<PAGE>
As filed with the Securities and Exchange Commission on March 21, 2000
Registration No. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
OCEN COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
----------------
Delaware 4813 95-4659521
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction Classification Code Number) Identification Number)
of incorporation)
----------------
oCen Communications, Inc.
4900 Rivergrade Road, C110
Irwindale, CA 91706
(626) 338-6611
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------
Steven San Eng
Chief Executive Officer
oCen Communications, Inc.
4900 Rivergrade Road, C110
Irwindale, CA 91706
(626) 338-6611
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies To:
Curtis L. Mo, Esq. Rise B. Norman, Esq.
Peter S. Buckland, Esq. Simpson Thacher & Bartlett
Richard J. Colosimo, Esq. 425 Lexington Avenue
Alexander C. Chen, Esq. New York, NY 10017
Brobeck, Phleger & Harrison LLP (212) 455-2000
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
(650) 424-0160 ----------------
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. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities To Be Registered Registered(1) Per Share(2) Offering Price(2) Registration Fee
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, $0.001 par
value.................. $ $90,000,000 $23,760
</TABLE>
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(1) Includes shares that are to be offered outside the United States but that
may be resold from time to time in the United States in transactions
requiring registration under the Securities Act. Offers and sales of shares
outside the United States are being made pursuant to Regulation S and are
not covered by this Registration Statement.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o).
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until 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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We +
+cannot sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and it is not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated , 2000
PROSPECTUS
Shares
[LOGO OF oCEN COMMUNICATIONS]
oCen Communications, Inc.
Common Stock
- --------------------------------------------------------------------------------
This is our initial public offering of shares of common stock. We are offering
shares in the United States and Canada and shares
outside the United States and Canada.
No public market currently exists for our shares. We anticipate that the
initial public offering price per share will be between $ and $ . We
expect that the shares will trade on the Nasdaq National Market under the
symbol "OCCM."
Investing in the shares involves risks. Risk Factors begin on page 5.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price........................................... $ $
Underwriting discount........................................... $ $
Proceeds to oCen, before expenses............................... $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to an
additional shares of our common stock to cover over-allotments.
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.
Lehman Brothers expects to deliver the shares on or about , 2000.
- --------------------------------------------------------------------------------
Lehman Brothers
Bear, Stearns & Co. Inc.
ING Barings
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
- ----
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 5
Cautionary Notice Regarding Forward-
Looking Statements.................. 19
Use of Proceeds...................... 20
Dividend Policy...................... 20
Capitalization....................... 21
Dilution............................. 22
Selected Consolidated Financial
Data................................ 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business............................. 35
</TABLE>
<TABLE>
<S> <C>
Management.......................... 52
Principal Stockholders.............. 62
Related Party Transactions.......... 64
Description of Capital Stock........ 66
Shares Eligible for Future Sale..... 69
Material United States Income Tax
Consequences for Non-U.S. Holders.. 71
Underwriting........................ 74
Legal Matters....................... 78
Experts............................. 78
Where You Can Find Additional
Information........................ 78
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
----------------
You should rely only on information contained in this prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. We are offering to sell, and seeking offers to buy, shares
of common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or any
sale of our common stock.
Until , 2000, all dealers that buy, sell, or trade our common stock may be
required to deliver a prospectus, regardless of whether they are participating
in the offering. This requirement is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
Information contained on our Website does not constitute part of this
prospectus. "oCen" is a trademark of oCen Communications, Inc. All brand names
and trademarks appearing in this prospectus are the property of their
respective holders.
This prospectus contains statistical data about the IP telephony industry.
This data was obtained from industry publications and reports that we believe
to be reliable sources. However, we cannot guarantee the accuracy or
completeness of this data. We have not independently verified this data.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information about us. It may not contain all
of the information that you find important. You should carefully read this
entire document, including the "Risk Factors" section beginning on page and
the consolidated financial statements and their related notes beginning on page
F-1. Some technical terms not explained in this summary are more fully
described in "Business--Our Company," and "-- Industry and Market Background."
Our Company
We are a leading Asia-focused provider of high quality Internet Protocol, or
IP, based communications services. Since we were founded in October 1997, we
believe we have built one of the largest carrier-grade managed IP networks that
is dedicated to IP telephony connecting Asia and the United States. We believe
that our managed IP network provides our customers with the cost savings of a
packet-switched data network and quality comparable to the traditional circuit-
switched telephone network. We intend to continue to rapidly expand our
geographic coverage to build a truly pan-Asian network that is able to meet the
growing communications needs of our customers.
We develop and market innovative IP-based communications services to three
sets of customers: consumers, carriers, and corporations. We offer reliable,
low-cost, IP-based international long distance services to consumers. Our IP
telephony services enable consumers to place a call or send a fax inexpensively
from any telephone or fax machine to anywhere in the world. We have achieved
significant growth in the use of our network since we began offering this
service. The number of minutes transmitted over our network increased from
approximately 9.7 million for the quarter ended September 30, 1999 to over 18.5
million for the quarter ended December 31, 1999. We believe that this rapid
growth demonstrates a preference in the market for the advantages offered by
our IP-based network.
In December 1999, to maximize the use of our network and meet market demand,
we began to offer carrier transmission services. These services include
providing high quality, switched and IP-based voice and fax services to
traditional telecommunications providers, other IP-based carriers, and Web-
based voice and data services providers, or eCarriers. As of February 29, 2000,
we had eight carrier agreements with providers such as AT&T Global
Clearinghouse, Capcom International, New World Telephone, and Telia. In
addition, Dialpad.com, one of the largest eCarriers, has signed a memorandum of
understanding with us to purchase wholesale capacity on our managed IP network
to carry its PC-originated traffic. We expect to achieve significant growth in
carrier traffic.
We believe IP technologies can fully meet the integrated communications
services needs of corporations by providing voice, data, and enhanced services
over one network. In March 2000, we began offering basic IP telephony services
to corporations in Asia through our product, oPhone. We are also developing our
CommPortal product, an integrated Web-based suite of communications services
that includes instant messaging, PC-based text and voice chat, Web
conferencing, and unified messaging. CommPortal, together with oPhone,
represents our full corporate product, Integrated Communications Services. We
believe this product will allow our corporate customers to reduce
communications costs while enhancing productivity.
Our stockholders include an affiliate of Anderson Information Technology,
Baring Asia Private Equity Fund, New World Cyberbase, and an affiliate of the
Pacific Group. We will continue to leverage our stockholder base to accelerate
deployment of our network, capture new customers, create marketing and cross-
promotional opportunities, and expand into new markets. In addition, we have
entered into a strategic relationship with NetStar, a pan-Asian network
integrator, to accelerate deployment of our solution to corporations in Asia.
1
<PAGE>
Our goal is to become the leading Asia-focused Internet communications
services provider, or ICSP, for consumers, carriers, and corporations. We
intend to achieve this goal by pursuing the following strategies:
. Leverage our first-mover advantage in Asia;
. Rapidly expand our IP network throughout Asia;
. Leverage our strategic relationships throughout Asia;
. Continue to grow our existing consumer and carrier IP telephony
businesses;
. Capture pan-Asian corporate customers with integrated communications
solutions; and
. Develop and provide a broad offering of enhanced IP communications
services.
Our Principal Executive Offices
We incorporated in California in October 1997 under the name Pacific Telekey
Network, Inc. In October 1999, we changed our name to oCen Communications, Inc.
In 2000, we reincorporated in Delaware. Our principal executive offices are
located at 4900 Rivergrade Road, C110, Irwindale, CA 91706, and our telephone
number at that location is (626) 338-6611.
2
<PAGE>
The Offering
<TABLE>
<CAPTION>
Total common stock offered by oCen.................... shares
<C> <S>
Offering in the United States and Canada........... shares
Offering outside the United States and Canada...... shares
Common stock to be outstanding after this offering ... shares
Use of proceeds....................................... We estimate that our net
proceeds from this
offering will be $
million. We intend to
use $ million of our
net proceeds for network
development, sales and
marketing activities,
and technology
acquisition and
development. We expect
to use $ million of
our net proceeds for
other general corporate
purposes, including
working capital. We may
also use a portion of
our net proceeds to
acquire or invest in
complementary businesses
or products. We have no
current plans,
agreements, or
commitments for any
acquisitions. Pending
these uses, we will
invest the net proceeds
of this offering in
interest-bearing,
investment grade
securities.
Proposed Nasdaq National Market Symbol................ OCCM
</TABLE>
The figures above assume no exercise of outstanding options or warrants. As
of December 31, 1999, we had reserved 1,058,805 shares of our common stock for
issuance upon exercise of outstanding options at a weighted average exercise
price of $0.24 per share.
Except as otherwise noted, all information in this prospectus assumes:
. our reincorporation from California to Delaware prior to the
consummation of this offering,
. the conversion of the convertible notes into shares of preferred stock,
. the conversion of all outstanding shares of our preferred stock into
common stock upon the completion of this offering, and
. no exercise of the underwriters' over-allotment option.
All information in this prospectus relating to the number of shares of our
common stock, options, or warrants is based upon information as of , 2000,
assuming a for 1 stock split that will be effected on , 2000.
Except as otherwise noted, all references in this prospectus to "$" or to
"dollars" are to U.S. dollars.
3
<PAGE>
Summary Consolidated Financial Data
The following table sets forth summary consolidated financial data for our
company. You should read this information together with the consolidated
financial statements and the notes to those statements and the information
under "Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus.
<TABLE>
<CAPTION>
Period from Three Months
October 14, 1997 Ended
(Inception) to Year Ended December 31,
September 30, September 30, ----------------
1998 1999 1998 1999
---------------- ------------- ------- -------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues...................... $ 99 $ 2,327 $ 62 $ 1,960
Operating expenses............ 818 6,462 503 6,406
Loss from operations.......... (719) (4,135) (442) (4,446)
Net loss...................... (722) (4,109) (434) (4,446)
Net loss per share:
Basic and diluted........... $(0.16) $ (0.75) $ (0.08) $ (0.79)
Weighted average shares
outstanding used in per
share calculations......... 4,629 5,493 5,372 5,624
Pro forma net loss per
share:
Basic and diluted......... $ (0.54) $ (0.36)
Weighted average shares
outstanding used in pro
forma per share
calculations............... 7,582 12,362
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1999
-----------------------------
Pro
Actual Forma As Adjusted
------- ------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents......................... $ 2,018 $20,018
Working capital (deficit)......................... (3,693) 14,307
Total assets...................................... 11,397 29,397
Long-term debt, excluding current portion......... 502 7,502
Deferred stock compensation....................... (746) (746)
Stockholders' equity.............................. 2,773 15,887
</TABLE>
- --------
. See note 13 of the notes to the consolidated financial statements for a
determination of the number of shares used in computing basic and diluted
net loss per share.
. Pro forma balance sheet data reflects the conversion of all issued and
outstanding shares of convertible preferred stock into common stock upon
the closing of this offering, including 1,066,665 shares of Series D
convertible preferred stock issued in January 2000 for proceeds of
approximately $8.0 million, the portion of the convertible notes issued in
January 2000 for $10.0 million that will convert into 176,470 shares of
common stock, and the estimated impact of the beneficial conversion
features, or BCF, of approximately $8.0 million and $2.1 million relating
to the Series D convertible preferred stock and the convertible notes,
respectively.
. The as adjusted balance sheet data reflects our receipt of the estimated
net proceeds from the sale of the shares of common stock we are selling in
this offering at an initial public offering price of $ per share, after
deducting the underwriting discount and estimated offering expenses payable
by us.
4
<PAGE>
RISK FACTORS
You should carefully consider the following risks in addition to other
information in this prospectus before purchasing our common stock. The risks
and uncertainties described below are the ones that we currently deem to be
material and that we believe are specific to our company, our industry, and
this offering. If any of these or other risks actually occur, the trading price
of our common stock could decline, and you may lose all or a part of your
investment.
RISKS RELATED TO OUR BUSINESS
We have a history of losses, and we anticipate our losses will continue.
We have incurred significant losses since inception, and we expect to
continue to incur significant losses for the foreseeable future. We reported a
net loss of approximately $4.1 million for the year ended September 30, 1999,
and a net loss of $722,114 for the period from our inception to September 30,
1998. As a percentage of revenues, our net loss was 177% for the year ended
September 30, 1999 and 731% for the period from our inception to September 30,
1998. As of December 31, 1999, our accumulated deficit was approximately $9.3
million. Our revenues may not continue to grow or even continue at their
current level. In addition, we expect our operating expenses and capital
expenditures to increase significantly as we develop and expand our business,
especially our offering of corporate integrated communications services. As a
result, we will need to increase our revenues significantly to become
profitable. In order to augment our revenues, we need to attract additional
users to increase the fees we collect for our services. If our revenues do not
grow as much as we expect or if our expenses increase at a greater pace than
our revenues, we may never be profitable, or if we become profitable, we may
not be able to sustain or increase profitability on a quarterly or annual
basis. Furthermore, it is probable that we will have to recognize significant
charges relating to non-cash compensation in connection with options that we
granted as of December 31, 1999. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
We have a limited operating history upon which you can evaluate us.
We have only a limited operating history upon which you can evaluate our
business and prospects. We commenced operations on October 14, 1997. You should
consider our prospects in light of the risks, expenses, and difficulties we may
encounter as an early-stage company in the new and rapidly evolving market for
IP-based communications services. The risks include our ability to:
. increase the number of users of our IP telephony services;
. develop our corporate integrated communications services business;
. build revenues to cover the increased marketing expenditures we have
planned;
. compete effectively;
. increase awareness of our brand and build user loyalty; and
. keep pace with developing technology.
In addition, because we expect an increasing percentage of our revenues to be
derived from our corporate integrated communications services, our past
operating results may not be indicative of our future results.
We may not be able to expand our revenues and achieve profitability.
Our business strategy is to expand our revenue sources beyond our consumer
calling services to the sale of carrier transmission services and corporate
integrated communications services. This pursuit has required and will continue
to require us to make significant additions to our sales and marketing and
technology teams. The large investment in capital and other resources required
to create these new revenue streams will result in significant losses for the
foreseeable future, and we cannot assure you that we will be able to expand our
revenue sources or that this strategy will be profitable.
5
<PAGE>
Currently our revenues are generated primarily from the sale of consumer
calling services. These services generated 100% of our total revenues in each
of the period from inception to September 30, 1998, the year ended September
30, 1999, and the three months ended December 31, 1999. January 2000 was the
first month in which we generated any revenues from carrier transmission
services. Our provision of consumer calling services and carrier transmission
services has not been profitable to date.
In the future, we intend to generate increased revenues from multiple
sources, many of which are unproven, including the commercial sale of corporate
integrated communications services. We expect that our revenues for the
foreseeable future will be dependent on:
. our continued sale of carrier transmission services;
. our ability to develop, launch, and rollout corporate integrated
communications services successfully;
. user traffic levels;
. continued rapid growth of the Internet consumer market;
. continued improvement of the quality of our global network;
. our ability to counteract the effects of competition, adverse regulatory
developments, decreasing international long distance rates, and rising
access and transmission costs on our prices;
. the acceptance and use of Internet communications; and
. the expansion of our service offerings.
We may not be able to sustain our current revenues from the sale of consumer
calling services and carrier transmission services or to generate revenues
successfully from corporate integrated communications services in the future.
We have not yet developed our CommPortal product, and we may not succeed in
being able to develop, launch, and rollout this product.
We have made the determination that to improve our margins over the long run,
we must capture the corporate market for enhanced IP-based services in Asia and
that to do so we must develop an integrated Web-based suite of communications
services for corporate customers. We are therefore in the process of developing
a product that would offer corporate customers a variety of enhanced IP
services including instant messaging, PC-based voice and text chat, Web
conferencing, and unified messaging.
We are, however, still in the initial stages of the development of
CommPortal. We must enter into agreements with technology providers to sell or
license the technologies that will comprise CommPortal. We cannot assure you
that we will be able to enter into these agreements on commercially reasonable
terms. In addition, even after we have identified and licensed or acquired the
applications, we will need to combine these applications into one integrated
solution and add security measures, such as firewalls. We cannot assure you
that we will be able to create an integrated and secure solution in time to
rollout CommPortal as planned or that we will ever be able to offer CommPortal.
Potential fluctuations in our quarterly financial results could make it
difficult for investors to predict our future performance.
Our quarterly operating results may fluctuate significantly in the future as
a result of a variety of factors, many of which are outside our control. The
factors generally within our control include:
. the resources we employ to attract users to purchase our corporate
integrated communications services;
. the amount and timing of expenses we incur to enhance marketing and
promotion efforts and to expand our infrastructure; and
. the timing of announcements or introductions of new services by us.
6
<PAGE>
The factors outside our control include:
. changes in international or domestic telecommunications rates;
. the timing of announcements or introductions of new services by our
competitors;
. technical difficulties or network interruptions in the Internet or in our
managed IP network;
. changes in the regulatory environment; and
. general economic and competitive conditions specific to our industry.
We believe that quarter-to-quarter comparisons of our historical operating
results may not be a good indication of our future performance, nor would our
operating results for any particular quarter be indicative of our future
operating results.
We may be unable to manage our expansion and anticipated growth effectively.
We have grown rapidly and expect to continue to grow at a similar pace. This
growth has placed, and is likely to continue to place, a significant strain on
our managerial, accounting, operational, and financial resources. To manage our
growth, we must continue to implement and improve our operational, accounting,
and financial systems as well as our managerial controls and procedures. We
cannot assure you that we have made adequate allowances for the costs and risks
associated with this expansion, that our systems, procedures, or controls will
be adequate to support our operations, or that our management will be able to
offer and expand our services successfully. We currently rely on a relatively
small core management team. As we grow, we must not only manage demands on this
team but also increase its resources so that it can continue to expand, train,
and manage our employee base and maintain close coordination among our
accounting, finance, marketing, and sales staff. If we are unable to manage our
expanding operations effectively, our revenues may not increase, our cost of
operations may rise, or we may not be profitable.
The loss of one or more of our key customers would cause a significant decrease
in our revenues.
We have historically derived the majority of our revenues from a small number
of customers, particularly Abest Communications and Abest International, or
collectively referred to as Abest, STE Communications, Goldman Network, and
Star Communications. In the year ended September 30, 1999, Abest accounted for
44% of our revenues, STE Communications accounted for 14% of our revenues, and
Goldman Network accounted for 11% of our revenues. For the three months ended
December 31, 1999, Abest accounted for 23% of our revenues, Goldman Network
accounted for 23% of our revenues, STE Communications accounted for 21% of our
revenues, and Star Communications accounted for 11% of our revenues. None of
our customers is obligated to purchase additional products or services from us.
Accordingly, we cannot be certain that present or future customers will not
terminate or significantly reduce their purchasing arrangements with us. Any
termination or reduction by those customers would seriously harm our business,
financial condition, and results of operations.
We are experiencing difficulties in collecting accounts receivable from one of
our major customers and cannot assess the probability of collecting this
receivable.
We are experiencing difficulties in collecting our accounts receivable from
Abest. Abest has been one of our most significant customers, accounting for
approximately 38%, 44%, and 23%, of our total revenues for the period from our
inception through September 30, 1998, the year ended September 30, 1999, and
the three months ended December 31, 1999, respectively. As of December 31,
1999, Abest owed us $815,430, most of which was past due. We believe that non-
payment is the result of a lack of liquidity at Abest. In January 2000,
Tianrong Internet Products and Services, or TIPS, acquired the assets of Abest
but did not assume the liabilities of Abest. We cannot assure you that we will
be able to collect this receivable. Accordingly, we have deferred recognition
of the revenue on the outstanding uncollected receivable due from Abest at
December 31, 1999, and we will recognize revenue on the outstanding receivable
balance only when we collect cash from Abest or otherwise assess the
collectibility of the receivable as probable. Deferred revenue related to the
uncollected Abest receivable at December 31, 1999 represented approximately 36%
of our total deferred revenue. Failure to collect this receivable balance will
negatively impact our financial condition and future cash flows.
7
<PAGE>
We may experience difficulties in collecting future accounts receivable from
distributors.
We primarily sell our calling cards to distributors who resell the cards to
third parties who then sell the calling cards to end users. We extend credit to
those distributors for the outstanding balances they owe us for these cards. We
are obligated to provide services to the end users of the cards regardless of
whether we collect the receivable balances from the distributors. The failure
to collect a significant portion of our accounts receivable from the
distributors will have a material adverse impact on our business, financial
condition, results of operations, and cash flows.
IP-based communications alternatives may not achieve widespread acceptance,
which could cause our business to fail.
Our ability to sell our services to end users may be inhibited by the
reluctance of some end users to switch from traditional communications carriers
to IP communications carriers and by concerns with the quality of Internet and
IP telephony and the adequacy of security in the exchange of information over
the Internet. End users in markets serviced by recently deregulated
telecommunications providers are not familiar with obtaining services from
competitors of these providers and may be reluctant to use new providers such
as our company. In addition, international and domestic telecommunications
rates are declining, which in turn is reducing the competitive pricing
advantage that IP telephony provides to end users. IP communications may not
prove to be a satisfactory alternative to traditional telephone service for
reasons including:
. inadequate development of the necessary infrastructure;
. lack of acceptable security technologies; and
. lack of timely development and commercialization of performance
improvements.
Our ability to generate revenues from corporate integrated communications
services depends on the migration of traditional telephone network traffic to
our IP network. We will need to devote substantial resources to educating end
users about the benefits of IP-based communications solutions in general and
our services in particular, and as a result, we expect to incur significant
expenditures for advertising and marketing activities in 2000. Potential end
users who have already invested substantial resources in traditional telephone
service may be reluctant or slow to adopt a new technology that makes their
existing equipment obsolete. If end users do not accept our corporate
integrated communications services as a means of sending and receiving
communications, we will not be able to increase our number of users or generate
revenues from those services in the future.
In particular, critical issues such as security, reliability, cost, ease of
deployment, administration, and quality of service may affect the adoption of
IP telephony services as the means to meet business needs in Greater China and
other parts of Asia.
Operating internationally exposes us to additional and unpredictable risks.
As of December 31, 1999, substantially all of our traffic originated in the
United States and terminated in Asia, generating virtually all of our revenues
during the three months ended December 31, 1999. We intend to continue to enter
additional markets in Asia and to expand our existing operations outside the
United States, specifically in East Asia including Taiwan, Hong Kong, and the
People's Republic of China, or PRC. International operations are subject to
inherent risks, including:
. political, social, and economic instability;
. potentially weaker protection of intellectual property rights;
. unexpected changes in regulatory requirements and tariffs;
. export restrictions;
. fluctuations in exchange rates and imposition of exchange controls;
. varying tax consequences; and
. uncertain market acceptance and difficulties in marketing efforts because
of cultural differences.
8
<PAGE>
Volatility in economic, social, and political conditions in Asia may interrupt,
limit, or otherwise adversely affect our operations.
We expect to derive a substantial portion of our future revenues from Asian
markets. In 1998, many countries in Asia began to experience significant
economic downturns and related difficulties, including:
. reduced or even negative economic growth rates;
. substantial currency depreciations;
. high interest rates;
. corporate bankruptcies;
. declines in the market values of shares listed on stock exchanges and
other assets;
. reduced foreign investments in Asian countries; and
. government-imposed austerity measures.
As a result, there was a general decline in business and consumer spending and
a decrease in economic growth as compared to prior years. Although the
economies of Taiwan and Hong Kong have recently shown signs of improvement, the
economic downturn in Asia has not significantly slowed, and future economic
developments in countries throughout Asia could materially adversely affect our
business, financial condition, and results of operations.
Volatility has historically been caused by:
. significant governmental influence over many aspects of local economies;
. political instability;
. unexpected changes in regulatory requirements;
. social unrest;
. imposition of trade barriers; and
. wage and price controls.
We have no control over these matters. Volatility resulting from these matters
may create uncertainty regarding our operating climate or adversely affect our
customers' operating budgets, which may adversely impact our business.
Political and economic policies of the PRC government could harm our business.
A substantial majority of our traffic is terminated in the PRC. In the
future, we expect to generate significant revenues from originating traffic in
the PRC. Since the late 1970s, the PRC government has been reforming the PRC
economic system. These reforms have resulted in significant economic growth and
social progress, but this growth has been uneven across geographic and economic
sectors and has recently been slowing. We cannot assure you that this growth
will continue or that any slowdown will not have a negative effect on our
business. The PRC economy is also experiencing deflation, which may continue in
the future. To offer services in the PRC, we must develop and maintain
strategic partnerships with communications providers who are licensed to
operate in the PRC. We may not be able to form or maintain these strategic
relationships in the PRC or to structure our relationships with PRC companies
in the manner most advantageous to us. Changes in political, economic, and
social conditions in the PRC, adjustments in policies of the PRC government, or
changes in laws and regulations could adversely affect our business.
Payment under business arrangements may be subject to currency risk and foreign
exchange control in the PRC.
We expect to derive a significant portion of our revenues from our business
activities in the PRC. These business activities will be subject to PRC rules
and regulations on currency conversion. Exchange rate fluctuations of the
Renminbi, the currency of Mainland China, may adversely affect our operations.
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The Renminbi fluctuates because of changes in PRC government policies and
international economic and political developments. In early 1994, the Renminbi
experienced a devaluation against most of the major currencies. Since then, the
official exchange rate for the conversion of the Renminbi to U.S. dollars has
started to stabilize. However, we cannot assure you that the Renminbi will not
become volatile or that it will not be devalued by the PRC government.
Present PRC law imposes no restrictions on settlement of current account
transactions in currencies other than the Renminbi. We cannot assure you that
this will continue. For foreign exchange transactions under capital accounts,
such as capital contributions and purchase of fixed assets, restrictions are
imposed on the receipt and payment of currencies other than the Renminbi and
prior approval from the State Administration of Foreign Exchange is required.
We cannot assure you that our business partners in the PRC will be able to
freely pay us in any currency other than the Renminbi or that if we are paid in
Renminbi, we will be able to remit the Renminbi payments out of the PRC.
If the PRC does not become a member of the World Trade Organization, the PRC
regulatory environment may liberalize more slowly than expected, if at all.
Although the PRC has entered into agreements with some governments to
gradually open up the telecommunications sector to foreign investment upon its
accession to the World Trade Organization, or WTO, we cannot assure you that
this liberalization will actually take place. In addition, we cannot assure you
that issuance of additional detailed regulations intended to open up the
telecommunications sector to foreign investment will actually allow foreign
ownership in telecommunications-related businesses in the PRC.
There are economic risks associated with doing business in Taiwan.
A significant portion of our traffic is terminated in Taiwan. In the future,
we expect to generate significant revenues from originating traffic in Taiwan.
The PRC asserts sovereignty over mainland China and Taiwan and does not
recognize the legitimacy of the Taiwan government. Although significant
economic and cultural relations have been established during recent years
between Taiwan and the PRC, the PRC government has indicated that it may use
military force to gain control over Taiwan if Taiwan declares independence or
if any foreign power interferes in Taiwan's affairs. Relations between Taiwan
and the PRC and other factors affecting the political or economic conditions of
Taiwan could affect our business and the market price and liquidity of our
shares.
Between late 1997 and early 1999, the NT dollar, the currency of Taiwan,
experienced considerable volatility and depreciation as a result of the
economic downturn in Asia. Continued volatility and depreciation of the NT
dollar could harm our business. Taiwan has recently experienced a recession
primarily due to a reduction in exports due to weakened demand for imported
goods in many Asian countries. A continued recession in Taiwan may adversely
affect our business.
There are economic risks associated with doing business in Hong Kong.
Hong Kong is a Special Administrative Region of the PRC with its own
government and legislature. Hong Kong maintains a high degree of autonomy from
the PRC under the principle of one country, two systems. We cannot assure you
that Hong Kong will continue to maintain autonomy from the PRC.
The Hong Kong dollar has remained relatively constant due to the U.S. dollar
peg and currency board system that has been in effect in Hong Kong since 1983.
Since mid-1997, interest rates in Hong Kong have risen significantly, real
estate and retail sales have declined, and Hong Kong has slipped into a
recession. In early 1999, Hong Kong suffered deflation, and the Hong Kong
dollar was subject to currency speculation. We cannot assure you that the Hong
Kong economy will not worsen or that the historical currency peg of the Hong
Kong dollar to the U.S. dollar will be maintained. Recession in Hong Kong,
deflation, or the discontinuation of the historical peg could adversely affect
our business.
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Fluctuations in the values of foreign currencies could have a negative effect
on our profitability.
In the course of our international operations, we incur expenses in a number
of currencies. In the future, as we expand by providing corporate integrated
communications services, we may also receive revenues in foreign currencies. We
do not currently engage in currency hedging activities to limit the risks of
exchange rate fluctuations. Fluctuations in the value of foreign currencies
could have a negative impact on the profitability of our global operations,
which would harm our business, financial condition, and results of operations.
In addition, fluctuations in the value of the U.S. dollar against foreign
currencies may make our products and services more expensive than local product
offerings.
If we do not develop the oCen brand, we may not be able to secure and maintain
a leading position in our industry.
To secure a leading position in our industry, we must strengthen the
awareness of the oCen brand. If we fail to create and maintain brand awareness,
it could adversely affect our ability to sell consumer calling services,
carrier transmission services, and corporate integrated communications services
or reduce our attractiveness to potential partners. Brand recognition may
become more important in the future with a growing number of IP communications
providers.
We will need additional capital to finance our operations in the future, and it
may not be available on acceptable terms or at all, which could force us to
limit or cease our operations.
We intend to continue to enhance and expand our network to maintain our
competitive position and meet the increasing demands for service quality,
capacity, and competitive pricing. The introduction of our new corporate
integrated communications services will require significant marketing and
promotional expenses. If our cash flow from operations is not sufficient to
meet our capital expenditure and working capital requirements, we will need to
raise additional capital. Raising capital may require us to issue additional
equity, which could cause investors to experience dilution. We cannot assure
you that any other source will be willing or able to provide additional capital
on acceptable terms or at all. If we are unable to obtain additional capital,
we may be required to reduce the scope of our business or our anticipated
growth, which would reduce our revenues.
We depend on our suppliers for the continued operation of our business.
We are dependent upon our suppliers of equipment and software, including
Cisco routers, Clarent gateways and software, Oracle software, and Sun
Microsystems servers to develop and maintain our network and services. If our
suppliers cease to provide us with the equipment and software necessary for the
operation of our network or to maintain our current equipment, we may not be
able to identify alternate sources of supply in a timely fashion. Any
transition to alternate suppliers would be likely to result in delays,
operational problems, or increased expenses and may limit our ability to
provide services to our users or expand our operations.
If our network is unable to accommodate our capacity needs, this may damage our
reputation, which could result in a loss of customers.
We expect the volume of traffic we carry over our network to increase
significantly as we expand our operations and service offerings. Our network
may not be able to accommodate this additional volume. If the usage of IP
communications services grows, our managed IP network may not be able to
support the demands placed on it by that growth, and its performance or
reliability may then decline. To ensure that we are able to handle additional
traffic, we may have to enter into long-term agreements for leased capacity. To
the extent that we overestimate our capacity needs or the prices for capacity
decrease, we may be obligated to pay for more transmission capacity than we
actually use or to pay higher prices for the capacity we use, resulting in
costs without corresponding revenues. On the other hand, if we underestimate
our capacity needs, we may be
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required to obtain additional transmission capacity from more expensive
sources. If we are unable to maintain sufficient capacity to meet the needs of
our users, our reputation could be damaged and we could lose users.
Damage to our systems and network could interrupt service and result in reduced
revenues and harm to our reputation.
Our business depends on the efficient and uninterrupted operation of our
computer and communications systems as well as those that connect to our
network. We maintain communications systems in Southern California and Taiwan,
which are seismically active regions. In addition, our systems and those that
connect to our network are subject to disruption from other natural disasters,
or other sources of power loss, communications failures, intentional acts of
vandalism, hardware or software malfunctions, network failures, and other
events both within and beyond our control. Any system interruptions that cause
our services to be unavailable, including significant or lengthy telephone
network failures or difficulties for users in communicating through our network
or our website, could damage our reputation and result in a loss of users.
Our computer systems and operations may be vulnerable to security breaches.
Our operations depend on the integrity and security of our network and
systems and our ability to protect them from unauthorized access,
modifications, or use by third parties. Our computer infrastructure is
potentially vulnerable to computer viruses, break-ins, and similar security
breaches that could cause interruptions, delays, or loss of services to our
users. We believe that the secure transmission of confidential information,
such as credit card numbers, over the Internet is essential in maintaining user
confidence in our services. We rely on licensed encryption and authentication
technology to effect secure transmission of confidential information. It is
possible that advances in computer capabilities, new technologies, or other
developments could result in a compromise or breach of the technology we use to
protect confidential information. A party who is able to circumvent our
security systems could misappropriate proprietary information or cause
interruptions in our operations. Security breaches also could damage our
reputation, result in the expenditure of significant financial and managerial
resources, and expose us to a risk of loss, litigation, or liability.
Third parties may infringe our intellectual property.
To protect our rights to our intellectual property, we rely on a combination
of trademark and trade secret laws and confidentiality agreements and other
contractual arrangements with our employees, affiliates, strategic partners,
and others. We do not currently own any issued patents. We may be unable to
prevent or detect the unauthorized use of, or to enforce effectively, our
intellectual property rights. In addition, effective trademark, copyright, and
trade secret protection may not be available in every country in which we offer
or intend to offer our services. Although we have taken steps to protect our
intellectual property rights, we cannot assure you that those steps will be
sufficient or effective. Failure to protect our intellectual property
adequately could harm our brand, devalue our proprietary content, and affect
our ability to compete effectively. Further, defending our intellectual
property rights could result in the expenditure of significant financial and
managerial resources.
Our services may infringe the intellectual property of third parties.
Third parties may assert claims that we have infringed a patent, copyright,
trademark, or other proprietary right belonging to them. We incorporate
licensed third-party technology in some of our services. In these license
agreements, the licensors have agreed to indemnify us with respect to any claim
by a third party that the licensed property infringes any patent or other
proprietary right so long as we have not made changes to the licensed property.
We cannot assure you that these provisions will be adequate to protect us from
infringement claims. If we are found liable for infringement, we may have to
pay damages or royalties to a third party or be unable to offer the portion of
our services that is found to be infringing. Redesigning these services to
avoid the infringement could result in the expenditure of significant financial
and managerial resources. Defending against any infringement claims, even those
that are not meritorious, could result in the expenditure of significant
financial and managerial resources.
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Competition for highly skilled personnel is intense and the success of our
business depends on our ability to attract, retain, and manage key personnel.
Competition for qualified employees and personnel in the communications
services industry is intense, and there are a limited number of people with
knowledge of and experience in this industry, particularly in Asia. As we
continue to grow, we will need to hire additional personnel in all areas. In
particular, we will need to hire additional sales and marketing personnel to
expand sales to corporate customers as we roll out our CommPortal product in
Asia. Our success depends to a significant degree upon our ability to attract
and retain qualified management, technical, and sales and marketing personnel
and upon the continued contributions of our existing management and personnel.
In particular, our success is highly dependent upon the abilities of our senior
management, particularly Steven San Eng, James Courtney, and Alex Liu. The loss
of the services of any one of these individuals could have a material adverse
effect on our business, financial condition, and results of operations. We do
not have employment agreements with any of our executive officers or maintain
key person insurance on them.
Acquisitions may disrupt our business and divert the attention of management.
Our industry is characterized by growth through acquisitions. Currently, we
do not have any commitments or agreements for acquisitions. To compete
effectively, however, we may engage in acquisitions in the future. To the
extent we complete acquisitions, they could pose risks, including the
following:
. undue diversion of management's attention;
. the assimilation of the operations and personnel of the acquired
companies;
. the integration of acquired assets with existing assets;
. potential adverse short-term effects on reported operating results;
. the amortization of acquired intangible assets; and
. the loss of key employees.
Our acquisitions may not result in any return, or a sufficient return, on our
investment, and we may lose all, or substantially all, of our investment.
RISKS RELATED TO THE IP COMMUNICATIONS INDUSTRY
Intense competition could reduce our market share and harm our financial
performance.
Competition in the market for communications services is becoming
increasingly intense and is expected to increase significantly in the future
from a variety of companies both in the Internet and telecommunications
industries including traditional telecommunications carriers, Internet service
providers, or ISPs, and ICSPs. These and other competitors may be able to
bundle services and products that we do not offer with enhanced Internet and IP
communications services, which could place us at a significant disadvantage.
Many of these companies have greater resources and larger subscriber bases than
we have and have been in operation longer.
We compete in the growing market for competitively priced consumer long
distance services, including calling cards, call-back services, dial-around or
10-10 calling, and collect calling services. We also compete with
telecommunications providers, long distance carriers, and other long distance
resellers and providers of carrier services for our carrier transmission
services.
If we are unable to provide competitive service offerings, we may lose
existing users and be unable to attract additional users. In addition, many of
our competitors, especially traditional carriers, enjoy economies of scale that
result in a lower cost structure for transmission and related costs, which
causes significant pricing pressures within the industry. This pricing pressure
has begun to negatively impact our gross margin. In addition, many of our IP
telephony competitors use only the Internet, rather than a managed IP network,
to transmit traffic. Operating and capital costs of these providers may be less
than ours, potentially giving them a competitive advantage over us in terms of
pricing.
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The Greater China and Asian IP communications market is intensely competitive
and characterized by an increasing number of entrants because the start-up
costs are low. In addition, the Asian telecommunications industry is relatively
new and subject to continuing definition and as a result, our competitors may
better position themselves to compete in this market as it matures. Recent and
pending deregulation of some of these markets may further encourage new
entrants.
The Hong Kong telecommunications industry is also highly competitive.
Companies compete in Hong Kong on the basis of price and quality. The
heightened level of competition in Hong Kong may result in a further reduction
in the prices for telecommunications services in the Hong Kong market. If
pricing pressures continue, this situation may have a material adverse effect
on the future growth and profitability of our Hong Kong business. Existing and
future competition may adversely affect our results of operations.
In addition to these competitive factors, recent and pending deregulation in
some of our markets may encourage new entrants. We cannot assure you that
additional competitors will not enter markets that we plan to serve or that we
will be able to compete effectively.
Decreasing telecommunications rates may diminish or eliminate our competitive
pricing advantage.
Decreasing telecommunications rates may diminish or eliminate the competitive
pricing advantage of our consumer calling services and carrier transmission
services. International and domestic telecommunications rates have decreased
significantly over the last few years in most of the markets in which we
operate, and we anticipate that rates will continue to decline in all markets.
Users who select our IP telephony services to take advantage of the current
pricing differential between traditional telecommunications rates and our rates
may switch to traditional telecommunications carriers as pricing differentials
diminish or disappear. We will be unable to use pricing differentials to
attract new customers in the future. In addition, our ability to market our
consumer calling services to customers depends upon the existence of spreads
between the rates offered by us and the rates offered by traditional
telecommunications carriers as well as a spread between the retail and
wholesale rates charged by the carriers from which we obtain wholesale service.
Continued rate decreases will require us to lower our rates to remain
competitive and will reduce or possibly eliminate our gross profit from our
consumer calling services. If telecommunications rates continue to decline, we
may lose users of our consumer calling services and may not be able to generate
revenues from our other IP telephony services. Because the margins on our
consumer calling services are continuing to decline, we must develop and
introduce our corporate integrated communications services on a timely basis to
achieve long term profitability.
U.S. government regulation and legal uncertainties relating to IP telephony
could harm our business.
Changes in the regulatory environment in the United States could have a
material adverse impact on our business. Traditionally, voice communications
services were provided by regulated telecommunications common carriers through
the use of circuit-switched technology. We offer voice communications to the
public for international calls using packet-switched IP telephony technology,
which has, to date, largely avoided the scope of government regulation applied
to traditional telecommunications common carriers. We believe that our IP
telephony services presently satisfy the legal and regulatory definitions of
information services, which are subject to far less government regulation under
U.S. law than telecommunications services. However, the growth of IP telephony
has prompted closer examination in many governmental jurisdictions as to
whether and how IP telephony should be regulated, thus creating uncertainty as
to the present legal status of our services. That status is subject to further
change as a result of future regulatory action, judicial decisions, or
legislation in any of the jurisdictions in which we operate. In particular, the
Federal Communications Commission, or FCC, which regulates interstate and
international communications in the United States, could issue a decision
addressing the regulatory status of IP telephony. Although, to date, it has not
acted to treat IP telephony as a regulated telecommunications service, the FCC
has said that IP telephony appears to have many characteristics of a
telecommunications service. If the FCC ultimately determines that IP telephony
is, or shares many characteristics with, a telecommunications service, the FCC
could regulate IP telephony as a telecommunications service or otherwise
subject IP telephony to increased regulation.
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Much of the impetus for regulatory change could come from established
regulated telecommunications carriers who have sought and may continue to seek
regulatory, legislative, and judicial actions to restrict the ability of
companies such as ours to provide IP telephony services or to increase the
cost, through additional regulatory burdens, of providing those services.
Whatever the impetus, one area of increased regulation could focus on the
distinction between phone-to-phone telephony service over managed IP networks
on the one hand and integrated PC-to-PC and PC-originated voice services over
the Internet on the other hand. Changes in law or regulation could require the
former to be regulated as telecommunications services while leaving the latter
as unregulated information services. Since we offer phone-to-phone IP telephony
service over managed IP networks, that kind of decision could have a material
adverse effect on our business.
Application of new regulatory restrictions or requirements could materially
increase our costs of doing business in other ways as well or, in some
circumstances, even prevent our provision of certain services. For example, if
our IP telephony services become subject to the international settlement rate
regime or access charges, the material increase in our costs could offset the
competitive advantage we have over traditional international carriers. If other
regulatory changes prevent us from delivering our services under our current
arrangements, we would have to consider alternate arrangements for providing
our services, including changing our service arrangements with partners or
limiting our service offerings. Other changes in law or regulation could
similarly limit our service offerings, raise our costs, restrict our pricing
flexibility, and limit our ability to compete effectively. Regulations and laws
that affect the growth of the Internet could likewise hinder our ability to
provide our services over the Internet.
The telecommunications infrastructure in the PRC is developing and may not be
reliable.
Access to the Internet is accomplished primarily by means of the government's
backbone of separate national interconnecting networks that connect with the
international gateway to the Internet. This backbone is owned by the PRC
government and is the only channel through which the domestic PRC Internet
networks can connect to the international Internet network. Although private
sector ISPs exist in the PRC, almost all access to the Internet is accomplished
through ChinaNet, the PRC's primary commercial network, which is owned and
operated by the PRC government. Internet users have no means of getting access
to alternative networks and service, on a timely basis or at all, in the event
of any disruption or failure.
Our business partners in the PRC will continue to depend on the PRC
government to establish and maintain a reliable Internet infrastructure to
reach a broader base of Internet users in the PRC. We cannot assure you that
the Internet infrastructure in Greater China will support the demands
associated with continued growth. If the necessary infrastructure standards or
protocol or complementary products, services, or facilities are not developed,
our business could be materially adversely affected.
The legal framework for telecommunications businesses in the PRC is developing
and may change in ways that would adversely affect our ability to operate and
grow our business in the PRC.
The legal framework governing the telecommunications industry in the PRC is
not well established and may change. Laws and regulations may be introduced in
the PRC governing various aspects of the industry and the use of the Internet
as a medium for conducting business. We cannot predict the effect of further
developments in the Chinese legal system, particularly with regard to the
Internet, including the promulgation of new laws, changes to existing laws or
their interpretation or enforcement, or the preemption of local regulations by
national laws.
In particular, the interpretation and enforcement of existing laws and
regulations may change. Existing laws with respect to, for example,
advertising, distribution of news, or publishing could be applied to Internet-
related businesses but are currently not enforced against these businesses. If
the PRC government should at any time construe existing laws against Internet-
related businesses more strictly or enact new laws dealing with Internet-
related businesses, our business could be materially adversely affected.
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The issuance of new regulations from various governmental departments may
result in overlapping mutually contradictory regulations. This situation could
result in uncertainty for business operations of Internet companies in the PRC
and add to the complexity and intrusiveness of the regulatory environment in
which Internet companies operate.
The legal framework with respect to the Internet and telecommunications is
developing in Hong Kong and may evolve in ways adverse to our business.
In Hong Kong, only a few pieces of legislation are directly applicable to
Internet-related businesses. It is possible that the legislature may introduce
new laws covering issues such as content, copyright, distribution, and quality
of products and services. The enactment of any new laws or regulations may
hinder the growth of our consumer calling and carrier transmission services
businesses or our other prospective business activities. In addition, changes
in Hong Kong's telecommunications policies, including any policy change
regarding competition, could have a material adverse effect on our business.
The introduction of any new laws and regulations or changes to existing laws
and regulations that restrict our ability to operate or that lead to increased
compliance costs would have a material adverse impact on our business. In
particular, operations set up on the basis of a current understanding of the
legislative regime may, in the event of a misinterpretation of applicable law
or practice, any changes in that law or practice, or a change in its
interpretation or enforcement policy, result in the established operations
being, or being deemed to be, in breach of law or subject to new or additional
requirements. If our operations cannot be modified to conform to the then
applicable law or practice or its interpretation, we may be unable to conduct
this part of our business.
Our business in Hong Kong is regulated by the Office of the
Telecommunications Authority of Hong Kong, or OFTA. OFTA regulates the
telecommunications industry in Hong Kong and ensures that the widest range of
quality telecommunications services are available at reasonable cost. OFTA has
the authority to license telecommunications services. Any additional
restrictions or conditions that OFTA imposes on our Hong Kong business may
materially adversely affect our results of operations.
Our wholly owned subsidiary in Hong Kong obtained a Public Non-Exclusive
Telecommunications Service, or PNETS, license dated February 9, 1999. This
license, which was valid for twelve months, has expired. We are currently in
the process of renewing this license. Although we believe that we will be able
to extend this license, we cannot assure you that a renewal will be granted. If
OFTA does renew our license, it will be subject to suspension, revocation, or
withdrawal by OFTA under certain circumstances, including the violation of
telecommunications laws and regulations, and additional penalties may be
imposed. Current OFTA policy encourages fair and effective competition. To
achieve this goal, it has not placed a limit on the number of licenses issued.
Any restrictions imposed on the number of licenses may adversely affect the
renewal of our PNETS license.
If we are unable to keep pace with rapid technological changes in the
communications industry, our revenues will decrease.
Our industry is subject to rapid technological change and evolving industry
standards. We cannot predict the effect of technological changes on our
business. We expect that new services and technologies will emerge in the
markets in which we compete. These new services and technologies may be
superior to the services and technologies that we use, or these new services
may render our services and technologies obsolete. In addition, widely accepted
standards have not yet developed for the technologies we use.
To be successful, we must adapt to our rapidly changing markets by
continually improving and expanding the scope of services we offer and by
developing new services and technologies to meet customer needs. Our success
will depend, in part, on our ability to license or acquire leading technologies
to develop our corporate integrated communications services and to respond to
technological advances and emerging industry standards on a cost-effective and
timely basis. We will need to spend significant amounts of capital to enhance
and expand our services to keep pace with changing technologies or our revenues
will decline.
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RISKS RELATED TO THIS OFFERING
Stock prices of Internet-related companies have fluctuated widely in recent
months, and the trading price of our common stock is likely to be volatile,
which could result in substantial losses to investors.
The trading price of our common stock is likely to be volatile and could
fluctuate widely in response to a number of factors, some of which are beyond
our control. For a list of these factors, see "Risk Factors--Potential
fluctuations in our quarterly financial results could make it difficult for
investors to predict our future performance." In particular, following initial
public offerings, the market prices for stocks of Internet and technology-
related companies often reach levels that bear no established relationship to
the operating performance of these companies. The market prices of the
securities of Internet-related and online companies have been especially
volatile. These broad market and industry factors may significantly harm the
market price of our common stock, regardless of our actual or operating
performance.
We may in the future be the target of securities class action litigation, which
could be costly and time-consuming to defend.
The trading price of our common stock is likely to be highly volatile. In the
past, securities class action litigation has often been brought against a
company following periods of volatility in the market price of its securities.
Securities class action litigation, if initiated against us, could result in
substantial costs and the diversion of our management's attention and
resources.
No prior public market exists for our common stock, and an active trading
market may not develop.
Prior to this offering, there has been no public market for our common stock.
We cannot be sure that an active trading market for the common stock will
develop or continue as a result of this offering. Through negotiations with the
underwriters, we will determine the public offering price of the shares of our
common stock. This price will not necessarily relate to our book value, assets,
past operating results, financial condition, or other established criteria of
value. As a result, the shares being offered may trade at market prices below
the initial public offering price.
Sales of additional shares of our common stock into the public market may cause
our stock price to fall.
Sales of substantial amounts of our common stock in the public market after
this offering or the perception that substantial sales could occur may
adversely affect the prevailing market price of our common stock. These sales
also might make it difficult for us to sell equity securities in the future at
a time and price that we deem appropriate. Upon completion of this offering, we
will have shares of common stock outstanding or shares of common stock
outstanding if the underwriters exercise their over-allotment option in full.
This amount includes shares we are selling in this offering, which may be
immediately resold in the public market. The holders of the remaining shares
have "demand" and "piggyback" registration rights, and these shares will become
eligible for resale 180 days following the completion of this offering, subject
to Rule 144 under the Securities Act of 1933, as amended. We, our officers,
directors, and some existing stockholders have agreed that without the prior
written consent of Lehman Brothers, we and they will not, directly or
indirectly, offer, sell, or otherwise dispose of any shares of capital stock or
any securities that may be converted into or exchanged for any shares of
capital stock for a period of 180 days from the date of this prospectus. 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
1998 and 2000 stock option plans and our 2000 employee stock purchase plan. We
expect the additional registration statement to become effective immediately
upon filing. Sales of a large number of shares could have an adverse effect on
the market price of our common stock.
Provisions of our certificate of incorporation, bylaws, and Delaware law could
make it more difficult for a third party to acquire us, even if doing so would
be beneficial to our stockholders.
Provisions of our certificate of incorporation and bylaws impose various
procedural and other requirements, including the existence of a classified
board of directors with staggered, three-year terms, that could make it more
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difficult for third parties to acquire us or for stockholders to effect certain
corporate actions. Upon consummation of the offering, our certificate of
incorporation will allow our Board of Directors to issue up to shares of
preferred stock and to fix the rights, privileges, and preferences of these
shares without any further vote or action by the stockholders. The rights of
the holders of our common stock will be subject to, and may be adversely
affected by, the rights of the holders of any preferred stock that we may issue
in the future. While we have no present intention to issue shares of preferred
stock, any issuance could be used to discourage, delay, or make more difficult
a change in control of us. In addition, our certificate of incorporation
imposes restrictions on calling special meetings of stockholders and prohibits
stockholder action by written consent. Our bylaws impose restrictions on
introducing stockholder proposals. Each of these features could also be used to
discourage, delay, or make more difficult a change in control of us. See
"Description of Capital Stock."
Minority stockholders may not be able to elect any of our directors, which
could deter a takeover even if beneficial to our stockholders.
Following the offering, our existing stockholders will, in the aggregate,
beneficially own % of our common stock. These stockholders will be able to
exercise control over all matters requiring approval by our stockholders,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership may also have the effect of
delaying or preventing a change in control of our company, which could have a
material adverse effect on our stock price.
You will face immediate and substantial dilution in net tangible book value.
The initial public offering price of our common stock is expected to exceed
substantially the tangible net book value per share of the common stock
immediately after this offering. As an investor in this offering, you will pay
$ per share, and the net tangible book value per share is expected to be $
immediately after the offering. The net tangible book value per share
represents the amount of our total assets less total liabilities, divided by
the number of shares of common stock outstanding immediately after the
offering. In addition, to the extent that outstanding options to purchase
common stock are exercised, there could be substantial additional dilution.
Furthermore, investors in this offering will contribute approximately % of our
net tangible assets but will own only approximately % of the company.
We do not intend to pay cash dividends to our stockholders.
We have never declared or paid any cash dividends on our capital stock. We
intend to retain any future earnings to finance our operations and to expand
our business and do not expect to pay any cash dividends in the foreseeable
future.
We have broad discretion as to use of proceeds and may not use the proceeds in
ways that enhance our market value or results of operations.
Our management can spend most of the proceeds from this offering in ways with
which our stockholders may not agree. Our management will have broad discretion
in applying the net proceeds of this offering, and you will not be able, as
part of your investment decision, to assess or direct how we apply the net
proceeds. Furthermore, our stock price could decline if the market does not
view favorably our use of the proceeds from this offering.
18
<PAGE>
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that address:
. trends in IP telephony services;
. trends in government and international regulations;
. our strategies;
. our use of proceeds;
. our liquidity; and
. our financial condition and results of operations.
These forward-looking statements may be found in "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business," and elsewhere in this
prospectus. In some cases you can identify forward-looking statements by
terminology including "believe," "anticipate," "expect," "estimate," "may,"
"will," "should," "could," "plan," "predict," "potential," "continue," or
similar terms. 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. The forward-looking
statements involve known and unknown risks, uncertainties, and other factors
that may cause actual results to be materially different from any future
results expressed or implied by the forward-looking statements. These factors
include those listed under "Risk Factors" and elsewhere in this prospectus. We
undertake no duty to update any of the forward-looking statements after the
date of this prospectus, even if new information becomes available or other
events occur in the future. All forward-looking statements contained in this
prospectus are expressly qualified in their entirety by this cautionary notice.
19
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of the shares of common stock in the
offering, assuming an initial public offering price of $ per share and after
deducting an assumed underwriting discount and estimated offering expenses, are
estimated to be $ million or $ million if the underwriters' over-
allotment option is exercised in full. We intend to use $ for network
development, marketing activities, and technology acquisition and development.
We expect to use $ for other general corporate purposes, including working
capital. The amounts actually expended for working capital purposes may vary
significantly and will depend on a number of factors, including the amount of
our future revenues and the other factors described under "Risk Factors."
Accordingly, we will retain broad discretion in the allocation of the net
proceeds of this offering. We may also use a portion of the net proceeds to
acquire or invest in complementary businesses or products. We have no current
plans, agreements, or commitments with respect to any acquisition. Pending
these uses, we will invest the net proceeds of this offering in interest-
bearing, investment grade securities.
DIVIDEND POLICY
We expect to retain any earnings to finance the expansion and development of
our business and have no plans to pay cash dividends after the offering for the
foreseeable future. The payment of dividends is within the discretion of our
board of directors and will depend on our earnings, capital requirements, and
operating and financial condition, among other factors.
20
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
. on an actual basis;
. on a pro forma basis to reflect the automatic conversion of all
outstanding shares of convertible preferred stock into shares of common
stock upon the closing of this offering, including 1,066,665 shares of
our Series D convertible preferred stock issued in January 2000 for
proceeds of approximately $8.0 million, the portion of the convertible
notes issued in January 2000 for $10.0 million that will convert into
176,470 shares of common stock, and the estimated impact of the BCF of
approximately $8.0 and $2.1 million relating to the Series D convertible
preferred stock and convertible notes, respectively; and
. on an as adjusted basis to give effect to the pro forma adjustments and
the receipt of the estimated net proceeds from the sale of
shares of common stock at the initial public offering price of $
per share.
You should read this table in conjunction with "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the consolidated financial statements and their
related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of December 31, 1999
-------------------------------
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands, except share
data)
<S> <C> <C> <C>
Cash and cash equivalents....................... $ 2,018 $ 20,018
======= ======== ===
Long-term obligations, net of current portion... 502 7,502
------- --------
Stockholders' equity:
Convertible preferred stock, $0.001 par value;
10,600,000 shares authorized; 7,339,451
shares issued and outstanding, actual; no
shares issued and no shares outstanding, pro
forma and as adjusted........................ 7 --
Common stock, $0.001 par value; 27,850,000
shares authorized; 6,000,000 shares issued
and outstanding, actual; 14,582,586 shares
issued and outstanding, pro forma; shares
issued and outstanding, pro forma and as
adjusted..................................... 6 15
Additional paid-in capital.................... 12,849 33,961
Accumulated deficit........................... (9,276) (17,276)
Notes receivable from stockholders............ (67) (67)
Deferred stock compensation................... (746) (746)
------- --------
Total stockholders' equity.................. 2,773 15,887
------- --------
Total capitalization...................... $ 3,275 $ 23,389
======= ========
</TABLE>
The tables and calculations above assume no exercise of outstanding options
or warrants. As of December 31, 1999, there were 1,058,805 shares of our common
stock reserved for issuance upon exercise of outstanding options at a weighted
average exercise price of $0.24 per share.
21
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $15.9 million, or approximately $1.09 per share, after giving
effect to the following:
. 1,066,665 shares of our Series D preferred stock issued in January 2000
for proceeds of approximately $8.0 million;
. the assumed issuance of 176,470 shares of common stock related to the
portion of our convertible notes issued in January 2000 that converts
into common stock; and
. the related estimated impact of the BCF of approximately $8.0 million
and $2.1 million related to the Series D convertible preferred stock and
convertible notes, respectively.
Pro forma net tangible book value per share is equal to total tangible assets
(total assets less intangible assets) less total liabilities, divided by the
pro forma number of shares of common stock then outstanding. As of December 31,
1999, after giving effect to the sale by us of shares in the offering at an
assumed initial public offering price of $ , our pro forma net tangible book
value (after deduction of an assumed underwriting discount and estimated
offering expenses and the application of the net proceeds) would have been
approximately $ million or $ per share. This amount represents an
immediate increase in pro forma net tangible book value of $ per share to
existing stockholders and an immediate dilution of $ per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $
Pro forma net tangible book value per share as of December 31,
1999.......................................................... $1.09
Increase per share attributable to new investors...............
-----
Pro forma net tangible book value per share after the offering...
---
Dilution per share to new investors.............................. $
===
</TABLE>
The following table summarizes on a pro forma basis as of December 31, 1999,
the relative investments of all existing stockholders and new investors, giving
effect to our sale of shares in the offering at an assumed initial public
offering price of $ per share, without giving effect to the underwriting
discount and the offering expenses payable by us:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 14,582,586 % $21,846,978 % $ 1.50
New investors..............
---------- ----- ----------- ----
Total.................... 100% $ 100%
========== ===== =========== ====
</TABLE>
The tables and calculations above assume no exercise of outstanding options.
As of December 31, 1999, we had reserved 1,058,805 shares of our common stock
for issuance upon exercise of outstanding options at a weighted average
exercise price of $0.24 per share. To the extent that these options are
exercised, there will be further dilution to new investors. See "Management--
Employee Benefit Plans" and "Description of Capital Stock."
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for the period from
October 14, 1997 (Inception) through September 30, 1998, the year ended
September 30, 1999, and as of September 30, 1998 and 1999 have been derived
from our audited consolidated financial statements included elsewhere in this
prospectus. The selected consolidated financial data for the three months ended
December 31, 1998 and 1999 and as of December 31, 1999 have been derived from
the unaudited interim consolidated financial statements included elsewhere in
this prospectus. In the opinion of management, the unaudited consolidated
financial statements have been prepared on a basis consistent with our audited
consolidated financial statements and include all adjustments, which are only
normal recurring adjustments necessary for a fair presentation of the financial
position and results of operations for the unaudited periods. Operating results
for the three months ended December 31, 1999 are not necessarily indicative of
the results for the year ending September 30, 2000, or for any future period.
You should read our consolidated financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from Three Months
October 14, 1997 Ended
(Inception) to Year Ended December 31,
September 30, September 30, ---------------
1998 1999 1998 1999
---------------- ------------- ------ -------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues....................... $ 99 $ 2,327 $ 62 $ 1,960
Operating expenses:
Cost of revenues............. 234 3,133 226 3,381
General and administrative... 305 1,730 164 1,149
Sales and marketing.......... 11 404 17 336
Product development.......... 42 435 25 724
Depreciation and
amortization................ 27 270 11 436
Stock-based compensation..... 199 490 61 380
------ ------- ------ -------
Total operating expenses.... 818 6,462 504 6,406
------ ------- ------ -------
Loss from operations........... (719) (4,135) (442) (4,446)
Interest, net.................. (3) 26 8 --
------ ------- ------ -------
Net loss....................... $ (722) $(4,109) $ (434) $(4,446)
====== ======= ====== =======
Net loss per share:
Basic and diluted............ $(0.16) $ (0.75) $(0.08) $ (0.79)
Weighted average shares
outstanding used in per
share calculation........... 4,629 5,493 5,372 5,624
Pro forma net loss per share:
Basic and diluted............ $ (0.54) $ (0.36)
Weighted average shares
outstanding used in pro
forma per share
calculation................. 7,582 12,362
</TABLE>
<TABLE>
<CAPTION>
As of September 30,
------------------- As of December 31,
1998 1999 1999
--------- ---------- ------------------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............ $ 27 $ 4,311 $ 2,018
Working capital (deficit)............ (196) 1,478 (3,693)
Total assets......................... 178 9,386 11,397
Long-term debt, excluding current
portion............................. 230 465 502
Deferred stock compensation.......... (295) (341) (746)
Stockholders' equity (deficit)....... (299) 4,692 2,773
</TABLE>
- --------
. See note 13 of the notes to the consolidated financial statements for a
determination of the number of shares used in computing basic and
diluted net loss per share.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our consolidated
financial statements and notes to those statements and the other financial
information appearing elsewhere in this prospectus. In addition to historical
information, the following discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ materially from
those anticipated in these forward-looking statements due to many factors,
including those set forth under "Risk Factors" and elsewhere in this
prospectus.
Background
We are a leading Asia-focused ICSP, transmitting voice, fax, and data traffic
for consumers, carriers, and corporations. We were incorporated and launched
our services in October 1997 as Pacific Telekey Network. In October 1999, we
changed our name to oCen Communications, Inc. Our aim is to capitalize on the
growth of the Internet as a communications tool by offering IP telephony over
our transpacific managed IP network, which we are expanding throughout Asia.
Since our inception, our activities have included:
. developing our business model to market our services to consumers,
carriers, and corporations;
. hiring management and key personnel;
. building our managed IP network;
. conducting market research and developing a suite of corporate integrated
communications services for our future CommPortal product;
. developing relationships with carriers in Asia and globally to expand our
managed IP network;
. developing software and operations processes to enable us to route high
quality voice and fax services over our managed IP network efficiently
and cost effectively; and
. establishing strategic relationships with companies such as Anderson
Group and New World group in Hong Kong, and the Pacific Group and Chung
Shing group in Taiwan, for regional marketing and distribution.
Since our inception, we have experienced significant operating losses and
negative cash flows from operations in each quarterly and annual period. As of
December 31, 1999, we had an accumulated deficit of $9.3 million. The profit
potential of our business is unproven, and our limited operating history makes
it difficult to evaluate us and our prospects. We may not achieve
profitability, or if we achieve profitability, we might not sustain
profitability.
Overview
Revenues
We currently generate the vast majority of our revenues from the sale of
calling cards to distributors, marketed through both traditional and online
channels. Our distributors buy the calling cards from us at various discounts
to the retail price. Our distributors resell the calling cards to third parties
who in turn sell the cards directly to end users. We recognize calling card
revenues on a per minute basis as end users use the balances in their prepaid
cards by placing calls, provided that we have no significant obligations
remaining and that collection of the related receivable from the distributor is
probable. We have deferred revenues for all unused balances in end users'
accounts and for receivables from distributors when we cannot assess collection
as probable.
We are experiencing difficulties in collecting our accounts receivable from
Abest. Abest has been one of our most significant customers, accounting for
approximately 38%, 44%, and 23% of our total revenues for the period from our
inception through September 30, 1998, the year ended September 30, 1999, and
the three months ended December 31, 1999, respectively. As of December 31,
1999, Abest owed us $815,430, most of
24
<PAGE>
which was past due. We believe that non-payment is the result of a lack of
liquidity at Abest. In January 2000, TIPS acquired the assets of Abest but did
not assume the liabilities of Abest. TIPS gave Abest shares of TIPS stock in
exchange for the assets it received from Abest, but these shares, which
constitute restricted stock and are traded on the over-the-counter Nasdaq
Bulletin Board, may not be highly liquid. We have instituted various measures
that we expect will facilitate collection of those receivables, including
refusing to sell Abest additional calling cards and retaining counsel. However,
we cannot assure you that we will be able to collect this receivable.
Accordingly, we have deferred recognition of the revenue on the outstanding
uncollected receivable due from Abest at December 31, 1999, and we will
recognize revenue on the outstanding receivable balance only when we collect
cash from Abest or otherwise assess the collectibility of the receivable as
probable. Deferred revenue related to the uncollected Abest receivable at
December 31, 1999 represented approximately 36% of our total deferred revenue.
Failure to collect this receivable balance will negatively impact our financial
condition and future cash flows.
Because of continuing deregulation and increasing competition for
communications services, the price of long distance service has fallen in
recent years, and we expect this trend to continue. In the past, we have been
able to offset reductions in our gross margin caused by pricing pressures by
obtaining lower average costs per minute through scaling our network, reducing
our variable operating costs, and increasing high-margin traffic on some
routes. We cannot assure you that we will be able to continue to offset
reductions in our gross margin in the future.
In January 2000, we began generating revenues from the sale of wholesale
minutes to carriers. While most of our revenues have been generated from sales
of consumer calling services through distributors, and more recently, from
sales of carrier transmission services to carriers, we expect to generate
additional revenues from the sale of basic IP telephony and corporate
integrated communications services to corporations. To date, we have derived a
significant portion of our revenues from a small number of distributors. Any
termination or reduction in sales by these distributors could seriously harm
our business.
Operating Expenses
Operating expenses consist of cost of revenues, general and administrative
expenses, sales and marketing expenses, product development expenses,
depreciation and amortization, and stock-based compensation.
Cost of revenues. Cost of revenues consists primarily of the costs of
providing our customers with access to our managed IP network and the costs
associated with the transmission and termination of customer voice and fax
traffic via our network. We divide cost of revenues into the following
categories: access, transmission, and termination.
. Access costs relate primarily to inbound toll-free number charges for our
U.S. consumer calling card business. The toll-free number costs are
charged on a per minute basis and are directly proportional to the volume
of minutes for this segment.
. Transmission costs are costs associated with providing connectivity
between points of presence, or POPs, on our managed IP network. These
costs consist of public Internet access costs and costs of leased private
data circuits including terrestrial, undersea, and satellite circuits.
Transmission costs are proportional to the effective minute capacity of
the links. Significant economies of scale apply to transmission costs
because larger capacity circuits will result in much lower costs per
minute as the volume of minutes over the circuit increases.
. Termination costs are costs associated with terminating voice and fax
traffic onto global traditional telephone networks. Termination costs are
subject to significant economies of scale due to volume based discounts.
Historically, our cost of revenues has at times been extremely high due to
two factors. First, there have been times when rapidly increasing demand from
our customers has exceeded the capacity of our managed IP network. This demand
has resulted in periodic traffic overflow onto higher cost traditional
telephone networks,
25
<PAGE>
which has increased our effective cost per minute. Second, as we expand our
network through the addition of new IP routes and higher capacity circuits, we
incur additional related costs including lease line costs, testing costs, and
quality assurance. Because lease line costs are fixed, our effective cost per
minute over these new routes remains high until we achieve significant volumes
of traffic. As we continue to grow, we anticipate that from time to time our
operating expenses may increase on a per minute basis. We expect that these
increases will relate to our decision to route additional traffic over the
traditional telephone network or to add to or increase capacity levels of our
network.
General and administrative. General and administrative expenses consist
primarily of salary, payroll tax, and benefit expenses and related costs for
general corporate functions, including executive management, administration,
facilities, information technology, and human resources. We expect that general
and administrative expenses will increase in the future as we hire additional
personnel and incur additional costs related to the growth of our business and
operations. In addition, we expect to expand our facilities and incur
associated expenses to support our anticipated growth and to incur expenses
associated with being a public company, including costs of increased insurance
and legal and accounting fees.
Sales and marketing. Sales and marketing expenses consist primarily of
expenses relating to the salaries, payroll taxes, benefits, and commissions
that we pay for sales personnel and expenses associated with the development
and implementation of our promotion and marketing campaigns. We anticipate that
sales and marketing expenses will increase in the future as we expand our
internal sales force, hire additional marketing personnel, and increase
expenditures for promotion and marketing.
Product development. Product development expenses consist primarily of salary
and related expenses for engineers and information technology personnel,
consulting fees, lab costs, and market research. Our strategy is to select and
deploy best-of-breed IP system components and to integrate them into a single
service offering. The main focus of our development work to date has been
developing technology and processes to integrate and efficiently manage our IP
network infrastructure and to develop corporate integrated communications
services. Specific applications of the technology that we develop include IP
network management, IP and service traffic measurement, system
interoperability, corporate integrated communications services research,
measurement systems, and billing. We believe that continued investment in
product development is critical to the success of our company and therefore
expect this expenditure to increase in the future.
Depreciation and amortization. Depreciation and amortization primarily relate
to our networking hardware, gateways, and telephony software. We depreciate our
network equipment over its estimated useful life of three to seven years using
the straight-line method. We plan to acquire more hardware and software to
provide additional capacity to handle the expected increase in traffic as our
volume grows.
Stock-based compensation. In connection with the grant of stock options to
employees, we recorded total deferred stock-based compensation of approximately
$1.8 million through December 31, 1999. This deferred compensation represented
the difference between the deemed fair value of our common stock for accounting
purposes and the exercise price of these options at the date of grant. We are
amortizing these amounts over the vesting periods of the applicable options,
resulting in non-cash expense of approximately $490,000 for the year ended
September 30, 1999. Annual amortization of deferred compensation for options
granted as of September 30, 1999 will be approximately $192,000, $93,000,
$45,000, and $11,000, for the years ending September 30, 2000, 2001, 2002, and
2003, respectively. These charges will be expensed, generally over the next
four years, in connection with the vesting periods of the options granted.
In January 2000, we issued 1,066,665 shares of Series D convertible preferred
stock for approximately $8.0 million, or $7.50 per share. We expect to incur an
estimated non-cash charge to equity relating to the BCF on the Series D
convertible preferred stock. The BCF 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 1,066,665 shares of common
stock into which the shares of Series D convertible preferred stock are
convertible. As the value assigned to the BCF is limited to the proceeds from
the Series D convertible
26
<PAGE>
preferred stock, we expect to record an estimated BCF charge of approximately
$8.0 million. This non-cash equity charge will adversely impact our net loss
per share attributable to holders of common stock for the three months ending
March 31, 2000.
Interest income and interest expense
Interest income is comprised of income earned on our cash, cash equivalents,
and investments. Interest expense is comprised of interest paid on notes
payable and capital leases under which we have financed hardware components of
our network.
In January 2000, we issued convertible notes in exchange for $10.0 million.
As defined in the agreement, these notes are convertible into equity securities
upon the occurrence of certain events and mature in January 2005 if not
converted. Thirty percent of the outstanding principal will automatically
convert into equity securities upon the closing of a sale of equity securities
in which we receive gross proceeds of at least $10.0 million, referred to as a
Qualified Financing. We expect this offering of common stock to constitute a
Qualified Financing. The conversion rate will be $17.00 per equity security, or
if the Qualified Financing is an initial public offering, the lesser of $17.00
or the initial public offering price per share. We have determined that the
$3.0 million portion of the convertible notes that are subject to automatic
conversion upon the closing of a Qualified Financing has an associated BCF
because they are convertible at a discount to the estimated deemed fair value
of the common stock at the date of issuance. As the BCF relates to the issuance
of convertible debt, the value assigned to the BCF, which cannot exceed the
related proceeds, will be charged to the consolidated statement of operations
as additional interest expense when a Qualified Financing occurs. At the date
of issuance, the total value assigned to the automatically convertible portion
was estimated to be approximately $2.1 million. This non-cash BCF charge will
adversely impact our net loss per share.
Regulatory Environment
We believe that the services we provide over our managed IP network are not
currently actively regulated in the United States. Several efforts have been
made, however, to enact federal legislation that would regulate certain aspects
of our operations. If adopted, this legislation could increase our costs
significantly and could materially adversely affect our business, operating
results, financial condition, and future prospects. See "Risk Factors--U.S.
government regulation and legal uncertainties relating to IP telephony could
harm our business" and "Business--Regulatory Environment."
27
<PAGE>
Results of Operations
The following table sets forth our statement of operations data as a
percentage of revenues:
<TABLE>
<CAPTION>
Period from
October 14,
1997 Three Months
(Inception) Ended
to Year Ended December 31,
September 30, September 30, ---------------
1998 1999 1998 1999
------------- ------------- ------ ------
(unaudited)
<S> <C> <C> <C> <C>
Revenues.......................... 100 % 100 % 100 % 100 %
Operating expenses:
Cost of revenues................ 236 135 367 173
General and administrative...... 309 74 266 59
Sales and marketing............. 11 17 27 17
Product development............. 43 19 40 37
Depreciation and amortization... 27 12 17 22
Stock-based compensation........ 202 21 99 19
---- ---- ------ ------
Total operating expenses...... 828 278 818 327
---- ---- ------ ------
Loss from operations.............. (728) (178) (718) (227)
Interest, net..................... (3) 1 13 --
---- ---- ------ ------
Net loss.......................... (731)% (177)% (705)% (227)%
==== ==== ====== ======
</TABLE>
Three Months Ended December 31, 1999 Compared to Three Months Ended December
31, 1998
Revenues
Revenues for the three months ended December 31, 1999 were approximately $2.0
million compared to approximately $62,000 for the three months ended December
31, 1998, an increase of approximately $1.9 million. This increase in sales was
attributable to growth in the number of our distributors and sales per
distributor and was partially offset by rate declines from the comparable
period. For the three months ended December 31, 1999, four of our customers,
Abest, Goldman Network, STE Communications, and Star Communications accounted
for 23%, 23%, 21%, and 11% of our revenues, respectively.
Operating expenses
Cost of revenues. Cost of revenues for the three months ended December 31,
1999 was approximately $3.4 million compared to approximately $226,000 for the
three months ended December 31, 1998, an increase of approximately $3.2
million. This increase was due to increased demand from our customers that
exceeded the capacity of our managed IP network and resulted in traffic
overflow onto the higher cost traditional telephone network. It was also due to
higher costs per minute associated with the expansion of our network through
the addition of new IP routes and higher capacity circuits.
General and administrative. General and administrative expenses for the three
months ended December 31, 1999 were approximately $1.1 million compared to
approximately $164,000 for the three months ended December 31, 1998, an
increase of approximately $936,000. This increase was due to an increase in
salaries and benefits, recruiting costs, and facilities expenses resulting from
the growth in our business.
Sales and marketing. Sales and marketing expenses for the three months ended
December 31, 1999 were approximately $336,000 compared to approximately $17,000
for the three months ended December 31, 1998, an increase of approximately
$319,000. This increase was due to the expansion of our sales and marketing
staff and commissions paid on revenues.
Product development. Product development expenses for the three months ended
December 31, 1999 were approximately $724,000 compared to approximately $25,000
for the three months ended December 31, 1998, an increase of approximately
$699,000. This increase resulted from hiring technical staff, conducting market
research, building our network, and developing routing processes in the United
States and Asia.
28
<PAGE>
Depreciation and amortization. Depreciation and amortization expenses for the
three months ended December 31, 1999 were approximately $436,000 compared to
approximately $11,000 for the three months ended December 31, 1998, an increase
of approximately $425,000. This increase was due to additions of networking and
telephony hardware and software placed in service.
Stock-based compensation. For the three months ended December 31, 1999, we
recorded approximately $380,000 related to the amortization of deferred
compensation incurred in connection with the grant of stock options compared to
approximately $61,000 for the three months ended December 31, 1998, an increase
of approximately $319,000. The increase was due to additional option grants and
additional amortization on existing option grants.
Loss from operations
Loss from operations for the three months ended December 31, 1999 was
approximately $4.4 million compared to approximately $442,000 for the three
months ended December 31, 1998, an increase of approximately $4.0 million. This
increase was due to the increased costs of expanding our commercial operations
and support staff. It is difficult to draw a meaningful comparison between the
two periods because the three months ended December 31, 1998 reflect operations
prior to the network expansion while the three months ended December 31, 1999
represent the establishment and operation of our network. We anticipate that we
will incur additional operating and net losses for the foreseeable future.
Interest expense, net
Our interest expense, net for the three months ended December 31, 1999 was
approximately $400 compared to interest income, net of approximately $8,000 for
the three months ended December 31, 1998. The increase in interest expense was
a result of interest on notes payable and capital leases, which was offset by
increased interest income from the investment of proceeds from the sale of our
preferred stock.
Net loss
Net loss for the three months ended December 31, 1999 was approximately $4.4
million compared to approximately $434,000 for the three months ended December
31, 1998, an increase of approximately $4.0 million as a result of the factors
described above.
Year Ended September 30, 1999 Compared to Period From Inception to September
30, 1998
Revenues
Revenues for the year ended September 30, 1999 were approximately $2.3
million compared to approximately $99,000 for the period from inception to
September 30, 1998, an increase of approximately $2.2 million. This increase
was due to growth in the number of our distributors and sales per distributor,
partially offset by rate declines from the comparable period.
Operating expenses
Cost of revenues. Cost of revenues for the year ended September 30, 1999 was
approximately $3.1 million compared to approximately $233,000 for the period
from inception to September 30, 1998, an increase of approximately $2.9
million. This increase was due to increased demand from our customers that
exceeded the capacity of our managed IP network and resulted in traffic
overflow onto the higher cost traditional telephone networks. It was also due
to higher costs per minute associated with the expansion of our network through
the addition of new IP routes and higher capacity circuits.
General and administrative. General and administrative expenses for the year
ended September 30, 1999 were approximately $1.7 million compared to
approximately $305,000 for the period from inception to September 30, 1998, an
increase of approximately $1.4 million. This increase was due to an increase in
salaries, benefits, recruiting costs, and facilities expenses resulting from
the growth in our business.
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Sales and marketing. Sales and marketing expenses for the year ended
September 30, 1999 were approximately $403,000 compared to approximately
$11,000 for the period from inception to September 30, 1998, an increase of
approximately $392,000. This increase was due to the expansion of our sales and
marketing staff, and increased commissions paid on revenues.
Product development. Product development expenses for the year ended
September 30, 1999 were approximately $435,000 compared to approximately
$42,000 for the period from inception to September 30, 1998, an increase of
approximately $393,000. This increase resulted from hiring engineers, software
developers and consultants, conducting market research, building our network,
and testing new routing processes.
Depreciation and amortization. Depreciation and amortization expenses for the
year ended September 30, 1999 were approximately $270,000 compared to
approximately $27,000 for the period from inception to September 30, 1998, an
increase of approximately $243,000. This increase resulted from the usage of
networking and telephony hardware and software placed in service.
Stock-based compensation. Stock-based compensation expense for the year ended
September 30, 1999 was approximately $490,000 compared to approximately
$199,000 for the period from inception to September 30, 1998, an increase of
approximately $291,000 representing amortization of deferred compensation
incurred in connection with the grant of options at exercise prices less than
the deemed fair value. This increase was due to increased option grants and
additional amortization on existing option grants.
Loss from operations
Loss from operations for the year ended September 30, 1999 was approximately
$4.1 million compared to approximately $719,000 for the period from inception
to September 30, 1998, an increase of approximately $3.4 million. The increase
in loss from operations was due to the increased costs of expanding our
commercial operations and support staff. It is difficult to draw a meaningful
comparison between the two periods because the period from inception to
September 30, 1998 reflects operations prior to the network expansion while the
year ended September 30, 1999 represents the establishment and operation of our
network. We anticipate that we will incur additional operating and net losses
for the foreseeable future.
Interest income, net
Interest income, net for the year ended September 30, 1999 was approximately
$26,000 compared to interest expense, net of approximately $3,000 for the
period from inception to September 30, 1998. Our interest income, net
principally represents income from our cash and cash equivalents as a result of
increased cash balances raised from our sale of preferred stock.
Net loss
Net loss for the year ended September 30, 1999 was approximately $4.1 million
compared to approximately $722,000 for the period from inception to September
30, 1998, an increase of approximately $3.4 million as a result of the factors
described above.
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Quarterly Results of Operations
The following table sets forth quarterly consolidated financial data for the
five quarters ended December 31, 1999. This quarterly financial data is
unaudited, has been prepared on the same basis as the audited consolidated
financial statements, and, in our opinion, reflects all adjustments, consisting
only of normal recurring accruals, necessary for a fair presentation of the
information for the periods presented. Operating results for any quarter are
not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------
December 31, March 31, June 30, September 30, December 31,
1998 1999 1999 1999 1999
------------ --------- -------- ------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 62 $ 102 $ 576 $ 1,587 $ 1,960
Operating expenses:
Cost of revenues...... 226 278 744 1,885 3,381
General and
administrative....... 164 285 303 978 1,149
Sales and marketing... 17 43 125 219 336
Product development... 25 64 103 243 724
Depreciation and
amortization......... 11 36 75 148 436
Stock-based
compensation......... 61 87 103 239 380
----- ----- ----- ------- -------
Total operating
expenses........... 504 793 1,453 3,712 6,406
----- ----- ----- ------- -------
Loss from operations.... (442) (691) (877) (2,125) (4,446)
Interest, net........... 8 7 8 3 --
----- ----- ----- ------- -------
Net loss................ $(434) $(684) $(869) $(2,122) $(4,446)
===== ===== ===== ======= =======
<CAPTION>
As a Percentage of Revenues
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues................ 100 % 100 % 100 % 100 % 100 %
Operating expenses:
Cost of revenues...... 367 274 129 119 173
General and
administrative....... 266 280 53 62 59
Sales and marketing... 27 42 22 14 17
Product development... 40 63 18 15 37
Depreciation and
amortization......... 17 35 13 9 22
Stock-based
compensation......... 99 85 18 15 19
----- ----- ----- ------- -------
Total operating
expenses........... 816 779 253 234 327
----- ----- ----- ------- -------
Loss from operations.... (716) (679) (153) (134) (227)
Interest, net........... 13 7 1 -- --
----- ----- ----- ------- -------
Net loss................ (703)% (672)% (152)% (134)% (227)%
===== ===== ===== ======= =======
</TABLE>
We have experienced growth in revenues in each quarter since inception. The
increase in revenues was attributable to growth in the number of our
distributors and sales per distributor, partially offset by rate declines from
the comparable period. We expect this growth to continue as we diversify our
customer base and expand our capacity to handle traffic over our managed IP
network.
Historically, we have generated all of our revenues through the sale of
consumer calling services. We have only recently begun to generate revenues
from the sale of carrier transmission services. Our strategy is to generate
revenues from the sale of corporate integrated communications services. We
cannot assure you that we will continue to generate any additional revenues
from the sale of minutes to communication carriers or that we will generate any
revenues from sales to corporations.
The initial establishment of our network and the rapid growth in customer
demand have caused volatility in our quarterly cost of revenues. At times of
peak demand, overflow is directed towards high cost traditional
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telephone networks. After we incur initial bandwidth costs, our average per
minute costs gradually decline as we increase traffic flow. This trend was
evidenced by the declining cost of revenues as a percentage of revenues for the
three months ended June 30, 1999 and September 30, 1999. Cost of revenues as a
percentage of revenues increased for the three months ended December 31, 1999,
primarily because of the expansion of our network and the deferral of revenue
related to the uncollected receivable from Abest.
Liquidity and Capital Resources
From our inception through December 31, 1999, we have funded losses and
capital expenditures from cash provided from financing activities of
approximately $10.8 million from the sale of equity securities.
Net cash used in operating activities was approximately $276,000 for the
period from inception to September 30, 1998, approximately $1.1 million for the
year ended September 30, 1999, and approximately $2.0 million for the three
months ended December 31, 1999. This increase in net cash used in operations
was due to increasing net losses and an increase in accounts receivable, which
were partially offset by increases in accounts payable, accrued expenses, and
deferred revenue.
Net cash used in investing activities was approximately $128,000 for the
period from inception through September 30, 1998, approximately $3.1 million
for the year ended September 30, 1999, and approximately $3.4 million for the
three months ended December 31, 1999. This increase was due to capital
expenditures for our IP network and switching infrastructure. For the three
months ended December 31, 1999, capital expenditures totaled $3.4 million,
related primarily to our new Los Angeles SuperPOP, one of our three large,
monitored, secure points of presence, including expenditures for construction
and networking infrastructure.
Net cash provided by financing activities was approximately $430,000 for the
period from inception through September 30, 1998, approximately $8.5 million
for the year ended September 30, 1999, and approximately $3.2 million for the
three months ended December 31, 1999. Cash flows were primarily derived from
proceeds from equity financings completed during those periods. In January
2000, we raised an additional $8.0 million in cash from the sale of preferred
stock and $10.0 million in cash from the sale of convertible notes. The notes
bear interest at 6.0% per year, and at least 30% of the principal amount of the
notes may be convertible into capital stock.
In November 1999, we executed a $1,000,000 equipment lease line with a
lender. The term of this line is 36 months with payments due on the first day
of each month. The rate is 3.20% of the applicable equipment cost per month. As
of December 31, 1999, we had no borrowings against this line.
In January 2000, we agreed to a $1,000,000 equipment lease line with a
lender. This line may be utilized through June 2000 and bears interest at the
yield on 36-month U.S. Treasury Notes, as quoted by the bank, plus 300 basis
points.
As of December 31, 1999, we had approximately $2.0 million in cash and cash
equivalents. Principal uses of cash have been to fund working capital
requirements and capital expenditures. We estimate that we will make at least
$30.0 million of capital expenditures during the year ending September 30,
2000. We expect our capital expenditures for the year ending September 30,
2000, to include expansion and improvement of our existing data centers in the
United States and Asia, development of CommPortal, growth of our customer base
in Asia, and acquisition of network and switching infrastructure.
Additionally, we will evaluate possible acquisitions of, or investments in,
complementary businesses, technologies, or services and plan to expand our
sales and marketing programs. Any acquisition may be material and may require
us to incur a significant amount of debt or issue a significant number of
equity securities. Furthermore, any businesses that we acquire will likely have
their own capital needs, which may be significant and which we would be called
upon to satisfy independent of the acquisition price.
Our ability to fund planned capital expenditures will depend on our future
performance, which, to a certain extent, is subject to general economic,
financial, competitive, regulatory, and other factors that are beyond our
control. We believe that the net proceeds from the offering, together with our
operating revenues, will be sufficient to meet our anticipated cash needs for
at least the next 12 months. If we need to raise additional
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<PAGE>
funds by issuing equity or convertible debt securities, the percentage
ownership of our stockholders will be diluted. Furthermore, any new securities
could have rights, preferences, and privileges senior to those of our common
stock. We currently do not have any commitments for additional financing. We
cannot be certain that additional financing will be available when and to the
extent required or that, if available, it will be available on acceptable
terms. If adequate funds are not available on acceptable terms, we may not be
able to fund our expansion, to develop or enhance our services, or to respond
to competitive pressures.
Segment and Geographic Information
We operate in one industry segment providing IP-based communications
services. Our business operations are principally based in the United States,
and we had no foreign operations during the period October 14, 1997 (Inception)
though September 30, 1998. For the year ended September 30, 1999 and three
months ended December 31, 1999, all of our revenues were generated within the
United States.
Long-lived assets by geographical location at September 30, 1999 and December
31, 1999 are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1999
------------- ------------
<S> <C> <C>
United States..................................... $2,969,773 $4,809,362
Mainland China.................................... -- 1,038,294
Taiwan............................................ 392,203 678,138
Hong Kong......................................... 383,496 827,129
---------- ----------
Total........................................... $3,745,472 $7,352,923
========== ==========
</TABLE>
Year 2000 Compliance
We have not experienced, and do not expect to experience, any significant
problems associated with year 2000 issues. Similarly, to our knowledge, our
distributors, suppliers, and other third parties with whom we conduct business
have not experienced material year 2000 problems to date. We did not incur
material expenditures to test, repair, or replace equipment.
Qualitative and Quantitative Disclosures About Market Risk
Foreign currency risk
We have operations within the United States and Asia. As a result, our
financial results could be affected by factors such as changes in foreign
currency exchange rates or weak economic conditions in the foreign markets in
which we operate. Our operating results are currently exposed and will
increasingly be exposed to changes in exchange rates between the U.S. dollar
and various Asian currencies. We do not currently engage in currency hedging
activities to limit the risks of exchange rate fluctuations.
Interest rate risk
We do not hold financial instruments for trading or speculative purposes. Our
financial assets are not subject to significant interest rate risk due to their
short duration. Our only financial liability that bears interest rate risk is
our most recent equipment lease line of credit, which has a stated interest
rate based on that associated with U.S. treasury notes. We do not use any
derivatives or similar instruments to manage our interest rate risk.
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<PAGE>
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants, or
AICPA, issued Statement of Position, or SOP, No. 98-1, Software for Internal
Use, which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP No. 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. We do not expect
that the adoption of SOP No. 98-1 will have a material impact on our 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 adoption of SOP 98-5 during the third quarter of 1998 did not have a
significant impact on our financial position, results of operations, or cash
flows.
34
<PAGE>
BUSINESS
Our Company
We are a leading Asia-focused ICSP transmitting voice, fax, and data
communications for consumers, carriers, and corporations. In October 1997, we
founded oCen to capitalize on the opportunity presented by the convergence of
voice and data networks. We believe we have built one of the largest
transpacific, carrier-grade managed IP networks dedicated to IP telephony. Our
managed IP network is a premium data network built with carrier-grade IP
equipment linked by a combination of the public Internet, international leased
lines, and satellite access. We monitor and control our network on a 24x7x365
basis to deliver high quality voice and data services. We believe that our
managed IP network provides our customers with the cost savings associated with
a data network and quality comparable to the traditional telephone network. We
plan to expand our managed IP network throughout Asia to meet the growing
communications needs of our target customers in the region.
Our services include:
. Consumer Calling Services: We market reliable, low-cost international
long distance telephony services to consumers in the United States and
Canada through our traditional and online distributors. Our IP telephony
services enable our customers to place a call or send a fax
inexpensively from any telephone or fax machine to anywhere in the
world. Phone-to-phone calls originate and terminate on the public
telephone network but travel primarily over our managed IP network. Our
current products include traditional calling cards, virtual calling
cards, which can be purchased over the Internet, and refill accounts,
which comprise the long-distance service we provide to our registered
residential users.
. Carrier and eCarrier Transmission Services: We offer competitive, high
quality, switched and IP voice and fax services to traditional
telecommunications carriers that have substantial Asia-bound traffic,
such as New World Telephone, to IP telephony exchanges and
clearinghouses, such as Asian Capacity Exchange, AT&T Global
Clearinghouse, and Telia, and to Web-based voice and data service
providers, or eCarriers, such as Dialpad.com. Since launching our
carrier transmission services in December 1999, we have signed eight
carrier agreements and are seeing a steady increase in traffic under
these agreements.
. Corporate Integrated Communications Services: Our goal is to be the
preferred provider of integrated communications services to corporate
customers in Asia. We have recently begun to provide oPhone, our voice
and fax over IP services product, to a select group of corporate
customers in Taiwan. oPhone offers corporate customers transparent
direct dial international telephony services at significant savings. Our
research and development team is also developing CommPortal, an
integrated Web-based suite of communications services such as instant
messaging, PC-based text and voice chat, Web conferencing, and unified
messaging, which together with oPhone, represents our Integrated
Communications Services product. We expect to introduce CommPortal to
oPhone customers.
We have achieved significant growth in the use of our managed IP network
since we began offering services. The number of minutes of traffic over our
managed IP network increased from approximately 9.7 million minutes during the
three months ended September 30, 1999, to over 18.5 million minutes during the
three months ended December 31, 1999. We believe that this growth demonstrates
a preference in the market for the advantages offered by an IP-based network.
We believe the benefits of IP telephony and the convergence of voice and data
networks cannot be fully realized by ICSPs until they are able to deliver
multiple applications from numerous time zones with different peak access
periods and over various access devices. Those ICSPs who are able to provide
this level of service can enjoy multiple revenue streams, maximize capacity
usage of their network, and reduce unit costs. We have designed our marketing
implementation and product development plan so that we can fully capitalize on
the benefits of IP technologies.
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<PAGE>
Industry and Market Background
Voice and data networks are rapidly converging
Historically, there have been two different kinds of communications
networks--voice and data. Traditional telecommunications service providers have
built voice networks based on circuit-switching technology, which establishes
and maintains a dedicated path for each telephone call until the call is
terminated. Although a circuit-switched system reliably transmits voice
communication, this system is inefficient because it requires use of the
circuit for the entire call, regardless of how much information is transmitted
over the circuit. In most data communications, data does not flow equally in
both directions, and the reserved circuit is therefore underused. Unlike
circuit-switched networks, data networks use IP packet technology, which
divides the traffic carried on the network into packets routed over the
Internet or other IP mediums. Packet technology provides for more efficient use
of network capacity because it does not require a fixed amount of bandwidth to
be reserved for each transmission. Traditionally, packet networks have carried
data traffic, such as email, and circuit-switched networks have carried voice
and fax traffic.
Traditional telecommunications service providers have avoided the use of
packet technology for transmitting voice calls due to delays and lost packets
that prevent immediate transmission and result in poor sound quality. In 1996,
however, some companies began to develop technologies that allowed voice to be
transmitted over data networks from computer to computer over the public
Internet. These technologies have evolved so that voice and fax can now be
transmitted reliably over data packet networks, without the use of computers,
using a regular telephone or fax machine. As a result of the emerging
opportunities to provide voice over IP and fax over IP inexpensively and
reliably, traditional telecommunications providers and ISPs, as well as
emerging service providers using more recent and improved technologies, are
rapidly building IP networks to provide voice and data services.
IP has benefits over traditional telephony
IP packet technology is superior to circuit-switched technology from both a
cost and applications perspective. The cost advantages include the following:
. Network and capital expenditures. A network based on packet technology
requires lower capital expenditures and lower ongoing maintenance costs
because one network can be used for both voice and data and because IP
equipment generally costs less.
. Bandwidth. The higher efficiencies of a packet network (8-12 kbps for
each voice-over-IP call compared to 64 kbps for a circuit-switched call)
lead to lower bandwidth costs.
. Settlement charges. An IP network allows providers to bypass the
international settlement charges that are generally paid by traditional
telecommunications providers, allowing IP telephony providers to offer
lower rates for international calls.
In addition to cost advantages, IP technology enables the provision of
enhanced services such as PC-to-PC and PC-to-phone telephony, instant
messaging, and Web conferencing, as well as traditional data services such as
Internet connectivity and Web hosting. IP networks also provide connectivity to
a greater set of devices than circuit-switched networks. These devices include
digital cellular and other wireless devices, the Web, and computers. With a
richer set of applications and connection devices, IP networks have larger
addressable markets and an increased ability to offer a more complete set of
communications solutions to customers over the same network.
Customer needs and IP technology are driving the trend towards integrated
communications services
We believe communications services customers are seeking integrated
communications services, or the ability to source all or most of their
communications services needs from one provider. Today, most consumers
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buy voice, data and other communications services from multiple service
providers. We believe that ICSPs, because of cost efficiencies and their
ability to deliver a wide spectrum of communications services over one network,
are best positioned to meet the demands of customers. We believe that
successful service providers are those with IP networks, the ability to develop
or bundle integrated communications services to the end user in a single
network platform, and the ability to provide the end user with a single bill
and source for customer service.
IP telephony is gaining acceptance by consumers, carriers and corporations
When IP telephony was first introduced in 1996, calls were transmitted over
the public Internet using first generation technologies. This resulted in poor
or inconsistent quality of service. Nonetheless, due to favorable pricing,
consumers adopted IP telephony, particularly in the form of competitively
priced prepaid calling cards for international long distance. Over the course
of two years, quality of service has improved significantly because of
enhancements made in the next generation of IP hardware and software, the
buildout of managed IP networks, and implementation of quality of service
measures by service providers. Although IP telephony still suffers from
perceptions of poor quality, carriers, both traditional and emerging services
providers, have adopted the service. According to TeleGeography 2000, an
independent market research firm, IP telephony minutes have grown over 300%
from 300 million minutes in 1998 to under 1 billion minutes in 1999. With the
growing use of IP telephony by consumers and carriers, we believe that
corporations will begin to widely adopt IP telephony and enhanced
communications solutions to better meet their business communications needs.
Global IP telephony and IP communications services revenues expected to grow
rapidly
International Data Corporation, or IDC, another independent market research
firm, estimated that worldwide IP telephony minutes will grow from
approximately 2.7 billion minutes in 1999 to approximately 135 billion minutes
in 2004, which is equal to an estimated compound annual growth rate of 119%.
IDC further estimated that revenues generated from IP telephony services will
grow from approximately $480 million in 1999 to approximately $19 billion in
2004, which is equal to an estimated compound annual growth rate of
approximately 108%.
Large potential for IP telephony and IP communications services in Asia
According to Frost & Sullivan, a third independent market research firm, the
Asia-Pacific region will account for approximately 18% of all global
origination and 22% of all global termination IP telephony minutes between 1996
and 2006. Frost & Sullivan estimated that approximately 211 million IP
telephony minutes and $51 million of IP revenues were generated from the Asia-
Pacific region in 1999. By 2006, these figures are estimated to grow to
approximately 128 billion IP telephony minutes and $19 billion in IP revenues,
which would represent estimated compound growth rates of 150% and 134%,
respectively.
We believe that the IP telephony and communications market in Asia will grow
faster than in most other parts of the world because of three primary factors.
First, Asia has relatively fewer pre-existing traditional telephone networks
than the United States and Europe. We believe that many new communications
networks in the Asia-Pacific region will be IP networks. Second, in most Asian
markets, traditional telephone networks are more highly regulated than in other
parts of the world, which has led to less competition and higher international
direct dial costs. The cost savings associated with IP telephony, which can
bypass international settlement charges, are therefore even more pronounced.
Third, Asia's growing need for communications services comes at least in part
from the growing population and per capita income that characterize the region.
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<PAGE>
Our Strategy
Our goal is to be the leading provider of IP telephony and corporate
integrated communications solutions to customers in Asia. To achieve this goal
we intend to:
Leverage our first-mover advantage in Asia
We were one of the first companies to establish an IP network and offer IP
telephony services in Greater China. Since then, we believe we have built one
of the leading brand names in IP communications in Asia. Having an enduring and
leading presence in Asia has allowed us to gain a better understanding of what
our target customer base in Asia demands. Because of our early entrant status,
we have been able to work closely with our target customers and our technology
partners to develop innovative integrated communications solutions for pan-
Asian corporations. We believe that our brand recognition in Asia will
facilitate our efforts to attract carrier customers as well as our efforts to
be the first service provider to deploy a corporate integrated communications
solution on a mass scale.
Rapidly expand our network throughout Asia
Our managed IP network contains 19 POPs located in 14 cities in Asia and the
United States. Prior to its deployment, Frost & Sullivan predicted that our
network would be the largest transpacific IP network. Our triangular network of
SuperPOPs in Los Angeles, Hong Kong, and Taipei is capable of supporting up to
50, 30, and 30 million minutes of IP telephony traffic per month, respectively.
We feel that this capacity will be sufficient to meet our needs for the near
term. This network is also highly scalable. We are able to offer services to
our users by providing local access to our network. In addition, through our
POPs and call termination services provided to us by the 21 carriers with which
we interconnect, we are able to cost effectively terminate IP voice and fax
communications in 225 countries. We intend to continue to rapidly add POPs in
additional cities within Asia to provide our customers with additional access
and termination points.
Leverage our strategic relationships throughout Asia
We intend to leverage our stockholder base to continue the rapid deployment
of our managed IP network, accelerate the development, launch, and roll-out of
CommPortal, create marketing and cross-promotional opportunities, and enter new
markets. Our strategic investors include an affiliate of Anderson Information
Technology, New World Cyberbase, and Pacific Resource Technology. Anderson
Information Technology, an affiliate of Anderson Group, a privately held
conglomerate with various interests in real estate and technology in Greater
China and the United States, is helping us expand into Greater China. New World
Cyberbase, the Internet arm of the New World group, one of Hong Kong's largest
companies and the largest foreign investor in the PRC, is one of our strategic
partners. We intend to leverage the significant resources of the New World
group, such as its access to engineers in the PRC, to develop our CommPortal
product. In addition, New World Telephone, an affiliate of the New World group,
has signed an agreement with us under which we intend to continue to sell it
significant wholesale minutes. Pacific Resource Technology, a part of the
Pacific Group of Taiwan, is helping us expand throughout Asia.
Continue to grow our existing consumer and carrier telephony businesses
The majority of our revenues are currently derived from the sale of
international long distance voice and fax over IP services. We intend to
aggressively grow our existing consumer and carrier telephony businesses, in
part by generating Asia-originated traffic. We intend to expand our voice and
fax over IP services to gain economies of scale that will drive down network
and bandwidth costs. We believe that voice and fax over IP will continue to be
attractive services for us to offer, particularly with scale and Asia-
originated traffic, where the margins are higher than traffic originated from
the United States.
Capture pan-Asian corporate customers with integrated communications solutions
We expect to derive significant revenues in the future by providing
integrated communications services to pan-Asian corporations, beginning with
basic voice and fax over IP long distance services via our oPhone
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<PAGE>
product. To ensure consistent high quality service, our team, in conjunction
with our marketing partners, such as NetStar, will market, deploy, and service
enterprise IP gateways directly on the corporate site to offer transparent
international direct dial services over our managed IP network at significant
savings. This implementation will allow the corporate customer to switch from a
legacy network to our network to achieve quality of service levels and
recognize substantial cost savings with minimal inconvenience to the user. We
recently began trials of oPhone with select corporate customers in Taiwan. We
intend to continue to pursue additional marketing relationships to accelerate
the development, launch, and roll-out of our solution.
Develop and provide a broad offering of enhanced IP communications services
Over the last six months, our research and development team has been
developing CommPortal, an integrated Web-based suite of communications
services, such as instant messaging, PC-based text and voice chat, Web
conferencing and unified messaging. We will introduce this service to our
customers later this year as part of our integrated communications services
offering, or Integrated Communications Services, that will help us to gain and
retain corporate customers. Through oPhone and CommPortal, we believe we will
have a unique integrated services offering that will help us to gain and retain
corporate customers and generate diversified, sustainable revenues with higher
margins.
Our Customers and Services
We develop and market innovative IP-based services to three distinct customer
groups--consumers, carriers, and corporations. We provide all of our services
over a single managed IP network.
Consumer calling services
We market international long distance services to consumers in the United
States and Canada through our traditional and online distributors. Our current
products include traditional calling cards, virtual calling cards, and refill
accounts, which are described below:
. Traditional Calling Cards. We sell traditional prepaid calling cards for
international long distance, typically in retail denominations of $5,
$10, and $20 per card. All cards provide global termination services as
well as domestic U.S. long distance. Where we have a POP, our rates are
more competitive than those offered by traditional telecommunication
providers. To use the cards, consumers typically dial a toll-free number
and then enter the card's PIN to access our network and be billed for the
service. We market oCen branded and co-branded cards in North America.
. Virtual Calling Cards. Virtual calling cards are similar to our
traditional calling cards, without a physical card presented. We
wholesale these cards and provide PINs to Internet partners and
distributors or sell directly to the end user via the Internet.
. Refill Accounts. We have a limited number of residential refill account
customers who, after registering their home phone numbers with us, can
access our network for long distance services without entering a PIN.
These services are on a post-paid basis.
Carrier and eCarrier transmission services
We offer competitive high quality switched and IP voice and fax services to
traditional carriers, IP carriers, clearinghouses, and eCarriers.
. Traditional Carriers. Carrier customers connect to one of our SuperPOPs
in Los Angeles, Hong Kong, or Taipei to buy and sell wholesale
international telephony traffic through us. Traditional carriers do not
need an IP network but can connect their circuit-switched network
directly to our data center. The open and flexible architecture of our
data center allows rapid and easy interconnection with all types of
carriers. Circuit-switched carriers connect to us because we offer high
quality and competitive international rates for their routes. Some of our
carrier customers include Hong Kong-based New World Telephone and U.S.-
based DirectNet Telecommunications.
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. IP Carriers. Other IP-based carriers, particularly those using Clarent
technology, connect to our managed IP network to buy and sell wholesale
traffic. These include emerging carriers such as Capcom International in
Spain, which connects to us to purchase Asia capacity. Traditional
carriers who are moving to IP telephony, such as SK Telelink, a
subsidiary of SK Telecom, in South Korea, also connect to us to exchange
minutes. The opportunity to exchange wholesale traffic with other
Clarent-based IP carriers is significant, especially in the Asia-Pacific
region.
. Clearinghouses and Exchanges. Several IP telephony clearinghouses and
exchanges have emerged in the last two years to capitalize on the growth
of the industry. They act as brokers among many different carriers, IP or
traditional, to exchange traffic. We have negotiated agreements and
connected our network with Asian Capacity Exchange, Telia, and AT&T
Global Clearinghouse.
. eCarriers. eCarriers are Web providers who provide real-time applications
over the Internet, such as PC or Web-originated voice traffic. Most
eCarriers offer free or heavily discounted PC-to-PC or PC-to-phone
services in exchange for revenues from advertisers. Most eCarriers today
carry their traffic over the public Internet, but some are beginning to
offer services over managed IP networks, such as ours. Dialpad.com, one
of the largest eCarriers, has signed a memorandum of understanding with
us to purchase wholesale capacity on our managed IP network to carry its
PC originated traffic.
For all categories of carrier customers, we offer three points of
interconnection--Los Angeles, Hong Kong, or Taipei. U.S.-based carriers can
easily connect to our SuperPOP in Los Angeles, and Asia-based carriers have the
convenience of two separate SuperPOPs in Hong Kong and Taipei. Because we have
one of the largest transpacific managed IP networks and are able to source
highly competitive global rates from the Los Angeles telecommunications hub,
our wholesale rates are generally very competitive. Since starting our carrier
transmission business in December 1999, we have signed eight carrier
agreements.
Integrated Communications Services
We have developed a business plan to offer integrated communications services
to pan-Asian firms. Our total service offering includes oPhone, our basic
international IP telephony product, and will include CommPortal, our integrated
enhanced services product. Our target customers include trading firms and
conglomerates, hotels, food distributors, and financial institutions. We intend
to be the first provider in Asia with an enterprise solution for IP-based
integrated communications services. We believe we can succeed because we are
one of a few select companies focusing on the growing Asian corporate market.
. oPhone. oPhone is our international telephony product for corporations.
We install IP equipment, such as gateways, at the customer's site and
connect this equipment to the customer's private branch exchange. Via
dedicated bandwidth to our local data center, the customer can access our
managed IP network to enjoy transparent international direct dial
services at significant savings to traditional service providers. We may
partially finance the IP hardware, software, and local loop charges,
depending on the customer's expected traffic volume. We believe oPhone
will prove especially valuable to enterprises that wish to connect
multiple offices in Asia but do not have existing data or virtual private
networks.
. CommPortal. We expect CommPortal to be a Web-based suite of integrated
communications services designed to enhance communications and improve
productivity for corporate users. We further expect oPhone corporate
customers to be able to choose and customize from a menu of CommPortal
services they find useful. We will transmit all real-time services over
our managed IP network to ensure consistent quality of service. We will
also build in security measures and customize CommPortal for the language
and usage needs of each corporate customer.
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We currently expect CommPortal to eventually include the following services:
<TABLE>
<CAPTION>
Enhanced Service Description
---------------- -----------
<C> <S>
Instant Messaging Provides real-time notification of when a
person is online and enables the user to
send text and voice messages immediately.
PC-originated voice and fax Enables a user to send or receive phone
calls directly through the user's PC or
browser while remaining online. For example,
a user on the Internet will receive a pop-up
screen stating that someone is calling. The
user can then choose to forward the call to
voicemail or to answer the call from the
computer without logging off the Internet.
Web conferencing Enables a user to set up a conference call
through our interactive
communications portal either by sending a
notice of the planned call to all of the
participants and having each participant
dial a toll-free number or by arranging for
each of the participants to be called by the
automated system at the designated call
time. This service eliminates the need for a
conference operator.
Unified Messaging/Universal Inbox Enables a user to retrieve all voicemails,
faxes and emails from one convenient
location on a user's desktop or via a Web
browser.
IP Virtual Private Networks Provide basic voice and fax over IP services
within an intranet structure for medium and
large multinational corporate customers.
Collaboration Enables multiple users to view and edit the
same document on their computers while
speaking or interacting with each other
through their PCs.
Information services Enables a user to have easy access to
communications information, such as phone
and e-mail directory services.
Internet Access and Web Hosting Provides standard Internet access to the
Web, similar to that provided by ISPs.
Video Conferencing Enables users to have real time video-based
meetings with one or more individuals using
their PCs.
</TABLE>
Sales and Customer Service
We have a dedicated sales force that is supplemented by members of our
executive management team. Our salespeople are based regionally within the
United States, Hong Kong, and Taiwan. Our senior management focuses on
maintaining and cultivating relationships with our customers. We assign our
sales representatives specific accounts based on their level of experience,
location, and the quality of the relationship between the representative and
the customer. Our primary marketing and sales support is centralized and
directed from our headquarters in Irwindale, California. We also have a full-
time staff dedicated to our marketing efforts. The marketing and sales support
staff implement our marketing strategies and programs, developing leads,
producing proposals, and making sales presentations. Currently, our marketing
and sales force consists of 18 people, 10 of whom are dedicated to sales of our
consumer calling services, five of whom are dedicated to sales of our carrier
and eCarrier transmission services, and three of whom are dedicated to sales of
oPhone.
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Consumer calling services
We market our consumer products via both traditional offline channels and
online Web channels. Our distributors typically purchase a large quantity of
PINs or calling cards from us for resale to the consumer. These distributors
make a commission from each card sold. In exchange, they sell our products,
provide the first level of customer service, and manage customer collections.
Our top distributors for the quarter ended December 31, 1999 were:
. Abest
. Goldman Network
. STE Communications
. Star Communications
We are increasing our online marketing via Web-based businesses, such as
AsianConnections.com, Asia-Links, Click2Asia.com, and Sina.com, with whom we
conduct joint marketing and branding campaigns. We supplement our channel sales
with print and online advertising. Currently, our calling card business is
focused on Asian communities and consumers in the United States. To reach these
consumers, we have implemented a well-defined direct marketing strategy, using
local foreign language publications and cultural events. Distribution partners
and end users can access their accounts to check billing status via our
Website.
Carrier and eCarrier transmission services
We market to carriers and eCarriers mainly through targeted direct mail and
marketing campaigns, attendance and speaking opportunities at conferences and
tradeshows, and word-of-mouth from vendors such as Clarent. To date, we have
not conducted any advertising for carrier marketing but expect to do so in the
future. Registered carrier customers and partners can check rates and billing
status via our Website.
Corporate Integrated Communications Services
We have been developing our Integrated Communications Services product, the
combination of oPhone and CommPortal, closely with Clarent, who will be the
supplier of IP equipment, because Clarent is increasingly interested in
developing the corporate IP telephony market. We have conducted market research
and analysis in connection with our development of CommPortal. In addition, we
have signed a memorandum of understanding to partner with NetStar, a pan-Asian
network integrator that currently employs over 200 information technology
professionals and services over 300 existing corporate customers. Based on a
revenue sharing model, NetStar will serve as our marketing and implementation
arm to attract and service corporate customers of oPhone and, eventually,
CommPortal.
Our Network and Operations
Network Strategy and Design
We have designed our managed IP network and operations to fully support the
marketing initiatives and requirements of our consumer, carrier, and corporate
products and services. Our managed IP network is a premium data network built
with carrier-grade IP equipment, linked by a combination of the public
Internet, international leased lines, and satellite access. We monitor and
control our network on a 24x7x365 basis to deliver high quality voice and data
services. We have built our network using components selected from leading
suppliers after conducting extensive analysis to determine the highest
performers in each category, or best-of-breed components, such as Clarent IP
gateways and software, Cisco routers, Oracle software, and Sun servers. In
addition, our network is firewall and security protected and continuously
monitored by our 24x7x365 proprietary quality management system. We have
designed our network to deliver the scalable, reliable, and high quality
services that our consumer, carrier, and corporate customers demand.
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Our network characteristics include the following:
. Blended Bandwidth. We continue to rapidly deploy our managed IP network,
which consists primarily of dedicated point-to-point IP bandwidth types,
such as international private leased lines and satellite capacity. When
managed capacity is not available and quality is acceptable, we also use
the public Internet to transmit traffic. In addition, we have agreements
with international IP carriers and traditional carriers, such as Qwest,
to give us competitive global routing for overflow traffic and to help us
reach new markets. Our blended bandwidth strategy helps us to scale
faster by using a variety of transport mediums, to keep costs low by
leveraging the most cost-effective bandwidth, and to ensure consistent
quality of service.
. Network Components. We deploy best-of-breed IP technologies to build our
premium data IP network. These components include Clarent IP gateways and
command centers, Cisco routers and Summa switching platforms, Synapsis
switch controllers, HP Openview Operations support systems, and Oracle
databases.
. Management Systems. We have developed and continue to invest in
management systems that allow centralized, proactive monitoring and
control of traffic on our network. We have established a Network
Operations Center, or NOC, at our Los Angeles data center from which we
monitor and control our global network on a 24x7x365 basis. The NOC
monitors all aspects of our network including routes, hardware, software,
and call quality statistics. We have developed a sophisticated,
proprietary, Web-based traffic routing and call quality management
reporting system. In addition, NOC staff are equipped with real time
tools to monitor critical system performance levels and IP quality
attributes of our routes. NOC technicians use this information to make
real time re-routing and maintenance decisions to ensure that quality
levels are maintained. In addition, we are in the process of updating our
network management tools based upon the HP Open View system.
. Firewall and Security. Our approach to network security is to screen and
control traffic flows on our private IP backbone through the use of a
firewall system. Our network is protected by perimeter security at all
points of public interconnection. Individual corporate and production
servers are locked down according to industry standard security
checklists. All these measures are to ensure the availability,
reliability, and integrity of our network.
Network locations and capacity
As of February 29, 2000, our network had approximately 2,900 IP ports
deployed in our command center control and 2,400 IP ports in service,
distributed across 14 cities in Asia and the United States. Through our
interconnect agreements with traditional carriers and other IP networks, we are
able to terminate traffic in 225 countries. Our network backbone is anchored by
three SuperPOPs located in Los Angeles, Hong Kong, and Taipei. Each SuperPOP
serves as both a hub to aggregate traffic as well as a transit point for
termination routes. By establishing multiple traffic hubs, we have the
flexibility to choose from multiple bandwidth suppliers, allowing us to
optimize quality and cost savings. Our multiple hub structure also enables us
to direct the routing of traffic more efficiently. In addition, traditional
carriers can connect their circuit-switch networks directly to any of our three
SuperPOPs. We have designed the infrastructure of our SuperPOPs to support up
to 50 million minutes of voice traffic per month in Los Angeles and up to 30
million minutes per month for each of Hong Kong and Taiwan. We believe that
this capacity will be sufficient to meet our needs for the near term. In
addition, we can quickly increase these capacity levels as demand increases by
populating our SuperPOPs with additional equipment and provisioning additional
bandwidth.
Customer Service and Billing
We have developed customer care and billing capabilities tailored to each of
our customer groups.
. Consumers and distributors. Our consumer services are supported by our
online interactive customer care and billing center, which enables a
distributor or user to monitor and set up an account, receive an account
number and a PIN, pay by credit card for services and contact our
customer service
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representatives. Most consumer concerns can be addressed online. In
addition, customers can use our multilingual toll-free number on a
24x7x365 basis. Our customer support department responds to user inquiries
primarily through e-mails typically within 24 hours. We strive to
continually improve our customer care center to meet the evolving needs of
our users.
. Carriers. Our support to carrier customers is similar to the support we
provide to our distributors with additional support from our NOC. The NOC
staff is available on a 24x7x365 basis. Our engineering staff also
directly assists our carrier customers by handling all technical problems
referred by the NOC. Our carrier services department handles all rate
administration, billing, account reconciliation, deposits, and credit
management functions for carrier accounts. In addition to these support
activities, we provide professional project management support for all
new provisioning activity associated with these accounts. The project
management team coordinates and oversees all activities associated with
new service introduction including engineering, ordering, installation,
rate and route administration and acceptance testing.
. Corporations. We have extended the core capabilities of our distributor
and carrier billing systems to provide support for our corporate
customers. Web-based access to corporate account information is a
centerpiece of our approach to the corporate market. We are developing
and intend to launch a new support function associated with CommPortal
that includes a customer care and billing requirements definition phase
that will result in further enhancements to our billing and customer care
system capabilities.
Competition
We compete in both the market for consumer calling services and the market
for carrier transmission services. Each of these markets is highly competitive
and has numerous service providers. We intend to enter the market for corporate
integrated communications services, which is currently in its infancy in Asia.
The market for IP communications services is new and rapidly evolving. We
believe that the primary competitive factors determining success in the IP
communications market are:
. quality of service;
. price;
. the ability to meet and anticipate customer needs;
. responsive customer care services;
. breadth of geographic presence; and
. broad offering of communications services, especially enhanced services.
Consumer Calling Services
We compete in the growing market of competitively priced consumer long
distance services, including calling cards, call-back services, dial-around or
10-10 calling, and collect calling services. We compete with IP telephony
providers such as Net2Phone and deltathree.com. In addition, we compete with
traditional telecommunications carriers, including industry leaders such as
AT&T and MCI/WorldCom. These providers are significantly larger than we are,
and many have:
. substantially greater financial, technical and marketing resources;
. larger networks;
. a broader portfolio of services;
. stronger name recognition and customer loyalty;
. well-established relationships with many of our target customers; and
. an existing base of users to whom they can cross-sell their services.
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Carrier Transmission Services
We compete with telecommunications providers, long distance carriers, and
other long distance resellers and providers of carrier services for our carrier
transmission services. Our primary competitors in providing carrier
transmission services include:
. long distance carriers, including AT&T and MCI/WorldCom;
. global telecommunications alliances, including BT/AT&T;
. emerging carriers providing transmission services over the Internet,
including AT&T Global Clearinghouse, iBasis, and ITXC; and
. wholesale carrier providers, including STAR and Pacific Gateway Exchange.
Competition for carrier traffic is primarily based on price and access to
limited routes and markets. Decreasing telecommunications rates have resulted
in intense price competition, and we expect that competition will continue to
increase significantly as telecommunications rates decrease. Increased
competition could force us to further reduce our prices and may reduce profit
margins and our market share. Our need to stay competitive may require us to
invest in new routes or to pay for access into other key markets, each of which
could impact our margins.
Corporate Integrated Communications Services
Future competition could come from a variety of companies in both the
Internet and telecommunications industries, including traditional
telecommunications carriers, ISPs, and ICSPs. These and other competitors may
be able to bundle services and products that we do not offer with enhanced
Internet and IP communications services, which could place us at a significant
disadvantage. Many of these companies have greater resources and larger
subscriber bases than we have and have been in operation longer.
Proprietary Rights
We rely or expect to be able to rely on trademark and trade secret laws and
confidentiality agreements and other contractual arrangements with our
employees, strategic partners, and others to protect our proprietary rights.
We have a registered trademark for "oCen." We do not currently own any
registered copyrights or patents.
Regulatory Environment
The use of the Internet and managed IP networks to provide telephone service
is a recent market development. While we believe that the provision of voice
communications services over the Internet and managed IP networks is currently
permitted under U.S. law, some foreign countries, including Taiwan and the PRC,
have laws or regulations that may restrict or prohibit voice communications
over the Internet.
The Regulatory Framework in the United States
In the United States, we operate under a regulatory framework that
distinguishes between "telecommunications services," which are heavily
regulated, and "information services," which are largely unregulated. There is
considerable uncertainty concerning the classification within this framework of
IP telephony in general and phone-to-phone IP telephony in particular. To date,
the FCC has not acted to treat IP telephony as a telecommunications service.
For that and other reasons, we believe that therefore our IP telephony traffic
presently qualifies as an information service. As a result, our international
IP telephony traffic is not subject to access charges or the international
settlement rate regime, which dramatically reduces our cost in providing
international calling services.
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By contrast, the overflow international traffic that we carry overseas using
conventional circuit-switched carriers qualifies as regulated
telecommunications traffic and is therefore subject to access charges or the
international settlement rate regime. Some of our other services are also
governed by the regulations applied to traditional telecommunications service
providers. It is possible for our customers to use our calling cards to place
both intrastate and interstate domestic calls. Those calls, which constitute a
minimal portion of our traffic, are carried through the resold services of
conventional circuit-switched long distance providers and constitute a
regulated telecommunications service offering.
In addition to the regulatory framework governing the provision of
telecommunications and information services, our services may be subject to the
general regulation of the Internet, including provisions concerning disclosure
of confidential communications, copyright matters, and excise taxes.
IP Telephony
Federal Regulation. We believe that, under U.S. law, the IP telephony
services that we provide constitute information services. To the extent that
our IP telephony services are information services, they are not currently
regulated by the FCC. However, we cannot assure you that our IP telephony
services will not be regulated by the FCC in the future. Although it has not
reached any definitive conclusions, the FCC could determine that IP telephony,
or certain categories of IP telephony services, should be classified as
regulated telecommunications common carrier services or otherwise subjected to
increased regulation. On April 10, 1998, the FCC issued a report to Congress
discussing its implementation of universal service provisions contained in the
1996 amendments to the Communications Act of 1934. In the report, the FCC
indicated that it would examine the question of whether some forms of phone-to-
phone IP telephony are information services or telecommunications services. The
FCC explained that it did not have an adequate record as of the date of the
report on which to make a definitive ruling. However, the FCC said that the
incomplete record it did have suggested that some forms of phone-to-phone IP
telephony appear to have the same functionality as non-IP telecommunications
services and lack the characteristics that would render them information
services. The implication of this FCC report is that some forms of IP
telephony, including in particular phone-to-phone IP telephony, should, and in
the near future might be, regulated as telecommunications services or otherwise
regulated more heavily.
Many of our competitors and other interested parties have taken the position
that IP telephony should be subject to the same regulatory framework as
telecommunications services. For example, in September 1998, two Regional Bell
Operating Companies, or RBOCs, advised IP telephony providers that they would
impose on Internet and IP telephony traffic the same access charges applied to
traditional telecommunications service providers. It is uncertain at this time
whether or when these RBOCs will actually succeed in imposing access charges on
IP telephony traffic. However, one of the RBOCs recently filed a petition with
the FCC seeking approval of the imposition of access charges on phone-to-phone
IP telephony services.
If the FCC determines that phone-to-phone IP telephony services are subject
to FCC regulation as telecommunications services, the FCC may subject IP
telephony providers to traditional telecommunications common carrier
regulation. Among other things, IP telephony providers could be required to
make universal service contributions and pay access charges. That determination
by the FCC could also result in IP telephony calls becoming subject to the
international settlement rate regime. It is also possible that the FCC could
adopt a regulatory framework for Internet and IP telephony providers that would
differ from traditional common carrier regulation. In either event, our IP
telephony service offerings could be regulated more heavily, which could have a
material adverse effect on our business, financial condition, and results of
operations. For example, if the FCC determines that IP telephony calls are
subject to access charges and/or the international settlement rate regime, we
would lose much of our cost advantage over conventional providers of
international long distance calling services.
The intense focus on the regulatory status of the Internet and IP telephony
has resulted in efforts to have Congress enact legislation that would either
regulate or exempt from regulation communications services
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provided over the Internet. Congressional dissatisfaction with the FCC's
conclusions could result in requirements that the FCC impose greater
regulation, which in turn could materially adversely affect our business,
financial condition, and results of operations.
State Regulation. State regulatory authorities may also retain jurisdiction
to regulate the provision of intrastate IP telephony services. Several state
regulatory authorities have initiated proceedings to examine the regulation of
such services, and other states could follow.
Telecommunications Services
To the extent that we use circuit-switched networks to provide interstate
long-distance services and overflow international traffic, we must comply with
federal telecommunications laws and FCC regulations governing
telecommunications services. We are similarly regulated by state public utility
commissions to the extent we use traditional circuit-switched networks to
provide intrastate long distance services.
Federal Regulation. The Communications Act of 1934 and FCC regulations govern
the interstate and international long distance telecommunications services we
provide over traditional circuit-switched networks. The FCC has established
different levels of regulation for dominant and non-dominant long distance
carriers. We are a non-dominant carrier under FCC regulation and are less
heavily regulated than dominant carriers. For example, the FCC does not
regulate the rates that we charge for our interstate and international long
distance services.
The FCC has also decided that non-dominant long distance carriers should not
file tariffs setting forth their rates for interstate services. However, that
ruling has been stayed until the matter is resolved in a pending court case.
Until the stay is lifted, we are required to file tariffs for our interstate
long distance services. If and when the decision not to require the filing of
tariffs becomes effective, we could benefit from a decrease in compliance costs
and the possible elimination of delays in getting new products and services to
market.
Despite our non-dominant carrier status, we must comply with those sections
of the Communications Act of 1934 that pertain to providing interstate and
international long distance services using circuit-switched technology. We are
subject to the general requirement that the rates, terms, and conditions of our
services be "just and reasonable" and that we refrain from making any "unjust
or unreasonable" discrimination in our rates, terms, and conditions. The FCC
has the authority to enforce our compliance with these requirements.
State Regulation. We are subject to state laws and the jurisdiction of the
state public utility commissions for the intrastate long distance services we
provide using traditional circuit-switched networks. Although the degree of
regulation varies from state to state, our calling card services are subject to
regulation by the state public utility commissions in virtually all states
because our customers could use our calling cards to make long distance
intrastate calls, which would then be carried over traditional circuit-switched
networks. In most of the states in which we do or intend to do business, we are
required to obtain authorization from the state public utility commission in
order to provide those intrastate long distance services. In addition, in many
states we are required to file and maintain tariffs setting forth the terms,
conditions, and prices for our intrastate long distance service offerings.
Our Regulatory Status. We are authorized by the FCC to provide resold
international long distance services, and we have tariffs on file with the FCC
under which we may provide interstate and international long distance services.
On the state level, we are not authorized to provide intrastate long distance
services over the traditional telephone networks. We have sought the
authorization to provide intrastate services in the states of California and
New York. As we have not filed the associated requisite tariffs, however, we
may not be authorized to provide intrastate telephony over traditional
telephone networks in these states. Furthermore, because those authorizations
were obtained when we were incorporated in California under the name Pacific
Telekey Network, we must obtain the prior approval of the state public utility
commissions in those states before we can provide intrastate long distance
services as a Delaware corporation or under the name oCen. We are in the
process of securing those necessary approvals.
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We anticipate being authorized to provide intrastate long distance services
over traditional telephone networks under the name oCen in the remaining 48
states by the end of 2000. Although we believe that our intrastate traffic in
states other than New York and California is negligible at present, the calling
cards we have already issued may be used by customers for that purpose and, if
so, the provision of such service would be outside the scope of any
authorization that we have or need. Those operations could be deemed unlawful
and could result in fines, penalties, and other sanctions, including an order
from a state public utility commission to cease operations in the state for
some period of time. If we were ordered to cease operating in a state, it could
have a material adverse effect on our business.
The Internet
Congress has recently adopted legislation that regulates certain aspects of
the Internet, including on line content, user privacy, and taxation. For
example, the Internet Tax Freedom Act prohibits certain taxes on Internet uses
through October 21, 2001. We cannot predict whether substantial new taxes will
be imposed on our services after that date. In addition, Congress and other
federal entities are considering other legislative and regulatory proposals
that would further regulate the Internet. Congress is, for example, currently
considering legislation on a wide range of issues including Internet spamming,
database privacy, gambling, pornography and child protection, Internet fraud,
privacy, and digital signatures. Various states have adopted and are
considering Internet related legislation. Increased U.S. regulation of the
Internet may slow its growth, particularly if other governments follow suit,
which may negatively impact the cost of doing business over the Internet and
materially adversely affect our business, financial condition, results of
operations, and future prospects.
Regulation in the PRC
The PRC telecommunications industry is still developing. It is regulated by a
series of administrative and departmental regulations. The principal
regulations include the 1993 Notice Regarding the Further Strengthening of the
Management of the Telecommunications Business Market issued by the State
Council, the 1993 Interim Measures for the Examination and Approval and
Administration of Conducting De-regulated Telecommunications Business issued by
the Ministry of Post and Telecommunications, or MPT, and the 1994 MPT Notice
Regarding Joint Investment on an Experimental Basis to Further Accelerate the
Development of Communications. The Ministry of Information Industries, or MII,
which was formerly the MPT, is the national regulatory authority for
telecommunications network operations and service provision in the PRC.
The PRC government is in the process of drafting a unified telecommunications
law. We do not know when the new law will be enacted. With the recent
restructuring of various communications-related entities into the MII as well
as the PRC's likely accession into the WTO, the promulgation of the
telecommunications law may be further delayed.
IP Telephony
The PRC government regulates access to the Internet by imposing strict
licensing requirements and requiring ISPs in the PRC to use the international
inbound and outbound Internet backbones. In 1996, the State Council promulgated
the PRC Provisional Measures on International Link-up of Computer Information
Networks, or the Link-up Measures, and in 1998 it further promulgated the
Implementing Rules for the Link-up Measures, which collectively provided for an
operation licensing system. The MII then issued the 1998 Notice Regarding
Licensing of Business Operations of International Linkups of Computer
Information Networks, or the 1998 Notice, containing further provisions for the
implementation of the licensing system.
The types of services which can be provided over the Internet are not limited
to data transmission. However, it is unclear which services may be provided in
the PRC. According to Article 9 of the 1998 Notice, only computer information
services may be provided over the Internet in the PRC, and no
telecommunications services such as telephone and fax may be provided over the
Internet. Recently, this complete ban has been
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<PAGE>
liberalized and certain pilot local telecommunications operators have been
selected to provide IP telephony services. There are indications that if the
trial operation is regarded by the PRC government as successful, more PRC
providers may be allowed to engage in this business. Foreigners remain
prohibited from investing in IP telephony companies in the PRC.
Restrictions on Foreign Investment
The PRC government has consistently reiterated that foreign involvement in
the operation of telecommunications networks and ownership of equity in these
networks is prohibited. The 1993 Opinion of the MPT on Further Strengthening
Control of the Telecommunications Services Market says that foreigners are not
allowed to operate or participate in the operation of telecommunications
businesses in the PRC, and at the same time mainland Chinese are not allowed to
attract foreign equity participation in the operation of telecommunications
businesses.
In June 1995, the State Council promulgated the Interim Provisions on
Guidelines for Foreign Investment and the Foreign Investment Industrial
Guidance Catalogue. The Guidance Catalogue provides that foreign operation and
management of the postal services and telecommunications business are
prohibited. The same prohibition exists in the revised Guidance Catalogue that
went into effect on January 1, 1998. Because PRC officials have interpreted
telecommunications services to include Internet services, foreign involvement
in Internet services is not allowed.
Some foreign investors attempted to avoid the prohibition by setting up Sino-
foreign joint ventures, which under PRC laws are domestic entities, which then
operate the telecommunications networks of local PRC telecommunications
companies under a servicing agreement. In 1998, the MII declared these
arrangements "improper," and the PRC government has imposed a time limit for
these creatively structured transactions to be terminated.
It is commonly believed that a genuine sale and purchase of equipment or an
equipment lease followed by a consultancy or technical support agreement will
not be considered to be a violation of the ban on foreign involvement in
network operation, but those transactions will be subject to strict government
scrutiny. Equipment sales, leases, and similar technical agreements are equally
permitted under PRC laws. However, government officials may disagree with this
understanding and take action to eliminate the consultancy or technical support
arrangements on the grounds that foreign investment in telecommunications
operations are not allowed in the PRC.
The PRC's WTO Bid and Possible Further Deregulation of the Telecommunications
Industry
The ban on foreign investment stands in contrast to the recent agreement
reached between the United States and the PRC regarding the PRC's accession to
the WTO. Under that agreement, the PRC will allow 49% foreign investment in all
telecommunications services immediately upon its accession to the WTO and 50%
two years subsequent to accession. On the understanding that telecommunications
services are meant to include Internet services, the PRC-United States WTO
agreement should allow for 49% foreign investment in the Internet industry upon
accession and 50% two years later. The State Council is expected to promulgate
new regulations in early 2000 that will provide clarification on the exact
scope of the telecommunications services to be further opened for foreign
investment. Until such new regulations are enacted, we cannot assure you that
foreign control of a PRC ISP or ICSP is permitted.
Political Control of the Information Industry in the PRC
Under the Link-up Measures and the State Secret Protection Regulations for
Computer Information Systems on the Internet, the PRC government controls
Internet access and the distribution of news and other information. The
Propaganda Department of the Communist Party is responsible for censoring news
published in the PRC to ensure, supervise and control political correctness.
The MII has published implementing
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<PAGE>
regulations that subject online information providers to potential liability
for content included on their portals and the actions of subscribers and others
using their systems including liability for violation of PRC laws prohibiting
the distribution of content deemed to be socially destabilizing. Because many
PRC laws, regulations and legal requirements relating to the Internet are
relatively new and untested, their interpretation and the enforcement of what
is deemed to be socially destabilizing by PRC authorities involves significant
uncertainty.
From time to time, the Ministry of Public Security has stopped the
distribution of information over the Internet that it believed to be socially
destabilizing. The Ministry of Public Security has the authority, in its sole
discretion, to cause any local ISP to block any website maintained outside of
the PRC.
Regulation in Hong Kong
Telecommunications activities in Hong Kong are primarily governed by the
Telecommunication Ordinance and the Telephone Ordinance and their subsidiary
legislation. The Telecommunication (Amendment) Bill is now being considered by
the legislature in Hong Kong. The exact amendments to the Telecommunication
Ordinance and the impact of any amendments will only be known after the bill
has been debated and enacted in its final form.
Under Section 5 of the Telecommunication Ordinance, a public officer is
appointed as the Telecommunications Authority to administer the
Telecommunication Ordinance and the Telephone Ordinance and to regulate all
different forms of telecommunications. The Telecommunication Authority is also
the Director-General of Telecommunications in Hong Kong. The Telecommunication
Authority's principal responsibilities include the licensing of
telecommunications activities, the promotion of an open and competitive
telecommunications market, the protection of consumer interests, the economic
and technical regulation of the telecommunications industry and the enforcement
of license conditions.
Since the end of Hong Kong Telecom's exclusive license on local fixed
telecommunications network services in 1995, the deregulation of the domestic
telecommunications industry has resulted in four fixed network operators, six
mobile network operators and a number of non-exclusive telecommunications
services providers. Following the deregulation of the domestic market, the
external telecommunications market has been progressively liberalized since
1999. The Hong Kong government further issued licenses for domestic and
external telecommunications facilities in February 2000.
In 1995, the Telecommunications Authority issued a written statement that
ISPs are required to be licensed under the Telecommunication Ordinance. An ISP
license does not authorize the licensee to provide external real-time voice
messages through the Internet. If an ISP provides services over the traditional
telephone network in Hong Kong, a PNETS license is required to operate this
business. The license is valid for twelve months only and is renewable at the
discretion of the OFTA of Hong Kong.
Regulation in Taiwan
Taiwan regulates IP telephony by licensing operators. A Type I license
operator may offer telecommunications services while a Type II license operator
must wait until further deregulation before it may offer IP telephony services
in the form of voice simple resale. Taiwan's regulatory agency, Directorate
General of Telecommunications, or DGT, has announced plans to deregulate
limitations that currently inhibit the offering of IP telephony services by a
Type II license operator. Currently, we do not directly offer IP telephony
services in Taiwan but have made such services available through our partner in
Taiwan who has a Type II license. If the anticipated deregulation does not
occur in 2001 as announced by DGT, or if our partner in Taiwan has not obtained
or maintained the proper license required after deregulation, we may not be
able to offer services in Taiwan. This would materially adversely affect the
financial condition, operating results, and future prospects of our business in
Taiwan.
Direct trade between people in Taiwan and people in the PRC is prohibited
except that people in Taiwan may, after obtaining official approval, conduct
some business activities in the PRC. Our business may therefore be limited by
the foregoing restriction in some circumstances.
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<PAGE>
Other International Regulation
The regulatory treatment of IP telephony outside of the United States varies
widely from country to country. A number of countries that currently prohibit
competition in the provision of voice telephony may also prohibit IP telephony.
Other countries permit but regulate Internet and IP telephony. Some countries
will evaluate proposed IP telephony service on a case-by-case basis and
determine whether it should be regulated as a voice service or as a different
telecommunications service. In many countries, IP telephony has not yet been
addressed by legislation or regulatory action. Increased regulation of the
Internet and/or ISPs and ICSPs, or the prohibition of Internet and IP
telephony, in one or more countries could materially adversely affect our
business, financial condition, operating results, and future prospects.
As we make our services available in foreign countries, and as we facilitate
sales by our partners to end users located in foreign countries, some countries
may require us to qualify to do business in that country. Those countries may
also regulate our company or our services, including through requirements to
obtain authorization for the provision of voice telephony or other
telecommunications services or for the operation of telecommunications
networks. These countries may instead prohibit us in all cases from providing
our services or conducting our business as presently conducted or intended to
be conducted in those countries. Our failure to qualify as a foreign
corporation in a jurisdiction in which we are required to do so or to comply
with foreign laws and regulations could materially adversely affect our
business, financial condition, and results of operations, including by
subjecting us to taxes and penalties or by precluding us from, or limiting us
in, enforcing contracts in those jurisdictions.
Our foreign partners may be, or become, subject to requirements to qualify to
do business in a particular country, to comply with regulations, including
requirements to obtain authorizations for the provision of voice telephony or
other telecommunications services or for the operation of telecommunications
networks, or to stop providing services or conducting their business as
presently conducted, or intended to be conducted, in that country. We cannot be
certain or assure you that our partners are in compliance, will be able to
comply, or will remain in compliance with these or similar requirements. The
failure of our partners to comply with these types of requirements could
materially adversely affect our business, financial condition, and results of
operations.
Properties
We lease our executive offices at 4900 Rivergrade Road, C110, Irwindale, CA
91706. This lease expires in 2004.
Employees
As of December 31, 1999, we employed 75 full-time and 11 part-time employees.
We consider our relationship with our employees to be good. None of our
employees is covered by a collective bargaining agreement.
Legal Proceedings
We are not a party to any material litigation and are not aware of any pending
or threatened litigation that could have a material adverse effect on us or our
business, taken as a whole.
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MANAGEMENT
The following table sets forth information with respect to our directors,
executive officers, and other key employees as of the date of this prospectus.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Ron Higgins.................... 42 Chairman
Steven San Eng................. 30 Chief Executive Officer and Director
James Courtney................. 37 Chief Operating Officer
Thomas Bao..................... 29 President, VP of Greater China, and
Director
Alex Liu....................... 41 Managing Director of Asia
Chris Au....................... 33 VP of Asia Operations, VP of Legal, and
Secretary
Eckhart Gouras................. 39 VP of Business Development
Gunther Gee.................... 31 VP of Technology
Benjamin Ho.................... 28 Director of Marketing and Sales
Lloyd Fischer.................. 38 Director
Chan Ki........................ 40 Director
Simon Lo....................... 44 Director
Jean Salata.................... 34 Director
</TABLE>
Officers.
Ron Higgins. Mr. Higgins has served as Chairman since February 2000. He has
been an advisor to oCen since it was founded in 1997 and has been an active
board member since 1998. Mr. Higgins is the founder and former Chairman and
Chief Executive Officer of Digital Island, a global e-business delivery network
for business-critical applications. For nearly two decades, Mr. Higgins has
been building successful technology companies in the networking,
communications, desktop publishing, and multimedia areas. With an extensive
background in international strategy and marketing, he has developed and
implemented sales and marketing programs for a variety of companies ranging
from start-ups to large corporations with revenues in excess of $500 million.
Before founding Digital Island in February 1994, Mr. Higgins held senior
marketing positions at Tut Systems, Mobius Technologies, Radius, Letraset, and
General Parametrics.
Steven San Eng. Mr. Eng has served as Chief Executive Officer since January
1999 and as a director since January 2000. Prior to that, he served as Chief
Financial Officer, VP of Business Development, and VP of Marketing and Sales
for oCen. Mr. Eng has nearly 10 years of strategy and operations consulting,
venture capital, and start-up experience. From May 1992 to October 1994, he was
a consultant with the Strategic Services Group of Andersen Consulting based in
New York. From October 1994 to September 1996, he was a management consultant
with AT Kearney in Asia. As a consultant, Mr. Eng advised U.S. and Asian
telcos, including AT&T, MRCB in Malaysia, New World Telephone in Hong Kong, and
SK Telecom in Korea, on their corporate and marketing strategies. After AT
Kearney, Mr. Eng joined Asia Online, one of Hong Kong's largest ISPs at the
time, to run their customer service and technical support departments. In 1996,
AIG Investment Corp. recruited Mr. Eng as an investment manager where he helped
manage the $1.1 billion Asian Infrastructure Fund, focusing on private equity
telecom investments throughout Asia. Mr. Eng has a B.S.E. degree from the
Wharton School of the University of Pennsylvania, and speaks fluent Cantonese,
Mandarin, and Hakka Chinese.
James Courtney. Mr. Courtney has served as Chief Operating Officer since
November 1999. Before joining oCen, Mr. Courtney held executive positions in
several international joint ventures in communications. From March 1997 to July
1998, Mr. Courtney served as Group Executive of Information Systems at Mobile
Telephone Networks, or MTN, a subsidiary of Cable & Wireless. From January 1996
to February 1997, Mr. Courtney served as Chief Operating Officer for M-Tel, a
GSM cellular operator and another subsidiary of Cable & Wireless in
Johannesburg, South Africa, where he was responsible for a staff of 800. There,
he grew M-Tel's operations to over 230,000 subscribers. Before that, Mr.
Courtney was with MTN from March 1995 to
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December 1995, Occell Cellular in Columbia from July 1994 to March 1995, and
RTC Mobfion in Bulgaria from October 1992 to June 1994, holding positions in
business development, information technology, and business operations,
respectively. In the United States, Mr. Courtney held several management and
engineering positions with GTE Corporation from July 1986 to July 1990. Mr.
Courtney has an M.B.A. from the University of Chicago, where he graduated cum
laude. He also holds an M.S. in Economics from the London School of Economics,
as well as B.S. degrees in both electrical engineering and physics from the
University of South Florida.
Thomas Bao. Mr. Bao is a founder and investor in oCen, and has served as
President and Director since October 1997 and as VP of Greater China since
November 1998. Before founding oCen, he founded, funded, and managed Pacific
Sunrise, a real estate development company in Los Angeles from October 1994 to
October 1996. From February 1993 to September 1994, Mr. Bao worked for
Transamerica and from February 1993 to September 1994 for Chung Shing Textiles
in various management capacities. Mr. Bao attended the University of San
Francisco and is fluent in Mandarin Chinese.
Alex Liu. Mr. Liu became Managing Director of Asia in February 2000. Mr. Liu
has over 20 years of experience marketing professional and information services
to corporate and carrier customers around the world, and over 10 years of
direct work experience with these enterprises in Asia. Some of his corporate
and carrier customers in the region have included traditional and wireless
service providers, manufacturers of computer and electronic equipment, software
companies, and Internet-based enterprises. Previously, Mr. Liu was the officer-
in-charge of the Asia and Americas Communications and Electronics practice of
A.T. Kearney, the management consulting arm of EDS, an integrated information
technology services firm. He joined A.T. Kearney in 1997 to lead the practice
in Asia and relocated to Silicon Valley in 1999 to co-lead the Americas
practice. Before joining A.T. Kearney, he worked for the Boston Consulting
Group (BCG) in the United States during the 1980s and in Asia, as a partner and
co-founder of the Asia practice of BCG, during the 1990s. Prior to BCG, Mr. Liu
worked as a brand manager for a subsidiary of Procter & Gamble. Prior to that,
he worked for a specialty telecommunications equipment supplier in the United
States. He is a frequent speaker on business issues in the telecommunications
industry. Mr. Liu holds a B.A. in economics, magna cum laude and Phi Beta
Kappa, from Yale University and an M.B.A. from Harvard Business School.
Chris Au. Mr. Au became VP of Legal in August 1998, Secretary in January
1999, and VP of Asia Operations in October 1999. He served as the Chief
Operating Officer at oCen from December 1998 to October 1999. Mr. Au is an
attorney with over 10 years of law and entrepreneurial experience. Before
joining oCen, from September 1995 to June 1998, Mr. Au founded and managed the
New York law firm of Au & Yuen, P.C. Before Au & Yuen, he served externships
with the Honorable Sonia M. Sotomayor, a Federal District Court Judge, from
January 1994 to May 1994 and the New Jersey Attorney General's Office from
September 1993 to December 1993. In August 1989, he founded CTC Transportation,
Inc., a transportation service company, and later exited that venture through a
successful trade sale. Mr. Au holds a B.S. in finance and international
business from New York University and a J.D. from Rutgers University School of
Law. He also studied the legal systems of Hong Kong and the PRC at Hong Kong
University. Mr. Au is a member of the New York and New Jersey bars and speaks
Cantonese Chinese.
Eckhart Gouras. Mr. Gouras became VP of Business Development in August 1999.
Before joining oCen, from August 1997 to July 1999, Mr. Gouras founded and
developed one of Europe's first and largest ICSPs, POPTEL Telecommunications AG
in Berlin, Germany. Before his pioneering efforts at POPTEL, Mr. Gouras served
as Managing Director of Silk Road International Limited from August 1993 to
July 1997, advising European companies on doing business in the PRC. He also
advised the German Privatization Agency on the sale of state-owned enterprises
from 1991 to 1992. Mr. Gouras is a member of the New York bar and worked as a
lawyer for Coudert Brothers, an international law firm based in New York. He is
a graduate of Columbia University in New York (B.A. 1984, Phi Beta Kappa and
J.D. 1987) and speaks German, Italian, and conversational Mandarin Chinese.
Gunther Gee. Mr. Gee became the VP of Technology in February 1999. From
October 1994 to January 1999, Mr. Gee was the VP of Operations (and de facto VP
of Technology) at DirectNet Telecommunications,
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<PAGE>
an alternative international telecommunications carrier, where he managed the
operations during the company's growth from the start-up stage to $80 million
in sales and 150 employees. Mr. Gee oversaw the design and deployment of
DirectNet's large-scale wholesale and retail networks in the United States and
Eastern and Western Europe. Prior to DirectNet, Mr. Gee was a senior consultant
with PricewaterhouseCoopers Bankruptcy and Litigation Consulting Group. Mr. Gee
attended the University of the Pacific, holds a B.S. in business finance, and
graduated magna cum laude.
Benjamin Ho. Mr. Ho became Director of Marketing and Sales in September 1999.
Mr. Ho has over six years of management consulting and marketing management
experience. Mr. Ho has managed strategic development, operations improvement
(mostly sales & marketing), and technology implementation projects. After
business school, he worked as a manager with Deloitte & Touche Consulting Group
from August 1994 to August 1998. There, he was a consultant to Fortune 500
companies in a number of industries, including consumer products (Clorox, The
Food and Marketing Institute), healthcare (CIGNA, Kaiser Permanente),
telecommunications (Pacific Bell), and a start-up subsidiary of McKesson
Pharmaceutical. He then joined Nestle Food USA and was a marketing manager of a
$140 million brand for the beverage division from August 1998 to July 1999. Mr.
Ho holds an M.B.A. in strategy and marketing from the University of Chicago and
earned his B.A. in economics from the University of California at Los Angeles.
Lloyd Fischer. Mr. Fischer became a director of oCen in November 1998. Mr.
Fischer heads the Asian telecom investment banking team of ING Barings. Prior
to joining ING Barings in October 1999, Mr. Fischer was head of regional
telecommunications research for Salomon Smith Barney from March 1998 to October
1999, and held a similar position at Barclays de Zoete Wedd during February
1996 to March 1998. From January 1993 to January 1996, Mr. Fischer was the
Asian Director of Corporate Finance for NYNEX Network Systems. Mr. Fischer
holds B.S. and J.D. degrees from the University of Illinois and is accredited
with a C.F.A. and C.P.A.
Chan Ki. Mr. Ki became a director of oCen in August 1999. Mr. Ki founded
Anderson Group LTD in 1993 and developed it into a HK$1 billion enterprise
involved in properties and high technology. Anderson Group is based in Hong
Kong with investments in the United States, Hong Kong, and China. An Anderson
Group company, Anderson Information Technology, is an investor in oCen. Mr. Ki
is a member of the Tianjin Political Consultative Conference, Life Chairman of
the Tianjin University Chan Ki Scholarship, Life Chairman of Tianjin Shing Kin
College Chan Ki Scholarship, Life Chairman of Xi'an Transportation College Chan
Ki Scholarship, Honorary President of Tianjin Chinese Culture Association and
Honorary President of Chaoshan District Galaxy Award Fund.
Simon Lo. Mr. Lo became a director of oCen in August 1999. Mr. Lo has over 19
years of experience in the financial, securities, and futures industries. He
has been a member of the Chicago Mercantile Exchange since 1986 and holds
memberships in the Index & Option Market and the International Monetary Market.
He is currently the deputy chairman of Tai Fook Securities Group Limited,
Managing Director of New World CyberBase Limited and Executive Director of Huey
Tai International Limited, The Kwong Sang Hong International Limited and
Pacific Ports Company Limited, each of which is a listed company on the Stock
Exchange of Hong Kong. New World Cyberbase is the Internet investment arm of
the New World group of companies and an investor in oCen.
Jean Salata. Mr. Salata became a director of oCen in November 1998. Mr.
Salata is the founder and the managing partner of the $305 million Baring Asia
Private Equity Fund, an Asia-focused and Asian-based venture fund advised by
Baring Private Equity Partners Asia, which belongs to the ING Group, a leading
integrated financial services institution. Mr. Salata has regional
responsibility for the fund's investment activities. The fund has closed over
20 investments throughout the region since its inception in 1997, including
management-led buyouts in the technology sector and early-stage Internet
investments. Mr. Salata is Chairman of NetStar, a pan-Asian network integrator,
in which the fund holds a controlling interest. Mr. Salata has previously
worked for the Asian private equity arm of AIG from 1995 to 1997, for Shiu Wing
Steel Limited,
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an Asian industrial group, from 1991 to 1995, and for Bain & Company, the
management consulting firm, from 1988 to 1991. He graduated with honors with a
B.S. in economics from the Wharton School of the University of Pennsylvania.
Committees of the Board
We have established an audit committee, comprised of Lloyd Fischer, Chan Ki,
and Simon Lo. The audit committee reviews our internal accounting procedures
and consults with and reviews the results and scope of the audit and other
services provided by our independent accountants. We have also established a
compensation committee, comprised of Steven San Eng, Ron Higgins, Chan Ki, and
Jean Salata. The compensation committee administers our share option plans and
reviews and approves the compensation and benefits for our key executive
officers. This committee also establishes and reviews general policies relating
to compensation and benefits of our employees.
Director Compensation
Other than reimbursing directors for customary and reasonable expenses of
attending board and committee meetings, we do not currently compensate our non-
employee directors.
Compensation Committee Interlocks and Insider Participation
Prior to this offering, our board of directors has not had a compensation
committee, and all compensation decisions relating to our officers have been
made by the full board of directors. Upon the closing of this offering, the
compensation committee will make all compensation decisions regarding our
officers. No interlocking relationship exists between the compensation
committee and the board of directors or compensation committee of any other
company, nor have any interlocking relationships existed in the past.
Executive Compensation
Compensation Summary. The following table sets forth compensation information
for the Chief Executive Officer and the three other most highly compensated
executive officers of oCen for the year ended September 30, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------------
Securities
Underlying Other Annual
Name and Principal Positions Salary($) Bonus($) Options Compensation($)
- ---------------------------- --------- -------- ---------- ---------------
<S> <C> <C> <C> <C>
Steven San Eng, Chief Executive
Officer (1).................... $67,615 $50,000 3,650 --
Thomas Bao, President and VP of
Greater China (2).............. 61,011 20,000 3,650 --
Chris Au, VP of Legal, VP of
Asia Operations, and
Secretary (3) ................. 60,403 30,000 2,830 --
Gunther Gee, VP of Technology
(4)............................ 47,610 10,000 81,070 --
</TABLE>
- --------
(1) Mr. Eng has served as our Chief Executive Officer since January 1999. Prior
to serving as our Chief Executive Officer, Mr. Eng served as our Chief
Financial Officer, VP of Business Development, and VP of Marketing and
Sales.
(2) Mr. Bao served as our Chief Executive Officer from October 1997 until
January 1999.
(3) Mr. Au served as our Chief Operating Officer from December 1998 to October
1999.
(4) Mr. Gee has served as our VP of Technology since February 1999 and,
therefore, these amounts are for less than a full year.
55
<PAGE>
Option Grants in Last Fiscal Year. The following table provides certain
information regarding stock options granted to the executive officers named in
the Summary Compensation Table during the fiscal year ended September 30, 1999.
We granted to our employees options to purchase 994,490 shares of our common
stock during fiscal year 1999. All options were granted with an exercise price
equal to the fair market value of the common stock on the date of grant, as
determined by the board of directors. Options will terminate before their
expiration date if the optionee is no longer an employee or consultant of oCen.
Please note that for purposes of calculating the potential realizable value, we
have done the following, in accordance with Securities and Exchange Commission
Rules:
. multiplied the number of shares subject to each option by $ , the
assumed initial public offering price per share; and
. calculated the gains or "option spreads" that would exist for the
options assuming an annual compounded stock appreciation of 5% and 10%
from the date the option was granted over the full option term.
These assumed annual compound rates are mandated by the Securities and
Exchange Commission and do not represent our estimate or projection of future
stock prices.
Option Grants in Fiscal Year 1999
<TABLE>
<CAPTION>
Potential
Individual Grants Realizable
------------------------------------------- Value at Assumed
% of Total Annual Rates
Number of Options of Stock Price
Securities Granted Exercise Appreciation for
Underlying to Employees or Base Option Term
Options in Fiscal Price Expiration -----------------
Name Granted(#) Year ($/Sh) Date 5%($) 10%($)
- ---- ---------- ------------ -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Steven San Eng... 3,650 0.4% $0.20 7/8/09 $ $
Thomas Bao....... 3,650 0.4 0.20 7/8/09
Chris Au......... 2,830 0.3 0.20 7/8/09
Gunther Gee...... 81,070 8.1 0.20 7/8/09
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values. The following table provides summary information regarding
options/stock appreciation rights (SARs) held by the executive officers named
in the Summary Compensation Table as of September 30, 1999. The value realized
is equal to the fair market value of the purchased shares on the date of option
exercise, less the price paid for such shares. The value of unexercised in-the-
money options is based on an assumed initial public offering price of $ per
share, less the exercise price payable for the shares.
Aggregated Option Exercises in 1999 and Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options/SARs the-Money Options/SARs
at Year-End(#) at Year-End($)
Shares Acquired Value ------------------------- -------------------------
Name on Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven San Eng.......... -- -- 3,650 -- --
Thomas Bao.............. -- -- 3,650 -- --
Chris Au................ -- -- 2,830 -- --
Gunther Gee............. -- -- 81,070 -- --
</TABLE>
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<PAGE>
Employee Benefit Plans
2000 Stock Incentive Plan
Introduction. Our 2000 Stock Incentive Plan is intended to serve as the
successor equity incentive program to our 1998 Stock Option/Stock Issuance
Plan. Our 2000 plan was adopted by our board on March 15, 2000 and approved by
the stockholders in 2000. Our 2000 plan will become effective on the date
the underwriting agreement for this offering is signed. At that time, all
outstanding options under the predecessor 1998 Stock Option/Stock Issuance Plan
will be transferred to our 2000 plan, and no further option grants will be made
under that predecessor plan. The transferred options will continue to be
governed by their existing terms, unless our compensation committee elects to
extend one or more features of our 2000 plan to those options. Except as
otherwise noted below, the transferred options will have substantially the same
terms as in effect for grants made under the discretionary option grant program
of our 2000 plan.
Share Reserve. shares of common stock have been authorized for issuance
under our 2000 plan. Such share reserve consists of the number of shares we
estimate will be carried over from our 1998 Stock Option/Stock Issuance Plan,
including the shares subject to outstanding options thereunder, plus an
additional increase of approximately shares. The number of shares of
common stock reserved for issuance under our 2000 plan will automatically
increase on the first trading day in January each calendar year, beginning in
calendar year 2001, by an amount equal to % of the total number of shares of
common stock outstanding on the last trading day in December of the preceding
calendar year, but in no event will any such annual increase exceed
shares. In addition, no participant in our 2000 plan may be granted stock
options, separately exercisable stock appreciation rights, or direct stock
issuances for more than shares of common stock per calendar year.
Equity Incentive Programs. Our 2000 plan is divided into five separate
components:
. the discretionary option grant program, under which eligible individuals
in our employ or service may be granted options to purchase shares of
common stock at an exercise price not less than 100% of the fair market
value of those shares on the grant date;
. the stock issuance program, under which such individuals may be issued
shares of common stock directly, through the purchase of such shares at
a price not less than 100% of 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 to the acquisition
of special below-market stock option grants;
. the automatic option grant program, under which option grants will
automatically be made at periodic intervals to our non-employee board
members to purchase shares of common stock at an exercise price equal to
100% of the fair market value of those shares on the grant date; and
. the director fee option grant program, under which our non-employee
board members may be given the opportunity to acquire special below-
market option grants.
Eligibility. The individuals eligible to participate in our 2000 plan include
our officers and other employees, our non-employee board members, and any
consultants we hire.
Administration. The discretionary option grant program and the stock issuance
program will be administered by the compensation committee, which shall be
divided into a primary committee and a secondary committee. This committee will
determine which eligible individuals are to receive option grants or stock
issuances under those programs, the time or times when such option grants or
stock issuances are to be made, the number of shares subject to each such grant
or issuance, the status of any granted option as either an incentive stock
option or a non-statutory 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 exclusive 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 activated
for one or more calendar years.
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Plan Features. Our 2000 plan will include the following features:
. The exercise price for the shares of common stock subject to option
grants made under our 2000 plan may be paid in cash or in shares of
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 optionee. In addition, the plan administrator may
provide financial assistance to one or more optionees in the exercise of
their outstanding options or the purchase of their unvested shares 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 or purchase.
. The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program, including options
transferred from the 1998 plan, in return for the grant of new options
for the same or a 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.
. Stock appreciation rights are authorized for issuance under the
discretionary option grant program. Such rights will provide the holders
with the election to surrender their outstanding options for an
appreciation distribution from us equal to the fair market value of the
vested shares of common stock subject to the surrendered option, less
the aggregate exercise price payable for those shares. Such appreciation
distribution may be made in cash or in shares of common stock. None of
the outstanding options under our 1998 plan contain any stock
appreciation rights.
. The 2000 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 automatically
accelerate in full, and all unvested shares under the discretionary
option grant and stock issuance programs 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 structure
one or more options under the discretionary option grant program so
those options will vest as to 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
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 immediately 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 for
board membership. 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 1998 plan will immediately
vest in the event we are acquired by merger or sale of substantially
all our assets, 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. However, a
number of those options also contain a special acceleration provision
pursuant to which the shares subject to those options will immediately
vest upon an involuntary termination of the optionee's employment
within 18 months following an acquisition in which the repurchase
rights with respect to those shares are assigned to the acquiring
entity.
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Salary Investment Option Grant Program. In the event the compensation
committee elects to activate the salary investment option grant program for one
or more calendar years, each of our executive officers and other highly
compensated employees selected for participation may elect, prior to the start
of the calendar year, to reduce his or her base salary for that calendar year
by a specified dollar amount not less than $10,000 nor more than $50,000. Each
selected individual who files such a timely 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 be exercisable at a price per share equal to one-third of
the fair market value of the option shares on the grant date. As a result, the
option will be structured so that the fair market value of the option shares on
the grant date less the exercise price payable for those shares will be equal
to the amount by which the optionee's salary is reduced under the program. The
option will become exercisable in a series of 12 equal monthly installments
over the calendar year for which the salary reduction is to be in effect.
Automatic Option Grant Program. Under the automatic option grant program,
each individual who first becomes a non-employee board member at any time after
the completion of this offering will automatically receive an option grant for
shares on the date such individual joins the board, provided such
individual has not been in our prior employ. In addition, on the date of each
annual stockholders meeting held after the completion 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 shares of common stock,
provided such individual has served on our 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
initial -share automatic option grant will vest in a series of four
successive annual installments upon the optionee's completion of each year of
board service over the four-year period measured from the grant date. The
shares subject to each annual -share automatic option grant will vest upon
the optionee's completion of one year of board service measured from the grant
date. However, the shares will immediately vest in full upon certain changes in
control or ownership or upon the optionee's death or disability while a board
member.
Director Fee Option Grant Program. If the director fee option grant program
is activated in the future, each non-employee board member will have the
opportunity to apply all or a portion of any cash retainer fee for the year to
the acquisition of a below-market option grant. The option grant will
automatically be made on the first trading day in January in the year for which
the retainer fee would otherwise be payable in cash. The option will have an
exercise price per share equal to one-third of the fair market value of the
option shares on the grant date, and the number of shares subject to the option
will be determined by dividing the amount of the retainer fee applied to the
program by two-thirds of the fair market value per share of our common stock 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 portion of the retainer fee
applied to that option. The option will become exercisable in a series of 12
equal monthly installments over the calendar year for which the election is to
be in effect. However, the option will become immediately exercisable for all
the option shares upon the optionee's death or disability while serving as a
board member.
Our 2000 plan will also have the following features:
. Outstanding options under the salary investment 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
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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 program and
the automatic and director fee option grant programs, 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 plan at any time, subject to any
required stockholder approval. The 2000 plan will terminate no later
than the last business day of July 2010.
Employee Stock Purchase Plan.
Introduction. Our Employee Stock Purchase Plan was adopted by the board on
March 15, 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
our common stock, at semi-annual intervals, with their accumulated payroll
deductions.
Share Reserve. shares of our common stock will initially be reserved
for issuance. The reserve will automatically increase on the first trading day
in January each calendar year, beginning in calendar year 2001, by an amount
equal to 1% of the total number of outstanding shares of our common stock on
the last trading day in December in the prior calendar year. In no event will
any such annual increase exceed shares.
Offering Periods. The plan will have a series of successive overlapping
offering periods, with a new purchase interval beginning on the first business
day of February and August each year. Each purchase interval will have a
duration of 24 months, unless otherwise determined by the compensation
committee. However, the initial offering period may have a duration in excess
of 24 months and will start on the date the underwriting agreement for this
offering is signed and will end on the last business day in January 2002. The
next purchase interval will start on the first business day in August 2000.
Eligible Employees. Individuals scheduled to work more than 20 hours per
week for more than five calendar months per year may join an offering period
on the start date of that period. However, employees may participate in only
one offering period at a time.
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 January and July
each year. However, a participant may not purchase more than shares on any
purchase date, and not more than shares may be purchased in total by all
participants on any purchase date. Our compensation committee will have the
authority to change these limitations for any subsequent offering period.
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.
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Change in Control. Should we be acquired by merger or sale of substantially
all of our assets or more than 50% 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 following provisions will also be in effect under the
plan:
. The plan will terminate no later than the last business day of July
2010.
. The board may, at any time, amend, suspend, or discontinue the plan.
However, certain amendments may require stockholder approval.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to
beneficial ownership of our common stock as of January 31, 2000, as adjusted to
reflect the sale of common stock offered hereby, by:
. each person, or group of affiliated persons, known by us to own
beneficially more than 5% of our outstanding common stock,
. each of our directors,
. each of our named executive officers, and
. all directors and executive officers as a group.
Except as otherwise noted, the address of each person listed in the table is
c/o oCen Communications, Inc., 4900 Rivergrade Road, C110, Irwindale, CA 91706.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power
with respect to shares. To our knowledge, except under applicable community
property laws or as otherwise indicated, the persons named in the table have
sole voting and sole investment control with respect to all shares beneficially
owned. The applicable percentage of ownership for each stockholder is based on
14,406,116 shares of common stock outstanding as of January 31, 2000, assuming
the conversion of all outstanding preferred stock into common stock, and
shares outstanding after the completion of this offering, in each case together
with applicable options for that stockholder. Shares of common stock issuable
upon exercise of options and other rights beneficially owned that are
exercisable within 60 days of January 31, 2000 are deemed outstanding for the
purpose of computing the percentage ownership of the person holding those
options and other rights but are not deemed outstanding for computing the
percentage ownership of any other person. A portion of the shares issued to
officers or issuable upon exercise of options by officers is subject to
repurchase by us at the original exercise price in the event of termination of
that officers' employment, which repurchase right lapses over time.
<TABLE>
<CAPTION>
Percentage of
Total Shares
Shares -----------------
Beneficially Before After
Name of Beneficial Owner Owned Offering Offering
- ------------------------ ------------ -------- --------
<S> <C> <C> <C>
Entities affiliated with ING Group
P.O. Box 431, Alexander House,
13-15 Victoria Road, St. Peter Port,
Guernsey, Channel Islands, GY1 3ZD (1)........ 2,912,480 20.2%
Excel-Foundation Limited
36/F New World Tower
16-18 Queen's Road Central, Hong Kong (2)..... 2,192,999 15.2%
Entities affiliated with Anderson Information
Technology Limited
Room 3307-9, 33/F, Office Tower,
Convention Plaza, No.1 Harbour Road
Wanchai, Hong Kong (3)........................ 2,192,998 15.2%
Goodrich Communications
1950 Samara Dr.
Roland Heights, CA 91748...................... 1,682,619 11.7%
Thomas Bao (4)................................. 1,142,591 7.9%
Joe Bao........................................ 847,266 5.9%
Steven San Eng (4)............................. 731,150 5.1%
Chris Au (5)................................... 182,830 1.3%
Gunther Gee (6)................................ 121,070 *
Ron Higgins (7)................................ 95,000 *
Lloyd Fischer (1) (8).......................... 3,057,481 21.1%
Jean Salata (1)................................ 2,912,480 20.2%
Simon Lo (2)................................... 2,192,999 15.2%
Chan Ki (3).................................... 2,192,998 15.2%
All directors and executive officers as a group
(13 persons) (9).............................. 9,841,119 68.3%
</TABLE>
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- --------
* Less than one percent.
(1) Consists of 2,912,480 shares held by BAPEF Investments IV Limited. Mr.
Salata is a managing member of the general partner of BAPEF Investments IV
Limited. Mr. Fischer is a director of ING Barings Asia Limited. Mr. Fischer
disclaims beneficial ownership of the shares owned by ING Group and its
affiliates, except to the extent of his pecuniary interest, if any.
(2) Consists of 2,192,999 shares held by Excel-Foundation Limited, which are
beneficially owned by New World CyberBase Limited. Excel-Foundation Limited
disclaims beneficial ownership of the 2,192,999 shares beneficially owned
by New World CyberBase Limited except to the extent of its pecuniary
interest, if any. Mr. Lo is a director of Excel-Foundation Limited and New
World CyberBase Limited. Mr. Lo disclaims beneficial ownership of those
shares, except to the extent of his pecuniary interest, if any.
(3) Consists of 2,192,998 shares held by Anderson Data Transmission Limited.
Anderson Information Technology Limited transferred the 2,192,998 shares
held by them to Anderson Data Transmission Limited on February 1, 2000. Mr.
Ki is President of Anderson Data Transmission Limited and Anderson
Information Technology Limited. Mr. Ki disclaims beneficial ownership of
those shares, except to the extent of his pecuniary interest, if any.
(4) Includes options exercisable for 3,650 shares.
(5) Includes options exercisable for 2,830 shares and 180,000 shares held by
Mr. Au's spouse. Mr. Au disclaims beneficial ownership of those shares.
(6) Includes options exercisable for 121,070 shares.
(7) Includes options exercisable for 95,000 shares.
(8) Includes options exercisable for 65,000 shares.
(9) Includes options exercisable for 416,200 shares.
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RELATED PARTY TRANSACTIONS
We have entered into indemnification agreements with our in-house legal
advisors.
From our inception, we have funded losses and capital expenditures with cash
from financing activities. These activities included the private placement of
the following:
. Common Stock. Common stock sold to our founders for an aggregate
principal amount of approximately $200,000 in October 1997.
. Convertible Notes. Convertible notes with an aggregate principal amount
of approximately $280,000 sold to a group of private investors during
fiscal years 1998 and 1999.
. Series A. Convertible preferred stock sold to Baring Private Equity
Partners, under the BAPEF Investments IV fund, and private investors for
an aggregate amount of approximately $2 million in November 1998.
. Series B. Convertible preferred stock sold to Excel-Foundation, a wholly
owned subsidiary of New World Cyberbase, and Anderson Information
Technology, for an aggregate amount of approximately $6.5 million in
September 1999.
. Series C. Convertible preferred stock sold to existing stockholders,
Lotus Asset Management under the Lotus Liberator Fund, and private
investors for an aggregate amount of approximately $2.2 million in
November 1999.
. Series D. Convertible preferred stock sold to existing stockholders for
an aggregate amount of approximately $8 million in January 2000.
. Convertible Notes. Convertible notes with an aggregate principal amount
of $10 million sold to a group of private investors in January 2000.
The number of shares of common stock and convertible preferred stock below
reflects a 10,000 for one stock split in August 1998 and 3-for-1 stock split in
April 1999.
In October 1997, we issued an aggregate of 4,888,800 shares of common stock
for an aggregate purchase price of approximately $200,000 to our founders. We
also issued convertible notes with an aggregate principal amount of
approximately $280,000 during fiscal years 1998 and 1999. These notes bear
interest at the rate of 5.5% annually and expire in July 2001. In the event of
a qualified financing of at least $1 million in gross proceeds, the noteholders
have the option to convert these notes into equity securities at the same price
as the securities issued in the qualified financing. Approximately $230,000 of
the notes outstanding were converted into 186,234 shares of Series A preferred
stock in November 1998.
In November 1998, we issued 1,600,023 shares of Series A convertible
preferred stock for $2 million, which included the conversion of some
promissory notes in November 1998. In connection with this offering, we issued
a warrant to purchase shares of Series A preferred stock if we did not meet
certain revenue milestones. The warrant became fully vested, immediately
exercisable and unable to be forfeited on July 31, 1999, when we did not meet
these milestones. The warrant was exercised in August 1999, and we issued
1,312,480 shares of Series A preferred stock.
In September 1999, we issued 3,403,141 shares of Series B convertible
preferred stock for $6.5 million to a subsidiary of New World Cyberbase and to
Anderson Information Technology.
In November 1999, we issued 1,023,807 shares of Series C convertible
preferred stock for $2.2 million to Lotus Asset Management, a group of private
investors, and existing stockholders.
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In January 2000, we issued 1,066,665 shares of Series D convertible preferred
stock to existing stockholders for approximately $8 million.
In January 2000, we issued $10 million in aggregate principal amount of
convertible notes bearing interest at 6% annually to a group of private
investors. If we receive gross proceeds of at least $10 million in another
round of financing, then 30% of the outstanding principal amount of each note
will convert into our capital stock with the rest of the balance paid out by
us. If we consummate an initial public offering prior to January 2005, receive
gross proceeds of at least $10 million in another round of financing, or
default under the terms of the notes, then we, in our sole discretion, can
convert the entire outstanding amount of the notes into our capital stock.
All shares of our preferred stock will convert into common stock on a -for-
basis upon completion of this offering. Shares and warrants held by affiliated
persons and entities have been aggregated. See "Principal Stockholders." In
connection with the above transactions, we entered into agreements with the
investors providing for registration rights with respect to these shares. See
"Description of Capital Stock--Registration Rights."
The Baring Asia Private Equity Fund is an investor in both our company and
NetStar. Jean Salata, the founder and managing partner of that fund, is one of
our directors. He is also the chairman of NetStar. We have entered into a
strategic marketing relationship with NetStar.
During the period ended September 30, 1998 and 1999, stockholders and other
parties related to oCen loaned us approximately $230,000 and $50,000,
respectively, in exchange for notes convertible into our equity securities.
These notes are unsecured, bear interest at 5.5% annually, and mature during
various months in the year 2001. In connection with our Series A preferred
stock financing, notes totaling approximately $230,000, plus accrued interest
of $2,790, were converted into 186,234 shares of Series A preferred stock. We
repaid the remaining note for $50,000.
At September 30, 1998 and 1999, we held notes receivable from employees,
directors, and major stockholders totaling $61,040 and $65,709, respectively,
for the purchase of common stock. The notes are unsecured, bear interest at
5.5% per year, and mature on September 29, 2001.
Any future transactions, including loans between our company and our
officers, directors, and principal stockholders and their affiliates, will be
approved by a majority of the board of directors, including a majority of the
independent and disinterested directors, and will be on terms no less favorable
to us than could be obtained from unaffiliated third parties.
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DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and provisions of our
certificate of incorporation and our bylaws are summaries and are qualified by
reference to the provisions of our certificate of incorporation and our bylaws.
Copies of these documents have been or will be filed with the Securities and
Exchange Commission as exhibits to our registration statement, of which this
prospectus forms a part. The description of our capital stock reflects changes
to our capital structure that will occur upon the closing of this offering in
accordance with the terms of our certificate of incorporation.
Our authorized capital stock consists of 27,850,000 shares of common stock,
par value $0.001 and 11,700,000 shares of preferred stock, par value $0.001.
Common Stock
As of January 31, 2000, 14,406,116 shares of common stock were outstanding,
assuming conversion of all outstanding shares of convertible preferred stock
into common stock, held of record by 28 stockholders. After the offering,
shares will be outstanding. Upon consummation of this offering, all shares of
our existing convertible preferred stock will convert into common stock.
In connection with our credit facility, we issued to the lender a warrant to
purchase 80,000 shares of Series A convertible preferred stock at $1.25 per
share, which would be equivalent to shares of common stock upon consummation
of this offering. In June 1999, the warrant became fully vested, exercisable,
and unable to be forfeited.
Holders of common stock are entitled to receive dividends as may from time to
time be declared by the board of directors out of funds legally available.
Holders of common stock are entitled to one vote per share on all matters on
which the holders of common stock are entitled to vote and do not have any
cumulative voting rights. Holders of common stock have no preemptive,
conversion, redemption or sinking fund rights. In the event of a liquidation,
dissolution or winding up of oCen, holders of common stock are entitled to
share equally and ratably in our assets, if any, remaining after the payment of
all our liabilities and the liquidation preference of any outstanding class or
series of preferred stock. The outstanding shares of common stock are, and the
shares of common stock offered by us in the offering when issued will be, fully
paid and nonassessable. The rights, preferences and privileges of holders of
common stock are subject to the rights of any series of preferred stock that we
may issue in the future, as described below.
Preferred Stock
The board of directors has the authority to issue preferred stock in one or
more series and to fix the number of shares constituting any series and the
preferences, limitations and relative rights, including dividend rights,
dividend rate, voting rights, terms of redemption, redemption price or prices,
conversion rights and liquidation preferences of the shares constituting any
series, without any further vote or action by our stockholders. The issuance of
preferred stock by the board of directors could adversely affect the rights of
holders of common stock.
Registration Rights
Under the terms of an agreement with some of our stockholders, after the
closing of this offering the holders of 8,406,116 shares of common stock will
be entitled to demand the registration of their shares under the Securities Act
of 1933. The holders of 50% of such shares are entitled to demand that we
register their shares under the Securities Act of 1933 subject to limitations
described in the relevant agreement. We are not required to effect more than
one demand registration for these stockholders. In addition, after the closing
of this offering, these holders will be entitled to piggyback registration
rights with respect to the registration of their shares of common stock. If we
propose to register any shares of common stock either for our account or for
the
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<PAGE>
account of other security holders, the stockholders with piggyback rights are
entitled to receive notice of the registration and are entitled to include
their shares in the registration, subject to some limitations. Further, at any
time after we become eligible to file a registration statement on Form S-3, the
holders of the registrable securities may require us to file registration
statements under the Securities Act of 1933 on Form S-3 with respect to their
shares of our common stock. These registration rights are subject to conditions
and limitations, among which is the right of the underwriters of an offering to
limit the number of shares of common stock held by stockholders with
registration rights to be included in a registration. We are generally required
to bear all of the expenses of these registrations, including the reasonable
fees of a single counsel acting on behalf of all selling stockholders, but
excluding underwriting discounts and commissions. Registration of any of the
shares of our common stock held by stockholders with registration rights would
result in those shares becoming freely tradable without restriction under the
Securities Act of 1933 immediately upon the effectiveness of that registration.
Stockholder Action; Special Meeting of Stockholders
The Delaware certificate of incorporation that will become effective
immediately prior to the effectiveness of this offering states that
stockholders may not take action by written consent, but only at duly called
annual or special meetings of stockholders. The Delaware certificate of
incorporation also provides that special meetings of stockholders may be called
only by a majority of the board of directors.
Advance Notice Requirements For Stockholder Proposals and Director Nominations
The bylaws provide that stockholders must provide timely notice in writing to
bring business before an annual meeting of stockholders or to nominate
candidates for election as directors at an annual meeting of stockholders. To
be timely notice for an annual meeting, a stockholder's notice must be
delivered to or mailed and received at our principal executive offices at least
120 days before the first anniversary of the date our notice of the previous
year's annual meeting of stockholders was provided to stockholders. If the date
of the annual meeting of stockholders has been changed to be more than 30
calendar days before or more than 70 calendar days after that anniversary,
notice by the stockholder, to be timely, must be received at least 90 days but
no earlier than 120 days before the annual meeting of stockholders or 10 days
following the date on which notice of the date of the meeting is made public.
If, at any annual meeting, the number of directors to be elected to the board
of directors is increased and we do not publicly announce all the nominees or
specify the size of the increased board of directors at least 100 days before
the anniversary of the previous year's annual meeting, a stockholder's notice
will be considered timely, but only with respect to nominees for the new
positions created by the increase provided the notice is received no later than
10 days after the nominees are announced to the public. To be a timely notice
for a special meeting at which one or more directors will be elected to the
board of directors, a stockholder's notice must be delivered to us no later
than 10 days after notice of the date of the meeting and the nominees proposed
to be elected are announced to the public. The bylaws also specify requirements
as to the form and content of a stockholder's notice. These provisions may keep
stockholders from bringing matters before an annual meeting of stockholders or
from making nominations for directors at an annual meeting of stockholders.
Authorized But Unissued Shares
The authorized but unissued shares of common stock and preferred stock are
available for future issuances without stockholder approval. These additional
shares may be used for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans. The existence of authorized but unissued shares of common stock
and preferred stock could make it harder or discourage an attempt to obtain
control of us by a proxy contest, tender offer, merger, or otherwise.
Change of Control Provisions in Employee Benefit Plans
The 2000 Plan provides that in the event that we merge with or into another
corporation or sell substantially all of our assets, the successor corporation
will assume or substitute each option or stock purchase
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right, or SPR. If the outstanding options or SPRs are not assumed or
substituted, the administrator will provide notice to the optionee that he or
she has the right to exercise the option or SPR as to all of the shares subject
to the option or SPR, including shares which would not otherwise be
exercisable, for a period of fifteen days from the date of the notice. The
option or SPR will terminate upon the expiration of the fifteen-day period.
Delaware Anti-Takeover Law and Charter Provisions
We are subject to Section 203 of the Delaware General Corporation Law which
generally prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that the stockholder became an interested stockholder.
Section 203 applies unless:
. prior to the date the stockholder became an interested stockholder, the
board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding certain shares; or
. on or after the date the stockholder became an interested stockholder,
the business combination is approved by the board of directors and
authorized at a meeting of stockholders by the affirmative vote of at
least 66/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Provisions of our certificate of incorporation and Delaware law may delay,
defer or prevent a change in our control and may adversely affect the voting
and other rights of holders of common stock. In particular, our certificate of
incorporation provides for a classified board of directors and the inability of
stockholders to vote cumulatively for directors.
Limitation on Directors' Liability and Indemnification Matters
Our certificate of incorporation provides that, except to the extent provided
by Delaware law, our directors will not be personally liable to us or our
stockholders for monetary damages for any breach of fiduciary duty while
serving as directors. This provision also does not affect the directors'
responsibilities under Delaware corporate law or any other laws, such as the
Federal securities laws or state or Federal environmental laws. Insofar as the
indemnification for liabilities arising under the Securities Act may be
permitted to our directors or officers, we have been informed that in the
opinion of the Securities and Exchange Commission, indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable.
We have obtained liability insurance for our executive officers and directors
and have entered into indemnity agreements to indemnify our in-house legal
advisors in addition to the indemnification provided for in our certificate of
incorporation and bylaws. These agreements, among other things, indemnify them
for expenses, judgments, and fines and amounts paid in settlement that are
actually and reasonably incurred by them in any action, suit, or proceeding
arising out of their legal or professional services on our behalf.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Boston Equiserve.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for our common
stock, and no prediction can be made as to the effect, if any, that market
sales of shares of common stock or the availability of shares of common stock
for sale will have on the market price of our common stock. Sales of
substantial amounts of our common stock in the public market after the
offering, or the perception that sales could occur, could adversely affect the
market price of our common stock and our ability to raise equity capital in the
future on terms favorable to us.
After the offering, shares of our common stock will be outstanding,
assuming that the underwriters do not exercise the over-allotment option. Of
these shares, all of the shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
unless these shares are purchased by "affiliates" as that term is defined in
Rule 144 under the Securities Act. The remaining shares of common stock held by
existing stockholders are "restricted securities" as that term is defined in
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 or 701 under the Securities Act, which rules are
summarized below.
The following table shows approximately when the shares of our common
stock that are not being sold in this offering but which will be outstanding
when this offering is complete will be eligible for sale in the public market:
<TABLE>
<CAPTION>
Eligibility of Restricted Shares
for Sale in the Public Market
--------------------------------
<S> <C>
180 days after the effective date ................................
</TABLE>
Resale of most of the restricted shares that will become available for sale
in the public market starting 180 days after the effective date will be limited
by volume and other resale restrictions under Rule 144 because the holders are
our affiliates.
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
shares of our common stock for at least one year is entitled to sell, within
any three-month period, a number of shares that is not more than the greater
of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks before a notice of the
sale on Form 144 is filed.
Sales under Rule 144 must also comply with manner of sale provisions and
notice requirements and are subject to the availability of current public
information about our company.
Rule 144(k). Under Rule 144(k), a person who has not been one of our
affiliates at any time during the 90 days before a sale, and who has
beneficially owned the restricted shares for at least two years, is entitled to
sell the shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
Rule 701. Subject to limitations on the aggregate offering price of a
transaction and other conditions, our employees, directors, consultants or
advisors who purchased shares from us, or to whom we granted options to acquire
our shares, under a stock option plan or other written agreement prior to the
date we become subject to the reporting requirements of the Securities Exchange
Act in reliance on Rule 701, can resell those shares 90 days after the
effective date of this offering in reliance on Rule 144, but without complying
with some of the restrictions, including the holding period, contained in Rule
144.
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Lock-Up Agreements. Our officers, directors, and some existing stockholders
will sign lock-up agreements under which they will agree not to transfer or
dispose of, directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for shares of common
stock, for a period of 180 days after the date of this prospectus. However,
Lehman Brothers may, in its sole discretion, at any time, and without notice,
release all or any portion of the shares subject to these lock-up agreements.
For a more detailed description of these lock-up agreements, see
"Underwriting."
Registration Rights. Under the terms of an agreement with some of our
stockholders, after the closing of this offering, the holders of 8,406,116
shares of common stock will be entitled to demand the registration of their
shares under the Securities Act of 1933. The holders of 50% of such shares are
entitled to demand that we register their shares under the Securities Act of
1933 subject to limitations described in the relevant agreement. We are not
required to effect more than one registration for such holders pursuant to
these demand registration rights. In addition, after the closing of this
offering these holders will be entitled to piggyback registration rights with
respect to the registration of their shares of common stock. If we propose to
register any shares of common stock either for our account or for the account
of other security holders, the holders of shares having piggyback rights are
entitled to receive notice of the registration and are entitled to include
their shares in the registration, subject to some limitations. Furthermore, at
any time after we become eligible to file a registration statement on Form S-3,
the holders of the registrable securities may require us to file registration
statements under the Securities Act of 1933 on Form S-3 with respect to their
shares of our common stock. These registration rights are subject to conditions
and limitations, among which is the right of the underwriters of an offering to
limit the number of shares of common stock held by security holders with
registration rights to be included in such registration. We are generally
required to bear all of the expenses of all these registrations, including the
reasonable fees of a single counsel acting on behalf of all selling
stockholders, except underwriting discounts and selling commissions.
Registration of any of the shares of our common stock held by security holders
with registration rights would result in such shares becoming freely tradable
without restriction under the Securities Act of 1933 immediately upon
effectiveness of such registration.
Stock Options. Immediately after the closing of this offering, we intend to
file a registration statement under the Securities Act covering shares of
our common stock reserved for issuance under our stock option plans.
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MATERIAL UNITED STATES INCOME TAX
CONSEQUENCES FOR NON-U.S. HOLDERS
Overview
The following general discussion summarizes certain of the material U.S.
federal income and estate tax aspects of the ownership and disposition of
common stock applicable to non-U.S. holders of common stock. In general, a
"non-U.S. holder" is a person other than:
. a citizen or resident of the United States,
. a corporation or other entity taxable as a corporation created or
organized under the laws of the United States or any of its political
subdivisions,
. an estate the income of which is subject to U.S. federal income taxation
regardless of its sources,
. a trust if a U.S. court is able to exercise primary supervision over
administration of the trust and one or more U.S. persons have authority
to control all substantial decisions of the trust; or
. a trust that has a valid election in effect under applicable U.S.
Treasury regulations to be treated as a U.S. person.
The discussion is based upon the Internal Revenue Code of 1986, as amended,
regulations of the Treasury Department, Internal Revenue Service rulings and
pronouncements and judicial decisions now in effect, all of which are subject
to change (possibly on a retroactive basis). The discussion does not address
aspects of U.S. federal taxation other than income and estate taxation and does
not address all aspects of federal income and estate taxation. The discussion
does not consider any specific facts or circumstances that may apply to a
particular non-U.S. holder and does not address all aspects of U.S. federal
income tax law that may be relevant to non-U.S. holders that may be subject to
special treatment under such law, such as insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, certain U.S.
expatriates, controlled foreign corporations, passive foreign investment
companies or foreign personal holding companies.
Persons considering the purchase of common stock should consult their tax
advisors concerning the application of U.S. federal income tax laws, as well as
the laws of any state, local or foreign taxing jurisdiction to their particular
situations.
Dividends
In general, the gross amount of dividends paid to a non-U.S. holder will be
subject to U.S. withholding tax at a 30% rate, or any lower rate prescribed by
an applicable tax treaty, unless the dividends:
. are effectively connected with a trade or business carried on by the non-
U.S. holder within the United States and a Form 4224 is filed with the
withholding agent, or
. if a tax treaty applies, are attributable to a United Sates permanent
establishment of the non-U.S. holder.
If either exception applies, the dividend will be taxed at ordinary U.S.
federal income tax rates. A non-U.S. holder may be required to satisfy certain
certification requirements in order to claim the benefit of an applicable
treaty rate or otherwise claim a reduction of, or exemption from, the
withholding obligation under the above described rules. In the case of a non-
U.S. holder that is a corporation, effectively connected income may also be
subject to an additional branch profits tax, which is generally imposed on a
foreign corporation at a rate of 30% of the deemed repatriation from the United
States of "effectively connected earnings and profits" or such lower rate as an
applicable tax treaty may provide. To the extent a distribution exceeds our
current or accumulated earnings or profits, it will be treated first as a
return of the holder's tax basis, and then as a gain from the sale of a capital
asset. Any withholding tax on a distribution in excess of our accumulated
earnings or profits is refundable to the non-U.S. holder upon filing an
appropriate claim with the Internal Revenue Service.
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Under current law, dividends paid to an address outside the United States are
presumed to be paid to a resident of such country (unless the payor has
knowledge to the contrary) for purposes of the withholding tax discussed above
and, under the current interpretation of United States Treasury regulations,
for purposes of determining the applicability of a tax treaty rate. For
dividends paid after December 31, 2000, a non-U.S. holder of common stock who
wishes to claim the benefit of an applicable treaty rate (and avoid backup
withholding as discussed below), will be required to satisfy applicable
certification and other requirements.
Disposition of Common Stock
Generally, a non-U.S. holder will not be subject to U.S. federal income tax
on any gain recognized upon the disposition of common stock unless:
. the gain is effectively connected with a trade or business carried on by
the non-U.S. holder within the United States, or, alternatively, if a tax
treaty applies, attributable to a United States permanent establishment
maintained by the non-U.S. holder, in which case such gain will be
subject to tax at the rates and in the manner applicable to U.S. persons,
and, if the holder is a foreign corporation, the branch profits tax may
also apply,
. the common stock is disposed of by an individual non-U.S. holder, who
holds the common stock as a capital asset and is present in the United
States for 183 days or more in the taxable year of the disposition and
certain other conditions are met, in which case such gain will be subject
to a flat 30% tax, which may be offset by United States source capital
losses even though the individual is not considered a resident of the
United States, or
. (A) we are or have been a "U.S. real property holding corporation" within
the meaning of Section 897(c)(2)(A) of the Code at any time within the
shorter of the five-year period preceding such disposition or such non-
U.S. holder's holding period and (B) assuming that the common stock is
"regularly traded on an established securities market" for U.S. federal
income tax purposes, the non-U.S. holder held, directly or indirectly, at
any time during the applicable period from clause (A) above, including on
the date of disposition, more than 5% of the outstanding common stock. We
are not and do not anticipate becoming a "U.S. real property holding
corporation."
Non-U.S. holders should consult applicable treaties, which may exempt from
U.S. taxation gains realized upon the disposition of common stock in certain
cases.
Estate Tax
Common stock owned, or treated as owned, by an individual non-U.S. holder at
the time of death will be includible in the individual's gross estate for U.S.
federal estate tax purposes, and may be subject to U.S. federal estate tax,
unless an applicable treaty provides otherwise.
Information Reporting and Backup Withholding
On October 6, 1997, the Internal Revenue Service issued final regulations
relating to withholding, information reporting and backup withholding that
unify current certification procedures and forms and clarify reliance
standards. The final regulations generally will be effective for payments made
after December 31, 2000.
Except as provided below, this section describes rules applicable to payments
made on or before December 31, 2000. Backup withholding, which generally is a
withholding tax imposed at the rate of 31% on certain payments to persons that
fail to furnish the information required under the U.S. information reporting
and backup withholding rules, generally will not apply to (1) dividends paid to
non-U.S. holders that are subject to the 30% withholding discussed above, or
that are not so subject because a tax treaty applies that reduces or eliminates
such 30% withholding, or (2) dividends paid on the common stock to a non-U.S.
holder at an address outside the United States, unless the payor has actual
knowledge that the payee is a U.S. person. We will be required to report
annually to the Internal Revenue Service and to each non-U.S. holder the amount
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of dividends paid to, and the tax withheld from, such holder, regardless of
whether any tax was actually withheld or whether withholding was required. The
information may also be made available to the tax authorities in the non-U.S.
holder's country of residence.
In the case of a non-U.S. holder that sells common stock to or through a U.S.
office of a broker, the broker must backup withhold at a rate of 31% and report
the sale to the Internal Revenue Service, unless the holder certifies its non-
U.S. status under penalties of perjury or otherwise establishes an exemption.
In the case of a non-U.S. holder that sells common stock to or through the
foreign office of a U.S. broker, or a foreign broker with certain types of
relationships to the United States, the broker must report the sale to the
Internal Revenue Service (but not backup withhold) unless the broker has
documentary evidence in its files that the seller is a non-U.S. holder or
certain other conditions are met, or the holder otherwise establishes an
exemption. A non-U.S. holder will generally not be subject to information
reporting or backup withholding if such non-U.S. holder sells the common stock
to or through a foreign office of a non-U.S. broker.
Any amount withheld under the backup withholding rules from a payment to a
holder is allowable as a credit against the holder's U.S. federal income tax,
which may entitle the holder to a refund, provided that the holder furnishes
the required information to the Internal Revenue Service. In addition, certain
penalties may be imposed by the Internal Revenue Service on a holder who is
required to supply information but does not do so in the proper manner.
The final regulations eliminate the general, current legal presumption that
dividends paid to an address in a foreign country are paid to a resident of
that country. The final regulations impose certain certification and
documentation requirements on non-U.S. holders claiming the benefit, under a
tax treaty, of a reduced withholding rate on dividends.
Prospective purchasers of the common stock are urged to consult their own tax
advisors as to the effect, if any, of the final regulations on their purchase,
ownership and disposition of the common stock.
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UNDERWRITING
Lehman Brothers Inc., Bear, Stearns & Co. Inc., and ING Barings LLC are
acting as representatives of each of the U.S. underwriters named below. Subject
to the terms and conditions set forth in the underwriting agreement between us
and the underwriters, which is filed as an exhibit to the registration
statement relating to this prospectus, we have agreed to sell to the U.S.
underwriters, and each of the U.S. underwriters, severally and not jointly, has
agreed to purchase from us, the number of shares of common stock shown opposite
its name below:
<TABLE>
<CAPTION>
Number of
U.S. Underwriters Shares
- ----------------- ---------
<S> <C>
Lehman Brothers Inc. .................................................
Bear, Stearns & Co. Inc. .............................................
ING Barings LLC.......................................................
Total.............................................................
</TABLE>
Lehman Brothers Inc., Bear, Stearns International Limited, and ING Barings
Asia Limited, as agent for ING Bank N.V., are acting as international
representatives of each of the international underwriters named below. Subject
to the terms and conditions set forth in the underwriting agreement between us
and the underwriters, we have agreed to sell to the international underwriters,
and each of the international underwriters, severally and not jointly, has
agreed to purchase from us the number of shares of common stock shown opposite
its name below:
<TABLE>
<CAPTION>
Number of
International Underwriters Shares
- -------------------------- ---------
<S> <C>
Lehman Brothers Inc. ..................................................
Bear, Stearns International Limited....................................
ING Barings Asia Limited, as agent for ING Bank N.V....................
Total..............................................................
</TABLE>
The closing of this offering is a condition to the closing of the
international offering, and the closing of the international offering is a
condition to the closing of this offering.
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in the offering are subject to
approval of legal matters by counsel as well as to other conditions. It also
states that if any shares are purchased by the underwriters pursuant to the
underwriting agreement, then all of the shares which the underwriters have
agreed to purchase pursuant to the underwriting agreement must be purchased.
The underwriters expect to deliver the shares on or about , 2000.
The underwriters propose to offer the shares directly to the public at the
public offering price set forth on the cover page of this prospectus, and to
specified selected dealers, who may include the underwriters, at the public
offering price less a selling concession not in excess of $ per share. The
underwriters may allow, and the selected dealers may reallow, a concession not
in excess of $ per share on sales to specified brokers and dealers. After
the offering, the representatives may change the offering price and other
selling terms. If all of the shares are not sold at the initial offering price,
the representatives may change the public offering price and the other selling
terms. The representatives have advised us that the underwriters do not intend
to confirm any sales to any accounts over which they exercise discretionary
authority that exceed 5% of the total number of shares of common stock offered
by them.
We estimate that the total expenses of the offering, including registration,
filing and listing fees, printing fees and legal and accounting expenses but
excluding the underwriting discount will be approximately $ million.
We have granted to the underwriters an option to purchase up to an additional
shares of common stock, exercisable solely to cover over-allotments, if any, at
the public offering price less the underwriting discount
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shown on the cover page of this prospectus. The option may be exercised at any
time until 30 days after the date of the underwriting agreement. To the extent
this option is exercised, each underwriter will be committed, subject to
various conditions, to purchase a number of additional shares proportionate to
its initial purchase commitment as indicated in the preceding table, and we
will be obligated, under the over-allotment option, to sell the shares to the
underwriters.
We, our officers, directors and some existing stockholders have agreed not to
do any of the following, whether any transaction described below is to be
settled by delivery of common stock or other securities, in cash or otherwise,
in each case without the prior written consent of Lehman Brothers, on behalf of
the underwriters, for a period of 180 days after the date of this prospectus:
. offer, sell, pledge or otherwise dispose of, or enter into any
transaction which is designed or could be expected to, result in the
disposition by any person at any time in the future of, any shares of
common stock or securities convertible into or exchangeable for common
stock or substantially similar securities, other than the following:
. the common stock sold under this prospectus,
. the common stock to be issued concurrently with the closing of this
offering upon the mandatory conversion of our outstanding preferred
stock, and
. shares of common stock we issue pursuant to employee benefit plans,
qualified stock option plans or other employee compensation plans
existing on the date of this prospectus or pursuant to currently
outstanding options, warrants or rights;
. sell or grant options, rights or warrants with respect to any shares of
our common stock or securities convertible into or exchangeable for our
common stock or substantially similar securities, other than the grant of
options pursuant to option plans existing on the date hereof; and
. enter into any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits or risks or
ownership of shares of common stock.
Prior to the offering, there has been no public market for the common stock.
The initial public offering price for the common stock will be determined by
negotiation between oCen and the representatives. Among the factors to be
considered in such negotiations are:
. prevailing market conditions;
. the market values of publicly traded companies that we and the
underwriters believe to be comparable to oCen;
. the current state of oCen's development and its current financial
condition;
. the history of and prospects for oCen and the Asian IP telephony
industry; and
. the prospects for future revenues and earnings of oCen.
We have applied for quotation of the common stock on the Nasdaq National
Market under the symbol OCCM.
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter in this offering and will be
facilitating electronic distribution of information through the Internet,
intranet and other proprietary electronic technology.
Until the distribution of the shares is completed, rules of the Securities
and Exchange Commission may limit the ability of the underwriters and selling
group members to bid for and purchase shares. As an exception to these rules,
the representatives are permitted to engage in transactions that stabilize the
price of the shares. These transactions may consist of bids or purchases for
the purposes of pegging, fixing or maintaining the price of the shares.
The underwriters may create a short position in the shares in connection with
the offering, which means that they may sell more shares than are set forth on
the cover page of this prospectus. If the underwriters create a short position,
then the representatives may reduce that short position by purchasing shares in
the open
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<PAGE>
market. The representatives also may elect to reduce any short position by
exercising all or part of the over-allotment option.
The representatives may impose a penalty bid on certain underwriters and
selling group members. This means that if the representatives purchase shares
in the open market to reduce the underwriters' short position or to stabilize
the price of the shares, they may reclaim the amount of the selling concession
from the underwriters and selling group members who sold those shares as part
of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. The
imposition of a penalty bid might also have an effect on the price of a
security to the extent that it were to discourage resales of the security by
purchasers in an offering.
Neither we nor any of the underwriters make any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the shares. In addition, neither we nor any of
the underwriters make any representation that the representatives will engage
in such transactions or that such transactions, once commenced, will not be
discontinued without notice.
This prospectus may be used in connection with offers and sales of shares
offered initially outside the United States insofar as those shares are
reoffered or resold from time to time in the United States in transactions that
require registration under the Securities Act.
This prospectus is not, and under no circumstances is to be to construed as,
an advertisement or a public offering of the common stock in Canada or any
province or territory thereof. Any offer or sale of common stock in Canada may
only be made pursuant to an exemption from the dealer registration requirement
(where such an exemption is not available, offers shall be made only by a
registered dealer) in the relevant Canadian jurisdiction where any offer is
made.
The common stock may not be offered or sold directly or indirectly in Hong
Kong by means of this document or any other offering material or document other
than to persons whose ordinary course of business it is to buy or sell shares
or debentures, whether as principal or as agent. Unless permitted to do so by
the securities laws of Hong Kong, no person may issue or caused to be issued in
Hong Kong this document or any amendment or supplement thereto or any other
information, advertisement or document relating to the common stock other than
with respect to common stock intended to be disposed of to persons outside Hong
Kong or to persons whose business involves the acquisition, disposal or holding
of securities, whether as principal or as agent.
The common stock may not be offered and sold, directly or indirectly, in the
PRC or to any resident of the PRC.
Purchasers of the common stock offered in this prospectus may be required to
pay stamp taxes and other charges under the laws and practices of the country
of purchase, in addition to the public offering price set forth on the cover of
this prospectus.
We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act, liabilities arising from
breaches of the representations and warranties contained in the underwriting
agreement, and liabilities incurred in connection with the directed share
program referred to below, and to contribute, under specified circumstances, to
payments that the underwriters may be required to make in respect thereof.
At our request, Lehman Brothers has reserved up to shares of common stock,
or % of the common stock offered by this prospectus, for sale pursuant to a
directed share program to officers, directors and employees, and their family
members, of oCen and its affiliates and friends of oCen's management. All of
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<PAGE>
the persons purchasing the reserved shares must commit to purchase no later
than the close of business on the day following the date of this prospectus.
The number of shares available for sale to the general public will be reduced
to the extent these persons purchase the reserved shares.
Certain of the underwriters have provided from time to time, and expect to
provide in the future, financial advisory and investment banking services to us
and our affiliates, for which the underwriters have received and will receive
customary fees and commissions. ING Group and its affiliates own 16% of a
private equity fund that in turn owns approximately 20% of our existing share
capital. That fund's most recent investment in our company occurred in January
2000 when it acquired 400,000 additional shares of our capital stock. Jean
Salata, one of our directors, is a managing member of the general partner of
that fund. Lloyd Fischer, a director who owns approximately 1% of our existing
share capital, heads the Asian telecom investment banking team of ING Barings
and is a director of ING Barings Asia Limited.
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LEGAL MATTERS
The validity of the issuance of the common stock offered in the offering will
be passed upon for us by Brobeck, Phleger & Harrison, LLP, Palo Alto,
California and for the underwriters by Simpson Thacher & Bartlett, New York,
New York. Brobeck, Phleger & Harrison LLP and its affiliates own less than one
percent of our existing share capital.
EXPERTS
The consolidated financial statements of oCen Communications, Inc. as of
September 30, 1998 and 1999 and for the period from October 14, 1997
(Inception) through September 30, 1998 and for the year ended September 30,
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.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered in the offering. This prospectus does not contain all information set
forth in the registration statement and the exhibits and schedules to the
registration statement. For further information about us and the common stock
offered in this offering, you should read the registration statement, exhibits
and schedules. Statements contained in this prospectus about the contents of
any contract or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of any contract or other document
filed as an exhibit to the registration statement. To have a complete
understanding of any document you should read the entire document filed as an
exhibit. You may read and copy the registration statement, including the
exhibits and schedules, at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the regional offices of the Commission located at Seven World Trade Center,
Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. You can obtain copies of these materials from the
Public Reference Section of the Commission, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates and from the Commission's Internet
Website at http://www.sec.gov. Please call the Commission at 1-800-SEC-0330 for
further information about the public reference rooms.
We intend to send to our stockholders annual reports containing audited
financial statements.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and, in
accordance with that act, we will file periodic reports, proxy statements and
other information which will be available for inspection and copying at the
Commission's public reference rooms and the Commission's Website, which is
described above.
78
<PAGE>
OCEN COMMUNICATIONS, 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>
The following report is in the form that will be signed upon the completion
of the Company's reincorporation in the State of Delaware as described in note
14 of the notes to the consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Woodland Hills, California
March 17, 2000
- --------------------------------------------------------------------------------
Report of Independent Accountants
To the Board of Directors and Stockholders of
oCen Communications, 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 oCen Communications, Inc. and its subsidiaries (the
"Company") at September 30, 1998 and 1999, and the results of their
operations and their cash flows for the period from October 14, 1997
(Inception) through September 30, 1998 and for the year ended September 30,
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.
Woodland Hills, California
February 2, 2000, except as to
note 14 which is as of March 17, 2000
F-2
<PAGE>
OCEN COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(All interim information relating to December 31, 1999 is unaudited)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
Equity
September 30, September 30, December 31, December 31,
1998 1999 1999 1999
------------- ------------- ------------ -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........... $ 26,854 $ 4,310,846 $ 2,018,049
Accounts receivable,
less allowance for
doubtful accounts of
$0, $59,485 and
$87,500,
respectively.......... 13,711 1,055,090 1,520,411
Prepaids and other
current assets........ 10,000 340,880 891,726
--------- ----------- -----------
Total current
assets.............. 50,565 5,706,816 4,430,186
Property and equipment,
net.................... 100,510 3,448,210 6,623,277
Other long-term assets.. 26,511 127,833 249,838
Deferred debt issuance
costs.................. -- 103,218 93,834
--------- ----------- -----------
Total assets......... $ 177,586 $ 9,386,077 $11,397,135
========= =========== ===========
Liabilities and
Stockholders' Equity
(Deficit)
Current liabilities:
Accounts payable....... $ 115,642 $ 1,914,206 $ 4,038,180
Accrued expenses and
other current
liabilities........... 63,677 596,554 440,682
Deferred revenues...... 66,814 1,487,619 2,232,913
Capital lease
obligations........... -- 151,332 229,065
Stock subscription
payable............... -- -- 1,100,000
Notes payable.......... -- 78,616 81,940
--------- ----------- -----------
Total current
liabilities......... 246,133 4,228,327 8,122,780
Capital lease
obligations, net of
current portion........ -- 264,693 322,813
Notes payable, net of
current portion........ -- 200,718 178,941
Convertible notes
payable to related
parties................ 230,000 -- --
--------- ----------- -----------
Total liabilities.... 476,133 4,693,738 8,624,534
Commitments and
contingencies (Note 7)
Stockholders' equity
(deficit):
Convertible preferred
stock, $.001 par
value; authorized 0,
9,400,000 and
10,600,000 shares at
September 30, 1998
and 1999, and
December 31, 1999,
respectively; issued
and outstanding
6,315,644, 7,339,451
and 0 shares at
September 30, 1999,
December 31, 1999 and
on pro forma basis,
respectively;
liquidation
preference of
approximately
$10,325,000 and
$12,649,000 at
September 30, 1999
and December 31,
1999, respectively.... -- 6,315 7,339 $ --
Common stock, $ .001
par value; authorized
10,000,000,
26,650,000 and
27,850,000 shares at
September 30, 1998
and 1999, and
December 31, 1999,
respectively; issued
and outstanding
6,000,000 shares at
September 30, 1998
and 1999, and
December 31, 1999,
and 14,582,586 shares
on pro forma basis.... 6,000 6,000 6,000 14,582
Additional paid-in
capital............... 774,044 9,917,189 12,848,543 33,961,377
Notes receivable from
stockholders.......... (61,040) (65,709) (66,548) (66,548)
Deferred stock
compensation.......... (295,437) (340,638) (746,208) (746,208)
Accumulated deficit.... (722,114) (4,830,818) (9,276,525) (17,276,513)
--------- ----------- ----------- ------------
Total stockholders'
equity (deficit).... (298,547) 4,692,339 2,772,601 $ 15,886,690
--------- ----------- ----------- ============
Total liabilities and
stockholders' equity
(deficit)........... $ 177,586 $ 9,386,077 $11,397,135
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
OCEN COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(All interim information relating to the periods ended December 31, 1998 and
1999 is unaudited)
<TABLE>
<CAPTION>
October 14,
1997 For the
(Inception) year ended For the three months
through September ended December 31,
September 30, 30, ------------------------
1998 1999 1998 1999
------------- ------------ ---------- ------------
(unaudited)
<S> <C> <C> <C> <C>
Revenues................. $ 98,781 $ 2,327,019 $ 61,567 $ 1,960,454
Operating expenses:
Cost of revenues....... 233,373 3,133,230 226,170 3,380,533
General and
administrative
(excludes stock-based
compensation charges
of $199,123, $161,814,
$61,200 and $125,336
for the period from
October 14, 1997
(inception) through
September 30, 1998,
for the year ended
September 30, 1999 and
for the three months
ended December 31,
1998 and 1999,
respectively)......... 305,337 1,730,058 163,796 1,148,689
Sales and marketing
(excludes stock-based
compensation charges
of $0, $93,166, $0 and
$72,164 for the period
from October 14, 1997
(Inception) through
September 30, 1998,
for the year ended
September 30, 1999 and
for the three months
ended December 31,
1998 and 1999,
respectively)......... 10,850 403,418 16,785 336,480
Product development
(excludes stock-based
compensation charges
of $0, $235,367, $0
and $182,308 for the
period from October
14, 1997 (Inception)
through September 30,
1998, for the year
ended September 30,
1999 and for the three
months ended December
31, 1998 and 1999,
respectively)......... 42,031 434,691 24,831 724,350
Depreciation and
amortization.......... 26,970 270,292 10,620 435,882
Stock-based
compensation.......... 199,123 490,347 61,200 379,808
---------- ------------ ---------- ------------
Total operating
expenses............ 817,684 6,462,036 503,402 6,405,742
---------- ------------ ---------- ------------
Loss from operations..... (718,903) (4,135,017) (441,835) (4,445,288)
Interest income.......... -- 43,462 7,937 30,948
Interest expense......... (3,211) (17,149) -- (31,367)
---------- ------------ ---------- ------------
Net loss................. $ (722,114) $ (4,108,704) $ (433,898) $ (4,445,707)
========== ============ ========== ============
Basic and diluted net
loss per share.......... $ (0.16) $ (0.75) $ (0.08) $ (0.79)
========== ============ ========== ============
Weighted average shares
outstanding used in per-
share calculation ...... 4,629,323 5,492,718 5,372,131 5,623,627
========== ============ ========== ============
Pro forma basic and
diluted net loss per
share (unaudited)....... $ (0.54) $ (0.36)
============ ============
Weighted average shares
outstanding used in pro
forma per-share
calculation
(unaudited)............. 7,582,027 12,362,148
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
OCEN COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Convertible Notes Total
Common Stock Preferred Stock Additional Receivable Deferred Stockholders'
------------------ ------------------ Paid-In From Stock Accumulated Equity
Shares Amount Shares Amount Capital Stockholders Compensation Deficit (Deficit)
---------- ------- ---------- ------ ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
October 14,
1997
(Inception).... -- $ -- -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of
common stock... 4,399,920 4,400 -- -- 195,600 -- -- -- 200,000
Issuance of
common stock
for services... 488,880 489 -- -- 23,955 -- -- -- 24,444
Exercise of
stock options.. 1,111,200 1,111 -- -- 59,929 (61,040) -- --
Deferred stock
compensation... -- -- -- -- 494,560 -- (494,560) -- --
Stock-based
compensation... -- -- -- -- -- -- 199,123 -- 199,123
Net loss........ -- -- -- -- -- -- -- (722,114) (722,114)
---------- ------- ---------- ------ ----------- -------- --------- ------------ -----------
Balance at
September 30,
1998........... 6,000,000 6,000 -- -- 774,044 (61,040) (295,437) (722,114) (298,547)
Accrued interest
receivable..... -- -- -- -- -- (3,357) -- -- (3,357)
Issuance of
Series A
Preferred...... -- -- 1,600,023 1,600 1,215,123 -- -- -- 1,216,723
Issuance of
Series A
warrant........ -- -- -- -- 783,277 -- -- -- 783,277
Issuance of
Series B
Preferred...... -- -- 3,403,141 3,403 6,496,597 -- -- -- 6,500,000
Exercise of
Series A
warrant........ -- -- 1,312,480 1,312 -- (1,312) -- -- --
Issuance of
Series B
warrant........ -- -- -- -- 112,600 -- -- -- 112,600
Deferred stock
compensation... -- -- -- -- 535,548 -- (535,548) -- --
Stock-based
compensation... -- -- -- -- -- -- 490,347 -- 490,347
Net loss........ -- -- -- -- -- -- -- (4,108,704) (4,108,704)
---------- ------- ---------- ------ ----------- -------- --------- ------------ -----------
Balance at
September 30,
1999........... 6,000,000 6,000 6,315,644 6,315 9,917,189 (65,709) (340,638) (4,830,818) 4,692,339
Accrued interest
receivable
(unaudited).... -- -- -- -- -- (839) -- -- (839)
Issuance of
Series C
Preferred
(unaudited).... -- -- 1,023,807 1,024 2,145,976 -- -- -- 2,147,000
Issuance of
warrants
(unaudited).... -- -- -- -- -- -- -- -- --
Deferred stock
compensation
(unaudited).... -- -- -- -- 785,378 -- (785,378) -- --
Stock-based
compensation
(unaudited).... -- -- -- -- -- -- 379,808 -- 379,808
Net loss........ -- -- -- -- -- -- -- (4,445,707) (4,445,707)
---------- ------- ---------- ------ ----------- -------- --------- ------------ -----------
Balance at
December 31,
1999
(unaudited).... 6,000,000 6,000 7,339,451 7,339 12,848,543 (66,548) (746,208) (9,276,525) 2,772,601
Issuance of
Series D
Preferred
(unaudited).... -- -- 1,066,665 1,067 7,998,921 -- -- -- 7,999,988
Beneficial
conversion
feature on
issuance of
Series D
Preferred
(unaudited).... -- -- -- -- 7,999,988 -- -- (7,999,988) --
Conversion of
convertible
preferred stock
(unaudited).... 8,406,116 8,406 (8,406,116) (8,406) -- -- -- --
Beneficial
conversion
feature on
issuance of
convertible
notes
(unaudited).... -- -- -- -- 2,114,111 -- -- -- 2,114,111
Conversion of
convertible
notes
(unaudited).... 176,470 176 -- -- 2,999,814 -- -- -- 2,999,990
---------- ------- ---------- ------ ----------- -------- --------- ------------ -----------
Balance at
December 31,
1999, pro-forma
(unaudited).... 14,582,586 $14,582 -- $ -- $33,961,377 $(66,548) $(746,208) ($17,276,513) $15,886,690
========== ======= ========== ====== =========== ======== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
OCEN COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
October 14,1997
(Inception) For the For the three months
through year ended ended December 31,
September 30, September 30, -----------------------
1998 1999 1998 1999
--------------- ------------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $ (722,114) $ (4,108,704) $ (433,898) $(4,445,707)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization........ 26,970 270,292 10,619 435,882
Bad debt provision... -- 59,485 -- 28,015
Accrued interest on
converted related
party notes......... -- 2,790 2,790 --
Accrued interest
income on
shareholder notes... -- (3,357) -- (839)
Interest amortized on
debt issuance
costs............... -- 9,383 -- 9,383
Stock-based
compensation........ 199,123 490,347 61,200 379,808
Stock issued for
services............ 24,444 -- -- --
Changes in operating
assets and
liabilities:
Accounts
receivable........ (13,711) (1,100,864) (26,774) (493,336)
Prepaids and other
assets............ (36,511) (432,203) (43,725) (672,850)
Accounts payable... 115,642 1,798,564 41,290 2,123,974
Accrued expense and
other current
liabilities....... 63,677 532,877 50,923 (155,872)
Deferred revenues.. 66,814 1,420,805 61,987 745,294
---------- ------------ ---------- -----------
Net cash used in
operating
activities........ (275,666) (1,060,585) (275,588) (2,046,248)
Cash flows used in
investing activities:
Purchase of property
and equipment......... (127,480) (3,118,492) (21,280) (3,412,242)
---------- ------------ ---------- -----------
Net cash used in
investing
activities........ (127,480) (3,118,492) (21,280) (3,412,242)
Cash flows from
financing activities:
Payments under capital
lease obligations..... -- (83,475) -- (62,854)
Payments under notes
payable............... -- (37,605) -- (18,453)
Proceeds from notes
payable............... -- 316,939 -- --
Proceeds from issuance
of common stock....... 200,000 -- -- --
Proceeds from stock
subscription.......... -- -- -- 1,100,000
Proceeds from issuance
of preferred stock.... -- 7,483,933 935,223 2,147,000
Proceeds from issuance
of preferred
warrant............... -- 783,277 783,277 --
Proceeds from
convertible notes
payable issued to
related parties,
net................... 230,000 -- -- --
---------- ------------ ---------- -----------
Net cash provided
by financing
activities........ 430,000 8,463,069 1,718,500 3,165,693
---------- ------------ ---------- -----------
Increase (decrease) in
cash and cash
equivalents............ 26,854 4,283,992 1,421,632 (2,292,797)
Cash and cash
equivalents, beginning
of period.............. -- 26,854 26,854 4,310,846
---------- ------------ ---------- -----------
Cash and cash
equivalents, end of
period................. $ 26,854 $ 4,310,846 $1,448,486 $ 2,018,049
========== ============ ========== ===========
Supplemental cash flow
information:
Cash paid during the
period for:
Income taxes......... $ 800 $ 1,641 -- --
Interest............. $ 3,211 $ 25,564 -- $ 21,984
Noncash investing and
financing activities:
Purchases of
equipment financed
under capital
leases.............. -- $ 499,500 -- $ 198,707
========== ============ ========== ===========
Notes receivable
issued for exercise
of stock options and
warrant............. $ 61,040 $ 1,312 -- --
========== ============ ========== ===========
Notes receivable
issued for purchase
of preferred stock.. -- -- $ 48,710 --
========== ============ ========== ===========
Conversion of related
party notes to
preferred stock..... -- $ 230,000 $ 230,000 --
========== ============ ========== ===========
Deferred financing
costs related to
issuance of
warrant............. -- $ 112,600 -- --
========== ============ ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
OCEN COMMUNICATIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All interim information relating to the periods ended December 31, 1998 and
1999 is unaudited)
1. Business and Organization:
oCen Communications, Inc. (the "Company") was incorporated in California in
October 1997 under the name Pacific Telekey Network, Inc., and subsequently
changed its name to oCen Communications, Inc. in October 1999. The Company
provides Internet Protocol ("IP") communication services over a managed IP
network.
In December 1998, the Company established a wholly owned subsidiary, Well
Signal Development Limited ("Well Signal"), to provide IP communication
services in Hong Kong. The subsidiary's name has been legally changed to oCen
Communications HK Ltd., effective October 1999.
In September 1999, the Company established a wholly owned subsidiary, oCen
Communications Taiwan, Ltd. ("oCen Taiwan"), to provide IP communication
services in Taiwan. The Company is awaiting formal approval of the
incorporation of oCen Communications in Taiwan.
The accompanying consolidated financial statements have been prepared on the
basis that the Company will continue as a going concern. Since inception, the
Company has incurred significant operating losses and has generated negative
cash flows from operations; and, from time to time, has had negative working
capital. 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 or debt securities, borrowings from existing credit
facilities and revenue generated from operations will be adequate to support
the Company's operations through March of 2001.
2. Summary of Significant Accounting Policies:
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of oCen
Communications, Inc. and its aforementioned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Each of the Company's subsidiaries has a September 30 year end.
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 revenues 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 original maturities
of three months or less to be cash equivalents.
Fair Value of Financial Instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable, capital lease obligations and notes
payable 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.
F-7
<PAGE>
OCEN COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the periods ended December 31, 1998 and
1999 is unaudited)
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 or lease terms, if
shorter, which are generally between 3 and 7 years. 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. 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 discounted cash flows or appraised values,
depending upon the nature of the assets. To date, there have been no such
impairments.
Revenue Recognition
The Company's revenues are principally derived from the sale of calling cards
to distributors, marketed through traditional and online channels. The
distributors resell the calling cards to third parties who in turn sell the
calling cards to end users. Revenues are recognized as minutes (or fractions
thereof) are delivered to end users provided that no significant Company
obligations remain and collection of the related receivable from the
distributor is probable.
Customer payments received in advance for prepaid services and services to be
supplied under contractual agreements are deferred and recognized as services
are provided.
Cost of Revenues
Cost of revenues primarily consist of access, transmission and termination
costs, and are expensed as incurred.
General and Administrative
General and administrative expenses include salaries, employee benefits and
expenses for executive, finance, and human resources personnel. In addition,
general and administrative expenses include fees for professional services and
occupancy costs. These costs are expensed as incurred.
Sales and Marketing
Sales and marketing expenses consist primarily of expenses relating to
salaries, payroll taxes, benefits, commissions for sales and marketing
personnel and advertising costs. These costs are expensed as incurred. For the
period from October 14, 1997 (Inception) to September 30, 1998, for the year
ended September 30, 1999 and for the three months ended December 31, 1998 and
1999, advertising expenses amounted to approximately $540, $50,725, $3,791 and
$102,598, respectively.
F-8
<PAGE>
OCEN COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the periods ended December 31, 1998 and
1999 is unaudited)
Product Development
Product development costs consist primarily of salaries and related expenses
for engineers and information technology personnel, software developers,
consulting fees, lab costs and market research. These costs 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 Share
Net loss per share is computed by dividing the net loss for the period by the
weighted average number of common shares outstanding. Shares associated with
stock options, warrants and convertible instruments are not included to the
extent they are antidilutive.
Unaudited Pro Forma Net Loss Per Share
Unaudited pro forma net loss per share for the year ended September 30, 1999
and for the three months ended December 31, 1999, is computed by dividing the
net loss for the period by the weighted average number of shares of common
stock outstanding, including the pro forma effects of the automatic conversion
of the Company's 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 October 1, 1998 and 1999, respectively, or at
the date of original issuance, if later.
Stock-Based 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 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.
Comprehensive Income
The Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income" in the fiscal year ended September 30, 1999. Comprehensive income
generally represents all changes in stockholders' equity (deficit) during the
period except those resulting from investments by, or distributions to,
stockholders. To date, there have been no such significant changes in
stockholders' equity (deficit) other than net loss amounts.
F-9
<PAGE>
OCEN COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the periods ended December 31, 1998 and
1999 is unaudited)
Foreign Currency Translation
During fiscal year 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.
To date, the Company's customer contracts have been denominated in U.S.
dollars, and the operating assets and liabilities of the Company's foreign
subsidiaries have been minimal. As a result, there have been no significant
foreign currency translation adjustments required to be reflected in
stockholders' equity (deficit).
Unaudited Interim Financial Information
The interim consolidated financial statements of the Company for the three
months ended December 31, 1998 and 1999, included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations relating to interim financial
statements. In the opinion of management, the accompanying unaudited interim
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
position of the Company at December 31, 1999 and the results of its operations
and its cash flows for the three months ended December 31, 1998 and 1999.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, "Software for Internal
Use," which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. The SOP is effective for fiscal periods
commencing after December 15, 1998. Management does not believe that the
implementation of SOP 98-1 will 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 adoption of SOP No. 98-5 during the third quarter of fiscal 1998 did not
have a significant impact on the Company's financial position, results of
operations or cash flows.
3. Concentration of Credit Risk, Significant Customers and Geographic
Information:
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 primarily located in the United
States. Although a majority of the Company's customers prepay for services, if
necessary, the Company extends differing levels of credit to customers and
generally does not require collateral. The Company maintains reserves for
potential credit losses based upon the expected collectibility of accounts
receivable. To date, such losses have been within management's expectations.
F-10
<PAGE>
OCEN COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the periods ended December 31, 1998 and
1999 is unaudited)
Revenues from significant customers were as follows:
<TABLE>
<CAPTION>
October 14, 1997 For the
(Inception) For the three months
Through year ended ended December
September 30, 1998 September 30, 1999 31, 1999
---------------------- ------------------- -----------------
% of % of % of
Amount Revenues Amount Revenues Amount Revenues
----------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Abest International..... $ 37,224 38% $1,019,043 44% $442,982 23%
Global 2000............. 21,175 21% -- -- -- --
Goldman Network......... -- -- 264,374 11% 441,828 23%
STE Communications...... -- -- 319,495 14% 420,419 21%
Star Communications..... -- -- -- -- 216,309 11%
</TABLE>
At September 30, 1999, the Company had receivable balances from Abest
International and Abest Communications, Inc. ("Abest") and STE Communications
approximating 62% and 12% of total accounts receivable, respectively. At
December 31, 1999, the Company had receivable balances from Abest, STE
Communications and Star Communications approximating 51%, 18% and 10% of total
accounts receivable, respectively.
As of December 31, 1999, the Company's largest customer, Abest, owed the
Company $815,430, most of which was past due. The Company believes that non-
payment is a result of a lack of liquidity at Abest. In January 2000, Abest
sold substantially all of its assets to Tianrong Internet Products and Services
("TIPS"), an over-the-counter publicly traded company, in exchange for
restricted common stock of TIPS. However, TIPS did not assume any of Abest's
liabilities. Although the Company is currently negotiating with Abest to
collect amounts due the Company, the Company cannot assess the ultimate
collectibility of this balance and as such has deferred all revenue relating to
the outstanding uncollected receivable balance from Abest at December 31, 1999
as a result of the uncertainty surrounding the collection of such amount and
will recognize revenue upon the collection of the receivable balance from
Abest. Deferred revenue related to the uncollected Abest receivable at December
31, 1999 represented approximately 36% of our total deferred revenue. The
Company intends to vigorously continue its collection efforts.
The Company operates in one industry segment providing IP telephony
communications services. The Company's business operations are principally
based in the United States and there were no foreign operations during the
period October 14, 1997 (Inception) though September 30, 1998. For the year
ended September 30, 1999 and three months ended December 31, 1999, all of the
Company's revenues were generated within the United States.
Long-lived assets, excluding accumulated depreciation and amortization, by
geographical location at September 30, 1999 and December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1999
--------------------------
<S> <C> <C>
United States..................................... $2,969,773 $4,809,362
Mainland China.................................... -- 1,038,294
Taiwan............................................ 392,203 678,138
Hong Kong......................................... 383,496 827,129
---------- ----------
Total........................................... $3,745,472 $7,352,923
========== ==========
</TABLE>
F-11
<PAGE>
OCEN COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the periods ended December 31, 1998 and
1999 is unaudited)
4. Credit Facilities:
In April 1999, the Company executed a $1,000,000 lease line credit facility
(the "Facility") with a lender to refinance certain equipment purchases. The
Facility is segregated into two $500,000 tranches, one immediately available to
the Company and the second subject to certain conditions as set forth in the
Facility. In connection with the Facility, the Company issued a warrant to the
lender to purchase 80,000 shares of its Series A preferred stock at an exercise
price of $1.25 (See Note 12). In June 1999, the Company borrowed under the
first tranche by refinancing equipment purchases of approximately $480,000 and
$19,000 under two separate lease agreements (See Note 7). These leases bear
interest at a rate of approximately 11% per annum, which amounted to interest
expense of approximately $11,000 for the year ended September 30, 1999. As of
September 30, 1999, the Company had not borrowed under the second tranche of
the Facility, and on December 31, 1999, the unused portion of the Facility
expired.
In June 1999, the Company executed a Senior Loan and Security Agreement (the
"Agreement") with a lender under which the Company could refinance up to
$1,000,000 of qualified equipment purchases through December 31, 1999, or April
30, 2000 if extended. The purchase period was not extended and expired on
December 31, 1999. In June 1999, the Company borrowed under the credit facility
and executed two individual notes in favor of the lender for approximately
$169,000 and $148,000. The notes bear interest at approximately 17% per annum,
mature in June 2002, are collateralized by the purchased equipment and are
payable in 36 monthly installments. Upon maturity of each note, the Company has
the option to either extend the note for an additional 12 months or make one
final lump sum payment. As of September 30, 1999, the aggregate outstanding
principal balance of these notes amounted to approximately $279,000, of which
approximately $79,000 is current.
In November 1999, the Company executed a $1,000,000 equipment lease line (the
"Line") with a lender. The term of the Line is 36 months with payments due on
the first day of each month. The rate is 3.20% of the applicable equipment cost
per month. As of December 31, 1999, the Company had no borrowings against the
Line.
In January 2000, the Company agreed to a $1,000,000 equipment lease line (the
"Equipment Line") with a lender. The Equipment Line may be utilized by the
Company through June of 2000 and bears interest at the yield on 36-month U.S.
Treasury Notes, as quoted by the bank, plus 300 basis points. In connection
with the execution of the Equipment Line, the Company expects to grant warrants
to the lender to purchase 5,333 shares of the Company's Series D Preferred at
an exercise price of $7.50 per share. As of March 2000, the two parties had not
finalized the Equipment Line.
5. Property and Equipment:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
September 30,
------------------- December 31,
1998 1999 1999
-------- ---------- ------------
<S> <C> <C> <C>
Computer and network communications equipment,
including assets under capital leases of
$499,500 and $698,207 at September 30, 1999
and December 31, 1999, respectively.......... $118,028 $3,317,556 $6,813,424
Furniture and fixtures........................ 7,449 44,014 73,809
Leasehold improvements........................ 2,003 383,902 465,690
-------- ---------- ----------
127,480 3,745,472 7,352,923
Less: Accumulated depreciation and
amortization, including amounts related to
assets under capital leases of $41,625 and
$96,442 for the year ended September 30, 1999
and for the three months ended December 31,
1999, respectively........................... 26,970 297,262 729,646
-------- ---------- ----------
Total....................................... $100,510 $3,448,210 $6,623,277
======== ========== ==========
</TABLE>
F-12
<PAGE>
OCEN COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the periods ended December 31, 1998 and
1999 is unaudited)
6. Related-Party Transactions:
During the period from October 14, 1997 (Inception) through September 30,
1998 and for the year ended September 30, 1999, stockholders and other related
parties of the Company loaned the Company $230,000 and $50,000, respectively,
in exchange for notes convertible into equity securities of the Company, as
defined in the note agreements. The notes are unsecured, bear interest at 5.5%
and mature during various months in the year 2001. During the year ended
September 30, 1999, in connection with the Series A preferred stock financing,
notes totaling approximately $230,000, plus accrued interest of $2,790, were
converted into 186,234 shares of Series A preferred stock. The remaining note
for $50,000 was repaid by the Company. At September 30, 1998 and 1999, the
Company had outstanding related party notes of approximately $230,000 and $0,
respectively.
At September 30, 1998 and 1999, the Company held notes receivable from
employees, directors and major stockholders totaling $61,040 and $65,709,
respectively, for the purchase of common stock. The notes are unsecured, bear
interest at 5.5% per annum and mature on September 29, 2001. The notes are
classified as a component of stockholders' equity.
7. Commitments and Contingencies:
Leases
The Company leases its facilities and certain computer equipment under non-
cancelable leases for varying periods through 2004, excluding various options
to renew. The following are the future minimum commitments under these leases
at September 30, 1999:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ---------
<S> <C> <C>
2000..................................................... $190,512 $152,299
2001..................................................... 190,512 132,613
2002..................................................... 95,869 112,816
2003..................................................... -- 101,202
2004..................................................... -- 25,301
-------- --------
Minimum lease payments................................... 476,893 $524,231
========
Less: Amount representing interest....................... (60,868)
--------
Present value of minimum lease payments.................. 416,025
Less: Current portion.................................... 151,332
--------
Long-term portion........................................ $264,693
========
</TABLE>
Rent expense pertaining to operating leases for the period from October 14,
1997 (Inception) through September 30, 1998, for the year ended September 30,
1999 and for the three months ended December 31, 1998 and 1999 was $36,676,
$89,226, $12,424 and $85,317, respectively.
In November 1999, the Company relocated its corporate headquarters from West
Covina, California to Irwindale, California. In connection with this move, the
Company executed a facility lease agreement whereby the Company will make
monthly payments ranging from approximately $23,000 to $27,000 through December
2004.
Service Agreements
The Company has entered into various carrier, Internet connectivity and
facility management service agreements with various telecommunication-related
companies extending through 2001, excluding various renewal options.
F-13
<PAGE>
OCEN COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the periods ended December 31, 1998 and
1999 is unaudited)
At September 30, 1999, commitments under those service agreements requiring
future minimum payments were as follows:
<TABLE>
<S> <C>
2000................................................................. $33,708
2001................................................................. 2,055
-------
$35,763
=======
</TABLE>
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. To date, the resolution of these matters has not had a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows.
8. Asset Purchase Agreements:
In August and September 1999, the Company purchased certain equipment and
other fixed assets from Giant Joint International Limited, located in Hong
Kong, and from Nations Tech Co., located in Taiwan, respectively, for a total
cash consideration of approximately $215,000. The total consideration was
allocated to the individual assets based on their estimated fair values at the
dates of purchase.
9. Income Taxes:
As a result of net operating losses, the Company has not recorded a provision
for income taxes. Significant components of the Company's deferred taxes
consisted of the following at September 30, 1998 and 1999:
<TABLE>
<CAPTION>
September 30,
----------------------
1998 1999
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 181,241 $ 1,166,048
Bad debt expense...................................... -- 23,794
Depreciation and amortization......................... 910 (166,846)
Deferred revenues..................................... 26,725 568,322
Stock-based compensation.............................. 67,702 275,788
Other................................................. 272 29,306
--------- -----------
Total deferred tax assets............................... 276,850 1,896,412
--------- -----------
Valuation allowance..................................... (276,850) (1,896,412)
--------- -----------
Net deferred tax assets................................. $ -- $ --
========= ===========
</TABLE>
Due to uncertainty surrounding the realization of the benefits in future tax
returns, the Company placed a full valuation allowance against its deferred tax
assets as of September 30, 1998 and 1999.
As of September 30, 1999, the Company had federal and state net operating
loss carryforwards of approximately $2,915,120 each. The federal net operating
loss carryforwards will begin to expire in 2018, and the state net operating
loss carryforwards will begin to expire in 2003. The Company's ability to
utilize net operating loss carryforwards may be limited in the event that a
change in ownership, as defined in the Internal Revenue Code, occurs in the
future.
F-14
<PAGE>
OCEN COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the periods ended December 31, 1998 and
1999 is unaudited)
10. Capitalization:
Stock Splits
In August 1998 and April 1999, the Company authorized and effected a 10,000-
for-1 and a 3-for-1 stock split, respectively. The share information in the
accompanying consolidated financial statements for periods prior to the stock
splits have been retroactively restated to reflect the effects of these stock
splits.
Convertible Preferred Stock
Convertible preferred stock ("Preferred Stock") at December 31, 1999
consisted of the following:
<TABLE>
<CAPTION>
Shares
Shares Issued and Liquidation Value per
Series Authorized Outstanding Amount Share
------ ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
A 3,750,000 2,912,503 $ 3,821,645 $1.25
B 5,650,000 3,403,141 6,655,540 1.91
C 1,200,000 1,023,807 2,171,495 2.10
---------- --------- -----------
Total 10,600,000 7,339,451 $12,648,680
========== ========= ===========
</TABLE>
The holders of Preferred Stock have various rights and preferences as
follows:
Dividends
Each share of Series A, Series B and Series C Preferred Stock provides for
discretionary, noncummulative dividends of $0.075, $0.115 and $0.126 per share,
per annum, respectively.
Conversion
Each share of Preferred Stock is convertible into shares of common stock at
the option of the holder at any time after the date of issuance of such shares.
Each share of Series A , Series B and Series C Preferred Stock will
automatically convert to common stock upon the consummation of the Company's
initial public offering ("IPO") of common stock if the Company receives gross
proceeds of at least $10,000,000 and the offering price per share is at least
$4.20, or upon approval by 67% of the holders of each class of Preferred Stock.
Voting
Each share of Series A, Series B and Series C Preferred Stock is entitled to
the number of votes equal to the number of shares of common stock that could be
converted on the date of vote.
Redemption
The Preferred Stock is not redeemable.
Liquidation
Upon liquidation (as defined), the holders of Series A, B and C Preferred
Stock would receive $1.25, $1.91 and $2.10 per share, respectively, plus an
amount equal to 6% of the Preferred Stock issuance price per annum accruing
from the date of original issuance until payment. 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 in proportion to the full amounts to
which they would otherwise be entitled.
F-15
<PAGE>
OCEN COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the periods ended December 31, 1998 and
1999 is unaudited)
Shares Issued for Services
In connection with an agreement with a third party, the Company issued
488,880 shares of common stock for services provided in fiscal year 1998. At
the date of issuance, the shares were valued at the deemed fair value for
accounting purposes, resulting in a charge of $24,444, which is included in
general and administrative expense in the accompanying Consolidated Statement
of Operations for the period from October 14, 1997 (Inception) through
September 30, 1998.
11. Stock Options:
Stock Option Plans
In September of 1998, the Company adopted the 1998 Stock Option/Stock
Issuance Plan (the "Plan") which is divided into two separate equity programs,
the Option Grant Program and the Stock Issuance Program.
The Option Grant Program provides for the issuance of nonqualified and
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
for nonqualified stock options. Incentive stock options may not be granted at
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). Options generally begin vesting six months after the vesting
start date, generally the employees date of hire, and generally vest ratably
over a four-year period and expire ten years from the date of grant. In
addition, certain employees have options that vest immediately. In the event
the holder of the option ceases to be employed by the Company, all unvested
options are forfeited, all vested options may be exercised within a period of
up to 3 months after termination and any options exercised for unvested shares
of common stock are subject to repurchase by the Company at the original
exercise price. The Company had 416,250 unvested shares of common stock issued
and outstanding under the plan at September 30, 1999 which were subject to
repurchase by the Company at the related exercise prices. Under the terms of
the Plan, as amended in January 1999, options to purchase 2,611,200 shares of
common stock were reserved. As of September 30, 1999, options to purchase
806,230 shares of common stock were available for future 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 of common stock issued
is discretionary. In the event the holder ceases to be employed by the Company,
all unvested common stock shall be forfeited and any cash paid related to the
unvested shares will be repaid by the Company.
F-16
<PAGE>
OCEN COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the periods ended December 31, 1998 and
1999 is unaudited)
A summary of the status of the Company's stock options, as of September 30,
1998 and 1999, and December 31, 1999, and the changes during the respective
periods then ended, is presented below:
<TABLE>
<CAPTION>
Weighted-
Average
Exercise
Price per
Shares Share
---------- ---------
<S> <C> <C>
Outstanding at October 14, 1997 (Inception)............... -- --
Granted................................................. 1,111,200 $0.03
Exercised............................................... (1,111,200) 0.03
Canceled................................................ -- --
---------- -----
Outstanding at September 30, 1998......................... -- --
Granted................................................. 994,490 0.19
Exercised............................................... -- --
Canceled................................................ (300,720) 0.19
---------- -----
Outstanding at September 30, 1999......................... 693,770 0.19
Granted................................................. 518,035 0.31
Exercised............................................... -- --
Canceled................................................ (153,000) 0.18
---------- -----
Outstanding at December 31, 1999.......................... 1,058,805 $0.24
========== =====
Exercisable at December 31, 1999.......................... 1,058,805 $0.24
========== =====
</TABLE>
Options granted for the period from October 14, 1997 (Inception) through
September 30, 1998, for the year ended September 30, 1999 and for the three
months ended December 31, 1999 resulted in total deferred compensation of $
494,560, $ 535,548, and $785,378, respectively, and were recorded as deferred
compensation in stockholder's equity. This deferred compensation represented
the difference between the deemed fair value of the Company's common stock for
accounting purposes and the exercise price of these options at the date of
grant. The deferred stock compensation is recognized as stock-based
compensation in the Consolidated Statements of Operations over the related
vesting periods of the options.
For the period from October 14, 1997 (Inception) through September 30, 1998,
for the year ended September 30, 1999 and for the three months ended December
31, 1998 and 1999, stock-based compensation included in the Consolidated
Statements of Operations amounted to $199,123, $490,347, $61,200 and $379,808,
respectively.
Additional information with respect to the outstanding options as of
September 30, 1999 is as follows:
<TABLE>
<CAPTION>
Options Exercised Subject
Options Outstanding and Exercisable to Repurchase
------------------------------------------- --------------------------
Weighted Average
Exercise Number of Remaining Weighted Average Number of Weighted Average
Price Shares Contractual Life Exercise Price Shares Repurchase Price
-------- --------- ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$0.17 268,000 9.27 $0.17 285,000 $0.03
$0.20 425,770 9.77 $0.20 131,250 $0.17
------- -------
693,770 416,250
======= =======
</TABLE>
F-17
<PAGE>
OCEN COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the periods ended December 31, 1998 and
1999 is unaudited)
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 weighted average assumptions:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Risk-free interest rates......................................... 5.5% 5.8%
Expected lives (in years)........................................ 4 4
Dividend yield................................................... 0 0
Expected volatility.............................................. 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 have approximated the following pro forma amounts:
<TABLE>
<CAPTION>
As Reported Pro Forma
----------- -----------
<S> <C> <C>
For the period from October 14, 1997 (Inception)
through
September 30, 1998:
Net loss...................................... $ (722,114) $ (724,368)
=========== ===========
Basic and diluted net loss per share.......... $ (0.16) $ (0.16)
=========== ===========
For the year ended September 30, 1999:
Net loss...................................... $(4,108,704) $(4,123,116)
=========== ===========
Basic and diluted net loss per share.......... $ (0.75) $ (0.75)
=========== ===========
</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.
12. Warrants:
In connection with the issuance of the Series A Preferred Stock as described
in Note 10, the Company agreed to issue a warrant to purchase shares of Series
A Preferred Stock at $0.001 (par value) per share to an investor if certain
revenue milestones were not met by the Company. At the date the warrant was
offered, there was uncertainty as to whether the Company could achieve such
milestones. Therefore, the Company allocated the proceeds received from the
investor of $1,500,000 to the related Series A Preferred Stock shares and the
warrant based on their relative fair values, which were determined to be
$1,500,000 and $1,639,288, respectively. The amount of the proceeds allocated
to the Series A Preferred Stock shares and warrants was $716,723 and $783,277,
respectively. The warrant became fully vested, immediately exercisable and
nonforfeitable on July 30, 1999 when the Company did not meet the specified
milestones. The warrant was exercised in August 1999, and the Company issued
1,312,480 shares of Series A Preferred Stock.
In connection with the execution of the Facility as described in Note 4, the
Company issued a warrant to purchase 80,000 shares of Series A Preferred Stock
at $1.25 per share to the lender. In June 1999, the warrant became fully
vested, exercisable and nonforfeitable as set forth in the Facility. The
warrant expires in June 2006. The fair value of the warrant was determined to
be approximately $113,000 which will be amortized over the life of the
equipment leases, or 36 months, as additional interest expense. As of September
30, 1999, the Company had recognized related interest expense of approximately
$9,000 and the warrant had not been exercised.
F-18
<PAGE>
OCEN COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the periods ended December 31, 1998 and
1999 is unaudited)
13. Net Loss Per Share:
The following table sets forth the computation of basic, diluted and pro
forma net loss per share:
<TABLE>
<CAPTION>
For the three
For the year months ended
October 14, 1997 ended December 31,
(Inception) through September 30, ----------------------
September 30, 1998 1999 1998 1999
------------------- ------------- --------- -----------
<S> <C> <C> <C> <C>
Historical presentation
Numerator:
Net loss................ $(722,114) $(4,108,704) $(433,898) $(4,445,707)
========= =========== ========= ===========
Denominator:
Weighted average
common shares
outstanding.......... 4,629,323 6,000,000 6,000,000 6,000,000
Adjustment for common
shares issued subject
to repurchase........ -- (507,282) (627,869) (376,373)
--------- ----------- --------- -----------
Denominator for basic
and diluted
calculations......... 4,629,323 5,492,718 5,372,131 5,623,627
========= =========== ========= ===========
Basic and diluted net
loss per share......... $ (0.16) $ (0.75) $ (0.08) (0.79)
========= =========== ========= ===========
Pro forma presentation
Denominator:
Shares used above..... 5,492,718 5,623,627
Weighted average
effect of convertible
securities
(unaudited):
Series A convertible
preferred stock...... 1,632,449 2,912,503
Series B convertible
preferred stock...... 456,860 3,403,141
Series C convertible
preferred stock...... -- 422,877
----------- -----------
Denominator for pro
forma calculation
(unaudited).......... 7,582,027 12,362,148
=========== ===========
Pro forma basic and
diluted net loss per
share (unaudited)...... $ (0.54) $ (0.36)
=========== ===========
</TABLE>
As the effect of their inclusion is antidilutive, diluted net loss per share
for the period from October 14, 1997 (Inception) through September 30, 1998 and
for the year ended September 30, 1999, does not include the effect of options
to purchase 0 and 693,770 of common stock, respectively, 0 and 80,000 preferred
stock warrants, respectively, approximately 184,000 and 0 shares of preferred
stock issuable upon the conversion of related party notes payable,
respectively, and 0 and 6,315,644 shares of convertible preferred stock,
respectively.
14. Subsequent Events (unaudited):
Convertible Series D Preferred Stock
In January 2000, the Company issued 1,066,665 shares of Series D Preferred
Stock for $7,999,988, or $7.50 per share. In December 1999, the Company
received $1,100,000 in cash prior to the related issuance of the Series D
Preferred Stock. This advance receipt has been classified as a stock
subscription payable on the Consolidated Balance Sheet at December 31, 1999.
Additionally, in connection with the issuance of the Series D Preferred Stock
in January 1999, the Company expects to incur an estimated non-cash charge to
equity
F-19
<PAGE>
OCEN COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the periods ended December 31, 1998 and
1999 is unaudited)
relating to the beneficial conversion feature ("BCF") on the Series D Preferred
Stock. The BCF 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 which the
shares of Series D Preferred Stock are convertible (1,066,665 shares). As the
value assigned to the BCF is limited to the proceeds from the Series D
Preferred Stock, the Company expects to record a BCF charge of $7,999,988. This
noncash equity charge will adversely impact the Company's net loss per share
attributable to common stockholders for the period ending March 31, 2000.
Convertible Notes Payable
In January 2000, the Company issued convertible notes (the "Notes") in
exchange for $10,000,000. As defined in the agreement, the Notes are
convertible into equity securities of the Company upon the occurrence of
certain events, bear interest at 6% per annum and mature in January 2005, if
not converted. Thirty percent of the outstanding principal shall automatically
convert into equity securities of the Company upon the closing of the sale of
equity securities in which the Company receives gross proceeds of at least
$10,000,000 ("Qualified Financing"). The conversion rate shall be $17.00 per
equity security, or if the Qualified Financing is an IPO, the lesser of $17.00
or the IPO price per share. The Company has determined that the portion of the
Notes that are subject to automatic conversion, or $3,000,000, upon the closing
of a Qualified Financing have an associated BCF since the Notes are convertible
at a discount to the estimated deemed fair value of the common stock at the
date of issuance. As the BCF relates to the issuance of convertible debt, the
value assigned to the BCF, which cannot exceed the related proceeds, will be
charged to the Consolidated Statement of Operations as additional interest
expense when and if a Qualified Financing occurs (date at which contingency is
resolved). At the date of issuance, the total value assigned to the
automatically convertible portion was estimated to be $2,114,111. This non-cash
BCF charge will adversely impact the Company's net loss per share when and if a
Qualified Financing occurs.
Stock Option Grants
From January 2000 to March 15, 2000, the Company has authorized stock option
grants to purchase 1,148,580 common shares at exercise prices ranging from
$1.00 to $12.00 per share. In connection with these authorized grants, the
Company expects to record an estimated deferred compensation amount of
approximately $23,300,000.
Stock Option Plan
The Company's Year 2000 Stock Option Plan, which was authorized by the Board
in March 2000, will become effective upon the consummation of the IPO. In
addition, the Board authorized an additional 1,000,000 stock options to be
available for future grants.
Initial Public Offering and Unaudited Pro Forma Stockholders' Equity
In March 2000, the Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission that would permit the
Company to sell shares of the Company's common stock in an IPO. Unaudited pro
forma stockholders' equity reflects the conversion of each share of convertible
preferred stock into shares of common stock upon the completion of the IPO, and
the issuance of 1,066,665 shares of Series D Preferred Stock in January 2000
for proceeds of $7,999,988, proceeds allocable to the portion of the
convertible notes payable that will automatically convert into 176,470 shares
common stock and the estimated impact of the BCF of $7,999,988 and $2,114,111,
for the Series D Preferred Stock and convertible notes payable, respectively.
F-20
<PAGE>
OCEN COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All interim information relating to the periods ended December 31, 1998 and
1999 is unaudited)
Reincorporation
In March 2000, the Board of Directors approved the reincorporation of the
Company in the state of Delaware, and the increase in the number of authorized
shares, which will be effected prior to the closing of the IPO. The
accompanying consolidated financial statements have been presented to reflect
these events.
F-21
<PAGE>
Shares
[LOGO OF oCEN COMMUNICATONS]
Common Stock
------------
PROSPECTUS
, 2000
------------
Lehman Brothers
Bear, Stearns & Co. Inc.
ING Barings
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We +
+cannot sell these securities until we deliver this prospectus to you in final +
+form. This prospectus is not an offer to sell these securities, and it is not +
+soliciting an offer to buy these securities in any jurisdiction where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATE PAGE]
Subject to Completion, dated , 2000
PROSPECTUS
Shares
[LOGO OF oCEN COMMUNICATIONS]
oCen Communications, Inc.
Common Stock
- --------------------------------------------------------------------------------
This is our initial public offering of shares of common stock. We are initially
offering shares outside the United States and Canada and
shares in the United States and Canada.
No public market currently exists for our shares. We anticipate that the
initial public offering price per share will be between $ and $ . We expect
that the shares will trade on the Nasdaq National Market under the symbol
"OCCM."
Investing in the shares involves risks. Risk Factors begin on page 5.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price........................................... $ $
Underwriting discount........................................... $ $
Proceeds to oCen, before expenses............................... $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to an
additional shares of our common stock to cover over-allotments.
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.
Lehman Brothers expects to deliver the shares on or about , 2000.
- --------------------------------------------------------------------------------
Lehman Brothers
Bear, Stearns International Limited
ING Barings
, 2000
<PAGE>
[ALTERNATE PAGE]
UNDERWRITING
Lehman Brothers Inc., Bear, Stearns International Limited, and ING Barings
Asia Limited, as agent for ING Bank N.V., are acting as international
representatives of each of the international underwriters named below. Subject
to the terms and conditions set forth in the underwriting agreement between us
and the underwriters, we have agreed to sell to the international underwriters,
and each of the international underwriters, severally and not jointly, has
agreed to purchase from us, the number of shares of common stock shown opposite
its name below:
<TABLE>
<CAPTION>
International Underwriters Number of Shares
- -------------------------- ----------------
<S> <C>
Lehman Brothers Inc.............................................
Bear, Stearns International Limited.............................
ING Barings Asia Limited, as agent for ING Bank N.V.............
Total.........................................................
</TABLE>
Lehman Brothers Inc., Bear, Stearns & Co. Inc., and ING Barings LLC are
acting as representatives of each of the U.S. underwriters named below. Subject
to the terms and conditions set forth in the underwriting agreement between us
and the underwriters, which is filed as an exhibit to the registration
statement relating to this prospectus, we have agreed to sell to the U.S.
underwriters, and each of the U.S. underwriters, severally and not jointly, has
agreed to purchase from us, the number of shares of common stock shown opposite
its name below:
<TABLE>
<CAPTION>
U.S. Underwriters Number of Shares
- ----------------- ----------------
<S> <C>
Lehman Brothers Inc...........................................
Bear, Stearns & Co. Inc.......................................
ING Barings LLC...............................................
Total.......................................................
</TABLE>
The closing of this offering is a condition to the closing of the U.S.
offering, and the closing of the U.S. offering is a condition to the closing of
this offering.
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in the offering are subject to
approval of legal matters by counsel as well as to other conditions. It also
states that if any shares are purchased by the underwriters pursuant to the
underwriting agreement, then all of the shares which the underwriters have
agreed to purchase pursuant to the underwriting agreement must be purchased.
The underwriters expect to deliver the shares on or about , 2000.
The underwriters propose to offer the shares directly to the public at the
public offering price set forth on the cover page of this prospectus, and to
specified selected dealers, who may include the underwriters, at the public
offering price less a selling concession not in excess of $ per share. The
underwriters may allow, and the selected dealers may reallow, a concession not
in excess of $ per share on sales to specified brokers and dealers. After
the offering, the representatives may change the offering price and other
selling terms. If all of the shares are not sold at the initial offering price,
the representatives may change the public offering price and the other selling
terms. The representatives have advised us that the underwriters do not intend
to confirm any sales to any accounts over which they exercise discretionary
authority that exceed 5% of the total number of shares of common stock offered
by them.
74
<PAGE>
[ALTERNATE PAGE]
We estimate that the total expenses of the offering, including registration,
filing and listing fees, printing fees and legal and accounting expenses but
excluding the underwriting discount will be approximately $ million.
We have granted to the underwriters an option to purchase up to an additional
shares of common stock, exercisable solely to cover over-allotments, if any, at
the public offering price less the underwriting discount shown on the cover
page of this prospectus. The option may be exercised at any time until 30 days
after the date of the underwriting agreement. To the extent this option is
exercised, each underwriter will be committed, subject to various conditions,
to purchase a number of additional shares proportionate to its initial purchase
commitment as indicated in the preceding table and we will be obligated, under
the over-allotment option, to sell the shares to the underwriters.
We, our officers, directors and some existing stockholders have agreed not to
do any of the following, whether any transaction described below is to be
settled by delivery of common stock or other securities, in cash or otherwise,
in each case without the prior written consent of Lehman Brothers, on behalf of
the underwriters, for a period of 180 days after the date of this prospectus:
. offer, sell, pledge or otherwise dispose of, or enter into any
transaction which is designed or could be expected to, result in the
disposition by any person at any time in the future of, any shares of
common stock or securities convertible into or exchangeable for common
stock or substantially similar securities, other than the following:
. the common stock sold under this prospectus,
. the common stock to be issued concurrently with the closing of this
offering upon the mandatory conversion of our outstanding preferred
stock, and
. shares of common stock we issue pursuant to employee benefit plans,
qualified stock option plans or other employee compensation plans
existing on the date of this prospectus or pursuant to currently
outstanding options, warrants or rights.
. sell or grant options, rights or warrants with respect to any shares of
our common stock or securities convertible into or exchangeable for our
common stock or substantially similar securities, other than the grant of
options pursuant to option plans existing on the date hereof; and
. enter into any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits or risks or
ownership of shares of common stock.
Prior to the offering, there has been no public market for the common stock.
The initial public offering price for the common stock will be determined by
negotiation between oCen and the representatives. Among the factors to be
considered in such negotiations are:
. prevailing market conditions;
. the market values of publicly traded companies that we and the
underwriters believe to be comparable to oCen;
. the current state of oCen's development and its current financial
condition;
. the history of and prospects for oCen and the Asian IP telephony
industry; and
. the prospects for future revenues and earnings of oCen.
We have applied for quotation of the common stock on the Nasdaq National
Market under the symbol OCCM.
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter in this offering and will be
facilitating electronic distribution of information through the Internet,
intranet and other proprietary electronic technology.
Until the distribution of the shares is completed, rules of the Securities
and Exchange Commission may limit the ability of the underwriters and selling
group members to bid for and purchase shares. As an exception
75
<PAGE>
[ALTERNATE PAGE]
to these rules, the representatives are permitted to engage in transactions
that stabilize the price of the shares. These transactions may consist of bids
or purchases for the purposes of pegging, fixing or maintaining the price of
the shares.
The underwriters may create a short position in the shares in connection with
the offering, which means that they may sell more shares than are set forth on
the cover page of this prospectus. If the underwriters create a short position,
then the representatives may reduce that short position by purchasing shares in
the open market. The representatives also may elect to reduce any short
position by exercising all or part of the over-allotment option.
The representatives may impose a penalty bid on certain underwriters and
selling group members. This means that if the representatives purchase shares
in the open market to reduce the underwriters' short position or to stabilize
the price of the shares, they may reclaim the amount of the selling concession
from the underwriters and selling group members who sold those shares as part
of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. The
imposition of a penalty bid might also have an effect on the price of a
security to the extent that it were to discourage resales of the security by
purchasers in an offering.
Neither we nor any of the underwriters make any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the shares. In addition, neither we nor any of
the underwriters make any representation that the representatives will engage
in such transactions or that such transactions, once commenced, will not be
discontinued without notice.
Offers and sales of shares being sold outside the United States have not been
registered under the Securities Act in reliance on Regulation S under the
Securities Act.
This prospectus is not, and under no circumstances is to be to construed as,
an advertisement or a public offering of the common stock in Canada or any
province or territory thereof. Any offer or sale of common stock in Canada may
only be made pursuant to an exemption from the dealer registration requirement
(where such an exemption is not available, offers shall be made only by a
registered dealer) in the relevant Canadian jurisdiction where any offer is
made.
The common stock may not be offered or sold directly or indirectly in Hong
Kong by means of this document or any other offering material or document other
than to persons whose ordinary course of business it is to buy or sell shares
or debentures, whether as principal or as agent. Unless permitted to do so by
the securities laws of Hong Kong, no person may issue or caused to be issued in
Hong Kong this document or any amendment or supplement thereto or any other
information, advertisement or document relating to the common stock other than
with respect to common stock intended to be disposed of to persons outside Hong
Kong or to persons whose business involves the acquisition, disposal or holding
of securities, whether as principal or as agent.
The common stock may not be offered and sold, directly or indirectly, in the
PRC or to any resident of the PRC.
Purchasers of the common stock offered in this prospectus may be required to
pay stamp taxes and other charges under the laws and practices of the country
of purchase, in addition to the public offering price set forth on the cover of
this prospectus.
We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act, liabilities arising from
breaches of the representations and warranties contained in the
76
<PAGE>
[ALTERNATE PAGE]
underwriting agreement, and liabilities incurred in connection with the
directed share program referred to below, and to contribute, under specified
circumstances, to payments that the underwriters may be required to make in
respect thereof.
At our request, Lehman Brothers has reserved up to shares of common stock, or
% of the common stock offered by this prospectus, for sale pursuant to a
directed share program to officers, directors and employees, and their family
members, of oCen and its affiliates and friends of oCen's management. All of
the persons purchasing the reserved shares must commit to purchase no later
than the close of business on the day following the date of this prospectus.
The number of shares available for sale to the general public will be reduced
to the extent these persons purchase the reserved shares.
Certain of the underwriters have provided from time to time, and expect to
provide in the future, financial advisory and investment banking services to us
and our affiliates, for which the underwriters have received and will receive
customary fees and commissions. ING Group and its affiliates own 16% of a
private equity fund which in turn owns approximately 20% of our existing share
capital. That fund's most recent investment in our company occurred in January
2000 when it acquired 400,184 additional shares of our capital stock. Jean
Salata, one of our directors, is the managing member of the general partner of
that fund. Lloyd Fischer, a director who owns approximately 1% of our existing
share capital, heads the Asian telecom investment banking team of ING Barings
and is a director of ING Barings Asia Limited.
77
<PAGE>
[ALTERNATE PAGE]
LEGAL MATTERS
The validity of the issuance of the common stock offered in the offering will
be passed upon for us by Brobeck, Phleger & Harrison, LLP, Palo Alto,
California and for the underwriters by Simpson Thacher & Bartlett, New York,
New York. Brobeck, Phleger & Harrison LLP and its affiliates own less than one
percent of our existing share capital.
EXPERTS
The consolidated financial statements of oCen Communications, Inc. as of
September 30, 1998 and 1999 and for the period from October 14, 1997
(Inception) through September 30, 1998 and for the year ended September 30,
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.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered in the United States and resales of the securities offered hereby into
the United States after the closing of this offering. This prospectus does not
contain all information set forth in the registration statement and the
exhibits and schedules to the registration statement. For further information
about us and the common stock offered in this offering, you should read the
registration statement, exhibits and schedules. Statements contained in this
prospectus about the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
any contract or other document filed as an exhibit to the registration
statement. To have a complete understanding of any document you should read the
entire document filed as an exhibit. You may read and copy the registration
statement, including the exhibits and schedules, at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
Seven World Trade Center, Suite 1300, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You can obtain copies of
these materials from the Public Reference Section of the Commission, Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates and from the
Commission's Internet Website at http://www.sec.gov. Please call the Commission
at 1-800-SEC-0330 for further information about the public reference rooms.
We intend to send to our stockholders annual reports containing audited
financial statements.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and, in
accordance with that act, we will file periodic reports, proxy statements and
other information which will be available for inspection and copying at the
Commission's public reference rooms and the Commission's Website, which is
described above.
78
<PAGE>
[ALTERNATE PAGE]
Shares
[LOGO IF oCEN COMMUNICATIONS]
[LOGO]
Common Stock
------------
PROSPECTUS
, 2000
------------
Lehman Brothers
Bear, Stearns International Limited
ING Barings
<PAGE>
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 the
underwriting discount, payable by the Registrant in connection with the offer
and sale of the common stock being registered. All amounts are estimates except
the registration fee, the NASD filing fee, and the Nasdaq National Market entry
fee.
<TABLE>
<S> <C>
Registration fee.................................................... $23,760
NASD filing fee..................................................... 9,500
Blue Sky fees and expenses (including legal fees)................... 5,000
Nasdaq National Market entry fee.................................... 5,000
Accounting fees and expenses........................................
Other legal fees and expenses.......................................
Transfer agent and registrar fee....................................
Printing and engraving..............................................
Miscellaneous.......................................................
-------
Total.............................................................
=======
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act"). As permitted by the Delaware General Corporation Law, the Registrant's
amended and restated certificate of incorporation includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Registrant or its stockholders, (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) under section 174 of the Delaware General
Corporation Law (regarding unlawful dividends and stock purchases) or (iv) for
any transaction from which the director derived an improper personal benefit.
As permitted by the Delaware General Corporation Law, the bylaws of the
Registrant provide that (i) the Registrant is required to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions, (ii) the
Registrant may indemnify its other employees and agents as set forth in the
Delaware General Corporation Law, (iii) the Registrant is required to advance
expenses, as incurred, to its directors and executive officers in connection
with a legal proceeding to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions, and (iv) the
rights conferred in the bylaws are not exclusive. At present, there is no
pending litigation or proceeding involving a director, officer or employee of
the Registrant regarding which indemnification is sought, nor is the Registrant
aware of any threatened litigation that may result in claims for
indemnification. Reference is also made to Section of the Underwriting
Agreement, which provides for the indemnification of officers, directors and
controlling persons of the Registrant against certain liabilities. The
indemnification provisions in the Registrant's amended and restated certificate
of incorporation and in its bylaws may be sufficiently broad to permit
indemnification of the Registrant's directors and executive officers for
liabilities arising under the Securities Act. Reference is made to the
following documents filed as exhibits to this registration statement regarding
relevant indemnification provisions described above and elsewhere herein:
<TABLE>
<CAPTION>
Document Exhibit Number
-------- --------------
<S> <C>
Form of Underwriting Agreement.............................. 1.1
Form of Amended and Restated Certificate of Incorporation of
Registrant................................................. 3.3
Form of Bylaws of Registrant................................ 3.4
</TABLE>
II-1
<PAGE>
The Company has entered into indemnification agreements with each of the
Company's directors, a form of which is attached as an exhibit hereto and is
incorporated herein by reference.
The Registrant may obtain insurance for the protection of its directors and
officers against any liability asserted against them in their official
capacities. The rights of indemnification described above are not exclusive of
any other rights of indemnification to which the persons indemnified may be
entitled under any bylaw, agreement, vote of stockholders or directors or
otherwise.
Item 15. Recent Sales of Unregistered Securities
From our inception, we have funded losses and capital expenditures from cash
provided from financing activities. These activities included the private
placement of the following:
. Common Stock. Common stock sold to our founders for an aggregate
principal amount of approximately $200,000 in October 1997.
. Convertible Notes. Convertible notes with an aggregate principal amount
of approximately $280,000 sold to a group of private investors during
fiscal years 1998 and 1999.
. Series A. Convertible preferred stock sold to Baring Private Equity
Partners, under the BAPEF Investments IV fund, and private investors for
an aggregate amount of approximately $2 million in November 1998.
. Series B. Convertible preferred stock sold to Excel-Foundation, a wholly
owned subsidiary of New World Cyberbase, and Anderson Information
Technology, for an aggregate amount of approximately $6.5 million in
September 1999.
. Series C. Convertible preferred stock sold to existing stockholders,
Lotus Asset Management under the Lotus Liberator Fund, and private
investors for an aggregate amount of approximately $2.2 million in
November 1999.
. Series D. Convertible preferred stock sold to existing stockholders for
an aggregate amount of approximately $8 million in January 2000.
. Convertible Notes. Convertible notes with an aggregate principal amount
of $10 million sold to a group of private investors in January 2000.
The number of shares of common stock and convertible preferred stock below
reflects a 10,000 for one stock split in August 1998 and a 3-for-1 stock split
in April 1999.
In October 1997, we issued an aggregate of 4,888,800 shares of common stock
for an aggregate purchase price of approximately $200,000 to our founders. We
also issued convertible notes with an aggregate principal amount of
approximately $280,000 during fiscal years 1998 and 1999. These notes bear
interest at the rate of 5.5% annually and expire in July 2001. In the event of
a qualified financing of at least $1 million in gross proceeds, the noteholders
have the option to convert these notes into equity securities at the same price
as the securities issued in the qualified financing. Approximately $230,000 of
the notes outstanding were converted into 186,234 shares of Series A preferred
stock in November 1998.
In November 1998, we issued 1,600,023 shares of Series A convertible
preferred stock for $2 million, which included the conversion of some
promissory notes in November 1998. In connection with this offering, we issued
a warrant to purchase shares of Series A preferred stock if we did not meet
certain revenue milestones. The warrant became fully vested, immediately
exercisable and unable to be forfeited on July 31, 1999, when we did not meet
these milestones. The warrant was exercised in August 1999, and we issued
1,312,480 shares of Series A preferred stock.
In connection with our credit facility, we issued to the lender a warrant to
purchase 80,000 shares of Series A convertible preferred stock at $1.25 per
share, which would be equivalent to shares of common
II-2
<PAGE>
stock upon consummation of this offering. In June 1999, the warrant became
fully vested, exercisable, and unable to be forfeited.
In September 1999, we issued 3,403,141 shares of Series B convertible
preferred stock for $6.5 million to a subsidiary of New World Cyberbase and to
Anderson Information Technology.
In November 1999, we issued 1,023,807 shares of Series C convertible
preferred stock for $2.2 million to Lotus Asset Management, a group of private
investors, and existing stockholders.
In January 2000, we issued 1,066,665 shares of Series D convertible preferred
stock to existing stockholders for approximately $8 million.
In January 2000, we issued $10 million in aggregate principal amount of
convertible notes bearing interest at 6% annually to a group of private
investors. If we receive gross proceeds of at least $10 million in another
round of financing, then 30% of the outstanding principal amount of each note
will convert into our capital stock of the Company with the rest of the balance
paid out by us. If we consummate an initial public offering prior to January
2005, receive gross proceeds of at least $10 million in another round of
financing, or default under the terms of the notes, then we, in our sole
discretion, can convert the entire outstanding amounts of the notes into our
capital stock.
Item 16. Exhibits and Financial Statement Schedules
A.Exhibits
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation
3.2 Amended and Restated Bylaws
4.1 See Article II of Exhibit 3.1 and Article I of Exhibit 3.2
*5.1 Opinion of Brobeck, Phleger & Harrison, LLP
10.1 1998 Stock Option/Stock Issuance Plan
10.2 Form of Stock Option Agreement
10.3 Form of Stock Issuance Agreement
*10.4 Carrier Services Agreement between Registrant and New World Telephone,
dated as of January 3, 2000
*10.5 Office Building Lease between Registrant and Capital & Counties USA,
Inc., dated as of
January, 11, 1999
*10.6 Office Building Lease between Registrant and West Covina Lakes
Associates, dated as of
October 1, 1997
*10.7 Tenancy Agreement between Registrant and Sun Hung Kai Real Estate
Agency on behalf of Kai Carouse Company Limited, dated as of September
1, 1999
*10.8 Office Building Lease between Registrant and Washington Mutual Bank,
FA, dated as of
October 10, 1999
System License Agreement between Registrant and Synapsis, dated as of
*10.9 September 9, 1999
10.10 2000 Stock Incentive Plan
10.11 2000 Employee Stock Purchase Plan
*10.12 Form of Indemnification Agreement
10.13 Amended and Restated Investor Rights Agreement, dated as of January 4,
2000
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
21.1 List of Subsidiaries
*23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1)
*24.1 Power of Attorney (included on signature page)
*27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
B.Financial Statement Schedules
Schedules not listed above 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
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been 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
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant 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,
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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Irwindale,
State of California, on March 20, 2000.
OCEN COMMUNICATIONS, INC.
/s/ Steven San Eng
By:
__________________________________
Steven San Eng
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Steven San Eng and James Courtney and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and re-substitution, for him in his name, place and
stead, in any and all capacity, in connection with this Registration Statement,
including to sign and file in the name and on behalf of the undersigned as
director or officer of the Registrant (i) any and all amendments or supplements
(including any and all stickers and post-effective amendments) to this
Registration Statement, with all exhibits thereto, and other documents in
connection therewith, and (ii) any and all additional registration statements,
and any and all amendments thereto, relating to the same offering of securities
as those that are covered by this Registration Statement that are filed
pursuant to Rule 462(b) promulgated under the Securities Act of 1933, with the
Securities and Exchange Commission and any applicable securities exchange or
securities self-regulatory body, granting unto said attorney-in-fact and
agents, and each of them full power and authority to do and perform each and
every act and things requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or any of them, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons on March 20, 2000 in the
capacities indicated:
Signatures Title Date
/s/ Ron Higgins Chairman of the March 20, 2000
- ------------------------------------- Board
Ron Higgins
/s/ Steven San Eng Board Member and March 20, 2000
- ------------------------------------- Chief Executive
Steven San Eng Officer (Principal
Executive Officer)
(Principal
Financial and
Accounting Officer)
/s/ Thomas Bao Board Member, March 20, 2000
- ------------------------------------- President, and VP
Thomas Bao of Greater China
/s/ Lloyd Fischer Board Member March 20, 2000
- -------------------------------------
Lloyd Fischer
/s/ Chan Ki Board Member March 20, 2000
- -------------------------------------
Chan Ki
II-5
<PAGE>
Signatures Title Date
/s/ Simon Lo Board Member March 20, 2000
- -------------------------------------
Simon Lo
/s/ Jean Salata Board Member March 20, 2000
- -------------------------------------
Jean Salata
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Sequential Page No.
----------- ----------- -------------------
<C> <C> <S>
3.1 Amended and Restated Certificate of Incorporation
3.2 Amended and Restated Bylaws
10.1 1998 Stock Option/Stock Issuance Plan
10.2 Form of Stock Option Agreement
10.3 Form of Stock Issuance Agreement
10.10 2000 Stock Incentive Plan
10.11 2000 Employee Stock Purchase Plan
10.13 Amended and Restated Investor Rights Agreement, dated as of January 4, 2000
</TABLE>
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
OCEN COMMUNICATIONS, INC.
The undersigned, ________________ and _______________, hereby certify
that:
ONE: They are the duly elected, qualified and acting President and
---
Secretary, respectively, of oCen Communications, Inc., a Delaware corporation.
TWO: The Certificate of Incorporation of said corporation was
---
originally filed in the Office of the Secretary of State of the State of
Delaware on ________, ____ and the Amended and Restated Certificate of
Incorporation of said corporation was originally filed in such office on
________, ____.
THREE: The Amended and Restated Certificate of Incorporation of said
-----
corporation is amended and restated to read in its entirety as follows:
ARTICLE I
The name of this corporation is oCen Communications, Inc. (the
"Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, Delaware
19801. The name of the Corporation's registered agent at such address is the
Corporation Service Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware (the "GCL").
ARTICLE IV
The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares that the Corporation is authorized to issue is
__________________ (__________). _______________ (_________) shares shall be
Common Stock, par value $0.001 per share, and ______________ (_________) shares
shall be Preferred Stock, par value $0.001 per share.
<PAGE>
The Preferred Stock may be issued from time to time in one or more
series, without further stockholder approval. The Board of Directors of the
Corporation is hereby authorized to fix or alter the rights, preferences,
privileges and restrictions granted to or imposed upon each series of Preferred
Stock, and the number of shares constituting any such series and the designation
thereof, or of any of them. The rights, privileges, preferences and
restrictions of any such additional series may be subordinated to, pari passu
----------
with (including, without limitation, inclusion in provisions with respect to
liquidation and acquisition preferences, redemption and/or approval of matters
by vote), or senior to any of those of any present or future class or series of
Preferred Stock or Common Stock. The Board of Directors is also authorized to
increase or decrease the number of shares of any series prior or subsequent to
the issue of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
ARTICLE V
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of the Corporation. In addition, the
Bylaws may be amended by the affirmative vote of holders of at least sixty-six
and two-thirds percent (66 2/3%) of the outstanding shares of voting stock of
the Corporation entitled to vote at an election of directors.
ARTICLE VI
The number of directors of the Corporation shall be determined by
resolution of the Board of Directors.
Elections of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide. Advance notice of stockholder nominations
for the election of directors and of any other business to be brought before any
meeting of the stockholders shall be given in the manner provided in the Bylaws
of this Corporation.
At each annual meeting of stockholders, directors of the Corporation
shall be elected to hold office until the expiration of the term for which they
are elected, or until their successors have been duly elected and qualified;
except that if any such election shall not be so held, such election shall take
place at a stockholders' meeting called and held in accordance with the GCL.
The directors of the Corporation shall be divided into three (3)
classes as nearly equal in size as is practicable, hereby designated Class I,
Class II and Class III. For the purposes hereof, the initial Class I, Class II
and Class III directors shall be those directors so designated by a resolution
of the Board of Directors. At the first annual meeting of stockholders
following the closing of the initial public offering of the Corporation's Common
Stock, the term of office of the Class I directors shall
2
<PAGE>
expire and Class I directors shall be elected for a full term of three (3)
years. At the second annual meeting of stockholders following the closing of the
initial public offering of the Corporation's Common Stock, the term of office of
the Class II directors shall expire and Class II directors shall be elected for
a full term of three (3) years. At the third annual meeting of stockholders
following the initial public offering of the Corporation's Common Stock, the
term of office of the Class III directors shall expire and Class III directors
shall be elected for a full term of three (3) years. At each succeeding annual
meeting of stockholders, directors shall be elected for a full term of three (3)
years to succeed the directors of the class whose terms expire at such annual
meeting. If the number of directors is hereafter changed, each director then
serving as such shall nevertheless continue as a director of the Class of which
he is a member until the expiration of his current term and any newly created
directorships or decrease in directorships shall be so apportioned among the
classes as to make all classes as nearly equal in number as is practicable.
Vacancies occurring on the Board of Directors for any reason may be
filled by vote of a majority of the remaining members of the Board of Directors,
even if less than a quorum, at any meeting of the Board of Directors. A person
so elected by the Board of Directors to fill a vacancy shall hold office for the
remainder of the full term of the director for which the vacancy was created or
occurred and until such director's successor shall have been duly elected and
qualified. A director may be removed from office by the affirmative vote of the
holders of 66 2/3% of the outstanding shares of voting stock of the Corporation
entitled to vote at an election of directors, provided that such removal is for
cause.
ARTICLE VII
Stockholders of the Corporation shall take action by meetings held
pursuant to this Amended and Restated Certificate of Incorporation and the
Bylaws and shall have no right to take any action by written consent without a
meeting. Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. Special meetings of the stockholders, for
any purpose or purposes, may only be called by the Board of Directors of the
Corporation. The books of the Corporation may be kept (subject to any provision
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in the
Bylaws of the Corporation.
ARTICLE VIII
To the fullest extent permitted by applicable law, this Corporation is
authorized to provide indemnification of (and advancement of expenses to)
directors, officers, employees and agents (and any other persons to which
Delaware law permits this Corporation to provide indemnification) through Bylaw
provisions, agreements with such agents or other persons, vote of stockholders
or disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the GCL, subject only to
limits created by applicable Delaware law (statutory or non-statutory), with
respect to action for breach of duty to the Corporation, its stockholders, and
others.
No director of the Corporation shall be personally liable to the
Corporation or any stockholder for monetary damages for breach of fiduciary duty
as a director, except for any matter in respect of which such director shall be
liable under Section 174 of the GCL or any amendment thereto or shall be liable
by reason that, in addition to any and all other requirements for such
liability, such director (1) shall have breached the director's duty or loyalty
to the
3
<PAGE>
Corporation or its stockholders, (2) shall have acted in manner involving
intentional misconduct or a knowing violation of law or, in failing to act,
shall have acted in a manner involving intentional misconduct or a knowing
violation of law, or (3) shall have derived an improper personal benefit. If the
GCL is hereafter amended to authorize the further elimination or limitation of
the liability of a director, the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the GCL, as so
amended.
Each person who was or is made a party or is threatened to be made a
party to or is in any way involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), including any appeal therefrom, by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or a direct
or indirect subsidiary of the Corporation, or is or was serving at the request
of the Corporation as a director or officer of another entity or enterprise, or
was a director or officer of a foreign or domestic corporation which was
predecessor corporation of the Corporation or of another entity or enterprise at
the request of such predecessor corporation, shall be indemnified and held
harmless by the Corporation, and the Corporation shall advance all expenses
incurred by any such person in defense of any such proceeding prior to its final
determination, to the fullest extent authorized by the GCL. In any proceeding
against the Corporation to enforce these rights, such person shall be presumed
to be entitled to indemnification and the Corporation shall have the burden of
proving that such person has not met the standards of conduct for permissible
indemnification set forth in the GCL. The rights to indemnification and
advancement of expenses conferred by this Article VIII shall be presumed to have
been relied upon by the directors and officers of the Corporation in serving or
continuing to serve the Corporation and shall be enforceable as contract rights.
Said rights shall not be exclusive of any other rights to which those seeking
indemnification may otherwise be entitled. The Corporation may, upon written
demand presented by a director or officer of the Corporation or of a direct or
indirect subsidiary of the Corporation, or by a person serving at the request of
the Corporation as a director or officer of another entity or enterprise, enter
into contracts to provide such persons with specified rights to indemnification,
which contracts may confer rights and protections to the maximum extent
permitted by the GCL, as amended and in effect from time to time.
If a claim under this Article VIII is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expenses of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce the right to be advanced expenses incurred in
defending any proceeding prior to its final disposition where the required
undertaking, if any, has been tendered to the Corporation ) that the claimant
has not met the standards of conduct which make it permissible under the GCL for
the Corporation to indemnify the claimant for the amount claimed, but the
claimant shall be presumed to be entitled to indemnification and the Corporation
shall have the burden of proving that the claimant has not met the standards of
conduct for permissible indemnification set forth in the GCL.
4
<PAGE>
If the GCL is hereafter amended to permit the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment, the indemnification rights conferred by this
Article VIII shall be broadened to the fullest extent permitted by the GCL, as
so amended.
ARTICLE IX
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation. Notwithstanding the foregoing, the provisions set forth in
Articles V, VI, VII, VIII and IX of this Amended and Restated Certificate of
Incorporation may not be repealed or amended in any respect without the
affirmative vote of holders at least 66-2/3% of the outstanding voting stock of
the Corporation entitled to vote at election of directors.
FOUR: The foregoing amendment and restatement has been duly adopted
----
by the Corporation's Board of Directors in accordance with the applicable
provisions of Sections 242 and 245 of the General Corporation Law of the State
of Delaware.
FIFTH: The foregoing amendment and restatement was approved by the
-----
holders of the requisite number of shares of the Corporation in accordance with
Section 228 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this certificate on
, 2000.
__________________________________________
Name:
President
__________________________________________
Name:
Secretary
5
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
OCEN COMMUNICATIONS, INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
----------
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places
----------
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
----------
directors shall be held at such place as may be fixed from time to time by the
Board of Directors, or at such other place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held at such date
----------
and time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. At each annual meeting, the stockholder
shall elect directors to succeed those whose terms expire in that year and shall
transact such other business as may properly be brought before the meeting.
1
<PAGE>
Section 3. Written notice of the annual meeting stating the place,
----------
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
----------
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
----------
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may only be called by the Board.
Section 6. Written notice of a special meeting stating the place,
----------
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of stockholders
----------
shall be limited to the purposes stated in the notice.
2
<PAGE>
Section 8. The holders of a majority of the stock issued and
----------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted that might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
----------
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
-----------
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three (3) years from its date, unless the proxy provides for a longer
period.
3
<PAGE>
Section 11. Nominations for election to the Board of Directors must
-----------
be made by the Board of Directors or by a committee appointed by the Board of
Directors for such purpose or by any stockholder of any outstanding class of
capital stock of the corporation entitled to vote for the election of directors.
Nominations by stockholders must be preceded by notification in writing received
by the secretary of the corporation not less than one-hundred twenty (120) days
prior to any meeting of stockholders called for the election of directors. Such
notification shall contain the written consent of each proposed nominee to serve
as a director if so elected and the following information as to each proposed
nominee and as to each person, acting alone or in conjunction with one or more
other persons as a partnership, limited partnership, syndicate or other group,
who participates or is expected to participate in making such nomination or in
organizing, directing or financing such nomination or solicitation of proxies to
vote for the nominee:
(a) the name, age, residence, address, and business address of
each proposed nominee and of each such person;
(b) the principal occupation or employment, the name, type of
business and address of the corporation or other organization in which such
employment is carried on of each proposed nominee and of each such person;
(c) the amount of stock of the corporation owned beneficially,
either directly or indirectly, by each proposed nominee and each such person;
and
(d) a description of any arrangement or understanding of each
proposed nominee and of each such person with each other or any other person
regarding future employment or any future transaction to which the corporation
will or may be a party.
4
<PAGE>
The presiding officer of the meeting shall have the authority to
determine and declare to the meeting that a nomination not preceded by
notification made in accordance with the foregoing procedure shall be
disregarded.
Section 12. At any meeting of the stockholders, only such business
-----------
shall be conducted as shall have been brought before the meeting (a) pursuant to
the corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the corporation who is a stockholder of
record at the time of giving of the notice provided for in this Bylaw, who shall
be entitled to vote at such meeting and who complies with the notice procedures
set forth in this Bylaw.
For business to be properly brought before any meeting by a
stockholder pursuant to clause (c) above of this Section 12, the stockholder
must have given timely notice thereof in writing to the secretary of the
corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
less than one hundred twenty (120) days prior to the date of the meeting. A
stockholder's notice to the secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (a) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (b) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, and the name
and address of the beneficial owner, if any, on whose behalf the proposal is
made, (c) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder of record and by the beneficial
owner, if any, on whose behalf of the proposal is made and (d) any material
interest of such stockholder of record and the beneficial owner, if any, on
whose behalf the proposal is made in such business.
5
<PAGE>
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at a meeting except in accordance with the procedures set
forth in this Section 12. The presiding officer of the meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the procedures
prescribed by this Section 12, and if such person should so determine, such
person shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted. Notwithstanding the
foregoing provisions of this Section 12, a stockholder shall also comply with
all applicable requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder with respect to the matters set forth
in this Section 12.
Section 13. Effective upon the closing of the corporation's initial
-----------
public offering of securities pursuant to a registration statement filed under
the Securities Act of 1933, as amended, the stockholders of the Corporation may
not take action by written consent without a meeting but must take any such
actions at a duly called annual or special meeting in accordance with these
Bylaws and the Certificate of Incorporation.
ARTICLE III
DIRECTORS
Section 1. The number of directors of this corporation that shall
----------
constitute the whole board shall be determined by resolution of the Board of
Directors; provided, however, that no decrease in the number of directors shall
have the effect of shortening the term of an incumbent director. The Board of
Directors shall be classified, with respect to the time for which they severally
hold office, into three classes, as nearly equal in number as possible, as
determined by the Board of Directors, one class ("Class I") to hold office
initially for a term
6
<PAGE>
expiring at the annual meeting to be held in 2001, another class ("Class II") to
hold office initially for a term expiring at the annual meeting of stockholders
held in 2002 and another class ("Class III") to hold office initially for a term
expiring at the annual meeting of stockholders to be held in 2003, with the
members of each class to hold office until their successors are elected and
qualified. At each annual meeting of stockholders, the successors of the class
of directors whose term expires at that meeting shall be elected to hold office
for a term expiring at the annual meeting of stockholders held in the third year
following the year of their election.
Section 2. Vacancies and newly created directorships resulting from
----------
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the next
annual meeting and until their successors are duly elected and qualified or
until earlier resignation or removal. If there are no directors in office, then
an election of directors may be held in the manner provided by statute.
Section 3. The business of the corporation shall be managed by or
----------
under the direction of its Board of Directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the certificate of incorporation or by these bylaws directed or required
to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold
----------
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected Board of Directors
----------
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to
7
<PAGE>
constitute the meeting, provided a quorum shall be present. In the event of the
failure of the stockholders to fix the time or place of such first meeting of
the newly elected Board of Directors, or in the event such meeting is not held
at the time and place so fixed by the stockholders, the meeting may be held at
such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held
----------
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the
----------
president on two (2) days' notice to each director by mail or forty-eight (48)
hours notice to each director either personally, or by telephone, telegram or
facsimile; special meetings shall be called by the president or secretary in
like manner and on like notice on the written request of a majority of the Board
unless the Board consists of only one director, in which case special meetings
shall be called by the president or secretary in like manner and on like notice
on the written request of the sole director. A written waiver of notice, signed
by the person entitled thereto, whether before or after the time of the meeting
stated therein, shall be deemed equivalent to notice.
Section 8. At all meetings of the board a majority of the directors
----------
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
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Section 9. Unless otherwise restricted by the certificate of
----------
incorporation of these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
-----------
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
-----------
majority of the whole board, designate one (1) or more committees, each
committee to consist of one (1) or more of the directors of the corporation.
The board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in
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<PAGE>
the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers that may require it; but
no such committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the bylaws of the corporation; and, unless the resolution or the
certificate of incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings
-----------
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
-----------
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
10
<PAGE>
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
-----------
incorporation or bylaws, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
----------
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice (except as provided in Section 7 of Article III of these Bylaws), but
such notice may be given in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Notice to
directors may also be given by telephone, telegram or facsimile.
Section 2. Whenever any notice is required to be given under the
----------
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
----------
Board of Directors and shall be a president, a chief financial officer and a
secretary. The Board of Directors may elect from among its members a Chairman
of the Board. The Board of Directors
11
<PAGE>
may also choose one or more vice-presidents, assistant secretaries and assistant
treasurers. Any number of offices may be held by the same person, unless the
certificate of incorporation or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
----------
annual meeting of stockholders shall choose a president, a chief financial
officer, and a secretary and may choose vice presidents.
Section 3. The Board of Directors may appoint such other officers and
----------
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers of the corporation shall be
----------
fixed by the Board of Directors or any committee established by the Board of
Directors for such purpose. The salaries of agents of the corporation shall,
unless fixed by the Board of Directors, be fixed by the president or any vice-
president of the corporation.
Section 5. The officers of the corporation shall hold office until
----------
their successors are chosen and qualify. Any officer elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
----------
meetings of the Board of Directors and of the stockholders at which he shall be
present. He/she shall have and may exercise such powers as are, from time to
time, assigned to him by the Board and as may be provided by law.
12
<PAGE>
Section 7. In the absence of the Chairman of the Board, the
----------
president, shall preside at all meetings of the Board of Directors and of the
stockholders at which he shall be present. He shall have and may exercise such
powers as are, from time to time, assigned to him by the Board and as may be
provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
Section 8. The president shall be the chief executive officer of the
----------
corporation; and in the absence of the Chairman of the Board he/she shall
preside at all meetings of the stockholders and the Board of Directors; he/she
shall have general and active management of the business of the corporation and
shall see that all orders and resolutions of the Board of Directors are carried
into effect.
Section 9. The president or any vice president shall execute bonds,
----------
mortgages and other contracts requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the corporation.
Section 10. In the absence of the president or in the event of his
-----------
inability or refusal to act, the vice-president, if any, (or in the event there
be more than one vice-president, the vice-presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
13
<PAGE>
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the Board of
-----------
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He/she shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he/she shall be. He/she shall have custody
of the corporate seal of the corporation and he/she, or an assistant secretary,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by his signature or by the signature of such
assistant secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing by
his signature.
Section 12. The assistant secretary, or if there be more than one,
-----------
the assistant secretaries in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
THE CHIEF FINANCIAL OFFICER
Section 13. The chief financial officer shall be the chief financial
-----------
officer and treasurer of the corporation, shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the
14
<PAGE>
corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the corporation in such depositories as may be designated
by the Board of Directors.
Section 14. He/she shall disburse the funds of the corporation as may
-----------
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 15. Along with the president or any vice president, he/she
-----------
shall be authorized to execute bonds, mortgages and other contracts requiring a
seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the corporation.
Section 16. If required by the Board of Directors, he/she shall give
-----------
the corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of his/her office and for the
restoration to the corporation, in case of his/her death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his/her control
belonging to the corporation.
Section 17. The assistant treasurer, or if there shall be more than
-----------
one, the assistant treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the chief financial officer or in the event of his
inability or refusal to act, perform the duties and exercise the powers
15
<PAGE>
of the chief financial officer and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled
----------
to have a certificate, signed by, or in the name of the corporation by, the
Chairman of the Board of Directors, or the president or a vice-president and the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of the corporation, certifying the number of shares owned by him/her in the
corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate that the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating,
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<PAGE>
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
Any of or all the signatures on the certificate may be facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he/she were such
officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 2. The Board of Directors may direct a new certificate or
----------
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his/her
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 3. Upon surrender to the corporation or the transfer agent of
----------
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a
17
<PAGE>
new certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
FIXING RECORD DATE
Section 4. In order that the corporation may determine the
----------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 5. The corporation shall be entitled to recognize the
----------
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
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<PAGE>
Section 1. Dividends upon the capital stock of the corporation,
----------
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
----------
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the
----------
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
----------
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
----------
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
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<PAGE>
Section 6. The corporation shall, to the fullest extent authorized
----------
under the laws of the State of Delaware, as those laws may be amended and
supplemented from time to time, indemnify any director made, or threatened to be
made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being a director of the
corporation or a predecessor corporation or, at the corporation's request, a
director or officer of another corporation, provided, however, that the
corporation shall indemnify any such agent in connection with a proceeding
initiated by such agent only if such proceeding was authorized by the Board of
Directors of the corporation. The indemnification provided for in this Section
6 shall: (i) not be deemed exclusive of any other rights to which those
indemnified may be entitled under any bylaw, agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in their official
capacities and as to action in another capacity while holding such office, (ii)
continue as to a person who has ceased to be a director, and (iii) inure to the
benefit of the heirs, executors and administrators of such a person. The
corporation's obligation to provide indemnification under this Section 6 shall
be offset to the extent of any other source of indemnification or any otherwise
applicable insurance coverage under a policy maintained by the corporation or
any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is or
was a director of the corporation (or was serving at the corporation's request
as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of Delaware. Notwithstanding
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the foregoing, the corporation shall not be required to advance such expenses to
an agent who is a party to an action, suit or proceeding brought by the
corporation and approved by a majority of the Board of Directors of the
corporation which alleges willful misappropriation of corporate assets by such
agent, disclosure of confidential information in violation of such agent's
fiduciary or contractual obligations to the corporation or any other willful and
deliberate breach in bad faith of such agent's duty to the corporation or its
stockholders.
The foregoing provisions of this Section 6 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
which may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 6, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation which is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from
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time to time; the corporation shall be deemed to have requested a person to
serve an employee benefit plan where the performance by such person of his
duties to the corporation also imposes duties on, or otherwise involves services
by, such person to the plan or participants or beneficiaries of the plan; excise
taxes assessed on a person with respect to an employee benefit plan pursuant to
such Act of Congress shall be deemed "fines."
ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or new
----------
bylaws may be adopted by the affirmative vote of holders of at least 66-2/3%
vote of the outstanding voting stock of the corporation. These bylaws may also
be altered, amended or repealed or new bylaws may be adopted by the Board of
Directors, when such power is conferred upon the Board of Directors by the
certificate of incorporation. The foregoing may occur at any regular meeting of
the stockholders or of the Board of Directors or at any special meeting of the
stockholders or of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new bylaws be contained in the notice of such
special meeting. If the power to adopt, amend or repeal bylaws is conferred
upon the Board of Directors by the certificate of incorporation it shall not
divest or limit the power of the stockholders to adopt, amend or repeal bylaws.
22
<PAGE>
CERTIFICATE OF ADOPTION BY THE
SECRETARY OF
OCEN COMMUNICATIONS, INC.
The undersigned, ___________, hereby certifies that he is the duly
elected and acting Secretary of oCen Communications, Inc., a Delaware
corporation (the "Corporation"), and that the Amended and Restated Bylaws
attached hereto constitute the Bylaws of said Corporation as duly adopted by the
Board of Directors and the Stockholders of the Corporation and as in effect on
the date hereof.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name
this _____ day of ____________, 2000.
_____________________________________
______________
Secretary
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EXHIBIT 10.1
OCEN COMMUNICATIONS, INC.
1998 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 1998 Stock Option/Stock Issuance Plan is intended to promote
the interests of oCen Communications, Inc., a California, by providing eligible
persons in the Corporation's employ or service with the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to continue in such employ or service.
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.
<PAGE>
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 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 grants made under the Option Grant Program,
which eligible persons are to receive the option grants, the time or times when
those 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 when 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 made 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
2,611,200/1/ 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
______________________
/1/ Adjusted for 3-1 forward split of the Common Stock, as approved by the
Board of Directors on January 8, 1999.
2.
<PAGE>
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 or direct issue 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 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>
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 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 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
4.
<PAGE>
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.
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 death, Disability or Misconduct, then the period
during which each such outstanding option may be exercised shall be limited
to the three (3) month period measured from the date of such cessation of
Service.
(ii) Should Optionee's Service terminate by reason of
Disability, then period during which each such outstanding option may be
exercised shall be limited to the twelve (12)-month period measured from
the date of such cessation of Service.
(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.
5.
<PAGE>
(vi) Should Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to remain outstanding.
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 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 the
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, any or all 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
the option grant or any shares of Common Stock subject to that 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.
However, such limitation shall not be applicable to any option grants made to
individuals who are officers of the Corporation, non-employee Board members or
independent consultants.
F. First Refusal Rights. Until such time as the Common Stock is
--------------------
first registered under Section 12 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.
6.
<PAGE>
G. Limited Transferability of Options. During the lifetime of
----------------------------------
the Optionee, Incentive Options 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.
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.
7.
<PAGE>
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 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 immediate termination of the
Corporation's repurchase rights with respect to the shares subject to those
options) upon the occurrence of a Corporate Transaction, whether or not those
options are to be assumed in the Corporate Transaction.
8.
<PAGE>
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
option so accelerated 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 at that time.
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.
9.
<PAGE>
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. Such limitation shall
not apply to any Common Stock issuances made to the officers of the Corporation,
non-employee Board members or independent consultants.
10.
<PAGE>
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.
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.
6. First Refusal Rights. Until such time as the Common Stock is first
registered under Section 12 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.
11.
<PAGE>
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 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.
12.
<PAGE>
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.
However, any promissory note delivered by a consultant must be secured by
collateral in addition to 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 upon its adoption by the Board on
August 10, 1998, but no option granted under the Plan may be exercised, and no
shares shall be issued under the Plan, until the Plan is approved by the
Corporation's shareholders. If such shareholder approval is not obtained within
twelve (12) months after the date of the Board's adoption of the Plan, then all
options previously granted under the Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan. Subject to such limitation, the Plan Administrator may
grant options and issue shares under the Plan at any time after the effective
date of the Plan and before the date fixed herein for termination of the Plan.
B. The Plan shall terminate upon the earliest of (i) August 10,
2008, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as vested shares 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.
13.
<PAGE>
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 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.
14.
<PAGE>
VIII. FINANCIAL REPORTS
The Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under the Plan, 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.
15.
<PAGE>
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 oCen Communications, Inc., a California
-----------
corporation, and any successor corporation to all or substantially all of the
assets or voting stock of oCen Communications, Inc. which shall by appropriate
action adopt the Plan.
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.
A-1.
<PAGE>
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. 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.
(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 duties and responsibilities or the level of management to which
he or she reports, (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.
A-2.
<PAGE>
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.
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 1998 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.
A-3.
<PAGE>
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).
A-4.
<PAGE>
Exhibit 10.2
OCEN COMMUNICATIONS, INC.
STOCK OPTION AGREEMENT
----------------------
RECITALS
- --------
A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or the board
of directors of any Parent or Subsidiary and consultants and other independent
advisors in the service of the Corporation (or any Parent or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the
Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. The Corporation hereby grants to Optionee, as of
the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. Option Term. This option shall have a term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. Limited Transferability. During Optionee's lifetime, this option
shall be exercisable only by Optionee and shall not be assignable or
transferable other than by will or by the laws of descent and distribution
following Optionee's death.
4. Dates of Exercise. This option shall become exercisable for the
Option Shares in one or more installments as specified in the Grant Notice. As
the option becomes exercisable for such installments, those installments shall
accumulate, and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
5. Cessation of Service. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(a) Should Optionee cease to remain in Service for any reason
(other than death, Disability or Misconduct) while this option is outstanding,
then Optionee shall have a period of three (3) months (commencing with the date
of such cessation of Service) during which
<PAGE>
to exercise this option, but in no event shall this option be exercisable at
any time after the Expiration Date.
(b) Should Optionee die while this option is outstanding, then
the personal representative of Optionee's estate or the person or persons to
whom the option is transferred pursuant to Optionee's will or in accordance with
the laws of inheritance shall have the right to exercise this option. Such right
shall lapse, and this option shall cease to be outstanding, upon the earlier of
-------
(i) the expiration of the twelve (12)-month period measured from the date of
Optionee's death or (ii) the Expiration Date.
(c) Should Optionee cease Service by reason of Disability while
this option is outstanding, then Optionee shall have a period of twelve (12)
months (commencing with the date of such cessation of Service) during which to
exercise this option. In no event shall this option be exercisable at any time
after the Expiration Date.
Note: Exercise of this option on a date later than three (3)
----
months following cessation of Service due to Disability will
result in loss of favorable Incentive Option treatment,
unless such Disability constitutes Permanent Disability. In
------
the event that Incentive Option treatment is not available,
this option will be taxed as a Non-Statutory Option upon
exercise.
(d) During the limited period of post-Service exercisability,
this option may not be exercised in the aggregate for more than the number of
Option Shares in which Optionee is, at the time of Optionee's cessation of
Service, vested pursuant to the Vesting Schedule specified in the Grant Notice
or the special vesting acceleration provisions of Paragraph 6. Upon the
expiration of such limited exercise period or (if earlier) upon the Expiration
Date, this option shall terminate and cease to be outstanding for any vested
Option Shares for which the option has not been exercised. To the extent
Optionee is not vested in the Option Shares at the time of Optionee's cessation
of Service, this option shall immediately terminate and cease to be outstanding
with respect to those shares.
(e) Should Optionee's Service be terminated for Misconduct, then
this option shall terminate immediately and cease to remain outstanding.
(f) In the event of a Corporate Transaction, the provisions of
Paragraph 6 shall govern the period for which this option is to remain
exercisable following Optionee's cessation of Service and shall supersede any
provisions to the contrary in this paragraph.
6. Accelerated Vesting.
(a) In the event of any Corporate Transaction, the Option Shares
at the time subject to this option but not otherwise vested shall automatically
vest in full so that this option shall, immediately prior to the effective date
of the Corporate Transaction, become fully exercisable for all of those Option
Shares and may be exercised for any or all of those Option Shares as fully-
vested shares of Common Stock. However, the Option Shares shall not vest on such
an accelerated basis if and to the extent: (i) this option is assumed by the
successor
2
<PAGE>
corporation (or parent thereof) in the Corporate Transaction and the
Corporation's repurchase rights with respect to the unvested Option Shares are
assigned to such successor corporation (or parent thereof) or (ii) this 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 (the excess of the Fair Market Value of those Option
Shares over the Exercise Price payable for such shares) and provides for
subsequent payout in accordance with the same Vesting Schedule applicable to
those unvested Option Shares as set forth in the Grant Notice.
(b) Immediately following the Corporate Transaction, this option
shall terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) in connection with the Corporate
Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
--------
(d) This Agreement shall not in any 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.
7. Adjustment in Option Shares. 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 total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. Shareholder Rights. The holder of this option shall not have
any shareholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become the recordholder
of the purchased shares.
9. Manner of Exercising Option.
(a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation a Purchase
Agreement for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:
3
<PAGE>
(A) cash or check made payable to the Corporation; or
(B) a promissory note payable to the Corporation, but
only to the extent authorized by the Plan Administrator in accordance
with Paragraph 14. Should the Common Stock be registered under Section
12 of the 1934 Act at the time the option is exercised, then the
Exercise Price may also be paid as follows:
(C) in shares of Common Stock held by Optionee (or
any other person or persons exercising the option) 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
(D) to the extent the option is exercised for vested
Option Shares, through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons exercising
the option) shall concurrently provide irrevocable 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 the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Purchase Agreement delivered to the
Corporation in connection with the option exercise.
(iii) Furnish to the Corporation appropriate documentation
that the person or persons exercising the option (if other than Optionee) have
the right to exercise this option.
(iv) Execute and deliver to the Corporation such written
representations as may be requested by the Corporation in order for it to comply
with the applicable requirements of Federal and state securities laws.
(v) Make appropriate arrangements with the Corporation (or
Parent or Subsidiary employing or retaining Optionee) for the satisfaction of
all Federal, state and local income and employment tax withholding requirements
applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto.
4
<PAGE>
(c) In no event may this option be exercised for any fractional
shares.
10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE EXERCISE
OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION AND ITS
ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE TERMS SPECIFIED IN THE
PURCHASE AGREEMENT.
11. Compliance with Laws and Regulations.
(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
12. Successors and Assigns. Except to the extent otherwise provided
in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Corporation and its successors and assigns
and Optionee, Optionee's assigns and the legal representatives, heirs and
legatees of Optionee's estate.
13. Notices. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
14. Financing. The Plan Administrator may, in its absolute discretion
and without any obligation to do so, permit Optionee to pay the Exercise Price
for the purchased Option Shares by delivering a full-recourse, interest-bearing
promissory note secured by those Option Shares. The payment schedule in effect
for any such promissory note shall be established by the Plan Administrator in
its sole discretion.
15. Construction. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
5
<PAGE>
16. Governing Law. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.
17. Shareholder Approval. If the Option Shares covered by this
Agreement exceed, as of the Grant Date, the number of shares of Common Stock
which may be issued under the Plan as last approved by the shareholders, then
this option shall be void with respect to such excess shares, unless shareholder
approval of an amendment sufficiently increasing the number of shares of Common
Stock issuable under the Plan is obtained in accordance with the provisions of
the Plan.
18. Additional Terms Applicable to an Incentive Option. In the event
this option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this option is exercised
for one or more Option Shares: (i) more than three (3) months after the date
Optionee ceases to be an Employee for any reason other than death or Permanent
Disability or (ii) more than twelve (12) months after the date Optionee ceases
to be an Employee by reason of Permanent Disability.
(b) This option shall not become exercisable in the calendar
year in which granted if (and to the extent) the aggregate Fair Market Value
(determined at the Grant Date) of the Common Stock for which this option would
otherwise first become exercisable in such calendar year would, when added to
the aggregate value (determined as of the respective date or dates of grant) of
the Common Stock and any other securities for which one or more other Incentive
Options granted to Optionee prior to the Grant Date (whether under the Plan or
any other option plan of the Corporation or any Parent or Subsidiary) first
become exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate. To the extent the exercisability of this
option is deferred by reason of the foregoing limitation, the deferred portion
shall become exercisable in the first calendar year or years thereafter in which
the One Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18(b)
would not be contravened, but such deferral shall in all events end immediately
prior to the effective date of a Corporate Transaction in which this option is
not to be assumed, whereupon the option shall become immediately exercisable as
a Non-Statutory Option for the deferred portion of the Option Shares.
(c) Should Optionee hold, in addition to this option, one or
more other options to purchase Common Stock which become exercisable for the
first time in the same calendar year as this option, then the foregoing
limitations on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
6
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Option Agreement.
---------
B. Board shall mean the Corporation's Board of Directors.
-----
C. Code shall mean the Internal Revenue Code of 1986, as amended.
----
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 oCen Communications, Inc., a California
-----------
corporation, and any successor corporation to all or substantially all of the
assets or voting stock of oCen Communications, Inc. which shall by appropriate
action adopt the Plan.
G. Disability shall mean the inability of Optionee 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. Disability shall be deemed to constitute Permanent Disability in
the event that such Disability is expected to result in death or has lasted or
can be expected to last for a continuous period of twelve (12) months or more.
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 option shall have been
-------------
exercised in accordance with Paragraph 9 of the Agreement.
J. Exercise Price shall mean the exercise price payable per Option Share
--------------
as specified in the Grant Notice.
K. Expiration Date shall mean the date on which the option expires as
---------------
specified in the Grant Notice.
A-1
<PAGE>
L. 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 the price is reported by
the National Association of Securities Dealers on the Nasdaq National
Market. 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.
(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.
M. Grant Date shall mean the date of grant of the option as specified in
----------
the Grant Notice.
N. Grant Notice shall mean the Notice of Grant of Stock Option
------------
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
O. Incentive Option shall mean an option which satisfies the
----------------
requirements of Code Section 422.
P. Misconduct shall mean the commission of any act of fraud,
----------
embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by
Optionee of confidential information or trade secrets of the Corporation (or any
Parent or Subsidiary), or any other intentional misconduct by Optionee 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
Optionee or any other individual in the Service of the Corporation (or any
Parent or Subsidiary).
Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
--------
R. Non-Statutory Option shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.
A-2
<PAGE>
S. Option Shares shall mean the number of shares of Common Stock subject
-------------
to the option.
T. Optionee shall mean the person to whom the option is granted as
--------
specified in the Grant Notice.
U. 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.
V. Plan shall mean the Corporation's 1998 Stock Option/Stock Issuance
----
Plan.
W. Plan Administrator shall mean either the Board or a committee of the
------------------
Board acting in its capacity as administrator of the Plan.
X. Purchase Agreement shall mean the stock purchase agreement in
------------------
substantially the form of Exhibit B to the Grant Notice.
Y. Service shall mean the Optionee's performance of services for the
-------
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or an independent consultant.
Z. Stock Exchange shall mean the American Stock Exchange or the New York
--------------
Stock Exchange.
AA. 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.
BB. Vesting Schedule shall mean the vesting schedule specified in the
----------------
Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a
series of installments over his or her period of Service.
A-3
<PAGE>
Exhibit 10.3
OCEN COMMUNICATIONS, INC.
STOCK ISSUANCE AGREEMENT
------------------------
AGREEMENT made as of this _____ day of ______________ 199___, by and
oCen Communications, Inc., a California corporation, and _________, Participant
in the Corporation's 1998 Stock Option/Stock Issuance Plan.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. PURCHASE OF SHARES
------------------
1. Purchase. Participant hereby purchases ___________ shares of
--------
Common Stock (the "Purchased Shares") pursuant to the provisions of the Stock
Issuance Program at the purchase price of $ ___________ per share (the "Purchase
Price").
2. Payment. Concurrently with the delivery of this Agreement to the
-------
Corporation, Participant shall pay the Purchase Price for the Purchased Shares
in cash or through a full-recourse interest-bearing promissory payable in full
to the Corporation in one year and shall deliver a duly-executed blank
Assignment Separate from Certificate (in the form attached hereto as Exhibit I)
with respect to the Purchased Shares.
3. Shareholder Rights. Until such time as the Corporation exercises
------------------
the Repurchase Right or the First Refusal Right, Participant (or any successor
in interest) shall have all shareholder rights (including voting, dividend and
liquidation rights) with respect to the Purchased Shares, subject, however, to
the transfer restrictions of Articles B and C.
B. SECURITIES LAW COMPLIANCE
-------------------------
1. Restricted Securities. The Purchased Shares have not been
---------------------
registered under the 1933 Act and are being issued to Participant in reliance
upon the exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit plans such as the Plan. Participant hereby
confirms that Participant has been informed that the Purchased Shares are
restricted securities under the 1933 Act and may not be resold or transferred
unless the Purchased Shares are first registered under the Federal securities
laws or unless an exemption from such registration is available. Accordingly,
Participant hereby acknowledges that Participant is prepared to hold the
Purchased Shares for an indefinite period and that Participant is aware that SEC
Rule 144 issued under the 1933 Act which exempts certain resales of unrestricted
securities is not presently available to exempt the resale of the Purchased
Shares from the registration requirements of the 1933 Act.
2. Disposition of Purchased Shares. Participant shall make no
-------------------------------
disposition of the Purchased Shares (other than a Permitted Transfer) unless and
until there is compliance with all of the following requirements:
<PAGE>
(i) Participant shall have provided the Corporation with a written
summary of the terms and conditions of the proposed disposition.
(ii) Participant shall have complied with all requirements of this
Agreement applicable to the disposition of the Purchased Shares.
(iii) Participant shall have provided the Corporation with written
assurances, in form and substance satisfactory to the Corporation, that (a)
the proposed disposition does not require registration of the Purchased
Shares under the 1933 Act or (b) all appropriate action necessary for
compliance with the registration requirements of the 1933 Act or any
exemption from registration available under the 1933 Act (including Rule
144) has been taken.
The Corporation shall not be required (i) to transfer on its books any
---
Purchased Shares which have been sold or transferred in violation of the
provisions of this Agreement or (ii) to treat as the owner of the Purchased
--
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. Restrictive Legends. The stock certificates for the Purchased
-------------------
Shares shall be endorsed with one or more of the following restrictive legends:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933. The shares may not be sold or offered for
sale in the absence of (a) an effective registration statement for the shares
under such Act, (b) a "no action" letter of the Securities and Exchange
Commission with respect to such sale or offer or (c) satisfactory assurances to
the Corporation that registration under such Act is not required with respect to
such sale or offer."
"The shares represented by this certificate are subject to certain
repurchase rights and rights of first refusal granted to the Corporation and
accordingly may not be sold, assigned, transferred, encumbered, or in any manner
disposed of except in conformity with the terms of a written agreement dated
______________________, 199__ between the Corporation and the registered holder
of the shares (or the predecessor in interest to the shares). A copy of such
agreement is maintained at the Corporation's principal corporate offices."
C. TRANSFER RESTRICTIONS
---------------------
1. Restriction on Transfer. Except for any Permitted Transfer,
-----------------------
Participant shall not transfer, assign, encumber or otherwise dispose of any of
the Purchased Shares which are subject to the Repurchase Right. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right or the Market Stand-Off.
2. Transferee Obligations. Each person (other than the Corporation)
----------------------
to whom the Purchased Shares are transferred by means of a Permitted Transfer
must, as a condition precedent to the validity of such transfer, acknowledge in
writing to the Corporation that such person is bound by the provisions of this
Agreement and that the transferred shares are subject to
2
<PAGE>
(i) the Repurchase Right, (ii) the First Refusal Right and (iii) the Market
Stand-Off, to the same extent such shares would be so subject if retained by
Participant.
3. Market Stand-Off.
----------------
(a) In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such restriction (the "Market Stand-Off") shall
be in effect for such period of time from and after the effective date of the
final prospectus for the offering as may be requested by the Corporation or such
underwriters. In no event, however, shall such period exceed one hundred eighty
(180) days and the Market Stand-Off shall in all events terminate two (2) years
after the effective date of the Corporation's initial public offering.
(b) Owner shall be subject to the Market Stand-Off provided and
------------
only if the officers and directors of the Corporation are also subject to
- -------
similar restrictions.
(c) Any new, substituted or additional securities which are by
reason of any Recapitalization or Reorganization distributed with respect to the
Purchased Shares shall be immediately subject to the Market Stand-Off, to the
same extent the Purchased Shares are at such time covered by such provisions.
(d) In order to enforce the Market Stand-Off, the Corporation
may impose stop-transfer instructions with respect to the Purchased Shares until
the end of the applicable stand-off period.
D. REPURCHASE RIGHT
----------------
1. Grant. The Corporation is hereby granted the right (the
-----
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date Participant ceases for any reason to remain in Service, to
repurchase at the Purchase Price any or all of the Purchased Shares in which
Participant is not, at the time of his or her cessation of Service, vested in
accordance with the Vesting Schedule (such shares to be hereinafter referred to
as the "Unvested Shares").
2. Exercise of the Repurchase Right. The Repurchase Right shall
--------------------------------
be exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the sixty (60)-day exercise period. The notice shall
indicate the number of Unvested Shares to be repurchased and the date on which
the repurchase is to be effected, such date to be not more than thirty (30) days
after the date of such notice. The certificates representing the Unvested Shares
to be repurchased shall be delivered to the Corporation on or before the close
of business on the date specified for the repurchase. Concurrently with the
receipt of such stock certificates, the Corporation shall pay to Owner, in cash
or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the
3
<PAGE>
Purchase Price previously paid for the Unvested Shares which are to be
repurchased from Owner.
3. Termination of the Repurchase Right. The Repurchase Right shall
-----------------------------------
terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Participant vests in accordance with the following Vesting Schedule:
Participant shall vest in twenty-five percent (25%) of the Purchased
Shares, and the Repurchase Right shall concurrently lapse with respect to those
Purchased Shares, upon Participant's completion of one (1) year of Service
measured from ________________________, 199____.
Participant shall vest in the remaining seventy-five percent
(75%) of the Purchased Shares, and the Repurchase Right shall concurrently
lapse with respect to those Purchased Shares, in a series of thirty-six
(36) successive equal monthly installments upon Participant's completion of
each additional month of Service over the thirty-six (36)-month period
measured from the vesting date for the first twenty-five percent (25%) of
the Purchased Shares.
All Purchased Shares as to which the Repurchase Right lapses
shall, however, remain subject to (i) the First Refusal Right and (ii) the
Market Stand-Off.
4. Recapitalization. Any new, substituted or additional securities or
----------------
other property (including cash paid other than as a regular cash dividend) which
is by reason of any Recapitalization distributed with respect to the Purchased
Shares shall be immediately subject to the Repurchase Right and any escrow
requirements hereunder, but only to the extent the Purchased Shares are at the
time covered by such right or escrow requirements. Appropriate adjustments to
reflect such distribution shall be made to the number and/or class of Purchased
Shares subject to this Agreement and to the price per share to be paid upon the
exercise of the Repurchase Right in order to reflect the effect of any such
Recapitalization upon the Corporation's capital structure; provided, however,
that the aggregate purchase price shall remain the same.
5. Corporate Transaction.
---------------------
(a) The Repurchase Right shall automatically terminate in its
entirety, and all the Purchased Shares shall vest in full, immediately prior to
the consummation of any Corporate Transaction, except to the extent the
Repurchase Right is to be assigned to the successor entity in such Corporate
Transaction.
(b) To the extent the Repurchase Right remains in effect
following a Corporate Transaction, such right shall apply to any new securities
or other property (including any cash payments) received in exchange for the
Purchased Shares in consummation of the Corporate Transaction, but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments shall be made to the price per share payable upon exercise of the
Repurchase Right to reflect the effect of the Corporate Transaction upon the
Corporation's
4
<PAGE>
capital structure; provided, however, that the aggregate purchase price shall
--------
remain the same. The new securities or other property (including any cash
payments) issued or distributed with respect to the Purchased Shares in
consummation of the Corporate Transaction shall be immediately deposited in
escrow with the Corporation (or the successor entity) and shall not be released
from escrow until Participant vests in such securities or other property in
accordance with the same Vesting Schedule in effect for the Purchased Shares.
E. RIGHT OF FIRST REFUSAL
----------------------
1. Grant. The Corporation is hereby granted the right of first
-----
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which Participant has vested in accordance
with the provisions of Article D. For purposes of this Article E, the term
"transfer" shall include any sale, assignment, pledge, encumbrance or other
disposition of the Purchased Shares intended to be made by Owner, but shall not
include any Permitted Transfer.
2. Notice of Intended Disposition. In the event any Owner of
------------------------------
Purchased Shares in which Participant has vested desires to accept a bona fide
third-party offer for the transfer of any or all of such shares (the Purchased
Shares subject to such offer to be hereinafter referred to as the "Target
Shares"), Owner shall promptly (i) deliver to the Corporation written notice
(the "Disposition Notice") of the terms of the offer, including the purchase
price and the identity of the third-party offeror, and (ii) provide satisfactory
proof that the disposition of the Target Shares to such third-party offeror
would not be in contravention of the provisions set forth in Articles B and C.
3. Exercise of the First Refusal Right. The Corporation shall, for a
-----------------------------------
period of twenty-five (25) days following receipt of the Disposition Notice,
have the right to repurchase any or all of the Target Shares subject to the
Disposition Notice upon the same terms as those specified therein or upon such
other terms (not materially different from those specified in the Disposition
Notice) to which Owner consents. Such right shall be exercisable by delivery of
written notice (the "Exercise Notice") to Owner prior to the expiration of the
twenty-five (25)-day exercise period. If such right is exercised with respect to
all the Target Shares, then the Corporation shall effect the repurchase of such
shares, including payment of the purchase price, not more than five (5) business
days after delivery of the Exercise Notice; and at such time the certificates
representing the Target Shares shall be delivered to the Corporation.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within twenty (20) days after the Corporation's receipt of
the Disposition Notice, each shall select an appraiser of recognized standing
and the two (2) appraisers shall designate a third appraiser of recognized
standing, whose appraisal shall be determinative of such value. The cost of
such appraisal shall be shared equally by Owner and the Corporation. The
closing shall then be held
5
<PAGE>
on the later of (i) the fifth (5th) business day following delivery of the
-----
Exercise Notice or (ii) the fifth (5th) business day after such valuation shall
have been made.
4. Non-Exercise of the First Refusal Right. In the event the Exercise
---------------------------------------
Notice is not given to Owner prior to the expiration of the twenty-five (25)-day
exercise period, Owner shall have a period of thirty (30) days thereafter in
which to sell or otherwise dispose of the Target Shares to the third-party
offeror identified in the Disposition Notice upon terms (including the purchase
price) no more favorable to such third-party offeror than those specified in the
Disposition Notice; provided, however, that any such sale or disposition must
not be effected in contravention of the provisions of Articles B and C. The
third-party offeror shall acquire the Target Shares free and clear of the
Repurchase Right and the First Refusal Right, but the acquired shares shall
remain subject to the provisions of Article B and Paragraph C.3. In the event
Owner does not effect such sale or disposition of the Target Shares within the
specified thirty (30)-day period, the First Refusal Right shall continue to be
applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses.
5. Partial Exercise of the First Refusal Right. In the event the
-------------------------------------------
Corporation makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within five (5) business days after Owner's receipt of the Exercise
Notice, to effect the sale of the Target Shares pursuant to either of the
following alternatives:
(i) sale or other disposition of all the Target Shares to the
third-party offeror identified in the Disposition Notice, but in full
compliance with the requirements of Paragraph E.4, as if the Corporation
did not exercise the First Refusal Right; or
(ii) sale to the Corporation of the portion of the Target Shares
which the Corporation has elected to purchase, such sale to be effected in
substantial conformity with the provisions of Paragraph E.3. The First
Refusal Right shall continue to be applicable to any subsequent disposition
of the remaining Target Shares until such right lapses.
Failure of Owner to deliver timely notification to the Corporation
shall be deemed to be an election by Owner to sell the Target Shares pursuant to
alternative (i) above.
6. Recapitalization/Reorganization.
-------------------------------
(a) Any new, substituted or additional securities or other
property which is by reason of any Recapitalization distributed with
respect to the Purchased Shares shall be immediately subject to the First
Refusal Right, but only to the extent the Purchased Shares are at the time
covered by such right.
(b) In the event of a Reorganization, the First Refusal Right
shall remain in full force and effect and shall apply to the new capital
stock or other property received in exchange for the Purchased Shares in
consummation of the Reorganization, but only to the extent the Purchased
Shares are at the time covered by such right.
6
<PAGE>
7. Lapse. The First Refusal Right shall lapse upon the earliest to
-----
occur of (i) the first date on which shares of the Common Stock are held of
record by more than five hundred (500) persons, (ii) a determination is made by
the Board that a public market exists for the outstanding shares of Common Stock
or (iii) a firm commitment underwritten public offering, pursuant to an
effective registration statement under the 1933 Act, covering the offer and sale
of the Common Stock in the aggregate amount of at least ten million dollars
($10,000,000). However, the Market Stand-Off shall continue to remain in full
force and effect following the lapse of the First Refusal Right.
F. SPECIAL TAX ELECTION
--------------------
1. Section 83(b) Election. Under Code Section 83, the excess of the
----------------------
Fair Market Value of the Purchased Shares on the date any forfeiture
restrictions applicable to such shares lapse over the Purchase Price paid for
such shares will be reportable as ordinary income on the lapse date. For this
purpose, the term "forfeiture restrictions" includes the right of the
Corporation to repurchase the Purchased Shares pursuant to the Repurchase Right.
Participant may elect under Code Section 83(b) to be taxed at the time the
Purchased Shares are acquired, rather than when and as such Purchased Shares
cease to be subject to such forfeiture restrictions. Such election must be filed
with the Internal Revenue Service within thirty (30) days after the date of this
Agreement. Even if the Fair Market Value of the Purchased Shares on the date of
this Agreement equals the Purchase Price paid (and thus no tax is payable), the
election must be made to avoid adverse tax consequences in the future. THE FORM
FOR MAKING THIS ELECTION IS ATTACHED AS EXHIBIT II HERETO. PARTICIPANT
UNDERSTANDS THAT FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE THIRTY (30)-
DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME AS THE FORFEITURE
RESTRICTIONS LAPSE.
2. FILING RESPONSIBILITY. PARTICIPANT ACKNOWLEDGES THAT IT IS
PARTICIPANT'S SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY
ELECTION UNDER CODE SECTION 83(b), EVEN IF PARTICIPANT REQUESTS THE CORPORATION
OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.
G. GENERAL PROVISIONS
------------------
1. Assignment. The Corporation may assign the Repurchase Right and/or
----------
the First Refusal Right to any person or entity selected by the Board, including
(without limitation) one or more shareholders of the Corporation. If the
assignee of the Repurchase Right is other than (i) a wholly owned subsidiary of
the Corporation or (ii) the parent corporation owning one hundred percent (100%)
of the Corporation's outstanding capital stock, then such assignee must make a
cash payment to the Corporation, upon the assignment of the Repurchase Right, in
an amount equal to the excess (if any) of (i) the Fair Market Value of the
Purchased Shares at the time subject to the assigned Repurchase Right over (ii)
the aggregate repurchase price payable for the Purchased Shares.
2. No Employment or Service Contract. Nothing in this Agreement or in
---------------------------------
the Plan shall confer upon Participant any right to continue in Service for any
period of specific
7
<PAGE>
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any Parent or Subsidiary employing or retaining Participant) or
of Participant, which rights are hereby expressly reserved by each, to terminate
Participant's Service at any time for any reason, with or without cause.
3. Notices. Any notice required to be given under this Agreement
-------
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other address as such
party may designate by ten (10) days advance written notice under this paragraph
to all other parties to this Agreement.
4. No Waiver. The failure of the Corporation in any instance to
---------
exercise the Repurchase Right or the First Refusal Right shall not constitute a
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Corporation and Participant. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.
5. Cancellation of Shares. If the Corporation shall make available,
----------------------
at the time and place and in the amount and form provided in this Agreement, the
consideration for the Purchased Shares to be repurchased in accordance with the
provisions of this Agreement, then from and after such time, the person from
whom such shares are to be repurchased shall no longer have any rights as a
holder of such shares (other than the right to receive payment of such
consideration in accordance with this Agreement). Such shares shall be deemed
purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
H. MISCELLANEOUS PROVISIONS
------------------------
1. Governing Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the laws of the State of California without resort to that
State's conflict-of-laws rules.
2. Participant Undertaking. Participant hereby agrees to take
-----------------------
whatever additional action and execute whatever additional documents the
Corporation may deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either Participant or the
Purchased Shares pursuant to the provisions of this Agreement.
3. Agreement is Entire Contract. This Agreement constitutes the
----------------------------
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the terms of the Plan.
8
<PAGE>
4. Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
5. Successors and Assigns. The provisions of this Agreement shall
----------------------
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and upon Participant, Participant's assigns and the legal
representatives, heirs and legatees of Participant's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
OCEN COMMUNICATIONS, INC.
By:_______________________________
Title:____________________________
Address:__________________________
_______________________________
__________________________________
Participant
Address: ______________________
______________________
9
<PAGE>
SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of Participant has read and hereby approves the
foregoing Stock Issuance Agreement. In consideration of the Corporation's
granting Participant the right to acquire the Purchased Shares in accordance
with the terms of such Agreement, the undersigned hereby agrees to be
irrevocably bound by all the terms of such Agreement, including (without
limitation) the right of the Corporation (or its assigns) to purchase any
Purchased Shares in which Participant is not vested at the time of his or her
cessation of Service.
______________________________
PARTICIPANT'S SPOUSE
Address:______________________
______________________________
10
<PAGE>
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ______________ hereby sell(s), assign(s) and
transfer(s) unto oCen Communications, Inc., (the "Corporation"),
_________________________ (_______) shares of the Common Stock of the
Corporation standing in his or her name on the books of the Corporation
represented by Certificate No. ___________________ herewith and do(es) hereby
irrevocably constitute and appoint _______________________________ Attorney to
transfer the said stock on the books of the Corporation with full power of
substitution in the premises.
Dated: ________________
Signature__________________________
Instruction: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Participant.
11
<PAGE>
EXHIBIT II
SECTION 83(b) TAX ELECTION
12
<PAGE>
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is shares of
the common stock of oCen Communications, Inc..
(3) The property was issued on ______________________, 199___.
(4) The taxable year in which the election is being made is the calendar year
199___.
(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if for
any reason taxpayer's service with the issuer terminates. The issuer's
repurchase right lapses in a series of annual and monthly installments over
a four (4)-year period ending on _______________________, 200___.
(6) The fair market value at the time of transfer (determined without regard to
any restriction other than a restriction which by its terms will never
lapse) is $______ per share.
(7) The amount paid for such property is $ ________ per share.
(8) A copy of this statement was furnished to oCen Communications, Inc. for
whom taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed on ___________________, 199___.
___________________________________ ________________________________
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Issuance Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Participant must retain two (2) copies of the completed form for filing with his
or her Federal and state tax returns for the current tax year and an additional
copy for his or her records.
<PAGE>
EXHIBIT III
1998 STOCK OPTION/STOCK ISSUANCE PLAN
1
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Issuance Agreement.
---------
B. Board shall mean the Corporation's Board of Directors.
-----
C. Code shall mean the Internal Revenue Code of 1986, as amended.
----
D. Common Stock shall mean the Corporation's common stock.
------------
E. Corporate Transaction shall mean either of the following shareholder-
---------------------
approved transactions:
(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 oCen Communications, Inc., a California corporation.
-----------
G. Disposition Notice shall have the meaning assigned to such term in Paragraph
------------------
E.2.
H. Exercise Notice shall have the meaning assigned to such term in Paragraph
---------------
E.3.
I. Fair Market Value of a share of Common Stock on any relevant date, prior to
-----------------
the initial public offering of the Common Stock, shall be determined by the Plan
Administrator after taking into account such factors as it shall deem
appropriate.
J. First Refusal Right shall mean the right granted to the Corporation in
-------------------
accordance with Article E.
K. Market Stand-Off shall mean the market stand-off restriction specified in
----------------
Paragraph C.3.
L. Misconduct shall mean the commission of any act of fraud, embezzlement or
----------
dishonesty by Participant, any unauthorized use or disclosure by Participant of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by Participant 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
Participant or any other individual in the Service of the Corporation (or any
Parent or Subsidiary).
2
<PAGE>
M. 1933 Act shall mean the Securities Act of 1933, as amended.
--------
N. Owner shall mean Participant and all subsequent holders of the Purchased
-----
Shares who derive their chain of ownership through a Permitted Transfer from
Participant.
O. 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.
P. Participant shall mean the person to whom shares are issued under the Stock
-----------
Issuance Program.
Q. Permitted Transfer shall mean (i) a gratuitous transfer of the Purchased
------------------
Shares, provided and only if Participant obtains the Corporation's prior written
--------------------
consent to such transfer, (ii) a transfer of title to the Purchased Shares
effected pursuant to Participant's will or the laws of intestate succession
following Participant's death or (iii) a transfer to the Corporation in pledge
as security for any purchase-money indebtedness incurred by Participant in
connection with the acquisition of the Purchased Shares.
R. Plan shall mean the Corporation's 1998 Stock Option/Stock Issuance Plan
----
attached hereto as Exhibit III.
S. Plan Administrator shall mean either the Board or a committee of the Board
------------------
acting in its capacity as administrator of the Plan.
T. Purchase Price shall have the meaning assigned to such term in Paragraph
--------------
A.1.
U. Purchased Shares shall have the meaning assigned to such term in Paragraph
----------------
A.1.
V. Recapitalization shall mean any stock split, stock dividend,
----------------
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
W. Reorganization shall mean any of the following transactions:
--------------
3
<PAGE>
(i) a merger or consolidation in which the Corporation is not the
surviving entity,
(ii) a sale, transfer or other disposition of all or substantially
all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the surviving
entity but in which the Corporation's outstanding voting securities are
transferred in whole or in part to a person or persons different from the
persons holding those securities immediately prior to the merger, or
(iv) any transaction effected primarily to change the state in which
the Corporation is incorporated or to create a holding company structure.
X. Repurchase Right shall mean the right granted to the Corporation in
----------------
accordance with Article D.
Y. SEC shall mean the Securities and Exchange Commission.
---
Z. Service shall mean the provision of services to the Corporation (or any
-------
Parent or Subsidiary) by an individual in the capacity of an employee, 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, a non-employee member of the
board of directors or an independent consultant.
AA. Stock Issuance Program shall mean the Stock Issuance Program under the
----------------------
Plan.
BB. 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.
CC. Target Shares shall have the meaning assigned to such term in Paragraph
-------------
E.2.
DD. Vesting Schedule shall mean the vesting schedule specified in Paragraph D.3
----------------
pursuant to which Participant is to vest in the Purchased Shares in a series of
installments over the Participant's period of Service.
EE. Unvested Shares shall have the meaning assigned to such term in Paragraph
---------------
D.1.
4
<PAGE>
Exhibit 10.10
OCEN COMMUNICATIONS, INC.
2000 STOCK INCENTIVE PLAN
-------------------------
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 2000 Stock Incentive Plan is intended to promote the interests of
oCen Communications, Inc., a Delaware corporation, by providing eligible persons
in the Corporation's service 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 such service.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity incentives
programs:
- the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,
- the Salary Investment Option Grant Program under which
eligible employees may elect to have a portion of their base salary invested
each year in special option grants,
- 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),
- the Automatic Option Grant Program under which eligible non-
employee Board members shall automatically receive option grants at designated
intervals over their period of continued Board service, and
- the Director Fee Option Grant Program under which
non-employee Board members may elect to have all or any portion of their annual
retainer fee otherwise payable in cash applied to a special stock option grant.
B. The provisions of Articles One and Seven shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.
<PAGE>
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. However, any
discretionary option grants or stock issuances for members of the Primary
Committee must be authorized by a disinterested majority of the Board.
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, 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 Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of those programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any stock option or stock issuance thereunder.
D. The Primary Committee shall have the sole and exclusive authority
to determine which Section 16 Insiders and other highly compensated Employees
shall be eligible for participation in the Salary Investment Option Grant
Program for one or more calendar years. However, all option grants under the
Salary Investment Option Grant Program shall be made in accordance with the
express terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
2
<PAGE>
F. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or 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. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive such grants, the time or times
when those 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 when 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 issuances, the time or times when the 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 for such
shares.
D. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
E. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members on or after the Underwriting Date,
whether through appointment by the Board or election by the Corporation's
stockholders, and (ii) those individuals who continue to serve as non-employee
Board members at one or more Annual Stockholders Meetings held after the
Underwriting Date. A non-employee Board member who has previously been in the
employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to
receive an option grant
3
<PAGE>
under the Automatic Option Grant Program at the time he or she first becomes a
non-employee Board member, but shall be eligible to receive periodic option
grants under the Automatic Option Grant Program while he or she continues to
serve as a non-employee Board member.
F. All non-employee Board members shall be eligible to participate
in the Director Fee Option Grant 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, including shares repurchased by the
Corporation on the open market. The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall not exceed
__________________ shares. Such reserve shall consist of (i) the number of
shares estimated to remain available for issuance, as of the Plan Effective
Date, under the Predecessor Plan as last approved by the Corporation's
stockholders, including the shares subject to outstanding options under the
Predecessor Plan, (ii) plus an additional increase of approximately
___________________ shares to be approved by the Corporation's stockholders
prior to the Underwriting Date.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2001, by
an amount equal to ______ percent (___%) of the total number of shares of Common
Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall any such annual increase exceed
_________________ shares.
C. No one person participating in the Plan may receive stock
options, separately exercisable stock appreciation rights and direct stock
issuances for more than _______________ shares of Common Stock in the aggregate
per calendar year.
D. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent (i) those 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 cancelled or
repurchased by the Corporation at the original issue 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 available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
4
<PAGE>
issuance. Shares of Common Stock underlying one or more stock appreciation
rights exercised under Section IV of Article Two, Section III of Article Three,
Section II of Article Five or Section III of Article Six of the Plan shall not
be available for subsequent issuance under the Plan.
E. If any change is 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 by the Plan Administrator to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year, (iii) the number and/or class of securities for which grants
are subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members, (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan, (v) the number and/or class of securities and exercise
price per share in effect under each outstanding option incorporated into this
Plan from the Predecessor Plan and (vi) the maximum number and/or class of
securities by which the share reserve is to increase automatically each calendar
year pursuant to the provisions of Section V.B of this Article One. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
5
<PAGE>
ARTICLE TWO
DISCRETIONARY 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 but shall not be less than one hundred percent (100%) 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 Seven and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the Corporation,
(ii) 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
(iii) 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 instructions to (a) 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) 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.
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
6
<PAGE>
Plan Administrator and set forth in the documents evidencing the option.
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) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan Administrator
and set forth in the documents evidencing the option, but no such option
shall be exercisable after the expiration of the option term.
(ii) Any option held by the Optionee at the time of death and
exercisable in whole or in part at that time may be subsequently exercised
by the personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's will
or the laws of inheritance or by the Optionee's designated beneficiary or
beneficiaries of that option.
(iii) Should the Optionee's Service be terminated for Misconduct
or should the Optionee otherwise engage in Misconduct while holding one or
more outstanding options under this Article Two, then all those options
shall terminate immediately and cease to be outstanding.
(iv) 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 to the extent the option is not otherwise at that time
exercisable for vested shares.
2. The Plan Administrator shall have complete 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 the Optionee's cessation of Service from the limited
exercise 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
7
<PAGE>
(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 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 had the
Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no
------------------
stockholder 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. Repurchase Rights. 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, any or all 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.
F. Limited Transferability of Options. During the lifetime of the
----------------------------------
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or the laws of inheritance
following the Optionee's death. Non-Statutory Options shall be subject to the
same restriction, except that a Non-Statutory Option may be assigned in whole or
in part during the Optionee's lifetime to one or more members of the Optionee's
family or to a trust established exclusively for one or more such family members
or to Optionee's former spouse, to the extent such assignment is in connection
with the Optionee's estate plan or pursuant to a domestic relations order. The
assigned portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for the
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
Notwithstanding the foregoing, the Optionee may also designate one or more
persons as the beneficiary or beneficiaries of his or her outstanding options
under this Article Two, and those options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding those options. Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the Optionee's death.
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 Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall not be subject to the terms of this Section II.
---
8
<PAGE>
A. Eligibility. Incentive Options may only be granted to Employees.
-----------
B. 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 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.
C. 10% Stockholder. If any Employee to whom an Incentive Option is
---------------
granted is a 10% Stockholder, 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, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
exercisable for all the shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. However, an outstanding option shall not become
exercisable on such an accelerated basis if and to the extent: (i) such option
is, in connection with the Corporate Transaction, to be assumed by the 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 at the time of the Corporate Transaction on any shares for which the
option is not otherwise at that time exercisable and provides for subsequent
payout in accordance with the same exercise/vesting schedule applicable to those
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 automatically terminate,
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 to be 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).
9
<PAGE>
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 to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
- --------
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum number and/or
class of securities for which any one person may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under the Plan per calendar year and (iv) the maximum number and/or class of
securities by which the share reserve is to increase automatically each calendar
year. To the extent the actual holders of the Corporation's outstanding Common
Stock receive cash consideration for their Common Stock in consummation of the
Corporate Transaction, the successor corporation may, in connection with the
assumption of the outstanding options under the Discretionary Option Grant
Program, substitute one or more shares of its own common stock with a fair
market value equivalent to the cash consideration paid per share of Common Stock
in such Corporate Transaction.
E. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
such Corporate Transaction, become exercisable for all the shares of Common
Stock at the time subject to those options and may be exercised for any or all
of those shares as fully vested shares of Common Stock, whether or not those
options are to be assumed in the Corporate Transaction. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall not be assignable in connection with such Corporate
Transaction and shall accordingly terminate upon the consummation of such
Corporate Transaction, and the shares subject to those terminated rights shall
thereupon vest in full.
F. The Plan Administrator shall have full power and authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall become exercisable for all the shares of
Common Stock at the time subject to those options in the event the Optionee's
Service is subsequently terminated 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 those options are assumed
and do not otherwise accelerate. In addition, the Plan Administrator may
structure one or more of the Corporation's repurchase rights so that those
rights shall immediately terminate with respect to any shares held by the
Optionee at the time of his or her Involuntary Termination, and the shares
subject to those terminated repurchase rights shall accordingly vest in full at
that time.
10
<PAGE>
G. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
a Change in Control, become exercisable for all the shares of Common Stock at
the time subject to those options and may be exercised for any or all of those
shares as fully vested shares of Common Stock. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall terminate automatically upon the consummation of such
Change in Control, and the shares subject to those terminated rights shall
thereupon vest in full. Alternatively, the Plan Administrator may condition the
automatic acceleration of one or more outstanding options under the
Discretionary Option Grant Program and the termination of one or more of the
Corporation's outstanding repurchase rights under such program upon the
subsequent termination of the Optionee's Service by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of such Change in Control.
H. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.
I. The outstanding options 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 Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or a 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 grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish, to
elect between the exercise of the underlying option for shares of Common
Stock and
11
<PAGE>
the surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (a) the Fair Market Value
(on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (b) the aggregate exercise price payable for such
shares.
(ii) No such option surrender shall be effective unless it
is approved by the Plan Administrator, either at the time of the actual
option surrender or at any earlier time. If the surrender is so approved,
then the distribution to which the Optionee shall be entitled may be made
in shares of Common Stock valued at Fair Market Value on the option
surrender date, in cash, or partly in shares and partly in cash, as the
Plan Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is not approved by the
Plan Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion thereof)
on the option surrender date and may exercise such rights at any time prior
to the later of (a) five (5) business days after the receipt of the
-----
rejection notice or (b) the last day on which the option is otherwise
exercisable in accordance with the terms of the documents evidencing such
option, but in no event may such rights be exercised more than ten (10)
years after the option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited
stock appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each
individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable for a
thirty (30)-day period following such Hostile Take-Over) to surrender each
such option to the Corporation. In return for the surrendered option, the
Optionee shall receive a cash distribution from the Corporation in an
amount equal to the excess of (A) the Take-Over Price of the shares of
Common Stock at the time subject to such option (whether or not the option
is otherwise at that time exercisable for those shares) over (B) the
aggregate exercise price payable for those shares. Such cash distribution
shall be paid within five (5) days following the option surrender date.
(iii) At the time such limited stock appreciation right is
granted, the Plan Administrator shall pre-approve any subsequent exercise of
that right in accordance with the terms of this Paragraph C. Accordingly, no
further approval of the Plan Administrator or the Board shall be required at the
time of the actual option surrender and cash distribution.
12
<PAGE>
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
--------------------------------------
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for such calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely
authorization shall automatically be granted an option under the Salary
Investment Grant Program on the first trading day in January of the calendar
year for which the salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option 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.
A. Exercise Price.
--------------
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) 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 be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock
-----------------------
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
13
<PAGE>
A is the dollar amount by which the Optionee's base salary is to
be reduced for the calendar year pursuant to his or her election under
the Salary Investment Option Grant Program, and
B is the Fair Market Value per share of Common Stock on the
option grant date.
C. Exercise and Term of Options. The option shall become
----------------------------
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Service in the calendar
year for which the salary reduction is in effect. Each option shall have a
maximum term of ten (10) years measured from the option grant date.
D. Effect of Termination of Service. Should the Optionee cease
--------------------------------
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
-------
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or the laws of inheritance or by the designated beneficiary
or beneficiaries of the option. Such right of exercise shall lapse, and the
option shall terminate, upon the earlier of (i) the expiration of the ten
-------
(10)-year option term or (ii) the three (3)-year period measured from the date
of the Optionee's cessation of Service. However, the option shall, immediately
upon the Optionee's cessation of Service for any reason, terminate and cease to
remain outstanding with respect to any and all shares of Common Stock for which
the option is not otherwise at that time exercisable.
III. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully vested shares of Common Stock. Each such outstanding option shall
terminate immediately following the Corporate Transaction, except to the extent
assumed by the successor corporation (or parent thereof) in such Corporate
Transaction. Any option so assumed and shall remain exercisable for the fully
vested shares until the earlier of (i) the expiration of the ten (10)-year
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Service.
14
<PAGE>
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Change in Control,
become exercisable for all the shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. The option shall remain so exercisable until the
earliest to occur of (i) the expiration of the ten (10)-year option term, (ii)
- --------
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Service, (iii) the termination of the option in
connection with a Corporate Transaction or (iv) the surrender of the option in
connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the option is otherwise at the time exercisable for those
shares) over (ii) the aggregate exercise price payable for such shares. Such
cash distribution shall be paid within five (5) days following the surrender of
the option to the Corporation. The Primary Committee shall, at the time the
option with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no further
approval of the Primary Committee or the Board shall be required at the time of
the actual option surrender and cash distribution.
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 the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
--------
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under the Salary Investment Option Grant Program, substitute one or more
shares of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.
E. The grant of options under the Salary Investment Option Grant
Program 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.
15
<PAGE>
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary Investment
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
16
<PAGE>
ARTICLE FOUR
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. Shares of Common Stock may also be
issued under the Stock Issuance Program pursuant to share right awards which
entitle the recipients to receive those shares upon the attainment of designated
performance goals.
A. Purchase Price.
--------------
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Seven,
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. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to receive
those shares upon the attainment of designated performance goals.
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
17
<PAGE>
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.
3. The Participant shall have full stockholder 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 stockholder 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 the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those 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.
6. Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals
established for such awards are not attained. The Plan Administrator, however,
shall have the discretionary authority to issue shares of Common Stock under one
or more outstanding share right awards as to which the designated performance
goals have not been attained.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all 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 to be 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 in the Stock Issuance
Agreement.
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<PAGE>
B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, 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 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).
C. The Plan Administrator shall also have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Stock Issuance Program so that those rights shall automatically terminate in
whole or in part, 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 to exceed eighteen (18) months) following the effective
date of any Change in Control.
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.
19
<PAGE>
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified
-----------
below:
1. Each individual who is first elected or appointed as a
non-employee Board member at any time on or after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase ______________ shares of Common Stock, provided
that individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
2. On the date of each Annual Stockholders Meeting held after
the Underwriting Date, each individual who is to continue to serve as a
non-employee Board member, whether or not that individual is standing for
re-election to the Board at that particular Annual Meeting, shall automatically
be granted a Non-Statutory Option to purchase _________ shares of Common Stock,
provided such individual has served as a non-employee Board member for at least
six (6) months. There shall be no limit on the number of such ___________-share
option grants any one non-employee Board member may receive over his or her
period of Board service, and non-employee Board members who have previously been
in the employ of the Corporation (or any Parent or Subsidiary) or who have
otherwise received one or more stock option grants from the Corporation prior to
the Underwriting Date shall be eligible to receive one or more such annual
option grants over their period of continued Board service.
B. Exercise Price.
--------------
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years
-----------
measured from the option grant date.
D. Exercise and Vesting of Options. Each option shall be
-------------------------------
immediately exercisable for any or all of the option shares. However, any
unvested shares purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's cessation
of Board service prior to vesting in those shares. The shares subject to each
initial ______________-share grant shall vest, and the Corporation's repurchase
20
<PAGE>
right shall lapse, in a series of four (4) successive equal annual installments
upon the Optionee's completion of each year of service as a Board member over
the four (4)-year period measured from the option grant date. The shares subject
to each annual ____________-share option grant shall vest in one installment
upon the Optionee's completion of the one (1)-year period of service measured
from the grant date.
E. Limited Transferability of Options. Each option under this
----------------------------------
Article Five may be assigned in whole or in part during the Optionee's lifetime
to one or more members of the Optionee's family or to a trust established
exclusively for one or more such family members or to Optionee's former spouse,
to the extent such assignment is in connection with the Optionee's estate plan
or pursuant to a domestic relations order. The assigned portion may only be
exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate. The Optionee may also designate one
or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Five, and those options shall, in accordance with
such designation, automatically be transferred to such beneficiary or
beneficiaries upon the Optionee's death while holding those options. Such
beneficiary or beneficiaries shall take the transferred options subject to all
the terms and conditions of the applicable agreement evidencing each such
transferred option, including (without limitation) the limited time period
during which the option may be exercised following the Optionee's death.
F. Termination of Board Service. The following provisions shall
----------------------------
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death,
the personal representative of the Optionee's estate or the person or
persons to whom the option is transferred pursuant to the Optionee's will
or the laws of inheritance or the designated beneficiary or beneficiaries
of such option) shall have a twelve (12)-month period following the date of
such cessation of Board service in which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares of Common Stock for which the option is exercisable at the
time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member
by reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of those shares as fully
vested shares of Common Stock.
21
<PAGE>
(iv) In no event shall the option remain exercisable after
the expiration of the option term. Upon the expiration of the twelve
(12)-month 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 Board service
for any reason other than death or Permanent Disability, terminate and
cease to be outstanding to the extent the option is not otherwise at that
time exercisable for vested shares.
II. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains a Board member, the shares of Common Stock at the time subject to each
outstanding option under this Automatic Option Grant Program but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
exercisable for all the option shares as fully vested shares of Common Stock and
may be exercised for any or all of those vested shares. Immediately following
the consummation of the Corporate Transaction, each automatic option grant shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof).
B. In connection with any Change in Control while the Optionee
remains a Board member, the shares of Common Stock at the time subject to each
outstanding option under this Automatic Option Grant Program but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Change in Control, become
exercisable for all the option shares as fully vested shares of Common Stock and
may be exercised for any or all of those vested shares. Each such option shall
remain exercisable for such fully vested option shares until the expiration or
sooner termination of the option term or the surrender of the option in
connection with a Hostile Take-Over.
C. All outstanding repurchase rights under this under this Automatic
Option Grant Program shall automatically terminate, and the shares of Common
Stock subject to those terminated rights shall immediately vest in full, in the
event of any Corporate Transaction or Change in Control.
D. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding options under this Automatic Option Grant Program. The
Optionee shall in return be entitled to a cash distribution from the Corporation
in an amount equal to the excess of (i) the Take-Over Price of the shares of
Common Stock at the time subject to each surrendered option (whether or not the
Optionee is otherwise at the time vested in those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation. No approval or consent of the Board or any Plan Administrator shall
be required at the time of the actual option surrender and cash distribution.
22
<PAGE>
E. 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 the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
--------
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under the Automatic Option Grant Program, substitute one or more shares
of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.
F. The grant of options under the Automatic Option Grant Program
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.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
23
<PAGE>
ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
---------------------------------
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years for which the Director Fee Option Grant
Program is to be in effect. For each such calendar year the program is in
effect, each non-employee Board member may irrevocably elect to apply all or any
portion of the annual retainer fee otherwise payable in cash for his or her
service on the Board for that year to the acquisition of a special option grant
under this Director Fee Option Grant Program. Such election must be filed with
the Corporation's Chief Financial Officer prior to the first day of the calendar
year for which the annual retainer fee which is the subject of that election is
otherwise payable. Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
the annual retainer fee which is the subject of that election would otherwise be
payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.
A. Exercise Price.
--------------
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) 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 be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock
-----------------------
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to the
non-employee Board member's election under this Director Fee Option
Grant Program, and
24
<PAGE>
B is the Fair Market Value per share of Common Stock on the
option grant date.
C. Exercise and Term of Options. The option shall become
----------------------------
exercisable in a series of twelve (12) equal monthly installments upon the
Optionee's completion of each calendar month of Board service during the
calendar year for which the retainer fee election is in effect. Each option
shall have a maximum term of ten (10) years measured from the option grant date.
D. Limited Transferability of Options. Each option under this
----------------------------------
Article Six may be assigned in whole or in part during the Optionee's lifetime
to one or more members of the Optionee's family or to a trust established
exclusively for one or more such family members or to Optionee's former spouse,
to the extent such assignment is in connection with Optionee's estate plan or
pursuant to a domestic relations order. The assigned portion may only be
exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate. The Optionee may also designate one
or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Six, and those options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding those options. Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the Optionee's death.
E. Termination of Board Service. Should the Optionee cease Board
----------------------------
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
- -------
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
F. Death or Permanent Disability. Should the Optionee's service as
-----------------------------
a Board member cease by reason of death or Permanent Disability, then each
option held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully vested shares until the earlier of (i) the expiration of the ten
-------
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from
25
<PAGE>
the date of such cessation of Board service. To the extent such option is held
by the Optionee at the time of his or death, that option may be exercised by the
personal representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.
Should the Optionee die after cessation of Board service but
while holding one or more options under this Director Fee Option Grant Program,
then each such option may be exercised, for any or all of the shares for which
the option is exercisable at the time of the Optionee's cessation of Board
service (less any shares subsequently purchased by Optionee prior to death), by
the personal representative of the Optionee's estate or by the person or persons
to whom the option is transferred pursuant to the Optionee's will or the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.
Such right of exercise shall lapse, and the option shall terminate, upon the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the three
- -------
(3)-year period measured from the date of the Optionee's cessation of Board
service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully vested shares of Common Stock. Each such outstanding option shall
terminate immediately following the Corporate Transaction, except to the extent
assumed by the successor corporation (or parent thereof) in such Corporate
Transaction. Any option so assumed and shall remain exercisable for the fully
vested shares until the earlier of (i) the expiration of the ten (10)-year
-------
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Board service.
B. In the event of a Change in Control while the Optionee remains a
Board member, each outstanding option held by such Optionee under this Director
Fee Option Grant Program shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all the shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. The option shall remain so exercisable until the
earliest to occur of (i) the expiration of the ten (10)-year option term, (ii)
- --------
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Board service, (iii) the termination of the option in
connection with a Corporate Transaction or (iv) the surrender of the option in
connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be
26
<PAGE>
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the option is otherwise at
the time exercisable for those shares) over (ii) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within five (5)
days following the surrender of the option to the Corporation. No approval or
consent of the Board or any Plan Administrator shall be required at the time of
the actual option surrender and cash distribution.
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 the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
--------
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under the Director Fee Option Grant Program, substitute one or more
shares of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.
E. The grant of options under the Director Fee Option Grant Program
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. REMAINING TERMS
The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
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<PAGE>
ARTICLE SEVEN
MISCELLANEOUS
-------------
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest-bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. In no event may 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 (less the par value of
such 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. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Withholding Taxes to which
such holders may become subject in connection with the exercise of their options
or the vesting of their shares. Such right may be provided to any such holder in
either or both of the following formats:
Stock Withholding: The election to have the Corporation
-----------------
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
Stock Delivery: The election to deliver to the Corporation, at
--------------
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
28
<PAGE>
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately on the Plan Effective
Date. However, the Salary Investment Option Grant Program and the Director Fee
Option Grant Program shall not be implemented until such time as the Primary
Committee may deem appropriate. Options may be granted under the Discretionary
Option Grant at any time on or after the Plan Effective Date, and the initial
option grants under the Automatic Option Grant Program shall also be made on the
Plan Effective Date to any non-employee Board members eligible for such grants
at that time. However, no options granted under the Plan may be exercised, and
no shares shall be issued under the Plan, until the Plan is approved by the
Corporation's stockholders. If such stockholder approval is not obtained within
twelve (12) months after the Plan Effective Date, then all options previously
granted under this Plan shall terminate and cease to be outstanding, and no
further options shall be granted and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding under
the Predecessor Plan on the Plan Effective Date shall be incorporated into the
Plan at that time and shall be treated as outstanding options under the Plan.
However, each outstanding option so incorporated shall continue to be governed
solely by the terms of the documents evidencing such option, and no provision of
the Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of such incorporated options with respect to their acquisition of
shares of Common Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest to occur of (i)
--------
____________, (ii) the date on which all shares available for issuance under the
Plan shall have been issued as fully vested shares or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Should the
Plan terminate on ______________, then all option grants and unvested stock
issuances outstanding at that time shall continue to have force and effect in
accordance with the provisions of the documents evidencing such grants or
issuances.
IV. 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 stock 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 stockholder approval
pursuant to applicable laws or regulations.
29
<PAGE>
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under those programs
shall be held in escrow until there is obtained stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under the Plan. If such stockholder 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.
V. 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.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted 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 stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/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.
30
<PAGE>
APPENDIX
---------
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option
------------------------------
grant program in effect under Article Five of the Plan.
B. Board shall mean the Corporation's Board of Directors.
-----
C. Change in Control shall mean a change in ownership or control of
-----------------
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person
or related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period
of thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
----
E. Common Stock shall mean the Corporation's common stock.
------------
F. Corporate Transaction shall mean either of the following
---------------------
stockholder-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.
A-1.
<PAGE>
G. Corporation shall mean oCen Communications, Inc., a Delaware
-----------
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of oCen Communications, Inc. which shall by appropriate
action adopt the Plan.
H. Director Fee Option Grant Program shall mean the special stock
---------------------------------
option grant in effect for non-employee Board members under Article Six of the
Plan.
I. Discretionary Option Grant Program shall mean the discretionary
----------------------------------
option grant program in effect under Article Two of the Plan.
J. 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.
K. Exercise Date shall mean the date on which the Corporation shall
-------------
have received written notice of the option exercise.
L. 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 and published in The Wall Street Journal. 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.
(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 and published in The Wall Street Journal. 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) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal to the
price per share at which the Common Stock is to be sold in the initial public
offering pursuant to the Underwriting Agreement.
A-2.
<PAGE>
M. Hostile Take-Over shall mean the acquisition, directly or
-----------------
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
N. Incentive Option shall mean an option which satisfies the
----------------
requirements of Code Section 422.
O. 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 duties and responsibilities or the level of management to which
he or she reports, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and target bonus 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 by the Corporation without the
individual's consent.
P. 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).
Q. 1934 Act shall mean the Securities Exchange Act of 1934, as
--------
amended.
R. Non-Statutory Option shall mean an option not intended to
--------------------
satisfy the requirements of Code Section 422.
S. Optionee shall mean any person to whom an option is granted
--------
under the Discretionary Option Grant, Salary Investment Option Grant, Automatic
Option Grant or Director Fee Option Grant Program.
A-3.
<PAGE>
T. 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.
U. Participant shall mean any person who is issued shares of Common
-----------
Stock under the Stock Issuance Program.
V. Permanent Disability or Permanently Disabled 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 expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
W. Plan shall mean the Corporation's 2000 Stock Incentive Plan, as
----
set forth in this document.
X. Plan Administrator shall mean the particular entity, whether the
------------------
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Y. Plan Effective Date shall mean the date the Plan shall become
-------------------
effective and shall be coincident with the Underwriting Date.
Z. Predecessor Plan shall mean the Corporation's 1998 Stock
----------------
Option/Stock Issuance Plan in effect immediately prior to the Plan Effective
Date hereunder.
AA. Primary Committee shall mean the committee of two (2) or more
-----------------
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate in
such program.
BB. Salary Investment Option Grant Program shall mean the salary
--------------------------------------
investment option grant program in effect under Article Three of the Plan.
CC. Secondary Committee shall mean a committee of one or more Board
-------------------
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
A-4.
<PAGE>
DD. Section 16 Insider shall mean an officer or director of the
------------------
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
EE. Service shall mean the performance of services for 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 or stock issuance.
FF. Stock Exchange shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
GG. 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.
HH. Stock Issuance Program shall mean the stock issuance program in
----------------------
effect under Article Four of the Plan.
II. 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.
JJ. Take-Over Price shall mean the greater of (i) the Fair Market
--------------- -------
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
KK. 10% Stockholder 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).
LL. Underwriting Agreement shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
MM. Underwriting Date shall mean the date on which the Underwriting
-----------------
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
NN. Withholding Taxes shall mean the Federal, state and local income
-----------------
and employment withholding taxes to which the holder of Non-Statutory Options or
unvested shares of Common Stock may become subject in connection with the
exercise of those options or the vesting of those shares.
A-5.
<PAGE>
Exhibit 10.11
OCEN COMMUNICATIONS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of oCen Communications, Inc., a Delaware corporation, by providing eligible
employees with the opportunity to acquire a proprietary interest in the
Corporation through participation in a payroll deduction-based employee stock
purchase plan designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market. The number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall be limited to
_______________ shares.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2001, by
an amount equal to _____ percent (__%) of the total number of shares of Common
Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall any such annual increase exceed
________________ shares.
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 class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date, (iii) the maximum number and class of
securities purchasable in total by all Participants on any one Purchase Date,
(iv) the maximum number
<PAGE>
and/or class of securities by which the share reserve is to increase
automatically each calendar year pursuant to the provisions of Section III.B of
this Article One and (v) the number and class of securities and the price per
share in effect under each outstanding purchase right in order to prevent the
dilution or enlargement of benefits thereunder.
IV. OFFERING PERIOdS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date of such offering period. However, the initial offering period shall
commence at the Effective Time and terminate on the last business day in January
2002. The next offering period shall commence on the first business day in
February 2002, and subsequent offering periods shall commence as designated by
the Plan Administrator.
C. Each offering period shall consist of a series of one or more
successive Purchase Intervals. Purchase Intervals shall run from the first
business day in February to the last business day in July each year and from the
first business day in August each year to the last business day in January in
the following year. However, the first Purchase Interval in effect under the
initial offering period shall commence at the Effective Time and terminate on
the last business day in July 2000.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date of
any offering period under the Plan may enter that offering period on such start
date or on any subsequent Semi-Annual Entry Date within that offering period,
provided he or she remains an Eligible Employee.
B. Each individual who first becomes an Eligible Employee after the
start date of an offering period may enter that offering period on any
subsequent Semi-Annual Entry Date within that offering period on which he or she
is an Eligible Employee.
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
2.
<PAGE>
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes
of acquiring shares of Common Stock during an offering period may be any
multiple of one percent (1%) of the Cash Earnings paid to the Participant during
each Purchase Interval within that offering period, up to a maximum of [fifteen
percent (15%)]. The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines:
(i) The Participant may, at any time during the offering period,
reduce his or her rate of payroll deduction to become effective as soon as
possible after filing the appropriate form with the Plan Administrator. The
Participant may not, however, effect more than one (1) such reduction per
Purchase Interval.
(ii) The Participant may, prior to the commencement of any new
Purchase Interval within the offering period, increase the rate of his or
her payroll deduction by filing the appropriate form with the Plan
Administrator. The new rate (which may not exceed the fifteen percent (15%)
maximum) shall become effective on the start date of the first Purchase
Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day
administratively feasible following the Participant's Entry Date into the
offering period and shall (unless sooner terminated by the Participant) continue
through the pay day ending with or immediately prior to the last day of that
offering period. The amounts so collected shall be credited to the Participant's
book account under the Plan, but no interest shall be paid on the balance from
time to time outstanding in such account. The amounts collected from the
Participant shall not be required to be held in any segregated account or trust
fund and may be commingled with the general assets of the Corporation and used
for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of the
Plan.
D. The Participant's acquisition of Common Stock under the Plan on
any Purchase Date shall neither limit nor require the Participant's acquisition
of Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.
VII. PURCHASE RIGHTS
A. Grant of Purchase Rights. A Participant shall be granted a
------------------------
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive installments over
the remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
3.
<PAGE>
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or any Corporate Affiliate.
B. Exercise of the Purchase Right. Each purchase right shall be
------------------------------
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant on each such Purchase Date. The purchase shall be
effected by applying the Participant's payroll deductions for the Purchase
Interval ending on such Purchase Date to the purchase of whole shares of Common
Stock at the purchase price in effect for the Participant for that Purchase
Date.
C. Purchase Price. The purchase price per share at which Common
--------------
Stock will be purchased on the Participant's behalf on each Purchase Date within
the offering period shall be equal to eighty-five percent (85%) of the lower of
(i) the Fair Market Value per share of Common Stock on the Participant's Entry
Date into that offering period or (ii) the Fair Market Value per share of Common
Stock on that Purchase Date.
D. Number of Purchasable Shares. The number of shares of Common
----------------------------
Stock purchasable by a Participant on each Purchase Date during the offering
period shall be the number of whole shares obtained by dividing the amount
collected from the Participant through payroll deductions during the Purchase
Interval ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed ___________ shares, subject to periodic adjustments in the event of
certain changes in the Corporation's capitalization. In addition, the maximum
number of shares of Common Stock purchasable in total by all Participants on any
one Purchase Date shall not exceed ____________ shares, subject to periodic
adjustments in the event of certain changes in the Corporation's capitalization.
However, the Plan Administrator shall have the discretionary authority,
exercisable prior to the start of any offering period under the Plan, to
increase or decrease the limitations to be in effect for the number of shares
purchasable per Participant and in total by all Participants on each Purchase
Date during that offering period.
E. Excess Payroll Deductions. Any payroll deductions not applied
-------------------------
to the purchase of shares of Common Stock on any Purchase Date because they are
not sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable per Participant or in
total by all Participants on the Purchase Date shall be promptly refunded.
4.
<PAGE>
F. Termination of Purchase Right. The following provisions shall
-----------------------------
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next scheduled
Purchase Date in the offering period, terminate his or her outstanding
purchase right by filing the appropriate form with the Plan Administrator
(or its designate), and no further payroll deductions shall be collected
from the Participant with respect to the terminated purchase right. Any
payroll deductions collected during the Purchase Interval in which such
termination occurs shall, at the Participant's election, be immediately
refunded or held for the purchase of shares on the next Purchase Date. If
no such election is made at the time such purchase right is terminated,
then the payroll deductions collected with respect to the terminated right
shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the offering
period for which the terminated purchase right was granted. In order to
resume participation in any subsequent offering period, such individual
must re-enroll in the Plan (by making a timely filing of the prescribed
enrollment forms) on or before his or her scheduled Entry Date into that
offering period.
(iii) Should the Participant cease to remain an Eligible Employee
for any reason (including death, disability or change in status) while his
or her purchase right remains outstanding, then that purchase right shall
immediately terminate, and all of the Participant's payroll deductions for
the Purchase Interval in which the purchase right so terminates shall be
immediately refunded. However, should the Participant cease to remain in
active service by reason of an approved unpaid leave of absence, then the
Participant shall have the right, exercisable up until the last business
day of the Purchase Interval in which such leave commences, to (a) withdraw
all the payroll deductions collected to date on his or her behalf for that
Purchase Interval or (b) have such funds held for the purchase of shares on
his or her behalf on the next scheduled Purchase Date. In no event,
however, shall any further payroll deductions be collected on the
Participant's behalf during such leave. Upon the Participant's return to
active service (x) within ninety (90) days following the commencement of
such leave or (y) prior to the expiration of any longer period for which
such Participant's right to reemployment with the Corporation is guaranteed
by statute or contract, his or her payroll deductions under the Plan shall
automatically resume at the rate in effect at the time the leave began,
unless the Participant withdraws from the Plan prior to his or her return.
An individual who returns to active employment following a leave of absence
that exceeds in duration the applicable (x) or (y) time period will be
treated as a new Employee for purposes of subsequent participation in the
Plan and must accordingly re-enroll in the Plan (by making a timely filing
of the prescribed enrollment forms) on or before his or her scheduled Entry
Date into the offering period.
5.
<PAGE>
G. Change in Control. Each outstanding purchase right shall
-----------------
automatically be exercised, immediately prior to the effective date of any
Change in Control, by applying the payroll deductions of each Participant for
the Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) of the lower of (i) the Fair Market Value per share of Common
Stock on the Participant's Entry Date into the offering period in which such
Change in Control occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Change in Control. However, the
applicable limitation on the number of shares of Common Stock purchasable per
Participant shall continue to apply to any such purchase, but not the limitation
applicable to the maximum number of shares of Common Stock purchasable in total
by all Participants on any one Purchase Date.
The Corporation shall use its best efforts to provide at least ten
(10) days' prior written notice of the occurrence of any Change in Control, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.
H. Proration of Purchase Rights. Should the total number of shares
----------------------------
of Common Stock to be purchased pursuant to outstanding purchase rights on any
particular date exceed the number of shares then available for issuance under
the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. Assignability. The purchase right shall be exercisable only by
-------------
the Participant and shall not be assignable or transferable by the Participant.
J. Stockholder Rights. A Participant shall have no stockholder
------------------
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right granted under this Plan and (ii)
similar rights accrued under other employee stock purchase plans (within the
meaning of Code Section 423)) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000.00) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value per share on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.
B. For purposes of applying such accrual limitations to the
purchase rights granted under the Plan, the following provisions shall be in
effect:
6.
<PAGE>
(i) The right to acquire Common Stock under each outstanding
purchase right shall accrue in a series of installments on each successive
Purchase Date during the offering period on which such right remains
outstanding.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire Common Stock under
one or more other purchase rights at a rate equal to Twenty-Five Thousand
Dollars ($25,000.00) worth of Common Stock (determined on the basis of the
Fair Market Value per share on the date or dates of grant) for each
calendar year such rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Interval, then the payroll
deductions that the Participant made during that Purchase Interval with respect
to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on ___________, 2000, and shall
become effective at the Effective Time, provided no purchase rights granted
under the Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such stockholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect, and all sums collected from Participants during
the initial offering period hereunder shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest of (i) the last business day in January 2010, (ii) the date on
which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on which
all purchase rights are exercised in connection with a Change in Control. No
further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following such termination.
7.
<PAGE>
X. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or terminate the Plan at any
time to become effective immediately following the close of any Purchase
Interval. However, the Plan may be amended or terminated immediately upon Board
action, if and to the extent necessary to assure that the Corporation will not
recognize, for financial reporting purposes, any compensation expense in
connection with the shares of Common Stock offered for purchase under the Plan,
should the financial accounting rules applicable to the Plan at the Effective
Time be subsequently revised so as to require the Corporation to recognize
compensation expense in the absence of such amendment or termination.
B. In no event may the Board effect any of the following amendments
or revisions to the Plan without the approval of the Corporation's stockholders:
(i) increase the number of shares of Common Stock issuable under the Plan,
except for permissible adjustments in the event of certain changes in the
Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan or (iii) modify the eligibility requirements for participation in
the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation; however, each Plan Participant shall bear all
costs and expenses incurred by such individual in the sale or other disposition
of any shares purchased under the Plan.
B. Nothing in the Plan shall confer upon the Participant any right
to continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
C. The provisions of the Plan shall be governed by the laws of the
State of New York without resort to that State's conflict-of-laws rules.
8.
<PAGE>
Schedule A
Corporations Participating in
Employee Stock Purchase Plan
As of the Effective Time
------------------------
oCen Communications, Inc.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
-----
B. Cash Earnings shall mean (i) the regular base salary paid to a
-------------
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan plus (ii)
all overtime payments, bonuses, commissions, profit-sharing distributions and
other incentive-type payments received during such period. Such Cash Earnings
shall be calculated before deduction of (A) any income or employment tax
withholdings or (B) any contributions made by the Participant to any Code
Section 401(k) salary deferral plan or any Code Section 125 cafeteria benefit
program now or hereafter established by the Corporation or any Corporate
Affiliate. However, Cash Earnings shall not include any contributions made by
the Corporation or any Corporate Affiliate on the Participant's behalf to any
employee benefit or welfare plan now or hereafter established (other than Code
Section 401(k) or Code Section 125 contributions deducted from such Cash
Earnings).
C. Change in Control shall mean a change in ownership of the
-----------------
Corporation pursuant to any of the following transactions:
(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 assets of the Corporation in complete liquidation
or dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly, by a person or
related group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by or is under common control with the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's stockholders.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
----
E. Common Stock shall mean the Corporation's common stock.
------------
A-1
<PAGE>
F. Corporate Affiliate shall mean any parent or subsidiary
-------------------
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
G. Corporation shall mean oCen Communications, Inc., a Delaware
-----------
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of oCen Communications, Inc. that shall by appropriate
action adopt the Plan.
H. Effective Time shall mean the time at which the Underwriting
--------------
Agreement is executed and the Common Stock priced for the initial public
offering of such Common Stock. Any Corporate Affiliate that becomes a
Participating Corporation after such Effective Time shall designate a subsequent
Effective Time with respect to its employee-Participants.
I. Eligible Employee shall mean any person who is employed by a
-----------------
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section 3401
(a).
J. Entry Date shall mean the date an Eligible Employee first
----------
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time.
K. 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 and published in The Wall Street Journal. 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.
(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 and published in The Wall Street Journal. 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) For purposes of the initial offering period that begins at
the Effective Time, the Fair Market Value shall be deemed to be equal to the
price per share at which the Common Stock is sold in the initial public offering
pursuant to the Underwriting Agreement.
A-2.
<PAGE>
L. 1933 Act shall mean the Securities Act of 1933, as amended.
--------
M. Participant shall mean any Eligible Employee of a Participating
-----------
Corporation who is actively participating in the Plan.
N. Participating Corporation shall mean the Corporation and such
-------------------------
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan are listed in attached Schedule A.
O. Plan shall mean the Corporation's 2000 Employee Stock Purchase
----
Plan, as set forth in this document.
P. Plan Administrator shall mean the committee of two (2) or more
------------------
Board members appointed by the Board to administer the Plan.
Q. Purchase Date shall mean the last business day of each Purchase
-------------
Interval. The initial Purchase Date shall be July 31, 2000.
R. Purchase Interval shall mean each successive six (6)-month
-----------------
period within the offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant.
S. Semi-Annual Entry Date shall mean the first business day in
----------------------
February and August each year on which an Eligible Employee may first enter an
offering period.
T. Stock Exchange shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
U. Underwriting Agreement shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-3.
<PAGE>
Exhibit 10.13
OCEN COMMUNICATIONS, INC.
---------------
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
---------------
January __, 2000
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
1. Registration Rights................................................................................... 1
1.1 Definitions..................................................................................... 1
1.2 Request for Registration........................................................................ 2
1.3 Company Registration............................................................................ 4
1.4 Obligations of the Company...................................................................... 4
1.5 Furnish Information............................................................................. 6
1.6 Expenses of Demand Registration................................................................. 6
1.7 Expenses of Company Registration................................................................ 7
1.8 Underwriting Requirements....................................................................... 7
1.9 Delay of Registration........................................................................... 8
1.10 Indemnification................................................................................. 8
1.11 Reports Under Securities Exchange Act of 1934................................................... 9
1.12 Form S-3 Registration........................................................................... 10
1.13 Limitations on Subsequent Registration Rights................................................... 11
1.14 "Market Stand-Off" Agreement.................................................................... 11
1.15 Termination of Registration Rights.............................................................. 12
2. Right Of First Offer.................................................................................. 12
2.1 Company Requirements............................................................................ 12
2.2 Termination..................................................................................... 13
3. Right of First Refusal................................................................................ 14
4. Information Rights.................................................................................... 14
4.1 Financial Information........................................................................... 14
4.2 Inspection Rights............................................................................... 15
4.3 Termination of Information Rights............................................................... 15
5. Assignment of Rights.................................................................................. 15
5.1 Assignment...................................................................................... 15
6. Miscellaneous......................................................................................... 16
6.1 Successors and Assigns.......................................................................... 16
6.2 Governing Law................................................................................... 16
6.3 Counterparts.................................................................................... 16
6.4 Titles and Subtitles............................................................................ 16
6.5 Notices......................................................................................... 16
6.6 Expenses........................................................................................ 16
6.7 Amendments and Waivers.......................................................................... 16
6.8 Severability.................................................................................... 16
6.9 Aggregation of Stock............................................................................ 17
6.10 Entire Agreement; Superseding Effect............................................................ 17
</TABLE>
i.
<PAGE>
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
------------------------------------------------
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT is made as of
the ____ day of January, 2000, by and among oCen Communications, Inc., a
California corporation (the "Company"), and the parties listed on Schedule A
hereto (collectively, the "Investors" and each individually, an "Investor").
RECITALS
--------
WHEREAS, the Company and certain of the Investors (the "Series A, B
and C Investors") are parties to an Amended and Restated Investors' Rights
Agreement dated as of November __, 1999 (the "Investors' Rights Agreement"), and
wish to amend and restate the Investors' Rights Agreement upon the terms and
condition set forth herein.
WHEREAS, the Company and certain of the Investors (the "Series D
Investors") are parties to the Series D Preferred Stock Purchase Agreement of
even date herewith (the "Series D Agreement"); and
WHEREAS, in order to induce the Company to enter into the Series D
Agreement and to induce the Series D Investors to invest funds in the Company
pursuant to the Series D Agreement, the Series A, B and C Investors and the
Company hereby agree that this Agreement shall govern the rights of the
Investors to cause the Company to register shares of Common Stock issuable to
the Investors and certain other matters as set forth herein;
NOW, THEREFORE, the parties hereby agree as follows:
1. Registration Rights. The Company covenants and agrees as follows:
-------------------
1.1 Definitions. For purposes of this Agreement:
-----------
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Common Stock" means the common stock, $0.001 par value,
of the Company.
(c) 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.
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 5 hereof.
(e) The term "1934 Act" means the Securities Exchange Act of 1934, as
amended.
<PAGE>
(f) The term "Preferred Stock" means the Series A Preferred Stock,
$0.001 par value, of the Company, the Series B Preferred Stock, $0.001 par
value, of the Company, the Series C Preferred Stock, $.001 par value, of the
Company and the Series D Preferred Stock, $0.001 par value, of the Company.
(g) The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing with the SEC a registration
statement or similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(h) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Preferred Stock, (ii) Common Stock
issued to the Investors prior to the date of this Agreement; provided, however,
that such Common Stock shall not be deemed Registrable Securities for purposes
of Section 1.2 and (iii) 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) and (ii) above, excluding in
all cases, however, any Registrable Securities sold by a person in a transaction
in which such person's rights under this Section 1 are not assigned.
(i) 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.
(j) 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)
January __, 2003 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 issuance 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 at
least fifty percent (50%) of the Registrable Securities then outstanding that
the Company file a registration statement under the Act covering the
registration of at least fifty percent (50%) of the Registrable Securities then
outstanding (or any lesser percentage if the aggregate gross proceeds from the
offering exceed $10,000,000) 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 which the Holders
request to be registered, subject to the limitations of subsection 1.2(b),
within twenty (20) days of the mailing of such notice by the Company in
accordance with Section 6.5.
2.
<PAGE>
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to subsection 1.2(a) and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by the Company and shall be reasonably
acceptable to a majority in interest of the Initiating Holders. In such event,
the right of any Holder to include such Holder's Registrable Securities in such
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 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 Initiating Holders 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 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; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore beneficial 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 one hundred twenty
(120) days after receipt of the request of the Initiating Holders; provided,
however, that the Company may not utilize this right more than twice in any
twelve-month period.
(d) In addition, 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 one registration pursuant to
this Section 1.2 and such registration has been declared or ordered effective;
(ii) During the period starting with the date ninety (90) 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 that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
3.
<PAGE>
(iii) If the Initiating Holders propose to dispose of shares of
Registrable Securities that may be immediately registered on Form S-3 pursuant
to a request made pursuant to Section 1.12 below.
1.3 Company Registration. If 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 a registration relating solely to the sale of securities to
participants in a Company stock option plan, stock purchase plan, a registration
on any form which does not include substantially the same information as would
be required to be included in a registration statement covering the sale of the
Registrable Securities), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 6.5, the Company shall, subject to the provisions of
Section 1.8, use its best efforts to 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
--------------------------
Section 1 to effect the registration of 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 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 an underwriter of Common Stock
(or other securities) of the Company; 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
4.
<PAGE>
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 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.
(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
hereunder 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 hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 1, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 1, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
(j) In the event that the Underwriters' Representatives establish a
directed share program (the "Program") in connection with the Company's initial
registered offering, subject to applicable law and NASD requirements, the
Company shall use its reasonable best
5.
<PAGE>
efforts to offer to each Investor holding more than 1,000,000 shares of
Preferred Stock (a "Significant Investor") the opportunity to participate in the
Program (shares subject to the Program are hereinafter referred to as the
"Directed Shares"); provided, however, that in no event shall the aggregate
-----------------
number of Directed Shares exceed five (5) percent of the total number of shares
to be sold in the initial registered offering (excluding the number of shares,
if any, to be sold in connection with the exercise of the over-allotment option
by the Underwriters' Representatives), and provided further, that the
participation of any Significant Investor in the Program is conditioned upon the
approval of such participation by the Underwriters' Representatives and the
NASD. The number of Directed Shares that shall be allocated to each such
Significant Investor shall be calculated on a pro rata basis, so that each
Significant Investor shall have the option to purchase all or any part of that
number of Directed Shares equal to the product obtained by multiplying (i) the
aggregate number of Directed Shares by (ii) a fraction, the numerator of which
is the total number of outstanding shares of Preferred Stock (stated on an as-
converted basis, and as adjusted for stock splits, stock dividends,
recapitalizations and the like) held by such Significant Investor immediately
prior to the effectiveness of the Company's initial registered offering and the
denominator of which is the total number of shares of the Company's Preferred
Stock outstanding (stated on an as-converted basis, and as adjusted for stock
splits, stock dividends, recapitalizations and the like) and Common Stock (as
adjusted for stock splits, stock dividends, recapitalizations and the like)
immediately prior to the effectiveness of the Company's initial registered
offering. Each such Significant Investor shall have the option, but not the
obligation, to purchase the number of Directed Shares (as calculated pursuant to
the formula set forth in the preceding sentence) at the price per share at which
such shares are sold to the public in such registration.
1.5 Furnish Information. 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.
1.6 Expenses of Demand Registration. All expenses, other than
-------------------------------
underwriting discounts and commissions and fees and expenses of counsel to the
Holders 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, and fees and
disbursements of counsel for the Company shall be borne by the Company, except
that the Company shall be required to pay up to but no more than $15,000 of the
fees and expenses incurred by one special legal counsel to such selling Holders,
any additional expenses or fees incurred by the special counsel to the selling
Holders shall be borne pro rata by such selling Holders; 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 of the
Registrable Securities to be registered (in which case all participating Holders
shall bear such expenses on a pro rata basis), unless the Holders of a majority
of the Registrable Securities agree to forfeit their right to their demand
registration pursuant to Section 1.2; provided further, however, that if at the
time of such withdrawal, the Holders have learned of a material adverse change
in the condition, business, or prospects of the Company from that known to the
Holders at the time of their
6.
<PAGE>
request and have withdrawn the request with reasonable promptness following
disclosure by the Company of such material adverse change, then the 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 the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto selected by them and up to $15,000 of the fees and expenses of one
special counsel to such Holders, but excluding underwriting discounts and
commissions and taxes relating to 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'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters 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 than the underwriters determine in their sole discretion is
compatible with the success of the offering, then in such event 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;
provided, however that any such limitation by the underwriters will be
apportioned as follows: (i) first the Common Stock held by officers, directors
or affiliates of the Company will be excluded from the registration, (ii) next
the securities other than Registrable Securities will be excluded from the
registration and (iii) last the Registrable Securities requested to be
registered by the Holders shall be excluded from such registration to the extent
required by the underwriters. If a limitation of the number of shares is still
required, the number of shares of Registrable Securities that may be included in
the registration and underwriting shall be allocated among all Holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities requested for inclusion in such Registration held by such Holders at
the time of filing the registration statement. No Registrable Securities or
other securities excluded from the underwriting by reason of this Section 1.8
shall be included in such registration statement. For purposes of the preceding
sentence 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. Notwithstanding the
foregoing, in the case of any registered public offering subsequent to the
Company's initial public offering, the number of Registrable Securities included
in such registration and underwriting shall not be reduced below 25% of the
securities included in such registration.
7.
<PAGE>
1.9 Delay of Registration. No Holder shall have any right to obtain
---------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.10 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
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 reimburse 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 1.10(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 for use in connection with such registration by
any such Holder, underwriter or controlling 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 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 1.10(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 1.10(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,
8.
<PAGE>
that, in no event shall any indemnity under this subsection 1.10(b) exceed the
gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.10 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 1.10, 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
1.10, 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 1.10.
(d) If the indemnification provided for in this Section 1.10 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 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
1.10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.11 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
9.
<PAGE>
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 ninety (90) 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, 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 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company), 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 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.
1.12 Form S-3 Registration. In case the Company shall receive from
---------------------
any Holder or Holders holding Registrable Securities 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) use its best efforts to effect, as soon as practicable, 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 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 1.12: (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 Registrable
Securities and such other securities (if
10.
<PAGE>
any) at an aggregate price to the public of less than $1,000,000; (3) if the
Company shall furnish to the Holders a certificate signed by the 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 one hundred twenty (120) days after
receipt of the request of the Holder or Holders under this Section 1.12;
provided, however, that the Company shall not utilize this right more than twice
in any twelve month period; (4) if the Company has, within the twelve (12) month
period preceding the date of such request, already effected two registrations on
Form S-3 for the Holders pursuant to this Section 1.12; 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.
(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
of the Holders. All expenses incurred in connection with the registrations
requested pursuant to Section 1.12, including (without limitation) all
registration, filing, qualification, printer's and accounting fees and the fees
and disbursements of counsel for the Holders, but excluding any underwriters'
discounts or commissions and taxes, shall be borne pro rata by each of the
selling Holders. Registrations effected pursuant to this Section 1.12 shall not
be counted as demands for registration or registrations effected pursuant to
Sections 1.2 or 1.3, respectively.
(d) The Company shall not be obligated to effect any registration
pursuant to this Section 1.12 if the Company delivers to the Holders requesting
registration under this Section 1.12 an opinion, in form and substance
acceptable to such Holders, of counsel satisfactory to such Holders, that the
Registrable Securities so requested to be registered may be sold or transferred
pursuant to Rule 144(k) under the Act.
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 a majority of the outstanding Registrable Securities,
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 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 prior to the earlier of either of the dates set forth in subsection
1.2(a) or 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. The Investor hereby agrees that,
----------------------------
during the period of duration specified by the Company and an underwriter of
Common Stock or other securities of the Company, following the effective date of
the first registration statement of the Company filed under the Act, it shall
not, to the extent requested by the Company and such underwriter, directly or
indirectly sell, offer to sell, contract to sell (including, without limitation,
11.
<PAGE>
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:
(a) all executive officers and directors of the Company enter into
similar agreements; and
(b) such market stand-off time period shall not exceed 180 days.
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-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction on Form S-14 or Form S-15 or similar forms which may be promulgated
in the future.
1.15 Termination of Registration Rights. No Holder shall be entitled
----------------------------------
to exercise any right provided for in this Section 1 after three (3) years
following the consummation of the sale of securities pursuant to a registration
statement filed by the Company under the Act in connection with the initial firm
commitment underwritten offering of its securities to the general public at a
price per share of at least $9.37 (such offering price being subject to
proportional adjustment to reflect subdivisions, combinations, stock dividends
and similar transactions affecting the number of outstanding shares of Common
Stock) for aggregate gross offering proceeds to the Company (calculated before
deduction of underwriters' discounts and commissions) of at least $10,000,000,
or, with respect to any individual Holder or its transferee, when all
Registrable Securities held by such Holder may be sold under Rule 144 within a
given 90-day period.
2. Right Of First Offer. Subject to the terms and conditions
--------------------
specified in this Section 2, the Company hereby grants to each Investor holding
at least 500,000 shares of Registrable Securities a right of first offer with
respect to future sales by the Company of its Shares (as hereinafter defined).
For purposes of this Section 2, Investors include any affiliates of the
Investors and any party to whom such Investor's rights under this Section 2 have
been duly assigned in accordance with Section 5 hereof. The Investors shall be
entitled to apportion the right of first offer hereby granted it among itself
and its affiliates in such proportions as it deems appropriate.
2.1 Company Requirements. Each time the Company sells or otherwise
transfers 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 the Investors in accordance with the
following provisions:
(a) The Company shall deliver a notice by certified mail ("Notice")
to the Investors stating (i) its bona fide intention to offer such Shares, (ii)
the number of such Shares to
12.
<PAGE>
be offered, (iii) the price and terms, if any, upon which it proposes to offer
such Shares and (iv) the identity of proposed purchasers of the Shares.
(b) Within 10 days after giving of the Offer Notice, each Investor
may elect to purchase or obtain, at the price and on the terms specified in the
Offer Notice, up to that portion of the number of such Shares which equals the
proportion that the number of shares of Common Stock issued and held (assuming
conversion of the Preferred Stock then held), by such Investor bears to the
total number of shares of Common Stock issued and held (assuming conversion of
the Preferred Stock then held), by all of the Investors. In the event an
Investor fails to purchase such Investor's pro rata amount under the terms of
this Section 2, the Company shall promptly, in writing, inform the other
Investors electing to purchase their respective pro rata amounts. During the 10
day period commencing after receipt of such information, such other Investors
shall be entitled to obtain that portion of the Shares not so subscribed for
subject to the limitations in the first sentence of this paragraph.
(c) If all Shares are not elected to be obtained as provided in
subsection 2(b) hereof, the Company may, during the sixty (60) day period
following the expiration of the period provided in subsection 2(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 sell the Shares within
such period, the right provided hereunder shall be deemed to be revived and such
Shares shall not be offered unless first reoffered to the Investors in
accordance herewith.
(d) The right of first offer in this paragraph 2 shall not be
applicable (i) to or after consummation of a bona fide, firmly underwritten
public offering of shares of Common Stock, registered under the Act pursuant to
a registration statement; (ii) the issuance of securities pursuant to the
conversion or exercise of convertible or exercisable securities provided that
such securities were offered to the Investors under this Section 2.1 or were
outstanding, or issued, on the date of this Agreement; (iii) 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 approved by the Board of Directors; (iv) the issuance of
securities in connection with an equipment financing, a joint venture, a
partnership agreement, bank financings or lease lines approved by the Board of
Directors; or (v) the issuance of stock, warrants or other securities or rights
to service providers or employees as equity compensation.
(e) From and after the date of this Agreement, the Company shall not,
without the prior written consent of the Holders of a majority of the
outstanding Registrable Securities, 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 right of first offer which is, in the good faith
judgment of the Board of Directors of the Company, on terms more favorable to
such Holder or prospective Holder than the right of first refusal granted in
this Section 2.
2.2 Termination. This right of first offer shall terminate (i)
-----------
immediately following the consummation of the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
initial firm commitment underwritten offering of its securities to the general
public at a price per share of at least $4.20 (such offering price being subject
to proportional adjustment to reflect subdivisions, combinations, stock
dividends
13.
<PAGE>
and similar transactions affecting the number of outstanding shares of Common
Stock) for aggregate gross offering proceeds to the Company (calculated before
deduction of underwriters' discounts and commissions) of at least $10,000,000,
or (ii) upon (a) the acquisition of all or substantially all the assets of the
Company or (b) an acquisition of the Company by another corporation or entity by
consolidation or merger in which the holders of the Company's outstanding voting
stock immediately prior to such transaction own, immediately after such
transaction, securities representing less than 50% or more of the voting power
of the corporation or other entity surviving such transaction.
3. Right of First Refusal.
----------------------
Each Investor hereby reaffirms that, pursuant to that certain Amended
and Restated Co-Sale Agreement dated the date hereof by and between the Company,
certain Founders (as defined therein) and certain Investors (as defined therein)
(the "Co-Sale Agreement"), they are concurrently herewith granting a "Right of
Refusal" (as that term is defined therein) to the Company and certain other
parties as set forth in the Co-Sale Agreement.
4. Information Rights.
------------------
4.1 Financial Information. The Company covenants and agrees that,
---------------------
commencing on the date of this Agreement (i) with respect to each Investor for
so long as it holds at least 500,000 shares of Registrable Securities (as
adjusted to reflect subdivisions, combinations, stock dividends, splits and
similar transactions), the Company will:
(a) Annual Reports. Furnish to such Investor, as soon as
--------------
practicable and in any event within 90 days after the end of each fiscal year of
the Company, an audited consolidated balance sheet as of the end of such fiscal
year and an audited consolidated statement of operations, an audited
consolidated statement of cash flows and an audited statement of stockholders'
equity of the Company for such year and detailed financial projections for the
next fiscal year, setting forth in each case in comparative form the figures
from the Company's previous fiscal year (if any), all prepared in accordance
with United States generally accepted accounting principles and practices,
consistently applied, and audited by an independent certified public accountant;
(b) Quarterly Reports. Furnish to such Investor as soon as
-----------------
practicable, and in any case within 30 days of the end of each fiscal quarter of
the Company (except the last quarter of the Company's fiscal year), quarterly
unaudited financial statements, including an unaudited balance sheet, an
unaudited statement of operations and an unaudited statement of cash flows, all
prepared in accordance with United States generally accepted accounting
principles, consistently applied; and
(c) Monthly Balance Sheets. Within 20 days after the end of each
----------------------
calendar month, furnish to such Investor a balance sheet and a statement of
operations as of the end of such month, prepared in accordance with United
States generally accepted accounting principles, consistently applied.
(d) Each of the financial statements to be delivered by
Section 4.1(a), (b) and (c) shall, in a separate line item, reflect the number
of cards sold but not used.
14.
<PAGE>
4.2 Inspection Rights. For so long as the Investor holds at least
-----------------
500,000 shares of Registrable Securities (as adjusted to reflect subdivisions,
combinations, stock dividends, splits and similar transactions), the Company
shall permit such 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, at all such
reasonable times as may be requested by such Investor, provided, however, that
-------- -------
the Company shall not be obligated under this Section 4.2 to provide information
which it deems in good faith to be a trade secret or similar confidential
information if the Investor does not first execute an appropriate nondisclosure
agreement.
4.3 Termination of Information Rights. The Company's obligations
---------------------------------
under Sections 4.1 through 4.2 above will terminate upon the earlier of: (i) the
consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the initial firm
commitment underwritten offering of its securities to the general public at a
price per share of at least $9.37 (such offering price being subject to
proportional adjustment to reflect subdivisions, combinations, stock dividends
and similar transactions affecting the number of outstanding shares of Common
Stock) for aggregate gross offering proceeds to the Company (calculated before
deduction of underwriters' discounts and commissions) of at least $10,000,000,
or (ii) upon (a) the acquisition of all or substantially all the assets of the
Company or (b) an acquisition of the Company by another corporation or entity by
consolidation or merger in which the holders of the Company's outstanding voting
stock immediately prior to such transaction own, immediately after such
transaction, securities representing less than 50% or more of the voting power
of the corporation or other entity surviving such transaction.
5. Assignment of Rights.
--------------------
5.1 Assignment. Notwithstanding anything herein to the contrary:
----------
(a) Information Rights. The rights of each Investor under Section 4
------------------
hereof may be assigned only to a party who acquires from such Investor (or such
Investor's permitted assigns) at least 500,000 shares of Registrable Securities.
(b) Registration Rights, Refusal Rights. The registration rights of
-----------------------------------
a Holder under Section 1 hereof, the rights of first offer under Section 2
hereof and the Rights of First Refusal under Section 3 hereof may be assigned
only to: (i) any partner or retired partner of any such Holder which is a
partnership; (ii) any family member or trust for the benefit of any Holder who
is an individual; (iii) with respect to the registration rights under Section 1,
to any transferee who acquires at least 500,000 shares of Registrable
Securities; and (iv) with respect to the rights of first offer under Section 2,
and the Rights of First Refusal under Section 3 hereof to any transferee who
acquires at least 500,000 shares of Registrable Securities; provided, however,
-------- -------
that no party may be assigned any of the foregoing rights unless the Company is
given written notice by the assigning prior to the time of such assignment
stating the name and address of the assignee and identifying the securities of
the Company as to which the rights in question are being assigned; and provided
--------
further, that any such assignee shall receive such assigned rights subject to
- -------
all the terms and conditions of this Agreement, including without limitation the
provisions of this Section 5.
15.
<PAGE>
6. Miscellaneous.
-------------
6.1 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 (including
transferees of any shares of Registrable Securities). 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.
6.2 Governing Law. This Agreement shall be governed by and construed
-------------
under the internal laws of the State of California without giving effect to the
principles of conflicts of laws thereof.
6.3 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.
6.4 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.
6.5 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
6.6 Expenses. If any action at law or in equity is necessary to
--------
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
6.7 Amendments and Waivers. Any term of this Agreement may be amended
----------------------
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
6.8 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.
16.
<PAGE>
6.9 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.
6.10 Entire Agreement; Superseding Effect. This agreement constitutes
------------------------------------
the entire agreement between and among the parties hereto pertaining to the
subject matter hereof and any other written or oral agreements between and among
the parties hereto pertaining thereto are expressly cancelled. This agreement
amends and restates the Original Investors' Rights Agreement in its entirety,
and such Original Investors' Rights Agreement shall be deemed terminated upon
the execution of this agreement by the Company and the Investors.
[Remainder of Page Intentionally Left Blank]
17.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
OCEN COMMUNICATIONS, INC.
By:___________________________________________
Name: Thomas Bao
Its: President
Address:______________________________________
______________________________________________
INVESTORS:
BAPEF INVESTMENTS VI LIMITED
By: __________________________________________
Name:
Title:
Address:______________________________________
______________________________________________
BROBECK PHLEGER & HARRISON LLP
By:___________________________________________
Name: Curtis Mo
Its:
Address:______________________________________
______________________________________________
By:___________________________________________
Name: Lloyd Fischer
Address:______________________________________
______________________________________________
[Signature Page to Amended and Restated Investor's Rights Agreement]
<PAGE>
By:____________________________________________
Name: Tina Bow
Address:_______________________________________
_______________________________________________
GOODRICH COMMUNICATIONS CO.
By:____________________________________________
Name: James Chou
Its:
Address:_______________________________________
_______________________________________________
By:____________________________________________
Name: Thomas Bao
Address:_______________________________________
_______________________________________________
By:____________________________________________
Name: Joseph Bao
Address:_______________________________________
_______________________________________________
By:____________________________________________
Name: Curtis Mo
Address:_______________________________________
_______________________________________________
[Signature Page to Amended and Restated Investor's Rights Agreement]
<PAGE>
S.T.B. INTERNATIONAL, INC.
By:_________________________________________
Name: Steven Bao
Address:____________________________________
____________________________________________
By:_________________________________________
Name: Eva Yang
Address:____________________________________
____________________________________________
By:_________________________________________
Name: Wu Tsai Li Lin
Address:____________________________________
____________________________________________
ANDERSON INFORMATION TECHNOLOGY LIMITED
By: ________________________________________
Name:
Title:
Address:____________________________________
____________________________________________
EXCEL-FOUNDATION LIMITED
By: ________________________________________
Name:
Title:
Address:____________________________________
____________________________________________
[Signature Page to Amended and Restated Investor's Rights Agreement]
<PAGE>
LOTUS LIBERATOR FUND
By: ______________________________________
Name:
Title:
Address:__________________________________
__________________________________________
By:_______________________________________
Name: Andrew Schroepfer
Address: 2043 Willow Circle
Centerville, MN 55038
By:_______________________________________
Name: Tad W. Piper
Address: 1204 Sharon Park Dr. #87
Menlo Park, CA 94025
By:_______________________________________
Name: John Sternfield
Address: 2765 Ross Road
Palo Alto, CA 94303
By:_______________________________________
Name: Chung H. Lim
Address: 183 Hedge Road
Menlo Park, CA 94025
[Signature Page to Amended and Restated Investor's Rights Agreement]
<PAGE>
SCHEDULE A
----------
INVESTORS
Series D Preferred Stock Investor Name Consideration Shares Purchased
- -------------------------------------- ------------- ----------------
Lotus Liberator Fund $1,099,995.00 146,666
Excel-Foundation Limited $1,899,997.50 253,333
Anderson Information Technology Limited $1,899,997.50 253,333
Baring Asia Investments IV B.V. $3,000,000.00 400,000
Brobeck Phleger & Harrison LLP $ 99,997.50 13,333
Series C Preferred Stock Investor Name Consideration Shares Purchased
- -------------------------------------- ------------- ----------------
Lotus Liberator Fund $ 1,000,000 476,190
Excel-Foundation Limited $ 500,000 238,095
Anderson Information Technology Limited $ 500,000 238,095
Andrew Schroepfer $ 32,000 15,238
Tad W. Piper $ 30,000 14,285
John Sternfield $ 45,500 21,666
Chung H. Lim $ 42,500 20,238
Series B Preferred Stock Investor Name Consideration Shares Purchased
- -------------------------------------- ------------- ----------------
Anderson Information Technology Limited
a. First Closing $ 499,999.80 261,780
b. Second Closing $1,999,999.20 1,047,120
c. Third Closing $ 749,999.70 392,670
--------------- ------------------
Excel-Foundation Limited
a. First Closing $ 499,999.80 261,780
b. Second Closing $2,000,001.11 1,047,121
c. Third Closing $ 749,999.70 392,670
--------------- ------------------
$6,499,999.31 3,403,141
Series A Preferred Stock Investor Name Consideration Shares Purchased
- -------------------------------------- ------------- ----------------
1. Joseph Bao $ 40,581 32,466
2. Thomas Bao $ 99,623 79,701
<PAGE>
3. Tina Bow $ 100,657 80,526
4. Goodrich Communications Co. $ 40,666 32,532
5. Baring Asia Investments IV B.V. $ 1,500,000 2,512,480
6. Brobeck Phleger & Harrison LLP $ 20,000 15,999
7. Lloyd Fischer $ 100,000 80,004
8. Eva Yang $ 50,000 39,999
9. Curtis Mo $ 10,000 8,001
10. S.T.B. International, Inc. $ 18,500 14,799
11. Wu Tsai Li Lin $ 20,000 15,999
