.
This quantity entitles BUYER to the unit price on each product as
specified on Exhibit "A." If, upon termination of the Agreement, BUYER
has not purchased the minimum quantities of products required to meet
the above referenced unit price, BUYER will be billed and agrees to pay
the difference between the unit price and the actual price entitled
BUYER as determined by Exhibit "A" for each model, and all material
liability as outlined below.
In the event of termination or non-renewal of this Agreement, BUYER
shall assume responsibility for the cost of all non-cancelable,
non-returnable materials on hand and on order to support open purchase
orders and forecast. Non-cancelable, non-returnable materials include:
finished goods; manufactured Sub-assemblies, e.g., sheet metal, PCB's;
and unique raw materials and/or materials that cannot be diverted for
use by other customers. This includes any safety stock as noted on
Exhibit "B."
For all Standard Product, (those parts listed in the Power Supply
Reference Guide) the first 45 days of the scheduled release and/or
provided forecast cannot be re-scheduled.
For all Non-standard Product, the first 60 days of the rolling schedule
is firm. For the next 30 days beyond 60 days, schedule changes will not
exceed +/-10%. The next 30 days beyond 90 days, +1-15%; The next 30 days
beyond 120 days, +/-20%.
Buyer will supply Seller with updated forecasts of the part numbers
listed on Exhibit A monthly. These forecasts will be in monthly buckets
over a planning horizon of twelve months.
VII. LIMITED WARRANTY
PRODUCT SHALL BE WARRANTED AGAINST DEFECTS IN MATERIALS AND WORKMANSHIP
FOR A PERIOD OF TWO (2) YEARS FROM DATE OF SHIPMENT. EXCEPT FOR THOSE
EXPRESSLY SET FORTH IN THIS SECTION, SELLER HEREBY DISCLAIMS ALL
REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, AS TO THE PRODUCT,
INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. SELLER WILL NOT BE LIABLE FOR ANY
DAMAGE, LOSS, COST OR EXPENSE FOR BREACH OF WARRANTY, EXCEPT AS AND TO
THE EXTENT EXPRESSLY SET FORTH IN THIS SECTION, AND BUYER AGREES THAT
SELLER'S WARRANTY LIABILITY, AND BUYER'S EXCLUSIVE
2
<PAGE> 4
REMEDY, ARE EXPRESSLY LIMITED TO THE REPAIR OR REPLACEMENT OF PRODUCTS
PURSUANT TO THE WARRANTY SET FORTH IN THIS SECTION. BUYER HEREBY
EXPRESSLY WAIVES ALL CLAIMS FOR CONSEQUENTIAL, INCIDENTAL, OR SPECIAL
DAMAGES ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT,
INCLUDING (BUT NOT LIMITED TO) ANY SUCH DAMAGES ARISING BY BREACH OF
WARRANTY, FAILURE OR DELAY IN MANUFACTURE OR DELIVERY OF PRODUCTS, OR IN
USE OR PERFORMANCE OF PRODUCTS.
VIII. PAYMENT TERMS
All invoices from the factory shall be paid within [***] of shipment
date. A penalty will be assessed at the rate of [***] percent per month
on any account unpaid after [***]. All collection costs (i.e., attorney,
court costs, etc.) will be borne by BUYER.
IX. REPAIRS
When returning products for service, please follow these procedures:
1. Contact Power-One's Product Repair Service Rep. for authorization
to return products:
Power-One, Inc. Phone: 805-987-8741 extension 4179
740 Calle Plano FAX# 805-388-0476
Camarillo, CA 93012
2. A Returned Material Authorization (RMA) will be issued and must
appear on all shipping documents and containers.
3. Products must be returned and freight prepaid. Products returned
freight collect or without an RMA Number will be rejected and
returned freight collect.
X. FORCE MAJEURE
SELLER and BUYER shall not be liable for any delay or failure to perform
its obligations under this Agreement arising out of causes beyond its
reasonable control, including, but not limited to, acts of God or public
enemy, acts of other parties, acts of civil and military authority,
epidemics, unusually severe weather, or shortage of power or fuel. In no
event shall SELLER be liable for any damages to Buyer caused thereby
whether direct, indirect, special or incidental.
- -----------------
*** 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
XI. CHOICE OF LAW
It is agreed between the parties that this Agreement shall be governed
and construed according to the laws of California.
XII. SEVERABILITY
The invalidity, in whole or in part, of any provision herein shall not
affect the validity or enforceability of any other provision herein.
XIII. NOTICE
Except as may be required for detailed instructions (such as forecasts,
Purchase Orders/confirmations) concerning administration of this
Agreement, any notices required by the Agreement, or with respect to the
Agreement, shall be considered as having been given or made, if received
by Certified or Registered Mail to:
<TABLE>
<CAPTION>
SELLER: BUYER:
------ -----
<S> <C>
Power-One, Inc. Company Name: Accelerated Networks, Inc.
740 Calle Plano Address: 301 Science Drive
Camarillo, CA 93012 Address: Moorpark, CA 93021
Attention: Vice President of Sales Attention: Chief Financial Officer
</TABLE>
XIV. BANKRUPTCY
If either party commits an act of bankruptcy, or if any proceeding in
bankruptcy or insolvency is brought by a party (or against a party and
is not dismissed within 60 days), the other party may terminate this
Agreement in whole or in part upon thirty days written notice to the
other party.
XV. HOLD HARMLESS
The BUYER shall save the SELLER harmless from and against and shall
indemnify the SELLER for any liability, loss, cost, expenses, or damages
howsoever caused by reason of any injury (whether to body, property, or
personal or business character or reputation) sustained by or to any
person or property by reason of any act, neglect, default, or omission
of BUYER or any of BUYER'S agents, employees, representatives, or for
reason of the performance of its products.
XVI. MODIFICATION OF THIS AGREEMENT
No revision, modification, or amendment of this Agreement shall be
effective unless such revision, modification, or amendment is in writing
and signed by the parties hereto.
4
<PAGE> 6
XVII. TERMINATION OF AGREEMENT
This Agreement will end on the date specified under "Period of
Performance" unless extended in writing by both parties.
XVIII. ENTIRE AGREEMENT
This Agreement constitutes the entire Agreement between the parties
hereto, supersedes and terminates without claim any and all prior and
existing Agreements or agreements whether oral or in writing, as of the
Effective Date of this Agreement.
IN WITNESS WHEREOF, the parties hereunto have caused this Agreement to be
executed by their respective duly authorized representatives on the Effective
Date hereof.
SELLER: POWER-ONE, INC. BUYER: COMPANY NAME
By: /s/ David J. Hage By: /s/ Frederic T. Boyer
---------------------------------- ---------------------------
David J. Hage Printed Name
Title: Senior V.P. Sales & Marketing Frederic T. Boyer
---------------------------
Signed Name
Date: 6/21/99
---------------------------------- Title: Chief Financial Officer
---------------------------
Date: 6/24/99
---------------------------
5
<PAGE> 7
EXHIBIT "A"
The quantities specified are a minimum, but BUYER may purchase more than this
quantity at the same price within the term of this Agreement.
<TABLE>
<CAPTION>
Production Min. Order
Item Part Number Quantity Unit Price Lead-time Per Release
- ---- ----------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
1 SP637 [***] [***] [***] [***]
</TABLE>
Any units required in less than the specified lead-time, at time of order, may
be subject to an expedite fee.
BILL-BACK CLAUSE:
If BUYER does not purchase the minimum quantity given above, the BUYER agrees to
the following bill-back based on the actual quantities purchased during the term
of this Agreement.
Actual Quantity Purchased Price Bill-back
- ------------------------- ----- ---------
[***] [***] [***]
[***] [***] [***]
[***] [***] [***]
[***] [***] [***]
- -----------------
*** 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.
6
<PAGE> 8
EXHIBIT "B"
FINISHED GOODS SAFETY STOCK
SELLER agrees to plan finished goods safety stock by coding in its information
system the following:
Item Part Number Quantity
- ---- ----------- --------
I SP637 [***]
SELLER plans on replenishing the safety stock levels within the established part
numbers' lead-time. However, should orders exceed safety stock plus forecast,
replenishment time may be greater than the lead-time.
COMPONENTS SAFETY STOCK
n/a
- -----------------
*** 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.
7
<PAGE> 1
EXHIBIT 10.16
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.
- --------------------------------------------------------------------------------
VALUE-ADDED PRODUCT SALES AGREEMENT
by and between
AVNET ELECTRONICS MARKETING, A GROUP OF AVNET, INC.
and
ACCELERATED NETWORKS, INC.
Dated
March 12, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
VALUE-ADDED PRODUCT SALES AGREEMENT
This Agreement, effective as of the 12th day of March 1999, by and
between ACCELERATED NETWORKS, INC., having offices at 301 Science Drive,
Moorpark, CA 95021 ("Buyer"), and AVNET ELECTRONICS MARKETING, A GROUP OF AVNET,
INC. having offices at 2211 S. 47th Street, Phoenix, AZ 85034 ("Seller").
1. CONDITIONS OF SALE
Any Products Buyer purchases from Seller during the term of this
Agreement shall be governed by the terms and conditions contained in EXHIBIT A
attached hereto and incorporated herein.
2. DEFINITIONS
(a) Products: Electronic components which have been processed with
various manufacturing services in accordance with specifications prepared by
Buyer. Products are listed in EXHIBIT B.
(b) Manufacturing Services: Services performed in connection with the
electronic components in accordance with specifications prepared by Buyer.
Manufacturing Services may include without limitation, assembly, testing,
processing, programming, fault analysis, repair, and kitting. Seller shall have
the right to subcontract any portion of the Manufacturing Services to a third
party ("Subcontractor"). Seller shall provide Buyer written notice of any
planned change in the selection of the Subcontractor which must be approved by
Buyer. Seller will transfer to Buyer the subcontractor warranties for the
Manufacturing Services which are annexed hereto as EXHIBIT D.
(c) Specifications: The specifications prepared by Buyer which detail
the Manufacturing Services to be performed on the electronic components.
Specifications are attached hereto as EXHIBIT C and such specification may be
modified by Buyer and provided to Seller from time to time and made a part of
this Agreement
3. AGREEMENT TO PURCHASE AND SELL
Buyer agrees to purchase and Seller agrees to sell on the terms and
conditions contained herein, the Products listed on EXHIBIT B and such other
Products as may be mutually designated from time to time. If the parties wish to
add Products to this Agreement, EXHIBITS B and C shall be amended to include
these additional Products in accordance with the procedure outlined in Paragraph
6(c).
4. TERM
This Agreement shall commence on the effective date hereof and shall
continue for a term of one (1) year. This Agreement shall be automatically
renewed for additional one (1) year terms unless sooner terminated in accordance
with the provisions of Paragraph 11 hereof.
1.
<PAGE> 3
5. PRICE
(a) Prices for the Products are set forth in EXHIBIT B as may be
modified upon mutual agreement of the parties. Prices are exclusive of any and
all Federal, State and local sales, use, excise and similar taxes and charges
which shall be the responsibility of Buyer in addition to the purchase of
products.
(b) The Seller agrees to review costs at a minimum of once every 90 days
and pass on to Buyer all price reductions obtained by Seller. This shall include
but not be limited to lowered costs from the component supplier, changes in
assembly costs, reductions in test, increased productivity and cost savings due
to increased volumes. If Seller fails to disclose such cost reductions in a
timely manner (to be defined as 30 days) the Seller agrees to reimburse the
Buyer with these costs within 30 days of Seller's identification (but not later
than the date of Seller's next quarterly cost review). This shall be limited to
only the previous 45 days shipments. In addition if the supplier for any reasons
receives lower costs during the 90 day period between costs reviews the Seller
will pass on these costs to the Buyer forthwith. Such changes will be provided
in writing by Seller and will be deemed to be accepted once a writing (in the
form of a revise purchase order) is received from the Buyer. The Buyer reserves
the right to negotiate further with the Seller if the Buyer deems the costs to
be not of fair market value. All cost reductions will be taken on immediately
upon acceptance on all products undelivered to buyer, this shall include but not
be limited to product in work-in-process at the Seller's subcontractors and
parts in transit to the Seller's subcontractors.
(c) At any time during the term of this contract the buyer may request
from the seller (in writing) the Buyer's costs associated with the previous 90
days shipments. This shall be in a standard financial form as mutually agreed.
The data provided will include previous 90 days of sales revenue associated
direct material costs and Avnet's direct labor expenses specific to program.
(d) Prices are firm for the quantities specified. Notwithstanding the
foregoing, if a manufacturer increases Sellers cost of any electronic component
or part, Seller may increase its price(s) of any undelivered Product upon prior
notice to Buyer.
6. ORDERING OF PRODUCTS/DELIVERY
(a) The purchase of Products pursuant to this Agreement shall be
effected by Buyers issuance of its purchase orders to Seller. Such purchase
orders shall reference this Agreement and shall include the description and unit
quantities of Products, applicable prices, and requested delivery dates. All
orders for Products are subject to Seller's acceptance. Seller shall schedule
delivery and initiate shipment of Products to Buyer to meet Buyer's requested
delivery date. If the Seller schedules the delivery date up to five (5) days
later than the Buyer's originally requested delivery date, the Buyer has the
right to reschedule one time within 24 hours of notification from Seller.
(b) Buyer shall schedule and maintain firm order requirements with
Seller for at least sixty 60 day periods. On a monthly basis, Buyer shall also
provide Seller with a non-binding forecast of Buyer's order requirements for a
90 day period's beyond the firm order, period.
2.
<PAGE> 4
(c) All orders for standard products may be cancelled or rescheduled by
Buyer at no charge, provided Buyer notifies Seller in writing at least [***]
prior to the originally scheduled delivery date. Requests for rescheduling
received less than [***] prior to the originally scheduled delivery date may be
accepted at a charge. Neither standard nor non standard Products may be
cancelled once component level material has been committed to the work in
process phase.
(d) All orders for special, custom, value-added and other non-standard
Products, including Products to be assembled in Kit form and non-franchised
Products ("Non-Standard Product") shall be non-cancelable and non-returnable.
(e) Whenever Buyer wishes to purchase Products not currently listed on
EXHIBIT B, the following procedures shall be followed:
1. Buyer shall provide Seller with a Request for Quotation
("RFQ") which incorporates Buyer's Specifications for the additional Products.
2. Seller shall provide Buyer with a written quotation for the
additional Products in response to the RFQ (noting exceptions, where necessary).
3. If Buyer elects to purchase such Products, it shall issue
Seller a written purchase order therefor which shall reference Sellers
quotation, including the Specifications for the Products and contain the items
listed in Paragraph 6.(a) above. Upon Seller's acceptance of the order, EXHIBIT
B AND EXHIBIT C and Specifications shall be deemed to be amended to include the
additional Products.
7. CHANGES
Buyer has the option to request, in writing, changes to any order,
including changes to the Specifications. Seller shall notify Buyer in writing as
to the impact of each such change on the price, delivery schedule and any other
terms within two (2) business days. Such change shall become effective only upon
the signing by both parties in writing (revised Buyer Purchase Order) which
incorporates the agreed upon price and terms of the change.
8. CANCELLATION/RESCHEDULING
(a) All orders for Products are non-cancelable and non-returnable. If
Buyer fails to release or accept scheduled delivery of Products pursuant to
Buyer's purchase orders, Buyer shall be responsible for payment of such Products
upon invoicing 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
(b) Buyer may reschedule delivery of Products, provided Buyer gives
Seller written notice at least [***] prior to the originally scheduled shipment
date and further provided Seller accepts the new delivery schedule. Seller's
acceptance will not be unreasonably withheld.
(c) In no event may orders be rescheduled for shipment more than [***]
after the originally scheduled delivery date.
9. BUYER FURNISHED COMPONENTS/EQUIPMENT
As mutually agreed, Buyer may provide to Seller electronic components
and/or equipment as follows:
(a) Electronic Component If Buyer wishes to provide Seller with any
components required for the production of the Products, Buyer shall specify in
its RFQ those types and quantities of components it shall provide. Seller will
purchase from Buyer components in quantities and prices mutually agreed upon.
The repurchase price for the components incorporated in the Products shall be
the price paid by Seller, plus handling charges. At Seller's request, Buyer will
repurchase any excess components not required by Seller at the price paid by
Seller. Buyer shall be required to effect warranty repair and/or replacement
with the manufacturer for any component which Seller deems defective.
(b) Equipment Any item of equipment provided by Buyer in connection with
the performance of any Manufacturing Services shall be provided on a rent-free,
loan basis. Title to any such equipment shall remain with Buyer and Buyer shall
insure the equipment in an amount at least equal to the full replacement cost
under an all-risk policy. Seller shall be responsible for loss or damage to the
equipment. Seller shall have the right to designate that the equipment be
delivered, freight prepaid, to Sellers or its Subcontractors plant and used by
either Seller or its Subcontractor. The equipment shall be provided in good
working order and Buyer shall be responsible for maintaining the equipment in
good working order. The Seller shall return any portion of the equipment upon
written notification by Buyer.
The equipment will be returned to Buyer in substantially the same
condition as provided to Seller, less reasonable wear and tear.
10. NOTICES
Any notice provided for or permitted in this Agreement will be deemed to
have been given when mailed postage prepaid by certified mail or registered
mail, return receipt requested, to the party to be notified, at the addresses
set forth above or at such other addresses as the parties may from time to time
designate in writing. Buyer's Manager of Purchasing and Chief Financial Officer
are the designated recipient for delivery of all notices from Seller unless
Buyer notifies Seller otherwise in writing.
- ----------------
*** 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.
4.
<PAGE> 6
11. TERMINATION
(a) The Seller shall give the Buyer at least ninety days prior written
notice of termination without cause and the Buyer shall give the Seller at least
90 days prior written notice of termination without cause. If a party desires
not to renew this Agreement as set forth in Section 4, in case of Seller, the
Seller shall give Buyer 90 days notice, and in case of Buyer, the Buyer shall
give Seller 90 days notice.
(b) This Agreement may be terminated immediately for cause by either
party in the event the other party: (i) shall become insolvent, (ii) ceases to
function as a going concern or (iii) fails to perform any of its obligations
hereunder so as to be in default and fails to cure default within thirty (30)
days after written notice thereof.
(c) Notwithstanding termination of this Agreement, Buyer shall be liable
for payment for all Products pursuant to orders accepted by Seller for a 90 day
period as stated in Section 6B and for all Products delivered prior to or in
transit on the effective date of termination of this Agreement.
12. INDEMNITY AGAINST INFRINGEMENT
Buyer shall indemnify and hold Seller and Subcontractor harmless against
any third party claim alleging that the Seller's sale or Subcontractor's
manufacture of the Products supplied pursuant to this Agreement and in
accordance with Buyer's Specifications, infringes any patent, copyright, mask
work right or other property right of a third party; and Buyer shall defend at
its expense any suit or proceeding against Seller or Subcontractor based upon
such a claim and shall pay all costs and damages awarded against Seller and/or
Subcontractor therein, provided that Buyer is promptly notified by Seller in
writing of the suit or proceeding and, at Buyers expense, is given sole control
of investigation, defense and settlement of said suit or proceeding and all
requested reasonable assistance of Seller and/or Subcontractor (at the expense
of Buyer) for defense of the same. Seller shall pass through to Buyer all
transferable indemnities previously agreed upon in writing and contractually
bound, with Seller, Subcontractor and OEM's.
13. GENERAL
(a) This Agreement contains the entire understanding of the parties with
respect to the subject matter hereof and supersedes all prior agreements
relating thereto, written or oral, between the parties. This Agreement may be
modified only by writings duly signed by authorized representatives of both
parties.
(b) The parties agree that the terms and conditions of this Agreement
shall control, notwithstanding conflicting or additional terms on any purchase
order, sales acknowledgement, confirmation or other document issued by either
party. Where the terms and conditions of this Agreement and Exhibit A hereto
conflict, the terms and conditions of this Agreement shall take precedence.
(c) This Agreement shall be governed by and construed in accordance with
the laws of the State of California, without giving effect to California's
conflicts of laws principles thereof.
5.
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their duly authorized representatives as of the day and
year first above written.
AVNET ELECTRONICS MARKETING, A ACCELERATED NETWORKS, INC.
GROUP OF AVNET, INC. ("Buyer")
("Seller")
By: /s/ Steve L. Larson By: /s/ Frederic T. Boyer
--------------------------------- ------------------------------
Authorized Signature Authorized Signature
Name: Steve L. Larson Name: Frederic T. Boyer
--------------------------------- ------------------------------
Printed or Typed Printed or Typed
Title: Director, Customer Contracts Title: Chief Financial Officer
--------------------------------- -----------------------------
Date: 3/18/99 3/16/99
--------------------------------- ----------------------------
6.
<PAGE> 8
EXHIBIT A
SALES TERMS AND CONDITIONS
1. Deleted
2. PAYMENT
(a) Payment for Products shall be [***] (subject to mutually agreed upon
product pricing) days Buyer's receipt of such product. Seller will EDI 810 to
Buyer all invoices on date of such invoices which will be no earlier than
Seller's date of shipment of product corresponding to such invoices. Seller may
in its sole discretion at any time and from time to time change the terms of
Buyers credit, require payment in cash before shipment of any or all of the
Products specified herein. Buyer agrees to submit such financial information
from time to time as may be reasonably requested by Seller for the establishment
and/or continuation of credit terms.
(b) Checks are accepted subject to collection and the date of collection
shall be deemed the date of payment.
(c) On any undisputed invoice not paid by maturity date, Buyer shall pay
Seller, interest starting on the maturity date at the annual rate of 18% or, if
lower, the maximum rate allowable by law, Seller's costs of collection
(including reasonable attorneys' fees).
(d) Buyer agrees to pay the entire net amount of each undisputed invoice
rendered by Seller pursuant to the terms of each such invoice without offset or
deduction.
3. DELIVERIES/TITLE
(a) Delivery of the Products to a carrier shall constitute delivery to
Buyer, and risk of loss shall thereupon pass to Buyer; Delivery route shall be
the election of Seller unless specifically designated, in writing, by Buyer.
4. FREIGHT
(a) Unless otherwise agreed to in writing, the F.O.B. point shall be
Seller's designated facility and the amount of all transportation charges from
Sellers location shall be paid to Seller by Buyer in addition to the purchase
price of the Products.
(b) Seller needs to notify Buyer's Manager of Purchasing (at 301 Science
Dr., Moorpark, CA 95021) of shipments in excess of [***] per shipment at least
three (3) business days prior to shipment in order that buyer can insure
shipment for potential loss. Shipment to be held until acknowledgement of
notification by Buyer to Seller that shipment exceeds [***] threshold.
- ----------------
*** 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.
Exhibit A-1.
<PAGE> 9
5. FORCE MAJEURE
Neither party shall be liable for failure to fulfill its obligations
contained herein or for delays in delivery due to causes beyond its reasonable
control, including, but not limited to, acts of God, acts or omissions of the
other party, acts or omissions of civil or military authority, Government
priorities, material shortages, fire, strikes, floods, earthquakes, epidemics,
quarantine restrictions, riots, war, and delays in transportation. The time for
performance of any such obligation shall be extended for the time period lost by
reason of the delay, not to exceed 90 days at which time, by mutual agreement,
the unaffected party may terminate this Agreement without further obligation.
6. SELLER'S LIMITED WARRANTY AND LIMITATION OF LIABILITIES
Seller warrants to Buyer that Products purchased hereunder will conform
to the applicable manufacturer's specifications for such Products and that any
value-added work performed by Seller on such Products will conform to applicable
Buyers specifications relating to such work. Seller makes no other warranty,
express or implied, with respect to the Products. IN PARTICULAR, SELLER MAKES NO
WARRANTY RESPECTING THE MERCHANTABILITY OF THE PRODUCTS OR THEIR SUITABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE OR USE OR RESPECTING INFRINGEMENT. However,
Seller will transfer to Buyer whatever transferable warranties and indemnities
Seller receives from the manufacturer of the Products. With respect to Products
which do not meet applicable manufacturers specifications and with respect to
value-added work by Seller which does not meet applicable Buyers specifications,
Seller shall either (1) repair such Products, or (2) replace such Products;
provided, however, if Seller is unable to repair or replace despite commercially
reasonable efforts, Seller shall refund Buyer's purchase price of such Products
(without interest) along with acceptable evidence of purchase, within fifteen
(15) months from the date Buyer returns the Product(s) to Seller transportation
charges prepaid. Buyer shall return such Products to Seller from date of
delivery, transportation charges prepaid. NEITHER PARTY SHALL IN ANY EVENT BE
ENTITLED TO, AND NEITHER PARTY SHALL BE LIABLE FOR INDIRECT, SPECIAL, INCIDENTAL
OR CONSEQUENTIAL DAMAGES OF ANY NATURE INCLUDING, WITHOUT BEING LIMITED TO, LOSS
OF PROFIT, PROMOTIONAL OR MANUFACTURING EXPENSES, OVERHEAD, INJURY TO REPUTATION
OR LOSS OF CUSTOMERS. BUYER'S RECOVERY FROM SELLER FOR ANY CLAIM SHALL NOT
EXCEED BUYER'S PURCHASE PRICE FOR THE PRODUCTS IRRESPECTIVE OF THE NATURE OF THE
CLAIM, WHETHER IN CONTRACT, TORT, WARRANTY, OR OTHERWISE. THE LIMITATION OF
LIABILITY IN THE PRECEDING SENTENCE SHALL NOT APPLY TO BREACH OF CONFIDENTIALITY
OBLIGATIONS UNDER SECTION 9. OF THIS EXHIBIT A.
7. PRODUCT RETURNS
(a) Buyer is deemed to have accepted the Products unless written notice
of rejection is given within a reasonable time, which is agreed to be within
thirty (30) days after receipt. Buyer waives any right to revoke acceptance
thereafter:
Exhibit A-2.
<PAGE> 10
(b) No return of Products will be accepted by Seller without a return
material authorization number (RMA No.) which Seller may not unreasonably
withheld. Unused Product must be complete with all packing materials and
documentation. Seller agrees to absorb freight costs for properly returned
items. If returned Products are claimed to be defective, a complete description
regarding the nature of the defect must be included with all returned Products.
All items not eligible for credit will be returned to Buyer, transportation
collect. Seller agrees to turnaround all RMAs to buyer in ten (10) business
days, and such product to Buyer freight prepaid using all reasonable effort.
8. Deleted.
9. CONFIDENTIALITY
(a) If either party hereto receives from the other party written
information which is marked "Confidential" and/or "Proprietary" the receiving
party agrees not to use such information except in the performance hereof, nor
disclose such information to any third party, excluding Seller's sub-contractors
and OEM's, without mutual consent, and to treat such information in the same
manner as it treats its own confidential information. Confidential information
that is disclosed orally or visually shall be confirmed as confidential or
proprietary in writing within twenty (20) days after such disclosure. The
obligation to keep information confidential shall not apply to any such
information that has been disclosed in publicly available sources; is already in
the rightful possession of the party receiving the confidential information
without an obligation of confidentiality; or is required to be disclosed by
operation of law. Except as otherwise provided herein, the obligation not to
disclose or use confidential information shall be for a period of four (4) years
after the termination hereof.
(b) Information obtained by Seller from a secured area on Buyer's
Intranet web site shall be deemed confidential information.
10. USE OF PRODUCTS IN LIFE SUPPORT AND NUCLEAR APPLICATIONS
Products sold by Seller are not designed for use in life support or
nuclear applications. Seller's customers using or selling Products for use in,
life support or nuclear applications do so at their own risk, agree that Seller
and the manufacturer of Products are not liable, in whole or in part, for any
claim or damage arising from such use, and agree to fully indemnify Seller and
the Manufacturer from and against any and all damages, loss, cost, expense or
liability arising out of or in connection with the use or performance of
Products in life support or nuclear applications.
11. ADVICE
If technical advice is offered or given in connection with the use of
any Products it will be as an accommodation to Buyer and without charge and
Seller shall have no responsibilities or liabilities whatsoever for the content
or use of such advice.
Exhibit A-3.
<PAGE> 11
12. SOFTWARE
Computer software, if any, is transferred by Seller to Buyer pursuant to
a single user license the royalty, terms and conditions of which are set forth
on or in the container in which such software is packaged.
13. GENERAL
(a) No rights, duties, agreements or obligations hereunder may be
assigned or transferred by either party without the prior written consent of the
other. The obligations, rights, terms and conditions hereof shall be binding
upon and inure to the benefit of the parties hereto and their successors and
assigns.
(b) The waiver of any breach of any term, condition or covenant hereof
or default under any provision hereof shall not be deemed to constitute a waiver
of any other term, condition, or covenant contained herein or of any subsequent
breach or default of any kind or nature.
(c) Any provision hereof which is prohibited or unenforceable in any
jurisdiction Shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof in that jurisdiction or affecting the validity or
unenforceability of such provision in any other jurisdiction.
Exhibit A-4.
<PAGE> 12
Exhibit C
[AVNET iMS
Integrated Material Services][AVNET Logo]
- --------------------------------------------------------------------------------
AVNET IMS
STATEMENT OF WORK
- --------------------------------------------------------------------------------
Note to the user: This document is to be utilized for informational purposes in
the event a Customer has not established a statement of work. It is not intended
to be utilized as a contractual standard, but rather an example of typical
statement of work elements.
- --------------------------------------------------------------------------------
REV 1.3 MARCH 12, 1999
PURPOSE
This Statement of Work identifies applicable requirements by Accelerated
Networks (hereafter referred to as the Buyer) and Avnet (hereafter referred to
as the Seller) on this procurement.
REFERENCE DOCUMENTS
The following documents and specifications form a part of this SOW.
SPECIFICATIONS DOCUMENTS
- -------------- ---------
Buyer's Packaging Specifications Exhibit A - Terms and Conditions
Exhibit B - Parts List
Exhibit C - Bill of Materials
EXCEPTIONS
Any exception or change to this Statement of Work will be mutually agreed to and
must be approved in writing by both parties prior to implementation.
PACKAGING
All parts shall be packaged according to the manufacturer's minimum packaging
quantity unless otherwise specified. ESD sensitive components shall be packaged
in accordance with EIA625
Exhibit C-1.
<PAGE> 13
guidelines. Non-ESD sensitive components shall be shipped in the packaging
received from the OEM. Any special packaging requirements shall be listed by
Buyer in Buyer's Packaging Specifications.
PCBA packaging will be in accordance with EMSI providers supplied specification
or standard unless otherwise requested and identified by a Buyer supplied
specification.
NON-CONFORMING MATERIAL
Seller shall inform the Buyer, in writing, of any component material that is
received by Seller from an OEM which is found to be non-compliant to the Buyer's
specification and cannot be resolved by the Seller. Permission to ship
non-conforming material to Buyer shall be expressed in the form of written
authorization from Buyer to Seller.
CORRECTIVE ACTION
If Seller receives a corrective action request from Buyer, the Seller is
requested to provide an acknowledgment of receipt within two (2) business days.
Upon the receipt of a corrective action request from the Buyer, the Seller shall
review and implement measures to prevent further occurrence. The Seller will
notify Buyer in writing within ten (10) days Upon the implementation of the
corrective action plan.
ENGINEERING CHANGE PROCESS
The Seller shall be an active participant in the Buyer's Engineering Change
Process (ECP). Buyer shall express fit, form, function, process or project scope
change requests in writing to Seller. Such changes may include, but not be
limited to: part number, packaging and labeling changes. Seller will provide
change response in forty-eight (48) hours which shall include any applicable
cost impact to Buyer resulting from requested change. Seller shall not take
action on any change request until written acceptance of Seller's response to
Buyer has been received by Seller. Dependent on the change, a revision to
applicable documents will be submitted in writing from the Buyer to the Seller
(SOW, ASL, BOM, PO). Buyer shall submit to Seller a cover page with each
purchase order revision summarizing the change.
CONTRACT MANUFACTURER
The first pass yield is targeted at [***]. With the addition of debug the
expected yield should increase [***]. The forecast will include an overage to
compensate the failures from the first pass. Buyer shall issue purchase order
for upside coverage required by Seller in meeting 100%
- ----------------
*** 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.
Exhibit C-2.
<PAGE> 14
yield target. Buyer shall take delivery of all product manufactured against
issued purchase order/forecast.
FORECAST METHODOLOGY
Buyer shall provide schedule and maintain firm order requirements with Seller
for a minimum of ninety (90) day periods. On a monthly basis, Buyer shall
provide Seller with a forecast (MRP) update of Buyer's order requirements for
ninety (90) day periods beyond the firm order period. This shall be done via a
flat file. The Buyer's forecast will be PCBA level. If the Buyer request Seller
to provide material upside coverage and or long lead-time component support
beyond firm order or forecast period, that upside will be identified in this
Statement of Work and will be inclusive in the monthly forecast quantity. In the
event of an unforeseen increase above and beyond the forecast and upside
requirement, Buyer and Seller agree to negotiate the cost of premium freight
and/or unit cost price variance resulting from this unforeseen demand.
If the Buyer wishes to purchase product not listed on the forecast, BOM,
purchase order or parts list, Buyer shall provide Seller with a Request for
Quotation (RFQ) which incorporates the Buyer's specifications for the additional
product. Seller shall provide Buyer with a written quotation and will note any
exceptions taken where applicable.
MATERIAL PROCUREMENT and DELIVERY
PRICING
Pricing strategy will be mutually agreed upon between Buyer and Seller and will
be identified in Exhibit B to the contract, bill of materials / parts listing,
applicable to this program.
ORDERING OF PRODUCT
BUYER SHALL PROVIDE SELLER WITH HARD COPY BILL OF MATERIALS AS WELL AS, DISK
FORMAT TO BE UTILIZED IN THE QUOTATION STAGE.
The Seller is responsible for assuring that all supplies and services procured
from selected Suppliers conform to the PO. Supplier selection shall be based
upon the Approved Supplier Listing (ASL). Whenever the procurement package
requires suggested source of supply, the use of this source shall be considered
mandatory and designated on the ASL as a single source Supplier. In the event
that a Buyer specified, single source of supply has been disapproved by the
Buyer, the Buyer will provide written notice and a revised ASL will be issued.
The Seller may submit an alternate source for Buyer consideration and approval.
Any new Buyer direction that affects a sole source part number will be subject
to price, initial Supplier lead times and allocations.
Exhibit C-3.
<PAGE> 15
Seller ensures that [***] of backlog material is in the pipeline or in place
based on the latest rolling Buyer forecast to maintain on-time delivery. This
material will be lead time dependent based upon most recent forecast supplied.
Seller will provide all reasonable efforts to secure additional supply of
material on a case-by-case basis as agreed to by both parties. Buyer shall issue
to Seller a separate purchase order covering all product that is in excess of
[***] leadtime. Seller shall identify this product on Exhibit B, parts list.
Seller will review and react to demand changes to Buyer's forecast on a monthly
basis so that any changes are facilitated with the Suppliers on a timely basis.
Seller will review and respond with any insupportable deliveries to the forecast
within forty-eight (48) hours if the information is sent electronically or
within ninety-six (96) hours of receipt if the forecast is sent manually.
Seller's pipeline shall be subject to material lead times with Seller exerting
all reasonable effort to minimize potential delivery times.
LIABILITY AND EXCESS PRODUCT
Seller will notify Buyer in writing of any liability excess product that has not
been used within a sixty (60) day period. Seller will require a purchase order
from Buyer on liability product held in wait over sixty (60) days. All standard
product not used will be stock rotated back into Seller corporate inventory. A
snapshot report of inventory position will be provided to Buyer on a weekly
basis.
DELIVERY
Delivery will be, to the Buyer's designated location via agreed upon carriers as
stated in the. Buyer's purchase order. The delivery schedule shall be in
accordance with the Buyer's forecast. The trigger method designating material
release from Seller to Buyer shall be scheduled purchase order release date. The
Buyer retains the right to adjust purchase order delivery schedules as required,
with approval from the Seller. Notification from Buyer to Seller to adjust
purchase order schedules will occur in written form unless otherwise agreed to
by both parties.
INVOICING
Seller shall submit invoices to Buyer on a daily basis unless otherwise agreed
to in writing by Seller. The invoice shall include the PCBA number, quantity,
description, purchase order number and extended price totals.
- ----------------
*** 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.
Exhibit C-4.
<PAGE> 16
PROGRAMMING
Component programming data will be provided to Seller in the form of a Master
and a Disk. Seller shall provide to Buyer, first articles on all new programs
which will require signed approval by Buyer prior to production. The programming
of the components will be completed 7 days prior to kit release.
CANCELLATION/RESCHEDULING
All orders for standard products may be canceled or rescheduled by the Buyer at
no charge provided Buyer notifies Seller in writing at least [***] prior to the
release of kits to the EMSI provider. Requests for cancellation or rescheduling
received less [***] prior to the originally scheduled delivery date may be
accepted at a charge to be determined in writing by the Seller.
All orders for special, custom, value-added and other non-standard products,
including franchised special or custom product, shall be non-cancelable and
non-returnable. Additionally, once product has entered the Work-In-Process stage
it shall be considered non-cancelable and non-returnable. Non-cancelable and
non-returnable product will be identified as such on Exhibit B and on each PCBA
BOM supplied to Buyer by seller which shall be signed as acknowledgement by
buyer.
MATERIAL MANAGEMENT / BUSINESS REVIEW
The Seller may appoint and identify to the Buyer a Material/Program Manager
specifically charged with the responsibility of accomplishing the overall
program effort.
Seller shall be required to participate in and support program review meetings
at intervals, minimally once per quarter, throughout the period of performance
of this agreement as deemed appropriate by the Buyer. These meetings shall
provide an overview of the Buyer and Sellers overall performance, issues,
schedule status, forecast accuracy, inventory position and reports presented by
various disciplines within both parties organization. Special reviews shall take
place in the form of a once per week conference call between Buyer, Seller, and
the EMSI provider. If it is determined that a high risk situation exists, a
special review may take place at the request of any party, at any time. Dates
and locations of such meetings shall be determined by mutual agreement.
- ----------------
*** 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.
Exhibit C-5.
<PAGE> 17
DEFINITION OF ACRONYMS
SOW Statement Of Work
BOM Bill Of Material
PCBA Printed Circuit Board Assembly
EMSI Electronics Manufacturing Services Industry
OEM Original Equipment Manufacturer
PO Purchase Order
MRP Material Release Planned
Exhibit C-6.
<PAGE> 18
Exhibit D
MANUFACTURING SERVICES AGREEMENT
AMENDMENT NUMBER TWO
WARRANTY FOR ACCELERATED NETWORKS
- --------------------------------------------------------------------------------
This Agreement Amendment effective as of this 2nd day of March, 1999, by and
between A-Plus Manufacturing Corporation with offices; at 2381 Bering Drive,
Milpitas, CA 95131 ("Subcontractor") and Avnet Inc. by and through its Avnet IMS
division with offices at 2211 South 47th Street, Phoenix, AZ 85034
("Contractor").
Attachment B (Subcontractor Warranty) shall be revised as follows:
A-Plus Manufacturing Corporation warrants that all products/services provided by
it: (a) shall be of good quality and workmanship and free from workmanship
defects, (b) shall conform to all specifications., drawings, description
furnished, specified or adopted by Buyer for a period of 15 months from the date
of shipment.
This amendment #2 supercedes amendment #1 dated 1/26/99.
All other terms and conditions of the Manufacturing Services Agreement, signed
October 25, 1996, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have duly Executed this Agreement effective as
of the date first above set forth.
<TABLE>
<S> <C>
Avnet Inc., A-Plus Manufacturing Corporation
- --------------------------------------------- ------------------------------------------------
by and through its Avnet IMS division (Subcontractor)
By: /s/ John Sanders By: /s/ Bill Yee
------------------------------------ ----------------------------------------
Name: John Sanders Name: Bill Yee
--------------------------------- --------------------------------------
Typed or Printed Typed or Printed
Title: Director, SBM Title: Senior VP Operations
----------------------------------- ---------------------------------------
Date: 3-8-99 Date: 3-4-99
----------------------------------- ---------------------------------------
</TABLE>
Exhibit D-1.
<PAGE> 1
EXHIBIT 10.17
AGREEMENT FOR PURCHASE OF PRODUCTS
BETWEEN
ACCELERATED NETWORKS, INC.
AND
SIEMENS INFORMATION AND COMMUNICATION NETWORKS, INC.
JANUARY 21, 1999
<PAGE> 2
AGREEMENT FOR PURCHASE OF PRODUCTS
CONTENTS
PARTIES AND SIGNATURES
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS
1.0 TERMS DEFINED
ARTICLE II CONFIDENTIALITY PROVISIONS
2.0 CONFIDENTIAL INFORMATION
2.1 DISCLOSURE BETWEEN THE PARTIES
2.2 CONFIDENTIAL INFORMATION OF THIRD PARTIES
2.3 RETURN OF CONFIDENTIAL INFORMATION
ARTICLE III PRODUCT
3.0 PRODUCT DESCRIPTION
3.1 INCOMPATIBILITIES
3.2 SPECIAL PRODUCTS
3.3 PRODUCT CHANGES
3.4 PRIVATE LABEL
3.5 CUSTOM SOFTWARE
ARTICLE IV PRICES
4.0 PRODUCT AVAILABILITY FOR PURCHASE
4.1 PRICE WARRANTY
4.2 PRICE LIST
4.3 FORECAST
4.4 DISCOUNTS
4.5 PURCHASE COMMITMENT
ARTICLE V PURCHASING TERMS AND CONDITIONS
5.0 ORDER SERVICING
5.1 CHANGE ORDER
5.2 SCHEDULE COMMITMENTS
5.3 PACKING
5.4 SHIPPING
5.5 RECEIVING AND INSPECTION
5.6 TITLE AND RISK OF LOSS
</TABLE>
PAGE i.
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI PAYMENT
6.0 PAYMENT TERMS
6.1 INVOICING
ARTICLE VII WARRANTY
7.0 WARRANTY
7.1 YEAR 2000 COMPLIANCE WARRANTY
7.2 WARRANTY EXCLUSIONS
ARTICLE VIII REPAIR SERVICE
8.0 REPAIRS NOT COVERED UNDER WARRANTY
ARTICLE IX TRAINING
9.1 TRAINING
ARTICLE X DOCUMENTATION
10.0 SPECIFICATIONS OR DRAWINGS
10.1 DOCUMENTATION
10.2 USE OF INFORMATION
10.3 REPRODUCTION OF DOCUMENTATION
ARTICLE XI COMPLIANCE
11.0 RADIO FREQUENCY ENERGY STANDARDS
11.1 REGISTRATION
11.2 TOXIC SUBSTANCES AND HAZARDOUS MATERIAL
11.3 COMPLIANCE WITH LAWS
11.4 COMPLIANCE WITH CERTIFICATION TESTS REQUIRED
BY NORTH AMERICAN PUBLIC NETWORK PROVIDERS
ARTICLE XII TERM AND TERMINATION
12.0 TERM OF AGREEMENT
12.1 TERMINATION OF AGREEMENT
ARTICLE XIII SOFTWARE
13.0 RIGHTS TO SOFTWARE
13.1 SOFTWARE ESCROW
ARTICLE XIV GENERAL PROVISIONS
14.0 TRANSFERABILITY
14.1 DISCLAIMER OF AGENCY
</TABLE>
PAGE ii.
<PAGE> 4
<TABLE>
<S> <C>
14.2 PUBLICITY
14.3 NOTICES
14.4 GOVERNING LAW
14.5 ARBITRATION
14.6 NON-WAIVER
14.7 EXECUTION OF FURTHER DOCUMENTS
14.8 OTHER REMEDIES
14.9 EFFECT OF HEADINGS
14.10 PATENT AND OTHER PROPRIETARY RIGHTS
INFRINGEMENT INDEMNIFICATION
14.11 MARKINGS
14.12 CONTINGENCY
14.13 DEVELOPMENTS BY SIEMENS
14.14 VALIDITY
14.15 LIMITATION OF LIABILITY
</TABLE>
ATTACHMENTS:
Attachment A Product Structure
Attachment B Furnished and Related Materials
Attachment C Product Specifications
Attachment D Non-Disclosure Agreements
Attachment E Price Lists
Attachment F Forecast
Attachment G Escrow Agreement
Page iii.
<PAGE> 5
AGREEMENT FOR PURCHASE OF PRODUCTS
THIS AGREEMENT, having an Effective Date of January 21st, 1999, is
hereby entered into between ACCELERATED NETWORKS, INC., a California
corporation, having a principal place of business at 301 Science Drive,
Moorpark, California 93021 (hereinafter referred to as Company), and SIEMENS
INFORMATION AND COMMUNICATION NETWORKS, INC., a Delaware corporation, having a
principal place of business at 900 Broken Sound Parkway, Boca Raton, Florida
33487 (hereinafter referred to as Siemens).
WHEREAS, Siemens desires to purchase Products (hereinafter described)
and thereafter desires to have Product delivered for Siemens' use in Siemens
products that may be offered for resale to third parties, and
WHEREAS, Company is interested in selling product to Siemens.
NOW THEREFORE, in consideration of the mutual covenants contained
herein, it is agreed as follows:
(a) The Articles and Attachments contained in this Agreement
constitute the entire agreement between the Parties;
(b) No modifications or waiver of any of the provisions, or any
future representation, promise, or addition shall be binding
upon the Parties unless agreed to in writing;
(c) This Agreement supersedes and cancels any prior agreements
between the parties with respect to the subject matter contained
herein.
IN WITNESS WHEREOF, the Parties hereto have as of the Effective Date
duly executed this Agreement, including Attachments A through G which are
incorporated herein and made a part hereof, by the respective representatives
thereunto duly authorized.
ACCELERATED NETWORKS, INC. SIEMENS INFORMATION AND
COMMUNICATIONS NETWORKS, INC.
/s/ Suresh Nihalani /s/ Fred From
--------------------------- -------------------------
By: Suresh Nihalani By: Fred From
Title: President & CEO Title: President & CEO
Date: January 17, 1999 Date: January 20, 1999
<PAGE> 6
ARTICLE I
DEFINITIONS
1.0 TERMS DEFINED
As used in this Agreement, the following terms shall have the following
respective meanings (in singular or plural usage, as indicated by the
context).
1.1 "Catalog" means any document that describes Company Products that are
generally available for sale through normal distribution channels.
1.2 "Customer" means an end-user of Product who, at the time of acquisition
of the Product, has taken possession of the Product for its end use and
does not intend to further distribute the Product.
1.3 "Effective Date" of this Agreement means the date first written above.
1.4 "Parties" means Company and Siemens.
1.5 "Product" means the Product(s) specified in Attachment A including all
generally sold, (i) standard spare parts, (ii) improvements, upgrades,
corrections, modifications, alterations, revisions, or updates, to the
specified Products made by Company during the Term of this Agreement.
1.6 "Specifications" means the technical specifications for the Products,
including, but not limited to Functional Requirements Specifications,
User Manuals, Performance Specifications and Configuration Guidelines as
set forth in Attachment C and revised by the Company from time to time.
1.7 "Related Materials" means all and any kind of information, whether or
not in documentary form, used or useful in or relating to, the use,
maintenance or marketing of Product including, but not limited to system
manuals, program manuals, test and diagnostic information, maintenance
information, and operating procedures, as more specifically set forth in
Attachment B.
1.8 "Software" means the computer instructions, including firmware, in
machine-readable language provided as part of a Product or comprising a
Product.
1.9 "Source Code" means human-readable source statements for the Software
including, without limitation, program listings, data definition models,
indices, structure tables, system flow charts, program flow charts,
defined terms, file layouts and program narratives.
1.10 "Spares" means any sub assembly generally provided by Company for field
replacement for Products including, but not limited to, components,
boards, fasteners, power supplies,
Page 2.
<PAGE> 7
cables, wiring, casings and other associated materials as more
specifically specified in Attachment A.
1.11 "Special Product" means any special feature or capability that is not a
part of the Company's generally offered Product, not contained in the
general Product Catalog and Price List, and generally built-to-order.
Special Products covered by this Agreement shall be specified in
Attachment A.
1.12 "Standard Price List" means Company's published listing of its standard
prices for which Company will sell its Products as such list is updated
from time to time by the Company as stipulated in Article IV.
1.13 "Siemens Discounted Price List" means the price list at which Siemens
will purchase the Company's product.
1.14 "Term of this Agreement" means the term of this Agreement, including any
renewal periods, as specified in Section 12.0.
ARTICLE II
CONFIDENTIALITY PROVISIONS
2.0 CONFIDENTIAL INFORMATION
For the purpose of this Agreement, "Confidential Information" shall mean
any information and data of a confidential nature, including, but not
limited to, proprietary, developmental, technical, marketing, sales,
operating, performance, cost, know-how, business and process
information, computer programming techniques, and all record bearing
media containing or disclosing such information and techniques provided
such information is conspicuously marked as being Confidential.
2.1 DISCLOSURE BETWEEN THE PARTIES
2.1.1 All Confidential Information exchanged between the Parties
pursuant to this Agreement:
(a) shall not be distributed, disclosed, or disseminated in
any way or form by the receiving Party to anyone except
its own employees, including Siemens AG, who have a
reasonable need to know such Confidential Information to
perform such Party's obligations hereunder;
(b) shall be treated by the receiving Party with the same
degree of care to avoid disclosure to any third party as
is used with respect to the receiving Party's own
information of like importance which is to be kept
secret. The receiving Party shall be liable for
disclosure of Confidential Information of the disclosing
Party only if such care is not used. The
Page 3.
<PAGE> 8
burden shall be upon the receiving Party to show that
such care was used; and
(c) shall not be used by the receiving Party for its own
purpose, except as otherwise expressly stated herein,
without the express written permission of the disclosing
Party; and
(d) shall remain the property of and be returned to the
disclosing Party (along with all copies, embodiments and
derivatives thereof) within thirty (30) days of receipt
by the receiving Party of a written request from the
disclosing Party setting forth the Confidential
Information to be returned.
2.1.2 The obligations of the above paragraph shall not apply, however,
to any information which:
(a) is already in the public domain or becomes available to
the public through no breach of this Agreement by the
receiving Party;
(b) was in the receiving Party's possession prior to receipt
from the disclosing Party as proven by the receiving
Party's written records;
(c) is received independently on a non-confidential basis
from a third party free to disclose such information to
the receiving Party; or
(d) is independently developed by the receiving Party as
proven by its written records prior to receipt from the
disclosing Party; or
(e) is the subject of subpoena or court order.
2.1.3 Either Party shall have the right to refuse to accept any
Confidential Information under this Agreement.
2.1.4 Siemens shall be free to use and distribute Products and Related
Materials in which Company's Confidential Information is
embedded and disclosed; provided, Siemens shall not distribute
or disclose any Related Materials which are not meant to be
generally distributed, including without limitation, test,
diagnostic and maintenance information and which are
conspicuously marked "Confidential".
2.1.5 No license to the receiving Party, under any trademark, patent
or copyright, or applications which are now or may thereafter be
owned by the disclosing Party, is either granted or implied by
the conveying of Confidential Information to the receiving
Party.
2.1.6 Each Party shall advise its employees, personnel, agents, staff
and representatives of the terms hereof and require them to
observe the terms and conditions hereof.
Page 4.
<PAGE> 9
2.2 CONFIDENTIAL INFORMATION OF THIRD PARTIES
Neither party shall communicate or otherwise disclose to the other,
during the Term of this Agreement, confidential or proprietary
information of third parties unless such third parties have consented to
such disclosure.
2.3 RETURN OF CONFIDENTIAL INFORMATION
Upon request of the disclosing Party, copies, derivatives and
embodiments of the disclosing Party's Confidential Information shall be
promptly returned to the disclosing Party by the receiving Party, except
to the extent such information is required by Siemens to perform its
support obligations with respect to the Products.
ARTICLE III
PRODUCT
3.0 PRODUCT DESCRIPTION
Company shall sell Products to Siemens pursuant to this Agreement,
provided no Software shall be sold, but shall be licensed to Siemens
pursuant to all the terms and conditions of this Agreement.
Company shall make available for Siemens' purchase (in the case of
hardware) and or license (in the case of Software), all improvements,
upgrades, enhancements, corrections, modifications, alterations,
revisions, updates, made to Product and Related Materials during the
Term of this Agreement on terms substantially as provided herein
provided that none of the foregoing shall include any products,
technology, information or the like developed or resulting from
Company's work for other parties and such are not made generally
available for sale by the Company.
3.1 INCOMPATIBILITIES
During the Term, Company agrees to notify Siemens in writing of
technical changes, enhancements, alterations, improvements or other
modifications to the Products that could render such altered Product
incompatible with previously provided Products or which would materially
alter the manner in which such modified Products interface with Siemens'
equipment using Siemens' previously specified interfaces. Such notice
shall be provided at least ninety (90) days prior to delivery to allow
Siemens, in the exercise of prompt due diligence, to test and determine
any necessary modifications to its equipment or to the Product to ensure
the continued marketability of the modified Product by Siemens, prior to
delivery of Product with such changes, enhancements, alterations,
improvements or other modifications.
The Company and Siemens agree to establish a testing strategy that will
minimize the potentiality of Product incompatibility.
Page 5.
<PAGE> 10
3.2 SPECIAL PRODUCTS
Special Products may be requested, quoted and developed from time to
time and added to this Agreement. Such Special Product, and associated
prices shall only become part of this Agreement on written approval of
both Parties. Once a Special Product becomes available in company's
Catalog, it shall no longer be considered a Special Product.
3.3 PRODUCT CHANGES
3.3.1 Company shall advise Siemens in writing of all changes to
Product that impact (a) reliability, (b) the Specifications, or
(c) form, fit or function in accordance with the procedures
specified herein.
3.3.2 Company may at any time make changes in the Product, or modify
the drawings and Specifications relating thereto, or substitute
Product of later design to fill an order, provided the changes,
modifications or substitutions under normal and proper use do
not impact upon the Product's (a) reliability, (b) the
Specifications, or (c) form, fit or function. For such changes,
Company shall notify Siemens in writing not later than thirty
(30) days after such change has been implemented.
Except in the case of Mandatory Changes, Company shall send
copies of a written change modification to Siemens ninety (90)
days prior to the effective date of each change to Product which
impacts on form, fit, function, reliability, or Product
Specifications. Company shall provide Siemens' with samples of
the changed Product for testing. Siemens will either return the
Product to the Company or purchase the Product at Siemens
discount price within 30 days.
"Mandatory Changes" are those changes required to correct an
extremely unsatisfactory condition requiring immediate action,
such as changes for safety or to meet existing Product
Specifications. In such cases Company shall promptly send
Siemens a written change notification. Company shall provide
with each change notification the following information: (a)
Product change number; (b) a detailed description of the change;
(c) reason for the change; (e) description of the impact of the
change; (f) price impact, if any; (g) proposed date for changes.
Company shall provide Siemens with samples of the changed
Product for testing.
In the event that Siemens reasonably rejects such change to a
Product, Siemens shall advise Company of such determination as
soon as reasonably possible, but in no event more than thirty
(30) days from the date on which the sample of the changed
Product was received by Siemens. Siemens' failure to so notify
Company shall be deemed an acceptance of the change. Company
shall not furnish any such changed Products on any of Siemens
orders if the change has been reasonably rejected.
Page 6.
<PAGE> 11
3.4 PRIVATE LABEL
3.4.1 Siemens intends to private label and market any Products
purchased hereunder under Siemens own trade names and trade
dress. The Company may agree to private label such Products,
provided that (a) the costs incurred by Company for changes to
Products and for altered materials mandated ` by such private
labeling shall be reimbursed to Company by Siemens, and that (b)
the parties shall mutually agree to any other relevant terms and
conditions of such private label services, including the
procedure for reimbursement of costs associated with private
labeling.
3.4.2 Company may, in good faith, order private label special
materials in quantities in excess of Siemens' orders, based upon
Siemens' forecasts, and Siemens shall reimburse Company for all
such materials and reasonable inventory costs associated, if
such materials are not utilized in Products for Siemens by the
end of the Annual Delivery Period as established in 4.3.
3.5 CUSTOM SOFTWARE
3.5.1 Custom Software as used herein shall mean Software requested by
Siemens and developed exclusively by Company for Siemens.
Siemens and Company shall mutually agree on the process for
contracting the development of Custom Software, payment terms
and the rights of the Parties to such custom Software prior to
the commencing of development work by Company on a request by
request basis.
ARTICLE IV
PRICES
4.0 PRODUCT AVAILABILITY FOR PURCHASE
Company agrees to have the Product and Related Materials available for
purchase and/or license, in the case of Software, by Siemens during the
Term of this Agreement at prices as set forth herein and with delivery
lead times reasonable with respect to similar Products of Company.
Company agrees that, when the Product is considered "generally
available" in the marketplace, the normal delivery performance will be
45 days after order acknowledgment or better for forecasted Product, so
long as Siemens is generally ordering in accordance with its forecasts.
Company agrees that during the Term of this Agreement it shall, if
requested by Siemens and at Siemens expense as mutually agreed, maintain
in inventory units of Product available for delivery to Siemens above
and beyond that being manufactured in response to Siemens' purchase
orders and scheduled for delivery hereunder. Siemens may order and take
delivery of such inventory in the event Siemens requires additional
quantities for sale or shipment. In the event of anticipated labor
disturbances, shortages of materials, or
Page 7.
<PAGE> 12
other conditions or events which could adversely interrupt deliveries by
Company hereunder, Company agrees to advise Siemens as soon as
reasonably possible and at Siemens' request, use commercially reasonable
efforts to manufacture, sell, and deliver to Siemens, in advance,
quantities originally scheduled for delivery during such period when
such interruptions are anticipated.
The site and facilities where Company shall manufacture the Product is
Company's facility in Moorpark, CA or at other sites of which Company
shall advise Siemens.
Upon advance notice, with the concurrence of the Company which will not
be unreasonably withheld, and subject to the Confidentiality provisions
contained herein, Siemens employees, agents or representatives may visit
Company's manufacturing premises during normal business hours to observe
Company's performance of its obligations under this Agreement.
4.1 PRICE WARRANTY
Subject to Section 4.2, during the Term of this Agreement, the terms,
conditions and prices for Products and Related Materials under which
Siemens may purchase the Product shall be no less favorable to Siemens
than those which Company provides to any other OEM purchasing the same
Product, or Product with similar functionality, in like quantities over
like time periods under like terms, conditions, delivery times and under
similar non-cancelable purchase commitments.
Company agrees that the list prices established for the sale of the
Product to Siemens are reasonable with respect to similar Products of
Company.
Company and Siemens mutually agree to establish regular meetings to
assess performance under the Agreement and to mutually resolve issues or
problems that might arise. These meetings should be conducted quarterly
and whenever required.
Company will, in concert with Siemens, periodically assess the fair
market value of the Product and may adjust the price of the Product
according to finding of such assessments.
4.2 PRICE LIST
The Company's Standard Price List and the Siemens Discounted Price List
for Product, Spares, and Special Products, during the Term of this
Agreement are specified in Attachment E. Except as set forth in Section
4.2, the prices contained in the Siemens Discounted Price List in
Attachment E shall not be increased except as mutually agreed in writing
by the Parties. Company will notify Siemens prior to any changes in the
Company's Standard Price List. Whenever a change to the Company's
Standard Price List results in a price reduction, Company will update
the Siemens Discounted Price List to reflect such price reduction(s) in
the Company's Standard Price List. Products added to the Agreement for
purchase or license shall be at prices as mutually agreed at the time of
adding to the price list.
Page 8.
<PAGE> 13
Prices under this Agreement are based upon Siemens' forecast of a
purchase level of $ 38,000,000 over the first three years of the
Agreement, of which no less than 10% will be purchased prior to
September 30, 1999, 30% between October 1, 1999 and September 30, 2000
and 60% between October 1, 2000 and September 30, 2001. In the event
that Siemens fails to purchase Products in the quantities as set forth
herein, Company shall be entitled, at its sole discretion, to adjust
Siemens' prices for Products on a going forward basis.
4.3 FORECAST
Siemens shall forecast its anticipated Product requirements for the Term
of this Agreement. An initial first year's forecast will be part of this
Agreement, as shown in Attachment F. The forecasts will be scheduled
according to the Siemens' fiscal year which is based on a 12 month
period ending in September of each year. This period of time constitutes
the Annual Delivery Period
Forecasted quantities and delivery dates are subject to change and do
not constitute a binding commitment to buy on the part of Siemens.
However, Siemens shall, on an on-going monthly basis, update the one
year forecast using its commercially reasonable best effort to provide
an accurate forecast of demand for the succeeding 12 month period.
Such forecasts are for information and planning purposes only. However,
Siemens shall make every reasonable effort to comply with its forecasts.
For each Annual Delivery Period, Siemens will provide the Company with
its forecast of purchases for that period. The forecast will indicate
expected and worst case scenarios. In the event that Siemens' orders
vary from Forecast, Company shall have the right to reduce or increase
forecast quantities, as applicable, and, while Company shall use its
commercially reasonable best efforts to accept all orders and meet lead
times, it shall not be obligated to accept orders for quantities in
excess of those forecast or which are inconsistent with Siemens'
previous purchase levels. Furthermore, beginning with the calendar
quarter ending March 31, 2000, if Siemens fails to achieve at least
seventy-five percent (75%) of the applicable quarterly forecasted
purchase amount for two consecutive prior calendar quarters, Accelerated
shall be entitled to terminate this Agreement pursuant to Section 12.0;
provided, Accelerated must exercise such right to terminate within
thirty (30) days of the last applicable quarter or be required to wait
until the end of the next applicable quarter.
4.4 DISCOUNTS
4.4.1 Subject to Section 4.2, Company agrees to sell Product to
Siemens at discounts from Company's Standard Price List. The
Siemens discounted price is as shown in the Siemens Discounted
Price List in Attachment E.
Spare part prices and discounts are specified in Attachment E.
4.4.2 Special Products prices will be individually quoted, Special
Products may be added to the Price List if mutually agreed to in
writing by both Parties.
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<PAGE> 14
4.4.3 All prices are quoted in U.S. dollars and are F.O.B. Company
factory and do not include, sales or other taxes, import duties,
special packaging, shipping or insurance charges. Such
additional charges shall be separately stated on the applicable
invoice and paid by Siemens.
4.5 PURCHASE COMMITMENT
Within 15 days of execution of this Agreement, Siemens will place an
order to meet Siemens' estimation of its requirements for training, demo
and beta testing. These Products will be purchased with a special
discount for non- revenue producing Product as established in ATTACHMENT
E.
Within thirty (30) days of execution of this Agreement, Siemens will
place an order for equipment on the Company that will be used for
Customer sales. This value of this order will be $500,000. The delivery
of Product for this order may be rescheduled per the terms and
conditions of this Agreement with the provisions that in the absence of
"Extenuating Circumstances" as set forth below, (a) the order is
non-cancelable and (b) payment must be made no later than October 1,
1999. Extenuating Circumstances will apply if Company fails to meet its
obligations under this Agreement in terms of Product features, Product
availability, Product quality, Product delivery, or warranty and
maintenance support. In such cases, Siemens may, at its sole discretion,
notify the Company in writing of the Company's failure to perform and
rescind Siemens' remaining obligation under the purchase order.
ARTICLE V
PURCHASING TERMS AND CONDITIONS
5.0 ORDER SERVICING
Siemens in its sole discretion may purchase Product, Special Products,
and Spares by issuing written purchase orders to Company. Acceptance by
Company of Siemens order under the terms and conditions of this
Agreement shall be indicated by written acceptance. Company agrees to
acknowledge all purchase orders within two (2) business days and to
accept all valid purchase orders within five (5) business days.
So long as the original order complies with the Agreement, the Company
must accept the order and deliver the Product.
Any additional or different terms or conditions expressed by Siemens or
Company in an order or acknowledgment shall be void unless expressly
agreed to in writing by the other party.
Page 10.
<PAGE> 15
5.1 CHANGE ORDER
Subject to Section 5.2.4, Siemens shall have the right, by written
change order, to make changes in any one or more of the following: (a)
quantity of goods to be delivered; (b) method of shipping or packing;
(c) place of delivery; and (d) delivery schedules. In addition, if any
such change order causes an increase or decrease in the cost or the time
required for performance of the work under the order, an equitable
adjustment shall be made in price and/or delivery schedule, and the
order shall be modified accordingly.
Orders may not be cancelled after shipment. Once accepted, Company shall
not change an order without written approval by Siemens.
5.2 SCHEDULE COMMITMENTS
5.2.1 The requested delivery dates applicable to each order will be
set forth in such order. Delivery dates will be confirmed by
Company's acknowledgement. Company agrees not to ship Product
prior to the agreed upon delivery date without Siemens' prior
written authorization.
5.2.2 Subject to the provisions contained in the Section 14.12
CONTINGENCY, in the event Company exceeds the agreed upon
delivery date by more than five (5) business days, through no
fault of Siemens, then in addition to all other rights and
remedies provided for in this Agreement or otherwise and without
any liability or obligation to Siemens, Siemens shall have the
right to: (a) cancel the order or change such order if the delay
results in the cancellation or change of the order from the
Siemens Customer or (b) extend such delivery date to a later
date.
5.2.3 If an order is canceled pursuant to the above, Siemens shall
have the right to retain or return any or all Product received
by or paid for under such order. Company shall reimburse Siemens
the costs of shipping the Product returned and amounts, if any,
previously paid by Siemens for the Product; provided, however,
if such order is part of a blanket purchase order, Siemens shall
not have the right to return any Products previously delivered
in connection with any prior scheduled shipments delivered under
such blanket purchase order. Siemens shall pay for any Product
retained at the prices set forth in Attachment E, if applicable,
and quantity discounts, if any, shall be applied on the basis of
the quantity specified in the order.
5.2.4 If Siemens requests, for reasons other than covered by Section
14.12 CONTINGENCY, that shipments be postponed beyond the date
shown on an order and the date shown on the order is within
forty-five (45) days succeeding the date of the receipt of the
order postponement, Company may invoice Siemens as of the
original scheduled delivery date for the Product manufactured
hereunder. Title for such delayed Product shall pass to Siemens
on date of invoice.
The following schedule will be used to establish Siemens'
obligations when it requires that shipments be rescheduled
beyond the date shown on an order:
Page 11.
<PAGE> 16
<TABLE>
<CAPTION>
DAYS PRIOR TO SCHEDULED DELIVERY CANCELLATION CHARGE
-------------------------------- -------------------
<S> <C>
Less than 45 days Siemens Commits to Purchases
46 - 60 days 10% Restocking Fee
More than 60 Days None
</TABLE>
Siemens shall not reschedule any purchase order more than once.
5.2.5 All Product invoiced to Siemens in accordance with the foregoing
paragraph shall be marked conspicuously as Siemens' property,
and stored by Company in a reasonably safe manner separated from
any other material stocks. Such Product shall be shipped out as
ordered by Siemens. Company shall have no liability for any loss
or damage to such Product while stored by Company unless such
loss or damage arises from Company's gross negligence or willful
misconduct. Company agrees to cooperate with Siemens in regard
to the safe storage and management of Siemens" property while
such property is stored at the Company's facility. Company
agrees to secure proper storage and insurance for Siemens'
property when so requested in writing by Siemens. Siemens shall
reimburse Company for storage and insurance costs for such
Product.
Company shall advise Siemens in writing of the specific location
where Product is stored pursuant to Section 5.2.5 and of any
subsequent movement of the Product. Company agrees, upon request
by Siemens, to execute and deliver to Siemens a bill of sale
evidencing conveyance/license of such Product, free from liens
and encumbrances, together with any other document such as a
bailment agreement, warehouse receipt, lease (on storage space),
mortgage, deed of trust, or surety bond as Siemens may deem
reasonably necessary to secure title in such Product against
third parties, all of which documents shall be in a form
reasonably acceptable to Siemens.
5.3 PACKING
5.3.1 Company shall, at no charge, unless specified elsewhere in this
Agreement, package and pack Product in a manner which will
provide reasonable protection against damage (including static)
during shipment, handling and storage in reasonably dry unheated
quarters with temperatures and humidity levels within -30 to +65
degrees Celsius, and up to 95% relative humidity, respectively.
Corrugated shipping containers shall comply with requirements of
Rule 41 of the Uniform Freight Classification. Containers of any
type that are too heavy or too large to be palletized shall be
skidded to facilitate fork truck and/or mechanical handling.
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5.3.2 Company shall mark all such packaging for identification
purposes in accordance with ARTICLE XI, COMPLIANCE. Company
shall mark Products in conformance with Company's published
documentation. Items which are intended to be field replaceable
by Siemens shall be serialized for tracking and control
purposes. Serial numbers shall be located to allow easy capture
by craftspersons, without the necessity of disassembly of the
field replaceable item and/or interruption of service to
Siemens' Customers.
5.4 SHIPPING
Unless specifically agreed to by Siemens and Company, all shipments to
Siemens will be FOB Shipping Point, Freight Collect utilizing one of the
approved and preferred carriers listed below. If questions arise
concerning shipments Company is directed to contact the Siemens ICN
Transportation Department at telephone (407) 942-5499 or 942-5347.
5.4.1 Siemens' Approved Carriers:
Ground Parcel Shipments:
UPS Ground - Consignee Billing
RPS Ground
LTL Motor Freight - Southeast Regional:
Southeastern Freight Lines
Averitt Express
LTL Motor Freight - Longhaul:
Consolidated Freightways
Overnite Transportation
Air Freight - Envelopes and packages up to 20 lbs.:
FEDEX
Air Freight - Packages 21 lbs. and over:
Emery Air Freight
Burlington Air Express
Deferred Air Freight:
LEP/Profit Air Freight
International Envelope/Non-dutiable Parcels:
FEDEX
International Package/Commercial Orders:
Kuehne & Nagel, Inc.
(must consign to Orlando International Airport (MCO)
Van Line and TL Shipments:
Contact Siemens Traffic Department.
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<PAGE> 18
5.4.2 Additional Instructions:
- Consolidate each day's shipments into a single shipment
whenever possible.
- Route all motor freight and air shipments "Freight
Collect".
- Unless otherwise requested by exception, do not declare
an "insured value" with the carrier as Siemens is
self-insured.
- Air or other premium shipments must be authorized by a
Siemens ICN Purchasing Agent and will be routed via
second day service unless instructed otherwise.
- Excess transportation charges resulting from
non-compliance may be billed to the supplier or deducted
from the supplier's invoice.
- No "COD" or "FCCOD" deliveries unless previously agreed
to by Siemens.
- Contact the Traffic Department in the event of carrier
service failure(s) or if a deviation from these
instructions is desired.
5.4.3 Unless prior approval has been provided in writing, all
shipments NOT in compliance with these freight terms or carrier
routing instructions will be refused at the destination.
5.4.4 Unless otherwise agreed to in writing, all Product shipments
under this Agreement will be in new, unused condition.
5.4.5 Title and risk of loss shall pass to Siemens upon proper tender
of delivery to the carrier.
5.4.6 Siemens shall not be charged for cartons, wrapping, boxing,
crating, drayage or other such costs, provided Siemens shall pay
for any such costs incurred in connection with Siemens' special
packaging requests.
5.4.7 Company shall ship Product from Company's nearest facility
capable of supplying Siemens' needs.
5.4.8 Product, Special Products, and Spares will be shipped with a
packing list enclosed with each shipment.
5.5 RECEIVING AND INSPECTION
5.5.1 There shall be no partial shipments unless authorized by Siemens
in writing. Company shall be responsible for Siemens' reasonable
direct out of pocket costs actually incurred as a result of any
unauthorized partial shipments. Siemens reserves the right to
make final inspection of Product, Spares, and Special Products
up to thirty (30) days after receipt by Siemens. After such
time, such Products, Spares and Special Products will be deemed
accepted by Siemens and Siemens' sole recourse shall be limited
to its warranty hereunder.
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5.5.2 Siemens may, upon inspection, notify Company of any defect,
deficiency, or default and reject such goods. Goods so rejected
may be returned to Company under warranty and unless promptly
replaced may subject the Company to cancellation of the order.
All defective Product returned under warranty will be at
Company's expense.
5.5.3 Goods shipped in advance of delivery schedule or unauthorized
partial shipments, other than as provided for herein, may be
rejected or returned to Company at Company's expense.
5.6 TITLE AND RISK OF LOSS
5.6.1 Unless otherwise specified herein, title to Products, shall vest
in Siemens when the Product has been delivered, consistent with
the shipment date designated on the order, to the Carrier
specified by Siemens. However, if Siemens expressly authorizes
Company in writing to invoice Siemens for stocks prior to
delivery, title to such stocks shall vest in Siemens upon
receipt of the invoice.
5.6.2 Company will insure, at Siemens expense, all Product orders
hereunder from the delivery of the stock to FOB carrier
designated by Siemens until delivery to Siemens of such Product
at the location designated on the Order. Company shall cooperate
with Siemens in every reasonable way to facilitate the
settlement of any such claim.
ARTICLE VI
PAYMENT
6.0 PAYMENT TERMS
6.0.1 Unless otherwise a greed to in writing by the Parties, the terms
for all orders shall be net forty-five (45) days after receipt
of invoice, provided, however, that payment shall not constitute
acceptance of the goods or impair Siemens right of inspection.
6.0.2 No C.O.D. payment terms shall be valid without Siemens prior
written consent.
6.0.3 Siemens will not accept invoices for partial shipments unless
Siemens provided prior written approval to the Company.
6.1 INVOICING
6.1.1 All applicable Federal, State, and local taxes shall be stated
separately on Company invoice and paid by Siemens.
6.1.2 Company shall render its invoice within two (2) business days of
shipment.
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ARTICLE VII
WARRANTY
7.0 WARRANTY
7.0.1 Company warrants to Siemens only and not to Siemens' Customers
that, for a period of fifteen (15) months for hardware and six
(6) months for Software, from date of shipment by Company, the
Product sold or licensed hereunder shall be free from respects
in material and workmanship and shall in all respects conform in
all material respects to their final published Specifications,
including any modification thereof mutually agreed upon in
writing, included in Attachment C.
7.0.2 The Parties mutually agree to negotiate the terms and conditions
of the services provided by Company for warranty and extended
warranty. The parties' agreement with respect to these matters
will be set forth in a Service Level Agreement ("SLA") to be
executed within thirty (30) days of the execution of this
Agreement. If the parties fail to execute the SLA and attach it
hereto as an Exhibit within such thirty (30) day period or any
extension thereto as mutually agreed to by the parties, either
party shall have the right to immediately terminate this
Agreement, in which event Siemens may return to the Company for
full refund the Products, if any, shipped pursuant to Section
4.4.
7.0.3 This warranty may only be utilized by Siemens and not Siemens'
Customers, however, the sale or sub-license by Siemens to its
Customers shall not terminate the warranty. Siemens shall
provide first and second level warranty support and
out-of-warranty sub-assembly replacement support directly to its
end-user Customers. To this end, Siemens will maintain an
appropriate level of spares inventory.
7.0.4 If any Product supplied by Company hereunder fails to conform to
this warranty, Company shall, at its option and sole cost and
expense, either repair or replace the same. This warranty is
made upon the express condition that:
(a) Company is given prompt written notice upon discovery of
any non-conformity, with explanation of the alleged
deficiencies;
(b) Siemens first secures a return material authorization
(RMA) and such Product is returned to Company's
manufacturing facilities, shipping prepaid, except as
otherwise agreed;
(c) The Product has not been altered, modified or changed in
any other manner than has been previously authorized in
writing by Company nor has Product been subject to
misuse or damage due to improper handling and/or
operation;
(d) Repairs to the Product have not been made by anyone
other than Company, or at Company's authorized service
facility; and
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(e) The Product was properly installed and maintained.
7.0.5 Company will repair or replace the hardware within a reasonable
time and will return repaired Product or will supply replacement
Products to Siemens at Company's expense. For Software, Company
will issue a patch or work around within a time frame as
specified in the Service Level Agreement to be negotiated
separately between the Parties.
7.0.6 No term, condition, understanding, or agreement purporting to
modify the terms of this warranty shall have any legal effect
unless made in writing and signed by authorized representatives
of both Parties.
7.0.7 All Products which have been repaired or replaced by Company
shall have the same warranty as above for Product originally
shipped, except the term of the warranty shall be the balance of
the period of time ascertained by deducting from the original,
warranty term the number of days from shipment of the original
unit by Company, and the time or receipt by Company of the
defective Product, or ninety (90) days for hardware, thirty (30)
days for the same defect for Software, from date of repair or
replacement, whichever is greater.
7.0.8 Company shall make available, upon request by Siemens Quality
Assurance Department, repair data on defective Product returned
by Siemens for repair. Company shall maintain this data as a
repair history for a minimum of one (1) year.
7.0.9 Company represents and warrants that it is authorized to grant
the Software Licenses granted in this Agreement.
7.1 YEAR 2000 COMPLIANCE WARRANTY
Company 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 their Specifications, (b) all
data fields for the Date Data contained in the Products and Special
Products are four-digit fields capable of indicating century and
millennium, and (c) that Company 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 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, Company 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. As used in this
Section 7.2, the following terms shall have the meanings set forth
below:
"Calendar-Related" refers to date values based on the Gregorian
calendar as defined in Encyclopedia Britannica, 15th edition,
1982, page 602, and to all uses of those date values described
in the Product Specifications.
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"Date Data" means any Calendar-Related data in the inclusive
range January 1, 1900 through December 31, 2050 that the
Products or Special Products use in any manner.
"System Date" means any Calendar-Related, date value in the
inclusive range from January 1, 1985 through December 31, 2035
(including the transition between such values) that the Products
or Special Products will be able to use as their current date
while operating.
In the event that a Product or Special Product fails to comply with the
warranty provided in this Section 7.2 in any material respect, Company
shall use commercially reasonable efforts to modify or replace such
Product or Special Product, or applicable component thereof, to correct
such non-compliance. If Company is unable, through the use of
commercially reasonable efforts, to modify or replace the Product or
Special Product to correct the noncompliance, Company shall refund to
Siemens the price paid by Siemens for such non-compliant Product or
Special Product and Siemens may at its option cancel any purchase orders
for such Products without incurring any liability for such cancellation.
The remedy set forth in this Section 7.2 shall be Siemens' sole remedy
for breach of the Year 2000 Warranty.
Company also warrants and represents that it has assessed or is
currently assessing Year 2000 compliance issues as it relates to its
business operations; that it is actively resolving any internal Year
2000 non-compliance relating to its operations; and that it will achieve
Year 2000 compliance prior to January 1, 2000. Such compliance includes,
but is not limited to, systems critical to the procurement of raw
materials and components and/or the manufacture and shipment of Products
to Siemens; provided, such compliance does not include any obligation to
ensure that any third party's systems are Year 2000 compliant.
7.2 WARRANTY EXCLUSIONS
THE WARRANTY PROVIDED IN ARTICLE VII EXCLUDES ALL OTHER WARRANTIES,
WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, INCLUDING, WITHOUT
LIMITATION ANY WARRANTY OF MERCHANTABILITY AND/OR FITNESS FOR A
PARTICULAR PURPOSE. COMPANY WILL NOT, IN ANY EVENT BE LIABLE FOR
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOST PROFITS OR
LOSS OF DATA OF ANY KIND OR TYPE OF SIEMENS ARISING FROM BREACH OF
WARRANTY.
SIEMENS' SOLE AND EXCLUSIVE REMEDY FOR ANY BREACH OF THE FOREGOING
WARRANTY SHALL BE REPLACEMENT OF OR (AT COMPANY'S OPTION OR IF
REPLACEMENT IS IMPRACTICAL) REFUND OF THE DEPRECIATED PURCHASE PRICE FOR
RETURNED NON-CONFORMING UNITS OF THE PRODUCTS FOR WHICH FULL
DOCUMENTATION AND PROOF OF NON-CONFORMITY IS PROVIDED TO COMPANY;
PROVIDED, IN THE EVENT PRODUCTS COVERED BY WARRANTY (INCLUDING EXTENDED
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WARRANTIES PURCHASED BY SIEMENS) EXPERIENCE AN EPIDEMIC FAILURE AND
COMPANY ELECTS NOT TO REPAIR OR REPLACE SUCH PRODUCTS, COMPANY SHALL
REFUND THE UN-DEPRECIATED PURCHASE PRICE PAID BY SIEMENS FOR SUCH
PRODUCTS IF SUCH PRODUCTS WERE DELIVERED WITHIN THREE (3) YEARS OF
FAILURE AND THE DEPRECIATED PURCHASE PRICE. IF SUCH PRODUCTS WERE
PURCHASED MORE THAN THREE (3) YEARS PRIOR TO FAILURE. "EPIDEMIC FAILURE"
SHALL MEAN THE SAME MATERIAL FAILURE OR MATERIAL SPECIFICATION
NON-CONFORMITY OF THE PRODUCT OCCURRING DUE TO THE SAME SPECIFICALLY
IDENTIFIED CAUSE TO MORE THAN 5% OF INSTALLED PRODUCT WITHIN THREE (3)
MONTHS, IN WARRANTY OR EXTENDED WARRANTY.
COMPANY HAS NOT AUTHORIZED ANYONE TO MAKE ANY REPRESENTATION OR WARRANTY
OTHER THAN AS PROVIDED IN THIS ARTICLE VII.
ARTICLE VIII
REPAIR SERVICE
8.0 REPAIRS NOT COVERED UNDER WARRANTY
The parties are currently negotiating the terms and conditions of
out-of-warranty services, emergency replacement services and ongoing
support. The parties' agreement with respect to these matters will be
set forth in a Service Level Agreement ("SLA") to be executed within
thirty (30) days of the execution of this Agreement. If the parties fail
to execute the SLA and attach it hereto as an Exhibit within such thirty
(30) day period or any extension thereto as mutually agreed to by the
parties, either party shall have the right to immediately terminate this
Agreement, in which event Siemens may return to the Company for full
refund the Products, if any, shipped pursuant to Section 4.4.
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ARTICLE IX
TRAINING
9.1 TRAINING
9.1.1 Company shall offer to Siemens, at the prices listed in
Attachment E, instructors and necessary instructional materials
of Company's standard format to train Siemens personnel in the
planning, configuring, installation, operation, and maintenance
of Product. Such training shall, at Siemens' option, be held at
Company's location or at Siemens' location. When such training
is held at Siemens' location, Siemens shall provide adequate
training facilities. However, Company agrees to provide at
Company's facility at no charge to Siemens a one-time training
program for up to 6 Siemens' employees for purposes of initial
technical support readiness and train-the-trainer readiness.
9.1.2 At the option of Siemens, Company shall at prices mutually
agreed to, provide Siemens with training materials, student
manuals, instructors' manuals, and any necessary assistance,
covering those areas of interest outlined in Section 9.1.1,
sufficient in detail, format and quantity to allow Siemens to
develop and conduct a training program.
9.1.3 Siemens shall be provided, at Siemens' cost, with updated
training materials to reflect any changes, modifications, and
enhancements to the Product. Training materials, courses, or
bulletins will be provided by Company, as deemed necessary by
Siemens, anytime significant changes to Product are made.
ARTICLE X
DOCUMENTATION
10.0 SPECIFICATIONS OR DRAWINGS
Specifications shall cover the Products provided hereunder and are
attached hereto as Attachment C; provided, however, where Products are
still being developed, the Product Specifications are subject to change
from time to time until the Products have been developed.
10.1 DOCUMENTATION
10.1.1 Company agrees to furnish and convey to Siemens, in English, at
no charge, one (1) complete set of Product documentation as is
normally provided with the Product, and any succeeding changes
hereto, as described in the Section 3.4 PRODUCT CHANGES. A list
of such Product documentation is contained in Attachment B. Such
Product documentation shall include the right to reproduce such
Product documentation for use hereunder.
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With each shipment by Company to Siemens, Company shall include
without charge one (1) copy of documentation for each Product
shipped.
10.1.2 Company further agrees to furnish documentation in an electronic
format conforming to one of the following specifications:
a. Master Documentation Set on diskette or CD-ROM saved in
HTML (Hyper Text Markup Language) OR
b. Master Documentation Set on diskette or CD-ROM saved in
SGML (Standard Generalized Markup Language), along with
Document Type Definitions (DTDs). Company will be
charged a fee by Siemens for converting the
documentation to a format compatible with our Customers'
browsers (HTML) OR
c. Company may provide Siemens with Uniform Resource
Locator (URL) to their electronic documentation on the
World Wide Web OR
d. Master Documentation Set on diskette or CD-ROM saved in
a current version of a commonly used word processing
package or in American Standard Code for Information
Interchange (ASCII). Company will be charged a fee by
Siemens for converting the documentation to a format
compatible with our Customers' browsers (HTML).
10.1.3 Company must notify Siemens in writing of all updates to
documentation. Notification will be sent to the Director of PLM
Broadband Products in Boca Raton, Florida. This notification
will include the new issue number, date of change, and reason
for change. Siemens is responsible for notifying its end-user
Customers.
10.2 USE OF INFORMATION
All specifications, drawings, sketches, models, samples, tools, computer
programs, technical information, confidential business information or
data, written, oral or otherwise (all herein designated "Information")
obtained by either Party hereunder or in contemplation hereof shall
remain the property of the disclosing Party. Unless required to support
the existing Customer base, all copies of such Information in written,
graphic or other tangible form shall be returned to its owner upon
request. Unless such Information was previously known to be free of any
obligation to keep it confidential or has been or is subsequently made
public by its owner or a third party pursuant to Article II
CONFIDENTIALITY PROVISIONS, it shall be kept confidential, shall be used
only in the filling of orders, or in performing otherwise hereunder, and
may be used for other purposes only upon such terms as may be agreed
upon in writing by both Parties.
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10.3 REPRODUCTION OF DOCUMENTATION
Siemens may, in either electronic or paper media, do the following:
reproduce, prepare derivatives and distribute copies of documentation
supplied by Company under this Agreement for the purpose of allowing
Siemens and its Customer to market, use and maintain the Products
supplied by Company under this Agreement. All copies, so produced shall
contain all copyright and/or other proprietary notice contained in the
original Company supplied documentation. Siemens shall ensure that all
such derivatives and copies are accurate and shall be solely responsible
for any errors with respect thereto. Siemens shall indemnify Company for
any liability arising from such reproduction, preparation and
distribution of any such defective derivative or copied materials.
ARTICLE XI
COMPLIANCE
11.0 RADIO FREQUENCY ENERGY STANDARDS
Materials furnished hereunder shall comply, to the extent applicable,
with the requirements of Subpart J of Part 15 of the Federal
Communications Commission's Rules and Regulations, as may be amended
from time to time, including those sections concerning the labeling of
such material and the suppression of radio frequency and electromagnetic
radiation to specific levels. Should the Products generate harmful
interference to radio communications, Company shall provide to Siemens
information relating to methods of suppressing such interference. In the
event such interference cannot reasonably be suppressed, Company shall,
at the option of Siemens, accept return of the applicable Product and
refund to Siemens the price paid for such Product and Siemens may cancel
any pending orders for such Product without incurring any liability for
such cancellation. Nothing herein shall be deemed to diminish or
otherwise limit Company's obligations under Article VII WARRANTY of this
Agreement.
11.1 REGISTRATION
When Products furnished under this Agreement is subject to Part 68 of
the Federal Communications Commission's Rules and Regulations, as may be
amended from time to time, Company warrants that such Product when
delivered is registered under and complies with Part 68 of the Federal
Communications Commission's Rules and Regulations, including, but not
limited to, all labeling and Customer instruction requirements. Company
agrees to indemnify and save Siemens harmless from any liability, claims
or demands (including the costs, expenses and reasonable attorney's fees
on account thereof) that may be made because of Company's noncompliance
with Part 68 of the Federal Communication Commission's Rules and
Regulations. Company agrees to defend Siemens, at Siemens' request,
against such liability, claim or demand. In such cases, Company shall
have the right to control and direct the defense of and settlement of
each claim or demand. Siemens shall promptly notify Company of all such
claims. In
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the event Siemens fails to promptly notify Company of any such
liability, claim or demand and such failure prejudices Company's ability
to defend against such claim, liability or demand, Company's liability
under this Section 11.1 shall be excused to the extent of such
prejudice.
11.2 TOXIC SUBSTANCES AND HAZARDOUS MATERIAL
11.2.1 All material that is a "hazardous chemical substance or mixture"
or a "hazardous material" as these terms are defined in the
Toxic Substance Control Act and the Hazardous Material
Transportation Act are hereinafter referred to as Hazardous
Material.
11.2.2 Company agrees to ship all such Hazardous Material on an F.O.B.
Shipping Point, Freight Collect basis. Company agrees to comply
with all labeling, packaging, shipping and all requirements as
required by the afore-referenced acts, the Code of Federal
Regulation, Title 49 and all applicable state and local
regulations. The Hazardous Material itself and its packaging
shall be clearly and visibly marked so as to be readily
identified.
Company agrees to provide the assistance to Siemens of an
advisory nature in the use and disposal of all hazardous
material purchased hereunder.
11.3 COMPLIANCE WITH LAWS
11.3.1 Each party shall comply with all applicable federal, state,
county and all local laws, ordinances, regulation and codes
(including procurement of required permits or certificates) in
its performance hereunder, irrespective of whether a
specification is furnished. If material, services or containers
furnished are required to be constructed, packaged, labeled or
registered in a prescribed manner, Company shall comply with
federal law and, in addition, with applicable state or local
law. Each party agrees to defend, indemnify and hold harmless
the other party for any loss, damage, penalty, fine or liability
sustained because of its noncompliance; provided, Siemens shall
be solely responsible for, and shall indemnify Company for any
losses, fines charges or damages arising from, any claim which
results solely from Company's compliance with specific
instructions by Siemens as to construction, packaging, labeling
or registration.
11.3.2 Siemens shall not export any Products outside the United States
and Canada without Company's express written permission. In the
event Siemens receives such permission, Siemens agrees to fully
comply with all relevant export laws and regulations of the
United States to assure that no violation of such export laws or
regulations occurs and shall be fully responsible for obtaining
any required licenses or approvals; provided, Company shall, at
Siemens' expense, provide reasonable assistance to Siemens in
obtaining any such licenses and approvals.
11.3.3 Company agrees to comply with any and all laws, rules and
regulations governing design, manufacture, and testing of
Product delivered to Siemens.
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11.4 COMPLIANCE WITH CERTIFICATION TESTS REQUIRED BY NORTH AMERICAN PUBLIC
NETWORK PROVIDERS
Company agrees that it will conduct the testing necessary to assure that
the Product is compliant with requirements specified by Bellcore
M-63-CORE, Network Equipment-Building Systems (NEBS), Issue 1, October
1995. The testing required for Special Products will be mutually agreed
to by the Parties.
Company agrees to provide a copy of all test results to Siemens upon
completion of the testing.
ARTICLE XII
TERM AND TERMINATION
12.0 TERM OF AGREEMENT
Unless otherwise amended in writing by the Parties, the Term of this
Agreement shall commence on the Effective Date and continue for
thirty-six (36) months. This Agreement may be extended at the mutual
written agreement of the parties for a period of twenty-four (24) months
upon the expiration of the initial term of the Agreement.
This Agreement shall apply to the sale and or license of the Product to
Siemens for use in the United States of America and Canada. The Parties
may, upon mutual agreement, amend the Agreement to extend the terms and
conditions of the Agreement for use of the Product by Siemens in other
countries if Siemens so requests.
12.1 TERMINATION OF AGREEMENT
12.1.1 Notwithstanding the provisions of Section 12.0 or any provision
limiting the remedy of a Party, if either Party hereto shall
fail to adequately perform or observe any of the terms and
conditions to be performed or observed by it under this
Agreement, the other Party shall give written notice to the
defaulting Party specifying the respects in which the defaulting
Party has so failed to perform or observe the terms and
conditions of this Agreement, and in the event that any defaults
so indicated shall not be remedied by the defaulting Party
within thirty (30) days after such notice, the Party not in
default may, by written notice to the defaulting Party terminate
this Agreement or any outstanding order hereunder effective upon
the defaulting Party's receipt of such notice of termination.
Failure of either Party to so terminate this Agreement due to a
breach on the part, of the other Party shall not prejudice its
rights to terminate for a subsequent breach on the part of the
defaulting Party. In addition the Company shall be entitled to
terminate this Agreement pursuant to Section 4.3 and 14.13.
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12.1.2 In the event that Company shall (i) cease conducting business in
the normal course, (ii) become insolvent, (iii) make a general
assignment for the benefit of creditors, (iv) suffer or permit
the appointment of a receiver for its business or substantially
all of its assets, or (v) avail itself or becomes subject to any
proceeding under the Federal Bankruptcy Act or any other statute
of any state relating to insolvency or the protection of rights
of creditors, and such event materially and substantially
prevents Company from carrying out its obligations hereunder,
then Siemens may, at its sole option and subject to the
provisions of this Agreement, terminate this Agreement for
cause.
12.1.3 Upon termination of this Agreement for any reason, each party
shall promptly return any and all materials supplied by the
other party.
12.1.4 The provisions of sections 2.1, 2.3, 3.1, 6.0, Article VII,
9.1.2, 10.2, 11.0, 11.1, 11.3.1, 11.3.2, 11.3.3, 12.0, 13.0,
13.1, 14.1, 14.2, 14.3, 14.4, 14.5, 14.6, 14.8, 14.9, 14.10,
14.14, 14.15 which by their nature are intended to survive
expiration or termination of this Agreement, shall survive
expiration or termination of this Agreement for any reason. All
other rights and obligations shall cease upon termination of
this Agreement. The provisions of the SLA shall survive based on
the specific terms set forth in such Agreement.
ARTICLE XIII
SOFTWARE
13.0 RIGHTS TO SOFTWARE
13.0.1 Title to Software furnished to Siemens shall remain in Company.
For such term as Siemens or its Customers shall continue to use
and operate Product, Company grants Siemens a non-exclusive
license to use the binary version of the Software on the
hardware with which the Software was first supplied and the
right to sub-license such limited use to Siemens' end-user
Customers under the end-user license terms as set forth in
13.0.3, below.
13.0.2 Siemens or Customer may reproduce the Software for archive or
maintenance purposes for use with the hardware with which it was
originally delivered. Any such reproduction or copies shall
include any copyright, similar proprietary notice or other
notices contained in the items being reproduced.
13.0.3 Siemens' or its Customers' rights to use the Software are
limited as follows:
(a) The Software may only be used on the hardware on which
it is first supplied or on supplied replacement
hardware.
(b) Copies may be made for archive or maintenance purposes
only. Software may not be modified, de-compiled,
disassembled or reverse engineered.
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13.0.4 Siemens may, at no additional charge, sublicense Software as a
part of the sale, rental, lease, transfer, or assignment of
Product. Such sub-licensee shall succeed to all of Siemens' or
Customer's rights and obligations under this license with
respect to such Software.
13.0.5 Siemens or Customer may, at no charge, relocate Software to
another location within the United States for reuse with the
Product with which it was originally delivered when such Product
has been relocated. Such relocation or reuse shall not alter
Siemens' or Customer's license to use the Software.
13.0.6 The right-to-use fees for Software are as set forth in
Attachment E, Price Lists.
13.1 SOFTWARE ESCROW
Siemens has, pursuant to this Agreement, licensed Software from Company
and Siemens desires to have the Source Code for such Software placed in
an escrow account substantially in accordance with the terms and
conditions of an Escrow Agreement, attached hereto as Attachment E.
Company agrees to place a copy of the Source Code into escrow with a
mutually agreed Escrow Holder. If there is more than one Software
program, Company may, at its option, establish separate escrow accounts
for each Software's Source Code. Company shall ensure that the copy of
the Source Code that is deposited in Escrow at any given time is the
latest generally released version.
The Escrow Agreement shall be fully executed within 90 days of the
Effective Date of this Agreement.
ARTICLE XIV
GENERAL PROVISIONS
14.0 TRANSFERABILITY
This Agreement shall be binding upon and shall inure to the benefit of
any corporation, or other legal entity with which Company or Siemens may
be merged or consolidated, or the successors to or assignee of the total
assets of either of them which relate to this Agreement.
Except as provided in the preceding paragraph, neither party may sell,
assign, transfer, delegate, or subcontract this contract or any rights
or obligations hereunder, in whole or in part, without the prior written
consent of the other party, which consent shall not be unreasonably
withheld.
14.1 DISCLAIMER OF AGENCY
This Agreement shall not constitute either Party the employee, legal
representation or agent of the other Party, nor shall either Party have
the right or authority to assume,
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create, or incur any liability or any obligation of any kind, expressed
or implied against, or in the name of or on behalf of the other Party.
If Siemens is approached by any third party, not a Customer of Siemens,
with respect to any and all matters regarding Company's Products,
warranties, or terms and conditions of sale, Siemens will refer the
third party to the Company.
14.2 PUBLICITY
The parties will, upon completion of the Agreement and at appropriate
stages during its term agree upon joint press releases to be made to the
industry and general press.
Each Party shall use its commercially reasonable best efforts not to
disclose to any third party during the Term of this Agreement, the terms
and conditions of this Agreement, except as may be required by law, or
by governmental regulation, requirements or orders or as may be
necessary to establish or assert its right hereunder.
14.3 NOTICES
Any and all written notices, communications and deliveries between
Company and Siemens with respect to this Agreement shall be effective on
the date of mailing if (i) sent registered or certified mail; (ii) if
sent by mutually recognized overnight courier to the respective address,
subject to change upon written notice, of the other Party as follows:
In the case of Siemens:
Siemens ICN
400 RINEHART ROAD
Lake Mary, Florida 32746
Attention: Director of Purchasing
with a copy to:
Siemens ICN
900 Broken Sound Parkway
Boca Raton, FL 33487
Attention: General Counsel
In the case of Company:
Accelerated Networks, Inc.
301 Science Drive
Moorpark, CA 93021
Attention: CFO
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with a copy to:
Brobeck, Phleger & Harrison LLP
38 Technology Drive
Irvine, CA 92618
Attention: Frederic A. Randall, Jr.
14.4 GOVERNING LAW
This Agreement shall be governed by the laws of the State of California.
14.5 ARBITRATION
Any dispute hereunder shall be settled by binding arbitration in
California under the rules of the American Arbitration Association for
commercial disputes. The arbitrator's ruling may be enforced by any
court having jurisdiction. Notwithstanding the foregoing, in the event
of a threat of immediate, irreparable harm, either party may seek
equitable relief in any court having jurisdiction.
14.6 NON-WAIVER
No delay or failure to exercise any right or remedy or enforce any
provision of this Agreement shall operate as a waiver thereof. The
waiver of one breach or default hereunder shall not constitute the
waiver of any other or subsequent breach or default.
14.7 EXECUTION OF FURTHER DOCUMENTS
The Parties agree to execute, acknowledge, and deliver all such further
instruments, and do all such other acts, as may be necessary or
appropriate in order to carry out the intents and purposes of this
Agreement or perfect or protect any right or license granted under this
Agreement.
14.8 OTHER REMEDIES
Any and all provisions for remedies agreed to in any specific provisions
or instances in this Agreement are not intended as exclusive remedies,
and each Party may pursue, in addition thereto, any remedies it may have
at law, or otherwise, or take such other action as it may determine.
14.9 EFFECT OF HEADINGS
The Article, Section, Paragraph, and Attachment headings appearing in
this Agreement are inserted only as a matter of convenience and in no
way define, limit, construe or describe the scope or intent of such
Article, Section, Paragraph, or Attachment nor in any way affect this
Agreement.
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14.10 PATENT AND OTHER PROPRIETARY RIGHTS INFRINGEMENT INDEMNIFICATION
Company shall defend, indemnify and hold harmless Siemens, at Company's
cost and expense, against any claim or suit alleging infringement of a
duly issued United States or Canadian patent, copyright or other
proprietary right brought against Siemens or its Customers, to the
extent that such claim pertains to Products or Related Materials and
Company shall pay all costs incurred in such claim or suit and all
settlement payments and damages awarded, directly or indirectly,
incurred in such claim or suit, provided that Siemens gives Company
prompt written notice of such claim, sole control over its defense and
settlement and reasonably cooperates with Company in the defense or
settlement of such claim or suit. Notwithstanding anything herein to the
contrary, in no event shall Company be responsible, directly or
indirectly, for lost profits, consequential damages, indirect damages,
or special damages of Siemens or any Customer of Siemens. If an
injunction is obtained against use of the Products or Related Materials
as a result of infringement of a patent, copyright or other proprietary
right, Company shall, at its option, and at Company's expense, either
procure the right to continue using the Product or Related Materials,
replace or modify the same so they become non-infringing, but remain
functionally equivalent, or accept return of the Product and pay to
Siemens the actual costs incurred by Siemens in correcting problems
caused by Company's Product infringement in Siemens' Customers' networks
up to the purchase/license price paid by Siemens for such Products.
Furthermore, Company's indemnification obligation hereunder shall not
cover (a) any claim that any of the Products infringes any third party's
rights as used in combination with Products not supplied by Company; (b)
any claim that arises out of Company's compliance with technical
specifications provide by Siemens; (c) any claim relating to Products
which have been modified by any person other than Company; or (d) any
claim relating to Siemens' continued use of an infringing Product after
notification by Company thereof.
14.11 MARKINGS
Company shall mark all Products furnished hereunder for identification
purposes as follows:
(a) Model/part number and serial number, if applicable
(b) Month and year of manufacture
(c) Other identification which may be mutually agreed to by Parties
In addition, in the event the Company implements, Common Language
Equipment Identification (CLEI) Codes consistent with GR-485-CORE,
Company shall also mark such Products with such codes. If Company does
not implement such codes, Siemens may provide Company with its own codes
which Company shall attach to the Products pursuant to Siemens'
instructions. Upon Siemens' written request, certain of Siemens
trademarks, names, symbols, decorative designs or evidence of Siemens
inspection (herein "Insignia") may be properly affixed by Company to the
Product. The design, location and manner in which such Insignia will be
affixed must be approved in writing by Siemens. Charges, if any, for
such Insignia shall be billed and payable by Siemens.
Page 29.
<PAGE> 34
Siemens hereby grants Company a non-exclusive, non-transferable,
sublicensable, license to affix Insignia to Products solely in
accordance with Siemens' directions.
14.12 CONTINGENCY
Neither of the Parties shall be held responsible for any delay or
failure in performance hereunder caused by fires, strikes, embargoes,
requirements imposed, by Government regulations, civil or military
authorities, act of God or by the public enemy or other similar causes
beyond such Party's control. However, Company's delay or failure to
perform shall not be excused by a default of any of its subcontractors
or suppliers unless such default arises out of causes reasonably beyond
the control of the Company. If such contingency occurs, the party
injured by the other's inability to perform may by giving written notice
elect to: (a) terminate a particular order or part thereof if the
contingency continues for a period of more than thirty (30) days as to
Product not already received; (b) suspend a particular order for the
duration of the delaying cause, buy or sell elsewhere Product to be
bought or sold hereunder, and deduct from any commitments the quantity
bought or sold or for which commitments have been made elsewhere; or (c)
resume performance under a particular order once the delaying cause
ceases with an option in the injured party to extend the period
hereunder up to the length of time the contingency endured. Unless
written notice is given within thirty (30) days after such injured party
is apprised of the contingency, (b) shall be deemed selected.
14.13 DEVELOPMENTS BY SIEMENS
Nothing contained in this Agreement shall prevent Siemens from
independently developing, either through the use of its own personnel or
through third parties, or acquiring from third parties, product similar
to Product or other types of product. No such product shall be developed
by Siemens using Company's Proprietary Information. Nothing herein shall
be construed to grant Company any rights in any such similar product so
developed or acquired or to the revenues or any portion thereof derived
by Siemens from the use, sale, lease, license or other disposal of any
such product.
Given non-disclosure agreements that may be in place and business
considerations private to Siemens, Siemens does agree to notify Company
of such developments as soon as is practicable. Siemens will, however,
use its best efforts to provide six (6) month notification to Company of
any such developments that will decrease any of the current forecasts
for the Annual Delivery Period by more than twenty-five percent (25%).
In the event of any such development, Company shall be entitled to
terminate this Agreement pursuant to Section 12.1.1 upon ninety (90)
days notice to Siemens.
14.14 VALIDITY
In the event any provisions of this Agreement shall be deemed invalid by
any court of law, the invalidity of that provision shall not affect the
remaining portions of this Agreement and any ambiguity which arises by
reason of such invalidity shall be construed in accordance with the
overall intent of the Parties as exhibited by the remaining provisions
of this Agreement.
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14.15 LIMITATION OF LIABILITY
Except for Company's obligation under Paragraph 14.10, in no event shall
either Party be liable to the other for any lost revenue, profits or
data or any special incidental, consequential or other such indirect
damages, whether arising out of or as a result of breach of contract,
warranty, tort (including negligence), strict liability or otherwise.
Page 31.
<PAGE> 36
ATTACHMENT A
PRODUCT STRUCTURE
Brief description in marketing terms or Product brochures of:
(a) Product Configuration
(b) Spare Parts for Product
(c) Special Products
(d) Reserved
(e) Software
Should include specific items such as:
(a) Specific Product Numbers and Descriptions
(b) Spare Parts List and Descriptions
(c) Special Product Components .
(d) Software Description and Function
Page 32.
<PAGE> 37
ATTACHMENT B
Describe and list all materials that are furnished by Company at no charge or
are available for purchase by Siemens.
Included in this list are such items as:
Sales Brochures
System Manual
Operations Manual or Procedures
Installation Manual
Program Manual
Maintenance Manual
Test and Diagnostic Information
User Manuals
Training Manual and Training Aids
Special Product Information
Page 33.
<PAGE> 1
EXHIBIT 10.18
SIEMENS INFORMATION AND COMMUNICATION NETWORKS, INC.
- AND -
ACCELERATED NETWORKS, INC.
SERVICE LEVEL AGREEMENT
<PAGE> 2
SERVICE LEVEL AGREEMENT
Between
Accelerated Networks, Inc.
Located at:
301 Science Drive
Moorpark, CA 93021
- hereinafter referred to as "Company" -
..........................................
and
Siemens Information and Communication Networks, Inc.
having offices at
900 Broken Sound Parkway, Boca Raton, Florida 33487
- hereinafter referred to as "SIEMENS" -
WHEREAS SIEMENS and Company have entered into an OEM Agreement relating to sale
and distribution of certain Products; and
WHEREAS, the Parties wish to set out the terms and conditions under which a
Party will provide services for the Products sold by it;
NOW THEREFORE IN CONSIDERATION of the mutual covenants and agreements, and other
good and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the Parties hereto agree as follows:
(a) The Articles, Attachments, and Amendments contained in this
Service Level Agreement are considered as part of the OEM
Agreement executed between the parties dated 12/18/99;
(b) No modifications or waiver of any of the provisions, or any
future representation, promise, or addition shall be binding
upon the Parties unless agreed to in writing;
(c) This Service Level Agreement is, by its nature, intended to
survive expiration or termination of the OEM Agreement and shall
survive expiration or termination of the OEM Agreement for any
reason.
IN WITNESS WHEREOF, the Parties hereto have as of the Effective Date
duly executed this Agreement, including Attachments A through I which are
incorporated herein and made a part hereof, by the respective officers thereunto
duly authorized.
Accelerated Networks, Inc. SIEMENS INFORMATION AND
COMMUNICATION NETWORKS, INC.
/s/ Suresh Nihalani
By: Mr. Suresh Nihalani By: /s/ John D. McGowan
Title: President Title: Purchasing Manager
Date: 2/23/99 Date: 3/5/99
2
<PAGE> 3
<TABLE>
<S> <C> <C>
1. DEFINITIONS...................................................................................................5
2. SERVICES TO BE PERFORMED......................................................................................7
2.1 General Services and Additional Services................................................................7
2.2 Services not Included...................................................................................7
2.3 Excluded Services, Separate Agreement...................................................................7
3. COMMERCIAL TERMS..............................................................................................8
3.1 Price for Additional Services...........................................................................8
3.2 Warranty................................................................................................8
3.3 Cost of out of Warranty Repair / Advanced Replacement Services..........................................8
3.4 Technical Assistance....................................................................................8
3.5 Technical Support for Software..........................................................................8
4. COMPANY'S OBLIGATIONS.........................................................................................9
4.1 Services to be Provided by Company......................................................................9
4.1.1 Technical Assistance........................................................................9
4.1.2 Technical Support...........................................................................9
4.1.2.1 Third Line Support and Problem Escalation.......................................9
4.1.2.2 Software Maintenance............................................................9
4.1.2.3 Compatibility and Correction Matrix ............................................9
4.1.2.4 Hardware Upgrades ..............................................................9
4.1.2.5 Support of Older Releases ......................................................10
4.1.2.6 Sporadic Malfunction ...........................................................10
4.1.2.7 Epidemic Failure ...............................................................10
4.1.2.8 Undetermined Problems ..........................................................10
4.1.2.9 Design Requirements ............................................................11
4.1.3 Documentation...............................................................................11
4.1.3.1 Commercially Available Documentation............................................11
4.1.3.2 Electronic Bulletin Board Access ...............................................12
4.1.4 Hardware Repair.............................................................................12
4.1.5 Repair Alternatives.........................................................................14
4.1.6 REFURBISHMENT...............................................................................14
4.1.7 PRODUCT AVAILABILITY........................................................................15
4.1.8 Extended Warranty Contract..................................................................15
4.1.9 Reports.....................................................................................15
4.2 Problem Resolution time frames..........................................................................15
4.3 Additional Services.....................................................................................15
4.3.1 Request for Additional Services.............................................................15
5. SIEMENS' OBLIGATIONS..........................................................................................16
5.1 Test Equipment availability.............................................................................16
5.2 Adequate Training for First and Second Line Support individuals.........................................16
5.3 Spares..................................................................................................16
5.4 Adequate Support Personnel..............................................................................16
6. SCHEDULE A: PROBLEM RESOLUTION SERVICES.......................................................................17
7. SCHEDULE B: MANAGEMENT ESCALATION PROCEDURE...................................................................20
8. SCHEDULE C: OPERATING PROCEDURES..............................................................................21
9. SCHEDULE D: REPAIR AND REPLACEMENT............................................................................22
9.1 Requests for Return.....................................................................................22
9.2 Shipping of Defective Products..........................................................................22
9.3 Repair and Return.......................................................................................22
9.4 Return directly to Company..............................................................................22
9.5 Return Policy...........................................................................................22
10. SCHEDULE E: TRAINING SERVICES.................................................................................23
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C>
11. SCHEDULE F: OEM VENDOR DELIVERABLES.............................................................................26
12. SCHEDULE G: TROUBLE TICKET INFORMATION..........................................................................28
13. SCHEDULE H: REPAIR AND RETURN INFORMATION.......................................................................29
14. SCHEDULE I: TRAINING EQUIPMENT..................................................................................31
</TABLE>
4
<PAGE> 5
1. DEFINITIONS
For the purposes of this Agreement the definitions set forth in the OEM
Agreement shall have the meanings specified in the OEM Agreement, and the
following additional terms shall have the meanings set forth below:
"ADDITIONAL SERVICES" shall mean all commercially available services offered by
a Party other than those Services described in SECTION 4.1.
"SLA AGREEMENT" shall mean this Service Level Agreement and all Schedules and
Appendices attached hereto as such are amended from time to time in accordance
with the provisions hereof.
"AUTHORIZED PERSONNEL" shall mean an individual
(i) who is properly trained to repair the Product;
(ii) who, in the opinion of the responsible Company or SIEMENS manager,
exhibits sufficient Product expertise; or
(iii) who is working under the direction of either Company or SIEMENS
TAC.
"BUSINESS DAY" shall mean the local time of 8:00 AM to 5:00 PM, Monday through
Friday, excluding holidays, in the geographic locations where Company performs
Third Line Support.
"COST" means Company's actual cost of providing a Service, calculated as the
direct plus overhead costs of the functional group providing the Service,
averaged over a six-month period.
"FIRST LINE SUPPORT" shall mean the initial fault diagnosis procedures
undertaken by SIEMENS to identify and correct a hardware or software problem as
such functions and procedures are further defined in SCHEDULE A and in the
Operational Procedures.
"MAINTENANCE RELEASE" shall mean a software release or revision which provides
fixes to problems, but which does not generally provide new functionality. Such
release shall be represented by an incremented revision level x, where the
revision number is N.x
"MAJOR RELEASE" shall mean a software or hardware release or revision which
provides new functionality. Such release shall be represented by an incremented
revision level N, where the revision number is N.x
"MINIMUM FIELD REVISION LEVEL" shall moan the latest level of hardware or
software supporting all mandatory Engineering Change Order currently supported
in the field by Company.
"OPERATING PROCEDURES" shall mean the operating procedures to be followed by the
Parties in connection with the provision of the Services pursuant to this
Agreement, which operating procedures shall be developed by the Parties in
accordance with SCHEDULE C hereto.
"OEM AGREEMENT" shall mean the OEM Agreement entered into between SIEMENS and
Company dated.
"PURCHASER" shall mean the Party who is purchasing the Services from the other
Party.
"SECOND LINE SUPPORT" shall mean those Services to be provided by SIEMENS as
described in SCHEDULE A and in the Operational Procedures.
"SERVICES" shall mean the services to be provided by Company pursuant to this
Agreement..
"SUPPLIER" shall mean the Party who is providing the Services.
5
<PAGE> 6
"TAC" shall mean either the Company Technical Assistance Center, the Company
Second Line Support organization, or the SIEMENS Technical Assistance Center as
appropriate.
"THIRD LINE SUPPORT" shall mean the Services to be provided by Company in
accordance with the functions and procedures specified in SCHEDULE A and in the
Operational Procedures.
"VERSION" shall mean a new release of Software which adds functionality, and
which is produced and licensed as a separate feature release of the Product.
"TRANSFER PRICE" shall mean the net price to SIEMENS including all applicable
discounts.
6
<PAGE> 7
2. SERVICES TO BE PERFORMED
2.1 GENERAL SERVICES AND ADDITIONAL SERVICES
Subject to the terms and conditions of this SLA Agreement and the OEM Agreement,
Company shall provide to SIEMENS the Services set out in SECTION 4.1 hereof, and
such of the Additional Services as SIEMENS may request from time to time.
2.2 SERVICES NOT INCLUDED
Services do not include:
(i) maintenance or repairs necessitated by an attempt by an individual who is
not an Authorized Person to repair or maintain the Products;
(ii) maintenance or repairs resulting from casualty, catastrophe, or natural
disaster, accident, misuse, neglect or negligence of SIEMENS or a
Customer, or causes external to the Products such as, but not limited to,
failed or faulty electrical power or air conditioning, or any causes other
than ordinary use;
(iii) maintenance or repairs of accessories, attachments or any other devices
which do not adhere to Company's specifications;
(iv) repairs resulting from unauthorized changes, modifications or alterations
of or to the Product; and
(v) the furnishing of optional accessories or consumable supplies not defined
as the product in the OEM Agreement.
2.3 EXCLUDED SERVICES, SEPARATE AGREEMENT
The excluded services set out in SECTION 2.2 above, may be performed by separate
agreement between Company and SIEMENS. The price for the performance of any
excluded service shall be the Transfer Price.
7
<PAGE> 8
3. COMMERCIAL TERMS
Pricing for the services below should be negotiated to support a 25% margin for
Siemens. For example: Siemens charges $165.00 per hour for TAC. The OEM hourly
rate should be no higher than $123.75 to ensure a 25% margin for Siemens.
3.1 PRICE FOR ADDITIONAL SERVICES
The prices for additional services are listed below. All reasonable travel,
lodging and meal expenses without mark up shall be reimbursed by Siemens to
Company.
[ ] Third Line Technical Support (On-Site) at $125.00 per hour
[ ] Contracted Installation Support at $125.00 per hour
The prices for other additional services will be negotiated.
3.2 WARRANTY
All elements of the OEM agreement are applied to this SLA agreement. The
warranty for the Product is described in Section VII of the OEM agreement and
applies directly to this SLA Agreement. In, addition sections 3.1 and 3.3 for
product change notification, 5.3 Packaging, Section IX Training, Section X
Documentation, Section XI Compliance, Section XII Term of the OEM Agreement,
Section XIV General Provisions are all included as an integral part of this SLA
Agreement.
The return authorization process outlined in Section H of this document
describes the input data and procedures for repair and return equipment.
3.3 COST OF OUT OF WARRANTY REPAIR/ADVANCED REPLACEMENT SERVICES
The repair for equipment out of warranty will be provided by Company at a net
price to Siemens of 35% of list prices shown on the Standard Price List.
3.4 TECHNICAL ASSISTANCE
Reasonable amounts of Technical Assistance (as described in SECTION 4.1.1) shall
be provided at no cost.
3.5 TECHNICAL SUPPORT FOR SOFTWARE
Except as specifically provided herein, technical support for Software shall be
provided at no charge for the then current Version and one previous Version.
Company reserves the right to charge $250 per hour for any research and
development efforts required for problem resolution for older Versions, not
covered under warranty or extended warranty, to be determined by Company on a
case by case basis.
8
<PAGE> 9
4. COMPANY'S OBLIGATIONS
4.1 SERVICES TO BE PROVIDED BY COMPANY
Company shall provide the following Services:
4.1.1 TECHNICAL ASSISTANCE
Company shall provide basic help desk functions to assist SIEMENS in the
provision of those functions described in the Company/SIEMENS Operating
Procedures, SCHEDULE C as being First and Second Line Support functions.
Technical Assistance will be provided by Company's TAC during its normal hours
of operations: 8:00 am EST to 5:00 pm EST Monday through Friday. Twenty-four
hour support will be provided on a call out basis for out of normal hours. The
response times for technical support are outlined in SCHEDULE A.
4.1.2 TECHNICAL SUPPORT
4.1.2.1 THIRD LINE SUPPORT AND PROBLEM ESCALATION
Company shall provide Third Line Support as described in SCHEDULE A, and provide
problem escalation as described in SCHEDULE B.
4.1.2.2 SOFTWARE MAINTENANCE.
a) Master copies of Maintenance Releases for Software and associated
documentation will be provided free of charge when available. SIEMENS
shall have the right to copy and distribute Maintenance Releases to its
Customers as necessary to correct Software problems. Company shall also
provide SIEMENS with patches as needed for distribution to specific
Customers.
b) Company shall provide SIEMENS' support organizations with any new Versions
for their internal use only, except in the event that the correction to a
Software problem (bug fix) is made only in a Version, in which case
SIEMENS shall have the right to distribute the Version to its Customers at
no charge.
c) Company shall ensure that all new Versions will be compatible with other
then-current Version of Product(s) in a network, and with one previous and
one subsequent Version of Product(s).
4.1.2.3 COMPATIBILITY AND CORRECTION MATRIX
Company shall develop a compatibility matrix which will illustrate the effects
of a hardware or Software update on other cards, modules or Software in a
system. Company shall document the effect of a correction to a specific release
of Software on other releases of the same Software. Compatibility and correction
matrices shall be updated each time a change is made.
4.1.2.4 HARDWARE UPGRADES
During the warranty period set out in the OEM Agreement and the extended
warranty period, Company shall provide, free of charge, any upgrades required to
remedy a hardware design
9
<PAGE> 10
problem. These upgrades shall be performed in accordance with the Repair and
Return process set out in SCHEDULE C. The frequency of these upgrades will be
reviewed on quarterly basis to ensure that the effort required by Siemens to
implement these upgrades is within reason.
Hardware upgrades outside of the warranty period, including those required
solely as a result of the installation of a new Software Version, are not
covered under this Agreement and must be purchased in accordance with the OEM
Agreement
a) For products, within the warranty period, that require a hardware upgrade
to support a software correction to a known problem or deficiency, Company
will provide the hardware upgrade at no charge to Siemens.
b) In the event of a network-wide hardware upgrade which is required as a
result of a design fault, Company will devise a plan to provide buffer
stock as temporary replacements during the upgrade.
At all times, Company shall provide hardware for "Class A" changes as defined in
Bellcore TR209 or equivalent at no charge to Siemens.
4.1.2.5 SUPPORT OF OLDER RELEASES
Company shall provide Problem Resolution as described in SCHEDULE A for the
then-current Version of a Product, and for one preceding Version. Support for
Versions of a Product which precede a current Version by two Versions, shall be
agreed to on a Product by Product basis. Company may agree to provide support
for older Versions not covered under the preceding sentence, on a case by case
basis.
4.1.2.6 SPORADIC MALFUNCTION
In the case of sporadic malfunction of the Products, Company agrees to dispatch
the appropriate resources to investigate the malfunction. Subject to SECTION
2.2, Company shall use reasonable efforts, which may include Product upgrades,
replacements or "work-arounds", to correct any problem with the Products which
is identified as the cause of the sporadic malfunction. For the purposes of this
SECTION 4.1.2.6, "sporadic malfunction" shall mean any non-reproducible,
intermittent problem which results in a temporary cessation in Product
functionality. Sporadic Malfunctions will be escalated in accordance with the
Management Escalation Process set out in SCHEDULE B.
4.1.2.7 EPIDEMIC FAILURE
Company agrees to repair Products associated with an epidemic failure. In the
event Products covered by warranty experience an epidemic failure and Company
elects not to repair or replace such Products, Company shall refund the
un-depreciated purchase price paid by Siemens for such Products if such Products
were delivered within three (3) years of failure and were purchased more than
three years prior to failure. Epidemic failure shall mean the same material
failure or material specification non-conformity of the Product occurring due to
the same specifically identified cause to more than 5% of installed Product
within three months, in warranty or extended warranty.
4.1.2.8 UNDETERMINED PROBLEMS
If, during the term of this Agreement, network problems arise which cannot be
attributed to a specific Product, Company shall promptly investigate the
problem. If the problem is found to result from the integration or
inter-networking of the network, the parties shall work together in
10
<PAGE> 11
accordance with the Management Escalation Process set out in SCHEDULE B to
achieve a mutually acceptable solution.
4.1.2.9 DESIGN REQUIREMENTS
Company shall use reasonable efforts to ensure that any Maintenance Releases and
patches are designed such that they may be incorporated into a Customer's
network with minimum disruption of network operations. Wherever possible,
updates and upgrades will be suitable for remote installation.
4.1.3 DOCUMENTATION
Company will provide to SIEMENS all available Product documentation required to
service and support the Products, including those documents set out in SCHEDULE
C hereto. SIEMENS shall have the right to use the documentation for the purpose
of providing service and support to its Customers as provided under this
Agreement.
Access to information marked confidential in accordance with the preceding
sentence will not be-unreasonably denied by Company. SIEMENS may copy the
documentation for internal distribution only as necessary for the purpose of
exercising its rights under this SECTION 4.1.3, and all copies shall include all
Company proprietary rights legends contained in or on the original document. All
documentation disclosed by Company hereunder shall be subject to the
confidentiality provisions set out in SECTION 2 of the OEM Agreement.
4.1.3.1 COMMERCIALLY AVAILABLE DOCUMENTATION.
In addition to the OEM Agreement, Company shall provide one set in hard Copy
format and one master copy in electronic format of all technical practices,
marketing materials, and other commercially available documentation. (The term
"format" used above indicates any current commercially available desktop
publishing tool such as MS Word, Adobe FrameMaker, etc.). Additionally, for the
purposes of this SECTION 4.1.3, "commercially available" documentation means
that generally available documentation that has been assigned a Company part
number. The medium for delivering the "electronic media" should be a current
commercially available medium such as Iomega Zip 100 disk(s), ISO 586 Compact
Disk (CD), or via an FTP site using any commercially available FTP client such
as WS-FTP, or MS Windows FTP, etc. using a Siemens maintained FTP site as the
host repository.
Company will also provide to Siemens all available Customer Documentation
required for product service and support. Siemens shall have the right to use
the documentation for the purpose of providing service and support to its
Customers as provided under this Agreement.
Company will make available to Siemens, as soon as it is internally (or under
internal review) available, any documentation, which is not commercially
available, including all updates and upgrades for customer documentation in
electronic format at first availability (including drawings, and functional
specifications, etc.).
The documentation will include, but is not limited to:
- Engineering and Planning Guides
- User Guides Operations
- Operations and Administration Manuals
- Network Management Manuals
- Installation Manuals
- Acceptance Test Manuals
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<PAGE> 12
- Installation Quick Reference Guides
- Product Change Notice
- Operator Hints
- Technical Bulletins
- Hardware Functional Descriptions
- Maintenance Manuals
- Event, Diagnostic, and Error Manuals
- Service Specifications (Frame Relay, DXI, ATM, etc.)
- System Descriptions *
- Sales and Marketing Brochures
- Customer Service Procedures
- OEM Vendor Documentation
Company will provide to Siemens advance notice of documentation updates and
upgrades (revisions and new releases) by including Siemens in the Company
internal review cycle for customer documentation, for review of documents.
Siemens' suggestions shall not obligate' Company to incorporate changes. Siemens
will be provided with this information electronically via a Siemens maintained
File Transfer Protocol (FTP) site. Furthermore, COMPANY will employ the use of
"change bars" or other visual label to indicate changes from a previous issue.
Siemens will have the right to modify, change, edit, add, delete, and reformat
the provided customer documentation (without changing the content or the intent)
into electronic documentation to suit Siemens customers' requirements, and
Siemens shall assume full responsibility for all such changes made.
4.1.3.2 ELECTRONIC BULLETIN BOARD ACCESS
SIEMENS shall have full access to Company's then current electronic bulletin
boards and World Wide Web pages which contain Company technical information and
Product documentation. Such materials shall include information describing
features contained within a new Product feature release, engineering changes
made to the Products, configuration assistance, application documentation,
procedures for performing firmware and Software upgrades.
All of SIEMENS's engineers who perform the second line support function may have
access to the electronic bulletin board and any restricted support-related
information contained in the World Wide Web pages on a "need to know" basis for
support and training purposes only, including downloads of any such information
as Company may make available on compact disk from time to time. Access to
restricted information in accordance with the preceding sentence shall not be
unreasonably denied by Company.
4.1.4 HARDWARE REPAIR
a) Access to Company's repair service will be provided at no charge through
the appropriate Company service location, during its normal business hours
(8:00 am EST to 5:00 pm EST). Services will be provided in accordance with
the Repair Procedures described in SCHEDULE D attached hereto.
No Products may be returned without prior authorization from Company,
which authorization shall not be unreasonably delayed or withheld as
outlined in SCHEDULE H.
b) Siemens will provide a trouble report with the returned product. The
trouble report is attached as SCHEDULE G.
c) Company will provide three types of Repair Services during a five (5) day
by twenty-four (24) hour availability:
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I. ADVANCED REPLACEMENT - DEAD-ON-ARRIVAL
This is a replacement service for "Dead On Arrival" or "'infant
Mortality", which refers to those Products which fail within 30 days of
shipment from Company. Company will use commercially reasonable efforts to
ship an equivalent new replacement Product, via overnight carrier, within
one (1) Business Day of request. SIEMENS shall ship the defective Product
to Company within thirty days of receipt of the replacement Product.
II. ADVANCED REPLACEMENT LOAN
This is an emergency loan service for both in-warranty and out-of-warranty
Products that are not considered Dead-On-Arrival or an Infant Mortality.
Company will use commercially reasonable efforts to ship an equivalent
replacement Product, via overnight carrier, within one (1) Business Day of
request. In such an event, SIEMENS shall establish an open purchase order
for a limited dollar amount to cover the purchase for the replacement
Product and pay Company's then-current repair charges, freight charges and
an agreed order expedite fee in respect thereof. SIEMENS shall ship the
defective Product to Company within thirty days of receipt of the
replacement Product. The open purchase order will be reviewed on a
quarterly basis and adjusted accordingly.
III. REPAIR AND RETURN
This is the standard repair service for both in-warranty and
out-of-warranty Products which fail in service. SIEMENS shall return the
faulty unit to Company for repair in accordance with the Return and Repair
procedures set out in this Agreement and SCHEDULE D attached hereto.
Company shall also ensure that all returned Products are brought up to the
Minimum Field Revision Level at no additional charge. The upgrade to
Minimum Field Revision will be determined as follows:
Siemens will define where the Products are to be returned to: Customer's
spares pool or Siemens stock. If to the customers spares pool, Company
will utilize the compatibility matrix to determine the Minimum Field
Revision level. If to Siemens stock the Company will upgrade the Product
to the Minimal Field Revision level.
A) Company will either repair or, at its option, replace
defective Products covered under warranty within fifteen (15)
Business Days of its receipt. The new warranty period for
repaired or replaced Products shall be the remainder of the
original warranty period or ninety (90) days on hardware and
thirty (30) days on software, whichever is greater, measured
after ten (10) business days from the date of return shipment.
SIEMENS will ship Products to Company at SIEMENS's expense.
Company will ship the repaired or replacement Products surface
freight to SIEMENS at Company's expense. Expedited freight
shall be at SIEMENS's expense.
B) Company will either repair or replace, at SIEMENS' option and
cost, defective Products not covered under warranty, within
fifteen (15) Business Days of receipt. The new warranty period
for repaired or replaced Products shall be three months (90
days) for hardware and one month (30) days for software,
measured after ten (10) business days from the date of return
shipment. SIEMENS will ship Products to Company at SIEMENS's
expense. Company will ship the repaired or replacement
Products surface freight to SIEMENS at Company's expense.
Expedited freight shall be at SIEMENS's expense.
C) If a Product is returned for repair three (3) times within the
warranty period, other than for reasons set out in SECTION
2.2, Company shall replace the Product with a new Product or
new equivalent Product at no charge to SIEMENS. The new
Product shall be warranted as new as established in the OEM
Agreement.
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<PAGE> 14
4.1.5 REPAIR ALTERNATIVES
In the event Company is unable or unwilling to provide repair or replacement
service, except in the events covered in the SECTION 14.11 (of the OEM
agreement) CONTINGENCY, and is unable to obtain another source or repair for
Siemens, then Siemens will require Company, for a reasonable fee, to provide
Siemens with the technical information solely for Siemens' use in the repair of
the Product.
The technical information includes, by example and not by way of limitation: (a)
manufacturing drawings and specifications including circuit pack schematics; (b)
manufacturing drawings and specifications covering special tooling and the
operation thereof; (c) a detailed list of all-commercially available parts and
components purchased by Company on the open market disclosing the part number,
name and location of the supplier; and (d) repair specifications and test
procedures, as available.
If Product is returned to Company for repair as provided for in this section,
and is determined to be beyond repair, or repair costs are expected to exceed
fifty percent (50%) of the cost of a replacement, Company shall so notify
Siemens. If requested by Siemens, Company will sell to Siemens a replacement at
the current agreement price or, if no such agreement exists, at a price agreed
upon by Company and Siemens. Further, if requested-by Siemens, Company shall
take the necessary steps to dispose of the unrepairable Product consistent with
sound commercial practices. All transportation charges for and risk of
in-transit loss or damage to Product returned to Company for repair under this
Section will be born by Siemens. All transportation charges associated with the
return of such repaired and replacement Product to Siemens will be borne by
Company. Company shall bear the risk of in-transit loss and damage for shipments
to Siemens on repaired or replaced Product.
To facilitate the repair of Product, Siemens may contact Company with any
questions that may arise concerning Repair Services and, if required, specify
any special packing of Product that might be necessary to provide adequate
in-transit protection from transportation damage. Company will provide packing
material for the equipment to be returned.
Company may require that Siemens furnish the following information with Product
returned to Company for repair as outlined in SCHEDULE H.
Product repaired by Company shall have the repair completion date and RMA number
stenciled or otherwise identified at a readily visible location on the Product
packaging and the repaired Product shall be returned with a tag or other papers
describing the repairs which have been made with sufficient detail to identify
replaced components.
All invoices originated by Company for repair services must be clearly
identified as such, and must contain: (a) a reference to Siemens' Purchase
Order, requisition or RMA for these repair services, (b) a detailed description
of repairs made by Company and the need therefore, and (c) an itemized listing
of parts and labor charges, if any. If Siemens so requests, all replaced parts
will be returned to Siemens.
4.1.6 REFURBISHMENT
At the request of Siemens, and at a mutually agreed to price, Company shall
refurbish Product provided by Siemens for reuse. Refurbishment includes
maintenance necessary to return the Product to a "like-new" operational and
appearance condition that is suitable for its sale by Siemens.
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<PAGE> 15
4.1.7 PRODUCT AVAILABILITY
Company agrees to offer for sale to Siemens, for a period of five (5) years
after the expiration date of this agreement, or any subsequent renewal
agreement, but not to exceed five (5) years after discontinuation of the
product, functionally equivalent maintenance, replacement, and repair parts.
Such parts shall be priced at the then current agreement price, or if no such
agreement exists, at a price agreed upon by Parties.
In addition, should Company decide, during the life of this Agreement, to
discontinue manufacturing Product, Company shall give at least nine (9) months
prior notice to Siemens of such manufacture discontinuance to permit Siemens a
last time buy opportunity.
4.1.8 EXTENDED WARRANTY CONTRACT
Extended Warranty is a contracted extension of Company's original equipment
warranty, which lengthens the original warranty for a period of one (1) year.
Under the Extended Warranty program, Siemens continues to be eligible to return
products to Company for repair free of charge. Company will make available to
Siemens a discounted repair and return service. Such Extended Warranties to
SIEMENS's customers, on request by SIEMENS, at SIEMENS's expense
Company will offer the option to renew the extended warranty (at a mutually
agreed upon price) on an annual basis as long as the Product is being
manufactured by Company and the SLA is in force. If the Product is discontinued,
Company will provide an extended warranty for the 5 year continued support
window.
4.1.9 REPORTS
Company will provide reports to SIEMENS, on a quarterly basis, as specified in
the Operating Procedures (SCHEDULE C). These shall include, but shall not be
limited to, Hardware, Software and System reports detailing repair turnaround
times, fault measurements, card capture data, data on all returned failures,
problem resolution status, and quantitative data on problem reporting.
Company and Siemens will hold quarterly meetings to review inter-working
processes, quality issues, key indicators and customer services business issues.
4.2 PROBLEM RESOLUTION TIME FRAMES
Notwithstanding any other provision of this Agreement, the Problem Resolution
time frames set out in SCHEDULE A shall apply only to commercially available
versions of the Products.
4.3 ADDITIONAL SERVICES
4.3.1 REQUEST FOR ADDITIONAL SERVICES
Subject to the terms and conditions of this Agreement, SIEMENS shall be entitled
to request that Company provide any of the Additional Services. Additional
services may be provided to SIEMENS or directly to the Customers as
subcontractors of SIEMENS company may not otherwise provide Services directly to
SIEMENS's Customer without the express written consent of SIEMENS. Not all of
the Additional Services are available in all areas of the world.
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<PAGE> 16
5. SIEMENS' OBLIGATIONS.
5.1 TEST EQUIPMENT AVAILABILITY
Unless otherwise expressly agreed, SIEMENS shall ensure that it has test
equipment available for testing the Products at each of its Second Line Support
locations which is equivalent to that used by Company to test the Products. In
addition, SIEMENS's Second Line Support personnel shall have access to such
laboratory equipment as necessary to provide their Customers with assistance,
and to be able to reproduce problems with the Products
5.2 ADEQUATE TRAINING FOR FIRST AND SECOND LINE SUPPORT INDIVIDUALS
SIEMENS shall ensure that each of the individuals within its organization and
its distribution channel who are responsible for providing either First Line
Support or Second Line Support have been adequately trained, on an on-going
basis, in the Products, technology they are required to support in accordance
with Schedule E.
5.3 SPARES
SIEMENS shall maintain an appropriate number of spares for each of the Products,
or shall acquire spares through the Advanced Replacement Loan Service described
in SECTION 4.1.4(C)(II), in order to effectively support its installed Customer
base. Company warrants and discloses the ability to substantiate sparing levels.
5.4 ADEQUATE SUPPORT PERSONNEL
SIEMENS shall provide sufficient authorized personnel to support the Customer.
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SCHEDULE A
PROBLEM RESOLUTION SERVICES
6. SCHEDULE A: PROBLEM RESOLUTION SERVICES
A.1 PROBLEM RESOLUTION
A.1.1
In connection with the resolution of problems, SIEMENS shall provide First and
Second Line Support of the Products to its Customers in accordance
Company/SIEMENS Operating Procedures SCHEDULE C reference. Before escalating a
problem to Company Third Line Support, SIEMENS shall have completed all of the
functions and procedures described herein and in SCHEDULE B for both First and
Second Line Support.
A.1.2
In providing Second Line Support, SIEMENS shall provide detailed in-depth
problem analysis, problem duplication as well as those functions described in
SCHEDULED H and the Company/SIEMENS Operating Procedures as being Second Line
Support functions. Problems that cannot be resolved by SIEMENS's Second Line
Support Organization(s) shall be referred to Company in accordance with SECTION
A.1.4 for Third Line Support. Only those individuals identified to Company as
Primary Technical Contacts in accordance with SECTION A.1.4 hereof shall be
entitled to escalate a Problem to Company for Third Line Support.
A.1.3
Company is Third Line Support. Third Line Support shall mean the provision of a
correction or a work around to a problem which SIEMENS is unable to provide
through the provision of First and Second Line Support. Company shall perform
those functions described in the Company/SIEMENS Operating Procedures as Third
Line Support functions. Third Line Support shall normally not include the
provision of any hardware that may be required to support a new software
release, nor the labor to install a new software load.
A.1.4
Upon execution of a non-disclosure Company shall provide SIEMENS with access to
a designated individual or individuals within the TAC, which individual or
individuals shall be Company's Primary Technical Contact(s). SIEMENS shall also
have access to the call tracking database systems to electronically report
problems and requests for information, and no less than "read" access to
Company's Customer support problem tracking system. Company's Primary Technical
Contact(s) shall be SIEMENS's point of contact to Company's support
organization. Company's Primary Technical Contact(s) shall make the final
confirmation of the problem analysis and formally escalate the problem to
Company's R&D for resolution. The problem will be assigned a priority in
accordance with the provisions of SECTION A.2 hereof. The Parties shall advise
each other of the names of the Primary Technical Contacts in their respective
support organizations. The Parties may from time to time change the Primary
Technical Contact individuals by giving notice to the other Party, provided
however, any replacement Primary Technical Contact shall be sufficiently
trained, as described herein, to fulfill the functions of such position.
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<PAGE> 18
A.2 PROBLEM PRIORITY CLASSIFICATION
A.2.1
SIEMENS may request a specific priority classification of a problem or Request
for Information. If the Parties disagree on the classification of a particular
Problem or Request for Information, Company's and SIEMENS's Primary Technical
Contacts shall endeavor to agree on the classification of a problem. If
Company's and SIEMENS's Primary Technical Contacts are unable to agree, the
matter will be escalated in accordance with SCHEDULE B - Management Escalation
Process to ensure resolution. Problem shall be classified into one of the three
(3) following categories for issues related to trouble reports: Critical, Major,
and Minor. A fourth category, Query or Question, is a request for information
which is not directly related to a service outage or problem. In the event that
SIEMENS reports a problem that is determined by Company's R&D staff to be either
outside of the documented functional specification of the Product, or in respect
of a Product that is functioning in accordance with the documented functional
specification, Company reserves the right to request that the problem status be
changed to a 'Design Change Request', in which case Company will treat it as a
change in feature content rather than a problem. The Parties will work together
to come to a reasonable resolution and escalate the issue in accordance with
SCHEDULE B - Management Escalation Procedure.
Priority Definitions for reporting Problems and Requests for Information to
Company are as follows:
CRITICAL
Emergency Problems are those that result in:
- - A total system failure that results in the loss of all transaction
processing capability (e g connection setup, data transmission)
- - Significant reduction in capacity or traffic handling capability
- - Any loss of safety or emergency capabilities
- - Loss of systems ability to perform automatic system reconfiguration
- - Inability to restart a processor or the system
- - System related loss or severe degradation of one or more primary
rate/aggregate spans or connections
- - Loss of access for maintenance or recovery operations
- - Loss of the system's ability to provide any required Emergency or Major
trouble notification
- - Total loss of a material feature or functionality that impacts the
operation of the Product
MAJOR
Major problems are those that result in:
- - Emergency problems in which there is an acceptable work around in place
- - Degradation in capacity or traffic handling capability
- - Degradation of system's ability to perform automatic system
reconfiguration
- - Difficulty restarting a processor or the system
- - Any loss of functional visibility and/or diagnostic capability
- - Short system or subsystem outages, whose duration accumulates to greater
than 2 minutes in any 24 hour period, or that continue to repeat during
longer periods
- - Prevention of access for routine administrative activity
- - Significant degradation of the system's ability to provide any required
Emergency or Major Trouble notification
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<PAGE> 19
- - Significant degradation of a material feature or functionality that
impacts the operation of the Product
MINOR
Minor problems are those that result in:
- - Degradation of access for routine administrative capability
- - User interface problems for network management that are not service
affecting.
- - Any problems that are not safety related on non commissioned equipment.
- - Any other problems that do not result in the loss or degradation of a
material feature or functionality
QUERY OR QUESTION
A fourth class, Query or Question, is a request for information which is not
directly related to a service outage or problem. This may include:
- - Requests for assistance in the installation or configuration or a system
or subsystem
- - Requests for documentation pertaining to a system or subsystem
A.4 COMPANY RESPONSE TIME COMMITMENTS - (FOR THIRD LINE SUPPORT 7X24)
A.4.1 Call Response Time
Call Response Time is defined as the elapsed time between the reporting of a
Problem by SIEMENS and the time a Company Third Line technical support
specialist contacts SIEMENS. Call Response Time is monitored and is used to
trigger escalation. Company will use reasonable efforts to meet the Call
Response Times specified below for each Priority Level.
<TABLE>
<CAPTION>
Priority Level Response Time Commitment
- -------------- ------------------------
<S> <C>
Critical Thirty (30) minutes at all times.
Major Within one (1) hour at all times.
Minor By the next Business Day for calls received in the Business Day Query
By the next Business Day for calls received in the Business Day
</TABLE>
A.4.2 Restore Time
Restore Time is defined as the elapsed time between the reporting of a Service
Affecting problem by SIEMENS and the time Company provides an acceptable work
around or returns the Product to a level of operation that is acceptable to the
Customer. Company will use reasonable efforts to meet the Restore Times
specified below for each Priority Level.
<TABLE>
<CAPTION>
Priority Level Response Time Commitment
- -------------- ------------------------
<S> <C>
Critical Less than or equal to 24 hours.
Company will use all commercially reasonable efforts to restore the
affected Product as soon as possible.
Major Less than or equal to Three (3) Business Days.
Minor Not Applicable
Query Not Applicable
</TABLE>
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<PAGE> 20
SCHEDULE B
MANAGEMENT ESCALATION PROCEDURE
7. SCHEDULE B: MANAGEMENT ESCALATION PROCEDURE
The purpose of any escalation procedure is to ensure that unresolved problems
are brought to the appropriate levels of expertise and management for attention
and action. This includes, but is not limited to, problems not resolved in the
time frames as indicated in SCHEDULE A (Problem Resolution Process), problems
whose priorities can not be agreed to, problems that turn into design change
requests, undetermined problems, and sporadic problems.
For the purposes of this process, escalation time frames to the OEM levels of
management are determined by the requested prioritization of the problem. This
escalation process is for post sales support of hardened product at a Customer
site and is not intended for use during lab evaluation of beta or in field trial
loads of Product, nor is it intended for use where there is an acceptable
proposal for service restoration.
After the Customer reports the problem, it is the responsibility of the Second
Line support organization to begin the problem resolution process and to
escalate unresolved problems in, a timely and accurate manner.
The Management Escalation process should involve parallel escalation within both
SIEMENS and Company to insure that both companies are escalating unresolved
issues simultaneously.
It is also the intent of this escalation procedure to properly report escalated
issues to non-service groups within the Company and SIEMENS companies.
A list of the names of the "Manager(s)", along with their associated phone
numbers, will be kept up to date and shared between SIEMENS and Company on a
regular basis.
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SCHEDULE C
OPERATING PROCEDURES
8. SCHEDULE C: OPERATING PROCEDURES
Company and SIEMENS will participate in the development of ISO 9000 procedures
to define and/or update the existing the processes and procedures for the two
companies to interact. Writing procedures required by SIEMENS to interface to
existing processes of Company will be the responsibility of SIEMENS with
assistance of assigned 'content experts' from Company. Writing procedures that
cause change in both company's present practices will be done jointly, utilizing
prime contacts within each organization as appropriate.
Documents will be written to include, but not be limited to, the following
processes and procedures:
- - Ordering and scheduling services
- - Training and course development
- - Problem notification between the two organizations
- - First, second, and third line support
- - Installation and commissioning
- - Network integration
- - Site and network engineering
- - Repair and return, including hardware modification, hardware/software
upgrade
- - Service logistics, including hardware inventory and management
- - System and network upgrade
- - Advance Replacement
- - Software Release and software patch distribution
- - New Product Introduction
- - Problem Escalation
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SCHEDULE D
REPAIR AND REPLACEMENT
9. SCHEDULE D: REPAIR AND REPLACEMENT
9.1 REQUESTS FOR RETURN.
All requests for return of Products or for Advance Replacement of Products
should be made to Company. Siemens will provide all necessary information for
processing the return and issuing a Return Authorization (RA) number.
9.2 SHIPPING OF DEFECTIVE PRODUCTS
Defective Products must be returned by SIEMENS in static protective material,
securely packaged to prevent damage in transit, and shipped prepaid with the RMA
Number written on the outside of the package. If to Company, shipment should be
made to:
Accelerated Networks
Attn: Customer Service
301 Science Drive
Moorpark Ca. 93021
If to SIEMENS:
900 Broken Sound Parkway
Boca Raton, Florida, 33487
9.3 REPAIR AND RETURN
Company will either repair or replace, at its option, defective Products and
return them to SIEMENS's point of origination.
9.4 RETURN DIRECTLY TO COMPANY.
Upon written request by SIEMENS, Company may permit SIEMENS's Customers to
return defective Products directly to Company for repair or replacement.
Permission shall be granted on a case by case basis, at Company's discretion.
9.5 RETURN POLICY.
Siemens will return the defective Products within 30 days of receipt of
replacement Product. Failure to return the defective Product will result in
Company invoicing Siemens at the transfer price.
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10. SCHEDULE E TRAINING SERVICES
E.1 General
COMPANY and Siemens agree to participate in training programs and provide access
to personnel, materials and other resources in a manner consistent with the
co-operative spirit of their relationship.
E.1.1 Geographic Considerations
For the North American market, the "Train the Trainer" Program of this agreement
will apply to the following training organisations only: Siemens Information and
Communication Networks Training Center in Boca Raton, FL, and COMPANY. New
locations may be added upon mutual consent. Other Training Services listed
herein will be available on a global basis.
E.2 Courseware and Materials
COMPANY will deliver to Siemens and grant the right to Siemens to use all
available materials, courseware, tools, Lecture Based, Computer Based and Web
Based Training (LBT, CBT and WBT) packages developed by Company's training
department and/or the use of contractors by COMPANIES training development
services for any feature release of the products listed in this agreement and
the associated technologies FREE OF CHARGE. Siemens will have the right to
reproduce these materials without any restriction for training purpose only, as
long as no copyright, trademark or other rights of third parties are affected.
Access to training materials, courseware, and tools for any other products or
other general capabilities provided by either training organization may be
agreed to, either in other Service Level Agreements between COMPANY and Siemens,
or on a case by case basis by COMPANY and Siemens.
E.3 Standard Training Courses
COMPANY agrees to offer training courses on all its Products covering the
following categories, overview, installation, administration and operations,
planning and engineering, and maintenance of their Products. These courses will
be available at any of the COMPANY training facilities around the world or at
customer locations (suitcase classes). The training courses for the Products
listed in the agreement and the associated technologies will be offered in
English. All final training materials available will be provided to Siemens at
least one month prior to release of product for the first customer trial
/installation. Draft versions will be provided at appropriate time prior to
start of NIST to expedite ramp-up of Siemens trainers.
COMPANY will provide Siemens personnel and/or Siemens Customers with the
instructional delivery of all Training Courses for the Products listed in the
agreement and the associated technologies that are available at the time of
request from COMPANY. If required by Siemens, COMPANY will offer the delivery of
a requested training course not later than 2 months after the time of request
for that course. The cost for Siemens will be at a 50% off of list price for
Siemens personnel, and 25% off of list price for Siemens' Customers.
Hands-on training for up to 6 Siemens personnel (typically, TAC/FS or Train the
Trainer personnel) working with COMPANY TAC personnel will also be provided by
COMPANY prior to and during the system test phase (the final test phase before
first customer installation) for each Major Release of the products sold to
Siemens for the purpose of enabling the service department of Siemens. This
training will consist of formal and informal classroom instruction, actual
hands-on training in laboratory environments, and one-on-one training with
Company's technical support organization.
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E.4 Customised Training Courses
In addition to Company's regularly scheduled training classes, arrangements for
the delivery of customised training courses can be initiated by contacting one
of Company's training facilities. Such courses can be arranged to be held at
either a COMPANY facility or at a Customer site and may be made available to
Siemens upon request.
This offering provides for specialised training that is targeted to the specific
needs of the individual Customer. Each class is developed according to the
specific requirements of the individual Customer. Prices for development and
delivery of such customised training are to be negotiated between the parties at
the time of request by Siemens.
E.5 Train-the-Trainer Program
Details of a "Train-the-Trainer" program for Siemens personnel are as follows:
SIEMENS will be provided with the necessary knowledge enabling for two
SIEMENS instructors to teach Overview, Installation, Operations and
Administration, Planning and Engineering, and Maintenance to customers of
the COMPANY Products sold by SIEMENS. The following training will occur at
COMPANY's location, unless mutually agreed otherwise by the Parties.
This knowledge enabling will include, but is not limited to, the two
SIEMENS Instructors sifting through each of the COMPANY courses to be
delivered at least twice plus access to COMPANY SME's for questions (if
required). This will then be followed by a PILOT Course presentation by
the SIEMENS instructors done with the COMPANY instructor present.
This will be in effect for the current course offerings and any subsequent
new course offerings of the products included within this agreement.
For subsequent Major Releases, SIEMENS instructors will be allowed to sit
in the initial pilot and delta pilot offerings of each updated course. It
will then be the responsibility of that instructor to update their
respective organizations.
The knowledge enabling process will also include the participation of at
least one (1) Instructor in the installation and commissioning of each of
the COMPANY Products that SIEMENS will be supporting.
COURSE MATERIALS:
SIEMENS will be provided, at no charge, a copy of all course materials in
electronic format. These materials will include, but will not be limited
to student guides, student exercises, training lab information, student
job aids, transparencies, presentation materials, and instructor guides,
as available.
Siemens will be responsible for upgrading its own training materials for
each subsequent product release. SIEMENS will continue to be provided with
all updates and upgrades to the (above) course materials by the completion
of Companies System Test.
At no charge, SIEMENS will be allowed to use the supplied course materials
to instruct SIEMENS customers. This will include the ability to reproduce
and provide the student portions of these materials to the customer.
At no charge, SIEMENS will be allowed to reformat any of the course
materials as deemed necessary to meet customer expectations/requirements.
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At no charge, SIEMENS will be allowed to change and use the presentation
media of the originally provided course materials. This will include but
is not limited to: electronic presentation, CBT, video presentation, or
mixed-media.
COMPANY INSTRUCTED CLASSES
SIEMENS will have the option to enroll its customer students into
COMPANY-taught training classes held at either Company's or Siemens'
training facilities, subject to availability.
COMPANY and Siemens agree to participate in training programs and provide
access to personnel, materials and other resources in a manner consistent
with the co-operative spirit of their relationship.
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11. SCHEDULE F OEM VENDOR DELIVERABLES
The following deliverables are required for each new product release.
<TABLE>
<CAPTION>
DUE DATE ACTIVITY
- -------- --------
<S> <C>
SYSTEM TEST PLANS
At start of System test
System test plans submitted to Siemens Training Courses list and description
15 Days prior to NITS System test plans completed with documented results Training Courses availability
schedule
Start: FOAIS - 90 days NETWORK INTEGRATION TESTING Pilot Training Courses
Complete: FOAIS - 30 days
NITS - 60 days Company will deliver a list of test equipment, Documentation list and description
required for Network Integration testing.
NITS - 15 days Company will deliver on-schedule, lab equipment (Products) necessary for Siemens
to conduct network integration testing, along with a Documentation availability
schedule.
NITS through completion Company will provide sufficient technical support (on-site) to enable Siemens
network integration testing for new product deployments.
TRAINING AND COURSE DEVELOPMENT
FOATC Formal Training Courses available per semester
DOCUMENTATION
NIST Released Documentation
FOATC + 30 days Customer Deliverable Documentation
TROUBLE TICKET HANDLING
FOAIS - 60 days Define trouble ticket tracking and status tools for the Company
FOAIS - 30 days Implement trouble tracking tools and procedures
FOAIS - 30 days Provide Siemens with documentation describing Company's Trouble Tracking Procedures.
FOAIS Company will provide Siemens with electronic access to the trouble tracking system
for status of all tickets and all technical alerts.
THIRD LEVEL SUPPORT
FOAIS - 30 days Company will have implemented Tier III support procedures as outlined in the SLA
FOAIS - 30 days Company will define and publish escalation lists including phone numbers and pager
numbers
FOAIS Company will adhere to response times defined in the SLA
SITE AND NETWORK ENGINEERING
FOAIS - 60 days Company will provide engineering data for equipment described in the OEM agreement.
</TABLE>
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<TABLE>
<S> <C>
REPAIR AND RETURN, INCLUDING HARDWARE MODIFICATION, HARDWARE/SOFTWARE UPGRADE
FOAIS Company will provide sufficient equipment to implement the repair and return
procedures as specified in this SLA.
COMPANY'S EQUIPMENT DELIVERIES
FOAIS Company's equipment deliveries to Siemens customers will be on schedule per the
mutually agreed upon delivery commitments to the customer order.
</TABLE>
1. NITS = Network Integration Testing Start Date
2. FOAIS = First Office Application Installation Start Date
3. FOATS = First Office Application Testing Start Date
4. FOATC = First Office Application testing Completed
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12. SCHEDULE G TROUBLE TICKET INFORMATION
Problem Resolution will start with the initialization of a Trouble Ticket that
will be tracked to closure. Siemens Second Line Support personnel will be given
both read and write access to the Company's trouble ticketing system. The
information provided will be key to determining the nature of the problem and as
needed escalating the problem into the Company's R&D for resolution. Restoration
time frames and priority will begin after the confirmation of the problem
analysis. The minimal information needed to open a trouble ticket and begin the
Problem Resolution is as follows:
- - Person reporting the problem and contact information
- - Product with detailed model number
- - Serial number of unit
- - Detailed configuration of the product
- - Application information Network Diagram showing all connectivity
- - Detailed Description of the problem
- - The frequency of the problem and reproducibility
- - Severity of the problem
- - Any additional information required to aid in the reproduction of the
problem
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13. SCHEDULE H REPAIR AND RETURN INFORMATION
CUSTOMER SERVICE RMA FORM
<TABLE>
<S> <C>
Who
RMA NUMBER __________________________________________________________ Company
DATES
RMA request received __________________________________________________________ Company
RMA issued __________________________________________________________ Company
Equipment arrived
Repair start __________________________________________________________ Company
Repair complete
Return shipment __________________________________________________________ Company
__________________________________________________________ Company
RMA closed
__________________________________________________________ Company
CONTACT INFORMATION
RMA requested by __________________________________________________________ Siemens
RMA issued by __________________________________________________________ Company
ASC technical contact __________________________________________________________ Company
ASC ship-to contact __________________________________________________________ Company
Siemens technical contact __________________________________________________________ Siemens
Siemens return-to contact __________________________________________________________ Siemens
SHIP-TO ADDRESS
Company name __________________________________________________________ Siemens
Address, City, State, Zip __________________________________________________________ Siemens
Special instructions __________________________________________________________ Siemens
BILL-TO ADDRESS
Company name __________________________________________________________ Company
Address, City, State, Zip __________________________________________________________ Company
Billing contact __________________________________________________________ Company
__________________________________________________________ Company
FINANCIAL INFORMATION
Warranty status __________________________________________________________ Company
Purchase order __________________________________________________________ Siemens
Repair charge __________________________________________________________ Company
Other charges __________________________________________________________ Company
RECEIVED PRODUCT INFO
(From customer to ASC)
Quantity __________________________________________________________ Siemens
Model number __________________________________________________________ Siemens
CLEl codes __________________________________________________________ Siemens
Part number __________________________________________________________ Siemens
Serial number __________________________________________________________ Siemens
Hardware revision __________________________________________________________ Siemens
Software revision __________________________________________________________ Siemens
Contained sub-assemblies __________________________________________________________ Siemens
Hardware configuration __________________________________________________________ Siemens
Software configuration __________________________________________________________ Siemens
SHIPPED PRODUCT INFO
(From ASC to customer)
Quantity __________________________________________________________ Company
Model number __________________________________________________________ Company
CLEl code __________________________________________________________ Company
Part number __________________________________________________________ Company
Serial number __________________________________________________________ Company
Hardware revision __________________________________________________________ Company
Software revision __________________________________________________________ Company
Contained sub-assemblies __________________________________________________________ Company
Hardware configuration __________________________________________________________ Company
</TABLE>
29
<PAGE> 30
CUSTOMER SERVICE RMA FORM
<TABLE>
<S> <C>
Who
RMA NUMBER __________________________________________________________ Company
SHIPPING INFORMATION
Shipping carrier __________________________________________________________ Company
Carrier service __________________________________________________________ Company
Billing account __________________________________________________________ Company
Freight charges __________________________________________________________ Company
Insurance Y/N __________________________________________________________ Company
Freight paid by __________________________________________________________ Company
ADVANCED REPLACEMENT
AR required (YIN) __________________________________________________________ Siemens
AR-RMA number __________________________________________________________ Company
Purchase order __________________________________________________________ Siemens
AR charge __________________________________________________________ Company
STATEMENT OF PROBLEM
Symptoms __________________________________________________________ Siemens
Application __________________________________________________________ Siemens
Connections __________________________________________________________ Siemens
INSTRUCTIONS
Repair/replace __________________________________________________________ Siemens
Repair/replace billable? __________________________________________________________ Company
H/W upgrade required __________________________________________________________ Siemens
S/W upgrade required __________________________________________________________ Siemens
Upgrades billable? __________________________________________________________ Company
DIAGNOSIS
What was found to be wrong __________________________________________________________ Company
REPAIR ACTION
Repaired or replaced __________________________________________________________ Company
Tests completed __________________________________________________________ Company
H/W upgraded to revision __________________________________________________________ Company
S/W upgraded to revision __________________________________________________________ Company
Configurations restored __________________________________________________________ Company
__________________________________________________________ Company
COMMENTS
Siemens / ASC __________________________________________________________ Both
ADVANCED SWITCHING COMMUNICATIONS
CURRENT LOCATION
Receiving __________________________________________________________ Company
Repair WIP __________________________________________________________ Company
Shipping __________________________________________________________ Company
REPAIR DEPARTMENT
Repaired by __________________________________________________________ Company
Upgraded by __________________________________________________________ Company
Tested by __________________________________________________________ Company
</TABLE>
14. SCHEDULE I TRAINING EQUIPMENT
30
<PAGE> 1
EXHIBIT 10.19
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE -- MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only,
MAY 6TH, 1999, is made by and between TYLER PACIFIC III, L.L.C. ("Lessor") and
ACCELERATED NETWORKS INC., A California Corporation ("Lessee"). (collectively
the "Parties," or individually a "Party").
1.2 (a) PREMISES: That certain portion (approximately 15,304 square
feet) of the Building, including all improvements therein or to be provided by
Lessor under the terms of this Lease, commonly known by the street address of 94
W. COCHRAN STREET, SUITE B & C, located in the City of SIMI VALLEY, County of
VENTURA, State of CALIFORNIA, with zip code 93065, as outlined on Exhibit A
attached hereto ("Premises"). The "Building" is that certain building containing
the Premises and generally described as (describe briefly the nature of the
Building):
21,825 SQUARE FEET CONCRETE TILT UP INDUSTRIAL BUILDING, LOCATED ON LOT 4B
WITHIN THE SIMI VALLEY BUSINESS CENTER
In addition to Lessee's rights to use and occupy the Premises as hereinafter
specified, Lessee shall have non-exclusive rights to the Common Areas (as
defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any
rights to the roof, exterior walls or utility raceways of the Building or to any
other buildings in the Industrial Center. The Premises, the Building, the Common
Areas, the land upon which they are located, along with all other buildings and
improvements hereon, are herein collectively referred to as the "Industrial
Center." (Also see Paragraph 2.)
1.2(b) PARKING: Twenty-one (21) unreserved vehicle parking spaces
("Unreserved Parking Spaces") free of charge throughout the lease term and the
option period(s); and Twenty-five (25) reserved vehicle parking spaces
("Reserved Parking Spaces"). (Also see Paragraph 2.6)
1.3 TERM: 2 years and 3 months ("Original Term") commencing JUNE 1, 1999
("Commencement Date") and ending AUGUST 31, 2001 ("Expiration Date"). (Also see
Paragraph 3.)
1.4 EARLY POSSESSION: UPON LEASE EXECUTION ("Early Possession Date").
(Also see Paragraphs 3.2 and 3.3)
1.5 BASE RENT: $9,947.60 per month ("Base Rent"), payable on the 1st day
of each month commencing JUNE 1, 1999 (Also see Paragraph 4.)
|X| If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum 56, attached hereto.
1.6 (a)BASE RENT PAID UPON EXECUTION: $9,947.60 as Base Rent for the
period JUNE 1 THRU JUNE 30, 1999.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: FIFTEEN AND
52/100 percent (15.52%) ("Lessee's Share") as determined by |_| prorata square
footage of the Premises as compared to the total square footage of the Building
or |X| other criteria as described in Paragraph 4.2. Monthly CAMs shall not
exceed $0.174 PSF (or $2,662.90) during the initial year of the Lease. Said CAM
Charges shall not increase more than five percent (5%) per year.
1.7 SECURITY DEPOSIT: $9,947.60 ("Security Deposit"). (Also see
Paragraph 5).
1.8 PERMITTED USE: GENERAL OFFICE, ASSEMBLY, TESTING & WAREHOUSING OF
ELECTRONIC COMPONENTS & EQUIPMENT ("Permitted Use") ("Also see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "Insuring Party." (Also see Paragraph
8.)
1.10 (a)REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[X] Westcord Commercial Real Estate Services represents Lessor exclusively
("Lessor's Broker");
[X] CRESA Partners represents Lessee exclusively ("Lessee's Broker"); or
[ ] n/a represents both Lessor and Lessee ("Dual Agency"). (Also see Paragraph
15.)
1.10(b)PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
MULTI-TENANT - MODIFIED NET
Page 1
<PAGE> 2
separate written agreement between Lessor and said Broker(s), the sum of $PER
LISTING) for brokerage services rendered by said Broker(s) in connection with
this transaction. CRESA Partners shall be paid by Lessor a real estate
commission equal to three percent (3%) of the total lease consideration
excluding any options, upon execution of the Lease Agreement by all parties.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by n/a ("Guarantor"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 57, and Exhibits A through C, all of which
constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems, and loading doors, if any, in the Premises, other than
those constructed by Lessee, shall be in good operating condition on the
Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within one hundred eighty (180) days after the
Commencement Date, correction of that non-compliance shall be the obligation of
Lessee at Lessee's sole cost and expense, except as otherwise provided in the
lease.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessors expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including, but not limited to, the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations, and any
covenants or restrictions of record (collectively, "Applicable Laws") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made an investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease. Lessee will lease
and accept the premises in "as-is" condition, except as otherwise provided in
this Lease. Notwithstanding the above, Lessor, at Lessor's sole cost an I
expense, shall be responsible throughout the lease term and any option periods
for compliance with all applicable laws, including without limited to the
American with Disabilities Act required for the Building and Premises, unless
such compliance is required as a result of Tenant's use or improvements.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces
MULTI-TENANT - MODIFIED NET
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<PAGE> 3
than said number. Said parking spaces shall be used for parking by vehicles no
larger than full-size passenger automobiles or pick-up trucks, herein called
"Permitted Size Vehicles." Vehicles other than Permitted Size Vehicles shall be
parked and loaded or unloaded as directed by Lessor in the Rules and Regulations
(as defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease provide the
parking facilities required by Applicable Law.
2.7 COMMON AREAS - DEFINITION. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and reasonably designated by the Lessor from time to time for the
general nonexclusive use of Lessor, Lessee and other lessees of the Industrial
Center and their respective employees, suppliers, shippers, customers,
contractors and invitees, including parking areas, loading and unloading areas,
trash areas, roadways, sidewalks, walkways, parkways, driveways and landscaped
areas.
2.8 COMMON AREAS -- LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 COMMON AREAS -- RULES AND REGULATIONS. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and management
of the Common Areas and shall have the right, from time to time, to establish,
modify, amend and enforce reasonable Rules and Regulations with respect thereto
in accordance with Paragraph 40. Lessee agrees to abide by and conform to all
such Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:, provided that such changes do not change
the quality of the Industrial Center Parking and Access.
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) DELETED
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Industrial Center as Lessor may,
in the exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
MULTI-TENANT - MODIFIED NET
Page 3
<PAGE> 4
3.2 EARLY POSSESSION. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. All other
terms of this Lease, however, (including, but not limited to, the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
Parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
as the percentage calculated by dividing the rentable square footage of the
Premises by the total rentable area of all buildings in the Industrial Center,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center Common Area (CAM's), including, but not
limited to, the following:
(i) The operation, repair and maintenance in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas,
loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers,
irrigation systems, Common Area lighting
facilities, fences and gates, and roof cover.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reasonable Reserves set aside for maintenance and repair
of Common Areas.
(v) Real Property Taxes (as defined in Paragraph 10.2) to be
paid by Lessor for the Building and the Common Areas
under Paragraph 10 hereof.
MULTI-TENANT - MODIFIED NET
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<PAGE> 5
(vi) The costs of the premiums for the insurance policies
maintained by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss concerning the
Building or the Common Areas.
(viii) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area
Operating Expense.
(ix) The cost of painting, wall covering or carpeting Common
Areas.
(x) The cost of painting the building exteriors, including
carports, overhangs, site walls and mechanical screens
or other exterior elements.
(xi) The cost of voluntary or governmental ride sharing, day
care and/or transportation management programs
(xii) The cost of on-site and/or off-site management.
(xiii) The cost of any audit relating to Common Area Expenses
and/or Lessee's Expenses.
(xiv) Amortization of capital improvements which are intended
to reduce operating costs, improve operations or comply
with governmental conservation or safety programs over
such time as Lessor may reasonably determine (together
with interest at five percent (5%) above the discount
rate of the Federal Reserve Bank of San Francisco on the
unamortized Amount.
(xv) All fees, costs and charges payable by Lessor as the
owner of the Industrial Center to Voit Simi Joint
Venture, its successors and assignees, under that First
Amended and Restated Declaration as to Covenants,
Conditions, Restrictions and Easements, and Common
Facility Provisions for Simi Valley Business Center
recorded in the Official Records of Ventura County,
California, as Instrument No. 56-103704, as the same may
be hereafter amended, restated or supplemented (the
"Recorded CC&Rs").
(xvi) Any other costs, fees or charges imposed on Lessor by
reason of the inclusion of the Industrial Center as part
of the planned development commonly referred to as the
"Simi Valley Business Center".
(b) Any Common Area Operating Expenses and Real Property Taxes that
are specifically attributable to Lessee or its Premises in the Industrial
Center, shall be allocated entirely to Lessee. However, any Common Area
Operating Expenses and Real Property Taxes that are not specifically
attributable to Lessee, its premises, or to the operation, repair and
maintenance thereof, shall be equitably allocated by Lessor to all buildings in
the Industrial Center.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses and Lessee's
Expenses (as defined below) shall be payable by Lessee within ten (10) days
after a reasonably detailed statement of actual expenses is presented to Lessee
by Lessor. At Lessor's option, however, a reasonable amount may be estimated by
Lessor from time to time of Lessee's Share of annual Common Area Operating
Expenses and the same shall be payable monthly or quarterly, as Lessor shall
designate, during each 12-month period of the Lease term, on the same day as the
Base Rent is due hereunder. Lessor shall deliver to Lessee within ninety (90)
days after the expiration of each calendar year a reasonably detailed statement
showing Lessee's Share of the actual Common Area Operating Expenses incurred
during the preceding year. If Lessee's payments under this Paragraph 4.2(d)
during said preceding year exceed Lessee's Share as indicated on said statement,
Lessee shall be credited the amount of such overpayment against Lessee's Share
of Common Area Operating Expenses or Lessee's Expenses next becoming due. If
Lessee's payments under this Paragraph 4.2(d) during said preceding year were
less than Lessee's Share as indicated on said statement, Lessee shall pay to
Lessor the amount of the deficiency within ten (10) days after delivery by
Lessor to Lessee of said statement.
4.3 LESSEE'S EXPENSES. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent and Lessee's Share of all Common Area
Operating Expenses as defined in Paragraph
MULTI-TENANT - MODIFIED NET
Page 5
<PAGE> 6
4.2(a) of the Lease, Lessee's Expenses (as hereinafter defined), as or when they
occur in accordance with the following provisions:
(a) "Lessee's Expenses" are defined, for purposes of this Lease, as
the sum of any or all expenses incurred by Lessor in connection with the repair
and maintenance of the Premises (and related improvements), including but not
limited to: walls, ceilings, fixtures, finishes, doors, hardware, glass, floor
coverings, heating and air conditioning, plumbing and electrical, utilities,
security and fire protection, and any such other materials and supplies,
salaries, wages or other expenses incurred with respect to the Premises (and
related improvements) under Lessee's Obligations to keep the Premises in good
order, condition and repair. As to each specific category of expense which one
or more lessees (other than Lessee) either pays directly to third parties or
specifically reimburses to Lessor (e.g. separately metered utilities), such
Lessee's payments with respect thereto shall not be included in Lessee's
Expenses for the purpose of this Paragraph 4.3.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Lessor shall be required to keep all or any
part of the Security Deposit separate from its general accounts. Lessor shall,
at the expiration or earlier termination of the term hereof and after Lessee has
vacated the Premises, return to Lessee (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest herein), that portion of the Security
Deposit not used or applied by Lessor. Unless otherwise expressly agreed in
writing by Lessor, no part of the Security Deposit shall be considered to be
held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall have access to the Premises, twenty four (24) hours
per day, seven (7) days per week. Lessee shall use and occupy the Premises only
for the Permitted Use set forth in Paragraph 1.8, or any other legal use which
is reasonably comparable thereto, and for no other purpose. Lessee shall not use
or permit the use of the Premises in a manner that is unlawful, creates waste or
a nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification for said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products thereof. Lessee
shall not engage in any activity in or about the Premises which constitutes a
Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Requirements (as defined in
Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any
above or below ground storage tank; (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority; and (iii) the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but upon notice to Lessor and in compliance
with all Applicable Requirements, use any ordinary and
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customary materials reasonably required to be used by Lessee in the normal
course of the Permitted Use, so long as such use is not a Reportable Use and
does not expose the Premises or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may (but without any obligation to do so) condition its consent to any
Reportable Use of any Hazardous Substance by Lessee upon Lessee's giving Lessor
such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefor, including,
but not limited to, the installation (and, at Lessor's option, removal on or
before Lease expiration or earlier termination) of reasonably necessary
protective modifications to the Premises (such as concrete encasements) and/or
the deposit of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe during the term of the Lease or any option period, that a Hazardous
Substance has come to be located in, on, under or about the Premises or the
Building, other than as previously consented to by Lessor, Lessee shall
immediately give Lessor written notice thereof, together with a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action, or proceeding given to, or received from, any
governmental authority or private party concerning the presence, spill, release,
discharge of, or exposure to, such Hazardous Substance including, but not
limited to, all such documents as may be involved in any Reportable Use
involving the Premises. Lessee shall not cause or permit any Hazardous Substance
to be spilled or released in, on, under or about the Premises (including,
without limitation, through the plumbing or sanitary sewer system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release either party from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, including, without limitation, the recorded CC&Rs and
the Rules and Regulations attached hereto as Exhibit B as the same may be
reasonably amended from time to time by Lessor, permits, the requirements of any
applicable fire insurance underwriter or rating bureau, and the recommendations
of Lessor's engineers and/or consultants, relating in any manner to the Premises
(including, but not limited to, matters pertaining to (i) industrial hygiene;
(ii) environmental conditions on, in, under or about the Premises, including
soil and groundwater conditions; and (iii) the use, generation, manufacture,
production, installation, maintenance, removal, transportation, storage, spill,
or release of any Hazardous Substance), now in effect or which may hereafter
come into effect. Lessee shall, within five (5) days after receipt of Lessor's
written request, provide Lessor with copies of all documents and information,
including, but not limited to, permits, registrations, manifests, applications,
reports and certificates, evidencing Lessee's compliance with any Applicable
Requirements specified by Lessor, and shall immediately upon receipt, notify
Lessor in writing (with copies of any documents involved) of any threatened or
actual claim, notice, citation, warning, complaint or report pertaining to or
involving failure by Lessee or the Premises to comply with any Applicable
Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
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7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, and plate glass, but excluding any
items which are the responsibility of Lessor pursuant to Paragraph 7.2 below.
Lessee, in keeping the Premises in good order, condition and repair, shall
exercise and perform good maintenance practices. Lessee's obligations shall
include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(1) Lessor warrants all existing systems including but not
limited to plumbing, electrical, fire and safety, and HVAC systems for a period
of six (6) months from the commencement date of this Lease. Thereafter, Lessee
will be responsible for the maintenance and repair of the aforementioned
systems, except that should the replacement of one of the aforementioned systems
be necessary and/or the cost of repair exceeds $2,500.00, Lessee's obligations
will be limited to a prorata share of the replacement cost.
(2) Lessee's prorata share shall be determined by dividing the
remaining months of the lease term (numerator) by the anticipated usual useful
life (in months) of the replacement item or five (5) years in the event of a
repair (denominator). This fraction shall be multiplied by the total replacement
cost to determine Lessee's share of the expense.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the healing, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
1. Lessor has exercised Lessor's option and has contracted for and
provides a Preventative Maintenance Service Program for all roof mounted Package
Air Conditioning Equipment supplied within the premises. The cost of this
service shall be paid for by the Lessor and reimbursed by the Lessee. Said costs
are considered additional rent and are payable on a monthly basis upon the same
terms and conditions as rent (see Paragraph 4). Said costs shall be at an amount
equal to $6.00 per month per HVAC unit.
2. This program includes, but is not limited to, quarterly filter
changes and inspection of electrical connections, pulley(s), belt(s), coils,
refrigerant pressures, supply and return air temperature readings, bearings, and
the cleaning and testing of condensate drains as required. This Program does not
incorporate the cost -- including labor and material -- of repairing or
replacement of the individual unit.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection systems and equipment, fire hydrants, parking lots,
walkways, parkways, driveways, landscaping, fences, signs and utility systems
serving the Common Areas and all parts thereof, as well as providing the
services for which there is a Common Area Operating Expense pursuant to
Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior
surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or
replace windows, doors or plate glass of the Premises. Lessee expressly waives
the benefit of any statute now or hereafter in effect which would otherwise
afford Lessee the right to make repairs at Lessor's expense or to terminate this
Lease because of Lessor's failure to keep the Building, Industrial Center or
Common Areas in good order, condition and repair comparable with other quality
industrial centers in Simi Valley.
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7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "Utility Installations"
is used in this Lease to refer to all air lines, power panels, electrical
distribution, security, fire protection systems, communications systems,
lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in on or about the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "Alterations" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "Lessee-Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof) without Lessor's consent but upon notice to Lessor, so long as they
are not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$10,000.00. In the event Lessee elects to make additional alterations to the
Premises, all the improvements shall be completed by Lessee in a good
workmanship manner, and are subject to approval of the City of Simi Valley and
Lessor's approval of the final plans and specifications, which shall not be
unreasonably withheld or delayed. Lessee, at Lessee's option, shall not be
responsible for removing any of the above improvements after the expiration of
the lease.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on, or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor, in an amount equal to
one and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal
and to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at the time of such alteration or installation, elect
in writing to Lessee to be the owner of all or any specified part of the
Lessee-Owned Alterations and Utility Installations. Unless otherwise instructed
per Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
by providing notice to Lessee at the time of such alteration or installation,
that any or all Lessee-Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, clean
and free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not
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include any damage or deterioration that would have been prevented by good
maintenance practice or by Lessee performing all of its obligations under this
Lease. Except as otherwise agreed or specified herein, the Premises, as
surrendered, shall include the Alterations and Utility Installations. The
obligation of Lessee shall include the repair of any damage occasioned by the
installation, maintenance or removal of Lessee's Trade Fixtures, furnishings,
equipment, and Lessee-Owned Alterations and Utility Installations, as well as
the removal of any storage tank installed by or for Lessee, and the removal,
replacement, or remediation of any soil, material or ground water contaminated
by Lessee, all as may then be required by Applicable Requirements and/or good
practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall
be removed by Lessee subject to its obligation to repair and restore the
Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUMS. The cost of the premiums for the insurance
policies maintained by Lessor under this Paragraph 8 shall be a Common Area
Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be
prorated to coincide with the corresponding Commencement Date or Expiration
Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only. Lessee's liability coverage as described
above shall include all coverages typically provided by the Broad Form
Comprehensive General Liability Endorsement, including broad form property
damage coverage (which shall include coverage for completed operations).
Lessee's liability coverage shall further include premises-operations coverage,
products-completed operations coverage, owners and contractors protective
coverage (when reasonably required by Lessor), and the broadest available form
of contractual liability coverage. Lessor and any lender of Lessor shall be
named by endorsement as additional insureds under the Lessee's general liability
coverage. The additional insured endorsement must be on ISO Form CG 20 11 1185
or an equivalent acceptable to Lessor. Lessee's general liability policies shall
be endorsed as needed to provide cross-liability coverage for Lessee, Lessor,
and any lender of Lessor and to provide severability of interests, and shall be
further endorsed as needed to provide that the insurance afforded by those
policies is primary and that all insurance carried by Lessor is strictly excess
and secondary and shall not contribute with the Lessee's liability insurance.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and to any Lender(s), insuring against loss or damage to
the Premises. Such insurance shall be for full replacement cost, as the same
shall exist from time to time, or the amount required by any Lender(s), but in
no event more than the commercially reasonable and available insurable value
thereof if, by reason of the unique nature or age of the improvements involved,
such latter amount is less than full replacement cost. Lessee-Owned Alterations
and Utility Installations, Trade Fixtures and Lessee's personal property shall
be insured by Lessee pursuant to Paragraph 8.4. If the coverage is available and
commercially appropriate, Lessor's policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender), including coverage for any additional
costs resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Building required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered loss, but not including plate glass insurance. Said
policy or policies shall also contain an agreed valuation provision in lieu of
any co-insurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located.
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(b) RENTAL VALUE. Lessor shall also obtain and keep in force during
the term of this Lease a policy or policies in the name of Lessor, with loss
payable to Lessor and any Lender(s), insuring the loss of the full rental and
other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on, or about the Premises similar in
coverage to that carried by Lessor as the Insuring Party under Paragraph 8.3(a).
Such insurance shall be full replacement cost coverage with a deductible not to
exceed $10,000 per occurrence. The proceeds from any such insurance shall be
used by Lessee for the replacement of personal property and the restoration of
Trade Fixtures and Lessee-Owned Alterations and Utility Installations. Upon
request from Lessor, Lessee shall provide Lessor with written evidence that such
insurance is in force. Lessee's property insurance coverage must be written on
the broadest available "All Risk" (special causes of loss) policy form or
equivalent form acceptable to Lessor; must include vandalism and malicious
mischief coverage, sprinkler leakage damage, must include agreed-amount
endorsement for no less than one hundred percent (100%) of the full replacement
cost (new without deductions for depreciation) of the covered items and
property; and the amounts of coverage must meet any co-insurance requirements of
the policy or policies.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not do
or permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall, at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor, its agent's, employee's, or
contractor's active negligence breach of express warranties, and/or willful
misconduct, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee, upon notice from Lessor, shall defend
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the same at Lessee's expense by counsel reasonably satisfactory to Lessor and
Lessor shall cooperate with Lessee in such defense. Lessor need not have first
paid any such claim in order to be so indemnified. The insurance requirements
imposed on Lessee as set forth in Paragraphs 8.2, 8.3 and 8.4 of the Lease are
independent of Lessee's exculpation, indemnification and other obligations under
this Lease, and shall not be construed or interpreted in any way to restrict,
limit or modify Lessee's exculpation, indemnification and other obligations or
limit Lessee's liability under this Lease. All indemnity language under
Paragraph 8.7 shall be reciprocal.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Except for Lessor, its agent's,
employee's and contractor's negligence and/or willful misconduct, Lessor shall
not be liable for injury or damage to the person or goods, wares, merchandise or
other property of Lessee, Lessee's employees, contractors, invitees, customers,
or any other person in or about the Premises, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether said injury or damage results from conditions arising upon
the Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Except for Lessor's negligence or breach
of this Lease, Lessor shall under no circumstances be liable for injury to
Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is fifty percent (50%) or more of the
then Replacement Cost of the Premises (excluding Lessee-Owned Alterations and
Utility Installation and Trade Fixtures) immediately prior to such damage or
destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the Premises,
other than Lessee-Owned Alterations and Utility Installations and Trade
Fixtures, which was caused by an event required to be covered by the Insurance
described in Paragraph 8.3(a) irrespective of any deductible amounts or coverage
limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE - INSURED LOSS. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10)
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day period, and if Lessor does not so elect to restore and repair, then this
Lease shall terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may, at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last twelve (12)
months of the term of this Lease there is damage for which the cost to repair
exceeds $50,000.00, whether or not an Insured Loss, Lessor or Lessee, may, at
their own option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (1) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense, repair such damage as soon as reasonably possible
and this Lease shall continue in full force and effect. If Lessee fails to
exercise such option and provide such funds or assurance during such period,
then this Lease shall terminate as of the date set forth in the first sentence
of this Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired. Except for abatement
of Base Rent, Common Area Operating Expenses and other charges, if any, as
aforesaid, all other obligations of Lessee hereunder shall be performed by
Lessee, and Lessee shall have no claim against Lessor for any damage suffered by
reason of any such damage, destruction, repair, remediation or restoration,
except as a result of Lessor's negligence or willful misconduct.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "Commence" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
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9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may, at
Lessor's option, either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000, whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
Notwithstanding, Lessor represents to the best of their knowledge that the
underlying Soil, Building, and Premises are, and remain, free of environmental
contaminants and toxic materials. Lessor warrants and represents that the
Premises are and remain compliant with all laws related to environmental
contaminants or toxic materials, excluding violations and/or contamination
caused by Lessee. Lessor shall indemnify and hold Lessee harmless against any
environmental contaminants or toxic materials discovered in the Soil, Building
or Premises, if not caused by Lessee. It shall be the responsibility of Lessor,
at its sole cost and expense, to remove any toxic materials prior to the
commencement of Lessee improvement construction.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith. Notwithstanding anything to the contrary contained in this Paragraph
9, if Lessor is unable to complete its repair/restoration within 180 days from
the date of the occurrence, Lessee, at Lessee's sole option, shall have the
right to terminate the Lease and have no further obligations to Lessor pursuant
to this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Common Area Operating Expenses in accordance with the provisions
of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITION. As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Industrial Center by any
authority having the direct or indirect power to tax, including any city, state
or federal government, or any school, agricultural, sanitary, fire, street,
drainage, or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Industrial Center or any portion thereof,
Lessor's right to rent or other income therefrom, and/or Lessor's business of
leasing the Premises. The following shall be excluded from Peal Property Taxes:
penalties and/or interest incurred as a result of Lessor's negligence,
inability, or unwillingness to make payments, or taxes due from other Tenant's
Improvements. The term "Real Property Taxes" shall also include any tax, fee,
levy, assessment or charge, or any increase therein, imposed by reason of events
occurring, or changes in Applicable Law taking effect, during the term of this
Lease, including, but not limited to, a change in the ownership of the
Industrial Center or in the improvements thereon, the execution of this Lease,
or any modification, amendment or transfer thereof, and whether or not
contemplated by the Parties. In calculating Real Property Taxes for any calendar
year, the Real Property Taxes for any real estate tax year shall be included in
the calculation of Real Property Taxes for such calendar year based upon the
number of days which such calendar year and tax year have in common. Real
Property Taxes shall include all expenses reasonably incurred by Lessor in
seeking a reduction by the taxing authorities of Real Property Taxes applicable
to the Industrial Center.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive
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enjoyment of such other lessees. Notwithstanding Paragraph 10.1 hereof, Lessee
shall, however, pay to Lessor at the time Common Area Operating Expenses are
payable under Paragraph 4.2, the entirety of any increase in Real Property Taxes
if assessed solely by reason of Alterations, Trade Fixtures or Utility
Installations placed upon the Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services supplied
to the Premises, including, but not limited to, electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d). Lessor shall not be liable in damages or
otherwise for any failure or interruption of any utility services being
furnished to the Building and no such failure or interruption shall entitle
Lessee to terminate the Lease. The operation and control of utilities, air
conditioning and any other energy system is subject to compliance with any
governmental authority governing the regulation and use of energy systems within
the building structure.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) [DELETED]
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "Net
Worth of Lessee" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
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(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
subsequent or successive assignment or subletting by the assignee or sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable under this Lease or the sublease and without obtaining their
consent, and such action shall not relieve such persons from liability under
this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment for subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including, but not limited to, the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $1,000 or ten percent (10%) of the monthly Base Rent
applicable to the portion of the Premises which is the subject of the proposed
assignment or sublease, whichever is greater, as reasonable consideration for
Lessor's considering and processing the request for consent. Lessee agrees to
provide Lessor with such other or additional information and/or documentation as
may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment of sublease to which Lessor has specifically consented in writing.
(g) DELETED
(h) DELETED
(i) Lessee reserves the right, with notice to Lessor, to sublease or
assign all or any portion of the Premises at any time during the term of the
Lease to any subsidiary or affiliate of Lessee, or to any successor entity
through merger, acquisition, or substantial sale of Lessee's assets ("permitted
transferees"). Lessee shall have the right to otherwise assign or sublease all
or any portion of the Premises with Lessor's approval and such approval shall
not be unreasonably delayed or denied. Lessee shall have the right to retain
fifty percent (50%) of any profit realized after associated costs with the
assignment or sublease have been deducted. Lessor's approval shall be
reasonable.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any the Premises and shall be deemed included in all subleases under this Lease
whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
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(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) DELETED
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surely bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of ten
(10) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (v) the subordination
or non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the
performance of Lessee's obligations under this Lease if required under
Paragraphs 1, 11 and 37, (vii) the execution of any document requested under
Paragraph 42 (easements), or (viii) any other documentation or information which
Lessor may reasonably require of Lessee under the terms of this Lease, where any
such failure continues for a period of ten (10) days following written notice by
or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability in respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
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bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including, but not limited to, the obtaining of reasonably required
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of award of the unpaid rent which had been earned at the time of termination;
(ii) the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that the Lessee proves could have been reasonably
avoided; (iii) the worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that the Lessee proves could be reasonably avoided; and (iv)
any other amount necessary to compensate Lessor for all the detriment
proximately caused by the Lessee's failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to result
therefrom, including, but not limited to, the cost of recovering possession of
the Premises, expenses of reletting, including necessary renovation and
alteration of the Premises, reasonable attorneys' fees, and that portion of any
leasing commission paid by Lessor in connection with this Lease applicable to
the unexpired term of this Lease. The worth at the time of award of the amount
referred to in provision (iii) of the immediately preceding sentence shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco or the Federal Reserve Bank District in which the Premises
are located at the time of award plus one percent (1%). Efforts by Lessor to
mitigate damages caused by Lessee's Default or Breach of this Lease shall not
waive Lessor's right to recover damages under this Paragraph 13.2. If
termination of this Lease is obtained through the provisional remedy of unlawful
detainer, Lessor shall have the right to recover in such proceeding the unpaid
rent and damages as are recoverable therein, or Lessor may reserve the right to
recover all or any part thereof in a separate suit for such rent and/or damages.
If a notice and grace period required under Subparagraphs 13.1(b), (c) or (d)
was not previously given, a notice to pay rent or quit, or to perform or quit,
as the case may be, given to Lessee under any statute authorizing the forfeiture
of leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by subparagraph 13.1(b), (c) or (d). In such
case, the applicable grace period under the unlawful detainer statute shall run
concurrently after the one such statutory notice, and the failure of Lessee to
cure the Default within the greater of the two (2) such grace periods shall
constitute both an unlawful detainer and a Breach of this Lease entitling Lessor
to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's Breach
and recover the rent as it becomes due, provided Lessee has the right to sublet
or assign, subject only to reasonable limitations. Lessor and Lessee agree that
the limitations on assignment and subletting in this Lease are reasonable. Acts
of maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under this Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee or any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement
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Provision shall automatically be deemed deleted from this Lease and of no
further force or effect, ______ any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering the
Premises. Accordingly, if any installment of rent or other sum due from Lessee
shall not be received by Lessor or Lessor's designee within ten (10) days after
such amount shall be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to six percent (6%) of such
overdue amount. The Parties hereby agree that such late charge represents a fair
and reasonable estimate of the costs Lessor will incur by reason of late payment
by Lessee. Acceptance of such late charge by Lessor shall in no event constitute
a waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within thirty (30) days after receipt by Lessor, and
by any Lender(s) whose name and address shall have been furnished to Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days after such notice
are reasonably required for its performance, then Lessor shall not be in breach
of this Lease if performance is commenced within such thirty (30) day period and
thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKERS' FEES
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 DELETED
15.3 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15.
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent
and warrant to the other that it has had no dealings with any person, firm,
broker or finder other than as named in Paragraph 1.10 connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each
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hereby agree to indemnify, protect, defend and hold the other harmless from and
against liability for compensation or charges which may be claimed by any such
unnamed broker, finder or other similar party by reason of any dealings or
actions of the indemnifying Party, including any costs, expenses, and/or
attorneys' fees reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "Responding Party") shall within
ten (10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a factually correct
statement in writing in a form similar to the then most current "Tenancy
Statement" form published by the American Industrial Real Estate Association,
plus such additional information, confirmation and/or statements as may be
reasonably requested by the Requesting Party. Any statement made in the Tenancy
Statement shall be made to such parties actual knowledge without duty of
inquiry.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including, but not limited to,
Lessee's financial statements for the past two (2) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate of two percent (2%).
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that It has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be sent by regular, certified or
registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by
facsimile transmission during normal business hours, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by
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United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone or facsimile confirmation of receipt of the
transmission thereof, provided a copy is also delivered via delivery or mail. If
notice is received on a Saturday or a Sunday or a legal holiday, it shall be
deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of monies or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. DELETED
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to one hundred fifty
percent (150%) of the Base Rent applicable during the month immediately
preceding such expiration or earlier termination. Nothing contained herein,
including the acceptance of Rent by Lessor after expiration or earlier
termination of the Lease, shall be construed as a consent by Lessor to any
holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the state in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall
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execute such further writings, within ten (10) days of such request, as may be
reasonably required to separately document any such subordination or
non-subordination, attornment and/or non-disturbance agreement as is provided
for herein.
31. ATTORNEYS' FEES. If any Party brings an action or proceeding to enforce the
terms hereof or declare rights hereunder, the Prevailing Party (as hereafter
defined) in any such proceeding, action, or appeal thereon, shall be entitled to
reasonable attorneys' fees. Such fees may be awarded in the same suit or
recovered in a separate suit, whether or not such action or proceeding is
pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party who substantially obtains or defeats the relief
sought, as the case may be, whether by compromise, settlement, judgment, or the
abandonment by the other Party of its claim or defense. The attorneys' fee award
shall not be computed in accordance with any court fee schedule, but shall be
such as to fully reimburse all attorneys' fees reasonably incurred. Lessor shall
be entitled to attorneys' fees, costs and expenses incurred in preparation and
service of notices of Default and consultations in connection therewith, whether
or not a legal action is subsequently commenced in connection with such Default
or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times, subject to twenty-four (24) hours notice to
Lessee, for the purpose of showing the same to prospective purchasers, lenders,
or lessees (within the last six (6) months of the Lease), and making such
alterations, repairs, improvements or additions to the Premises or to the
Building, as Lessor may reasonably deem necessary, provided it does not
interfere with Lessee's access use and parking. Lessor may at any time place on
or about the Premises or Building any ordinary "For Sale" signs and Lessor may
at any time during the last one hundred eighty (180) days of the term hereof
place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of Rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including, but not
limited to, architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including, but not
limited to, consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
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(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. DELETED
37.1 DELETED
37.2 DELETED
38. QUIET POSSESSION. Upon payment by Lessee of the Rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
including any permitted transferees as defined in Paragraph 12.2(i) and cannot
be voluntarily or involuntarily assigned or exercised by any person or entity
other than said original Lessee while the original Lessee is in full and actual
possession of the Premises and without the intention of thereafter assigning or
subletting. The Options, if any, herein granted to Lessee are not assignable,
either as a part of an assignment of this Lease or separately or apart
therefrom, and no Option may be separated from this Lease in any manner, by
reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of separate Default under Paragraph 13.1 during
the twelve (12) month period immediately preceding the exercise of the Option,
whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no
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obligation whatsoever to provide same. Lessee assumes all responsibility for the
protection of the Premises, Lessee, its tenants and invitees and their property
from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
49. ENTIRE AGREEMENT. This Lease and the Exhibits hereto which by this reference
are incorporated herein, cover in full each and every agreement of every kind or
nature whatsoever between the parties hereto concerning the Premises, the
Building, and the Common Areas, and all preliminary negotiations and agreements
of whatsoever kind or nature are merged herein. Lessor has made no
representations or promises with respect to the Premises, the Building, or the
Common Areas, or the design configuration or the development of the Industrial
Center, except those contained herein, and no other person, firm or corporation
has at any time had any authority from Lessor to make any representations or
promises on behalf of Lessor. If any such representations or promises have been
made by others, Lessee hereby waives all right to rely thereon. No verbal
agreement or implied covenant shall be held to vary the provisions hereof, any
statute, law or custom to the contrary notwithstanding. Except as otherwise
provided herein, nothing expressed or implied herein is intended or shall be
construed to confer upon or grant any person any rights or remedies under or by
any reason of any term or condition contained in this Lease.
50. CONFIDENTIALITY OF LEASE. Lessee acknowledges and agrees that the terms of
this Lease are confidential and constitute proprietary information of Lessor.
Disclosure hereof could adversely affect the ability of Lessor to negotiate
other leases with respect to the Building and Industrial Center and impair
Lessor's relationship with other lessees of the Building and Industrial Center.
Lessee agrees that it, its partners, shareholders, members, officers, directors,
employees, agents, and attorneys, shall not disclose the terms and conditions of
the Lease to any other person without the prior written reasonable consent of
Lessor, unless required by the Security Exchange Commission, or in connection
with a purchaser, or Lender's due diligence for the merger, acquisition, or sale
or Lessee's business.
Confidentiality under this Paragraph shall be reciprocal
51. SECURITY MEASURES - LESSOR'S RESERVATIONS. In addition to the other rights
retained or reserved herein, Lessor hereby reserves the following rights,
exercisable without notice and without liability to the Lessee, and without
effecting an eviction, constructive or actual, or in any way diminishing the
Lessee's obligations hereunder:
(a) To change the name, address, or title of the Industrial Center
or Building in which the premises are located upon not less than ninety (90)
days prior written notice. Lessor shall reimburse
MULTI-TENANT - MODIFIED NET
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Lessee for any reasonable cost incurred by Lessee in the reprinting of
stationary, business cards, and all other printed materials;
(b) To, at Lessee's expense, provide and install Building Standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall deem reasonably appropriate;
(c) To permit any lessee the exclusive right to conduct any business
as long as it does not conflict with any rights expressly given herein;
(d) To place such signs, notices or displays as Lessor reasonably
seems necessary or advisable upon the roof, exterior of the Buildings of the
Industrial Center or on pole signs in the Common Areas;
(e) To designate and approve, prior to installation, all types of
interior and exterior window treatments, and to control all internal lighting
that may be visible from the Common Areas or from the exterior of the Building;
(f) To reasonably designate, limit, restrict, and control any
business and any service in or to the Building or its lessees;
(g) To keep and use in appropriate instances, keys to all doors into
and within the Premises. Lessee hereby agrees that no locks shall be changed or
added without the reasonable prior written consent of Lessor;
(h) To decorate and make repairs, alterations, additions, changes or
improvements, whether structural or otherwise, in or about any part of the
Industrial Center, to enter the Premises for such purposes, to temporarily close
doors, entryways, public spaces and corridors in the Building or any part
thereof during such work, to interrupt or temporarily suspend Building services
and facilities, and to change the arrangement and location of entrances and
passageways, windows, doors and doorways, corridors, stairs, toilets, or other
public parts of the Industrial Center or any part thereof.
(i) To improve the weight, size and location of safes and other
heavy equipment and articles in and about the Premises and the Building, and to
require all such items and equipment to be moved into the Building as Lessor
directs. The movement of Lessee's property is entirely the risk and
responsibility of Lessee. Lessor reserves the right to require permits before
allowing any property to be moved into or out of the Premises or the Building.
52. DISCLOSURE STATEMENT. The Simi Valley Landfill (the "Landfill") lies to the
north of the Simi Valley Business Center across the Simi Valley Freeway.
Portions of the Landfill accepted hazardous substances (Class I Substance) from
1972 to 1980. As of July 1, 1986, the State of California National Water Quality
Control Board - Los Angeles Region is conducting an examination of the soil and
ground water at the adjacent Simi Valley Business Center in order to determine
the likelihood of hazardous substances migrating to the Simi Valley Business
Center from the Landfill. The study, conducted by Applied Geosciences, Inc.,
concluded (i) that there was 1/10th of 1% chance that any hazardous substances
from the Landfill had previously migrated to the Property and (ii) that there
was less than 1% chance that any hazardous substances from the Landfill would
migrate to the Simi Valley Business Center during the next 100 years. By
execution of this Lease, Lessee acknowledges that it may obtain a copy of the
Study upon request to the Lessor and that Lessee has read and understands the
foregoing and the risks described in this Paragraph 52.
53. LEASE DOCUMENTS. This Lease is offered to Lessee for signature and this
Lease shall not become binding upon Lessor unless and until such time as
executed by Lessor. Lessee shall not record this Lease or any memorandum hereof
or any notice or other document referring hereto or any lis pendens, on or
arising from this Lease.
54. SIGNAGE. Lessee shall be allowed to install Lessee's name on the entrance
door (stencil letters), and a concrete monument sign on the lawn in the front of
the premises, at Lessee's sole cost and subject to approval by Lessor and the
City of Simi Valley.
55. COMMUNICATIONS EQUIPMENT. Lessee, at Lessee's sole cost and expense, shall
have the right without charge to install and operate a satellite dish, antenna,
microwave relay, fiber optics cable or other such equipment on the roof or under
the common area of the Premises, subject to reasonable approval by Lessor of
type, size, location, mounting and access. Such installations are to be removed
by Lessee upon termination of lease.
56. RENT ADJUSTMENT (Attached)
57. OPTION (Attached)
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LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF
ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL
ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS,
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE
LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS IN
A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE
PROPERTY IS LOCATED SHOULD BE CONSULTED.
The Parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Calabasas Co. Executed at: Moorpark, California
on 5-10-99 on May 7, 99
BY LESSOR: BY LESSEE:
TYLER PACIFIC III, ACCELERATED NETWORKS, INC.,
LIMITED LIABILITY COMPANY a California corporation
By: /s/ Ron Udall By: /s/ Suresh Nihalani
--------------------------------- -----------------------------
Name Printed: Ron Udall Name Printed: Suresh Nihalani
Title: Vice President Title: Chief Executive Officer
By: By: /s/ Frederic T. Boyer
--------------------------------- -----------------------------
Name Printed: Name Printed: Frederic T. Boyer
----------------------- ------------------
Title: Title: Chief Financial Officer
------------------------------ -------------------------
Address: Address:
23970 CRAFTSMAN ROAD
CALABASAS, CA 91302
Telephone: (818) 222-5925 Telephone: (805) 553-9680
Facsimile: (818) 222-5970 Facsimile: (805) 553-9696
BROKER: BROKER:
Executed at: Executed at: Moorpark, CA
------------------------ ------------------
on: on: May 7, 1999
--------------------------------- ---------------------------
By: By: /s/ Carlo Brignardello
--------------------------------- -----------------------------
Name Printed: Westcord Commercial Name Printed: CRESA Partners
R.E. Services
Title: Title:
------------------------------ ------------------------
Address: Address:
951 Westlake Boulevard, 11726 San Vicente Blvd.,
Suite 101, Suite 500,
Westlake Village, CA 91361 Los Angeles, CA 90049
Telephone: (805) 497-4557 Telephone: (310) 207-1700
Facsimile: (805) 496-3589 Facsimile: (310) 207-0930
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NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are
utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 700 South Flower Street, Suite 600, Los Angeles, California
90017. (213) 687-8777.
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<PAGE> 28
RENT ADJUSTMENT(S)
STANDARD LEASE ADDENDUM
DATED MAY 6TH, 1999
BY AND BETWEEN (LESSOR) TYLER PACIFIC III, Limited Liability Company
(LESSEE) ACCELERATED NETWORKS, INC.,
A California Corporation
ADDRESS OF PREMISES: 94 W. Cochran, Suite B & C
Simi Valley, California 93065
Paragraph 56
A. RENT ADJUSTMENTS:
The monthly rent for each month of the adjustment period(s) specified
below shall be increased using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
[X] III. FIXED RENTAL ADJUSTMENT(S) (FRA)
The Base Rent shall be increased to the following amounts on the dates set forth
below:
On (Fill in FRA Adjustment Date(s)): The New Base Rent shall be:
<TABLE>
<S> <C>
June 1, 2000 $10,246.03
June 1, 2001 $10,553.41
N/A $
---------
N/A $
---------
</TABLE>
B. NOTICE
Unless specified otherwise herein, notice of any such adjustments, other
than Fixed Rental Adjustments, shall be made as specified in paragraph 23 of the
Lease.
C. BROKER'S FEE:
The Brokers specified in paragraph 1.10 shall be paid a Brokerage Fee
for each adjustment specified above in accordance with paragraph 15 of the
Lease.
RENT ADJUSTMENTS
Page 1
<PAGE> 29
OPTION(S) TO EXTEND
STANDARD LEASE ADDENDUM
DATED MAY 6TH, 1999
BY AND BETWEEN (LESSOR) TYLER PACIFIC III, Limited Liability Company
(LESSEE) ACCELERATED NETWORKS, INC.,
A California Corporation
ADDRESS OF PREMISES: 94 W. Cochran, Suite B & C
Simi Valley, California 93065
Paragraph 57
A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this Lease for
TWO (2) additional TWELVE (12) month period(s) commencing when the prior term
expires upon each and all of the following terms and conditions:
(i) In order to exercise an option to extend, Lessee must give written
notice of such election to Lessor and Lessor must receive the same at least FOUR
but not more than EIGHT months prior to the date that the option period would
commence, time being of the essence. If proper notification of the exercise of
an option is not given and/or received, such option shall automatically expire.
Options (if there are more than one) may only be exercised consecutively.
(ii) The provisions of paragraph 39, including those relating to
Lessee's Default set forth in paragraph 39.4 of this Lease, are conditions of
this Option.
(iii) Except for the provisions of this Lease granting an option or
options to extend the term, all of the terms and conditions of this Lease except
where specifically modified by this option shall apply.
(iv) This Option is personal to the original Lessee, and cannot be
assigned or exercised by anyone other than said original Lessee and only while
the original Lessee is in full possession of the Premises and without the
intention of thereafter assigning or subletting.
(v) The monthly rent for each month of the option period shall be
calculated as follows, using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
II. MARKET RENTAL VALUE ADJUSTMENT(S) (MRV)
a. On (Fill in MRV Adjustment Date(s))________________________________
the Base Rent shall be adjusted to the "Market Rental Value" of the property as
follows:
1) Four months prior to each Market Rental Value Adjustment Date
described above, the Parties shall attempt to agree upon what the new MRV will
be on the adjustment date. If agreement cannot be reached, within thirty days,
then:
(a) Lessor and Lessee shall immediately appoint a mutually
acceptable appraiser or broker to establish the new MRV within the next thirty
days. Any associated costs will be split equally between the Parties, or
(b) Both Lessor and Lessee shall each immediately make a
reasonable determination of the MRV and submit such determination, in writing,
to arbitration in accordance with the following provisions:
(i) Within fifteen days thereafter, Lessor and Lessee
shall each select an [ ] appraiser or [ ] broker ("Consultant" - check one) of
their choice to act as an arbitrator. The two arbitrators so appointed shall
immediately select a third mutually acceptable Consultant to act as a third
arbitrator.
(ii) The three arbitrators shall within thirty days of the
appointment of the third arbitrator reach a decision as to what the actual MRV
for the Premises is, and whether Lessor's or Lessee's submitted MRV is the
closest thereto. The decision of a majority of the arbitrators shall be binding
on the Parties. The submitted MRV which is determined to be the closest to the
actual MRV shall thereafter be used by the Parties.
(iii) If either of the Parties fails to appoint an
arbitrator within the specified fifteen days, the arbitrator timely appointed by
one of them shall reach a decision on his or her own, and said decision shall be
binding on the Parties.
(iv) The entire cost of such arbitration shall be paid by
the party whose submitted MRV is not selected, ie. the one that is NOT the
closest to the actual MRV.
2) Notwithstanding the foregoing, the new MRV shall not be less than
the rent payable for the month immediately preceding the rent adjustment.
Page 2
<PAGE> 30
b. Upon the establishment of each New Market Rental Value:
1) the new MRV will become the new "Base Rent" for the purpose of
calculating any further Adjustments, and
2) the first month of each Market Rental Value term shall become the
new "Base Month" for the purpose of calculating any further Adjustments.
The provisions of this Paragraph II shall only apply for the definition of the
MRV as provided for in Paragraph III below.
[X] III. FIXED RENTAL ADJUSTMENT(S) (FRA)
The Base Rent shall be increased to the following amounts on the dates set forth
below:
On (Fill in FRA Adjustment Date(s)): The New Base Rent shall be:
<TABLE>
<CAPTION>
$THE GREATER OF $10553.41 OR 96% OF
THE THEN CURRENT MRV AS DEFINED
September 1, 2001 ABOVE IN PARAGRAPH II
----------------- ------------------------------------
<S> <C>
N/A $
------------------
N/A $
------------------
N/A $
------------------
</TABLE>
B: NOTICE:
Unless specified otherwise herein, notice of any rental adjustments,
other than Fixed Rental Adjustments, shall be made as specified in paragraph 23
of the Lease.
C. BROKER'S FEE:
The Brokers specified in paragraph 1.10 shall be paid a Brokerage Fee
for each adjustment specified above in accordance with paragraph 15 of the
Lease.
Page 3
<PAGE> 31
EXHIBIT A
SIMI VALLEY BUSINESS CENTER
<PAGE> 32
EXHIBIT B
PARKING AGREEMENT
During the term of this Lease, Lessee shall have the right in common
with other lessees of the Building and any adjacent buildings, to use the
parking areas available to lessees of the Building. Lessee may not sell,
hypothecate, assign, or otherwise transfer said right to any other party
separate from all of Lessee's other rights and obligations under this Lease.
Lessee's use of such parking areas or that of its invitees may be subject to a
reasonable fee as determined by Lessor, shall be limited to a maximum of the
number of parking spaces shown in Paragraph 1.2(b) of the Lease (but such spaces
will not be separately identified and Lessor shall have no obligation to monitor
or police the use of such parking areas), and shall be subject to the Rules and
Regulations set forth below, as the same may be established or amended from time
to time by Lessor for the effective use of such parking areas. Such Rules and
Regulations may include, without limitation, designation of specific areas for
use by invitees of Lessee and Lessor; parking attendants; and such other matters
affecting the parking operation to the end that said parking areas shall be
utilized to maximum efficiency and in the best interest of Lessor, Lessee, other
tenants of the Industrial Center, and their respective invitees. Lessor may
temporarily close any part of the Common Area for such periods of time as may be
necessary to prevent the public from obtaining prescriptive rights or to make
repair or alterations. Lessee's right to use any area for parking purposes shall
be subject to restrictions or other limitations resulting from any laws,
statutes, ordinances and governmental rules, regulations or requirements now in
force or which may hereinafter be in force, and no such event shall in any way
affect this Lease, abate rent, relieve Lessee of any liabilities or obligations
under this Lease, or give rise to any claim whatsoever against Lessor. If Lessor
reasonably determines that Lessee is regularly using in excess of the number of
parking spaces specified in Paragraph 1.2(b) of the Lease, Lessor may, in
addition to any other remedy, impose a reasonable charge for such excess usage,
payable by Lessee upon demand. If Lessee commits, permits or allows any of the
prohibited activities described in the Lease or the rules then in effect, then
Lessor shall have the right, without notice, in addition to such other rights
and remedies that it may have, to remove or tow away the vehicle involved and
charge the cost to Lessee, which cost shall be immediately payable upon demand
by Lessor.
The following rules and regulations are in effect until notice is given
to Lessee of any change.
RULES AND REGULATIONS
1. Cars must be parked in designated areas entirely within the stall lines
painted on the parking area surface.
2. All directional signs and arrows must observed.
3. The speed limit within parking areas shall be five (5) miles per hour.
4. Parking is prohibited:
a) in areas not striped for parking,
b) in aisles,
c) where "no parking" signs are posted,
d) in crosshatched areas, and
e) in such other areas as may be designated by Lessor or Lessor's
parking operator.
5. If Lessor adopts a parking identification system, any parking stickers
or any other device or form of identification supplied by Lessor shall
remain the property of Lessor. Such parking identification device must
be displayed as requested and may not be obliterated. Devices are not
transferable and any device in the possession of an unauthorized holder
will be void. There will be a reasonable replacement charge to the
Lessee.
6. Every person is required to park and lock his/her own car. All
responsibility for damage to the car is assumed by such person.
7. Loss or theft of any parking identification devices issued by Lessor
from automobiles must be reported to the Lessor or its operator
immediately, and a lost or stolen report must be filed at that time.
a) Any parking identification devices reported lost or stolen which
are subsequently found on any unauthorized car will be
confiscated and the illegal holder subject to prosecution.
b) Lost or stolen devices must be reported to the Lessor or its
parking operator immediately.
8. Each parking space is for the express purpose of parking one (1)
automobile per space. Washing, waxing, cleaning or servicing any vehicle
by any person and/or his agents is prohibited.
9. A vehicle may be towed if it is abandoned, leaking gasoline, blocking
traffic, parked in an unsafe or hazardous manner, or parked in violation
of any rules and regulations as set forth herein, without liability to
Lessor.
10. Lessee shall endeavor to acquaint all persons to whom Lessee assigns
parking spaces with these rules and regulations.
11. Parking areas shall be used only for parking by vehicles no longer than
full size, passenger automobiles.
1
<PAGE> 33
12. Lessee shall be responsible for seeing that all of its employees, agents
and invitees comply with the applicable parking rules, regulations, laws
and agreements.
13. Such parking use as is herein provided is intended merely as a license
only and no bailment is intended or shall be created hereby
2
<PAGE> 34
EXHIBIT C
RULES AND REGULATIONS ATTACHED TO
AND MADE A PART OF THIS LEASE
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Building without the written consent of Lessor first had and obtained and
Lessor shall have the right to remove any such sign, placard, picture,
advertisement, name or notice without notice to and at the expense of Lessee.
All approved signs or lettering on doors shall be printed, painted,
affixed or inscribed at the expense of Lessee by a person approved of by the
Lessor.
Lessee shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside the Premises.
2. No Lessee shall obtain for use upon the Premises ice, drinking water,
towel and other similar services or accept barbering or bootblacking services of
the Premises, except from persons authorized by the Lessor and at the hours and
under regulations fixed by the Lessor.
3. The directory or name identification of the Building, if any, will be
provided exclusively for the display of the names and location of Lessee and
other Lessees in the Building, and Lessor reserves the right to exclude any
other names therefrom.
4. All sidewalks, halls, passages, exits, entrance, elevators and
stairways of the building, if any, shall not be obstructed by any Lessee or used
by Lessee for any purpose other than for ingress to and egress from its
respective Premises. The halls, passages, exits, entrances, elevators,
stairways, balconies and roof are not for the use of the general public and the
Lessor shall in all cases retain the right to control and prevent access thereto
by all persons whose presence in the judgment of the Lessor shall be prejudicial
to the safety, character, reputation and interests of the Building and its
Lessees, provided that nothing herein contained shall be construed to prevent
such access to persons with whom the Lessee normally deals in the ordinary
course of Lessee's business unless such persons are engaged in illegal
activities. No Lessee and no employee or invitee of any Lessee shall go upon the
roof of the Building without the prior consent of Lessor. For purposes of
Lessee's obligations, if any, of repair and maintenance of the heating,
ventilating and air conditioning systems of the Premises, Lessee shall use a
maintenance firm selected or designated by Lessor unless Lessee demonstrates by
written evidence reasonably satisfactory to Lessor that the rates quoted by such
firm for such work are not competitive with rates quoted by one or more other
firms which Lessee proposes to use.
5. Lessee shall not alter any lock nor install any new or additional
locks or any bolts on any door of the Premises.
6. Lessee shall not overload the floor of the Premises or in any way
deface the Premises or any part thereof.
7. Lessee shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner reasonably offensive or objectionable to the Lessor
or other occupants of the Building by reason of noise, odors and/or vibrations,
or interfere in any way with other Lessees or those having business therein, nor
shall any animals or birds be brought in or kept in or about the Premises of the
Building.
8. No cooking shall be done or permitted by any Lessee on the Premises;
however, the preparation of coffee, tea, hot chocolate and similar items, or the
heating or cooking of food by microwave by Lessee for its employees and business
visitors shall be permitted. Nor shall the Premises be used for washing clothes,
for lodging, or for any improper, objectionable or immoral purposes.
9. Lessee shall not use or keep in the Premises or the Building any
kerosene, gasoline, or inflammable or combustible fluid or material, or use any
method of heating or air conditioning other than that supplied by Lessor. Any
permitted corrosive, flammable or other special wastes shall be handled for
disposal as directed by Lessor.
10. Lessor will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of Lessor. The location of telephones, call boxes
and other office equipment affixed to the Premises shall be subject to the
approval of Lessor.
11. Each Lessee, upon the termination of its tenancy, shall deliver to
the Lessor the keys of offices, rooms and toilet rooms, if any, which shall have
been furnished the Lessee or which the Lessee shall have had made, and in the
event of loss of any keys so furnished, shall pay the Lessor therefor.
12. No Lessee shall pay linoleum, tile, carpet or other similar floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by the Lessor. The
1
<PAGE> 35
expense of repairing any damage resulting from a violation of this rule or
removal of any floor covering shall be borne by the Lessee by whom, or by whose
contractors, employees or invitees, the damage shall have been caused.
13. On Saturdays, Sundays and legal holidays, and on other days between
the hours of 6:00 p.m. and 8:00 a.m. the following day, access to the Building,
or to the halls, corridors or stairways in the Building, if any, or to the
Premises may be refused unless the person seeking access is known to the person
or employee of the Building in charge or has a pass or is properly identified.
The Lessor shall in no case be liable for damages for any error with regard to
the admission to or exclusion from the Building of any person. In case of
invasion, mob, riot, public excitement or other commotion, the Lessor reserves
the right to prevent access to the Building during the continuance of the same
by closing the doors or otherwise, for the safety of the Lessees and protection
of property in the Building and the Building.
14. Lessee shall see that the doors of the Premises are closed and
securely locked before leaving the Building and must observe strict care and
caution that all water faucets or water apparatus are entirely shut off before
Lessee or Lessee's employees leave the Building, and that all electricity shall
likewise be carefully shut off, so as to prevent waste or damage, and for any
default or carelessness Lessee shall make good all injuries sustained by other
lessees or occupants of the Building, the Industrial Center, or Lessor.
15. Lessor reserves the right to exclude or expel from the Building or
Industrial Center any person who, in the judgment of Lessor, is intoxicated or
under the influence of liquor or drugs, or who shall in any manner do any act in
violation of any of the Rules and Regulations of the Building.
16. Requirements of Lessee as to any matters within Lessor's obligations
pursuant to its Lease will be attended to only upon application to Lessor's
property manager. Employees of Lessor shall not perform any work or do anything
outside of their regular duties unless under special instructions from the
Lessor, and no employee will admit any person (Lessee or otherwise) to any
office without specific instructions from the Lessor.
17. No vending machine or machines of any description shall be
installed, maintained or operated upon the Premises without the consent of the
Lessor which shall not be unreasonably withheld or delayed.
18. Lessor shall have the right, exercisable without notice and without
liability to Lessee, to change the name and street address of the Building or
Industrial Center of which the Premises are apart.
19. Lessee shall not disturb, solicit or canvass any occupant of the
Building or Industrial Center and shall cooperate to prevent same.
20. Without the written consent of Lessor, Lessee shall not use the name
of the Building in connection with or in promoting or advertising the business
of Lessee except as Lessee's address.
21. Lessee's use of the Common Areas shall be limited to access and
parking purposes and under no circumstances shall Lessee be permitted to store
any goods or equipment, conduct any operations, or construct or place any
improvements, barriers, or obstructions in the Common Areas, or otherwise
adversely affect the appearance thereof.
22. Canvassing, soliciting and peddling in the Building or Industrial
Center are prohibited and Lessee shall cooperate to prevent the same.
23. The toilet rooms, urinals, wash bowls and other apparatus shall be
used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the expense
or any breakage, stoppage or damage resulting form the violation of this rule
shall be borne by the Lessee who, or whose employees or invitee shall have
caused it.
24. Lessee shall not install any radio or television antenna,
loudspeaker or other device on the roof or exterior walls of its Premises,
except as provided in the Lease.
25. Lessor reserves the right to reasonably make other and further
nondiscriminatory Rules and Regulations as in its judgment may be necessary or
desirable for the operation of the Premises, the Building and the Common Area.
Lessee agrees to abide by all such Rules and Regulations which are adopted.
26. Lessee, at Lessee's sole cost, shall have the right to contract and
hire a janitorial service of Lessee's choice without Lessor's approval.
2
<PAGE> 1
EXHIBIT 10.20
MEMORANDUM OF UNDERSTANDING
THIS MEMORANDUM OF UNDERSTANDING is made and executed at Bangalore this 13 day
of January, One Thousand Nine Hundred and Ninety Nine.
BY AND BETWEEN
Mr Viren T Ranjan aged about 19 years, presently residing at No. 31, 6th Main,
3rd Block, Jayalakshmipuram, Mysore 571 012, represented by Mr Ashwini Ranjan,
the lawful power of attorney holder of Mr Viren T Ranjan (hereinafter referred
to as the "LESSOR" which expression shall mean and include his heirs, executors,
administrators, legal representatives and assigns) of the "ONE PART".
AND
M/s ACCELERATED NETWORKS (INDIA) PRIVATE LIMITED, a company incorporated under
the laws of India and having its Registered Office at C/o Lovelock & Lewes,
Chartered Accountants, `C' Wing, 14th Floor, Mittal Towers, 47/6, M G Road,
Bangalore 560 001, represented for purpose of this agreement by Mr Yogi Mistry,
Director, (hereinafter referred to as the "LESSEE" which expression shall mean
and include its successors in interest, legal representatives, administrators,
any of its associates, sub-concerns and permitted assigns) of the "OTHER PART".
(the Lessor and the Lessee would hereinafter as the context may permit be
jointly referred to as the "PARTIES")
WHEREAS, the Lessor has represented and assured that he is the owner and is
seized and in possessed and otherwise well and sufficiently entitled to the
office premises admeasuring 5500 Sq, Ft. bearing site No. 145, Block V,
Koramangala Extension (1st Stage), Bangalore 560 034 [As delineated in the map
attached in ANNEXURE 1 hereto] which he has purchased from Abbas M Fazal vide
sale deed regstered as serial number 7155 dated 27 November 1987, in the office
of Sub-Registrar, Bangalore (South).
AND WHEREAS, there is no notice for acquisition or attachment and the aforesaid
premises is free from any encumbrances or charge of any kind and is permitted to
be used for commercial purposes.
AND WHEREAS, the Lessor has agreed to grant and the Lessee has agreed to accept
a lease of the aforesaid premises (which is more fully and particularly
described in the schedule hereunder given and hereinafter referred to as the
"SCHEDULED PREMISES")
AND WHEREAS, the Lessor and Lessee have agreed to enter into this Memorandum Of
Understanding (hereinafter referred to as `MOU') with the intend bind themselves
and each other to enter in to a Lease Agreement (hereinafter referred to as the
`AGREEMENT') in future for the Scheduled Premises on terms and conditions
stipulated herein below:
<PAGE> 2
2
IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES AS FOLLOWS:
1) The Lessor hereby agrees to grant to the Lessee lease in respect of
the premises situate at site No. 145, Block V, Koramangala Extension
(1st Stage), Bangalore 560 034, admeasuring 5500 Sq. Ft. as already
defined as Scheduled Premises herein above.
2) The Lessor will grant to the Lessee lease in respect of the
Scheduled Premises for a period of three years (hereinafter referred
to as the `Lease Period') commencing from 05 February, 1999. At the
end of the Lease Period, the Parties agree to extend the Lease
Period upon terms to be mutually agreed upon between them.
3) The Lessee shall pay to the Lessor for the Scheduled Premises lease
rental @ Rsl6/= per Sq. Ft., the monthly lease rentals would
therefore be equal to Rs88,000/= (Rupees Eighty Eight Thousand Only)
(herein after referred to as the `Rent') which would be payable by
the 5th day of the succeeding month. The Rent would increase by 10%
at the end of the first year on the, then prevailing rent and by a
further 10% at the end of the second year on the, then prevailing
rent till the end of the Lease Period, i.e., till the end of the
third year. The Parties however agree that the Rent would be paid
towards the Agreement ("Lease Rental") as well as towards the lease
of utilities on the Scheduled Premises ("Utility Rentals"). The
Lease Rental will be paid @ Rs. !0/- per Sq. Ft. and the Utility
Rentals will be paid @ Rs. 6/- per Sq. Ft.
4) The Lessee, further agrees to give an interest free, refundable
security deposit of Rs 13.2 lakhs (equivalent to 15 months rent)
which shall be refunded to the Lessee on the termination of the
Lease Period. Out of the said amount of Rs13.2 lakhs, the Lessee
agrees to pay an amount of Rs 50,000/= (Rupees Fifty Thousand Only)
to the Lessor by 15 January, 1999 which amount would be adjusted
towards the interest free security deposit amount at the time of
executing the Agreement. However, the Lessor and Lessee agree that
this adjustment of the said amount of Rs 50,000/= towards the
interest free refundable security deposit would be made only upon
the fulfillment of the condition stipulated in clause 7 hereinafter.
5) The Lessee undertakes to use the Schedule Premises for its office
purpose, i.e., for the development of computer software and hardware
design in terms of the Memorandum of Association of the Lessee.
6) The Lessee agrees not to carry out any structural additions or
alterations to the Scheduled Premises without the prior written
consent of the Lessor. The Lessee, however, shall have the right to
erect a microwave tower on top of the Scheduled Premises in order to
establish radio link with the Software Technology Park at Electronic
City, Bangalore. The Lessee further will have the right to install
the air-conditioner units, coolers, exhaust fans, and such
partitions as may be required without causing any damage to the
Scheduled Premises and shall have the right to remove all such
fixtures and fittings upon the termination of the Agreement.
7) A) The Lessor hereby represents that the present installed power
capacity in the Scheduled Premises is 3 KVA. However, the Lessor
agrees and assures that by 5
<PAGE> 3
3
February 1999, he would enhance this installed power capacity in the
Scheduled Premises from the present installed capacity of 3 KVA to
37 KVA. The Lessor and the Lessee also expressly agree that in the
event the Lessor is not able to enhance the installed power capacity
as stated herein, this MOU would stand terminated and the amount of
Rs 50,000/= paid by the Lessee to the Lessor in terms of clause (4)
herein above would be refunded by the Lessor to the Lessee within 3
days of the termination of this MOU, i.e., the amounts will be
refunded by 8 February 1999.
B) The Lessor and the Lessee also agree that in the event the Lessor
is able to enhance the installed power capacity as stated in clause
7 A above, then the Lessee's obligation to pay the Rent as mentioned
in clause 3 above would commence from the date on which the
installed power capacity has been enhanced.
8) During the Lease Period, the Lessee shall carry out day to day minor
repairs and maintenance of the Scheduled Premises including the
fittings and fixtures at its own cost. However, major repairs which
are attributable to the basic infrastructure of the Scheduled
Premises, shall be the responsibility of the Lessor which will have
to be carried out by him within 10 days of the receipt of the notice
for the same by the Lessee. Anything costing Rs 1,000/= (Rupees One
Thousand Only) or more will be deemed to be a major repair. In the
event the Lessor fails to carry out the major repairs within the
stipulated 10 days period, the Lessee will be at the liberty to do
the same and deduct costs so incurred from the monthly Rent.
PROVIDED THAT the Lessee shall permit the Lessor or his
representatives / agent to enter into the Scheduled Premises for
inspection at all reasonable hours with prior written permission
from Lessee.
9) The Lessee agrees to permit the Lessor or his authorised agent to
enter upon the Scheduled Premises for inspection and carryout the
necessary repairs at a reasonable time upon giving a prior notice of
atleast 4 days to this effect to the Lessee.
10) The Lessee agrees that on the expiry of the Lease Period, it would
hand over the vacant position of the Scheduled Premises in good
condition subject to normal ware and tare arising, from day to day
use and subject to the Lessor refunding the security deposit amount
as mentioned in clause 4 herein above.
11) The Lessor undertakes to pay all Municipal taxes, ground rent, fees
or levies in respect of the Scheduled Premises.
12) Any notice required to be served to the Lessor or the Lessee shall
be served by the Registered Post with acknowledgement due at the
addresses given in this MOU.
13) The Lessor and the Lessee agree to enter into and execute a Lease
Deed and an Agreement to Provide Utilities in terms of this MOU by 5
February 1999 provided the condition mentioned in clause 7 herein
above is fulfilled.
14) The Lessor and Lessee agree not to terminate the Agreement for a
period of 2 years from the date of the execution of the same.
However, thereafter both the parties would have
<PAGE> 4
4
the right to terminate the Agreement by serving the other party with
a 3 months notice in advance.
15) The payments agreed to be made under the Agreement would be made
after deducting tax at source in terms of the Income Tax Act and
Rules made thereunder.
16) This MOU and the Agreement will be subject to and be governed by the
laws of India and the Courts of Bangalore will have jurisdiction to
adjudicate any dispute arising under this MOU or the Agreement.
IN WITNESS WHEREOF the Parties hereto have set their respective hand and seals
to these presents on the day first herein above written.
WITNESS:
1. LESSOR:
/s/ Ashwini Ranjan
Represented By
Mr. Ashwini Ranjan
(Father)
2. LESSEE
/s/ Yogi Mistry
Authorised Signatory
Mr Yogi Mistry
Director
<PAGE> 5
5
ANNEXURE 1
MAP OF THE SCHEDULED PREMISES
<PAGE> 1
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- GROSS
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only
MAY 28TH, 1998, is made by and between ROBERT B. REINGOLD, TRUSTEE FOR REINGOLD
TRUST #21328 ("LESSOR") and ACCELERATED NETWORKS INC., a California Corporation
("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known as 301 SCIENCE DRIVE, MOORPARK, located in the County of VENTURA, State of
CALIFORNIA, and generally described as (describe briefly the nature of the
property and, if applicable, the "PROJECT," if the property is located within a
Project) AN APPROXIMATE 23,040 SQUARE FOOT, TWO-STORY CONCRETE TILT-UP BUILDING
LOCATED ON APPROXIMATELY 1.26 ACRES OF M-1 ZONED LAND. (APN 512-0-240-105)
COLLECTIVELY THE ENTIRE BUILDING AND PARCEL INCLUDING THE PARKING LOT
("Premises"). (See also Paragraph 2.)
1.3 TERM: THREE (3) years and 0 months ("ORIGINAL TERM") commencing
AUGUST 1, 1998 ("COMMENCEMENT DATE") and ending JULY 31, 2001 ("EXPIRATION
DATE"). (See also Paragraph 3.)
1.4 EARLY POSSESSION: UPON LEASE EXECUTION OF LEASES. (SEE PAR. 50)
("EARLY POSSESSION DATE"). (See also Paragraphs 3.2 and 3.3)
1.5 BASE RENT: $20,536.00 per month ("BASE RENT"), payable on the
FIRST (1st) day of each month commencing AUGUST 1, 1998. (See also Paragraph 4.)
1/2 If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted and/or for common area maintenance charges.
1.6 BASE RENT PAID UPON EXECUTION: $20,536.00 as Base Rent for the
period AUGUST 1998.
1.7 SECURITY DEPOSIT: $61,608.00 ("SECURITY DEPOSIT"). (See also
Paragraph 5 and 52).
1.8 AGREED USE: GENERAL OFFICE, ASSEMBLY AND WAREHOUSING OF
ELECTRIC/ELECTRONIC COMPONENTS AND EQUIPMENT (See also Paragraph 6.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY." The annual "Base
Premium" is $____________. (See also Paragraph 8.)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers
(collectively, the "Brokers") and brokerage relationships exist in this
transaction (check applicable boxes):
[X] EQUITY COMMERCIAL REAL ESTATE SERVICES represents Lessor exclusively
("LESSOR'S BROKer");
[X] METROSPACE/CRESA represents Lessee exclusively ("LESSEE'S BROKer"); oR
[ ] N/A represents both Lessor and Lessee ("DUAL AGENcy").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this Lease
by both Parties, Lessor shall pay to the Broker the fee agreed to in their
separate written agreement (or if there is no such agreement, the sum of SEE
BELOW % of the total Base Rent for the brokerage services rendered by said
Broker). (as per separate agreement between Lessor and Equity Commercial)
1.11 GUARANTOR: The obligations of the Lessee under this Lease are to
be guaranteed by N/A ("GUARANTOR"). (See also Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 51 through 64, and Exhibits A , all of which constitute
a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all of
the terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease, or that may have
been used in calculating rental, is an approximation which the Parties agree is
reasonable and the rental based thereon is not subject to revision whether or
not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises broom clean and
free of debris and clean the windows by the Commencement Date ("START DATE"),
and warrants that the existing electrical, plumbing, fire sprinkler, lighting,
heating, ventilating and air conditioning systems ("HVAC"), loading doors, if
any, and all other such elements of the building, in the Premises, other than
those constructed by Lessee, shall be in good operating condition on said date
and that the surface and structural elements of
PAGE 1
<PAGE> 2
the roof, bearing walls and foundation of any buildings on the Premises (the
"BUILDING") shall be free of material defects. If a non-compliance with said
warranty exists as of the Start Date, Lessor shall, except as otherwise provided
in this Lease, promptly after receipt of written notice from Lessee setting
forth with specificity the nature and extent of such non-compliance, rectify
same at Lessor's expense. If, after the Start Date, Lessee does not give Lessor
written notice of any non-compliance with this warranty within (i) six (6)
months as to the HVAC systems or (ii) thirty (30) days as to the remaining
systems and other elements of the Building, correction of such non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense, except for
the roof, foundations, and bearing walls which are handled as provided in
Paragraph 7.
2.3 COMPLIANCE. Lessor warrants that any improvements on the
Premises comply with all applicable laws, covenants or restrictions of record,
building codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") in effect
on the Start Date. Said warranty does not apply to the use to which Lessee will
put the Premises or to any Alterations or Utility Installations (as defined in
Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for
determining whether or not the zoning is appropriate for Lessee's intended use,
and acknowledges that past uses of the Premises may no longer be allowed. If the
Premises do not comply with said warranty, Lessor shall, except as otherwise
provided, promptly after receipt of written notice from Lessee setting forth
with specificity the nature and extent of such non-compliance, rectify the same
at Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within six (6) months following the Start
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense. If the Applicable Requirements are hereafter
changed (as opposed to being in existence at the Start Date, which is addressed
in Paragraph 6.2(e) below) so as to require during the term of this Lease the
construction of an addition to or alteration of the Building, the remediation of
any Hazardous Substance, or the reinforcement or other physical modification of
the Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the cost
of such work as follows:
(a) Subject to Paragraph 2.3(c) below, if such Capital
Expenditures are required as a result of the specific and unique use of the
Premises by Lessee as compared with uses by tenants in general, Lessee shall be
fully responsible for the cost thereof, provided, however that if such Capital
Expenditure is required during the last two (2) years of this Lease and the cost
thereof exceeds six (6) months' Base Rent, Lessee may instead terminate this
Lease unless Lessor notifies Lessee, in writing, within ten (10) days after
receipt of Lessee's termination notice that Lessor has elected to pay the
difference between the actual cost thereof and the amount equal to six (6)
months' Base Rent. lf Lessee elects termination, Lessee shall immediately cease
the use of the Premises which requires such Capital Expenditure and deliver to
Lessor written notice specifying a termination date at least ninety (90) days
thereafter. Such termination date shall, however, in no event be earlier than
the last day that Lessee could legally utilize the Premises without commencing
such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific
and unique use of the Premises by Lessee (such as, governmentally mandated
seismic modifications), then Lessor and Lessee shall allocate the obligation to
pay for such costs pursuant to the provisions of Paragraph 7.1(c); provided,
however, that if such Capital Expenditure is required during the last two years
of this Lease or if Lessor reasonably determines that it is not economically
feasible to pay its share thereof, Lessor shall have the option to terminate
this Lease upon ninety (90) days prior written notice to Lessee unless Lessee
notifies Lessor, in writing, within ten (10) days after receipt of Lessor's
termination notice that Lessee will pay for such Capital Expenditure. If Lessor
does not elect to terminate, and fails to tender its share of any such Capital
Expenditure, Lessee may advance such funds and deduct same, with interest, from
Rent until Lessor's share of such costs have been fully paid. If Lessee is
unable to finance Lessor's share, of if the balance of the Rent due and payable
for the remainder of this Lease is not sufficient to fully reimburse Lessee on
an offset basis, Lessee shall have the right to terminate this Lease upon thirty
(30) days written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in intensity
of use, or modification to the Premises then, and in that event, Lessee shall be
fully responsible for the cost thereof, and Lessee shall not have any right to
terminate this Lease.
2.4 ACKNOWLEDGMENTS. Lessee acknowledges that: (a) it has been
advised by Lessor and/or Brokers to satisfy itself with respect to the condition
of the Premises (including, but not limited to the electrical, HVAC and fire
sprinkler systems, security, environmental aspects, and compliance with the
Applicable Requirements), and their suitability for Lessee's intended use; (b)
Lessee has made such investigation as it deems necessary with reference to such
matters and assumes all responsibility therefor as the same relate to its
occupancy of the Premises; and (c) neither Lessor, Lessor's agents, nor any
Broker has made any oral or written representations or warranties with respect
to said matters other than as set forth in this Lease. In addition, Lessor
acknowledges that: (a) Broker has made no representations, promises or
warranties concerning Lessee's ability to honor the Lease or suitability to
occupy the Premises; and (b) it is Lessor's sole responsibility to investigate
the financial capability and/or suitability of all proposed tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
PAGE 2
<PAGE> 3
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this Lease
shall, however, be in effect during such period. Any such early possession shall
not affect the Expiration Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease. Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premises. If possession is not delivered within sixty (60)
days after the Commencement Date, Lessee may, at its option, by notice in
writing to Lessor within ten (10) days after the end of said sixty (60)-day
period, cancel this Lease, in which event the Parties shall be discharged from
all obligations hereunder. If such written notice is not received by Lessor
within said ten (10)-day period, Lessee's right to cancel shall terminate.
Except as otherwise provided, if possession is not tendered to Lessee by the
Start Date and Lessee does not terminate this Lease, as aforesaid, any period of
rent abatement that Lessee would otherwise have enjoyed shall run from the date
of delivery of possession and continue for a period equal to what Lessee would
otherwise have enjoyed under the terms hereof, but minus any days of delay
caused by the acts or omissions of Lessee. If possession of the Premises is not
delivered within four (4) months after the Commencement Date, this Lease shall
terminate unless other agreements are reached between Lessor and Lessee, in
writing.
(a) LESSEE COMPLIANCE. Lessor shall not be required to tender
possession of the Premises to Lessee until Lessee complies with its obligation
to provide evidence of insurance (Paragraph 8.5). Pending delivery of such
evidence, Lessee shall be required to perform all of its obligations under this
Lease from and after the Start Date, including the payment of Rent,
notwithstanding Lessor's election to withhold possession pending receipt of such
evidence of insurance. Further, if Lessee is required to perform any other
conditions prior to or concurrent with the Start Date, the Start Date shall
occur but Lessor may elect to withhold possession until such conditions are
satisfied.
4. RENT.
4.1 RENT DEFINED. All monetary obligations of Lessee to Lessor under
the terms of this Lease (except for the Security Deposit) are deemed to be rent
("RENT").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by
Lessor in lawful money of the United States, without offset or deduction (except
as specifically permitted in this Lease), on or before the day on which it is
due. Rent for any period during the term-hereof which is for less than one (1)
full calendar month shall be prorated based upon the actual number of days of
said month. Payment of Rent shall be made to Lessor at its address stated herein
or to such other persons or place as Lessor may from time to time designate in
writing. Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessor's rights to the balance of such Rent, regardless of
Lessor's endorsement of any check so stating.
5. Security Deposit. Lessee shall deposit with Lessor upon execution
hereof the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, Lessor may use, apply or retain all or any portion of said
Security Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, expense, loss or damage which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall within ten (10) days after written
request therefor deposit monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. Should the Agreed Use be
amended to accommodate a material change in the business of Lessee or to
accommodate a sublessee or assignee, Lessor shall have the right to increase the
Security Deposit to the extent necessary, in Lessor's reasonable judgment, to
account for any increased wear and tear that the Premises may suffer as a result
thereof. Lessor shall not be required to keep the Security Deposit separate from
its general accounts. Within fourteen (14) days after the expiration or
termination of this Lease, if Lessor elects to apply the Security Deposit only
to unpaid Rent, and otherwise within thirty (30) days after the Premises have
been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that
portion of the Security Deposit not used or applied by Lessor. No part of the
Security Deposit shall be considered to be held in trust, to bear interest or to
be prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the
Agreed Use, or any other legal use which is reasonably comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs
owners and/or occupants of, or causes damage to neighboring properties. Lessor
shall not unreasonably withhold or delay its consent to any written request for
a modification of the Agreed Use, so long as the same will not impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, or is not significantly more burdensome to the
Premises. If
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Lessor elects to withhold consent, Lessor shall within five (5) business days
after such request give written notification of same, which notice shall include
an explanation of Lessor's objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, or waste
whose presence, use, manufacture, disposal, transportation, or release, either
by itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substances shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, and/or crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in or on the Premises which
constitutes a Reportable Use of Hazardous Substances without the express prior
written consent of Lessor and timely compliance (at Lessee's expense) with all
Applicable Requirements. "REPORTABLE USE" shall mean (i) the installation or use
of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, so long as such use
is in compliance with all Applicable Requirements, is not a Reportable Use, and
does not expose the Premises or neighboring property to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may condition its consent to any Reportable Use upon receiving such
additional assurances as Lessor reasonably deems necessary to protect itself,
the public, the Premises and/or the environment against damage, contamination,
injury and/or liability, including, but not limited to, the installation (and
removal on or before Lease expiration or termination) of protective
modifications (such as concrete encasements) and/or increasing the Security
Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe DURING THE TERM OF THIS LEASE, that a Hazardous Substance has
come to be located in, on, under or about the Premises, other than as previously
consented to by Lessor, Lessee shall immediately give Lessor written notice of
such fact to Lessor, and provide Lessor with a copy of any report, notice, claim
or other documentation which it has concerning the presence of such Hazardous
Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any Hazardous
Substance brought onto the Premises during the term of this Lease, by or for
Lessee.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and
hold Lessor, its agents, employees, lenders and ground lessor if any, harmless
from and against any and all loss of rents and/or damages, liabilities,
judgments, claims, expenses, penalties, and attorneys' and consultants' fees
arising out of or involving any Hazardous Substance brought onto the Premises by
or for Lessee (provided, however, that Lessee shall have no liability under this
Lease with respect to underground migration of any Hazardous Substance under the
Premises from adjacent properties or any hazardous substance which existed in
the premises prior to the start date). Lessee's obligations shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation, removal, remediation, restoration and/or abatement, and shall
survive the expiration or termination of this Lease. NO TERMINATION,
CANCELLATION OR RELEASE AGREEMENT ENTERED INTO BY LESSOR AND LESSEE SHALL
RELEASE EITHER PARTY FROM ITS OBLIGATIONS UNDER THIS LEASE WITH RESPECT TO
HAZARDOUS SUBSTANCES, UNLESS SPECIFICALLY SO AGREED BY LESSOR IN WRITING AT THE
TIME OF SUCH AGREEMENT.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee employees and lenders,
harmless from and against any and all environmental damages, including the cost
of remediation, which existed as a result of Hazardous Substances on the
Premises prior to the Start Date or which are caused by the gross negligence or
willful misconduct of Lessor, its agents or employees. Lessor's obligations, as
and when required by the Applicable Requirements, shall include, but not be
limited to, the cost of investigation, removal, remediation, restoration and/or
abatement, and shall survive the expiration or termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date, unless such
remediation measure is required as a result of Lessee's use (including
alterations) of the Premises, in which event Lessee shall be responsible for
such payment. Lessee shall cooperate fully in any such activities at the request
of Lessor, including allowing Lessor and Lessor's agents to have reasonable
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access to the Premises at reasonable times in order to carry out Lessor's
investigative and remedial responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee shall make the investigation and remediation
thereof required by the Applicable Requirements and this Lease shall continue in
full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and
Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and
remediate such Hazardous Substance Condition, if required, as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) if the estimated cost to remediate such condition
exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is
greater, give written notice to Lessee, within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of
Lessor's desire to terminate this Lease as of the date sixty (60) days following
the date of such notice. In the event Lessor elects to give a termination
notice, Lessee may, within ten (10) days thereafter, give written notice to
Lessor of Lessee's commitment to pay the amount by which the cost of the
remediation of such Hazardous Substance Condition exceeds an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with said funds or satisfactory assurance thereof
within thirty (30) days following such commitment. In such event, this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time provided, this Lease shall terminate as of the
date specified in Lessor's notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as
otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to the Premises, without regard to whether said
requirements are now in effect or become effective after the Start Date. Lessee
shall, within ten (10) days after receipt of Lessor's written request, provide
Lessor with copies of all permits and other documents, and other information
evidencing lessee's compliance with any Applicable Requirements specified by
Lessor, and shall immediately upon receipt, notify Lessor in writing (with
copies of any documents involved) of any threatened or actual claim, notice,
citation, warning, complaint or report pertaining to or involving the failure of
Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's "Lender" (as defined
in Paragraph 30 below) and consultants shall have the right to enter into
Premises at any time, in the case of an emergency, and otherwise at reasonable
times, with 24 hours prior written notice to Lessee, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease. The cost of any such inspections shall be paid by the Lessor,
unless a violation of Applicable Requirements, or a contamination is found to
exist or to be imminent, or the inspection is requested or ordered by a
governmental authority. In such case, Lessee shall upon request reimburse Lessor
for the cost of such inspections, so long as such inspection is reasonably
related to the violation or contamination.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's
Obligations), 9 (Damage and Destruction), and 14 (Condemnation), Lessee shall,
at Lessee's sole expense, keep the Premises, Utility Installations, and
Alterations in good order, condition and repair (whether or not the portion of
the Premises requiring repairs, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, but not limited to, all
equipment or facilities, such as plumbing, heating, ventilating,
air-conditioning, electrical, lighting facilities, boilers, pressure vessels,
fire protection system, fixtures, walls (interior and exterior), ceilings,
floors, windows, doors, skylights, landscaping, driveways, parking lots, fences,
signs, sidewalks and parkways located in, on, or adjacent to the Premises.
Lessee is also responsible for keeping the roof and roof drainage clean and free
of debris. Lessor shall keep the surface and structural elements of the roof,
foundations, and bearing walls in good repair (see Paragraph 7.2). Lessee, in
keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices. Lessee's obligations shall include
restorations, replacements or renewals when necessary to keep the Premises and
all improvements thereon or a part thereof in good order, condition and state of
repair. Lessee shall, during the term of this Lease, keep the exterior
appearance of the Building in a first-class condition (including, e.g., graffiti
removal) consistent with the exterior appearance of other similar facilities of
comparable age and size in the vicinity. Lessee shall be responsible for
Lessee's damage to exterior paint during the term.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following; (i) trash and janitorial service, (ii) any
equipment or system installed by Lessee for Lessee's own use, (iii) fire
extinguishing systems, including fire, alarm and/or smoke detection and (iv) the
elevator.
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7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs
2.2 (Condition), 2.3 (Compliance with Covenants, Restrictions and Building
Code), 9 (Damage or Destruction) and 14 (Condemnation), it is intended by the
Parties hereto that Lessor have no obligation, in any manner whatsoever, to
repair and maintain the Premises, or the equipment therein, (except as provided
in paragraphs 54, 55 and 57) all of which obligations are intended to be that of
the Lessee, except for the surface and structural elements of the roof,
foundations and bearing walls, the repair of which shall be the responsibility
of Lessor upon receipt of written notice that such a repair is necessary. It is
the intention of the Parties that the terms of this Lease govern the respective
obligations of the Parties as to maintenance and repair of the Premises, and
they expressly waive the benefit of any statute now or hereafter in effect to
the extent it is inconsistent with the terms of this Lease.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" refers to all floor and window coverings, air lines, power
panels, electrical distribution, security and fire protection systems and signs,
communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing
in or on the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery
and equipment that can be removed without doing material damage to the Premises.
The term "ALTERATIONS" shall mean any modification of the improvements, other
than Utility Installations or Trade Fixtures, whether by addition or deletion.
"LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or
Utility Installations to the Premises without Lessor's prior written consent.
Lessee may, however, make non-structural Utility Installations to the interior
of the Premises (excluding the roof) without such consent but upon notice to
Lessor, as long as they are not visible from the outside, do not involve
puncturing, relocating or removing the roof or any existing walls, and the
cumulative cost thereof during this Lease as extended does not exceed $50,000 in
the aggregate or $10,000 in any one year.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. Consent shall be deemed
conditioned upon Lessee's: (i) acquiring all applicable governmental permits,
(ii) furnishing Lessor with copies of both the permits and the plans and
specifications prior to commencement of the work, and (iii) compliance with all
conditions of said permits and other Applicable Requirements in a prompt and
expeditious manner. Any Alterations or Utility Installations shall be performed
in a workmanlike manner with good and sufficient materials. Lessee shall
promptly upon completion furnish Lessor with as-built plans and specifications.
For work which costs an amount equal. to the greater of one month's Base Rent,
or $10,000, Lessor may condition its consent upon Lessee providing a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such Alternation or Utility Installation and/or upon Lessee's posting an
additional Security Deposit with Lessor. Lessor's content under this paragraph
shall not be unreasonably withheld.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have the
right to post notices of non -responsibility. If Lessee shall contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend and protect itself, Lessor and the Premises against the same and
shall pay and satisfy any such adverse judgment that may be rendered thereon
before the enforcement thereof. If Lessor shall require, Lessee shall furnish a
surety bond in an amount equal to one and one-half times the amount of such
contested lien, claim or demand, indemnifying Lessor against liability for the
same. If Lessor elects to participate in any such action, Lessee shall pay
Lessor's attorneys' fees and costs.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal or
elect ownership as hereinafter provided, all Alterations and Utility
Installations made by Lessee shall be the property of Lessee, but considered a
part of the Premises. Lessor may, at any time, elect in writing to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per Paragraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
termination of this Lease, become the property of Lessor and be surrendered by
Lessee with the Premises.
(b) REMOVAL. Lessor may require the removal at any time of all or
any part of any Lessee Owned Alterations or Utility Installations made without
the required consent.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the Expiration Date or any earlier termination date, with all of the
improvements and surfaces thereof broom clean and free of debris, and in good
operating order, condition and state of repair, ordinary wear and tear excepted.
"Ordinary wear and tear" shall not include any damage or deterioration that
would have been prevented by good maintenance practice. Lessee shall repair any
damage occasioned by the installation, maintenance or removal of Trade Fixtures,
Lessee Owned Alterations and/or Utility Installations, furnishings, and
equipment as well as the removal of any storage tank installed by or for Lessee,
and the removal, replacement, or remediation of any soil, material or
groundwater contaminated by Lessee. Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee. The failure by
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Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without
the express written consent of Lessor shall constitute a holdover under the
provisions of Paragraph 26 below. In the event Lessee is responsible for damage
to the existing wallpaper in the premises, repair of such damage shall be
limited and shall not exceed removing of said wallpaper, repairing and
repainting such wall.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) Lessee shall pay to Lessor any insurance cost increase
("INSURANCE COST INCREASE") occurring during the term of this Lease. "Insurance
Cost Increase" is defined as any increase in the actual cost of the insurance
required under Paragraph 8.2(b), 8.3(a) and 8.3(b) ("REQUIRED INSURANCE"), over
and above the Base Premium as hereinafter defined calculated on an annual basis.
"Insurance Cost Increase" shall include but not be limited to increases
resulting from the nature of Lessee's occupancy, any act or omission of Lessee,
requirements of the holder of mortgage or deed of trust covering the Premises,
increased valuation of the Premises and/or a premium rate increase. The parties
are encouraged to fill in the Base Premium in Paragraph 1.9 with a reasonable
premium for the Required Insurance based on the Agreed Use of the Premises. If
the parties fail to insert a dollar amount in Paragraph 1.9, then the Base
Premium shall be the lowest annual premium reasonably obtainable for the
Required Insurance as of the commencement of the Original Term for the Agreed
Use of the Premises. In no event, however, shall Lessee be responsible for any
portion of the increase in the premium cost attributable to liability insurance
carried by Lessor under Paragraph 8.1(b) in excess of $2,000,000 per occurrence.
(b) Lessee shall pay any such Insurance Cost Increase to Lessor
within thirty (30) days after receipt by Lessee of a copy of the premium
statement or other reasonable evidence of the amount due. If the insurance
policies maintained hereunder cover other property besides the Premises, Lessor
shall also deliver to Lessee a statement of the amount of such Insurance Cost
Increase attributable only to the Premises showing in reasonable detail the
manner in which such amount was computed. Premiums for policy periods commencing
prior to, or extending beyond the term of this Lease, shall be prorated to
correspond to the term of this Lease.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee and Lessor
against claims for bodily injury, personal injury and property damage based upon
or arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $2,000,000 per
occurrence with an "ADDITIONAL INSURED-MANAGERS OR LESSORS OF PREMISES
ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION ENDORSEMENT"
for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall
not contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Lessee's indemnity obligations
under this Lease. The limits of said insurance shall not, however, limit the
liability of Lessee nor relieve Lessee of any obligation hereunder. All
insurance carried by Lessee shall be primary to and not contributory with any
similar insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) CARRIED BY LESSOR. Lessor shall maintain liability insurance
as described in Paragraph 8.2(a), in addition to, and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain
and keep in force a policy or policies in the name of Lessor, with loss payable
to Lessor, any groundlessor, and to any Lender(s) insuring loss or damage to the
Premises. The amount of such insurance shall be equal to the full replacement
cost of the Premises, as the same shall exist from time to time, or the amount
required by any Lenders, but in no event more than the commercially reasonable
and available insurable value thereof. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's
personal property shall be insured by Lessee under Paragraph 8.4 rather than by
Lessor. If the coverage is available and commercially appropriate, such policy
or policies shall insure against all risks of direct physical loss or damage
(except the perils of flood and/or earthquake unless required by a Lender or
included in the Base Premium), including coverage for debris removal and the
enforcement of any Applicable Requirements requiring the upgrading, demolition,
reconstruction or replacement of any portion of the Premises as the result of a
covered loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U.S. Department of
Labor Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep in
force a policy or policies in the name of Lessor, with loss payable to Lessor
and any Lender, insuring the loss of the full Rent for one (1) year. Said
insurance shall provide that in the event the Lease is terminated by reason of
an insured loss, the period of indemnity for such coverage shall be extended
beyond the date of the completion of repairs or replacement of the Premises, to
provide for one full year's loss of Rent from the
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date of any such loss. Said insurance shall contain an agreed valuation
provision in lieu of any coinsurance clause, and the amount of coverage shall be
adjusted annually to reflect the projected Rent otherwise payable by Lessee, for
the next twelve (12)-month period.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or of a group of buildings owned by Lessor which are adjacent to the
Premises, the Lessee shall pay for any increase in the premiums for the property
insurance of such building or buildings if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned
Alterations and Utility Installations. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property, Trade Fixtures and Lessee Owned Alterations and Utility
Installations. Lessee shall provide Lessor with written evidence that such
insurance is in force.
(b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss
of income and extra expense insurance in amounts as will reimburse Lessee for
direct or indirect loss of earnings attributable to all perils commonly insured
against by prudent lessees in the business of Lessee or attributable to
prevention of access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by
companies duly licensed or admitted to transact business in the state where the
Premises are located, and maintaining during the policy term a "General
Policyholders Rating" of at least B+, V, as set forth in the most current issue
of "Best's Insurance Guide," or such other rating as may be required by a
Lender. Lessee shall not do or permit to be done anything which invalidates the
required insurance policies. Lessee shall, prior to the Start Date, deliver to
Lessor certified copies of policies of such insurance or certificates evidencing
the existence and amounts of the required insurance. No such policy shall be
cancelable or subject to modification except after thirty (30) days prior
written notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand. Such policies shall be for a term of at least
one year, or the length of the remaining term of this Lease, whichever is less.
If either Party shall fail to procure and maintain the insurance required to be
carried by it, the other Party may, but shall not be required to, procure and
maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages against the other, for loss of or damage
to its property arising out of or incident to the perils required to be insured
against herein. The effect of such releases and waivers is not limited by the
amount of insurance carried or required, or by any deductibles applicable
hereto. The Parties agree to have their respective property damage insurance
carriers waive any right to subrogation that such companies may have against
Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.
8.7 INDEMNITY. Except for Lessor's gross negligence or willful
misconduct, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or
liabilities arising out of, involving, or in connection with, the use and/or
occupancy of the Premises by Lessee. If any action or proceeding is brought
against Lessor by reason of any of the foregoing matters, Lessee shall upon
notice defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable
for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or any
other person in or about the Premises, whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, or from other sources or places. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of Lessor.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under
no circumstances be liable for injury to Lessee's business or for any loss of
income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations, Utility
Installations and Trade
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Fixtures, which can reasonably be repaired in six (6) months or less from the
date of the damage or destruction. Lessor shall notify Lessee in writing within
thirty (30) days from the date of the damage or destruction as to whether or not
the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee Owned Alterations and Utility Installations
and Trade Fixtures, which cannot reasonably be repaired in six (6) months or
less from the date of the damage or destruction. Lessor shall notify Lessee in
writing within thirty (30) days from the date of the damage or destruction as to
whether or not the damage is Partial or Total.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which was caused by an event required to be
covered by the insurance described in Paragraph 8.3(a), irrespective of any
deductible amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of Applicable Requirements, and
without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessors expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make any
applicable insurance proceeds available to Lessee on a reasonable basis for that
purpose. Notwithstanding the foregoing, if the required insurance was not in
force or the insurance proceeds are not sufficient to effect such repair, the
Insuring Party shall promptly contribute the shortage in proceeds as and when
required to complete said repairs. In the event, however, such shortage was due
to the fact that, by reason of the unique nature of the improvements, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. It Lessor receives said funds or adequate assurance thereof
within said ten (10)-day period, the party responsible for making the repairs
shall complete them as soon as reasonably possible and this Lease shall remain
in full force and effect. If such funds or assurance are not received, Lessor
may nevertheless elect by written notice to Lessee within ten (10) days
thereafter to: (i) make such restoration and repair as is commercially
reasonable with Lessor paying any shortage in proceeds, in which case this Lease
shall remain in full force and effect; or (ii) have this Lease terminate thirty
(30) days thereafter. Lessee shall not be entitled to reimbursement of any funds
contributed by Lessee to repair any such damage or destruction. Premises Partial
Damage due to flood or earthquake shall be subject to Paragraph 9.3,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage
that is not an Insured Loss occurs, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense),
Lessor may either: (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) terminate this Lease by giving written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage. Such termination shall be effective sixty (60) days following the date
of such notice. In the event Lessor elects to terminate this Lease, Lessee shall
have the right within ten (10) days after receipt of the termination notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage without reimbursement from Lessor. Lessee shall provide Lessor with
said funds or satisfactory assurance thereof within thirty (30) days after
making such commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not make the
required commitment, this Lease shall terminate as of the date specified in the
termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof,
if a Premises Total Destruction occurs, this Lease shall terminate sixty (60)
days following such Destruction. If the damage or destruction was caused by the
gross negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of this Lease there is damage for which the cost to repair exceeds one
(1) month's Base Rent, whether or not an Insured Loss, Lessor may terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving a written termination notice to Lessee within thirty (30) days after
the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee
at that time has an exercisable option to extend this Lease or to purchase the
Premises, then Lessee may preserve this Lease by, (a) exercising such option and
(b) providing Lessor with any shortage in insurance proceeds (or adequate
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assurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten days after Lessee's receipt of Lessor's written notice
purporting to terminate this Lease, or (ii) the day prior to the date upon which
such option expires. If Lessee duly exercises such option during such period and
provides Lessor with funds (or adequate assurance thereof) to cover any shortage
in insurance proceeds, Lessor shall, at Lessor's commercially reasonable
expense, repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect, If Lessee fails to exercise such option and
provide such funds or assurance during such period, then this Lease shall
terminate on the date specified in the termination notice and Lessee's option
shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or
Premises Total Destruction or a Hazardous Substance Condition for which Lessee
is not responsible under this Lease, the Rent payable by Lessee for the period
required for the repair, remediation or restoration of such damage shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. All other obligations of Lessee hereunder shall be performed by
Lessee, and Lessor shall have no liability for any such damage, destruction,
remediation, repair or restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore
the Premises and does not commence, in a substantial and meaningful way, such
repair or restoration within ninety (90) days after such obligation shall
accrue, Lessee may, at any time prior to the commencement of such repair or
restoration, give written notice to Lessor and to any Lenders of which Lessee
has actual notice, of Lessee's election to terminate this Lease on a date not
less than sixty (60) days following the giving of such notice. If Lessee gives
such notice and such repair or restoration is not commenced within thirty (30)
days thereafter, this Lease shall terminate as of the date specified in said
notice. If the repair or restoration is commenced within said thirty (30) days,
this Lease shall continue in full force and effect. "COMMENCE" shall mean either
the unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by Lessee
to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"REAL PROPERTY TAXES" shall include any form of assessment; real estate,
general, special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes); improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises, Lessor's right to other income therefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated with reference to the Building address and where
the proceeds so generated are to be applied by the city, county or other local
taxing authority of a jurisdiction within which the Premises are located. The
term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring during
the term of this Lease, including but not limited to, a change in the ownership
of the Premises.
10.2
(a) PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes
applicable to the Premises provided, however, that Lessee shall pay to Lessor
the amount, if any, by which Real Property Taxes applicable to the Premises
increase over the fiscal tax year during which the Commencement Date occurs
("TAX INCREASE"). Subject to Paragraph 10.2(b), payment of any such Tax Increase
shall be made by Lessee to Lessor within thirty (30) days after receipt of
Lessor's written statement setting forth the amount due and the computation
thereof. If any such taxes shall cover any period of time prior to or after the
expiration or termination of this Lease, Lessee's share of such taxes shall be
prorated to cover only that portion of the tax bill applicable to the period
that this Lease is in effect.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on
any Rent payment, Lessor may, at Lessor's option, estimate the current Real
Property Taxes, and require that the Tax Increase be paid in advance to Lessor
by Lessee, either: (i) in a lump sum amount equal to the amount due, at least
twenty (20) days prior to the applicable delinquency date; or (ii) monthly in
advance with the payment of the Base Rent. If Lessor elects to require payment
monthly in advance, the monthly payment shall be an amount equal to the amount
of the estimated installment of the Tax Increase divided by the number of months
remaining before the month in which said installment becomes delinquent. When
the actual amount of the applicable Tax Increase is known, the amount of such
equal monthly advance payments shall be adjusted as required to provide the
funds needed to pay the applicable Tax Increase. It the amount collected by
Lessor is insufficient to pay the Tax Increase when due, Lessee shall pay
Lessor, upon demand, such additional sums as are necessary to pay such
obligations. All moneys paid to Lessor under this Paragraph may be intermingled
with other moneys of Lessor and shall not bear interest. In the event of a
Breach by Lessee in the performance of its obligations under this Lease, then
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any balance of funds paid to Lessor under the provisions of this Paragraph may
at the option of Lessor, be treated as an additional Security Deposit.
(c) ADDITIONAL IMPROVEMENTS. Notwithstanding anything to the
contrary in this Paragraph 10.2, Lessee shall pay to Lessor upon demand therefor
the entirety of any increase in Real Property Taxes assessed by reason of
Alterations or Utility Installations placed upon the Premises by Lessee or at
Lessee's request.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Tax Increase for all
of the land and improvements included within the tax parcel assessed, such
proportion to be conclusively determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency,
all taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee. When possible, Lessee shall cause such property to be assessed and
billed separately from the real property of Lessor. If any of Lessee's said
personal property shall be assessed with Lessor's real property, Lessee shall
pay Lessor the taxes attributable to Lessee's property within ten (10) days
after receipt of a written statement.
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
JANITORIAL, telephone, trash disposal and other utilities and services supplied
to the Premises, together with any taxes thereon. It any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion to be
determined by Lessor, of all charges jointly metered.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "ASSIGN ASSIGNMENT") or sublet all
or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent.
(b) A change in the control of Lessee shall constitute an
assignment requiring consent. The transfer, on a cumulative basis, of fifty
percent (50%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction,
or series of transactions (by way of merger, sale, acquisition, financing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee by an amount greater than
twenty-five percent (25%) of such Net Worth as it was represented at the time of
the execution of this Lease or at the time of the most recent assignment to
which Lessor has consented, or as it exists immediately prior to said
transaction or transactions constituting such reduction, whichever was or is
greater, shall be considered an assignment of this Lease to which Lessor may
withhold its consent. "NET WORTH OF LESSEE" shall mean the net worth of Lessee
(excluding any guarantors) established under generally accepted accounting
principles.
(d) An assignment or subletting without consent shall, at Lessors
option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable
Breach without the necessity of any notice and grace period. If Lessor elects to
treat such unapproved assignment or subletting as a noncurable Breach, Lessor
may either: (i) terminate this Lease, or (ii) upon thirty (30) days written
notice, increase the monthly Base Rent to one hundred ten percent (110%) of the
Base Rent then in effect. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to one hundred ten percent
(110%) of the price previously in effect, and (ii) all fixed and non-fixed
rental adjustments scheduled during the remainder of the Lease term shall be
increased to one hundred ten percent (110%) of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease; (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any other
obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of Rent or performance shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
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(d) In the event of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible for
the performance of Lessee's obligations under this Lease, including any assignee
or sublessee, without first exhausting Lessor's remedies against any other
person or entity responsible therefore to Lessor, or any security held by
Lessor.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a fee of
$1,000 as consideration for Lessor's considering and processing said request.
Lessee agrees to provide Lessor with such other or additional information and/or
documentation as may be reasonably requested.
(f) any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed to
have assumed and agreed to conform and comply with each and every term,
covenant, condition and obligation herein to be observed or performed by Lessee
during the term of said assignment or sublease, other than such obligations as
are contrary to or inconsistent with provisions of an assignment or sublease to
which Lessor has specifically consented to in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all Rent payable on any sublease, and Lessor may collect such Rent
and apply same toward Lessee's obligations under this Lease; provided, however,
that until a Breach shall occur in the performance of Lessee's obligations,
Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or
any assignment of such sublease, nor by reason of the collection of Rent, be
deemed liable to the sublessee for any failure of Lessee to perform and comply
with any of Lessee's obligations to such sublessee. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice from
Lessor stating that a Breach exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor all Rent due and to become due under the
sublease. Sublessee shall rely upon any such notice from Lessor and shall pay
all Rents to Lessor without any obligation or right to inquire as to whether
such Breach exists, notwithstanding any claim from Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its
option, require sublessee to attorn to Lessor, in which event Lessor shall
undertake the obligations of the sublessor under such sublease from the time of
the exercise of said option to the expiration of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to such sublessor or for any prior Defaults or Breaches
of such sublessor.
(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part
of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the
Lessee to comply with or perform any of the terms, covenants, conditions or
rules under this Lease. A "BREACH" is defined as the occurrence of one or more
of the following Defaults, and the failure of Lessee to cure such Default within
any applicable grace period:
(a) The abandonment of the Premises; or the vacating of the
Premises without providing a commercially reasonable level of security, and/or
Security Deposit or where the coverage of the property insurance described in
Paragraph 8.3 is jeopardized as a result thereof, or without providing
reasonable assurances to minimize potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any
Security Deposit required to be made by Lessee hereunder, whether to Lessor or
to a third party, when due, to provide reasonable evidence of insurance or
surety bond, or to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written
evidence of compliance with Applicable Requirements, (ii) the service contracts,
(iii) the rescission of an unauthorized assignment or subletting, (iv) a
Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning
any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42
(easements), or (viii) any other documentation or information which Lessor may
reasonably require of Lessee under the terms of this Lease, where any such
failure continues for a period of ten (10) days following written notice to
Lessee.
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(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice;
provided, however, that if the nature of Lessee's Default is such that more than
thirty (30) days are reasonably required for its cure, then it shall not be
deemed to be a Breach if Lessee commences such cure within said thirty (30)-day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making
of any general arrangement or assignment for the benefit of creditors; (ii)
becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any successor statute
thereto (unless, in the case of a petition filed against Lessee, the same is
dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery that any financial statement of Lessee or of
any Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this Lease
is guaranteed: (i) the death of a Guarantor; (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty; (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing; (iv) a Guarantor's refusal to honor the
guaranty; or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory basis, and Lessee's failure, within sixty (60) days following
written notice of any such event, to provide written alternative assurance or
security, which, when coupled with the then existing resources of Lessee, equals
or exceeds the combined financial resources of Lessee and the Guarantors that
existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative
duties or obligations, within ten (10) days after written notice (or in case of
an emergency, without notice), Lessor may, at its option, perform such duty or
obligation on Lessee's behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental licenses, permits
or approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee upon receipt of invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made by Lessee to
be by cashier's check. In the event of a Breach, Lessor may, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of the District within which the Premises are located
at the time of award plus one percent (1%). Efforts by Lessor to mitigate
damages caused by Lessee's Breach of this Lease shall not waive Lessor's right
to recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding any unpaid Rent and damages as are recoverable
therein, or Lessor may reserve the right to recover all or any part thereof in a
separate suit. If a notice and grace period required under Paragraph 13.1 was
not previously given, a notice a pay rent or quit, or to perform or quit given
to Lessee under the unlawful detainer statute shall also constitute the notice
required by Paragraph 13.1. In such case, the applicable grace period required
by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and
the failure of Lessee to cure the Default within the greater of the two such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue this Lease and Lessee's right to possession and
recover the Rent as it becomes due, in which event Lessee may sublet or assign,
subject only to reasonable limitations. Acts of maintenance, efforts to relet,
and/or the appointment of a receiver to protect the Lessor's interests, shall
not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the
laws or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease
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and/or the termination of Lessee's right to possession shall not relieve Lessee
from liability under any indemnity provisions of this Lease as to matters
occurring or accruing during the term hereof or by reason of Lessee's occupancy
of the Premises.
13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or
other charges, or for the giving or paying by Lessor to or for Lessee of any
cash or other bonus, inducement or consideration for Lessee's entering into this
Lease, all of which concessions are hereinafter referred to as "INDUCEMENT
PROVISIONS" shall be deemed conditioned upon Lessee's full and faithful
performance of all of the terms, covenants and conditions of this Lease. Upon
Breach of this Lease by Lessee, any such Inducement Provision shall
automatically be deemed deleted from this Lease and of no further force or
effect, and any rent, other charge, bonus, inducement or consideration
theretofore abated, given or paid by Lessor under such an Inducement Provision
shall be immediately due and payable by Lessee to Lessor, notwithstanding any
subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or
the cure of the Breach which initiated the operation of this paragraph shall not
be deemed a waiver by Lessor of the provisions of this paragraph unless
specifically so stated in writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent
shall not be received by Lessor within five (5) days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a one-time late charge equal to five percent (5%) of each such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of such late
payment. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent the exercise of any of the other rights and remedies granted hereunder.
In the event that a late charge is payable hereunder, whether or not collected,
for three (3) consecutive installments of Base Rent, then notwithstanding any
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than
late charges, not received by Lessor, when due as to scheduled payments (such as
Base Rent) or within thirty (30) days following the date on which it was due for
non-scheduled payment, shall bear interest from the date when due, as to
scheduled payments, or the thirty-first (31st) day after it was due as to
non-scheduled payments. The interest ("INTEREST") charged shall be equal to the
prime rate reported in the Wall Street Journal as published closest prior to the
date when due plus 4%, but shall not exceed the maximum rate allowed by law.
Interest is payable in addition to the potential late charge provided for in
Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of
this Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and any Lender whose name and address shall have been furnished Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days are reasonably
required for its performance, then Lessor shall not be in breach if performance
is commenced within such thirty (30)-day period and thereafter diligently
pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that
neither Lessor nor Lender cures said breach within thirty (30) days after
receipt of said written notice, or if having commenced said cure they do not
diligently pursue it to completion, then Lessee may elect to cure said breach at
Lessee's expense and offset from Rent an amount equal to the greater of one
month's Base Rent or the Security Deposit, and to pay an excess of such expense
under protest, reserving Lessee's right to reimbursement from Lessor. Lessee
shall document the cost of said cure and supply said documentation to Lessor.
14. Condemnation. If the Premises, or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (collectively "CONDEMNATION"), this Lease shall terminate as to the part
taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than ten percent (10%) of any building portion
of the premises, or more than twenty-five percent (25%) of the land area portion
of the premises not occupied by any building, is taken by Condemnation, Lessee
may, at Lessee's option, to be exercised in writing within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the Base Rent shall be reduced in
proportion to the reduction in utility of the Premises caused by such
Condemnation. Condemnation awards and/or payments shall be the property of
Lessor, whether such award shall be made as compensation for diminution in value
of the leasehold, the value of the part taken, or for severance damages;
provided, however, that Lessee shall be entitled to any compensation for
Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures,
without regard to whether or not this Lease is terminated pursuant to the
provisions of this Paragraph. All Alterations and Utility Installations made to
the Premises by Lessee, for purposes of
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Condemnation only, shall be considered the property of the Lessee and Lessee
shall be entitled to any and all compensation which is payable therefor. In the
event that this Lease is not terminated by reason of the Condemnation, Lessor
shall repair any damage to the Premises caused by such Condemnation.
15. BROKER'S FEE.
15.1 [DELETED].
15.2 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease shall be deemed to have assumed Lessor's obligation
hereunder. Each Broker shall be a third party beneficiary of the provisions of
Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to a Broker any amounts
due as and for commissions pertaining to this Lease when due, then such amounts
shall accrue Interest. In addition, if Lessor fails to pay any amounts to
Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and
Lessee of such failure and if Lessor fails to pay such amounts within ten (10)
days after said notice, Lessee shall pay said monies to its Broker and offset
such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a
third party beneficiary of any commission agreement entered into by and/or
between Lessor and Lessor's Broker.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee
and Lessor each represent and warrant to the other that it has had no dealings
with any person, firm, broker or finder (other than the Brokers, if any) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
16. ESTOPPEL CERTIFICATES.
(a) Each Party (as "RESPONDING PARTY") shall within ten (10) days
after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "ESTOPPEL CERTIFICATE" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
(b) If the Responding Party shall fail to execute or deliver the
Estoppel Certificate within such ten day period, the Requesting Party may
execute an Estoppel Certificate stating that: (i) the Lease is in full force and
effect without modification except as may be represented by the Requesting
Party; (ii) there are no uncured defaults in the Requesting Party's performance;
and (iii) if Lessor is the Requesting Party, not more than one month's rent has
been paid in advance. Prospective purchasers and encumbrancers may rely upon the
Requesting Party's Estoppel Certificate, and the Responding Party shall be
estopped from denying the truth of the facts contained in said Certificate.
(c) If Lessor desires to finance, refinance, or sell the
Promises, or any part thereof, Lessee and all Guarantors shall deliver to any
potential lender or purchaser designated by Lessor such financial statements as
may be reasonably required by such lender or purchaser, including but not
limited to Lessee's financial statements for the past three (3) years. All such
financial statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Definition of Lessor. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's interest in the prior lease. In the event of
a transfer of Lessor's title or interest in the Premises or this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined. Notwithstanding the above, and subject to the provisions of Paragraph
20 below, the original Lessor under this Lease, and all subsequent holders of
the Lessor's interest in this Lease shall remain liable and responsible with
regard to the potential duties and liabilities of Lessor pertaining to Hazardous
Substances as outlined in Paragraph 6 above.
18. Severability. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. Days. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. Limitation on Liability. Subject to the provisions of Paragraph 17
above, the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the individual partners of Lessor or its or their
individual partners, directors, officers or shareholders, and Lessee shall look
to the Premises, and to no other assets of Lessor, for the satisfaction of any
liabiliTy of Lessor with respect to this Lease, and shall not seek recourse
against the individual partners of Lessor, or its or their individual partners,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.
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21. Time of Essence. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. The liability (including court costs and Attorneys'
fees), of any Broker with respect to negotiation, execution, delivery or
performance by either Lessor or Lessee under this Lease or any amendment or
modification hereto shall be limited to an amount up to the fee received by such
Broker pursuant to this Lease; provided, however, that the foregoing limitation
on each Broker's liability shall not be applicable to any gross negligence or
willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by courier)
or may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notices. Either Party may by written
notice to the other specify a different address for notice, except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for notice. A copy of all notices to Lessor shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantee next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the Postal Service or courier. Notices transmitted by
facsimile transmission or similar means shall be deemed delivered upon telephone
confirmation of receipt, provided a copy is also delivered via delivery or mail.
If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed
received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the. obtaining of Lessor's consent of to, or approval of, any subsequent or
similar act by Lessee, or be construed as the basis of an estoppel to enforce
the provision or provisions this Lease requiring such consent. The acceptance of
Rent by Lessor shall not be a waiver of any Default or Breach by Lessee, Any
payment by Lessee may be accepted by Lessor on account of moneys or damages due
Lessor, notwithstanding any qualifying statements or conditions made by Lessee
in connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor at
or before the time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increased to
one hundred twenty-five percent (125%) of the Base Rent applicable, during the
month immediately preceding the expiration or termination. Nothing contained
herein shall be construed as consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions; Construction of Agreement. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. This Lease shall not be construed as if prepared by one of the
parties, but rather according to its fair meaning as a whole, as if both parties
had prepared it.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
parties, their personal representatives, successors ands assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
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30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed upon the Premises, to any and all advances made on the security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices (in this Lease together
referred to as "Lender") shall have no liability or obligation to perform any of
the obligations of Lessor under this Lease. Any Lender may elect to have this
Lease and/or any Option granted hereby superior to the lien of its Security
Device by giving written notice thereof to Lessee whereupon this Lease and such
Options shall be deemed prior to such Security Device, notwithstanding the
relative dates of the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not: (i)
be liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership; (ii) be subject to any offsets or
defenses which Lessee might have against any prior lessor; or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into
by Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
including any options to extend the term hereof, will not be disturbed so long
as Lessee is not in Breach hereof and attorns to the record owner of the
Premises. Further, within sixty (60) days after the execution of this Lease,
Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance
Agreement from the holder of any pre-existing Security Device which is secured
by the Premises. In the event that Lessor is unable to provide the
Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at
Lessee's option, directly contact Lessor's lender and attempt to negotiate for
the execution and delivery of a Non-Disturbance Agreement.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of the Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document any
subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or proceeding
involving the Premises to enforce the terms hereof or to declare rights
hereunder, the Prevailing Party (as hereafter defined) in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such
fees may be awarded in the same suit or recovered in a separate suit, whether or
not such action or proceeding is pursued to decision or judgment. The term,
"PREVAILING PARTY" shall include, without limitation, a Party or Broker who
substantially obtains or defeats the relief sought, as the case may be, whether
by compromise, settlement, judgment, or the abandonment by the other Party or
Broker of its claim or defense. The attorneys' fees award shall not be computed
in accordance with any court fee schedule, but shall be such as to fully
reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be
entitled to attorneys' fees, costs and expenses incurred in the preparation and
service of notices of Default and consultations in connection therewith, whether
or not a legal action is subsequently commenced in connection with such Default
or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time in the case of an
emergency, and otherwise at reasonable times subject to 24 hours prior notice to
Lessee (or Lessees within the last six months of the lease for the purpose of
showing the same to prospective purchasers, lenders, and making such
alterations, repairs, improvements or additions to the Premises as Lessor may
deem necessary. All such activities shall be without abatement of rent or
liability to Lessee. Lessor may at any time place on the Premises any ordinary
"FOR SALE" signs and Lessor may during the last six (6) months of the term
hereof place on the Premises any ordinary "FOR LEASE" signs. Lessee may at any
time place on or about the Premises any ordinary "FOR SUBLEASE" sign.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in, determining
whether to permit an auction.
34. Signs. Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements. (See Paragraph 61).
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Promises; provided, however, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within ten (10) days following any such
event to elect to the contrary by written notice to the holder of any such
lesser interest, shall constitute Lessor's election to have such event
constitute the termination of such interest.
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36. Consents. Except as otherwise provided herein, wherever in this Lease
the consent of a Party is required to an act by or for the other Party, such
consent shall not be unreasonably withheld or delayed. Lessor's actual
reasonable costs and expenses (including but not limited to architects',
attorneys', engineers' and other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent,
including but not limited to consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt
of an invoice and supporting documentation therefor. Lessor's consent to any
act, assignment or subletting shall not constitute an acknowledgment that no
Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
The failure to specify herein any particular condition to Lessor's consent shall
not preclude the imposition by Lessor at the time of consent of such further or
other conditions as are then reasonable with reference to the particular matter
for which consent is being given. In the event that either Party disagrees with
any determination made by the other hereunder and reasonably requests the
reasons for such determination, the determining party shall furnish its reasons
in writing and in reasonable detail within ten (10) business days following such
request.
37. GUARANTOR.
37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty
in the form most recently published by the American Industrial Real Estate
Association, and each such Guarantor shall have the same obligations as Lessee
under this Lease.
37.2 Default. It shall constitute a Default of the Lessee if any
Guarantor fails or refuses, upon request to provide: (a) evidence of the
execution of the guaranty, including the authority of the party signing on
Guarantor's behalf to obligate Guarantor, and in the case of a corporate
Guarantor, a certified copy of a resolution of its board of directors
authorizing the making of such guaranty, (b) current financial statements, (c) a
Estoppel Certificate, or (d) written confirmation that the guaranty is still in
effect.
38. Quiet Possession. Subject to payment by Lessee of the Rent and
performance of all of the covenants, conditions and provisions on Lessee's part
to be observed and performed under this Lease, Lessee shall have quiet
possession and quiet enjoyment of the Premises during the term hereof.
39. OPTIONS.
39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the
term of or renew this Lease or to extend or renew any lease that Lessee has on
other property of Lessor; (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to
Lessee in this Lease is personal to the original Lessee, and cannot be assigned
or exercised by anyone other than said original Lessee and only while the
original Lessee is in full possession of the Premises and, if requested by
Lessor, with Lessee certifying that Lessee has no intention of thereafter
assigning or subletting.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later Option cannot be exercised unless
the prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, (i) during
the period commencing with the giving of any notice of Default and continuing
until said Default is cured; (ii) during the period of time any Rent is unpaid
(without regard to whether notice thereof is given Lessee); (iii) during the
time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has
been given three (3) or more notices of separate Default, whether or not the
Defaults are cured, during the twelve (12) month period immediately preceding
the exercise of the Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or
effect, notwithstanding Lessee's due and timely exercise of the Option, if,
after such exercise and prior to the commencement of the extended term, (i)
Lessee fails to pay Rent for a period thirty (30) days after such Rent becomes
due (without any necessity of Lessor to give notice thereof), (ii) Lessor gives
to Lessee three (3) or more notices of separate Default during any twelve
(12)-month period, whether or not the Defaults are cured, or (iii) if Lessee
commits a Breach of this Lease.
40. Multiple Buildings. If the Premises are a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including the care and cleanliness of the
grounds and including the parking, loading and unloading of vehicles, and that
Lessee will pay its fair share of common expenses incurred in connection
therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
PAGE 18
<PAGE> 19
42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
assorted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay.
44. Authority. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each party
shall, within thirty (30) days after request, deliver to the other party
satisfactory evidence of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. Offer. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. Multiple Parties. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. Mediation and Arbitration of Disputes. An Addendum requiring the
Mediation and/or the Arbitration of all disputes between the Parties and/or
Brokers arising out of this Lease 1/2 is (R) IS NOT attached to this Lease.
PAGE 19
<PAGE> 20
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE
PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE
PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL
INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY
OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
<TABLE>
<S> <C>
Executed at: 6/17/98 Executed at: Westlake Village
------------------------ --------------------------
on: on: June 12, 1998
--------------------------------- -----------------------------------
By LESSOR: By LESSOR:
Robert B. Reingold, Trustee Accelerated Networks, Inc.
for Reingold Trust #21328 a California corporation
- ------------------------------------ --------------------------------------
By: /s/ Robert B. Reingold By: /s/ Suresh Nihalani
--------------------------------- -----------------------------------
Name Printed: Robert B. Reingold Name Printed: Suresh Nihalani
----------------------- -------------------------
Title: Trustee Title: President/CEO
------------------------------ --------------------------------
By: By:
--------------------------------- -----------------------------------
Name Printed: Name Printed:
Title: Title:
------------------------------ --------------------------------
Address: Address: 31238 Via Colinas, Unit E
---------------------------- ------------------------------
Westlake Village, CA 91362
- ------------------------------------ --------------------------------------
Telephone: ( ) Telephone: (818) 889-8817 Ext. 201
----------------- ----------------------------
Facsimile: ( ) Facsimile: (818) 889-8867
----------------- ----------------------------
Federal ID No. Federal ID No. 770442752
---------------------- ------------------------
</TABLE>
NOTE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the most
current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So. Flower
Street, Suite 600, Los Angeles, California 90017. (213) 687-8777. Fax No. (213)
687-8616.
PAGE 20
<PAGE> 21
ADDENDUM TO
STANDARD INDUSTRIAL/COMMERCIAL
SINGLE TENANT LEASE - GROSS
Dated May 28, 1998 by and between Robert B. Reingold, Trustee for Reingold Trust
#21328 ("lessor") and Accelerated Networks ("Lessee")
50. Rent Adjustments: The Base Rent as described in Paragraph 1. 5 shall be
increased by three (3%) percent annually during the initial term of the lease
and through any option periods.
51. Tenant Improvements: (a) Lessee shall at its sole cost and expense cause
to be completed in a good and workmanlike manner, certain specified improvements
on the demised premises, as set forth in Exhibit "A," and subject to the terms
and conditions herein set forth.
1. Lessee and/or its contractors and/or subcontractors shall obtain
all necessary building permits that are necessary or required by
Building and Safety Codes, at Lessee's sole cost and expense.
2. All costs, expenses and disbursements for the improvements shall
be made through "Builder's Control" or guaranteed by Completion
Bond as specified in paragraph 7.3(b) of the Lease.
3. Upon completion of all specified improvements in accordance with
Code, and payment of all bills in connection with work performed
and materials furnished, Lessor shall issue credit to Lessee of
an amount equal to 50% of total work performed and materials
furnished by Lessee up to a total sum of $100,000.00, of which
the total rent credit shall not exceed the sum of $50,000.00.
Thus, by way of example, if the total cost of the work performed
is $80,000.00, the rent credit shall be $40,000.00; if the total
work performed is $120,000.00, the rent credit shall
nevertheless be $50,000.00. Said credit shall be for the second,
third and fourth months of the lease, based upon the paid
receipts for bills presented to Lessor.
(b) Lessor hereby approves the following scope of tenant
improvement work. It is agreed and understood by both parties that the following
scope of tenant improvement work can be modified by Lessee prior to or
immediately following the execution of the lease by both parties. Any
modifications to the following scope of tenant improvement work shall be subject
to Lessor approval which will not be unreasonably withheld.
1. New carpet (or vinyl flooring as needed) including new
baseboard. (Color to be the choice of Lessee).
2. Paint the interior Premises (Except that vinyl wallpaper
to remain).
3. Replace broken or discolored ceiling tiles existing at
the time of work commencement, as part of the initial
improvement work.
4. Clean Premises throughout including windows, blinds,
duct and light lenses.
5. Install a roll-up entrance with a ramp on the northerly
exterior wall of the building to create access form the
rear parking area.
6. Remove two walls (in Lunch Room and Production Room),
relocate wall with a door in Lunch Room as shown on the
attached Exhibit "A".
7. Remove wall and wood floor in Dining Room/Conference
Room on 2nd floor as shown on the attached Exhibit "A."
8. Lessor to deliver all existing electrical outlets;
lighting; plumbing fixtures in restrooms and kitchen
areas; interior and exterior doors; and elevator in good
working order.
9. Add wall and door to create office on 1st floor
(southwest corner).
10. Install two doors in area adjacent to reception and one
door in storage room on 1st floor.
11. Remove wall and door on 2nd floor (southwest corner).
12. Modify electrical power and HVAC distribution as needed.
13. Remove raised floor, half wall, ramp, demising wall and
door in Computer Room.
14. Sound-proof walls on second floor.
(c) Lessee shall obtain three (3) contractor bids for
improvements, one of which shall be selected by Lessor. Lessee shall have the
right to select the contractor to construct the tenant improvements, subject to
Lessor's written approval which shall not be unreasonably withheld. However,
Lessor's lack of response within 48 hours of Lessee's submission shall be
construed as acceptance of approval by Lessor.
(d) All bids for tenant improvements must be submitted to Lessor.
(e) Lessee shall use its best efforts to complete all tenant
improvements by the commencement date and all bills shall be paid prior to any
rent credits.
(f) Upon completion, Lessee shall deliver to Lessor an "As Built"
set of plans.
<PAGE> 22
52. Security Deposit: Provided Lessee is in compliance with all terms of the
lease agreement, including not being late on rent by more than five (5) days,
more than three times during the initial lease term, then two of the three
month's security deposit shall be applied to months 35 and 36 of the lease term.
Base rent shown in Paragraph 1.5 has been reduced by $200.00/month in lieu of
any interest to Lessee on security deposit.
53. Option to Renew: Lessee shall have two one (1) year options to renew the
lease. The rental rate shall continue to increase at 3% per annum. Notice of
intent to exercise each option must be to the Landlord, c/o Equity Commercial,
by certified mail no later than five (5) months prior to the start date of each
option.
54. Lessor Obligations: Lessor shall pay all real estate taxes, building
insurance, HVAC, and landscape maintenance (with the exception of water).
55. Other Repair and Maintenance: Lessor shall deliver the building with
plumbing, elevator and electrical systems in good working order. Lessee shall be
responsible to maintain and keep in good repair, those systems and any other
maintenance not specifically stated as Lessor's responsibility. Not withstanding
Paragraph 7.2, Lessor shall be totally responsible for replacement in the event
of failure of a major component of the plumbing, fire sprinkler, irrigation,
electrical, or elevator systems, provided failure is due to normal use and not
negligence or abuse by Lessee.
56. HVAC: Lessor shall provide Lessee with an HVAC system which provides
climate controlled premises. Heating and air conditioning is provided via a
roof-mounted central variable air volume (VAV) system with individual thermostat
controls for office areas. However, Lessee should verify for themselves the
adequacy of the system for their specific use.
57. Roof, HVAC and Light Bulbs: Not withstanding Paragraphs, 2.2 and 7.
1(c), Lessor shall be responsible for the maintenance of the roof and HVAC
systems. Lessor, at Lessor's expense will replace all burned out light bulbs
prior to the lease commencement date. Lessee shall be responsible for replacing
any future burned out light bulbs following the lease commencement date.
58. Parking: Lessee shall be entitled to all the existing parking spaces
located in the parking lot of the property, free of charge throughout the lease
term.
59. Building Operating & Tax Expenses: Lessee shall pay its pro rata share
of any increase in the building operating and tax expenses, predicated on a 1999
base year. Operating and tax expenses shall not exceed five percent (5%)
increase over the previous year.
60. Real Property Taxes: Lessee shall not pay any increase in property taxes
due to Lessor's sale, refinance reassessment, or title transfer which may give
rise to an increase in property taxes.
61. Signage: Lessee shall be allowed to install Lessee's name on the
entrance door (stencil letters), and "Top Building" signage on the building
facade. All signage shall be at Lessee's cost and subject to Lessor's and City
of Moorpark's approval, if applicable. Lessee, at Lessee's sole cost, shall
remove said signage and repair any damage done to the facade at the end of the
lease term.
62. Hazardous Materials: Lessor is aware of no known toxic and/or hazardous
materials on the site or in the building, (See Paragraph 6.2(e).)
63. ADA Requirements: Lessor shall be responsible for bringing the building
into compliance with the Americans with Disabilities Act. Any modifications
required by said Act shall be the sole responsibility of the Lessor.
64. ARBITRATION OF DISPUTES.
EXCEPT AS OTHERWISE HEREAFTER EXPRESSLY PROVIDED, ANY DISPUTE,
CONTROVERSY, ACTION OR CLAIM BETWEEN OR AMONG LESSOR, LESSEE, AGENT AND/OR
COOPERATING BROKER, OR ANY OF THEM, JOINTLY OR SEVERALLY, ARISING UNDER, OUT OF,
OR IN CONNECTION WITH THIS LEASE AGREEMENT, INCLUDING BUT NOT LIMITED TO THE
INTERPRETATION, ENFORCEMENT OR BREACH OF ANY OF THE PROVISIONS HEREIN CONTAINED;
AND/OR ANY ALLEGED OR PURPORTED MISFEASANCE, MALFEASANCE RELATING TO THE DEMISED
PREMISES; AND/OR ANY ALLEGED OR PURPORTED NEGLIGENT OR INTENTIONAL ACTS, CONDUCT
OR OMISSIONS RELATING TO THE WITHIN AGREEMENT OR THE DEMISED PREMISES, BY EITHER
PARTY HERETO, AND/OR THEIR AGENTS, SERVANTS AND EMPLOYEES, SHALL BE DETERMINED
BY BINDING ARBITRATION TO BE CONDUCTED BY THE AMERICAN ARBITRATION ASSOCIATION
UNDER AND IN ACCORDANCE WITH THE COMMERCIAL RULES OF SUCH ASSOCIATION. HEARINGS
ON SUCH ARBITRATION SHALL BE HELD IN THE COUNTY WHERE THE PROPERTY IS LOCATED.
THE PREVAILING PARTY IN THE ARBITRATION PROCEEDING SHALL BE ENTITLED TO RECOVER
ITS EXPENSES, INCLUDING THE COSTS OF THE ARBITRATION PROCEEDING, AND REASONABLE
ATTORNEYS FEES.
NOTWITHSTANDING THE FOREGOING, NOTHING HEREINABOVE PROVIDED SHALL
PRECLUDE LESSOR FROM SERVING TENANT WITH A THREE-DAY NOTICE TO PAY RENT, OR FOR
THE COMMISSION OF WASTE, OR MAINTENANCE OR COMMISSION OF A NUISANCE ON THE
DEMISED PREMISES; AND TO THEREAFTER FILE AN UNLAWFUL DETAINER ACTION IN A COURT
OF COMPETENT JURISDICTION. THE FILING OR COMMENCEMENT OF SUCH PROCEEDINGS SHALL
NOT BE CONSTRUED AS A WAIVER OF ANY OF THE MATTERS SUBJECT TO ARBITRATION AS
HEREINABOVE PROVIDED. IN THE EVENT OF THE FILING OF SUCH ACTION FOR UNLAWFUL
DETAINER, THE ATTORNEYS FEE PROVISION IN PARAGRAPH 31 HEREINABOVE SHALL BE
APPLICABLE.
<PAGE> 23
NOTICE: BY SIGNING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES"
PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU
ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A
COURT OR JURY TRIAL. BY SIGNING IN THE SPACE BELOW YOU ARE GIVING UP YOUR
JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY
INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO
ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE
UNDER THE AUTHORITY OF THE, CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT
TO THIS ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION
TO NEUTRAL ARBITRATION.
/s/ Robert J. Reingold /s/ Suresh Nihalani
- ------------------------------------ -----------------------------------
Lessor Signature Lessee Signature
Lessor: Lessee:
ROBERT B. REINGOLD, ACCELERATED NETWORKS, INC.
TRUSTEE FOR REINGOLD TRUST #21328 A CALIFORNIA CORPORATION
/s/ Robert J. Reingold 6/17/98 /s/ SURSH NIHALANI 6/12/98
- ------------------------------------ -----------------------------------
Robert B. Reingold, Trustee Date Suresh Nihalani, President/CEO Date
<PAGE> 1
EXHIBIT 10.22
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.
- --------------------------------------------------------------------------------
LICENSING AGREEMENT
BY AND BETWEEN
DITECH COMMUNICATIONS CORPORATION
(TELINNOVATION)
AND
ACCELERATED NETWORKS, INC.
DATED
JULY 15, 1999
(AS AMENDED)
- --------------------------------------------------------------------------------
<PAGE> 2
LICENSING AGREEMENT
THIS agreement ("Agreement") is entered into as of the _____ day
of December, 1998 ("Effective Date),
BETWEEN: ACCELERATED NETWORKS CORPORATION, a corporation
existing under the
laws of California, and having a
place of business at 301 Science
Drive, Moorpark, California, U.S.A.
93021
(hereinafter called "Accelerated Networks")
AND: TELINNOVATION SERVICE CORPORATION,
a corporation existing under the
laws of California, and having a
place of business at 415 Clyde
Avenue #105, Mountain View, California,
U.S.A. 94043.
hereinafter called "Telinnovation")
WHEREAS Telinnovation has certain echo cancellation digital
signal processing technology;
AND WHEREAS Accelerated Networks is a manufacturer of
telecommunications equipment;
AND WHEREAS Accelerated Networks desires to be able to
incorporate Telinnovation's echo cancellation digital signal processing
technology in certain of its products and to obtain certain rights with respect
thereto, and Telinnovation is prepared to grant such rights.
THEREFORE the parties agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 As used in this Agreement and schedules hereto:
(a) "Affiliate" means Accelerated Networks, its parent corporation
and any corporation or company which Accelerated Networks or its
parent company effectively controls, directly or indirectly
through the ownership or control of shares in such corporation
the right to sell to End Users products containing the Product.
(b) "Distributor" means any third party to whom Accelerated Networks
or any Affiliate grants.
<PAGE> 3
(c) "Documentation" means the documentation regarding the Technology
set forth on Exhibit C hereto, together with all documentation to
be developed for the Developed Technology.
(d) "End User" means any person, firm or corporation which acquires
any products referred to in subsection (b) above.
(e) "Technology" means the fundamental digital signal processing
algorithm owned by Telinnovation prior to the execution of this
Agreement which are intended to perform an echo canceling
function and/or other signal enhancement or modification.
(f) "Developed Technology" means that technology provided by
Telinnovation conforming to the Developed Technology
Specification set forth in Schedule A, all enhancements thereto,
and all applicable documentation.
(g) "Products" shall mean the Accelerated Networks' products listed
in Schedule A.
(h) "Manufacturing Licensee" shall mean any third party who acquires
or has acquired from Accelerated Networks or an Affiliate the
right to manufacture a product or products into which Accelerated
Networks or an Affiliate incorporates the Product.
(i) "Developed Technology Specification" means the specification set
forth in Schedule A.
ARTICLE 2 - LICENSING
2.1 Telinnovation grants to Accelerated Networks and Affiliates a
non-exclusive, worldwide license to (a) incorporate the Technology and
the Developed Technology and any derivative works thereof into the
Products and into Products manufactured by third parties for Accelerated
Networks and Affiliates and by Manufacturing Licensees, and (ii) to
license the Technology and the Developed Technology incorporated into or
bundled with the Products, to End Users. The parties agree that
Accelerated Networks may use Distributors to distribute products
incorporating and/or bundled with the Products.
ARTICLE 3 - TITLE
3.1 Telinnovation represents and warrants that Telinnovation owns all right,
title, and interest in and to the Technology, the Developed Technology,
and the Products and that it has full power and authority to perform all
of its obligations hereunder and that Accelerated Networks shall obtain
all rights, title and interest stated in this Agreement free and clear
of any encumbrances and restrictions; without requiring the consent of
any other person, firm or corporation.
3.2 Subject to 3.6, Telinnovation hereby indemnifies and saves harmless
Accelerated Networks, Affiliates, Distributors, and End Users from and
against any and all losses,
2
<PAGE> 4
costs, liabilities and expenses (including - reasonable counsel fees)
arising out of any breach or claimed breach of such representation and
warranty.
3.3 Subject to paragraph 3.6, Telinnovation shall defend at its own expense,
and, shall have control of the defense of, any and all suits, actions or
claims against Accelerated Networks, Affiliates, Distributors, and End
Users charging that any component of the Technology or the Developed
Technology infringes any patent, trademark, industrial design, trade
secret, or copyright of any third party, whether the alleged
infringement pertains to the production, Licensing or use of any part of
the Developed Technology.
3.4 In the event of any such suit, action or claim the following procedures
shall apply:
(a) the parties shall meet promptly to discuss such claim, suit or
action and, provided that the parties mutually that Telinnovation
shall do so, Telinnovation shall, settle such claim, suit or
action provided that Telinnovation can do so for an amount not
exceeding, in the aggregate, two point five percent (2.5%) of its
then total revenues from licensing the Technology or the
Developed Technology;
(b) if the parties are unable to agree on a course of action in
accordance with subparagraph (a) all fees and royalties
thereafter payable to Telinnovation by Accelerated Networks,
shall instead be paid into an escrow fund in an interest bearing
account in a United States bank until the aggregate amount paid
into such escrow fund equals two point five percent (2.5%) of
Accelerated Networks then total revenues from licensing Developed
Technology. Upon a final judicial decision awarding damages in
such claim, suit or action, or settlement thereof by
Telinnovation, Accelerated Networks shall pay the amount of such
award or settlement up to but not exceeding the amount in the
escrow fund, using all amounts contained in the escrow fund- Any
balance in the escrow fund shall be paid to Telinnovation;
(c) Accelerated Networks may set off and claim against all fees and
royalties paid or payable to Telinnovation, any and all amounts
paid by it under subparagraphs (a) and (b) hereof; and
3.5 Telinnovation will also pay the actual costs including reasonable legal
fees, and all damages finally awarded in any such suit, and will
indemnify and save harmless Accelerated Networks, Affiliates,
Distributors, and End Users from all other expenses thereby incurred,
provided Telinnovation is notified promptly in writing of the suit,
action or claim and, at Telinnovation's request and expense, is given
all assistance and authority, at Telinnovation's expense, reasonably
required for defense and settlement of same.
3.6 If the use or licensing of any portion of the Technology and/or the
Developed Technology is permanently enjoined by final judicial decision,
or subject to any other continuing liability, Telinnovation shall, at no
expense to Accelerated Networks, as soon as reasonably possible:
3
<PAGE> 5
(a) obtain for Accelerated Networks and its Affiliates, Distributors,
and End Users from all persons in the suit who claim an interest
in the Technology and/or Developed Technology, the right to use
the Technology and/or Developed Technology; or
(b) substitute for the Technology and/or Developed Technology a
non-infringing equivalent to the Technology and/or Developed
Technology and extend the indemnity set forth in this Article 3
thereto; or
(c) modify the Technology and/or Developed Technology to make it
non-infringing but equivalent in function and performance to the
infringing Technology and/or Developed Technology and provide
such modified Technology and/or Developed Technology to
Accelerated Networks and extend the indemnity set forth in this
Article 3 thereto.
3.7 Telinnovation shall not be responsible for any expense, cost, loss or
liability of any kind arising out of any suit, action or claim against
Accelerated Networks, Affiliates, Distributors, or End Users charging
that any component of the Technology or the Developed Technology
infringes or misappropriates any Intellectual Property Rights of any
third party if any such suit, action or claim is based upon part or
parts of any of the Technology and/or Developed Technology, if, pursuant
to paragraph 3.4 herein, Telinnovation has substituted or modified the
Technology and/or Developed Technology, but Accelerated Networks
nevertheless elects to continue to use the non-modified version of the
Technology and/or Developed Technology that has been enjoined or
otherwise burdened with a liability.
3.8 Telinnovation shall not be responsible for any expense, cost, loss or
liability of any kind arising out of any suit, action or claim against
Accelerated Networks, Affiliates, Distributors, or End Users charging
that any component of the Technology and/or Developed Technology
infringes or misappropriates the intellectual property rights of any
thud party to the extent that any such suit, action or claim is based
upon part or parts of any of the Technology and/or Developed Technology
that have been materially altered or modified by Accelerated Technology
or its Affiliates without the express written consent of Telinnovation.
ARTICLE 4 - ROYALTIES
4.1 Accelerated Networks shall pay to Telinnovation fees and royalties in
accordance with Schedule B. Such fees and royalties are exclusive of all
excise, sales, use or other taxes, fees, duties or levies charged by any
governmental authority, all of which shall be paid by Accelerated
Networks; provided, however, that none of Accelerated Networks, its
Affiliates, Distributors, or End Users shall have any obligation to pay
any income taxes of Telinnovation.
4.2 Accelerated Networks' all royalties will be paid at the end of
Accelerated Networks' fiscal quarters.
4
<PAGE> 6
4.3 Accelerated Networks agrees to keep and maintain, for a period of two
(2) years after the end of the year to which they pertain, complete and
accurate records of the products manufactured and distributed by
Accelerated Networks which contain the Developed Technology, in order to
calculate and confirm Accelerated Networks' royalty obligations. Upon
reasonable prior notice, Licensor will have the right, exercisable not
more than once every twelve (12) months, to appoint an independent
accounting firm or other agent reasonably acceptable to Accelerated
Networks, at Licensor's expense, to examine such financial books,
records and accounts during Accelerated Networks' normal business hours
to verify the royalties due by Accelerated Networks, subject to such
independent accounting firm's or agent's execution of Accelerated
Networks' standard confidentiality agreement; provided that execution of
such agreement will not preclude such firm from reporting its results to
Licensor. In the event such audit discloses an underpayment or
overpayment of royalties due hereunder, the appropriate party will
promptly remit the amounts due to the other party shall pay to
Telinnovation fees and royalties in accordance with Schedule B. Such
fees and royalties are exclusive of all excise, sales, use or other
taxes, fees, dudes or levies charged by any governmental authority, all
of which shall be paid by Accelerated Networks
ARTICLE 5 - REPRESENTATIONS, WARRANTIES, AND COVENANTS
5.1 Telinnovation represents, warrants, and covenants to Accelerated
Networks that the Technology shall conform to the specifications
therefor, the Developed Technology shall conform to the Developed
Technology Specifications set forth on Exhibit A to this Agreement, and
that each copy of the Developed Technology shall be free from any design
defects in workmanship and material.
5.2 Telinnovation represents, warrants, and covenants that, at the time of
delivery thereof to Accelerated Networks, any Technology and the
Developed Technology shall not contain any virus, "Trojan horse," timer,
clock counter, or other limiting design, instruction, or routine that
would erase data or programming or cause any Product to become
inoperable or otherwise incapable of being used in the full manner for
which it was designed and created.
5.3 Telinnovation represents, warrants, and covenants that all Technology
and the Developed Technology shall be Year 2000 Compliant. For purposes
of this Agreement, "Year 2000 Complaint" means all Technology and the
Developed Technology shall (a) not be materially affected by any
inability to completely and accurately address, present, produce, story,
and calculate data involving dates beginning with April 9, 1999,
September 9, 1999, and January 1, 2000, and will not produce abnormally
ending or incorrect results involving such dates as used in any forward
or regression date-based function; or (b) function in such away that all
"date' related functionalities and data fields include the indication of
century and millennium and will perform calculations that involve a
four-digit year field.
5.4 Telinnovation represents, warrants, and covenants that any services that
Telinnovation performs for Accelerated Networks, or any Affiliate,
Distributor, or End User hereunder
5
<PAGE> 7
shall be performed in a timely, competent, professional, and workmanlike
manned, using qualified employees.
5.5 Telinnovation represents, warrants, and covenants that at all times
during which this Agreement remains in effect, Telinnovation shall
comply, and shall insure that the Technology and the Developed
Technology comply, with all applicable federal, state, and local laws,
rules, and regulations.
5.6 Telinnovation represents, warrants, and covenants that all Documentation
delivered to Accelerated Networks under this Agreement shall be complete
and describe the Technology and the Developed Technology accurately, in
accordance with industry standards, and with sufficient clarity and
detail to enable an End User to operate the Technology and Developed
Technology successfully.
5.7 Telinnovation represents, warrants, and covenants that (a) within thirty
(30) days of the execution of this Agreement, Telinnovation shall enter
into with Accelerated Networks an escrow agreement substantially in form
set forth in Exhibit D hereto pursuant to which Telinnovation shall
place in escrow all source code for the Developed Technology, together
with source code documentation, (b) all source code documentation placed
in escrow in accordance with this Section 5.5 shall be complete and
describe the source code and all components thereof accurately so as to
enable reasonably skilled computer programmers who are knowledgeable of
the subject matter to fully utilize the source code to understand,
support, and modify the source code to which it relates.
5.8 If the Technology fails to conform to the specifications therefor, the
Developed Technology or any component thereof fails to conform to the
Developed Technology Specifications, of the Technology or the Developed
Technology is defective in material or workmanship, Accelerated Networks
shall notify Telinnovation of the evidence thereof, and Telinnovation
shall correct any such non-conformance or defect and deliver the
Developed Technology to Accelerated Networks for all affected End User
sites in accordance with the procedures set forth in Exhibit C without
charge.
ARTICLE 6 - TECHNICAL SUPPORT
6.1 Telinnovation shall develop and provide upgrades, maintenance, training
and technical advice to Accelerated Networks, its distributors and End
Users when reasonably requested by Accelerated Networks. Such support
shall be provided at Telinnovation's current market rates; provided that
Telinnovation shall not raise its rates for the technical support
described in this Section 6.1 more than once during each twelve (12)
month period during which this Agreement remains in effect and shall not
charge Accelerated Networks more for such technical support than it
charges to any other licensee of the Technology or the Developed
Technology.
ARTICLE 7 - CONFIDENTIALITY
7.1 All technical and commercial information, documentation and know-how of
every kind and description which is market as being confidential
("Confidential Information") supplied by one party (the "Supplier") to
the other (the "Recipient") whether before
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<PAGE> 8
and/or after execution of this Agreement, as well as other information
related thereto acquired or developed by Telinnovation in connection
with this Agreement, shall be (except as otherwise stated herein) the
exclusive property of the Supplier, and the Recipient shall, for a
period of five (5) years from termination of this Agreement, treat and
protect such Confidential Information as the Suppliers proprietary and
confidential information, and shall not reproduce or divulge said
Information in whole or in part to third parties except as may be
required for the performance of its obligations under this Agreement,
provided such third parties agree in writing prior to such disclosure to
keep such Confidential Information confidential upon the same terms as
herein contained. This confidentiality obligation shall survive
termination or expiry of this Agreement. Notwithstanding the foregoing,
the Developed Technology and Developed Technology Documentation, with
the exception of the Technology, shall be owned by Accelerated Networks
and shall be considered as Confidential information of Accelerated
Networks. Also notwithstanding the foregoing, the Recipient shall not be
liable for disclosure of the Information if
(a) The Confidential Information enters the public domain other than
through a breach of this Agreement;
(b) the Confidential information is lawfully obtained by the
Recipient from a third party without breach of this Agreement by
the Recipient;
(c) the Supplier has provided its prior express written approval for
such disclosure;
(d) the Confidential Information was known to the Recipient prior to
commencement of the Development Project or developed
independently by Recipient, without use of Supplier's
Confidential Information, and Recipient can document the same; or
(e) disclosure of the Confidential Information is incidental to the
exercise of rights under other provisions of this Agreement
ARTICLE 8 - TERMINATION
8.1 This Agreement shall remain in full force and effect for a period of one
(1) year from the Effective Date. Thereafter, this Agreement
automatically shall renew for successive terms on one (1) year each,
unless, at least thirty (30) days prior to the end of the then-current
term, one party provides the other party with written notice of such
party's intention to terminate this Agreement. Either party may
terminate this Agreement upon thirty (30) days prior written notice to
the other party if such other party fails to comply with any of its
fundamental obligations under this Agreement unless corrective action
reasonably acceptable to the first mentioned party is commenced within
such thirty (30) day period and completed within an agreed period, if
any; provided, however, that if Accelerated Networks in good faith
disputes whether any payment is due hereunder, Telinnovation may bring
an action against Accelerated Networks with respect to whether such
payment is due, but may not terminate this Agreement
8.2 Termination of this Agreement shall, be effective upon completion of the
applicable notice period in accordance with the foregoing.
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<PAGE> 9
ARTICLE 9 - SCHEDULES
9.1 The following schedules shall constitute an integral part of this
Agreement:
Schedule A - Products
Schedule B - Royalty Payments
Schedule C - Documentation
Schedule D - Escrow Agreement
Schedule E - Service Standards
ARTICLE 10 - SEVERABILITY
10.1 In the event of au enforceable derision or directive declaring invalid
an essential part of this Agreement, without which this Agreement would
not have been entered into, this Agreement may, at the option of either
party, be terminated upon the giving of written notice to the other
party. Except as aforesaid, if any term, clause, provision or condition
of this Agreement is similarly adjudged invalid for any reason
whatsoever, such invalidity shall not affect the validity or operation
of any other term, clause, provision or condition and such invalid term,
clause, provision or condition shall be deemed to have been deleted from
this agreement.
ARTICLE 11 - SURVIVAL
11.1 Notwithstanding any termination or expiry of this Agreement, the
provisions of Articles 1, 3, 5, 5, 6, 7 and 8 and all consequent rights,
obligations and liabilities shall survive the termination or expiry of
this Agreement.
ARTICLE 12 - ASSIGNMENT
12.1 Accelerated Networks shall have the right to assign all or any part of
its rights or interests under this Agreement to any Affiliate upon
notice.
12.2 Telinnovation shall not assign all or any part of its rights or
interests under this Agreement without the prior written consent of
Accelerated Networks.
ARTICLE 13 - WAIVER
13.1 The failure of either party to enforce at any time or for any period of
time any of the provisions of this Agreement shall not constitute a
waiver of such provisions or the right of either party to enforce each
and every provision.
ARTICLE 14 - GOVERNING LAW
14.1 The rights and obligations -arising under the Agreement shall be
governed by and construed in accordance with the laws of the State of
California and the United States of America, excluding, without regard
to conflicts of laws provisions thereof and without regard to the United
Nations Convention on Contracts for the International Sale of Goods. The
sole jurisdiction and venue for actions related to the subject matter
hereof
8
<PAGE> 10
shall be the state and federal courts having within their jurisdiction
the location of Accelerated Networks' principal place of business. Both
parties hereby consent and waive any venue objections to the
jurisdiction of such courts. The parties agree that process may be
served in the manner provided herein for giving of notices or otherwise
as allowed by California or federal law.
ARTICLE 15 - NOTICES
15.1 Any and all notices or other information required to be given by one of
the parties to the other shall be deemed sufficiently given when
received following forwarding by prepaid registered mail, or by cable,
telegram, telex or hand-delivery to the other party at the following
address:
If to Accelerated Networks:
Accelerated Networks
301 Science Drive
Moorpark, California 93021
U.S.A.
Attention: President
If to Telinnovation:
Telinnovation Service Corporation
415 Clyde Avenue #105
Mountain View, CA 94043
U.S.A.
Attention: President
and such notices shall be deemed to have been received five (5) business
days after mailing if forwarded by mail, and the following business day
if forwarded by e-mail, cable, telegram, telex or hand-delivery.
15.2 The aforementioned address of either Party may be changed at any time by
giving fifteen (15) business days prior notice to the other Party in
accordance with the foregoing.
15.3 In the event of a generally prevailing labor dispute or other situation
which will delay or impede the giving of notice by any such means, the
notice shall be given by such specified mode as will be most reliable
and expeditious and least affected by such dispute or situation.
ARTICLE 16 - CURRENCY
16.1 All dollar amounts expressed in this Agreement are in U.S. dollars. All
remittances shall be in U.S. dollars.
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<PAGE> 11
ARTICLE 17 - ENTIRE AGREEMENT
17.1 This Agreement and schedules hereto set forth the entire agreement and
understanding between the parties and supersede and cancel all previous
negotiations, agreements, commitments and writings in respect of the
subject matter hereof and there are no -understandings, representations,
conditions, warranties, express or implied, statutory or otherwise made
or assumed by the parties, other than those expressly contained in this
Agreement Neither party shall be bound by any term, clause, provision or
conditions save as expressly provided herein or as duly set forth on or
subsequent to the date of this Agreement in writing signed by duly
authorized officers of the parties.
IN WITNESS WHEREOF, the parties have signed this Agreement on the
day, mouth and year first above mentioned.
TELINNOVATION ACCELERATED NETWORKS
By: /s/ Charles S. Davis By: /s/ Suresh Nihalani
------------------------------- -----------------------------
Name: Charles S. Davis Name: Suresh Nihalani
---------------------------- --------------------------
Title: President Title: President
--------------------------- --------------------------
Date: 12-24-98 Date: 12-30-98
--------------------------- --------------------------
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SCHEDULE A - LICENSED TECHNOLOGY AND DEVELOPED TECHNOLOGY
Developed Technology Specification: echo cancellation software intended to run
on the Texas instruments C54X family of Digital Signal Processors and available
in:
a. Stand alone 16-channel canceller (current product)
b. C' callable multi channel functions (current product)
c. CPE short tail canceller (future product)
Since the CPE short tail canceller (item c) is unavailable at the
time of this contract, and until the time that this product is available and
offered to Accelerated Networks, Telinnovation agrees to offer the `C' callable
multi channel canceller function (item b) for all Accelerated Networks' CPE
applications.
Minimum performance of the echo cancellation object code when
running on 80Mhz TMS320C548 DSP must be compliant with the ITU G.165 and G.168
Recommendations and consistent with the performance as described in the
Telinnovation document titled "ECHO CANCELLATION "C"-CALLABLE FUNCTION USER'S
GUIDE FOR THE TMS320C54x FAMILY" REVISION B, dated May 13, 1998.
When the short tail canceller is available and it meets the CPE
product requirement of Accelerated Networks, it will henceforth be used instead
of the "C' callable multi channel canceller for short tail applications.
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<PAGE> 13
SCHEDULE B - ROYALTY PAYMENTS
Accelerated Networks shall pay Telinnovation royalties with
respect to sales by Accelerated Networks during the life of the Product.
The price for the short tail canceller, or for the `C' callable
multi channel canceller when used in a CPE application, shall be [***] of the
regular rate. Volumes will be combined for quantity pricing, but the short tail
canceller volume will be counted at [***].
The royalty payable by Accelerated Networks shall be on a per
channel end basis. Telinnovation shall submit to Accelerated Networks an invoice
in the amount of [***], covering the first [***] channels. Payment of this
invoice to be paid to Telinnovation immediately after the delivery of the first,
generally available (non-demo, non-beta) product containing Telinnovation code
to an Accelerated Networks customer.
After the first [***] echo cancellers, additional payments are
specified as per the schedule below:
Quantity [***] [***] [***]
Price ea. [***] [***] [***]
Beta tests, field trials and evaluation units are not counted as
shipments and no royalties are due.
- ---------------
*** 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.
12
<PAGE> 14
SCHEDULE C - DOCUMENTATION
11 U G. 168 "Digital Network Echo Canceller" March 1999
ITU G. 165 "Digital Network Echo Cancellers" 19913
Telinnovation "Tms320c54x Echo Canceller DSP Module User's Guide" (Rev F)
13
<PAGE> 15
SCHEDULE D - ESCROW AGREEMENT
To be attached
14
<PAGE> 16
SCHEDULE E - SERVICE STANDARDS
If the Technology fails to conform to the specifications therefor, the Developed
Technology or any component thereof fails to conform to the Developed Technology
Specifications, of the Technology or the Developed Technology is defective in
material or workmanship, Telinnovation shall correct any such non-conformance or
defect and deliver the Developed Technology to Accelerated Networks for all
affected End User sites. The initial determination of priority, as described
below, shall be made solely by Accelerated Networks, in its reasonable
discretion. Telinnovation shall respond to failures of Technology or Developed
Technology to operate as warranted as follows:
PRIORITY 1. A "Priority 1" failure of the Technology or Developed Technology to
operate as warranted is any condition that precludes operation of the Technology
or Developed Technology as bundled with or incorporated into a Product, or that
materially impairs such operation. Priority 1 conditions are the highest in
severity, for which Accelerated Networks shall receive a response within one (1)
business day from the time (the "Notification Time") Telinnovation's service
representative ("SR") or other person receives the call from Accelerated
Networks notifying the SR of the Priority 1 failure. Telinnovation shall use its
best efforts to resolve and correct a Priority 1 failure in a manner reasonably
acceptable to Telinnovation within two (2) business days from the Notification
Time.
PRIORITY 2. Any condition that impairs one or more functions of the Technology
or Developed Technology is warranted to perform, but that does not involve a
Priority 1 condition and is not a Priority 3 condition, is a "Priority 2"
condition. Priority 2 conditions are less severe than Priority 1 conditions. For
Priority 2 conditions, Accelerated Networks shall receive a response within one
(1) business day from the Notification Tune. Telinnovation shall use its best
efforts to resolve and correct a Priority 2 failure in a manner reasonably
acceptable to Accelerated Networks within three (3) business days from the
Notification Time.
PRIORITY 3. Any condition that constitutes an immaterial, defect or error in one
or more functions that the Technology or Developed Technology is warranted to
perform is a "Priority 3" condition. Priority 3 conditions are the least severe.
For Priority 3 conditions, the Accelerated Networks shall receive a response
within two (2) business days from the Notification Time. Telinnovation shall use
reasonable efforts to resolve and correct a Priority 3 failure in a manner
reasonably acceptable to Accelerated Networks within three (3) weeks from the
Notification Time.
If Telinnovation is unable to correct a Priority 1 or Priority 2 condition
within ten (10) business days, or a Priority 3 condition within one (1) month,
of the date on which the SR or other person receives the call informing
Telinnovation of the Priority 1, Priority 2, or Priority 3 condition, as the
case may be, Accelerated Networks may, in its sole discretion, withhold payment
of any amount due under Agreement until the condition is corrected. If
Telinnovation is unable to correct a Priority 1 or Priority 2 condition within
such ten (10) business-day period, or in the event of a Priority 3 condition
such one (1) month period, despite Telinnovation's diligent efforts to do so,
then Telinnovation shall continue to use its diligent efforts to correct the
condition as soon as practicable. In the event Telinnovation fails to exercise
such diligent efforts as reasonably determined by Accelerated Networks,
Accelerated Networks shall be entitled to (a)
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<PAGE> 17
immediately terminate the Agreement without any further obligation to
Telinnovation, (b) exercise Accelerated Networks' right to obtain source code
under Section and/or (iii) exercise any other remedy available at law, in
equity, by statute, or otherwise.
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Amendment I to License Agreement dated December 1998.
The first two sentences of ARTICLE 8.1 of The License Agreement between
Accelerated Networks Corporation and Telinnovation Service Corporation dated
December 1998 are as follows:
8.1 This Agreement shall remain in full force and effect for a period of one
(1) year from the Effective Date. Thereafter, this Agreement shall
automatically renew for successive terms of one (1) year each, unless, at
least (30) days prior to the end of the then-current term, one party
provides the other party with written notice of such party's intention to
terminate this Agreement.
These sentences are amended as follows
8.1 This Agreement shall remain in full force and effect for a period of three
(3) years from the Effective Date. Thereafter, this Agreement shall
automatically renew for successive terms of three (3) years each, unless,
at least (90) days prior to the end of the then-current term, one party
provides the other party with written notice of such party's intention to
terminate this Agreement.
In witness whereof, the parties have signed this Amendment on the dates given:
TELINNOVATION SERVICE CORP. ACCELERATED NETWORKS CORP.
By: /s/ Charles R. Davis By: /s/ Frederic T. Boyer
------------------------------ -------------------------------
Name: Charles R. Davis Name: Frederic T. Boyer
-------------------------- ----------------------------
Title: President Title: Chief Financial Officer
-------------------------- ----------------------------
Date: 1/29/00 Date: 1/29/00
-------------------------- ----------------------------
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<PAGE> 1
EXHIBIT 10.23
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.
- --------------------------------------------------------------------------------
OEM ORBIX DEVELOPMENT AND RUNTIME AGREEMENT
BY AND BETWEEN
IONA TECHNOLOGIES, INC.
AND
ACCELERATED NETWORKS, INC.
DATED
DECEMBER 17, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
IONA OEM ORBIX(R) DEVELOPMENT AND RUNTIME LICENSE AGREEMENT
DESKTOP\\.ACC-IONA AGMT (EXH 10.23).DOC(ACC-IONA AGMT (EXH 10.23).DOC)
THE ORBIX(R) DEVELOPMENT AND RUNTIME SOFTWARE (THE "SOFTWARE") AND THE
ACCOMPANYING DOCUMENTATION (THE "RELATED MATERIALS") (TOGETHER WITH THE
SOFTWARE, THE "PRODUCT") ARE PROTECTED BY UNITED STATES, IRISH AND INTERNATIONAL
COPYRIGHT LAWS, AND THE COPYRIGHTS AND OTHER INTELLECTUAL PROPERTY RIGHTS ARE
OWNED BY IONA TECHNOLOGIES PLC OF THE IONA BUILDING, SHELBROURNE ROAD, DUBLIN 4,
IRELAND. THE PRODUCT IS LICENSED BY IONA TECHNOLOGIES INC., 200 WEST STREET,
WALTHAM, MA 02451, USA ("IONA") TO ACCELERATED NETWORKS OF 301 SCIENCE DRIVE,
MOORPARK, CA 93021 ("Customer"). THE PRODUCT IS COPYRIGHTED AND LICENSED (NOT
SOLD).
1. OWNERSHIP
This is a License Agreement. IONA represents and warrants that it has
all the intellectual property and other rights necessary to enter into
this Agreement and to grant to Customer the licenses identified.
Customer acquires no title, fight or interest in the Software or Related
Materials other than the license granted herein by IONA and the title to
the media upon which the Software is delivered.
2. PROPRIETARY NOTICES
Customer will not remove any trademark, tradename, copyright notice or
other proprietary notice from the Software or Related Materials, and
will not remove the same from copies of the Software and Related
Materials received under this Agreement or any back-up copy of the
Software created in accordance with this Agreement. Customer will also
accurately and faithfully reproduce (i.e. not delete) all reasonable and
customary proprietary notices of IONA on any portion of the Software
that is incorporated in Developed Software (as defined in Section 4
below) such that Customer's end-users will be informed that the
Developed Software contains materials proprietary to and copyrighted by
IONA. Customer, however, will have no obligation to include any IONA
copyright or proprietary notices on the media label or notice screen
display or boot up screen of the Developed Software, provided that
Customer marks Developed Software with its own copyright notice. Except
as specifically permitted by this Agreement, Customer may not reproduce
any portion of the Software or Related Materials.
3. DEVELOPMENT LICENSE
3.1 "Development Software" means the development environment of the
Products (including updates, if any received in connection with
support) which is used in the construction of software
applications by Customer. Development Software is that portion of
the Software which excludes the Runtime Components (as defined
below).
3.2 "Developer" means a person who uses the Development Software and
Related Materials in connection with the development of
CORBA-based software applications, programs or components on the
operating system platform(s) set forth on Schedule A (as may be
amended from time to time) and in accordance with the terms and
conditions of this Agreement and its Schedule(s) (the "Permitted
Purpose"). Once a person becomes a Developer, he or she remains
so until he or she (i) ceases to be an employee or consultant of
Customer or (ii) ceases use or is reasonably expected to cease
use of the Development Software for a continuous period of 180
days. In either of these cases, Customer may substitute a
different individual for such Developer for no extra fee.
3.3 Subject to the terms and conditions of this Agreement, and
payment of the appropriate license fees as set forth on Schedule
A, IONA hereby grants to Customer a nonexclusive,
nontransferable, world-wide, perpetual, limited license to use
the Development Software and Related Materials solely for the
Permitted Purpose. Customer acknowledges and agrees that the
foregoing license does not include additional operating system
platforms.
Page 1
<PAGE> 3
3.4 Customer further agrees that a license fee must be paid by
Customer to IONA for each and every employee or consultant of
Customer (excluding consultants supplied by IONA) who is or has
been a Developer. In no event may the number of Developers exceed
the number for which license fees have been received by IONA.
Upon request, Customer agrees to certify in writing that Customer
has paid for a sufficient number of license fees for each
Developer. IONA will have the right, with reasonable notice,
during normal business hours, at IONA's sole expense, and in as
non-disrupting a manner as possible, to audit Customer's
compliance with this Section but not more than two times in any
twelve (12)-month period. If in IONA's sole discretion Customer
has or may have an insufficient number of Developer's licenses,
IONA may appoint a mutually acceptable independent auditor to
conduct an audit; if the number of Developers as determined by
the independent audit is greater than [***] more than represented
by Customer, Customer will purchase Developers' licenses for each
such Developer and reimburse IONA the costs incurred for that
audit. Any amounts shown to be due to IONA following any audit
conducted by IONA shall be paid not later than [***] following
the date the auditors' report is made available to Customer and
shall include interest payments accrued at the rate of [***] per
annum during the applicable period covered by the audit. Any and
all information obtained in the course of such audit shall be
treated as Customer's Confidential Information (as defined below)
by IONA and the auditor.
3.5 The source code of the Software and design documentation are
proprietary trade secrets of IONA, its suppliers and/or
licensors, are Confidential Information (defined below), are
never considered part of the Software, and are neither delivered
to Customer nor under any circumstances licensed to Customer
hereunder (with the exception of certain pieces of demonstration
code and certain header files included in the Software).
3.6 If Customer has license(s) to previous versions of the Software
and the Software licensed hereunder is provided to Customer as an
upgrade, the license granted hereunder does not correct or excuse
violations of such previous licenses; to the extent that an
earlier license is terminable or terminated by IONA for breach by
Customer, this license may in IONA's sole discretion be
terminated simultaneously.
4. RUNTIME LICENSE
4.1 The term "Developed Software," as used herein, means any
application or program developed by Customer using the Software
pursuant to this Agreement on the operating system platform(s)
set forth on Schedule A.
4.2 The term "Runtime Components," as used herein, means any software
program or components of the Software (including updates to the
Software) which are embedded or incorporated in any Developed
Software developed by Customer or which are used in the execution
of Customer's Developed Software.
4.3 The term "CPU," if used herein, means a single Central Processing
Unit. For purposes of license grant, CPUs on multiple-CPU
machines will be counted separately.
4.4 IONA hereby grants to Customer, subject to the conditions herein,
a worldwide license to use, copy and distribute for use to third
party end-users the Runtime Components ("Runtime License"), but
solely as (i) part of the Developed Software owned by Customer,
(ii) for use with the Developed Software, and (iii) for execution
to the extent Customer has paid the applicable license
- ---------------------
*** 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.
Page 2
<PAGE> 4
fees. Third party end-users do not have rights of onward distribution,
and Customer must ensure that any such third party end-users have agreed
to be bound by terms and conditions no less strict than in this
Agreement and in the event of a breach of such terms and conditions,
Customer will immediately inform IONA and will assist IONA in enforcing
or allow IONA to enforce such terms and conditions. Customer may
distribute the Runtime Components through distributors provided that
such distributors are bound by the terms herein and that Customer
remains ultimately responsible for preventing any breaches hereof.
4.5 Customer further agrees that the Runtime License granted herein
does not give Customer or any other party any rights other than
those specifically granted herein, and that such License
specifically does not grant the Customer or any other party the
rights to:
- execute the Orbix IDL compiler;
- develop and link programs with the Orbix libraries or classes;
or
- read and use the Orbix header files.
4.6 Customer agrees to pay the runtime license fees set forth on
Schedule B.
4.7 Customer must have an industry standard and commercially
reasonable process in place to ensure that the appropriate
runtime license fees have been tracked and paid. Customer will,
upon the request of IONA, certify in writing to IONA the number
of Runtime Licenses in use. Executing, or permitting the
execution of, Developed Software for which the appropriate
runtime license fees have not been paid is a violation of this
Agreement, except for use of the Developed Software for
demonstration purposes or in the case of beta versions of the
Developed Software for which Customer does not charge any fees
(as set forth herein). IONA will have the right, with reasonable
notice, during normal business hours, at IONA's sole expense, and
in as non-disrupting a manner as possible, to audit Customer's
compliance with this Section but not more than two times in any
twelve (12)-month period. If in IONA's sole discretion reasonable
determination Customer has or may have paid insufficient runtime
license fees, IONA may appoint a mutually acceptable independent
auditor to conduct an audit. If the amount of runtime license
fees due IONA as determined by the independent audit is greater
than [***] more than represented by Customer, Customer will remit
the runtime license fees determined to be due by the auditor and
reimburse IONA the costs incurred for that audit. Any amounts
shown to be due to IONA following any audit conducted by IONA
shall be paid not later than [***] following the date the
auditors' report is made available to Customer, and shall include
interest payments accrued at the rate of [***] per annum during
the applicable period covered by the audit. Any and all
information obtained in the course of such audit shall be treated
as Customer's Confidential Information (as defined below) by IONA
and the auditor.
4.8 If requested by IONA, Customer will provide to IONA quarterly
reports of actual sales and non-binding forecasts of estimated
sales of the Developed Software under this Agreement for each
quarter covered hereby. The forecasts of estimated sales will be
prepared in good faith, reasonably accurate and detailed, and
will be transmitted by means of a mutually agreeable method and
format. Each quarterly report/forecast will be delivered not
later than the last business day of the First month of each
calendar quarter; the report shall cover the quarter just closed
and the forecast shall cover the quarter just underway. Such
reports and forecasts shall be treated as Customer's Confidential
Information (as defined below) by IONA.
- ---------------------
*** 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.
Page 3
<PAGE> 5
5. COPY AND OTHER RESTRICTIONS AND CONFIDENTIALITY
5.1 Without having to pay a fee Customer may make copies of the
Development Software in machine-readable, object code form, as
permitted by applicable law, solely for backup, disaster recovery
or archival purposes, provided that such copies of the
Development Software will include all applicable copyright,
trademark and other proprietary notices of IONA in accordance
with Section 2 above. Customer may not copy any of the Related
Materials. IONA will provide one set of Related Materials for
each Developer, and Customer may obtain additional copies of any
Related Materials from IONA upon payment of the prices in effect
at the time of ordering.
5.2 Customer will not display, disclose or sublicense the Development
Software to third parties (except that it may be shown to
Customer's consultants, who will be considered a Developer and
will comply with the terms of this Agreement), and also will not
rent, lease, loan, modify, adapt, translate, reverse engineer,
disassemble or decompile the Product or any portion thereof, or
create derivative works of the Product (except for derivative
works that are Developed Software), even for purposes of
interoperability or error correction. If Customer wishes
information relating to the Software for purposes of ,achieving
interoperability with independently created computer software,
Customer may make a written request to IONA for such information.
Customer will promptly report to IONA any actual or suspected
violation of this section and will take further steps as may
reasonably be requested by IONA to prevent or remedy any such
violation.
5.3 "Confidential Information" shall mean: (i) the source code of the
Software; (ii) any materials or information marked as.
confidential (or described as confidential at the time of oral
disclosure and summarized in writing and sent to the receiving
party within thirty (30) days of disclosure, with the appropriate
markings) at the time of disclosure; and (iii) the pricing terms
of this Agreement. "Confidential Information" shall not include
information that: (i) is or becomes generally known or available
by publication, commercial use or otherwise through no fault of
the receiving party; (ii) is demonstrably known by the receiving
party at the time of disclosure and is not subject to
restriction; (iii) is independently developed or learned by the
receiving party; (iv) is lawfully obtained from a third party
that has the right to make such disclosure; or (v) is made
generally available by the disclosing party without restriction
on disclosure.
5.4 Each party shall protect the other's Confidential Information
from unauthorized dissemination and use the greater of industry
standard precautions or degree of, care that such party uses to
protect its own like information. Neither party will use the
other's Confidential Information for purposes other than those
necessary to directly further the purposes of this Agreement.
Neither party will disclose to third parties the other's
Confidential Information without the prior written consent of the
other party. Except as expressly provided in this Agreement, no
ownership or license rights is granted in any Confidential
Information.
5.5 The parties' obligations of confidentiality under this Agreement
shall not be construed to limit either party's right to
independently develop or acquire products without use of the
other party's Confidential Information. Further, either party
shall be free to use for any purpose the Residuals (as defined
below) resulting from access to or work with such Confidential
Information, provided that such party shall maintain the
confidentiality of the Confidential Information as provided
herein. The term "Residuals" means non-tangible ideas, concepts,
know-how or techniques contained in or embodied by the
Confidential Information, which may be retained (without the aid
of notes or like memory aids) by persons who have had authorized
access to the Confidential Information. Neither party shall have
any obligation to limit or restrict the assignment of such
persons or to pay royalties for any work resulting from the use
of Residuals. However, the foregoing shall not be deemed to grant
to either party a license under the other party's copyrights or
patents. The above rights of the parties to use the Residuals of
its employees are for its own purposes only and may not be
assigned, sub-licensed or otherwise transferred to any third
party
Page 4
<PAGE> 6
without the prior written consent of the other party which
consent shall not be unreasonably withheld; provided, however
that such consent shall not be required if the assigning party
assigns, sub-licenses or otherwise transfers the residuals to a
wholly-owned subsidiary or to an affiliate in connection with or
as the result of a merger or other transaction in which the
assigning party is the surviving entity or which does not
constitute an actual or effective change in control of the
assigning party.
6. GOVERNMENT END-USERS
The Software and the Related Materials are "commercial items" as that
term is defined in 48 C.F.R. 2. 101 (October 1995) consisting of
"commercial computer software" and "commercial computer software
documentation" as such terms are used in 48 C.F.R. 12.212 (September
1995). Consistent with 48 C.F.R. 12.212 and 48 C.F.R. 227.7202-1,
227.7202-3 and 227.7202-4 (June 1995), if the licensee hereunder is the
U.S. Government or any agency or department thereof, the Software and
the Related Materials are licensed hereunder (i) only as a commercial
item, and (ii) with only those rights as are granted to all other end
users pursuant to the terms and conditions of this Agreement.
7. SUPPORT
Customer will purchase from IONA the support services for the Software
set forth on Schedule A and B, if any, and IONA shall provide such
service to Customer. Fees for the support services, if any, are set
forth on Schedule A and B and the terms and conditions of the support
services are set forth on Schedules C and E.
8. LIMITED WARRANTY
8.1 IONA warrants that the medium on which the Software is recorded
is free from defects in materials or workmanship under normal use
and service for a period of ninety (90) days from the date
Customer has obtained the Software. If Customer discovers any
physical defects in the medium on which the Software is recorded,
IONA will replace such medium at no charge to Customer, provided
that Customer has paid for the Software and returns the item to
be replaced to IONA during the ninety (90) day period after
Customer has obtained the Software. This warranty gives Customer
specific legal rights. Customer may also have rights, which vary
from jurisdiction to jurisdiction. THIS RIGHT OF REPLACEMENT IS
CUSTOMER'S EXCLUSIVE REMEDY AND IONA'S ONLY LIABILITY FOR ANY
DEFECTS IN THE MEDIUM.
8.2 Licensor warrants that the Software is Y2K compliant (as defined
in this Section). Y2K compliant means that the Software (i) will
(to the extent applicable) correctly store, represent, and
process (including sort) all dates (including single and multi
century formulas and leap year calculations), such that errors
will not occur when the date being used is in the year 2000, or
in a year preceding or following the year 2000, and (ii) will not
cause or result in an abnormal termination or ending in
connection with the processing set forth in (i) or due to the
occurrence of a date in the year 2000, or in a year preceding or
following, the year 2000.
8.3 IONA warrants that it has taken reasonable precautions, including
without limitation using "best of breed" commercially available
technology, to prevent the introduction into the Software of any
"viruses," "time bombs," "Trojan horses," or other intentionally
destructive or disabling devices.
8.4 THE FOREGOING PARAGRAPHS STATE THE COMPLETE WARRANTY GIVEN TO
CUSTOMER. IONA SPECIFICALLY DISCLAIMS ANY WARRANTY THAT THE
FUNCTIONS CONTAINED IN THE SOFTWARE OR THE RESULTS OF USE WILL
MEET CUSTOMER'S REQUIREMENTS, OR THAT THE OPERATION OF THE
SOFTWARE WILL
Page 5
<PAGE> 7
BE UNINTERRUPTED OR ERROR FREE. EXCEPT AS EXPRESSLY SET FORTH
ABOVE, THE PRODUCT IS PROVIDED TO CUSTOMER "AS IS" WITHOUT
WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, STATUTORY OR
OTHERWISE, INCLUDING, BUT NOT LIMITED TO THE IMPLIED WARRANTIES
OF MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE. THE
ENTIRE RISK AS TO THE SUITABILITY, QUALITY AND PERFORMANCE OF THE
PRODUCT IS WITH CUSTOMER AND NOT WITH IONA. SOME JURISDICTIONS DO
NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES, SO SUCH EXCLUSION
MAY NOT APPLY TO YOU.
9. INTELLECTUAL PROPERTY INFRINGEMENT INDEMNITY
9.1 Any action brought against Customer or its end-users on a claim
that the Products infringe any patent, copyright, or other
intellectual property rights or the trade secret or the
proprietary rights of a third party will be defended on behalf of
Customer by IONA at its expense. IONA will indemnify Customer and
pay all costs, damages, liabilities and settlements and
reasonable legal fees and court costs awarded against Customer in
such action or settlement thereof and which are attributable to
such claim provided always that Customer notifies IONA promptly
in writing of each claim and IONA may control fully the defense
and/or the settlement of such claim.
9.2 Without prejudice to Sub-Section 9.1, should the Products
become, or in IONA's reasonable opinion are likely to become, the
subject of a claim as aforesaid then IONA may, at its sole
expense, either: (i) procure for Customer the right to continue
using the Products to the full extent licensed herein; (ii)
replace the Products with non-infringing, but functionally
equivalent, material; (iii) modify the Products to make them
non-infringing, but equivalent in functionality, performance and
compatibility; or if after reasonable efforts is unable to
provide one of the three preceding remedies (iv) remove the
Products and refund to Customer all fees and sums paid by
Customer in respect thereof.
9.3 IONA will have no liability for any claim of infringement based
on: (a) use of other than a current release of the Products
provided to Customer if such infringement would have been avoided
by use of a current release, or (b) use or combination of the
Products with non-IONA programs or data if such infringement
would have been avoided by the use of the Products without those
other programs or data. The foregoing states the entire liability
of IONA with respect to any claim of infringement regarding the
Products.
10. LIMITED LIABILITY
EXCEPT WITH RESPECT TO IONA'S INTELLECTUAL PROPERTY INDEMNIFICATION, IN
NO EVENT WILL EITHER PARTY, ITS SUPPLIERS OR LICENSORS BE LIABLE FOR ANY
INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, PUNITIVE OR EXEMPLARY
DAMAGES (INCLUDING, BUT NOT LIMITED TO, DAMAGES FOR LOSS OF BUSINESS
PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, DATA,
GOODWILL OR OTHER PECUNIARY LOSS) ARISING OUT OF THE USE OR INABILITY TO
USE THE SOFTWARE OR OTHERWISE UNDER THIS AGREEMENT, EVEN IF FORESEEABLE
OR IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN
NO EVENT WILL IONA BE RESPONSIBLE OR HELD LIABLE FOR ANY DAMAGES
RESULTING FROM PHYSICAL DAMAGE TO TANGIBLE PROPERTY OR DEATH OR INJURY
OF ANY PERSON EXCEPT WHERE ARISING FROM IONA'S NEGLIGENCE. BECAUSE SOME
JURISDICTIONS DO NOT ALLOW CERTAIN OF THE ABOVE EXCLUSIONS OR
LIMITATIONS OF LIABILITY, THE ABOVE LIMITATIONS MAY NOT APPLY TO YOU.
EXCEPT FOR LIABILITY UNDER SECTION 9 ABOVE, IF EITHER PARTY IS HELD
LIABLE UNDER THIS AGREEMENT, SUCH PARTY'S, ITS SUPPLIERS AND LICENSORS'
LIABILITY WILL BE LIMITED TO THE AGGREGATE AMOUNTS PAID BY THE CUSTOMER
UNDER THIS AGREEMENT.
Page 6
<PAGE> 8
11. ASSIGNMENT
This Agreement and any rights granted hereunder may not be assigned,
sub-licensed or otherwise transferred by Customer to any third party
without the prior written consent of IONA, which consent shall not be
unreasonably withheld or delayed; provided, however that such consent
shall not be required if Customer assigns, sub-licenses or otherwise
transfers this Agreement or any rights granted herein to a wholly-owned
subsidiary or to a business unit or corporate affiliate in connection
with or as the result of a merger or like transaction provided that the
surviving entity is not a competitor of IONA (any entity reasonably
defined by IONA as offering products or services which offer similar
functionality or serve similar purposes as IONA's products or services)
in which case such transfer shall be subject to IONA's written consent
(which consent shall not be unreasonably withheld, conditioned or
delayed). IONA may assign or transfer its rights and obligations under
this Agreement at any time without notice to or the consent of Customer
provided the assignee is bound by and complies with the terms and
conditions of this Agreement.
12. DURATION
This Agreement will be effective from the date of execution by the
parties and will remain in force for a period of three (3) years unless
terminated by IONA as provided in Section 13.
13. ESCROW
IONA agrees to deposit and maintain with IONA's escrow agent (Data
Securities International) during the term of this Agreement all
fully-commented Source Code to the IONA Products licensed hereunder and
related documentation, manuals, tools and other materials used by IONA
in the maintenance or support of the such IONA Products ("Escrow
Materials"). IONA shall update the Escrow Materials during the term of
this Agreement promptly as such Escrow Materials become available. The
escrow agent's annual maintenance fees shall be borne by Customer and
IONA shall bear all fees associated with establishment of the escrow
account. IONA grants Customer a non-exclusive, non-transferable, limited
license to use the Escrow Materials for technical support purposes,
including, but not limited to, development of fixes for the Products
upon release of the Escrow Materials from escrow to Customer. Customer
shall be listed as a beneficiary of the escrow of the Escrow Account and
shall be entitled to receive a copy of the Escrow Materials if:
(a) IONA ceases to do business in the ordinary course, with the
exception of a permitted assignment, becomes insolvent or becomes
the subject of a bankruptcy case (which case is not dismissed
within 90 days), is unable to pay its debts as they fall due or
makes an assignment for the benefit of its creditors; or
(b) IONA announces a cessation of support for the IONA Product
(other than in accordance with IONA's standard de-support policy,
as set forth in Schedule C, Section 3 "Version Support") and
there is no third party support available on commercially
reasonable terms for the Escrow Materials; or
(c) IONA is in persistent and material breach of the terms of
this license agreement or any support agreement between the
parties and is not making prompt, continuous and good faith
efforts to remedy such breach.
14. TERMINATION
14.1 In addition to the termination provisions of Section 3.6 herein,
this Agreement and the license granted hereunder may be
terminated by IONA upon written notice to Customer if Customer
Page 7
<PAGE> 9
breaches any of the provisions of this Agreement, which breach
has not been remedied within thirty (30) days of notification
thereof.
14.2 Upon termination of this Agreement and of the license granted
hereunder, Customer will cease any further use of the Software,
and must return to IONA or destroy, as requested by IONA, all
copies of the Software and Related Materials in any form in
Customer's possession or control.
14.3 All licenses granted by Customer in respect of Developed Software
will continue in full force and effect in accordance with this
Agreement, notwithstanding the expiration hereof.
14.4 The provisions of Sections 1, 2, 5, 8, 9, and 10 through IS and
the definitions of this Agreement will survive the termination of
this Agreement (for any reason). Customer must promptly pay to
IONA any amounts not reasonably disputed which are payable by
Customer.
15. EXPORT ADMINISTRATION ACT.
Customer agrees that unless prior written authorization is obtained from
the relevant governmental authority, it will not export, re-export, or
transship, directly or indirectly, the Product or any technical data
disclosed or provided to Customer, or the direct product of such
technical data to or from any other country as to which there is an
applicable embargo or other trade restriction imposed by the US or other
Government.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Page 8
<PAGE> 10
15. GENERAL
15.1 AMENDMENT; WAIVER: No modification or waiver of any provision of
this Agreement or any of its Schedules will be binding on either
party unless specifically agreed upon in a writing signed by both
parties hereto. Any failure or delay by IONA or Customer to
exercise or enforce any of the rights or remedies granted
hereunder will not operate as a waiver thereof. No waiver by IONA
or Customer of any breach of this Agreement will operate as a
waiver of any other or subsequent breach
15.2 FORCE MAJEURE: Neither party shall be liable for any delay in
meeting or for failure to meet any of its obligation under this
Agreement due to any cause outside its reasonable control,
including, without limitation, strikes, lock-outs, Acts of God,
war, riot, malicious acts of damage, fire, acts of any government
authority, failure of the public electricity supply, failure or
delay on the part of any subcontractor beyond the subcontractor's
reasonable control.
15.3 NOTICES: All notices and requests in connection with this
Agreement shall be given or made in writing to the parties' Legal
Departments at the addresses first set forth for Customer and
IONA above, or to such other address as may be specified in
writing from time to time, shall be hand delivered, sent by means
of an overnight courier which provides a tracking number, or
deposited in the US Mail, postage prepaid, certified or
registered, return receipt requested and shall be deemed given on
the day of receipt by the respective party.
15.4 SEVERABILITY: If any provision of this Agreement is found invalid
or unenforceable, that provision will be reformed construed and
enforced to the maximum extent permissible, and the other
provisions of this Agreement will remain in full force and
effect.
15.5 LAW AND JURISDICTION: This Agreement will be governed by and
construed in accordance with the laws of the Commonwealth of
Massachusetts without regard to its choice of law provisions.
15.6 ENTIRE AGREEMENT: Customer has read this Agreement and both
parties agree to be bound by its terms, and Rather agrees that
this Agreement (including Schedules) constitutes the complete and
entire agreement of the parties and supersedes all previous
shrink wrap licenses relating to the Software, communications,
oral or written, and all other communications between them
relating to the subject matter hereof No representations or
statements of any kind made by either party, which are not
expressly stated herein, will be binding on such party. If any
provision of a Schedule conflicts with the Agreement, they shall
be read together so as to best effectuate the intent of the
parties, but if this is not possible, the terms of this Agreement
shall control.
FOR AND ON BEHALF OF IONA FOR AND ON BEHALF OF ACCELERATED NETWORKS
Signed /s/ Robert J. Potter Signed /s/ Yogi Mistry
------------------------- -----------------------------------
Name Robert J. Potter Name Yogi Mistry
------------------------- -----------------------------------
Title Senior Vice President Title Vice President Software Development
------------------------- -----------------------------------
Date 12/17/99 Date 12/9/99
------------------------- -----------------------------------
Page 9
<PAGE> 11
IONA OEM ORBIX(R) DEVELOPMENT AND RUNTIME LICENSE AGREEMENT
SCHEDULE A - DEVELOPMENT FEES AND ASSOCIATED SUPPORT
1. PRODUCTS AND ENVIRONMENTS COVERED
Customer may order IONA Products under the terms, conditions and pricing
contained in this Agreement for the term of this Agreement, unless earlier
terminated as provided herein.
Customer shall have the use of development licenses of IONA Products across the
operating system environments in the table below for use in connection with
Customer's products. The Named Development Platforms are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
OPERATING QTY. QTY. TOTAL NEW
SYSTEM EXISTING NEW LICENSE LICENSE
IONA PRODUCTS ENVIRONMENTS LICENSES LICENSES FEE FEES
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Orbix 3.0 Windows NT/95 0 0 [***] $?
(includes: Names, COMet,
WonderWall, CGT)
- -------------------------------------------------------------------------------------------------
Orbix 3.0 Solaris 0 0 [***] $?
(includes: Names, WonderWall, CGT)
- -------------------------------------------------------------------------------------------------
Orbix 3.0 HP/UX 0 0 [***] $?
(includes: Names, WonderWall, CGT)
- -------------------------------------------------------------------------------------------------
Orbix 3.0 [specify 0 0 [***] $?
(includes: Names, WonderWall, CGT) other]
- -------------------------------------------------------------------------------------------------
Orbix Web Prof. Edition 3.2 Windows NT/95 0 0 [***] $?
(includes: Names, WonderWall)
- -------------------------------------------------------------------------------------------------
Orbix Web Prof. Edition 3.2 Solaris 0 0 [***] $?
(includes: Names, WonderWall)
- -------------------------------------------------------------------------------------------------
Orbix Web Prof. Edition 3.2 HP/UX 0 0 [***] $?
(includes: Names, WonderWall)
- -------------------------------------------------------------------------------------------------
Orbix OTM3 Windows NT 0 0 [***] $?
- -------------------------------------------------------------------------------------------------
Orbix OTM3 Solaris 0 0 [***] $?
- -------------------------------------------------------------------------------------------------
Orbix OTM3 HP/UX 0 0 [***] $?
- -------------------------------------------------------------------------------------------------
Orbix OTM3 [specify 0 0 [***] $?
other]
- -------------------------------------------------------------------------------------------------
Orbix Talk Windows NT/95 0 0 [***] $?
- -------------------------------------------------------------------------------------------------
Orbix Talk UNIX [specify] 0 0 [***] $?
- -------------------------------------------------------------------------------------------------
Orbix Trader [specify] 0 0 [***] $?
- -------------------------------------------------------------------------------------------------
Orbix Notification [specify] 0 0 [***] $?
- -------------------------------------------------------------------------------------------------
TOTAL OF NEW DEVELOPMENT LICENSE $?
FEES:
- -------------------------------------------------------------------------------------------------
</TABLE>
*Orbix Notification and Orbix Trader require a minimum of one Orbix Notification
and/or Orbix Trader Runtime License (for a 1 or 2 CPU machine) fee be paid in
lieu of an actual development license. If the OrbixNotification or OrbixTrader
product is to be deployed on a larger machine (greater than 2 CPUs), then the
appropriate Runtime License Fee (from Schedule B Section 2 End-User Pricing
Model Table A) must be paid for the machine that will be deployed.
2. NEW DEVELOPMENT LICENSES SUMMARY
These prices are valid for 30 days from date of delivery of this Agreement.
- ---------------------
*** 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.
Page 10
<PAGE> 12
3. NEW DEVELOPMENT LICENSES SUPPORT MAINTENANCE SUMMARY***
The new Named Development Platforms for Support are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
SUPPORT
QTY. QTY. FEE PER TOTAL NEW
OPERATING SYSTEM EXISTING NEW NEW SUPPORT
IONA PRODUCTS ENVIRONMENTS LICENSES LICENSES LICENSE FEES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Orbix 3.0 Windows NT/95 0 0 [***] $?
- ------------------------------------------------------------------------------------------
Orbix 3.0 Solaris 0 0 [***] $?
- ------------------------------------------------------------------------------------------
Orbix 3.0 HP/UX 0 0 [***] $?
- ------------------------------------------------------------------------------------------
Orbix 3.0 [specify other] 0 0 [***] $?
- ------------------------------------------------------------------------------------------
OrbixWeb Prof. Edition 3.2 Windows NT/95 0 0 [***] $?
- ------------------------------------------------------------------------------------------
OrbixWeb Prof. Edition 3.2 Solaris 0 0 [***] $?
- ------------------------------------------------------------------------------------------
OrbixWeb Prof. Edition 3.2 HP/UX 0 0 [***] $?
- ------------------------------------------------------------------------------------------
OrbixOTM 3 Windows NT 0 0 [***] $?
- ------------------------------------------------------------------------------------------
OrbixOTM 3 Solaris 0 0 [***] $?
- ------------------------------------------------------------------------------------------
OrbixOTM 3 HP/UX 0 0 [***] $?
- ------------------------------------------------------------------------------------------
OrbixOTM 3 [specify other] 0 0 [***] $?
- ------------------------------------------------------------------------------------------
Orbix Talk Windows NT/95 0 0 [***] $?
- ------------------------------------------------------------------------------------------
Orbix Talk UNIX [specify] 0 0 [***] $?
- ------------------------------------------------------------------------------------------
Orbix Trader [specify] 0 0 [***] S?
- ------------------------------------------------------------------------------------------
Orbix Notification [specify] 0 0 [***] $?
- ------------------------------------------------------------------------------------------
TOTAL OF NEW SUPPORT
LICENSES: $?
- ------------------------------------------------------------------------------------------
</TABLE>
Support is priced per annum at [***] of the above Developer License Fee with a
minimum support fee of [***] per-product. IONA shall provide support according
to the terms and conditions set forth on Schedule C attached hereto, and
Schedule E, if elected by Customer.
* Support/Maintenance for OrbixNotification or OrbixTrader is based on [***] of
the total Runtime License Fees paid for deployment licenses, with a minimum
annual Support fee of [***] (based on the 1-2 CPU machine runtime pricing).
Annual OEM Elevated Support option (Schedule E) can replace Standard Support
Schedule C. Pricing and Terms & Conditions can be found in Schedule E of this
Agreement.
4. PAYMENT TERMS
Payments due under this Agreement shall be paid by the earlier of the due date
as identified in Schedule D or within [***] of Customer's receipt of invoice.
5. ORBIXWARE PROGRAM
IONA agrees to waive the first year base-level membership fee for Customer to
join the OrbixWare Partnership Program.
6. PRODUCT DELIVERY
IONA shall deliver the Products to Customer within five days of full execution
and delivery of this Agreement.
- ---------------------
*** 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.
Page 11
<PAGE> 13
7. DEVELOPMENT LICENSE MAJOR RELEASE UPGRADES
Customer, at its option, can pay [***] of then-current list price for Major
Release Upgrades to the IONA Development Products identified in this Agreement.
An example of a Major Release Upgrade would be from OrbixWeb 3.x to OrbixWeb 4.0
or OrbixNotification Lx to OrbixNotification 2.0. If Customer is not current in
payment of Support/Maintenance renewals, Major Release Upgrades will only be
available by payment of the full license fee for the desired products.
8. LEVEL OF SUPPORT REQUIRED
Tick here where standard support is selected as per Schedule C X
Tick here where elevated support is selected as per Schedule E
- ---------------------
*** 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.
Page 12
<PAGE> 14
IONA OEM ORBIX(R) DEVELOPMENT AND RUNTIME LICENSE AGREEMENT
SCHEDULE B - RUNTIME FEES AND ASSOCIATED SUPPORT
1. RUNTIME LICENSE
This license covers the distribution of the IONA Runtime Components within the
Customer's Developed Software in the following Named Applications: [ACCELERATED
NETWORKS AN-20, AN-30, AN-3200 SERIES].
2. INITIAL DEPLOYMENT PAYMENT FOR RUNTIME LICENSE USING IONA'S END-USER
PRICING MODEL
- - The IONA End-User Pricing Model can be adapted to map to Customer's
product pricing model.
- - There is a minimum [***] Runtime License Fee Initial Deployment Payment
requirement.
In consideration of Customer's execution of Agreement and delivery via fax of a
purchase order for the Schedule D fees by close of business on [OCTOBER 30,
1999], IONA will establish a Per-Machine licensing arrangement and allow
Customer to pay runtime license fees on a quarterly basis per the pricing
outlined in Table A.
Run-time licenses are defined on a per CPU basis for server and clients. If any
of the Orbix header files, libraries or classes are utilized by the client
portion of the application; Accelerated Networks is responsible for reporting
additional run-time licenses.
This Agreement covers the distribution of the IONA Products Runtime Components
associated with the IONA Development Products identified and licensed in
Schedule A within the Customer Named Applications set forth in Schedule B during
the term of this Agreement.
END-USER PRICING MODEL TABLE A
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
[***] [***] [***]
PAYMENT; PAYMENT; PAYMENT;
QTY. RUNTIME RUNTIME RUNTIME [***]
CPUS LICENSE LICENSE LICENSE PAYMENT;
IONA PRODUCT PER FEE PER FEE PER FEE PER RUNTIME LICENSE
RUNTIME COMPONENTS MACHINE MACHINE MACHINE MACHINE FEE PER MACHINE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Orbix, OrbixWeb 1 or 2 [***] [***] [***] [***]
- -----------------------------------------------------------------------------------------------
Orbix, OrbixWeb 3-4 [***] [***] [***] [***]
- -----------------------------------------------------------------------------------------------
Orbix, OrbixWeb 5-8 [***] [***] [***] [***]
- -----------------------------------------------------------------------------------------------
Orbix, OrbixWeb 9-16 [***] [***] [***] [***]
- -----------------------------------------------------------------------------------------------
Orbix, OrbixWeb 17-32 [***] [***] [***] [***]
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
OrbixOTM, OrbixTalk 1 or 2 [***] [***] [***] [***]
- -----------------------------------------------------------------------------------------------
OrbixOTM, OrbixTalk 3-4 [***] [***] [***] [***]
- -----------------------------------------------------------------------------------------------
OrbixOTM, OrbixTalk 5-8 [***] [***] [***] [***]
- -----------------------------------------------------------------------------------------------
OrbixOTM, OrbixTalk 9-16 [***] [***] [***] [***]
- -----------------------------------------------------------------------------------------------
OrbixOTM, OrbixTalk 17-32 [***] [***] [***] [***]
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
OrbixNotification, 1 or 2 [***] [***] [***] [***]
OrbixTrader
- -----------------------------------------------------------------------------------------------
OrbixNotification, 3-4 [***] [***] [***] [***]
OrbixTrader
- -----------------------------------------------------------------------------------------------
</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.
Page 13
<PAGE> 15
IONA OEM ORBIX(R) DEVELOPMENT AND RUNTIME LICENSE AGREEMENT
<TABLE>
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OrbixNotification, 5-8 [***] [***] [***] [***]
OrbixTrader
- -----------------------------------------------------------------------------------------------
OrbixNotification, 9-16 [***] [***] [***] [***]
OrbixTrader
- -----------------------------------------------------------------------------------------------
OrbixNotification, 17-32 [***] [***] [***] [***]
OrbixTrader
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Orbix for Sequent, 1 or 2 [***] [***] [***] [***]
Orbix for OpenVMS
- -----------------------------------------------------------------------------------------------
Orbix for Sequent, 3-4 [***] [***] [***] [***]
Orbix for OpenVMS
- -----------------------------------------------------------------------------------------------
Orbix for Sequent, 5-8 [***] [***] [***] [***]
Orbix for OpenVMS
- -----------------------------------------------------------------------------------------------
Orbix for Sequent, 9-16 [***] [***] [***] [***]
Orbix for OpenVMS
- -----------------------------------------------------------------------------------------------
Orbix for Sequent, 17-32 [***] [***] [***] [***]
Orbix for OpenVMS
- -----------------------------------------------------------------------------------------------
</TABLE>
Customer shall pay a [***] guaranteed non-refundable (except as provided in
Section 9.2) minimum runtime license fee (from End-User Pricing Model Table A)
as an Initial Deployment Payment to establish the "Runtime License Fee Per
Machine" as indicated in End-User Pricing Model Table A. The Initial Deployment
Payment shall represent a guaranteed non-refundable minimum Runtime License Fee
for the deployment of Developed Software from first commercial shipment of
Customer's Named Applications. After the first commercial shipment of Developed
Software and until expiration or termination of this Agreement, Customer shall
owe IONA the identified Runtime License Fee for license of Customer Named
Applications. Customer shall be entitled to utilize the Initial Deployment
Payment as a credit against future runtime license fees until the Initial
Deployment Payment is exhausted.
Customer acknowledges and agrees that a guaranteed non-refundable minimum
Runtime License Fee (the "Initial Deployment Payment") must be paid before any
deployment commences.
Customer shall provide IONA a quarterly Sales Report/Forecast by the final day
of the first month of each calendar quarter. The Sales Report will provide the
relevant sales data from the just-completed quarter and indicate end-user
account and products shipped, detailing what IONA components are embedded,
quantities of units licensed, Runtime License Fee per unit, total Runtime
License Fees due, and value of Initial Deployment Payment balance that remains
after deducting current runtime license fees owed. Once the Initial Deployment
Payment amount is exhausted, Customer must submit to IONA, in addition to the
Sales Report, a purchase order and payment for the runtime license fees due.
Additional Licenses beyond the initial pre-pay amount must be purchased in
minimum quantity blocks of 200 during the period of this contract. The Sales
Forecast will provide relevant data on expected licenses of IONA Runtime
Components for the current quarter. The Sales Reports and Sales Forecasts
provided to IONA by Customer shall be treated as Customer's Confidential
Information.
3. AGREEMENT EXPIRATION AND RENEWAL TERMS
Prior to the Expiration Date of this Agreement and assuming no termination of
this Agreement, the Parties shall negotiate in good faith the terms for its
renewal (or non-renewal). If the Parties have not reached mutually agreeable
renewal terms prior to the Expiration Date, the Agreement shall automatically
renew for a one-year term (the "Renewal Term") and the royalty rate applicable
to the Renewal Term shall be not more than one percentage point increase over
the royalty rate percentage, plus any applicable increases for optional add-on
products which have
- ---------------------
*** 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.
Page 14
<PAGE> 16
IONA OEM ORBIX(R) DEVELOPMENT AND RUNTIME LICENSE AGREEMENT
been subsequently licensed. Under the Per-machine runtime license fee scenario,
Customer will be obligated to pay at the then-current Per-machine license fee
rates.
4. ANNUAL MAINTENANCE FOR DEPLOYMENT ENVIRONMENTS
Annual Maintenance for the deployed Runtime Components is charged at a rate of
[***] of the Initial Deployment Payment amount. Upon contract execution,
Customer will pay [***] of the Initial Deployment Payment for first year
Maintenance. When the Initial Deployment Payment has been exhausted, each
quarterly Runtime License Fee payment shall be accompanied with the appropriate
Maintenance payment to cover I years' Maintenance on the additional deployed
runtime components.
5. EVALUATION AND NON-ROYALTY BEARING LICENSES
Customer may deploy without fee a reasonable number of copies of the Runtime
Components for evaluation, beta testing, demonstration, trial use or proof of
concept purposes, provided Customer receives no revenue from such evaluation
deployments. The term of such evaluation deployments may not exceed four (4)
months in duration (without prior consent of IONA, which consent shall not be
unreasonably withheld) and shall be pursuant to licensing terms not less strict
than those contained in Customer's current standard end user license agreement,
a copy of which is attached as Attachment 1.
Modules of Customer's product in which the Runtime Components are completely
disabled and non-functional shall not incur a royalty payment.
- ---------------------
*** 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.
Page 15
<PAGE> 17
IONA OEM ORBIX(R) DEVELOPMENT AND RUNTIME LICENSE AGREEMENT
SCHEDULE C - SUPPORT TERMS AND CONDITIONS
1. IONA OBLIGATIONS
1.1 IONA will provide an electronic mail Technical Support service for the
Customer between the hours of 9.00 am and 9.00 p.m. Eastern Standard Time (EST),
Monday to Friday, excluding Public Holidays. IONA will provide a single Internet
mail address to which all Technical Support queries may be directed.
1.2 IONA will provide a FAX Technical Support service for the Customer between
the hours of 9.00 am and 9.00 p.m. Eastern Standard Time (EST), Monday to
Friday, excluding Public Holidays. IONA will provide a single FAX number to
which all Technical Support queries may be directed.
1.3 Telephone Technical Support and Technical Support outside of the hours
specified in paragraphs 1.1 and 1.2 can be provided subject to written agreement
between IONA and the Customer on specific terms and fees payable.
1.4 For the duration of the period in which Customer has purchased support, IONA
will provide to the Customer, free of further charge, copies of Minor and Point
Releases to the Products. "Minor Release" shall mean the release of an IONA
Product where, if the product version number is designated as x.y.z, the digit
represented by "y" is changed to one digit higher. A Minor Release normally
includes minor feature and functionality changes and enhancements. "Point
Release" shall mean the release of an IONA Product where, if the product version
number is designated as x.y.z, the digit represented by `Y' is changed to one
digit higher. A Point Release normally consists of bug fixes and error
corrections.
1.5 Expedited resolution of software malfunctions can be provided subject to
written agreement between IONA and the Customer on specific terms and fees
payable.
1.6 IONA is not required offer the services of any named individual in respect
of the above Technical Support undertakings except as IONA and Customer may
specifically agree in writing.
2. CUSTOMER RESPONSIBILITIES
2.1 Customer will nominate one representative who will be the primary
representative for the purposes of technical support and will be the named
recipient of software updates. The Customer may change the nominated
representative at any time by notifying IONA in writing.
2.2 The Customer will direct initial support queries to the electronic mail
address or FAX number set forth below and will not direct such queries directly
to IONA personnel.
3. PAYMENT
3.1 All fees for technical support and maintenance for each year of support are
to be invoiced at the commencement of the year and shall be payable as set forth
in the Agreement.
4. CONTACT DETAILS
4.1 The IONA Technical Support FAX number is: +353-1-662 5244; or
+1 617 949 9001
4.2 The IONA Technical Support electronic mail address is: [email protected]
Page 16
<PAGE> 18
IONA OEM ORBIX(R) DEVELOPMENT AND RUNTIME LICENSE AGREEMENT
SCHEDULE D - PAYMENTS DUE UPON EXECUTION
All Payments are due [***] from execution of Agreement:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
<S> <C>
License Fee for Schedule A items [***]
--------------------------------------------------------------------
Annual Support for Schedule A items [***]
--------------------------------------------------------------------
Initial Deployment Payment for Schedule B [***]
--------------------------------------------------------------------
Annual Support for Initial Deployment Payment for Schedule B [***]
--------------------------------------------------------------------
On-Site Consulting (5 days) [***]
Total: [***]
--------------------------------------------------------------------
</TABLE>
Upon full Execution by Customer, Customer will provide to IONA a purchase order
for the total of the above items [***] and will be invoiced according to the
specified payment terms above.
- ---------------------
*** 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.
Page 17
<PAGE> 1
EXHIBIT 10.24
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.
- --------------------------------------------------------------------------------
LETTER AGREEMENT
BY AND BETWEEN
WIND RIVER SYSTEMS, INC.
AND
ACCELERATED NETWORKS, INC.
DATED
DECEMBER 30, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
WIND RIVER
Systems
206 East Victoria Street, Santa Barbara, CA 93101 Phone: 805-965-1699
December 28, 1999
Mr. Frederic T. Boyer
Accelerated Networks
301 Science Drive
Moorpark, CA 93021
Dear Fred,
Wind River is pleased to respond with the following proposal for VxWorks target
licenses for your project.
In regard to runtime licenses for Accelerated Networks' Broadband Server Project
the parties agree to the following:
- Wind River agrees to sell VxWorks Target Licenses to Accelerated in
return for the payment to Wind River Systems of the following
VxWorks Target License Fees for each microprocessor shipped
containing VxWorks code:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
Target License Fee per
Number of Target Licenses (per year) Microprocessor
----------------------------------------------------------------------------------
<S> <C>
[***] [***]
----------------------------------------------------------------------------------
[***] [***]
----------------------------------------------------------------------------------
[***] [***]
----------------------------------------------------------------------------------
[***] [***]
----------------------------------------------------------------------------------
[***] [***]
----------------------------------------------------------------------------------
[***] [***]
----------------------------------------------------------------------------------
</TABLE>
- Accelerated has satisfied the SNMP buyout and there will be no
additional charge for SNMP for this project.
- Accelerated agrees to purchase Target Licenses for the year ending
December 31, 2000, in the volume category of [***] at [***] per unit
as listed above. Accelerated agrees to an initial purchase of [***]
Target Licenses [***] by December 30, 1999. This initial purchase of
[***] licenses will be applied to the [***] licenses.
- ---------------
*** 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.
<PAGE> 3
- Accelerated agrees that upon completion of the initial Target
License purchase they will purchase future Target Licenses in
minimum quantities of [***] during the year ending December 31,
2000. Although Accelerated expects to meet or exceed [***] Target
Licenses during the year ending December 31, 2000, there will be no
bill back by WRS for quantities under [***] Target Licenses.
- Accelerated and Wind River Systems agree to negotiate a Target
License Schedule for Calendar year 2001 by the end of Q3
(September), 2000.
- This agreement applies to the PowerPC processor.
Valid
This proposal once accepted by the parties will remain in force through December
31, 2000.
Sincerely, Acknowledged by:
/s/ Gregory P. Giloth /s/ Frederic T. Boyer
- --------------------------- ---------------------
Gregory P. Giloth Frederic T. Boyer
Senior Sales Representative VP Finance & Administration
Wind River Systems Accelerated Networks, Inc.
- ---------------
*** 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
