<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 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
------------------------
FLASHCOM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4813 33-0839193
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
5312 BOLSA AVENUE
HUNTINGTON BEACH, CALIFORNIA 92649
(714) 799-2300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
RICHARD RASMUS, CHIEF EXECUTIVE OFFICER AND PRESIDENT
FLASHCOM, INC.
5312 BOLSA AVENUE
HUNTINGTON BEACH, CALIFORNIA 92649
(714) 799-2300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
K.C. SCHAAF, ESQ. LEIGH P. RYAN, ESQ.
JEFFREY B. COYNE, ESQ. SIOBHAN MCBREEN BURKE, ESQ.
NUMAN J. SIDDIQI, ESQ. RAJNISH PURI, ESQ.
STRADLING YOCCA CARLSON & RAUTH, P.C. PAUL, HASTINGS, JANOFSKY & WALKER LLP
660 NEWPORT CENTER DRIVE, SUITE 1600 399 PARK AVENUE, 31ST FLOOR
NEWPORT BEACH, CALIFORNIA 92660 NEW YORK, NEW YORK 10022-6000
(949) 725-4000 (212) 318-6000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
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- ------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH AGGREGATE OFFERING AMOUNT OF REGISTRATION
CLASS OF SECURITIES TO BE REGISTERED PRICE(1) FEE
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Common Stock ($0.001 par value per share)................... $125,000,000 $33,000
- ------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
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 MAY 12, 2000
PROSPECTUS
[FLASHCOM LOGO]
SHARES
FLASHCOM, INC.
COMMON STOCK
$ PER SHARE
------------------
We are selling shares of our common stock. The underwriters
named in this prospectus may purchase up to additional shares of
common stock from us under certain circumstances.
This is our initial public offering and no public market currently exists
for our common stock. We anticipate that the initial public offering price will
be between $ and $ per share. We have applied to
have our common stock included for quotation on the Nasdaq Stock Market's
National Market under the symbol "FLCM."
------------------
INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 6.
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.
------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Flashcom (before expenses)...................... $ $
</TABLE>
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about
, 2000.
------------------
SALOMON SMITH BARNEY THOMAS WEISEL PARTNERS LLC
ING BARINGS
, 2000.
<PAGE> 3
[INSIDE FRONT COVER OF PROSPECTUS]
[ARTWORK TO BE INSERTED]
The artwork will consist of a map depicting our current geographic coverage
and our proposed network expansion, together with our "Flashcom" logo.
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL 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 THE PROSPECTUS OR OF ANY SALE OF THE
COMMON STOCK.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 6
Information Regarding Forward-Looking Statements............ 15
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 20
Selected Financial and Operating Data....................... 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 28
Management.................................................. 47
Certain Relationships and Related Transactions.............. 55
Security Ownership of Certain Beneficial Owners and
Management................................................ 58
Description of Capital Stock................................ 60
Shares Eligible for Future Sale............................. 64
Underwriting................................................ 66
Legal Matters............................................... 68
Experts..................................................... 68
How to Get Additional Information About Flashcom............ 68
Index to Financial Statements............................... F-1
</TABLE>
UNTIL , 2000, ALL DEALERS THAT BUY, SELL OR TRADE SHARES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. 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.
i
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary is not complete and does not contain all of the
information that you should consider before buying shares in this offering. To
understand this offering fully, we urge you to read the entire prospectus
carefully.
FLASHCOM
We provide high-speed, or broadband, communications services to small and
medium-sized enterprises and residential customers nationwide. We began offering
these services in June 1998. As of March 31, 2000, we had more than 30,000 lines
in service in 82 metropolitan statistical areas, and had orders for more than
14,000 additional lines. We intend to aggressively expand our presence within
our current markets and into new markets, and we expect to offer service in a
total of approximately 130 metropolitan statistical areas by the end of 2000 and
over 200 metropolitan statistical areas by the end of 2001. We currently deliver
broadband services to our customers using digital subscriber line, or DSL,
technology and have designed our network to accommodate additional broadband
technologies.
We seek to "own" the relationship with our customers by being the primary
point of contact for all of their broadband communications needs. We believe
that building strong customer relationships and brand awareness will best
position us to benefit from the migration from dial-up Internet access and
secure our position as a market leader in the emerging age of broadband
communications.
We employ a capital efficient "smart-build" strategy in designing and
deploying our network. This means we currently own and operate key network
elements, including our service delivery points and our integrated operations
support system, and lease other readily available network elements, such as
copper loops and the equipment that connect our customers' telephone lines to
our network. Our suppliers are a diverse group of local exchange carriers
including Covad Communications Group, Inc., NorthPoint Communications Group,
Inc., Rhythms NetConnections, Inc., Bell Atlantic Corporation, BellSouth
Corporation, GTE Corporation and SBC Communications, Inc. We believe our
smart-build strategy enables us to accelerate our entry into new markets, lowers
our initial capital costs and allows us to focus resources on customer
acquisition and retention while preserving our ability to control the
applications and services we offer through our service delivery points. Our
service delivery points enable us to deliver broadband applications and content
from the edge of our network directly to our customers and ensure a high level
of service. In the future, we expect to own and install additional network
elements to better control our network and generate stronger operating results.
We believe that the demand for broadband Internet access and related
services from small and medium-sized enterprises and residential customers will
continue to increase. The advent of new broadband technologies allows us to
offer our customers affordable alternatives to slow, inexpensive dial-up access
and high-cost broadband access. We believe that as affordable broadband
solutions proliferate, the market for broadband access and related value-added
services will grow rapidly.
BUSINESS STRATEGY
In pursuing our goal of being a leading nationwide provider of broadband
communications services for small and medium-sized enterprises and residential
customers, we plan to:
- EXPLOIT OUR EARLY MOVER ADVANTAGE AND NATIONWIDE PRESENCE -- We will
continue to grow our nationwide presence by expanding our coverage and
customer base in existing markets and penetrating new markets that show a
significant demand for cost-effective, broadband communications services.
We believe that our nationwide presence better positions us to partner
with content providers, applications developers and others to deliver
broadband content and value-added services.
- "OWN" THE CUSTOMER RELATIONSHIP -- We seek to establish ourselves as the
primary point of contact for our customers through all aspects of the
customer relationship, thereby building our
1
<PAGE> 6
brand identity and establishing ourselves as a single source for the
provision of additional broadband content and value-added services.
- EXPAND DELIVERY OF BROADBAND APPLICATIONS AND CONTENT ACROSS OUR
PLATFORM -- We have developed a network platform that utilizes service
delivery points to deliver content, applications and services to our
customers from the edge of our network. In addition, we will continue to
partner with a variety of independent developers to deliver an attractive
suite of value-added services to our customers.
- PURSUE CAPITAL EFFICIENT NETWORK STRATEGY -- We will continue to employ
a "smart-build" network strategy in which we own and operate key network
elements and lease certain other readily available network elements,
enabling us to focus resources on acquiring and retaining customers and
expanding our nationwide presence.
- PROVIDE SUPERIOR CUSTOMER SERVICE -- We will continue to devote
significant resources to improving our provisioning and installation
processes, our state-of-the-art operations support systems and other
areas of ongoing technical support and customer service.
- CONTINUE AGGRESSIVE SALES AND MARKETING EFFORTS -- We will continue our
customer acquisition efforts through aggressive marketing and branding
campaigns. We will expand our marketing, sales and distribution channels
as we build our brand awareness.
CORPORATE INFORMATION
We were incorporated in Nevada in May 1998 and reincorporated in Delaware
in January 1999. Our executive offices are located at 5312 Bolsa Avenue,
Huntington Beach, California 92649. Our telephone number is (714) 799-2300. Our
web site address is www.flashcom.com. Information contained in our web site does
not constitute part of this prospectus.
Flashcom, Solosurfer(TM), Multisurfer(TM), HomeSurfer(TM) and BizSurfer(TM)
and our logo are trademarks of Flashcom. This prospectus also contains product
names, trade names and trademarks that belong to other companies.
2
<PAGE> 7
THE OFFERING
COMMON STOCK OFFERED BY FLASHCOM.... shares
COMMON STOCK TO BE OUTSTANDING AFTER
THIS OFFERING....................... shares
USE OF PROCEEDS..................... We intend to use the net proceeds from
this offering to:
- expand our sales and marketing
activities and our network and
systems infrastructure; and
- fund working capital needs and for
general corporate purposes.
NASDAQ STOCK MARKET'S NATIONAL
MARKET
SYMBOL............................ FLCM
RISK FACTORS........................ Investing in shares of our common stock
involves risks. See "Risk Factors" for
a discussion of matters you should
consider before investing in shares of
our common stock.
The total number of shares of common stock to be outstanding after this
offering is based on the actual number of shares of common stock outstanding as
of March 31, 2000 and reflects the issuance of 30,139,388 shares of common stock
upon the automatic conversion of all outstanding shares of redeemable
convertible preferred stock upon the closing of this offering. The total number
of shares to be outstanding after this offering excludes the following
securities:
- 4,531,000 shares of common stock issuable upon exercise of stock options
outstanding as of March 31, 2000, at a weighted average exercise price of
$1.65 per share, under our stock option plan;
- 4,243,367 shares of common stock issuable upon exercise of outstanding
warrants to purchase common stock at a weighted average exercise price of
$0.90 per share as of March 31, 2000;
- 169,827 shares of common stock issuable upon exercise of an outstanding
warrant to purchase Series B Preferred Stock at an exercise price of
$6.57 per share, which will automatically convert into a warrant to
purchase common stock upon the closing of this offering;
- up to 2,138,477 shares of common stock issuable under certain
circumstances upon exercise of outstanding warrants to purchase common
stock at an exercise price equal to the initial public offering price;
- 4,026,428 additional shares of common stock reserved for future issuance
under our stock option plan; and
- 1,500,000 shares of common stock reserved for issuance under our employee
stock purchase plan.
Unless otherwise specifically stated, all information in this prospectus:
- reflects the automatic conversion of all outstanding shares of redeemable
convertible preferred stock into 30,139,388 shares of common stock;
- assumes outstanding options and warrants to purchase shares of common
stock have not been exercised; and
- assumes the underwriters have not exercised their over-allotment option.
3
<PAGE> 8
SUMMARY FINANCIAL AND OPERATING DATA
The following summary statement of operations data for the periods ended
December 31, 1998 and 1999 and the balance sheet data at December 31, 1999 are
derived from our financial statements, which have been audited by Ernst & Young
LLP, independent auditors, and are included in this prospectus. The following
table summarizes our financial results and should be read in conjunction with
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and our Financial Statements and Notes.
For an explanation of the determination of the number of shares used in
computing per share data, refer to Note 2 of Notes to Financial Statements.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 18, 1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
STATEMENT OF OPERATIONS DATA: ----------------- -----------------
<S> <C> <C>
Revenue................................................... $ 299,000 $ 8,402,000
Total operating expenses.................................. 964,000 38,357,000
----------- ------------
Operating loss............................................ (665,000) (29,555,000)
Interest and other, net................................... -- (2,817,000)
Net loss.................................................. (666,000) (32,773,000)
Basic and diluted net loss per share...................... $ (0.03) $ (1.21)
Shares used in computing net loss per share............... 22,821,000 27,018,000
Pro forma basic and diluted net loss per share
(unaudited)............................................. $ (0.89)
Shares used in computing pro forma net loss per share
(unaudited)............................................. 36,829,000
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------
1998 1999
OPERATING DATA: ----------------- -----------------
<S> <C> <C>
Lines in service.......................................... 405 17,453
Lines ordered, not in service............................. 144 17,014
Metropolitan statistical areas served..................... 12 52
Service delivery points................................... 6 22
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
BALANCE SHEET DATA: ------------ ------------ -----------
<S> <C> <C> <C>
Cash and cash equivalents......................... $ 2,419,000 $ 74,803,000 $
Working capital (deficiency)...................... (27,843,000) 44,541,000
Property and equipment, net....................... 14,834,000 14,834,000
Total assets...................................... 28,640,000 101,024,000
Capital lease obligations, net of current
portion......................................... 3,558,000 3,558,000
Redeemable convertible preferred stock............ 16,335,000 --
Total stockholders' equity (deficit).............. (25,491,000) 60,342,000
</TABLE>
4
<PAGE> 9
The above table summarizes our balance sheet data as of December 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect:
- the receipt of net proceeds of $81,370,000 from the sale of 12,824,351
shares of Series B Preferred Stock subsequent to December 31, 1999;
- the retirement of 1,612,903 shares of common stock repurchased by us in
February 2000 for $9,000,000;
- the issuance of 3,276,129 shares of common stock issued subsequent to
December 31, 1999 under our stock option plan, which shares are subject
to repurchase by us upon certain events. This includes $5,506,000 of
deferred compensation representing the difference between the purchase
price and the estimated fair market value of our common stock on the
date of purchase;
- the issuance of 30,000 shares of common stock in January 2000 to a
former employee for $13,300;
- the automatic conversion of all outstanding shares of redeemable
convertible preferred stock into 30,139,388 shares of common stock upon
the closing of this offering; and
- on a pro forma as adjusted basis to reflect the sale of shares of our
common stock in this offering at an assumed initial public offering price
of $ per share, less underwriting discounts and commissions and
estimated offering expenses payable by us.
5
<PAGE> 10
RISK FACTORS
An investment in our common stock involves risks and uncertainties. Please
carefully consider the following risk factors and the other information in this
prospectus before deciding to purchase shares of our common stock. If any of the
following risks actually occurs, it is likely that our business could be
seriously harmed. As a result, the trading price of our common stock could
decline, and you could lose part or all of your investment.
RISKS RELATED TO OUR OPERATIONS AND FINANCIAL RESULTS
WE CANNOT PREDICT OUR SUCCESS BECAUSE WE HAVE A LIMITED OPERATING HISTORY AND
OUR BUSINESS MODEL REMAINS UNPROVEN.
Because we commenced operations in June 1998, you have limited information
about us with which to evaluate our business, strategies, operating performance
and an investment in our common stock. To date, we have not validated our
business model and strategy in the market. The rapidly evolving market in which
we compete makes it difficult to predict the extent to which our services will
attract widespread consumer demand or achieve market acceptance. To be
successful, we must rapidly expand our nationwide presence, deploy additional
local service delivery points, and convince our target customers to utilize our
broadband communications services. We may never be able to deploy our network as
planned or achieve significant market acceptance, favorable operating results or
profitability.
WE HAVE INCURRED NET LOSSES SINCE OUR INCEPTION AND EXPECT LOSSES FOR THE
FORESEEABLE FUTURE. IF WE CONTINUE TO INCUR LOSSES, THE VALUE OF OUR STOCK COULD
DECLINE.
We had cash flow from operating activities of $105,000 in 1998 and used
cash of $12,939,000 in operating activities in 1999, and expect to incur net
losses for the foreseeable future as we continue to expand our business. If
these losses continue, they could cause the value of our stock to decline, and
you could lose a substantial portion of your investment. As we expand our
customer acquisition and retention efforts, we intend to increase our
expenditures and operating expenses, particularly in the areas of sales,
marketing, order fulfillment, installation, customer care and the development of
additional value-added services. We may never become cash flow positive or
profitable.
WE ARE DEPENDENT ON EFFECTIVE BILLING, CUSTOMER SERVICE AND INFORMATION SYSTEMS
AND WE MAY HAVE DIFFICULTIES IN DEVELOPING THESE SYSTEMS.
Sophisticated back office information and processing systems are vital to
our growth and our ability to monitor costs, bill customers, initiate, implement
and track customer orders and achieve operating efficiencies. We cannot assure
you that these systems will be successfully implemented on a timely basis, or at
all, or that they will perform as expected because:
- we may fail to adequately identify all of our information and processing
needs;
- our processing or information systems may fail or be inadequate;
- we may not be able to effectively integrate our services into our systems
or into our suppliers' systems;
- our suppliers' systems may fail or be inadequate; and
- we may fail to upgrade our systems as necessary.
Furthermore, as our suppliers revise and upgrade their hardware, software
and equipment technology, we could encounter difficulties in integrating this
new technology into our business or the new systems may not be appropriate for
our business. In addition, our right to use these systems depends on license
agreements with third party vendors. Vendors may cancel or elect not to renew
some of these agreements, which may adversely affect us.
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<PAGE> 11
OUR FAILURE TO MANAGE OUR RAPID GROWTH COULD STRAIN THE CAPABILITIES OF OUR
MANAGERS, OPERATIONS AND FACILITIES.
We may not be able to upgrade or expand our network, operational support,
financial and reporting systems, managerial controls and procedures in an
efficient and timely manner. In addition, our current or planned management,
financial controls, operations, personnel and other resources may not be
adequate to support our proposed rollout of broadband communications and
value-added services to increasing numbers of customers in a significant number
of new, geographically dispersed areas. As of March 31, 2000, we had deployed
our network in 82 metropolitan statistical areas nationwide. Most of this
deployment took place during 1999. By the end of 2000, we expect that we will
offer services in approximately 130 of the nation's 329 metropolitan statistical
areas. Our failure to effectively manage our rapid growth in these
geographically dispersed locations could harm the quality of our services and
our ability to integrate expanding operations, grow and retain our customer base
and expand our service offerings, any of which would harm our business.
Our expansion to date has strained our management, financial and operating
systems, personnel and other resources. Any future expansion will increase these
strains. If our marketing strategy is successful, we may experience difficulties
responding to customer demand for services and technical support in a timely
manner and in accordance with customer expectations. Furthermore, we may make
mistakes in operating our business. We may make inaccurate sales forecasts or
devote insufficient resources for new markets, operational planning and
financial reporting. To manage the expected growth of our operations, we must:
- improve existing, and implement new, operating, financial and management
information controls, reporting systems and procedures;
- hire, train and manage additional qualified personnel;
- expand and upgrade our core technologies; and
- effectively manage multiple relationships with our customers, suppliers
and other third-parties.
IF WE ARE UNABLE TO PROVIDE SERVICE TO OUR NEW CUSTOMERS IN A TIMELY MANNER, OUR
BUSINESS COULD BE SERIOUSLY HARMED.
In order to provide DSL service to our customers, we must work with third
parties to obtain and qualify the lines we lease to our customers and to install
the necessary equipment at our customers' premises. Historically, we have in
some cases experienced delays in this process. These delays may result in
cancellation of our service by new customers, damage to our reputation and
possibly even lawsuits by customers. If we experience significant delays with
respect to the commencement of service to our customers, our business could be
seriously harmed.
OUR FAILURE TO ACHIEVE OR SUSTAIN MARKET PENETRATION AT DESIRED PRICING LEVELS
COULD PREVENT US FROM BECOMING PROFITABLE.
Prices for DSL services have fallen recently, and we expect this trend to
continue. Recently, some companies have begun offering free DSL services.
Accordingly, we cannot predict to what extent we may need to reduce our prices
to remain competitive or whether we will be able to sustain future pricing
levels as our competitors introduce competing services or similar services at
lower prices. If the assumptions underlying our business model are not valid or
we are unable to implement our business plan, achieve or sustain market
acceptance, achieve the predicted level of market penetration or obtain the
desired level of pricing of our broadband communications services for sustained
periods, our ability to achieve profitability or positive cash flow could be
impaired, which would harm our business.
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<PAGE> 12
IF WE FAIL TO MAKE SIGNIFICANT SALES OF OUR VALUE-ADDED SERVICES TO OUR
CUSTOMERS, OUR OPERATING MARGINS AND OUR PROFITABILITY MAY SUFFER.
We have based our business model upon our customers purchasing not only our
basic connectivity services but also value-added services, such as streaming
video and audio applications, software-on-demand services and voice
communications. We expect to begin offering certain of these value-added
services to our customers during 2000. We expect sales of these value-added
services will allow us to generate greater financial margins from each customer.
If our customers only pay for our basic service package and choose not to
receive additional services, or if we cannot make these value-added services
available to our customers, our ability to achieve profitability or positive
cash flow could be impaired.
IF OUR CUSTOMERS FAIL TO RENEW THEIR SERVICE CONTRACTS WITH US, OUR BUSINESS MAY
SUFFER.
Our long-term success depends largely on our ability to retain our existing
customers beyond their one, two, or three-year service contract periods, while
continuing to attract new customers. We continue to invest significant resources
in our network infrastructure and customer and technical support capabilities
and plan to devote substantial resources to developing additional value-added
services. We cannot be certain that these investments will encourage our
customers to renew their subscriptions with us. We may encounter operational
problems, which may cause customers to terminate their service. Also, we believe
that intense competition in our industry may cause some of our customers to
switch to our competitors' services. If our customers fail to renew their
subscriptions with us or otherwise terminate their relationships with us, our
business may be harmed and our long-term success may be compromised.
OUR MANAGEMENT TEAM IS NEW, AND IF THEY ARE UNABLE TO WORK TOGETHER EFFECTIVELY,
OUR BUSINESS COULD BE SERIOUSLY HARMED.
Our productivity and the quality of our broadband communications services
depend on a small number of executive officers and other members of senior
management working effectively as a team in executing our business strategy and
business plan. Members of our senior management team have only worked together
at Flashcom for a short period of time. In particular, Richard Rasmus, our
President and Chief Executive Officer, joined us in November 1999, Michael
Jones, our Chief Technology Officer, joined us in January 1999, and Wayne
Boylston, our Chief Financial Officer, joined us in April 2000. These
individuals have not previously worked together as a management team.
OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN OUR SENIOR MANAGEMENT AND KEY
EMPLOYEES.
The loss of the services of any of our senior management team or key
employees could harm the continued development, marketing and deployment of our
services. Our industry is characterized by intense competition for, and
aggressive recruiting of, skilled personnel, as well as a high level of employee
mobility. All our executive officers are at-will employees and we do not have
non-competition agreements with any of them. As such, any of these individuals
may terminate his or her employment at any time.
OUR GROWTH DEPENDS ON OUR ABILITY TO HIRE AND RETAIN OTHER HIGHLY QUALIFIED
EMPLOYEES AND SENIOR EXECUTIVES.
Our future growth, and our ability to sustain growth, depends on our
ability to attract and retain additional key engineering, sales, operations,
marketing and support personnel. Competition for qualified personnel in our
industry and in certain of the new geographical markets in which we intend to
recruit is extremely intense and characterized by rapidly increasing salaries
and equity positions, which may increase our operating expenses or hinder our
ability to recruit qualified candidates. Furthermore, we must compete with
companies in earlier stages of their development that can offer substantially
greater equity positions. For these reasons, we may be unable to recruit or
retain qualified candidates.
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<PAGE> 13
WE MAY BE UNABLE TO RAISE ADDITIONAL CAPITAL IN THE FUTURE TO SUPPORT OUR
GROWTH.
We will continue to depend on sources other than our internal operations,
including subsidies from our suppliers and additional external capital and debt
financing, to fund the growth of our operations. If we are unable to maintain
these subsidies or raise additional capital, or are able to raise capital only
on unfavorable terms, we may not be able to take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements,
any or all of which could hurt our ability to support our growth. We expect that
our existing capital resources coupled with the proceeds of this initial public
offering will be sufficient to meet our cash requirements for the next 12
months. However, we have a limited operating history on which to base these
estimates and, as a result, these estimates may not be accurate.
If we raise additional capital through the issuance of equity or other
convertible securities, the percentage ownership of our existing stockholders
will be reduced and those stockholders may experience dilution in net book value
per share. Any debt financing, if available, may involve covenants limiting or
restricting our operations or future opportunities or pledging our assets as
security for borrowings.
RISKS RELATED TO OUR INDUSTRY
IF OUR SERVICES DO NOT GAIN BROAD MARKET ACCEPTANCE, WE WILL NOT BE ABLE TO
BUILD OUR BUSINESS AS ANTICIPATED.
Broadband Internet access and the related services we support through our
platform are new and emerging businesses, and we cannot guarantee that our
services will continue to attract widespread demand or market acceptance. If
this market fails to develop or develops more slowly than anticipated, we will
not be able to increase our revenues and build our business as anticipated.
THE COMMUNICATIONS SERVICES INDUSTRY IS UNDERGOING RAPID TECHNOLOGICAL CHANGE,
AND NEW TECHNOLOGIES MAY BE SUPERIOR TO TECHNOLOGIES WE USE.
The market for high-speed data communications services using telephone
lines is in the early stages of development and is subject to rapid and
significant technological change. Many providers of high-speed data
communication services are testing products from numerous suppliers for various
applications, and these suppliers have not broadly adopted an industry standard.
If an industry standard is adopted that is incompatible with our technology and
we are unable to adapt our network to the standard, or if new technologies cause
our services to become less competitive or obsolete, our business would be
harmed.
INTENSE COMPETITION IN THE HIGH-SPEED DATA COMMUNICATION SERVICES MARKET MAY
NEGATIVELY AFFECT THE NUMBER OF OUR CUSTOMERS AND THE PRICING OF OUR SERVICES.
The high-speed data communication services market is intensely competitive.
We expect the level of competition to intensify in the future, due, in part, to
future consolidation in our industry. Our competitors use various high-speed
communications technologies for local access connections such as integrated
services digital network, or ISDN, frame relay, T-1 or DSL. In addition, we face
competition from wireless broadband, satellite-based, fiber optic and cable
networks. We expect significant competition from:
- Internet service providers which have begun to develop high-speed access
capabilities to leverage their existing products and services;
- competitive local exchange carriers and other providers of DSL-based
services, some of which offer reduced-rate or free services, and
companies reselling such services, including some of our suppliers;
- incumbent local exchange carriers, some of which have begun deploying
DSL-based and other high-speed data communications services;
- national long distance carriers which are beginning to offer competitive
DSL-based services;
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<PAGE> 14
- cable modem service providers which are offering high-speed Internet
access over cable networks for residential use and have positioned
themselves to do the same for businesses; and
- providers utilizing alternative technologies, such as fiber optic,
wireless and satellite-based data service providers.
Many of our current and potential competitors have longer operating
histories, greater brand name recognition, larger customer bases and
substantially greater financial, technical, marketing, management, service
support and other resources than we do. Therefore, they may be able to respond
more quickly than we can to new or changing opportunities, technologies,
standards or customer requirements. If we are unable to compete effectively, our
business would be harmed.
WE DEPEND ON THE SUCCESSFUL INTEGRATION OF OUR SYSTEMS WITH THE SYSTEMS OF OUR
PARTNERS AND SUPPLIERS.
Our network infrastructure involves integration with products and systems
of our partners and suppliers, including data-focused competitive local exchange
carriers, or Data-CLECs, such as Covad, NorthPoint and Rhythms, as well as
certain incumbent local exchange carriers, such as Bell Atlantic, BellSouth, GTE
and SBC. We currently depend on these partners and suppliers to:
- sell us the lines and ports we supply to our customers;
- provide and maintain the network hardware required to supply these
services;
- test and maintain the quality of the DSL connections that we use;
- install and maintain the necessary hardware at our customers' sites; and
- integrate our systems with their systems.
We enter into service agreements with DSL providers with respect to these
services. These agreements govern, among other things, the price and other terms
on which we purchase DSL service and installation and customer support services.
Our service agreements generally have terms of one to two years. If we are
unable to maintain and renew our existing agreements or enter into new
agreements on satisfactory terms, we may not be able to obtain adequate and
timely access to DSL connections on acceptable terms and conditions and our
business would be harmed.
Since we currently depend on Data-CLECs, we are also subject to a number of
risks inherent in their businesses, including:
- their dependence on interconnection agreements with incumbent local
exchange carriers;
- their competition with these incumbent local exchange carriers, which may
create incentives for the incumbent local exchange carriers to delay
entering into interconnection agreements and/or delay providing access to
their local telephone networks; and
- potential changes in governmental regulations, which could increase the
costs of providing DSL service or restrict the ability of the Data-CLECs
to provide DSL service.
Any of these factors could limit the market acceptance of DSL service,
increase our cost of providing DSL service, or impair our ability to provide
services to our customers or expand our business into additional areas, any of
which would harm our business.
OUR SERVICES MAY NOT BE DELIVERED EFFECTIVELY, OR AT ALL, BECAUSE OF DISTANCE
SENSITIVITY OF DSL TECHNOLOGY, THE PHYSICAL LIMITATIONS OF OUR CUSTOMERS'
TELEPHONE LINES, OR BECAUSE THE TELEPHONE LINES WE RELY UPON MAY BE UNAVAILABLE
OR IN POOR CONDITION.
Our ability to provide services to existing and potential customers using
DSL connections through the telephone network over which DSL must operate is
distance sensitive and depends on the quality, physical condition, availability
and maintenance of existing telephone lines, all of which are within the control
of incumbent local exchange carriers. Currently, many U.S. homes and small and
medium-sized enterprises
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<PAGE> 15
are not DSL-capable because they are located outside the maximum distance from a
telephone company central office, or do not have voice-grade copper telephone
lines that are in the physical condition necessary for the proper function of
the DSL technologies we currently use.
Customers who are DSL-capable may experience slow digital data transmission
speeds due to these factors and other factors beyond our control, such as the
configuration of the telecommunications line being used and the limitations of
the customer's computer. These customers may become dissatisfied with our
services and ultimately terminate their use of our DSL service. If our DSL
providers fail to expand their equipment in new locations, or if the copper
telephone lines that we rely upon to provide service are not of sufficient
quality for proper DSL functionality, we will be unsuccessful in deploying
broadband services and additional value-added services to our existing and
potential customers, and our business will be harmed.
Although we work with our DSL access providers to identify in advance of
accepting orders those customers who are close enough to a telephone company
central office, we sometimes find that the information given to us is
inaccurate. In some instances, we may take a potential customer's order, only to
later find out from the installation technician that the potential customer's
telephone line cannot be DSL enabled, or will not be enabled at peak digital
data transmission speeds, due to the customer's location or quality of the
customer's telephone lines. These false positive customer identifications may
harm our operating results. In addition, our reputation as a leading broadband
service provider may be harmed if customers and potential customers are
disappointed with their inability to receive our services at peak transmission
speeds or at all.
ALWAYS-CONNECTED INTERNET SERVICES, SUCH AS OURS, MAY BE SUBJECT TO ADDITIONAL
SECURITY RISKS WHICH COULD CAUSE US TO LOSE EXISTING CUSTOMERS, DETER POTENTIAL
CUSTOMERS AND HARM OUR REPUTATION.
Since our services allow customers to be connected to the Internet at all
times, unauthorized users may have a greater ability to access information
stored in our customers' computer systems. Always-connected Internet services
may give unauthorized users, or hackers, more and longer opportunities to break
into a customer's computer or access, misappropriate, destroy or otherwise alter
data accessed through the Internet. We are currently working to implement data
security systems that are designed to protect a customer's computer from
unauthorized access through the Internet, but we cannot ensure that the security
risks will be eliminated.
A SYSTEM FAILURE OR BREACH OF NETWORK SECURITY COULD CAUSE DELAYS OR
INTERRUPTIONS OF SERVICE TO OUR CUSTOMERS AND COULD RESULT IN LIABILITY, DAMAGE
OUR BRAND IMAGE, LEAD TO A LOSS OF CUSTOMERS AND RESULT IN A SIGNIFICANT
DECREASE OF REVENUES.
Our operations depend on our ability to avoid damage from fires,
earthquakes, floods, power losses, excessive sustained or peak user demand,
telecommunications failures, network software flaws, transmission cable cuts and
similar events. The occurrence of a natural disaster or other unanticipated
problem at our network operations center, our operational support system, our
managed network of leased communication lines or any metropolitan hubs or
co-location facilities could cause interruptions in the services provided by us
and these interruptions could result in the loss of customers and a reduction in
revenue. Additionally, if an incumbent local exchange carrier, competitive local
exchange carrier or other service provider fails to provide the communications
capacity we require, as a result of a natural disaster, operational disruption
or any other reason, then this failure could interrupt our services.
Our network may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. Providers of Internet services, including us, have in
the past experienced, and may in the future experience, interruptions in service
as a result of accidental or intentional actions of Internet users, current and
former employees and others. For example, we have experienced unintentional down
time as a result of upgrading our services and equipment. Other technologies
similar to our own have been subject to service outages. The consequence of
these interruptions in service may be that some customers terminate our service
and that some potential customers reject our service. Moreover, we may be
required to give
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<PAGE> 16
discounts to customers who experience service interruption. Interruptions of
service may therefore result in decreased revenues and customer base.
Unauthorized access could also potentially jeopardize the security of
confidential information stored in the computer systems of our customers, which
might cause our customers to bring liability claims against us and also might
deter potential customers from using our services. Eliminating computer viruses
and alleviating other security problems, including problems created by our or a
vendor's employee, may require interruptions, delays or cessation of service to
our customers.
OTHER RISKS RELATED TO OUR BUSINESS
A GENERAL ECONOMIC DOWNTURN COULD RESULT IN CUSTOMERS CANCELING OUR SERVICES AND
CONTENT OR THE DECISION BY PROSPECTIVE CUSTOMERS NOT TO USE OUR SERVICE.
To the extent the general economic health of the United States or of
certain regions in which many of our customers are located declines from recent
historically high levels, or to the extent customers fear a decline is imminent,
these customers may reduce expenditures for services such as ours. Any decline
or concern about an imminent decline could also delay decisions among certain of
our customers to renew our services or to add our value-added services or could
delay decisions by prospective customers to make initial evaluations of our
services. Any reduction of or delays in expenditures for our services would harm
our business.
WE FACE POTENTIAL LIABILITY FOR MATERIAL TRANSMITTED THROUGH OUR NETWORK OR
RETRIEVED THROUGH OUR SERVICES.
The law governing the liability of online service providers and Internet
access providers for participating in the hosting or transmission of
objectionable materials or information currently remains unsettled. Under the
Telecommunications Act of 1996, courts can impose civil and criminal penalties
for the use of interactive computer services for the transmission of certain
indecent or obscene communications. The United States Supreme Court in 1997 held
this provision unconstitutional as it relates to indecent, but not obscene,
communications. Also, some states have adopted or may adopt in the future
similar requirements. The constitutionality of such state requirements remains
unsettled at this time. In addition, several private parties have filed lawsuits
seeking to hold Internet access or service providers accountable for information
that they transmit, such as libelous material and copyrighted material. While
some providers have prevailed by utilizing, among other things, a defense in the
Telecommunications Act of 1996, we cannot predict the outcome of any such
litigation or the potential for the imposition of liability on Internet access
providers for information that they host, distribute or transport. These suits
and other regulations could materially change the way we and other Internet
access and service providers must conduct our businesses and could impact our
determination to expand or continue this business. To the extent that we become
parties to future litigation, such litigation could harm our business.
In addition, because materials may be downloaded by users of our services
and subsequently distributed to others, persons may make claims against us for
defamation, negligence, copyright or trademark infringement, personal injury or
other causes of action based on the nature, content, publication and
distribution of such materials. We also could be exposed to liability with
respect to the offering of third party content that may be accessible through
our services, including links to web sites maintained by our customers or other
third parties, or posted directly to our web site, and subsequently retrieved by
a third party through our services. It is also possible that if any third party
content provided through our services contains errors, third parties who access
such material could make claims against us for losses incurred in reliance on
such information. We also offer e-mail services, which expose us to other
potential risks, such as liabilities or claims resulting from unsolicited
e-mail, lost or misdirected messages, illegal or fraudulent use of e-mail or
interruptions or delays in e-mail service. Such claims, with or without merit,
likely would divert management's time and attention and result in significant
costs to investigate and defend.
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<PAGE> 17
CHANGES IN LAWS OR REGULATIONS COULD RESTRICT THE WAY WE OPERATE OUR BUSINESS.
Many of the facilities and services we need to provide our services are
subject to regulation at the federal, state and local levels. Consequently,
changes in applicable laws or regulations could have an adverse impact on our
business. For example, the Federal Communications Commission, or FCC, and state
telecommunications regulators oversee the terms under which we gain access to an
incumbent local exchange carrier's copper telephone lines that we need to
provide our services. Regulatory policies may also affect the terms under which
incumbent local exchange carriers provide us with the operational support and
management of telephone line usage that are important to the success of our
services. Future federal or state regulations and legislation may have an
adverse impact on our business. In addition, we may choose to expend significant
resources to participate in regulatory proceedings at the federal or state level
without achieving favorable results. We expect incumbent local exchange carriers
to pursue litigation in courts, institute administrative proceedings with the
FCC and state telecommunications regulators and lobby the U.S. Congress in an
effort to affect the applicable laws and regulations in a manner that would be
more favorable to them and against the interest of us and other competitors.
Changes in the regulatory environment could create greater competitive
advantages for all or some of our competitors or could make it easier for
additional parties to provide DSL services.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS AND WE MAY BE
SUBJECT TO INFRINGEMENT CLAIMS.
We rely on trade secrets and know-how to maintain our competitive position.
Our inability to protect these trade secrets and know-how could have a material
adverse effect on our business and prospects. We protect our proprietary
information by entering into confidentiality agreements with employees and
consultants and potential business partners. These agreements may be breached or
terminated. In addition, third-parties, including our competitors, may assert
infringement claims against us. For example, Flashnet Communications, Inc. has
filed suit against us, asserting that our use of the Flashcom mark infringes its
trademark rights. Any such claims could result in costly litigation, divert
management's attention and resources, require us to pay damages and/or to enter
into license or similar agreements under which we would be required to pay
license fees or royalties, or potentially cause us to cease use of our name.
ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL
CONDITION.
We may acquire other companies, products or technologies. Our failure to
successfully manage any future acquisitions could harm our operating results. In
the event of any future acquisitions, we will face additional financial and
operational risks, including:
- difficulty in assimilating the operations, technology and personnel of
acquired companies or businesses;
- disruption in our business because of the allocation of resources to
consummate these transactions and the diversion of management's attention
from our existing business;
- difficulty in retaining key technical and managerial personnel from
acquired companies or businesses;
- dilution of our stockholders, if we issue equity to fund these
transactions;
- assumption of operating losses, increased expenses and liabilities; and
- our relationships with existing employees, customers and business
partners may be weakened or terminated as a result of these transactions.
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<PAGE> 18
RISKS RELATED TO THIS OFFERING
OUR PRINCIPAL STOCKHOLDERS AND MANAGEMENT OWN A SIGNIFICANT PERCENTAGE OF OUR
COMPANY AND WILL BE ABLE TO EXERCISE SIGNIFICANT INFLUENCE OVER OUR COMPANY.
Our executive officers and directors and principal stockholders together
beneficially own 78.7% of the common stock on an as-converted basis, and after
completion of this offering will continue to own a substantial majority of the
common stock. Accordingly, these stockholders will be able to exert significant
influence over the composition of our Board of Directors and all other matters
requiring stockholder approval and will continue to have significant influence
over our affairs. This concentration of ownership could have the effect of
delaying or preventing a change in our control or otherwise discouraging a
potential acquirer from attempting to obtain control of us, thus preventing our
stockholders from realizing an attractive return on their investment. See
"Principal Stockholders" for information about the ownership of preferred and
common stock by our executive officers, directors and principal stockholders.
SOME PROVISIONS OF OUR CHARTER DOCUMENTS MAY MAKE TAKEOVER ATTEMPTS DIFFICULT,
WHICH COULD DEPRESS THE PRICE OF OUR STOCK AND INHIBIT YOUR ABILITY TO RECEIVE A
PREMIUM PRICE FOR YOUR SHARES.
Our Board of Directors has the authority, without any action by the
stockholders, to issue up to 20 million shares of preferred stock and to fix the
rights and preferences of such shares. In addition, our certificate of
incorporation and bylaws contain provisions that eliminate cumulative voting in
the election of directors and the ability of stockholders to act by written
consent, create a classified Board of Directors, and require stockholders to
give advance notice if they wish to nominate directors or submit proposals for
stockholder approval. These provisions may have the effect of delaying,
deferring or preventing a change in control, may discourage bids for our common
stock at a premium over its market price and may adversely affect the market
price, and the voting and other rights of the holders, of our common stock.
OUR MANAGEMENT AND BOARD OF DIRECTORS WILL HAVE BROAD DISCRETION TO ALLOCATE THE
PROCEEDS OF THIS OFFERING AND MAY DO SO INEFFECTIVELY.
Management and the Board of Directors will have broad discretion to
allocate the proceeds of this offering and no stockholder approval will be
required for such allocations. There is no assurance that the proceeds will be
allocated in a manner acceptable to our stockholders or advantageous to our
business. See "Use of Proceeds."
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE NET ASSET VALUE OF
THE SHARES YOU PURCHASE IN THIS OFFERING.
Investors who purchase shares in this offering will:
- pay a price per share that substantially exceeds the value of our assets
after subtracting liabilities; and
- contribute % of the total amount invested in Flashcom but will own
only % of the shares outstanding.
Additional dilution in your shares will occur upon exercise of outstanding
stock options and warrants.
OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT
OR ABOVE THE INITIAL PUBLIC OFFERING PRICE.
The initial public offering price for our common stock will be determined
through negotiations between the underwriters and us. This initial public
offering price may vary from the market price of our common stock after the
offering. If you purchase shares of common stock, you may not be able to resell
those shares at or above the initial public offering price.
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<PAGE> 19
If an active public market for our common stock does not develop, the
liquidity of your investment may be limited, and our stock price may fluctuate
or decline below our initial public offering price. The market price of our
common stock may fluctuate significantly in response to factors, some of which
are beyond our control, including the following:
- actual or anticipated fluctuations in our operating results;
- changes in market valuations of other broadband communications and
technology companies;
- announcements by us or our competitors of significant technical
innovations, contracts, acquisitions, strategic partnerships, joint
ventures or capital commitments;
- additions or departures of key personnel;
- adverse legislative or regulatory changes;
- future sales of common stock;
- any deviations in net revenues or in losses from levels expected by
securities analysts; and
- trading volume fluctuations, which are particularly common among highly
volatile securities of Internet-related companies.
SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS
OUR STOCK PRICE AND MAKE IT DIFFICULT FOR YOU TO RECOVER THE FULL VALUE OF YOUR
INVESTMENT IN OUR SHARES.
Upon completion of this offering, our current stockholders will hold
62,209,993 of our shares. Of this amount, 50,780,429 shares will be available
for sale in the public market commencing 180 days after the date of this
prospectus. The sale of substantial numbers of these shares or the market's
perception that such sales may occur after this offering could cause our stock
price to decline. In addition, the sales of these shares could impair our
ability to raise capital through the sale of additional stock.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties that address:
- our network expansion plans and strategies;
- development and management of our business;
- our ability to attract, retain and motivate qualified personnel;
- success of our strategic partnerships;
- our ability to attract and retain customers;
- the market opportunity and trends in the markets for our services;
- our ability to upgrade our technologies;
- prices of communication services;
- the nature of regulatory requirements that apply to us, our suppliers and
competitors;
- our ability to obtain and maintain any required governmental
authorizations;
- our future capital expenditures and needs;
- our ability to obtain financing on commercially reasonable terms;
- our ability to compete; and
- the extent and nature of competition.
The above list is not exhaustive.
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You can identify forward-looking statements generally by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"intends," "plans," "should," "could," "seeks," "pro forma," "anticipates,"
"estimates," "continues," or other variations thereof (including their use in
the negative), or by discussions of strategies, opportunities, plans or
intentions. These forward-looking statements may be found under the captions
"Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business," as well as captions elsewhere in this prospectus. A number of
factors could cause results to differ materially from those anticipated by such
forward-looking statements, including those discussed under "Risk Factors" and
"Business."
These forward-looking statements necessarily depend upon assumptions and
estimates that may prove to be incorrect. Although we believe that the
assumptions and estimates reflected in the forward-looking statements are
reasonable, we cannot guarantee that we will achieve our plans, intentions or
expectations. The forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to differ in
significant ways from any future results expressed or implied by the
forward-looking statements.
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USE OF PROCEEDS
We expect to receive approximately $ from this offering, or
$ if the underwriters exercise their over-allotment option in
full, assuming an offering price of $ per share and after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by us.
We intend to use the net proceeds of this offering to continue building our
customer base through increased sales and marketing activities, to expand our
network and systems infrastructure and for working capital and general corporate
purposes. We may also use a portion of the net proceeds to acquire businesses,
products or technologies that are complementary to our business although we have
no definitive agreements to do so at this time. The amounts actually expended
for these purposes will vary significantly depending on a number of factors,
including revenue growth, if any, and planned geographic expansion into targeted
markets.
Pending the use of such net proceeds for the above purposes, we intend to
invest such funds in marketable, investment-grade securities, certificates of
deposit or direct or guaranteed obligations of the U.S. Government.
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock. Any future
decision to pay dividends remains within the discretion of the Board of
Directors. We currently intend to retain any future earnings to support our
operations and to finance the growth and development of our business. We do not
anticipate paying dividends in the foreseeable future.
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CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect:
- the receipt of net proceeds of $81,370,000 from the sale of 12,824,351
shares of Series B Preferred Stock subsequent to December 31, 1999;
- the retirement of 1,612,903 shares of common stock repurchased by us in
February 2000 for $9,000,000;
- the issuance of 3,276,129 shares of common stock issued subsequent to
December 1999 under our stock option plan, which shares are subject to
repurchase by us upon certain events. This includes $5,506,000 of
deferred compensation representing the difference between the purchase
price and the estimated fair market value of our common stock on the
date of purchase;
- the issuance of 30,000 shares of common stock in January 2000 to a
former employee for $13,300;
- the automatic conversion of all outstanding shares of redeemable
convertible preferred stock into 30,139,388 shares of common stock upon
the closing of this offering; and
- on a pro forma as adjusted basis to reflect the sale of shares of our
common stock in this offering at an initial public offering price of
$ per share, less underwriting discounts and commissions and
estimated offering expenses payable by us, as if the sale had occurred on
December 31, 1999.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ -----------
<S> <C> <C> <C>
Cash and cash equivalents............................. $ 2,419,000 $ 74,803,000 $
============ ============ ===========
Capital lease obligations, net of current portion..... $ 3,558,000 $ 3,558,000
------------ ------------ -----------
Redeemable convertible preferred stock:
designated Series A, $.001 par value, 5,800,000
shares authorized, 5,771,679 issued and outstanding,
actual; $.0001 par value, no shares authorized,
issued or outstanding, pro forma and pro forma as
adjusted............................................ 16,335,000 --
------------ ------------ -----------
Stockholders' equity (deficit):
Preferred stock, $.001 par value, 44,200,000 shares
authorized, no shares issued and outstanding,
actual; $.0001 par value, 20,000,000 shares
authorized, no shares issued and outstanding, pro
forma and pro forma as adjusted..................... -- --
Common stock, $.001 par value, 100,000,000 shares
authorized, 30,377,379 issued and outstanding,
actual; $.0001 par value, 400,000,000 shares
authorized, 62,209,993 issued and outstanding, pro
forma; 400,000,000 shares authorized,
shares issued and outstanding, pro
forma as adjusted................................... 30,000 62,000
Additional paid-in capital............................ 19,004,000 120,816,000
Notes receivable from stockholders.................... (2,961,000) (13,466,000)
Deferred stock compensation........................... (8,110,000) (13,616,000)
Accumulated deficit................................... (33,454,000) (33,454,000)
------------ ------------ -----------
Total stockholders' equity (deficit)............. (25,491,000) 60,342,000
------------ ------------ -----------
Total capitalization........................ $ (5,598,000) $ 63,900,000 $
============ ============ ===========
</TABLE>
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The above table excludes the following:
- 4,531,000 shares of common stock issuable upon exercise of stock options
outstanding as of March 31, 2000, at a weighted average exercise price of
$1.65 per share, under our stock option plan;
- 4,243,367 shares of common stock issuable upon the exercise of
outstanding warrants to purchase common stock at a weighted average
exercise price of $0.90 per share as of March 31, 2000;
- 169,827 shares of common stock issuable upon exercise of an outstanding
warrant to purchase Series B Preferred Stock at an exercise price of
$6.57 per share, which will automatically convert into a warrant to
purchase common stock upon the closing of this offering;
- up to 2,138,477 shares of common stock issuable under certain
circumstances upon exercise of outstanding warrants to purchase common
stock at an exercise price equal to the initial public offering price;
- 3,815,492 additional shares of common stock reserved for future issuance
under our stock option plan; and
- 1,500,000 shares of common stock reserved for issuance under our employee
stock purchase plan.
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DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
common stock after this offering.
Pro forma net tangible book value per share, after giving effect to the
conversion of all outstanding shares of redeemable convertible preferred stock
and warrants to purchase shares of preferred stock, is equal to our total
tangible assets less total liabilities, divided by the pro forma number of
shares of common stock outstanding on March 31, 2000. Our pro forma net tangible
book value as of March 31, 2000 was $ or $ per share of common
stock. Assuming the sale by us of shares of common stock in this
offering at an assumed initial public offering price of $ per share and
after deducting the underwriting discounts and the estimated offering expenses
payable by us, our pro forma net tangible book value at March 31, 2000 would
have been $ , or $ per share of common stock. This 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 purchasing shares in this offering. That is, after this offering, the
excess of our tangible assets over our liabilities on a per share basis will be
less than the purchase price paid for those shares by investors in this
offering. 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 March
31, 2000............................................... $
Increase in pro forma net tangible book value attributable
to this offering.......................................
--------
Pro forma net tangible book value per share as of March 31,
2000, after giving effect to this offering................
--------
Immediate dilution per share to new investors............... $
========
</TABLE>
The following table summarizes, on a pro forma basis, as of March 31, 2000,
the number of shares of common stock purchased from us, the total consideration
paid to us and the average price per share paid by existing stockholders and by
new investors purchasing shares in this offering and includes the effect of the
conversion of all outstanding shares of redeemable convertible preferred stock
and warrants to purchase shares of preferred stock.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... % $ % $
New investors...................
-------- --- ------- ---
Total................. 100% 100%
======== === ======= ===
</TABLE>
The foregoing table and calculations are based on shares outstanding on
March 31, 2000 and exclude shares of common stock issuable upon
exercise of options outstanding as of March 31, 2000, at a weighted average
exercise price of $ per share, and shares of common stock
issuable upon exercise of warrants to purchase common stock outstanding as of
March 31, 2000 at a weighted average exercise price of $ per share. To the
extent any shares are issued upon exercise of outstanding options or warrants or
the underwriters' over-allotment, you will experience further dilution. See
"Management -- 1999 Stock Option Plan" and Note 8 of Notes to Financial
Statements. In addition, the foregoing excludes up to 2,138,477 shares of common
stock issuable under certain circumstances upon exercise of outstanding warrants
at an exercise price equal to the initial public offering price.
20
<PAGE> 25
SELECTED FINANCIAL AND OPERATING DATA
The financial and operating data set forth below should be read together
with "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business," and our Financial Statements
and Notes. Presented below is our selected financial and other data for and at
the period from May 18, 1998 (inception) through December 31, 1998 and the year
ended December 31, 1999. These data have been derived from our financial
statements audited by Ernst & Young LLP, independent auditors, which are
included in this prospectus. You should not assume that the results of
operations below are indicative of the financial results we can achieve in the
future. For an explanation of the determination of the number of shares used in
computing per share data, refer to Note 2 of Notes to Financial Statements.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 18, 1998
(INCEPTION) TO
DECEMBER 31, YEAR ENDED
1998 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 299,000 $ 8,402,000
Operating expenses:
Network and operations.................................... 376,000 12,393,000
Sales and marketing....................................... 217,000 17,392,000
General and administrative................................ 371,000 7,656,000
Non-cash stock compensation............................... -- 916,000
----------- ------------
Total operating expenses........................... 964,000 38,357,000
----------- ------------
Operating loss.............................................. (665,000) (29,955,000)
----------- ------------
Interest, including amortization of deferred financing
costs..................................................... -- (2,767,000)
Other....................................................... -- (50,000)
----------- ------------
Loss before provision for income taxes...................... (665,000) (32,772,000)
Provision for income taxes.................................. 1,000 1,000
----------- ------------
Net loss.................................................... $ (666,000) $(32,773,000)
=========== ============
Basic and diluted net loss per share........................ $ (0.03) $ (1.21)
=========== ============
Shares used in computing net loss per share................. 22,821,000 27,018,000
=========== ============
Pro forma basic and diluted net loss per share
(unaudited)............................................... $ (0.89)
============
Shares used in computing pro forma net loss per share
(unaudited)............................................... 36,829,000
============
CASH FLOW DATA:
Net cash flows provided by (used in):
Operating activities........................................ $ 105,000 $(12,939,000)
Investing activities........................................ (455,000) (10,687,000)
Financing activities........................................ 1,225,000 25,170,000
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------
1998 1999
----------------- -----------------
<S> <C> <C>
OPERATING DATA:
Lines in service............................................ 405 17,453
Lines ordered, not in service............................... 144 17,014
Metropolitan statistical areas served....................... 12 52
Service delivery points..................................... 6 22
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 875,000 $ 2,419,000
Working capital (deficiency)................................ (85,000) (27,843,000)
Property and equipment, net................................. 419,000 14,834,000
Total assets................................................ 1,356,000 28,640,000
Capital lease obligations, net of current portion........... -- 3,558,000
Redeemable convertible preferred stock...................... -- 16,335,000
Total stockholders' equity (deficit)........................ 334,000 (25,491,000)
</TABLE>
21
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with our Financial Statements and Notes
included elsewhere in this prospectus. This discussion contains forward-looking
statements the accuracy of which involves risks and uncertainties. Our actual
results could differ materially from those anticipated in the forward-looking
statements for many reasons including, but not limited to, those discussed in
"Risk Factors" and "Information Regarding Forward-Looking Statements" and
elsewhere in this prospectus. We disclaim any obligation to update information
contained in any forward-looking statement.
OVERVIEW
We provide high-speed, or broadband, communications services to small and
medium-sized enterprises and residential customers nationwide, currently using
digital subscriber line, or DSL, technology. Our core service offering is
currently broadband Internet access, which we offer at several speeds and
prices. In addition, we offer or plan to offer our customers a number of
value-added services, including web hosting, virtual private networks,
firewalls, software-on-demand and streaming audio and video content. We intend
to continue expanding our suite of value-added services as broadband technology
proliferates and additional services become viable.
We have designed and deployed our network using a capital efficient
"smart-build" strategy in which we lease certain elements, such as the copper
loop and the equipment that connects a customer's home or office to our network.
We believe this strategy allows us to focus our capital resources initially on
sales and marketing, enabling us to more rapidly increase the size of our
customer base and build our brand identity. As the size of our customer base
grows, we expect to install additional network elements to better control our
network and generate stronger operating results.
As we expand into new markets, we incur capital expenditures, network and
operating costs and sales and marketing expenses. Once we have deployed our
network in a new market, we incur incremental costs as we connect each new
customer. These incremental expenditures include interconnection fees and DSL
access to our customers.
Revenue
We currently derive the majority of our revenue from recurring monthly
access fees charged to our customers for DSL services. We also derive revenue
from nonrecurring installation fees and equipment sales at the time of
installation for those customers that do not receive free installation or
equipment under a variety of promotional campaigns. The recurring monthly fee
charged to our customers covers all DSL access charges, Internet access, e-mail
accounts and a limited amount of web hosting. The recurring monthly fee varies
based on the customer's selection of speed and other services. For the year
ended December 31, 1999, recurring monthly fees represented approximately 75% of
our revenue. We expect monthly recurring revenue to increase in future periods
as we increase our customer base and our service offerings.
During the past several years, market prices for many telecommunications
services have been declining. We expect that, as a result of competition, prices
for broadband access will decline over time. We intend to counteract this
decline in revenue per customer by expanding our service offerings and receiving
incremental revenue from additional value-added services. These services may
include web hosting, multimedia streaming, software rental and purchase, voice
applications and security applications. Revenue from these services is expected
to be derived primarily from revenue sharing agreements and referral fees.
22
<PAGE> 27
Our future financial performance and our ability to achieve positive
operating cash flow will depend on a number of factors, some of which we cannot
control. We believe that improvements in our financial performance depend
largely on our ability to:
- deploy our network and services rapidly and cost-effectively;
- provide high quality services at competitive prices;
- offer and sell additional value-added services and applications;
- acquire customers in a cost-effective manner;
- minimize customer turnover;
- manage increased sales and marketing and general and administrative
expenses; and
- implement sales and operations support systems to manage our growth
effectively.
Network and Operations Expenses
Our network expenses consist of monthly recurring and nonrecurring fees
related to our DSL service. Our monthly recurring network expenses include loop
and transport fees charged by our suppliers to provide our customers with DSL
service. Our nonrecurring network expenses consist of customer premise equipment
costs and loop installation fees charged by our suppliers. Our operations
expenses consist of personnel costs for our customer care, technical support and
provisioning departments, depreciation of our network equipment and allocated
overhead expenses. As we expand our customer base and enter new markets, we will
incur additional expenses for loop and transport fees and increased personnel
costs in our customer care, technical support and provisioning departments.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of advertising, branding of
the Flashcom name, amortization of customer acquisition costs, promotional
materials, sales commissions and personnel costs for our sales and marketing
department and allocated overhead costs. We expect our sales and marketing
expenses to increase as we enter new markets, implement sales and promotional
campaigns to attract additional customers and form strategic partnerships to
cross-promote our services.
We capitalize installation and equipment costs that are in excess of the
amount charged to our customers. These amounts are amortized over the term of
the customer's contract.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs
for our executive and administrative staff, overhead expenses including rent,
utilities, insurance, depreciation of non-network equipment and legal services.
We expect our general and administrative expenses to increase as we expand our
operations.
Non-cash Stock Compensation Expense
Non-cash stock compensation expense represents the aggregate difference, at
the date of grant or sale, between the exercise price of employee stock options
or the purchase price of restricted stock and the estimated fair value for
financial statement presentation purposes of the underlying stock. Deferred
compensation is amortized over the vesting period of the underlying options or
restricted stock.
Provision for Income Taxes
Income taxes consist of federal, state, and local taxes where applicable.
We expect to incur significant net losses for the foreseeable future which
should generate net operating loss carryforwards. However, our ability to
utilize these carryforwards may be subject to annual limitations. In addition,
some income taxes
23
<PAGE> 28
may become payable due to our operating income in certain tax jurisdictions. In
the future, if we achieve operating income, we may be able to utilize our net
operating loss carryforwards. If we exhaust our net operating losses or they
have expired, we may incur significant tax expense.
As of December 31, 1999, we had approximately $31,000,000 of federal and
state net operating loss carryforwards, which expire in various amounts
beginning in 2006. A valuation allowance has been recorded for the entire
deferred tax asset as a result of uncertainties regarding the realization of the
asset. See Note 5 of Notes to Financial Statements.
RESULTS OF OPERATIONS
PERIOD FROM MAY 18, 1998 (INCEPTION) TO DECEMBER 31, 1998 AS COMPARED TO THE
YEAR ENDED DECEMBER 31, 1999
Revenue
We first introduced our services in June 1998. Revenue in 1998 was $299,000
and increased to $8,402,000 for 1999. The increase was primarily due to the
growing number of customers for our services. At December 31, 1999, the number
of lines in service increased to 17,453 as compared to 405 lines in service at
December 31, 1998.
Network and Operations Expenses
Network and operations expenses in 1998 were $376,000 and increased to
$12,393,000 in 1999. The increase was primarily due to additional connectivity
and transport fees as a result of the increased number of customers subscribing
to our DSL services, and other increased costs resulting from additional
personnel, installation and equipment costs and the continued expansion of our
operations.
Sales and Marketing Expenses
Sales and marketing expenses in 1998 were $217,000 and increased to
$17,392,000 in 1999. The increase resulted from expanding our print and radio
advertising campaigns to obtain additional customers and a higher number of new
lines installed, which led to greater amortization of customer acquisition
costs, increased personnel costs and additional sales commissions.
General and Administrative Expenses
General and administrative expenses in 1998 were $371,000 and increased to
$7,656,000 in 1999. The increase resulted from growth in the number of general
and administrative personnel, and depreciation of non-network equipment
associated with our continued expansion.
Non-cash Stock Compensation Expenses
Non-cash stock compensation expense in 1998 was $0 and increased to
$916,000 in 1999. The increase in stock compensation expense resulted from
amortization of the underlying deferred compensation as well as the accelerated
vesting of stock held by a former employee.
As of December 31, 1999, deferred compensation totaled approximately
$8,100,000 and will result in non-cash stock compensation expense of
approximately $2,200,000 per year through 2002 and $1,600,000 in 2003.
Interest Expense
Interest expense in 1998 was $0 and increased to $2,767,000 in 1999.
Substantially all of the interest expense in 1999 was non-cash interest expense
related to the amortization of common stock warrants issued in connection with
certain promissory notes and equipment financing agreements.
24
<PAGE> 29
As of December 31, 1999, unamortized deferred financing costs related to
the promissory notes was approximately $3,200,000 and will be fully amortized in
the quarter ended March 31, 2000.
QUARTERLY RESULTS OF OPERATIONS
The following table presents our unaudited quarterly results of operations
for the period from inception to September 30, 1998 and the five quarters in the
period from October 1, 1998 to December 31, 1999. You should read the following
table in conjunction with our Financial Statements and Notes included elsewhere
in this prospectus. We have prepared this unaudited information on the same
basis as the audited financial statements. This table includes all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of our financial position and operating results for the
quarters presented. You should not draw any conclusion about our future results
from the results of operations for any quarter.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
INCEPTION TO ------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1999 1999 1999 1999
------------- ------------ --------- -------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue................................ $ 57 $ 242 $ 557 $ 1,503 $ 2,587 $ 3,755
Operating expenses:
Network and operations............... 128 248 449 1,777 4,069 6,098
Sales and marketing.................. 109 108 601 4,059 5,780 6,952
General and administrative........... 181 190 383 1,568 1,965 3,740
Non-cash stock compensation.......... -- -- -- 31 202 683
----- ----- ------ ------- ------- --------
Total operating expenses............... 418 546 1,433 7,435 12,016 17,473
----- ----- ------ ------- ------- --------
Operating income (loss)................ (361) (304) (876) (5,932) (9,429) (13,718)
Other income (expense):
Interest, including amortization of
deferred financing costs........... -- -- -- (244) 6 (2,529)
Other, net........................... -- -- -- -- (52) 2
----- ----- ------ ------- ------- --------
Loss before provision for income
taxes................................ (361) (304) (876) (6,176) (9,475) (16,245)
Provision for income taxes............. -- 1 -- -- -- 1
----- ----- ------ ------- ------- --------
Net loss............................... $(361) $(305) $ (876) $(6,176) $(9,475) $(16,246)
===== ===== ====== ======= ======= ========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations since inception primarily through the private
placement of equity securities, through which we raised net proceeds of
$98,665,000 through April 15, 2000. We have also financed our operations through
borrowings from affiliated companies, equipment financing under a master lease
agreement, issuances of convertible promissory notes and other short-term
financing. In May 1999, we issued $2,000,000 of convertible promissory notes,
together with warrants to purchase 899,500 shares of common stock at an exercise
price of $0.222 per share, to certain of our stockholders in exchange for cash.
In November and December 1999, we issued an aggregate of $9,000,000 of
convertible promissory notes, together with warrants to purchase 2,657,145
shares of common stock at a weighted average exercise price of $0.68 per share,
to certain of our stockholders in exchange for cash. In February 2000, we
entered into a bridge loan agreement with one of our stockholders and issued a
promissory note in the principal amount of $630,000, which note was converted
into Series B Preferred Stock, and we issued a warrant to the stockholder to
purchase up to 126,000 shares of common stock at an exercise price of $2.44 per
share. This warrant expires in February 2010 and is immediately exercisable. As
of December 31, 1999, we had $2,419,000 of cash and cash equivalents and
outstanding borrowings under convertible promissory notes and equipment
financing of $14,290,000.
In February and April 2000, we completed a private placement of 12,824,351
shares of Series B Preferred Stock for total cash proceeds of $84,256,000
including the conversion of approximately
25
<PAGE> 30
$9,800,000 of convertible promissory notes and accrued interest. Each share of
Series B Preferred Stock automatically converts into one share of common stock
upon an initial public offering meeting certain aggregate consideration and
price per share criteria. In connection with the Series B Preferred Stock
financing, we issued our placement agent, Thomas Weisel Partners LLC, a warrant
to purchase 169,827 shares of Series B Preferred Stock at an exercise price of
$6.57 per share. Upon the closing of this offering, this warrant automatically
converts into a common stock purchase warrant for the same number of shares at
the same exercise price.
In August 1999, Comdisco Ventures provided us with a $7,000,000 lease
facility, which was subsequently increased to $8,000,000, to finance the
acquisition of capital equipment. Under this facility, we have leased from
Comdisco items of equipment for terms of 36 months and items of software for
terms of 30 months. As of April 30, 2000, we had $8,000,000 outstanding under
this facility. The facility has a weighted average rate of 12.1%, is payable
monthly over a term of three years and is secured by the underlying assets. In
connection with this facility, we issued Comdisco warrants to purchase an
aggregate of 381,621 shares of common stock at a weighted average exercise price
of $1.295 per share.
In 1999, net cash used in our operating activities was $12,939,000, as
compared to $105,000 in net cash provided by operating activities in 1998. The
increase in net cash used in operating activities in 1999 was due to funding net
losses, increases in accounts receivable, customer acquisition costs and other
current assets, offset by non-cash charges and increases in accounts payable,
accrued expenses, deferred revenue and customer deposits.
In 1999, net cash used in investing activities was $10,687,000, an increase
from $455,000 in 1998. The net cash used in investing activities relates to the
acquisition of equipment necessary to expand our network and facilities,
information systems, computer hardware and furniture and fixtures.
In 1999, net cash provided by financing activities was $25,170,000, an
increase from $1,225,000 in 1998. Net cash provided by financing activities in
1999 resulted from issuances of preferred stock, advances from affiliated
companies and issuances of convertible promissory notes. Net cash provided by
financing activities in 1998 resulted from the sale of our common stock and
advances from affiliated companies.
In February 2000, we entered into a ten-year lease agreement for new
corporate office facilities. Monthly payments from May 2000 through October 2000
are $50,000. Monthly payments from November 2000 through December 2010 range
from $203,000 to $255,000. Our total obligations under this agreement are
$27,430,000 over the ten-year term.
We believe that the net proceeds from this offering, together with our
existing cash balances, will be sufficient to fund our operating losses, capital
expenditures, lease payments and working capital requirements for at least the
next 12 months. We expect our operating losses and capital expenditures to
increase substantially as we increase our sales and marketing activities and
expand our network, and we expect to incur substantial losses for the
foreseeable future. We expect that additional financing will be required in the
future. We may attempt to finance our future capital needs through some
combination of commercial bank borrowings, leasing, vendor financing and the
sale of additional equity or debt securities.
Our capital requirements will vary based upon the timing and success of
implementation of our business plan and as a result of competitive,
technological and regulatory developments, or if:
- demand for our services or our cash flow from operations varies from
projections;
- our development plans or projections change or prove to be inaccurate;
- we make any acquisitions; or
- we accelerate deployment of our network or otherwise alter the schedule
or targets of our business plan implementation.
Although we expect our existing capital resources, coupled with the
proceeds of this offering, will be sufficient to meet our cash requirements for
the next 12 months, we may thereafter be required to raise additional capital to
expand our network in order to provide services to the markets we have
identified for
26
<PAGE> 31
our national expansion. Additional financing may not be available at all or on
satisfactory terms. If future additional financing cannot be obtained, we may be
required to scale back significantly our operations and delay the expansion of
our network and the achievement of our business plan. This would have a material
adverse effect on our business, financial condition and results of operations.
THE YEAR 2000
Computer systems and software must accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, many software and
computer systems that accepted only two digit entries needed to be upgraded in
order to accept dates beginning January 1, 2000. We did not experience any date
related problems with our software or third party software and hardware we use
for our internal systems. In addition, we have not been made aware of, nor have
we experienced, date related problems with any third party software. We do not
believe that we will incur material costs in the future because of date related
problems.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1, or SOP 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. We adopted SOP 98-1 during the
year ended December 31, 1999.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the statement
of financial position, and that the corresponding gains or losses be reported
either in the statement of operations or as a component of comprehensive income,
depending on the type of hedging relationship that exists. SFAS 133 will be
effective for fiscal years beginning after June 15, 2000. We do not currently
hold derivative instruments or engage in hedging activities.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 or SAB 101, "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements filed with the Commission. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. We believe
that the impact of SAB 101 will not have a material effect on our financial
position or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We provide our services to customers in the United States. As a result, it
is unlikely that our financial results could be directly affected by factors
such as changes in foreign currency exchange rates or volatile conditions in
foreign markets. All of our sales are currently denominated in U.S. dollars.
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we may invest
in may be subject to market risk. This means that a change in prevailing
interest rates may cause the principal amount of the investment to fluctuate.
For example, if we hold a security that was issued with a fixed interest rate at
the then-prevailing rate and the prevailing interest rate later rises, the
principal amount of our investment will probably decline. To minimize this risk
in the future, we maintain our portfolio of cash equivalents and short-term
investments in a variety of securities, including commercial paper, money market
funds, government and non-government debt securities. In general, money market
funds are not subject to market risk because the interest paid on such funds
fluctuates with the prevailing interest rate. As of December 31, 1999, all of
our cash and cash equivalents were in money market and checking accounts.
27
<PAGE> 32
BUSINESS
OVERVIEW
We provide high-speed, or broadband, communications services to small and
medium-sized enterprises and residential customers nationwide using digital
subscriber line, or DSL, technology. We began offering broadband communications
services in June 1998. As of March 31, 2000, we provided service over more than
30,000 lines in 82 metropolitan statistical areas, or MSAs, and had orders for
more than 14,000 additional lines. We intend to aggressively expand our presence
within our current markets and into new markets. We intend to offer service in a
total of approximately 130 MSAs by the end of 2000 and over 200 MSAs by the end
of 2001. Our nationwide presence better positions us to partner with content
providers, applications developers and others to deliver a growing suite of
value-added broadband services. We believe that these partners prefer to work
with a single nationwide broadband provider rather than several regional
companies. The following table demonstrates our growth in customer lines and
MSAs served as of the dates shown.
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1999 1999 1999 1999 2000
------------ --------- -------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Lines in service.................. 405 1,340 3,507 7,892 17,453 30,147
Metropolitan statistical areas
served.......................... 12 12 16 21 52 82
</TABLE>
We seek to "own" the customer relationship by being the primary point of
contact for ordering, provisioning, billing, technical support, customer care
and all other aspects of the customer experience. We believe that building
strong customer relationships and brand awareness will best position us to
benefit from the migration from dial-up Internet access and secure our position
as a market leader in the emerging age of broadband communications. To support
our customer focus, we recently implemented a comprehensive operations support
system that integrates our operations with those of our suppliers in order to
streamline the provisioning process and improve the overall customer experience.
We employ a capital efficient "smart-build" strategy in designing and
deploying our network. We currently own and operate key network elements,
including our service delivery points and our integrated operations support
system, and lease other network elements, such as copper loops and the equipment
that connects our customers' telephone lines to our network. Our suppliers
include a diverse group of local exchange carriers such as Covad Communications
Group, Inc., NorthPoint Communications Group, Inc., Rhythms NetConnections,
Inc., Bell Atlantic Corporation, BellSouth Corporation, GTE Corporation and SBC
Communications, Inc. We believe our strategy enables us to accelerate our entry
into new markets, lowers our initial capital costs and allows us to focus
resources on customer acquisition and retention while preserving our ability to
control the applications and services we offer through our service delivery
points. As Internet technologies develop and the size and needs of our customer
base evolve, we expect to own and install additional network elements to better
control our network and generate stronger operating results.
In our major markets, we have deployed service delivery points to deliver
broadband applications and content from the edge of our network directly to our
customers and ensure a high level of service. By deploying application servers
in our local markets, rather than at remote data facilities, we are able to
manage, store and deliver audio, video, software and other high-bandwidth
content to our customers without incurring bandwidth costs for the retrieval of
these data. In addition, this network platform reduces the congestion problems
and data loss created at Internet gateways, and enables us to route our
customers' Internet traffic directly to our local Internet gateways. We believe
this network platform allows us to provide faster and more reliable broadband
services and content than is possible for companies that must backhaul data
between their customers and remote data facilities and the Internet, thereby
enhancing our customers' experience.
Our core service offering is currently broadband DSL connectivity and
Internet access, which we offer at several speeds and prices. We also currently
offer value-added services such as data security systems, or firewalls, e-mail
accounts, and web hosting and authoring. In addition, we are conducting customer
and
28
<PAGE> 33
technical trials for a number of additional value-added services, including
virtual private networks, streaming audio and video content and
software-on-demand. We intend to continue expanding our suite of value-added
services as broadband technology proliferates and the additional services, such
as voice over DSL, become viable. We currently use DSL technology to offer
high-speed Internet access and value-added services to our customers over their
existing copper telephone lines. Our network will also support the use of
alternative broadband technologies where it is advantageous to do so.
MARKET OPPORTUNITY
Our target market includes small to medium-sized enterprises with fewer
than 500 employees and residential users, such as professionals working in home
offices and telecommuters. Our target customers are becoming increasingly
dependent upon high-speed connectivity to communicate more efficiently with
their officers, employees, customers and suppliers, to facilitate e-commerce
transactions, to access critical information and business applications and
educational and entertainment content. The high data transfer speeds, low cost
and widespread availability of new broadband technologies have created an
opportunity to deliver high-speed connectivity and services to previously
underserved markets. We believe the following factors are creating a substantial
business opportunity:
- growing market demand for broadband communications services, applications
and content;
- limitations of existing telecommunications networks to meet these
demands;
- emergence of DSL and other broadband technologies; and
- regulatory changes contributing to the increase in cost-effective
broadband access.
Growing Market Demand for Broadband Communications Services
High-speed connectivity has become important to small and medium-sized
enterprises and consumers due to the dramatic increase in Internet usage.
According to International Data Corporation, IDC, the number of Internet users
in the United States reached approximately 82 million in 1999 and is forecasted
to grow to approximately 179 million by 2003.
A significant part of this user base is comprised of small and medium-sized
enterprises and residential customers. Many of these users are frustrated with
dial-up data transmission speeds, but have been deterred from seeking high-speed
Internet access by its cost. As high-speed Internet access has become more
affordable, an increasing number of these users have begun to seek broadband
communications services.
Work-at-home households, whether the work is driven by a home-based
business, formal telecommuting, or after-hours work, are key drivers of the
residential broadband communications services market. We believe that
residential demand for high-speed access services will continue to increase as
overall use of the Internet grows and the number of value-added broadband
services, such as video and audio-rich applications, increases. IDC estimates
that the number of DSL lines serving residential and business customers in the
United States will increase from 510,000 at the end of 1999 to 12.5 million at
the end of 2003.
We believe that as more small and medium-sized enterprises build web sites,
conduct e-commerce and rely on the web for a range of critical business
processes, they will be increasingly driven to use broadband communications
services. The adoption of broadband communications by small and medium-sized
enterprises will be directly related to its availability, pricing and ease of
use. IDC expects the number of small businesses using high-speed communications
service to increase from 380,000 in 1998 to 3.3 million in 2003.
Limitations of Existing Telecommunications Network
The growing demand for broadband Internet access and data communications
services is straining the capacity of the existing telecommunications network,
particularly the local access portion. Unlike the long distance portion of the
network, which typically consists of fiber optic cables and other equipment that
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enable high-speed connections, the local access portion of the network typically
consists of copper telephone wire that connects end users' locations to the
nearest local telephone company central office. This "last mile" of copper
telephone wire has historically been used for the transmission of low-speed,
analog voice signals and was not originally designed for the transmission of
high-speed digital signals. Most data transmission solutions to the last mile
problem, including dial-up modems, frame relay, integrated services digital
network, or ISDN, and T-1 lines, are relatively slow, hard to obtain or
expensive.
Emergence of DSL and Other Broadband Local Access Technologies
DSL technology has emerged as a commercially-viable, cost-effective means
of providing high-speed data transmission over existing copper telephone lines.
DSL technology enables the transmission of packets of data over a
telecommunications network. DSL equipment, when deployed at each end of a
standard copper telephone line, can increase the data carrying capacity of the
line to as high as 7 megabits per second or more, depending on the distance
between the user and the local telephone company central office and the quality
of the copper telephone line. Because DSL technology uses existing telephone
lines, a broad network deployment can be implemented rapidly. In addition to
DSL, alternative broadband local access technologies, such as wireless, fixed
wireless, cable modem, fiber and satellite, are being deployed by a variety of
access providers.
Regulatory Changes Contributing to the Increase in Cost-Effective Broadband
Local Access
The Telecommunications Act of 1996 has fostered competition among the
suppliers of broadband local access connections because, among other things, it
requires the incumbent local exchange carriers to make telephone lines and
facilities available to competitive local exchange carriers. Broadband
companies, like us, can now lease these broadband connections to the home, from
either incumbent local exchange carriers or one of a number of the competitive
local exchange carriers.
Certain FCC decisions implementing various portions of the
Telecommunications Act continue to remove barriers to competition among our
suppliers. For example, in December 1999 the FCC issued an order to implement
"line sharing," which allows a competitive local exchange carrier to
simultaneously provide DSL-based services over the same telephone line being
used by the incumbent local exchange carrier for basic telephone service. Prior
to the FCC's line sharing decision, only the incumbent local exchange carrier
could provide broadband service on the existing line. As line sharing becomes
generally available, it is expected to remove a significant barrier to
competition among our suppliers, although the FCC's line sharing order is
currently being appealed. By increasing competition, this decision should make
the pricing, functionality and availability of local access broadband
connections more favorable to us, but we cannot be certain that the FCC decision
will have this result or will be upheld.
OUR STRATEGY
Our goal is to become a leading nationwide provider of broadband
communications services to small and medium-sized enterprises and residential
customers. We believe our attractive combination of service, performance,
quality and price effectively addresses many of the broadband communications
needs of these markets. To enable us to penetrate our target markets, achieve
higher revenue per customer and maximize customer retention, we are pursuing the
following strategies:
Exploit Early Mover Advantage and Nationwide Presence
We believe that, by being one of the first providers of broadband
applications and services in our target markets, we have a competitive advantage
in capturing key customer relationships, important distribution channels and
strategic partnering opportunities. Our suppliers are a diverse group of local
exchange carriers including Covad, NorthPoint, Rhythms, Bell Atlantic,
BellSouth, GTE and SBC. We plan to continue to rapidly penetrate markets
throughout the United States that we believe have significant demand for
cost-effective, broadband communications services. We believe that our
nationwide presence and our status as a leading provider of broadband
connectivity and associated applications and services in
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our markets better positions us to partner with content providers, applications
developers and other service providers to deliver a growing suite of value-added
services. We believe that these partners prefer to work with a single nationwide
broadband provider rather than several regional companies.
"Own" the Customer Relationship
Our goal is to "own" the customer relationship by establishing ourselves as
a single source provider of access, broadband content and value-added services.
To meet this goal, we intend to continue to:
- manage all aspects of the customer relationship by being our customers'
primary point of contact from ordering through installation, and for
ongoing technical support and customer care;
- offer a variety of high-speed access and value-added services which can
enhance our customers' overall experience, and build loyalty; and
- build our brand and logo, and the association of our brand with our
comprehensive suite of services, through marketing, public relations
campaigns and other initiatives;
- offer incentives for customers to enter into long-term service agreements
with us. As of March 31, 2000, approximately 88% of our customers had
entered into our two-year service agreements.
We believe that this strategy will place us in a strong competitive
position with respect to the retention of customers and the sale of additional
value-added broadband services.
Expand Delivery of Broadband Applications and Content Across our Platform
We believe we can enhance our customers' online experience and build
lasting customer relationships by offering broadband content and other
value-added services in conjunction with our "always on" high-speed connectivity
and Internet access. We have partnered, and will continue to partner, with a
variety of independent developers of broadband content and other value-added
services, enabling us to deliver an attractive suite of services without the
costs associated with developing them on our own. We have placed, or plan to
place, application servers within our service delivery points in our major
markets, enabling us to deliver broadband content directly to our customers
without needing to backhaul the content from a remote location. Our broadband
content and other value-added services include or will include:
- business-oriented services, such as web hosting and e-commerce solutions,
virtual private network solutions, online data back-up, voice services,
video conferencing and other productivity enhancing services; and
- residential-oriented services, such as software-on-demand, streaming
audio and video, personal productivity enhancing services, voice services
and a variety of entertainment content.
Pursue Capital Efficient Network Strategy
We employ a capital efficient "smart-build" strategy to design and deploy
our network. We currently own and operate key network elements, including our
service delivery points and our integrated operations support system, and lease
other network elements, such as the copper loops and equipment that connect our
customers' telephone lines to our network. This strategy allows us to launch our
services in new markets more rapidly. We believe this strategy also reduces
capital requirements and allows us to focus on sales and marketing and our
integrated operations support system, allowing us to more rapidly build our
customer base and brand identity and enhance our customer relationships. This
focus should also allow us to generate a more rapid return on invested capital.
As data communications and Internet technologies develop and the size and needs
of our customer base evolve, we expect to own and install additional network
elements to better control our network and generate stronger operating results.
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Provide Superior Customer Service
We believe widescale customer adoption of our broadband communication
services requires simple and speedy installation, reliable operation and
responsive customer care and technical support. We have implemented a
comprehensive operations support system that integrates our operations with
those of our suppliers to streamline the provisioning process and improve the
overall customer experience. As part of this system, we are developing a
web-based interface that will enable customers to place an order, check the
status of that order and continue to manage their service via the Internet. In
addition, our customer care centers provide technical support 24 hours a day,
seven days a week. We will continue to devote significant resources to expanding
and further developing our customer service and technical support staff in order
to provide our customers with a superior level of service. Our objective is to
provide a high degree of customer satisfaction, which we believe will promote
customer loyalty.
Continue Aggressive Sales and Marketing Efforts
We will continue to target our efforts at customer acquisition through
aggressive marketing and branding campaigns and by extending our existing
channels of distribution. By using a diverse mix of marketing channels, we
intend to establish a national identification of our Flashcom brand and logo
with DSL and value-added broadband services. In addition, through extensive
market research we create campaigns focused on each of our target markets in
order to maximize market share. We also intend to extend our existing
distribution channels by partnering with equipment manufacturers to include our
DSL service with their products.
OUR SERVICES
We offer a comprehensive suite of broadband communications and Internet
access services designed to meet the needs of both small and medium-sized
enterprises and residential users.
High-Speed Connectivity and Internet Access
We offer customers high-speed DSL connectivity and broadband Internet
access through "always on" network connectivity. This connectivity provides our
customers with the ability to readily and continuously access the Internet
rather than dialing into a network for access. "Always on" broadband access
significantly enhances various customer-configured information services, such as
instant messaging, e-mail and content-related services featuring information
such as stock quotes, real time news, sports and weather. With the
implementation of line sharing, as described in "Business -- Market
Opportunity," we will be able to enhance the customer experience by enabling
users to access the Internet while simultaneously using their existing telephone
line for traditional voice telephone service. Thus, once line sharing becomes
generally available our customers will not need a second telephone line for
simultaneous voice and data communications, as do users of traditional dial-up
access services. This feature will also eliminate many disadvantages of dial-up
connections, including busy signals and the slow dial-up process.
Our DSL connectivity services provide data transfer speeds ranging from 144
kilobits per second to 7 megabits per second. These data transfer speeds vary
based on the service plan selected, the speed of connectivity we purchase or
lease from our local access provider, the quality of the existing telephone
lines and the customer's distance from the local telephone company's central
office. Our customers receive unlimited Internet access with no per minute
charge. Our service plans range from month-to-month to contracts of up to three
years.
Value-Added Services
We intend to use our DSL connectivity and broadband Internet access
services as a platform to provide value-added content and productivity-enhancing
services to our small and medium-sized enterprises and residential customers. We
plan to continue to expand our content offerings and network
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services by working closely with leading hardware, software and networking
companies. Our broadband connectivity service solutions allow us to offer the
following services:
Current Offerings
- Data security systems (Firewalls), a type of security technology located
at a network gateway server or on a customer's personal computer, protect
the resources of a private network from users of other networks. We
currently provide firewall services through a third-party software
developer to customers who request added security for their broadband
connections. By the third quarter of 2000, we expect to provide
network-based firewall services and residential, client-based firewall
services directly.
- E-mail accounts allow all customers to send, receive and manage
electronic mail and allow business customers to eliminate the overhead
typically associated with managing an in-house e-mail platform.
- Web-hosting and authoring allow our customers to utilize a web site
template to create a basic e-brochure web site or, for customers that
require extended web site capabilities, fully customized web sites. We
are currently engaged in technical trials that will allow for the mass
deployment of this service.
Future Offerings
- Virtual private networks will allow our business customers to extend
their corporate networks to remote employees and external organizations.
These customers will have the benefits of a dedicated wide-area network,
including high-speed access and security, at a fraction of the cost of a
traditional network. We are currently engaged in customer trials of this
service.
- E-commerce solutions will provide customers desiring to sell their
products and services over the Internet with a more elaborate web
presence. These additional services include, among others, product
cataloging, online shopping cart capability, credit card transaction
processing, and order fulfillment notification.
- Dial-up remote access and backup will allow a customer to access the
Internet through dial-up connections while traveling away from the
customer's installed DSL line, and will also provide as a back-up service
in the event DSL access is temporarily unavailable. We are currently
engaged in technical trials of this product.
- Home Networking will enable communication with peripheral devices and
products through in-house wiring and wireless technology. These devices
will include additional personal computers, printers, telephones, and
other network enabled devices. This offering will enable different users
to simultaneously access the Internet from, and distribute information
to, multiple locations within their homes. We are currently engaged in
technical trials of this service.
- Software-on-demand will provide access to a library of CD-ROM based
educational, entertainment and productivity software titles which
customers can lease for the duration of their choice with an option to
purchase. We are currently engaged in technical and customer trials of
these services.
- Streaming video and audio applications will allow the customer to start
displaying or listening to audio or video files before an entire file is
transmitted. These applications are becoming increasingly available, but
require broadband Internet access. We are currently engaged in technical
trials of these services.
- Online data backup services will permit the secure backup of data located
on a customer's personal computing devices. This feature allows a
customer to backup data automatically to a secure remote site. We believe
remote backup is more cost-effective than other data storage solutions
such as tape or disk drives, and has the additional advantage of being
stored offsite.
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- Telecommuting services will connect home or remote offices with an
employer's local area network over a secure virtual private network. Such
connections will permit connectivity at speeds of up to 7 megabits per
second and will have firewall protections.
- Packet-based telecommunications services will exchange voice, fax, and
other forms of information as discrete packets of information over shared
networks rather than over the dedicated circuit-switched connections of
the public switched telephone network. We intend to offer these services
using voice over DSL or voice over IP technology once they are capable of
delivering the voice, fax, or video packets in a dependable flow to the
user.
- Video conferencing will combine video and audio technology to facilitate
the electronic meeting of people from two or more locations. In addition
to audio-visual communication, videoconferencing will enable the sharing
of different kinds of electronic information. This technology could
reduce the costs of travel, produce gains in productivity and allow for a
faster and smoother flow in business decisions.
- Advanced online connectivity and content will allow the customer to
access online video games, movies, digital photos, MP3, interactive
shopping, chat facilities, enhanced voice messaging services and other
content.
MARKETING
We developed our marketing strategy on the basis of extensive market
research in each of our target markets. We believe that our marketing strategy
will accelerate the rate at which potential customers adopt our broadband
communications services. We believe that our brand name, our "rocket turtle"
logo and our nationwide presence will allow us to expand our customer base by
capturing significant market share from existing providers of narrowband
Internet services, dedicated data providers and new users to broadband in our
target markets. In addition to strong brand recognition, the nationwide reach of
our network provides us with access to customer acquisition channels not
available to local and regional service providers.
We primarily market our services to customers through an aggressive
branding and marketing campaign designed to grow consumer awareness of DSL
technology and, at least initially, associate Flashcom exclusively with DSL
services. Our marketing team is focused on our branding, advertising/ direct
response marketing, channel marketing, pricing and product bundling strategies.
We are focusing our marketing efforts on three primary market segments:
- current residential and home office Internet users;
- small to medium-sized enterprises; and
- corporate telecommuter accounts.
For each segment, we are creating a specific marketing program which will
include a service package, pricing plan and promotional strategy. We believe
that targeted service offerings, as well as ongoing customer retention programs,
will increase customer loyalty and satisfaction, thereby reducing customer
turnover. The following are key components of our marketing strategy:
Branding
We believe that building our "Flashcom" brand and our "rocket turtle" logo
attracts new customers and enhances our relationships with existing customers.
We are building our brand and brand image through a variety of strategies,
including direct marketing, focused advertising campaigns, public relations
campaigns and customer marketing initiatives in both local and national mass
market media. We believe that customers associate the Flashcom brand and our
"rocket turtle" logo with high quality broadband communications services.
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Advertising/Direct Response Marketing
We believe that the most successful and efficient marketing strategy is to
focus our media, outside of a certain percentage of the budget dedicated to
brand advertising, on direct response marketing for each of our target markets
on a national and local basis. We use advertising agencies to support the
creative development and placement of our brand and direct response campaigns.
Direct response campaigns in progress or scheduled for testing include direct
mail, radio, print, television, email, customer referral and outbound
telemarketing. We use detailed demographic analysis of our current target
customers and central office data to target our direct response marketing
efforts to the potential customers that are most likely to purchase our
services. All of our advertising materials use the Flashcom name and the "rocket
turtle" logo.
We also have implemented online customer marketing programs, such as our
web site where customers can learn about broadband and DSL, how to use our
service, whether they qualify for our services, and how to find information
quickly. Additionally, we are generating Internet links to our web site from
direct ad banner placements as well as from our relationships with partners such
as MP3.com and 2Wire, Inc.
Pricing
Our pricing plans are designed to be competitive and straightforward. We
offer pricing plans tailored for each of our market segments. We offer multiple
price plans nationally and we design our plans to provide incentives for our
customers to enter into long-term agreements. We believe this strategy has been
successful because, as of March 31, 2000, approximately 88% of our customers had
two-year contracts and approximately 11% of our customers had one-year
contracts.
Bundling and Affinity Marketing
We will continue to bundle our broadband services with other Internet and
value-added services, and consumer electronic products, through strategic
alliances and resale agreements. Specifically, we believe that personal computer
manufacturers, modem manufacturers and broadband content developers will make
ideal channel distribution partners for our broadband communications services.
For example, our broadband service is bundled with Hewlett Packard's Pavillion
computers and will be bundled with PC-Tel's DSL-ready modems, which will enable
the customer to sign up for our services during the initial computer setup
process. We believe that this equipment and software bundling will simplify and
accelerate installation of our service, allowing us to acquire customers more
rapidly.
In addition, we are seeking to partner with numerous content providers to
develop value-added applications appropriate for download by our customers. We
anticipate that these content partners will promote our services, and we in turn
will provide a platform for transmitting their digital broadband applications.
We believe the initial digital broadband applications will include video and
audio streaming, software on demand, video game applications and distance
learning. We also may offer service options in partnership with local business
and affinity marketing groups, such as financial or banking institutions. These
offerings will provide the customer broadband access to information and services
including account status and transaction management.
SALES
Our sales strategy is to use a balanced mix of distribution channels to
maximize penetration within our target markets while minimizing customer
acquisition costs. Our distribution channels include our telesales call centers,
a direct sales force for corporate telecommuter accounts and business customers,
national, regional and local mass merchandisers and retailers. We also have an
indirect sales effort that is designed to expand our distribution capabilities
through strategic relationships with authorized sales agents and other
value-added resellers. In addition, we work with our suppliers to cooperatively
exchange leads and develop new business. We are developing a web-based ordering
system that will enable us to process a high-volume of customer orders without
adding additional sales personnel.
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Telesales
Our marketing campaign generates a high-volume of inbound telephone phone
calls over our toll-free number, 877-FLASHCOM, from small to medium-sized
enterprises and residential users inquiring about our services. Our Southern
California call center is responsible for sales in the Western half of the
United States, while our Boston call center manages sales in the Eastern half of
the United States. Both call centers can receive and execute sales orders for
the other to accommodate heavy call volume patterns and time zone differences.
We employ separate telesales groups to answer inbound calls and leads in the
following ways:
- our residential telesales group sells broadband connectivity, customer
premise equipment and value-added services to the consumer market;
- our channel sales group focuses on broadband connectivity for our channel
partners, such as ePhones and 2Wire;
- our enterprise sales group offers business solutions, including broadband
connectivity, customer premise equipment and value-added services to
small and medium-sized enterprises; and
- in addition, an outbound group is dedicated to answering leads generated
from various online programs, as well as managing upgrades and contract
renewals for our customers.
Direct Sales
We are developing a direct sales distribution channel to focus on
high-margin small and medium-sized enterprises and corporate customers with
high-volume telecommuter connectivity needs and high-revenue. Our direct sales
force consists of business account executives targeting the data communications
decision makers within large corporations and small and medium-sized
enterprises. Our direct sales force is supported by inside sales/account
managers, project and program managers and sales engineers.
E-Commerce
We are in the process of developing an e-commerce web site where new and
existing customers will be able to qualify themselves for service, order any of
our rate plans, services and equipment, and upgrade their existing service
online. This online store will provide a secure environment for transactions,
and online customers will experience a similar business process to that of
customers purchasing service through other channels or over the phone. We expect
to add service status and electronic bill viewing and online bill payment
capabilities to our web site by December 31, 2000.
Retail Outlets
We are currently exploring distribution arrangements with several national
and regional mass merchandisers and consumer electronics retailers, including
additional consumer electronics stores, music stores, video rental chains,
bookstores and online retailers. We are targeting these distributors based upon
their ability to reach our target customers in a particular market. We plan to
support these relationships through the use of revenue sharing, cooperative
advertising, joint promotional events and manufacturer development funds.
Third Party Distribution
We are positioned as a key broadband services provider for companies that
bundle broadband access with their products or services. For example, our
broadband service is bundled with Hewlett Packard's Pavillion computers and will
be bundled with PC-Tel's DSL-ready modems.We believe that third party
distribution is an attractive sales channel because it enables us to reach many
more potential customers than we could reach through most other acquisition
channels, and because the manufacturer generally bears the distribution cost.
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Value-Added Resellers
We have established sales channels and significant market coverage through
value-added resellers without incurring the costs of a large direct sales force.
These resellers are categorized into two groups, national and regional network
integrators. In the small to medium-sized enterprise market, these resellers
sell our broadband connectivity as part of a full service network/Internet
solution, including design, installation and maintenance. We solicit systems
integrators and resellers through a combination of online advertising and direct
telesales, and we currently have more than 60 resellers in our markets.
NETWORK ARCHITECTURE AND DEPLOYMENT
We have employed a capital efficient "smart-build" strategy in designing
and deploying our network. Under this strategy we:
- own certain key network elements, such as our service delivery points and
our integrated operations support system;
- lease more readily available network elements, such as the copper loops
and the equipment that connects our customers' telephone lines to our
network; and
- install application servers and routers at our service delivery points
which enable us to deliver broadband applications and content from the
edge of our network directly to our customers.
We believe this DSL "smart-build" strategy enables us to accelerate our entry
into new markets, lowers our initial capital costs, and allows us to focus
resources on customer acquisition and retention while preserving our ability to
control the applications and services we offer through our service delivery
points. As our business grows, we expect to own and install additional network
elements to better control our network and generate stronger operating results.
We currently provision our customers' DSL connectivity both through the
incumbent local exchange carriers and newer competitive local exchange carriers,
or Data-CLECs. These suppliers currently include Covad, NorthPoint, Rhythms,
Bell Atlantic, BellSouth, GTE and SBC Communications. Because we did not adopt a
"build first, sell later" approach to our network strategy like many of the
Data-CLECs, we have the flexibility to provision our customers' DSL lines using
different carriers depending upon line costs, operating and provisioning
performance and market development funds.
In our major markets, we have deployed service delivery points that deliver
broadband applications and content from the edge of our network directly to our
customers and ensure a high level of service. By deploying application servers
in our local markets, rather than at remote data facilities, we are able to
manage, store and deliver audio, video, software and other high-bandwidth
content to our customers without incurring bandwidth costs for the retrieval of
these data. In addition, this network platform reduces the congestion problems
and data loss created at Internet gateways, and enables us to route our
customers' Internet traffic directly to our local Internet gateways. We believe
this network platform allows us to provide faster and more reliable broadband
services and content than is possible for companies that must backhaul data
between their customers and remote data facilities and the Internet, thereby
enhancing our customers' experience.
Network Architecture
The following diagram outlines the connection between our customer, the
local telephone company's central office, our service delivery points and the
Internet. Our customer's computer or local area network is linked to the DSL
modem/router via Ethernet cables, and the DSL modem/router is linked to the
phone outlet. Our customer's business or residence is connected to the local
telephone company's central office via a DSL-ready copper wire. In the local
telephone company's central office, the DSL Access Multiplexer, or DSLAM,
aggregates the data from the customers served by the central office and then
packages the data for high-speed transmission to our service delivery points.
Through our equipment located
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in one of our service delivery points, the customer may access other Flashcom
customers served out of that service delivery point, our broadband applications,
content and services, or the Internet.
[DIAGRAM DEPICTING OUR NETWORK STRUCTURE]
- CUSTOMER PREMISE EQUIPMENT. Our DSL service requires a DSL modem, which
we or our suppliers acquire, configure and install to work with our
customer's computer, along with any required on-site wiring needed to
connect the modem to the telephone line. We use a variety of DSL modems
to connect with our suppliers' DSL equipment located in the local
telephone company's central office.
- LOCAL TRANSPORT. A twisted-pair copper wire, or local loop, leased on a
monthly basis from the local telephone company provides the physical
connection of our customer's premises equipment to our DSL suppliers'
equipment co-located in the local telephone company's central office.
- CENTRAL OFFICE CO-LOCATION FACILITIES & METROPOLITAN NETWORK. Our DSL
suppliers secure co-location space within central offices of incumbent
local exchange carriers. In their co-location space they install their
DSL multiplexing equipment, which is then connected to our DSL-qualified
copper lines. Each central office co-location facility is connected to a
metropolitan network using asynchronous transfer mode, or ATM, or frame
relay switched transport. This metropolitan network carries data from our
DSL suppliers' central office co-location facilities to their
metropolitan switching center, and to their other central office
co-location facilities. We then extend that ATM or frame relay circuit
out to our service delivery point, typically located within that
metropolitan area.
- SERVICE DELIVERY POINTS. A service delivery point typically consists of a
customer management system, application servers, Internet backbone
routers and a network management system. By deploying application servers
in local markets, rather than at remote data facilities, we are able to
manage, store and deliver audio, video, software and other high-bandwidth
content to our customers without incurring bandwidth costs for the
retrieval of these data. In addition, the service delivery points allow
us to route our customers' Internet traffic directly onto our local
Internet gateways which are located at each service delivery point.
Internet traffic enters the Internet through managed Internet access
ports at speeds ranging from 45 Mbps to 100 Mbps today, and over 1
gigabits per second in the future, through our co-located facilities at
data centers owned by AT&T, Level 3 Communications and Exodus
Communications.
Network Operations Center
We monitor and manage our network from our network operations center
located at our corporate headquarters in Southern California. From this center,
we monitor all aspects of our network, including equipment and circuits in each
service delivery point. Our network monitoring system uses advanced network
management tools and is staffed 24 hours a day, seven days a week. We are
continuing to develop
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and improve our network monitoring system, focusing on the design and
development of new technologies and services to enhance network reliability and
speed.
INFORMATION SYSTEMS AND ORDER PROVISIONING
We have developed systems and processes that we believe will provide us
with a competitive advantage by reducing costs and enabling us to process large
order volumes, rapidly integrate new product offerings and provide superior
customer service. Operations support systems enable a broadband service provider
to enter, schedule and track a customer's order from the point of sale to the
installation and testing of service. These systems also typically include or
interface with trouble management, billing, and customer service systems.
To achieve these goals, we are developing, acquiring and integrating
information technology systems to support our operations, and we are
establishing electronic bonding arrangements with our DSL suppliers. To address
these critical issues, we have hired an experienced team of engineering and
information technology professionals. This team is working to develop, with the
assistance of key third party vendors, operations support systems that
synchronize multiple tasks such as provisioning, customer service and billing
and provide management with timely operating and financial data to most
efficiently direct network, sales and customer service resources. In addition,
we are establishing electronic bonding systems with our primary and secondary
suppliers. This architecture provides for better customer care and operational
efficiency by automating the flow of orders and status with our suppliers,
providing management with key supplier performance measurements and providing
customers with timely and accurate information about their service.
We have implemented a state-of-the-art operations support system that
automates and streamlines the provisioning, customer care and billing processes.
The system is an integrated platform comprised of application packages from
Oracle Corporation, Siebel Systems, Inc., Portal Software, Inc. and Vitria
Technology, Inc. This system enables quicker access to customer service records,
facilitates real-time account review and significantly improves salesperson
productivity. This streamlined provisioning infrastructure is capable of scaling
to process 1,500 to 2,000 new customers per day. We anticipate that the system
will be able to initially handle more than 2,000,000 customer accounts.
We are continuing to develop these customized operations support systems
and procedures for operations support and other support systems that we believe
will provide a significant competitive advantage in terms of reduced costs,
increased order processing and superior customer service. We believe that the
ability to successfully manage the process of converting broadband and DSL
orders into installed customers is one of the key functions required to succeed
as a broadband service provider. As a result, we have devoted significant
resources to this aspect of our operations and we continue to develop our
information systems to facilitate this function. These systems are required to
enter, provision, and track a customer's order from the point of sale to the
installation and testing of service and also include or interface with trouble
management, billing and customer service systems. The existing systems currently
employed by most incumbent local exchange carriers, competitive local exchange
carriers, Internet service providers and other broadband service providers,
which were developed prior to the dynamics of today's market, generally require
multiple manual entries of customer information to accomplish order management,
provisioning, customer administration and billing. This process is not only
labor intensive, but also creates numerous opportunities for errors in
provisioning service and billing, delays in installing orders, service
interruptions, poor customer service, increased customer turnover, and
significant added expenses due to duplicated efforts and decreased customer
satisfaction.
We believe that the practical problems and costs of upgrading existing
systems are often prohibitive for companies whose existing systems support a
large number of customers with ongoing service. Because we do not have systems
designed prior to the development of broadband and DSL, our team of engineering
and information technology professionals is free to develop operations support
and other back office systems designed to facilitate a smooth, efficient
broadband and DSL order management, provisioning, trouble management, billing
and customer care process.
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Order Management
We have used Siebel's order management software to develop processes that
allow the sales team not only to enter customer orders onsite, via computer
and/or over the Internet, but also to monitor the status of an order as it
progresses through the service installation process.
Provisioning Management
The licensed order management software, together with the proprietary
processes and application programming interfaces (a type of computer code) which
we have developed to optimize the usefulness of this software, supports the
design and management of the process by which we provision broadband and DSL
services to our customers. The system has been designed to permit programming
into the system of a standard schedule of tasks that must be accomplished to
initiate service to a customer, as well as the standard time intervals during
which each such task must be completed. When a standard order is selected in the
system, each required task in the service initiation process can be efficiently
managed to its assigned time interval.
External Interfaces/Electronic Bonding
Several external interfaces are required to initiate service for a
customer. While some of these are automated via gateways from the order
management software, the majority of our interfaces are accomplished via fax,
e-mail, or web-based forms. In an effort to make this process more efficient, we
began a comprehensive systems integration project in the second half of 1999 to
implement electronic bonding of our systems and the operations support system of
a DSL supplier. We expect electronic bonding to improve productivity by
decreasing the period between the time of sale and the time a customer's line is
installed. We are determined to achieve electronic bonding, the online and
real-time connection of our operations support systems with those of our
suppliers, by the end of 2000. We have already achieved such bonding with Covad.
We are currently testing electronic bonding with NorthPoint and expect to begin
sending production orders in May 2000. Electronic bonding with Rhythms should
also be completed by the end of the second quarter of 2000. In all of these
markets, we are also working towards the electronic bonding of that portion of
the billing process in which we gather customer specific information, including
their current service options, and the process of identifying and resolving
customer service problems.
Electronic bonding allows us to access data from our DSL suppliers, submit
service requests electronically, and more quickly attend to errors in the
broadband service request form because an order is bounced back immediately if
the DSL supplier identifies a mistake. As a result, we expect to eventually
reduce the time frame required to provision DSL services from approximately 35
business days to as few as three business days. Electronic bonding should also
enable us to provide better customer care since we will more readily be able to
pinpoint where any problems may have occurred with a customer's order.
Network Element Administration
We are in the process of automating each element of our service. We are
continuing to develop an interface between our order management system and the
network element manager to help ensure data integrity and eliminate redundant
data entry.
Customer Billing
We have selected Portal as our billing platform. Customer information is
electronically interfaced with this system from our order management system via
a Vitria interface, thereby integrating all repositories of information. We are
continuing to develop other enhancements to the billing interface.
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ORDER PROCESSING
We have a number of DSL suppliers, including three nationwide Data-CLECs
(Covad, NorthPoint, and Rhythms) and several incumbent local exchange carriers
(Bell Atlantic, BellSouth, GTE and SBC). In many markets, we have the ability to
choose between several partners to provision and install new orders for a
customer's DSL line. Installation times throughout the industry vary depending
on the DSL supplier, geographical region served and the extent of work required
to deliver a DSL-ready telephone line to the customer. Taking into consideration
speed, quality, cost and other factors, we select a supplier to provision a new
DSL order. In most cases, we can provide operational DSL service within 30 to 45
days after receipt of an order and successful line qualification.
We currently receive orders routed through our call centers over our
toll-free telephone number, 877-FLASHCOM. Our salespeople initially determine
whether the customer's location is able to receive DSL service, based on several
factors including the distance between the customer's location and the nearest
central office and whether we have a provisioning agreement with a supplier
covering the customer's area. Once we take the customer's order, we mail a
confirmation of the contract terms and conditions to the customer along with our
publication "Getting Started with DSL," which describes the provisioning steps
and instructions to prepare for DSL service at their location. In the meantime,
we coordinate with our suppliers to install DSL equipment at the customer's
location and prepare the customer's copper telephone line for DSL service.
We are working to automate most of the processes involved in providing a
customer broadband connectivity. Our goals are to decrease the time between
customer order and service installation, reduce overhead costs and improve
customer service.
CUSTOMER INSTALLATION AND CARE
Customer Installation
Once confirmation is received from the local telephone company that the
preliminary outside line work is complete, an inside installation date is
scheduled with the customer. We work with selected installers to complete the
inside installation and test the DSL line to ensure it is operational. The
installer typically connects the DSL modem/router to the customer's telephone
wall jack, but does not complete the installation process by configuring the
customer's computer. We are evaluating solutions that would enable us to ensure
the customer is "surfing the web" prior to the installer leaving the customer's
location.
We are also evaluating processes and technologies that will enable us to
provision DSL service without requiring a technician to install the necessary
equipment. For example, an increasing number of DSL equipment manufacturers are
developing DSL equipment compatible with new industry standards, which is
designed to enable DSL installation of customer premise equipment without the
need for an on-site technician. While this is still an emerging technology,
recent successes in the technology development and operating tests have shown
the viability of shipping this DSL equipment separately or pre-installed in
computer hardware. We are working with the manufacturers of this equipment to
enable "touch-less" provisioning of customer lines, enabling us to more rapidly
scale our customer base and reduce our installation costs and reliance on
suppliers.
Customer Care
We achieve post-installation quality assurance through a proactive service
assurance team that surveys a sample of our existing customer base, reports
findings on general satisfaction levels and makes recommendations for corrective
action or training opportunities. With our remote monitoring and troubleshooting
capabilities, we continuously monitor our network and our customers'
connections.
We are committed to building strong customer relationships by providing
customers with prompt and helpful service. We serve our customers from our
facilities in Irvine, California and Boston, Massachusetts. The Sutherland
Group, a leading provider of outsourced call center services, provides back-up
call center
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support from one facility in California. As of March 31, 2000, the two Flashcom
centers employed 210 customer care representatives. The three center structure
allows us to distribute customer service calls between the centers to promote
cost effective customer service 24 hours a day, seven days a week.
We are emphasizing proactive and responsive customer service, including
welcome packages and follow up calls. We also are expanding web-based services
to include online account information to allow customers to check service
status, billing, modify service or otherwise manage their accounts.
Our customer service programs are designed to improve customer satisfaction
and retention, while controlling costs, by combining selective outsourcing with
in-house and web-based services. We believe that our customer service programs
will position us to provide customer support services that are efficient and
scalable for future growth.
COMPETITION
We face competition from many companies with significantly greater
financial resources, well-established brand names and large, existing customer
bases. In addition, we expect our industry to become increasingly competitive in
the future. The competitive factors in our industry include:
- connectivity speed
- reliability
- price
- ease of access and use
- operating experience
- exclusive contracts with customers, including Internet service providers
and businesses with multiple offices
- service
- customer support
- breadth of product offering
- network security
- content bundling
- brand recognition
- capital availability
We believe our services are competitive with other high-speed connectivity
alternatives. We expect competition from:
DSL Carriers. Data-CLECs offer DSL service primarily through indirect
channels, although many of them also currently offer DSL services on a retail
basis in selected markets. These companies have negotiated interconnection
agreements with the incumbent local exchange carriers and are currently building
out their networks, including obtaining co-location space in incumbent local
exchange carriers' central offices to install their DSL equipment. Many of these
companies have substantial financial resources and increasing brand recognition.
Internet Service Providers (ISPs). Several national and regional Internet
service providers have begun developing high-speed access capabilities to
leverage their existing products, services and customer bases. These companies
generally provide dial-up Internet access to residential and business customers
over the incumbent local exchange carriers' networks. Several Internet service
providers have begun offering DSL-based access by reselling DSL service or, in
some cases, building their own DSL networks. Some Internet service providers are
entering into strategic or commercial alliances with DSL-based competitive
telecommunications companies on regional or national levels.
Incumbent Local Exchange Carriers. Incumbent local exchange carriers have
begun deploying DSL-based services as well as other high-speed data
communications technologies. In addition, these carriers are also leasing wide
area connections and have existing metropolitan area networks and circuit
switched local area networks. These companies have established brand names,
possess sufficient capital to deploy DSL services rapidly, own copper telephone
lines and have large customer bases. These companies also may operate their own
Internet service provider businesses. In addition, the FCC is considering
establishing requirements for separate subsidiaries through which certain of
these carriers could provide DSL service on a substantially deregulated basis,
and bills introduced in Congress would allow the
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Regional Bell Operating Companies to provide DSL and certain other services on a
largely deregulated basis. In response to petitions by several incumbent local
exchange companies requesting that the FCC substantially deregulate the retail
price they charge for various types of telecommunications services, including
high-speed data services, the FCC recently issued a decision that establishes a
procedure pursuant to which such incumbent local exchange companies may apply
for certain pricing flexibility. We cannot yet determine the extent to which
these companies will use this procedure or the impact of any pricing flexibility
that the FCC awards to any company under this procedure. The ultimate impact of
the FCC's order is also uncertain because that order has been appealed. If the
FCC were to substantially eliminate price regulation of the high-speed data
services the incumbent local exchange companies provide in competition with us,
our business could be adversely affected.
Long Distance Carriers. Certain national long distance carriers have
deployed or are in the process of deploying large-scale data networks to sell
connectivity to businesses and residential customers. These long distance
carriers have high brand recognition and large customer bases, as well as
significant financial resources and organizational capabilities. Their networks
are able to support high-speed, end-to-end network services which include
high-speed local access combined with metropolitan and wide area networks, and a
full range of Internet services and applications. These companies, which have
interconnection agreements with the incumbent local exchange carriers as well as
co-location space in many central offices, are beginning to offer competitive
DSL services. Recently, some new national long distance carriers have begun to
build and manage high-bandwidth, nationwide fiber optic networks and are
partnering with Internet service providers to offer high-speed connectivity
services directly to residential and business customers.
Competitive Local Exchange Carriers (CLECs). Certain competitive local
exchange carriers have extensive fiber-based networks in many metropolitan
areas, primarily providing high-speed data and voice circuits to business users.
Many of these carriers have begun offering DSL services to their customers.
Cable Modem Service Providers. Cable modem service providers are offering
or preparing to offer high-speed Internet access to consumers over cable
networks. Where deployed, these networks provide high-speed local access
services, in some cases at speeds greater than DSL service. They typically offer
these services at lower prices, in part by sharing the capacity available on
their cable networks among multiple end users. Many of these providers have
large customer bases and significant financial resources.
Wireless and Satellite Data Service Providers. Several new companies are
emerging as wireless data service providers. In addition, other companies are
emerging as satellite-based data service providers. These companies use a
variety of wireless technologies to provide high-speed data services.
REGULATORY
We are a high-speed Internet access provider and a provider of value-added
broadband applications over traditional telephone lines. We do not believe we
are currently subject to direct economic regulation by the FCC or any state
regulatory body, other than the type and scope of regulation that is applicable
to enterprises generally. In April 1998, the FCC reaffirmed that Internet access
providers should be classified as unregulated "information service providers"
rather than regulated "telecommunications providers" under the terms of the
Telecommunications Act of 1996. As a result, we believe that we are not
currently subject to federal regulations applicable to telephone companies and
similar carriers, such as Data-CLECs.
In the future we could become subject to regulation by the FCC or another
regulatory agency as a provider of basic telecommunications services. For
example, the FCC has expressed an intention to consider whether to regulate
providers of voice and fax services that employ the Internet or Internet
protocol switching as "telecommunications providers" even though Internet access
itself would not be regulated. The FCC is also considering whether providers of
Internet-based telephone services should be required to contribute to the
Universal Service Fund, which subsidizes telephone service for rural and low
income consumers, or should pay carrier access charges on the same basis as
applicable to regulated telecommunications providers. To the extent that we
engage in the provision of Internet or Internet
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protocol based telephony services, we may become subject to the Communications
Act of 1934, as amended, regulations promulgated by the FCC or state laws or
regulations with respect to these activities.
We may apply for certificates of authority to become a competitive local
exchange carrier in selected states. Regulators reviewing applications for these
certifications generally require a showing that the carrier has adequate
financial, managerial and technical resources to offer the proposed services
consistent with the public interest. While we believe we will be able to obtain
these certificates on a timely basis, we cannot guarantee that we will be able
to obtain the certifications on a timely basis or at all. In addition, some
incumbent local exchange companies might refuse to provide certain services and
facilities to us on favorable terms unless we obtain state certifications. If we
obtain state telecommunications certification, under some state statutes,
changes in the ownership of our outstanding voting securities also may trigger
additional state public utility commission approval. For example, in certain
jurisdictions an investor who acquires as little as ten percent or more of our
voting securities may have to obtain prior approval of the acquisition of such
securities because such ownership might be deemed to constitute an indirect
controlling interest in a competitive local exchange carrier. Certain
jurisdictions also require prior approval for the issuance by a certified
carrier of stock or the issuance of certain types of debt.
To the extent we obtain such authorizations and commence operations as a
competitive local exchange carrier, the telecommunications services provided by
such operations will be subject to regulation by federal, state and local
governmental agencies. The FCC exercises jurisdiction over competitive carriers,
and their facilities and services, to the extent they are providing interstate
or international communications. The various state utility commissions retain
jurisdiction over telecommunications carriers, and their facilities and
services, to the extent they are used to provide communications that originate
and terminate within the same state. The degree of regulation varies from state
to state. In addition, the FCC has established different levels of regulation
for dominant and non-dominant carriers. Domestically, only the incumbent local
exchange carriers are classified as dominant carriers and all other providers
are classified as non-dominant carriers. As a competitive local exchange
carrier, we would be classified as a non-dominant carrier and would therefore
not be as heavily regulated as the incumbent local exchange carriers. For
example, under current regulations, we would not be subject to price cap or rate
of return regulation by the FCC.
The FCC and the state regulatory agencies impose and enforce regulatory
requirements applicable to telecommunications carriers' operations. The FCC and
the state regulatory agencies may address regulatory non-compliance with a
variety of enforcement mechanisms, including monetary forfeitures, refund
orders, injunctive relief, license conditions and/or license revocation.
Domestic or international regulators or third parties could raise material
issues with regard to our compliance or non-compliance with applicable laws and
regulations.
Although the Telecommunications Act of 1996 eliminates legal barriers to
entry into the local telephone service market, no assurance can be given that
changes in current or future regulations adopted by the FCC or state regulators
or other legislative or judicial initiatives relating to the telecommunications
industry would not have a material adverse effect on our ability to offer such
services. In recent years, the regulation of the telecommunications industry has
been in a state of flux as the United States Congress and various state
legislatures have passed laws seeking to foster greater competition in
telecommunications markets. The FCC and state commissions have adopted many new
rules to implement those new laws and to encourage competition. These changes,
which are still incomplete, have created new opportunities and challenges for
our competitors and us. Certain of these and other existing federal and state
regulations are currently the subject of judicial proceedings, legislative
hearings and administrative proposals which could change, in varying degrees,
the manner in which this industry operates. Neither the outcome of these
proceedings nor their impact upon the telecommunications industry or us can be
predicted at this time. Indeed, future federal or state regulations and
legislation may be less favorable to us than current regulations and legislation
and therefore harm our business.
The law governing the liability of on-line service providers and Internet
access providers for participating in the hosting or transmission of
objectionable materials or information currently remains
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unsettled. Under the Telecommunications Act of 1996, courts can impose civil and
criminal penalties for the use of interactive computer services for the
transmission of certain indecent or obscene communications. The United States
Supreme Court in 1997 held this provision unconstitutional as it relates to
indecent, but not obscene, communications. Also, some states have adopted or may
adopt in the future similar requirements. The constitutionality of such state
requirements remains unsettled at this time. In addition, several private
parties have filed lawsuits seeking to hold Internet access or service providers
accountable for information that they transmit, such as libelous material and
copyrighted material. While some providers have prevailed by utilizing, among
other things, a defense in the Telecommunications Act of 1996, we cannot predict
the outcome of any such litigation or the potential for the imposition of
liability on Internet access providers for information that they host,
distribute or transport. These suits and other laws and regulations could
materially change the way we and other Internet access and service providers
must conduct our businesses and could impact our determination to expand or
continue this business. To the extent that we become parties to future
litigation, such litigation could harm our business.
In certain instances, we may be required to obtain various permits and
authorizations from municipalities, to the extent we deploy our own facilities.
The actions of municipal governments in imposing conditions on the grant of
permits or other authorizations or their failure to act in granting such permits
or other authorizations could result in additional costs or delays in the
deployment of our facilities, either of which could harm our business.
PROPERTIES
Our headquarters are located in two separate facilities in Huntington
Beach, California, consisting of an aggregate of approximately 25,000 square
feet of office space. We occupy these facilities under separate lease agreements
that expire in 2000 and 2004, each with an option to extend the term by 60
months. The aggregate rent on these facilities is $35,000 per month. We also
lease approximately 18,350 square feet of office space in Boston, Massachusetts
for our East Coast regional sales office under a lease which expires in 2004. In
addition, we lease space in the central offices of a number of local and
regional telephone carriers for co-location purposes. Under current regulations,
these leases will continue until terminated by us, but there can be no assurance
that such regulations will not change in the future, which could limit or
eliminate our access to such space or make such leases more burdensome on us.
On the later of December 1, 2000 or the date on which our tenant
improvements are completed, we will relocate our headquarters to a new facility
in Irvine, California, consisting of an aggregate of 103,900 square feet of
office space. We will occupy this new facility under a lease agreement that
expires on the later of February 28, 2011 or the tenth anniversary of the date
on which our tenant improvements are completed. The rent on this facility will
be $202,605 per month for the first twenty months of the term and shall increase
by approximately $10,000 per month at the beginning of each subsequent
twenty-month period through the conclusion of the lease term. Pending completion
of our tenant improvements, we are occupying approximately 25,000 square feet of
temporary space in the new facility under a lease terminating upon the
commencement of our new lease. We have an option to extend the term of this
lease. The monthly rent on this facility is approximately $43,000 per month.
While we believe that these facilities are sufficient for our current space
needs, we anticipate that we will need additional space in the future as our
business expands. We believe that such space can be located on satisfactory
terms, however, we can offer no assurance that this will be the case.
EMPLOYEES
As of March 31, 2000, we had 421 employees (excluding temporary personnel
and consultants), employed in sales, marketing, customer care, technical
support, provisioning and general and administrative functions. None of our
employees are represented by a labor union, and we consider our relations with
our employees to be good.
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LEGAL
A lawsuit for trademark infringement was filed against us in the United
States District Court for the Northern District of Texas, Dallas Division, on
April 8, 1999 by Flashnet Communications, Inc. Plaintiff's claims are based
chiefly on the allegation that our mark "Flashcom" is confusingly similar to
plaintiff's mark "Flashnet." While the ultimate outcome of such litigation is
uncertain, we believe we have meritorious defenses to the claims and intend to
conduct a vigorous defense of the lawsuit. An unfavorable outcome in these
matters could have a material adverse effect on our financial condition and
could result in our being forced to discontinue the use of the mark "Flashcom."
Even if the ultimate outcomes are resolved in our favor, the defense of such
litigation could entail considerable cost and the diversion of efforts of
management, either of which could harm our business.
In addition, we may be subject to state commission, FCC and court decisions
as they relate to the interpretation and implementation of telecommunications
laws and regulations including the Telecommunications Act of 1996 and the
interpretation of competitive carrier interconnection agreements. In some cases,
we may be deemed to be bound by the results of ongoing proceedings of these
bodies. We therefore may participate in proceedings before these regulatory
agencies or judicial bodies that affect and allow us to advance our business
plans.
From time to time, we may be named in claims arising in the ordinary course
of business. Currently, no other legal proceedings or claims are pending against
or involve us that, in the opinion of management, could reasonably be expected
to harm our business.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of March 31, 2000
with respect to each person who is an executive officer or director of Flashcom.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard Rasmus............................. 40 President, Chief Executive Officer and
Director
Wayne Boylston............................. 42 Chief Financial Officer
Michael Jones.............................. 35 Chief Technology Officer
Christopher Rose........................... 32 Vice President, Business Development
Steven Pacelli............................. 28 Vice President, Secretary and General
Counsel
Vane Clayton............................... 41 Vice President, Marketing
Chris Newton............................... 37 Vice President, Sales
Scott Prouty............................... 39 Vice President and General Manager--
East Coast
Steve Fowler............................... 47 Vice President, Customer Care
Scott Campbell............................. 37 Vice President, Carrier Relations
Todd Brooks(1)(2).......................... 39 Director
David Helfrich(1)(2)....................... 43 Director
William Matthes(1)......................... 40 Director
</TABLE>
- -------------------------
(1) Member of the audit committee
(2) Member of the compensation committee
RICHARD RASMUS has served as our President and a director since November
1999. Mr. Rasmus also served as our Chief Operating Officer from November 1999
until February 2000 and has served as our Chief Executive Officer since February
2000. Prior to joining us, from May 1995 to November 1999, Mr. Rasmus served in
various management positions at Comcast Corporation, a cable communications
systems operator, most recently as Vice President of Online Communications for
Comcast's @Home cable modem division. From March 1989 to May 1995, Mr. Rasmus
served in various management positions with Cablevision Systems Corporation, a
cable television system operator, most recently as General Manager responsible
for overseeing a cable modem customer base in excess of 120,000.
WAYNE BOYLSTON has served as our Chief Financial Officer since April 2000.
From July 1998 until March 2000, Mr. Boylston served as Chief Financial Officer,
Executive Vice President, Treasurer and Assistant Secretary of iXL Enterprises,
Inc., an Internet consulting service provider. From February 1998 until July
1998, Mr. Boylston served as a consultant to Healthdyne Technologies, Inc., a
medical device manufacturer, following its merger with Respironics, Inc. From
1995 until February 1998, Mr. Boylston served as Vice President -- Finance,
Chief Financial Officer and Treasurer of Healthdyne Technologies, Inc. Mr.
Boylston is a Certified Public Accountant.
MICHAEL JONES has served as our Chief Technology Officer since January
1999. He has over 15 years experience in designing and implementing voice and
data communication networks. From March 1998 to December 1998, Mr. Jones served
as Manager of DSL Engineering with Epoch Networks, a national Internet Service
Provider. From January 1994 until December 1997, Mr. Jones founded, operated and
ultimately sold Summit Technology, a wide-area networking value-added reseller.
CHRISTOPHER ROSE has served as our Vice President, Business Development
since October 1999. From October 1999 until April 2000 Mr. Rose also served as
our interim Chief Financial Officer. Prior to joining us, from September 1998 to
October 1999, Mr. Rose served as a Director with PricewaterhouseCoopers LLP, in
the Financial Advisory Services group where he consulted for Internet and
telecommunications companies in business development, mergers and acquisitions,
crisis management and capital raising activities. From September 1996 to August
1998, Mr. Rose served as Manager of Corporate Development
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for Telstra Corporation, Australia's principal telecommunications company. From
April 1995 to August 1996, Mr. Rose served as Manager of Business Development
with MCI Telecommunications, a global telecommunications company. From September
1989 to April 1995, Mr. Rose served as Manager of Corporate Recovery Services
with Arthur Andersen LLP. Mr. Rose is also a Certified Public Accountant.
STEVEN PACELLI has served as our Vice President, Secretary and General
Counsel since January 2000. Prior to joining us, from October 1997 until January
2000, Mr. Pacelli was a practicing attorney with Stradling Yocca Carlson and
Rauth, our outside legal counsel, where he specialized in public and private
finance, mergers and acquisitions and general corporate matters for technology
companies.
VANE CLAYTON has served as our Vice President, Marketing since February
2000. From August 1995 to September 1999, Mr. Clayton founded, and served as
President and Chief Executive Officer of SOS Wireless Communications, a national
provider of emergency wireless phone service. From August 1993 to July 1995, Mr.
Clayton served as President and Chief Executive Officer of C-Cellular Research,
a national wireless service provider. From June 1992 to August 1993, Mr. Clayton
served as the Western Sales Manager for Elo Touch Systems, a manufacturer of
point-of-sale software and touchscreen hardware and a subsidiary of Raychem
Corporation.
CHRIS NEWTON has served as our Vice President, Sales since January 2000.
From August 1997 to January 2000, Mr. Newton served as Vice President of
Worldwide Sales/Mobile Systems for ADC Telecommunications, a global supplier of
network and telecommunications equipment. From June 1992 to August 1997, Mr.
Newton served in various sales management positions at Comcast Cellular, an East
Coast cable and telecommunications provider, including Direct Sales Manager,
Indirect Sales Manager, Director of Sales for New Jersey and Director of all
Business Market Sales.
SCOTT PROUTY has served as our Vice President and General Manager -- East
Coast since December 1999. From February 1999 to December 1999, Mr. Prouty
served as our Vice President, Sales -- East Coast. From October 1998 to February
1999, Mr. Prouty served as a National Account Manager for Digital Island, an
Internet application service provider, where he was responsible for managing
sales of value-added global web-hosting services to national and multi-national
corporations headquartered in Massachusetts. From December 1989 to September
1998, Mr. Prouty served in various sales positions, including Senior Global
Account Manager from July 1997 to September 1998 and Senior National Investment
Account Manager from February 1995 to July 1997 with MCI Telecommunications, a
global telecommunications company.
STEVE FOWLER has served as our Vice President, Customer Care since January
2000. From January 1999 to January 2000, Mr. Fowler served in various consulting
roles with several networking and telecommunications companies, most recently
with US Tel and I-Connect. From January 1995 to January 1999, Mr. Fowler served
as Vice President of Customer Care for L.A. Cellular (now AT&T Wireless), a
wireless services provider.
SCOTT CAMPBELL has served as our Vice President, Carrier Relations since
January 2000. Mr. Campbell also served as our Vice President, Sales Operations
from May 1998 until January 2000. From July 1996 to May 1998, Mr. Campbell was a
National Account Manager for LCI International (now Qwest Communications)
responsible for designing specialized telecommunications application solutions
to various clientele. From January 1993 to June 1996, Mr. Campbell was President
of Scooter Oil, an operator of service stations.
TODD BROOKS has served as a director since June 1999. Mr. Brooks joined
Mayfield Fund, a venture capital firm, in February 1999, and has been a general
partner of Mayfield Fund since June 1999, where he specializes in investing in
companies in the telecommunications equipment and services sectors. From April
1995 to January 1999, Mr. Brooks served as a Managing Principal for JAFCO
America Ventures, the U.S. subsidiary of JAFCO Co. LTD, an international venture
capital investment firm. From August 1993 to April 1995, Mr. Brooks served as an
equity research analyst for telecommunications investments for
Franklin-Templeton Group, an investment corporation. Mr. Brooks currently serves
as a director of Avanex, Jato Communications, Qtera and MVX.com.
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DAVID HELFRICH has served as a director since March 1999. He is currently a
general partner of ComVentures, a venture capital firm specializing in
telecommunications ventures, which he joined in 1997. Prior to joining
ComVentures, from 1995 to 1997, Mr. Helfrich served as Vice President of Sales
and Marketing of Copper Mountain Networks, a high-speed Internetworking company.
From 1993 to 1995, Mr. Helfrich served as Vice President of Sales and Marketing
of Centrum Communications, a data networking company, and then as Vice President
of Marketing for 3Com, a network and information technology company, upon 3Com's
acquisition of Centrum. Mr. Helfrich currently serves as a director of CALY
Networks, CoSine Communications, Entera Inc., HydraWEB, Oresis Communications,
P-Cube and TollBridge Technologies.
WILLIAM MATTHES has served as a director since March 2000. Mr. Matthes
joined Behrman Capital, a high technology venture capital firm, in April 1996,
and has been a managing partner since January 1999. From June 1994 to April
1996, Mr. Matthes served as Senior Vice President of Holsted Marketing, Inc., a
direct marketing company. Mr. Matthes currently serves as a director of The
Management Network Group Inc., iStar Financial and Condor Systems, Inc., and
Groundswell Inc.
BOARD COMPOSITION
We have a classified Board of Directors. Each director holds office until
the annual meeting for the year in which his term expires or until his successor
is duly elected and qualified. Mr. Helfrich's and Mr. Rasmus' terms expire at
the 2001 annual meeting. Mr. Brooks' term expires at the 2002 annual meeting.
Mr. Matthes' term expires at the 2003 annual meeting. Our bylaws presently
provide that the number of directors shall be fixed from time to time by the
Board of Directors within a range of five and nine, initially set at seven.
Our Board of Directors currently has two committees, a compensation
committee and an audit committee. The compensation committee consists of Mr.
Brooks and Mr. Helfrich. The compensation committee reviews and recommends the
salaries and bonuses of our officers, establishes compensation and incentive
plans and determines other fringe benefits.
The audit committee consists of Mr. Brooks, Mr. Helfrich and Mr. Matthes.
The audit committee recommends engagement of our independent public accountants
and is primarily responsible for approving the services performed by our
independent accountants and for reviewing and evaluating our accounting
principles and our system of internal controls.
DIRECTOR COMPENSATION
As of March 31, 2000, our directors do not currently receive compensation
for services provided as directors or for participation on any committee of the
Board of Directors. In the future we may provide compensation to our directors
in the form of cash, or grants of stock options or rights to purchase common
stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Our Board of Directors established the compensation committee in October
1999. Prior to establishing the compensation committee, our Board of Directors
as a whole performed the functions delegated to the compensation committee. No
executive officer serves as a member of the Board of Directors or compensation
committee of any entity that has one or more executive officers serving on our
Board of Directors.
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<PAGE> 54
EXECUTIVE COMPENSATION
The following table summarizes all compensation earned by Brad Sachs, who
served as our Chief Executive Officer during 1999, and the two other most highly
compensated executive officers whose total salary and bonus exceeded $100,000
for services rendered in all capacities to us during such year. These people are
referred to as our named executive officers in other parts of this prospectus.
We have also included the compensation earned by Richard Rasmus, our current
Chief Executive Officer. Although Mr. Rasmus was not a named executive officer
for 1999, he is expected to be so named in future years.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL -------------------------
COMPENSATION RESTRICTED SECURITIES
------------------ STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS AWARDS($) OPTIONS (#) COMPENSATION
--------------------------- -------- ------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Brad Sachs............................... $171,000 $ -- $-- -- $ --
Chief Executive Officer(1)
Richard Rasmus........................... 15,000 -- 0(3) -- --
President and Chief Executive
Officer(2)
Paul Adams............................... 111,000 -- -- -- 375,000(5)
Vice President(4)
Michael Jones............................ 88,000 35,000 -- 750,000 --
Chief Technology Officer
</TABLE>
- -------------------------
(1) Mr. Sachs served as our Chief Executive Officer from May 1998 to February
2000.
(2) Mr. Rasmus joined us in November 1999 as our President and Chief Operating
Officer at a base salary of $200,000. In February 2000, Mr. Rasmus replaced
Mr. Sachs as our Chief Executive Officer.
(3) Mr. Rasmus was granted a right to purchase 2,641,443 shares of restricted
stock at a price of $1.00 per share upon the commencement of his employment
in November 1999, which was equal to the fair market value of such shares on
that date. Such shares are subject to a repurchase option which lapses with
respect to 25% of the shares on November 30, 2001 and in equal monthly
installments over the succeeding 36 months. The value of such shares, based
on the difference between an assumed initial public offering price of
$ and the purchase price of such shares, is $ .
(4) Mr. Adams' employment with us terminated in October 1999.
(5) Represents the difference between the fair market value of the 210,936
shares of our common stock issued to Mr. Adams upon the termination of his
employment and the price paid by Mr. Adams for such shares.
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<PAGE> 55
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during 1999 to
each of the executive officers named in the table above. We granted the options
listed below at an exercise price equal to the fair market value of our common
stock, as determined by our Board of Directors on the date of grant or purchase.
Options vest 25% upon the first and each subsequent anniversary of the date of
grant.
<TABLE>
<CAPTION>
PERCENTAGE POTENTIAL REALIZABLE
OF TOTAL VALUE AT
NUMBER OF OPTIONS/ ASSUMED ANNUAL RATES
SECURITIES RESTRICTED OF STOCK PRICE
UNDERLYING STOCK EXERCISE/ APPRECIATION
OPTIONS/ GRANTED TO PURCHASE FOR OPTION TERM(2)
RESTRICTED EMPLOYEES IN PRICE PER EXPIRATION ---------------------
NAME STOCK 1999(1) SHARE DATE 5% 10%
---- ---------- ------------ --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Brad Sachs....................... -- -- -- -- $ -- $ --
Richard Rasmus................... -- -- -- -- -- --
Paul Adams....................... -- -- -- -- -- --
Michael Jones.................... 750,000 8.5% $0.222 06/05/09
</TABLE>
- -------------------------
(1) Based on an aggregate of 8,787,000 shares underlying the options granted or
restricted stock purchased by our employees during fiscal 1999.
(2) Potential realizable values are computed by (a) multiplying the number of
shares of common stock subject to a given option by an assumed initial
public offering price of $ per share, (b) compounding the aggregate
stock value derived from the foregoing calculation at an annual rate of 5%
or 10% over a 10 year term and (c) subtracting from that result the
aggregate option exercise price. The 5% and 10% assumed annual rates of
compounded stock price appreciation are mandated by the rules of the
Securities and Exchange Commission and do not represent our estimate or
projections of future common stock prices.
OPTIONS EXERCISED AND FISCAL YEAR-END VALUES
The following table sets forth the number and value of unexercised options
held by the individuals named in the executive compensation table above as of
December 31, 1999. The value of unexercised in-the-money options as of December
31, 1999 represents an amount equal to the difference between an assumed initial
public offering price of $ per share and the option exercise price,
multiplied by the number of unexercised in-the-money options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1999 AT DECEMBER 31, 1999
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Brad Sachs................................ -- -- $ -- $ --
Richard Rasmus............................ -- -- -- --
Paul Adams................................ -- -- -- --
Michael Jones............................. 337,500 412,500
</TABLE>
1999 STOCK OPTION PLAN
In June 1999, we adopted the 1999 Incentive Stock Option, Nonqualified
Stock Option and Restricted Stock Purchase Plan. We amended and restated the
1999 Plan in April 2000. The purpose of the 1999 Plan is to attract qualified
employees and provide participants with incentives which will encourage them to
support the execution of our business strategies and the achievement of our
goals, and
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<PAGE> 56
to better align the interests of such participants with those of our
stockholders. The 1999 Plan provides for the grant of "incentive stock options,"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, and for the grant of nonstatutory stock options and stock purchase
rights to employees, directors, consultants and other service providers.
A total of 15,000,000 shares of our common stock have been authorized for
issuance under the 1999 Plan. As of April 15, 2000, options to purchase
4,531,000 shares were issued and outstanding, 6,442,572 shares of restricted
stock had been sold, and 4,026,428 shares remained available for the grant of
additional options or stock purchase rights. In addition, the 1999 Plan provides
that the number of shares authorized for issuance under the Plan shall be
increased as of the last day of each fiscal year during the term of the 1999
Plan, by a number of shares equal to two percent of the shares of common stock
outstanding as of such date.
The 1999 Plan is administered by our Board of Directors. Immediately
following this offering, the 1999 Plan will be administered by our compensation
committee. In the case of options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue Code,
the committee will consist of two or more "outside directors" within the meaning
Section 162(m) of the Internal Revenue Code. The administrator has sole
discretion and authority, consistent with the provisions of the 1999 Plan, to
determine which eligible participants will receive options, the terms of options
granted, the number of shares which will be subject to options and the form of
consideration payable upon exercise.
The exercise price of incentive stock options must not be less than the
fair market value of a share of common stock on the date the option is granted
(110% with respect to optionees who own at least 10% of the outstanding common
stock). The administrator has the authority to determine the time or times at
which options granted under the 1999 Plan become exercisable, provided that
options expire no later than ten years from the date of grant (five years with
respect to optionees who own at least 10% of the outstanding common stock).
Options are nontransferable, other than by will and the laws of descent and
distribution, and generally may be exercised only by an employee while employed
by us or within three months after termination of employment (one year for
termination resulting from death or disability).
In the case of stock purchase rights, the restricted stock purchase
agreement entered into in connection with the exercise of the stock purchase
rights generally grants us a repurchase option that we may exercise upon the
voluntary or involuntary termination of the purchaser's service with us for any
reason, including death or disability. The purchase price for shares we
repurchase pursuant to restricted stock purchase agreements generally is the
original price paid by the purchaser and may be paid by cancellation of any
indebtedness owed by the purchaser to us. The repurchase option lapses at a rate
that the administrator determines.
In the event a "change in control" of Flashcom occurs, all outstanding
options immediately will become exercisable in full, and our right to repurchase
shares of restricted stock will expire, immediately prior to the change in
control. However, if the company acquiring us assumes outstanding options or is
assigned our repurchase rights or replaces the outstanding options with a cash
incentive program to preserve the spread between the exercise price and the
consideration received by stockholders in the change in control, vesting of
options will not accelerate and our repurchase right with respect to restricted
stock will not expire.
Unless terminated sooner, the 1999 Plan will terminate automatically in
2009. We have the authority to amend, suspend or terminate the 1999 Plan,
provided that no such action may affect any share of common stock previously
issued and sold or any option previously granted under the 1999 Plan without the
optionee's written consent.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our bylaws provide that we will indemnify our directors and officers and
may indemnify our employees and other agents to the fullest extent permitted by
law. We believe that indemnification under
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<PAGE> 57
our bylaws covers at least negligence by indemnified parties, and permits us to
advance litigation expenses in the case of stockholder derivative actions or
other actions against an undertaking by the indemnified party to repay such
advances if it is ultimately determined that the indemnified party is not
entitled to indemnification. Prior to the closing of this offering, we expect to
have in place liability insurance for our officers and directors.
In addition, our certificate of incorporation provides that, pursuant to
Delaware law, directors shall not be liable for monetary damages for breach of
the directors' fiduciary duty to us and our stockholders. This provision in the
Certificate of Incorporation does not eliminate the directors' fiduciary duty,
and in appropriate circumstances equitable remedies such as injunctive or other
forms of non-monetary relief will remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to us for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for actions
leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
We have entered into indemnification agreements with each of our officers
and directors containing provisions that require us, among other things, to
indemnify our officers and directors against liabilities that may arise because
their status or service as directors or officers (other than liabilities arising
from willful misconduct of a culpable nature), to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified and to cover them under any of our liability insurance policies
applicable to our directors and officers. We believe that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.
EMPLOYMENT AGREEMENTS
On November 17, 1999, we entered into an employment agreement with Richard
Rasmus pursuant to which we employ Mr. Rasmus as our President and Chief
Executive Officer. In connection with his employment, Mr. Rasmus receives an
annual base salary of $200,000. In early 2000, he became eligible for an
interest-free loan of $75,000 which will be forgiven in certain circumstances
set forth in the employment agreement. Mr. Rasmus is eligible to receive a bonus
of $100,000 during the first year of his employment, payable in four quarterly
installment beginning on March 31, 2000. Mr. Rasmus is eligible to receive a
loan of up to $250,000 in connection with his purchase of a home in Southern
California, at the minimum applicable federal interest rate and secured by a
second lien on the home purchased. This loan must be repaid upon the occurrence
of several events as set forth in his employment agreement. We also agreed to
reimburse Mr. Rasmus for up to $150,000 in costs associated with his relocation
to Southern California.
Pursuant to his employment agreement, Mr. Rasmus purchased 2,641,443 shares
of our common stock at $1.00 per share, in exchange for a promissory note
bearing interest at the rate of 5.18% per annum, due in November 2004. These
shares are subject to our repurchase right upon the termination of Mr. Rasmus's
employment, which right lapses as to 25% of the shares after one year and as to
one-thirty-sixth of the shares each month thereafter, as more particularly set
forth in our standard form of restricted stock purchase agreement. Upon his
termination or resignation, Mr. Rasmus is entitled to certain severance benefits
as detailed in the employment agreement.
On February 25, 2000, we entered into an employment agreement with Wayne
Boylston pursuant to which we employ Mr. Boylston as our Chief Financial
Officer. In connection with his employment, Mr. Boylston receives an annual base
salary of $200,000. In May 2000, he became eligible for an interest-free loan of
$75,000 which will be forgiven in certain circumstances set forth in the
employment agreement. Mr. Boylston is eligible to receive a bonus of $100,000
during the first year of his employment, payable in four quarterly installments
beginning on June 30, 2000. Mr. Boylston is also eligible to receive a loan of
up to $250,000 in connection with his purchase of a home in Southern California,
at the minimum applicable federal interest rate and secured by a second lien on
the home purchased. We have agreed to
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<PAGE> 58
reimburse Mr. Boylston for up to $150,000 in costs associated with his
relocation to Southern California. We have agreed to reimburse Mr. Boylston for
up to $3,000 per month for rent or debt service on a home purchase in Southern
California, until the end of his first year of employment by us.
Pursuant to his employment agreement, we granted Mr. Boylston the right to
purchase up to 1,476,129 shares of our common stock, at $4.00 per share in
exchange for a promissory note bearing interest at the rate of 6.21% per annum,
due in February 2004. These shares are subject to our repurchase right upon the
termination of Mr. Boylston's employment, which right lapses as to 25% of the
shares after one year and as to one-thirty-sixth of the shares each month
thereafter, as more particularly set forth in our standard form of restricted
stock purchase agreement. Upon his termination or resignation, Mr. Boylston is
entitled to certain severance benefits as detailed in the employment agreement.
EMPLOYEE STOCK PURCHASE PLAN
In April 2000, our Board of Directors adopted our Employee Stock Purchase
Plan, to be effective upon completion of this offering. A total of 1,500,000
shares of common stock have been reserved for issuance under our Employee Stock
Purchase Plan. Our Employee Stock Purchase Plan, which is intended to qualify
under Section 423 of the Internal Revenue Code of 1986, as amended, will be
administered by the Board of Directors or by a committee appointed by the board.
Employees are eligible to participate if they are customarily employed for at
least 20 hours per week and have been employed for more than 90 days. Employees
who own more than 5% of our outstanding stock may not participate. Our Employee
Stock Purchase Plan permits eligible employees to purchase common stock through
payroll deductions which may not exceed the lesser of 20% of any employee's
compensation, or $ .
Our Employee Stock Purchase Plan will be implemented by six month offering
periods with purchases occurring each January 1 and July 1, provided that the
first offering period will commence on the date of this prospectus.
The purchase price of the common stock under our Employee Stock Purchase
plan will be equal to 85% of the fair market value per share of common stock on
either the start date of the offering period or on the purchase date, whichever
is less. Employees may end their participation in an offering period at any time
during that period, and participation ends automatically on termination of
employment with us. In the event of a proposed dissolution or liquidation of our
company, the offering period in progress will terminate immediately prior to the
consummation of the proposed action, unless otherwise provided by our Board of
Directors. If there is a proposed sale of all or substantially all of our assets
or the merger of our company with or into another company, then the offering
period in progress will be shortened and a new exercise date that is before the
sale or merger will be set. Our Employee Stock Purchase Plan will terminate in
April 2010, unless sooner terminated by the Board of Directors.
401(K) PLAN
In January 2000, we adopted the Flashcom, Inc. 401(k) Plan covering our
full-time employees. Our 401(k) Plan is intended to qualify under Section 401(k)
of the Internal Revenue Code of 1986, as amended, so that contributions to the
401(k) Plan by employees or by us, and the investment earnings thereon, are not
taxable to employees until withdrawn from the 401(k) Plan, and so that we can
deduct any contributions that we make, at the time they are made. Participants
may make pre-tax contributions to the plan of up to 15% of their eligible
earnings, subject to statutorily prescribed annual limits. The 401(k) Plan
permits us, but does not require us, to make additional matching contributions
on behalf of all participants.
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<PAGE> 59
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than the compensation agreements and other arrangements described
under the heading "Management," above, and the transactions described below,
since we were formed, there has not been, nor is there currently proposed, any
transaction or series of similar transactions to which we were or will be a
party:
- in which the amount involved exceeded or will exceed $60,000; and
- in which any director, executive officer, holder of more than 5% of our
common stock on an as-converted basis or any member of their immediate
family had or will have a direct or indirect material interest.
We believe that all related-party transactions described below were on
terms no less favorable than could have been otherwise obtained from
unaffiliated third parties. All future transactions between us and any director,
officer or principal stockholder will be subject to approval by a majority of
the disinterested members of our Board of Directors.
TRANSACTIONS WITH BRAD AND ANDRA SACHS
At various times from our inception through March 1999, Brad and Andra
Sachs, both individually and through certain other companies owned or controlled
by one or both of them, loaned us an aggregate of $578,000. As of March 31,
2000, we owed an aggregate of approximately $403,000 on such loans.
On June 1, 1999, we entered into a Lease Agreement with a limited
partnership of which Brad Sachs and Andra Sachs are limited partners, for the
lease of our facility at 5312 Bolsa Avenue in Huntington Beach, California. This
lease provides for payment of rent of $35,000 per month and has a term extending
through May 2004.
In September 1999, Communications Ventures III L.P., Communications
Ventures III CEO and Entrepreneurs Fund L.P., Mayfield IX and Mayfield
Associates Fund IV entered into an agreement with Andra Sachs, pursuant to which
they agreed to purchase up to $10,000,000 of Flashcom's common stock at a
purchase price equal to 85% of the price per share in Flashcom's Series B
financing. In connection with such transaction, we waived our right of first
refusal on such shares. In February 2000, we agreed to assume $9,000,000 of the
purchase obligations under such agreement and entered into a Stock Purchase
Agreement with Andra Sachs, pursuant to which we repurchased 1,612,903 shares of
common stock held by Ms. Sachs for a purchase price of $9,000,000.
Between February 1999 and February 2000, we purchased certain uninterrupted
power supply equipment from Power Design, Inc., a company that is wholly-owned
by Brad and Andra Sachs, for $76,617.
In May 2000, we entered into a Loan Agreement, a Secured Promissory Note
and a Pledge Agreement with Brad Sachs whereby we loaned Mr. Sachs $3,000,000.
The loan is secured by a pledge of all shares of our common stock owned by Mr.
Sachs and must be repaid at any time following the later of 30 days after the
date of the loan and the occurrence of certain specified liquidity events as set
forth in the agreement.
Brad and Andra Sachs each own more than 5% of our common stock, and each
has served as one of our directors and as one of our executive officers.
FINANCING TRANSACTIONS
In March 1999, in exchange for loans, we issued promissory notes in an
aggregate principal amount of $1,000,000, each bearing interest at the rate of
7.75% per annum and due in June 1999. In May 1999, in exchange for loans, we
issued convertible promissory notes in the aggregate principal amount of
$2,000,000, bearing interest at the rate of 7.75% per annum and due in August
1999, along with warrants to purchase an aggregate of 899,550 shares of common
stock. In May 1999, we also issued promissory
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<PAGE> 60
notes in an aggregate principal amount of $1,000,000, each bearing interest at
the rate of 4.9% per annum and due in June 1999. Each of these promissory notes
was issued in exchange for cash equal to the principal amount thereof. In June
1999, we sold an aggregate of 5,771,679 shares of Series A Preferred Stock at a
purchase price of $2.8302 per share, or $16,335,005 in the aggregate, of which
$12,335,005 was paid in cash and $4,000,000 was paid by conversion of each of
the promissory notes listed above, together with accrued interest, at a
conversion price of $2.8302 per share. The table below sets forth the promissory
notes, warrants and shares we issued to directors and 5% stockholders in these
financings:
<TABLE>
<CAPTION>
AMOUNT OF COMMON SERIES A
PROMISSORY STOCK PREFERRED
PURCHASER NOTES WARRANTS STOCK
--------- ---------- -------- ---------
<S> <C> <C> <C>
Communications Ventures III L.P........................... $1,190,475 267,723 1,682,553
Communications Ventures III CEO
and Entrepreneurs Fund L.P.............................. 59,523 13,386 84,127
Mayfield IX............................................... 1,900,003 427,287 2,685,323
Mayfield Associates Fund IV............................... 99,997 22,488 141,333
</TABLE>
In March 1999, we sold an aggregate of 4,500,000 shares of common stock at
$0.222 per share for an aggregate amount of $1,000,000 in cash to the following
entities: Communications Ventures III L.P. (3,214,287 shares), Communications
Ventures III CEO and Entrepreneurs Fund L.P. (160,713 shares), Mayfield IX
(1,068,750 shares) and Mayfield Associates Fund IV (56,250 shares).
In November 1999, we entered into a Bridge Financing Agreement with certain
entities, including Communications Ventures III L.P., Communications Ventures
III CEO and Entrepreneurs Fund L.P., Mayfield IX, Mayfield Associates Fund IV,
pursuant to which these entities loaned us an aggregate of $9,000,000 in three
separate closings in exchange for convertible promissory notes in the aggregate
principal amount of $9,000,000. These notes provided for interest at the rate of
7.0% per annum and were due January 31, 2000. In connection with this financing,
we issued to these entities warrants to purchase an aggregate of 2,657,145
shares of common stock. The table below sets forth the promissory notes and
warrants we issued to directors and 5% stockholders in this financing:
<TABLE>
<CAPTION>
AMOUNT OF
PROMISSORY
PURCHASER NOTES WARRANTS
--------- ---------- --------
<S> <C> <C>
Communications Ventures III L.P............................. $2,857,143 326,531
Communications Ventures III CEO and Entrepreneurs Fund
L.P....................................................... 142,857 16,327
Mayfield IX................................................. 2,850,000 325,715
Mayfield Associates Fund IV................................. 150,000 17,143
</TABLE>
In February 2000, we entered into a Series B Preferred Stock Purchase
Agreement with certain investors, pursuant to which we sold 12,824,351 shares of
our Series B Preferred Stock at $6.57 per share for an aggregate of $84,256,000
of which approximately $74,500,000 was paid in cash and approximately $9,800,000
was paid by conversion of each of the promissory notes listed above, together
with accrued interest, at a conversion price of $6.57 per share. In connection
with the sale of Series B Preferred Stock, we entered into an Amended and
Restated Investor Rights Agreement and an Amended and Restated Right of First
Refusal and Co-Sale Agreement with the purchasers of the Series B Preferred
Stock. Such agreement provided the investors with certain registration,
information and other rights, including rights of first refusal on certain
issuances of securities by us and rights of first refusal and co-sale rights on
sales of stock by certain of our stockholders. Only the registration rights
survive the closing of this offering.
We also issued to these investors conditional warrants to purchase common
stock, at an exercise price equal to the price per share in this offering, which
may become exercisable upon the closing of this offering based upon the price
per share in this offering, as more particularly set forth in such warrants. If
these warrants do not become exercisable, they will expire upon the closing of
this offering. If these
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<PAGE> 61
warrants become exercisable, they will be exercisable for two years following
the closing of this offering. The table below sets forth the shares we issued to
directors and 5% stockholders in this financing:
<TABLE>
<CAPTION>
SERIES B
PURCHASER PREFERRED STOCK
--------- ---------------
<S> <C>
Behrman Capital II, L.P. ................................... 3,003,417
Strategic Entrepreneur Fund II, L.P. ....................... 40,723
Communications Ventures III L.P. ........................... 850,256
Communications Ventures III CEO and Entrepreneurs Fund
L.P. ..................................................... 42,513
Mayfield IX................................................. 863,990
Mayfield Associates Fund IV................................. 45,473
Flash Trust................................................. 308,220
</TABLE>
Todd Brooks, one of our directors, is a general partner of Mayfield IX and
Mayfield Associates Fund IV, David Helfrich, one of our directors, is a general
partner of Communications Ventures III L.P. and Communications Ventures III CEO
and Entrepreneurs Fund L.P. Each of Mayfield IX and Communications Ventures III
L.P. is a holder of more than 5% of our common stock on an as-converted basis.
OTHER TRANSACTIONS
In March 1999, we repurchased 4,500,000 shares of our common stock from
Crosspoint Venture Partners 1997, a holder of more than 5% of our common stock,
for cash consideration of $1,000,000.
As payment of the purchase price for shares of restricted stock purchased
by them under our 1999 Incentive Stock Option, Nonqualified Stock Option and
Restricted Stock Purchase Plan, the following officers delivered promissory
notes to us in the following amounts:
<TABLE>
<S> <C>
Richard Rasmus................................... $2,641,443
Wayne Boylston................................... 5,904,516
Vane Clayton..................................... 2,000,000
Chris Newton..................................... 1,000,000
Steve Fowler..................................... 1,000,000
Steven Pacelli................................... 600,000
Christopher Rose................................. 306,250
</TABLE>
The promissory notes bear interest at rates ranging from 5.18% to 6.21%,
which represents the applicable federal interest rate, as determined by the
United States Internal Revenue Service, on the date of issuance. The notes are
due four years from the date of issuance.
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<PAGE> 62
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of our common stock as of April 15, 2000, and as adjusted to reflect
the sale of common stock offered in this offering for:
- each person (or group of affiliated persons) who is known by us to
beneficially own more than 5% of our common stock;
- each of our directors;
- each of our executive officers; and
- all of our directors and executive officers as a group.
Applicable percentage ownership in the following table is based on the
number of shares of common stock outstanding as of April 15, 2000, as adjusted
to reflect the automatic conversion of all outstanding shares of redeemable
convertible preferred stock into 30,139,388 additional shares of common stock
upon the closing of this offering.
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. Unless otherwise indicated, the persons named in the table
have sole voting and sole investment control with respect to all shares
beneficially owned, subject to community property laws where applicable. Shares
of common stock subject to options and warrants currently exercisable or
convertible, or exercisable or convertible within 60 days of April 15, 2000, are
deemed beneficially owned and outstanding for computing the percentage of the
person holding such securities, but are not considered outstanding for computing
the percentage of any other person. The address for those individuals for which
an address is not otherwise indicated is: c/o Flashcom, Inc., 5312 Bolsa Avenue,
Huntington Beach, California 92649.
<TABLE>
<CAPTION>
PERCENT OF CLASS
--------------------
NAME AND ADDRESS OF SHARES BEFORE AFTER
BENEFICIAL OWNERS BENEFICIALLY OWNED OFFERING OFFERING
------------------- ------------------ -------- --------
<S> <C> <C> <C>
Brad Sachs........................................... 11,250,000 18.08%
Andra Sachs(1)....................................... 9,458,544 15.20%
Todd Brooks(2)
Mayfield Fund...................................... 12,251,648 19.69%
David Helfrich(3)
ComVentures........................................ 10,748,190 17.28%
William Matthes(4)
Behrman Capital.................................... 3,044,140 4.89%
Richard Rasmus(5).................................... 2,641,443 4.25%
Wayne Boylston(6).................................... 1,476,129 2.37%
Christopher Rose(7).................................. 525,000 *
Michael Jones(8)..................................... 375,000 *
Scott Campbell(9).................................... 337,500 *
Vane Clayton(10)..................................... 500,000 *
Steve Fowler(11)..................................... 500,000 *
Chris Newton(12)..................................... 500,000 *
Steven Pacelli(13)................................... 300,000 *
All directors and officers as a group (14
persons)(14)....................................... 53,599,374 86.16%
</TABLE>
- -------------------------
* Less than one percent.
(1) Ms. Sachs' address is 23 Ridgeline, Newport Beach, California 92660.
(2) Consists of (i) 11,346,257 shares of common stock held of record by
Mayfield IX and (ii) 597,170 shares of common stock held of record by
Mayfield Associates Fund IV, (iii) 308,220 shares of common stock held of
record by Flash Trust. Collectively, Mayfield Associates Fund IV, Mayfield
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<PAGE> 63
IX, and Flash Trust are the Mayfield Entities. Mr. Brooks is a partner of each
of the Mayfield Entities and shares investment and voting power over these
shares with the other partners of these entities, none of whom is otherwise
affiliated with us. Mr. Brooks disclaims beneficial ownership of the shares
listed above except to the extent of his pecuniary interest in those
shares. The address for the Mayfield Entities is 2800 Sand Hill Road, Suite
250, Menlo Park, California 94025.
(3) Consists of (i) 10,236,371 shares of common stock held of record by
Communications Ventures III L.P. and (ii) 511,820 shares of common stock
held of record by Communications Ventures III CEO and Entrepreneurs Fund
L.P. Collectively, Communications Ventures III L.P and Communications
Ventures III CEO and Entrepreneurs Fund L.P. are the ComVentures Entities.
Mr. Helfrich is a partner of each of the ComVentures Entities and shares
investment and voting power over these shares with the other partners of
these entities, none of whom is otherwise affiliated with us. Mr. Helfrich
disclaims beneficial ownership of the shares listed above except to the
extent of his pecuniary interest in those shares. The address for the
ComVentures Entities is 505 Hamilton Avenue, Suite 305, Palo Alto,
California 94301.
(4) Consists of (i) 40,723 shares of common stock held of record by the
Strategic Entrepreneur Fund II L.P. and (ii) 3,003,417 shares of common
stock held of record by Behrman Capital II L.P. Collectively, Strategic
Entrepreneur Fund II L.P and Behrman Capital II L.P. are referred to as the
Behrman Entities. Mr. Matthes is a partner of each of the Behrman Entities
and shares investment and voting power over these shares with the other
partners of these entities, none of whom is otherwise affiliated with us.
Mr. Matthes disclaims beneficial ownership of the shares listed above
except to the extent of his pecuniary interest in those shares. The address
for the Behrman Entities is c/o Behrman Capital, 126 East 56th Street, New
York, New York 10022.
(5) Shares purchased pursuant to a Restricted Stock Purchase Agreement. Shares
are subject to our repurchase right, which right lapses with respect to 25%
of the shares on November 30, 2000 and monthly thereafter in equal
installments until all repurchase rights have lapsed.
(6) Shares purchased pursuant to a Restricted Stock Purchase Agreement. Shares
are subject to our repurchase right, which right lapses with respect to 25%
of the shares on April 3, 2001 and monthly thereafter in equal installments
until all repurchase rights have lapsed.
(7) Shares purchased pursuant to a Restricted Stock Purchase Agreement. Shares
are subject to our repurchase right, which right lapses with respect to 25%
of the shares on October 31, 2000 and monthly thereafter in equal
installments until all repurchase rights have lapsed.
(8) Consists of 375,000 shares issuable pursuant to options exercisable within
60 days.
(9) Consists of 337,500 shares issuable pursuant to options exercisable within
60 days.
(10) Shares purchased pursuant to a Restricted Stock Purchase Agreement. Shares
are subject to our repurchase right, which right lapses with respect to 25%
of the shares on March 1, 2001 and monthly thereafter in equal installments
until all repurchase rights have lapsed.
(11) Shares purchased pursuant to a Restricted Stock Purchase Agreement. Shares
are subject to our repurchase right, which right lapses with respect to 25%
of the shares on January 17, 2001 and monthly thereafter in equal
installments until all repurchase rights have lapsed.
(12) Shares purchased pursuant to a Restricted Stock Purchase Agreement. Shares
are subject to our repurchase right, which right lapses with respect to 25%
of the shares on February 11, 2001 and monthly thereafter in equal
installments until all repurchase rights have lapsed.
(13) Shares purchased pursuant to a Restricted Stock Purchase Agreement. Shares
are subject to our repurchase right, which right lapses with respect to 25%
of the shares on January 17, 2001 and monthly thereafter in equal
installments until all repurchase rights have lapsed.
(14) Includes 712,500 shares issuable pursuant to options exercisable within 60
days.
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<PAGE> 64
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, we will file an amended and restated
certificate of incorporation, which will provide that our authorized capital
stock will consist of 400,000,000 shares of common stock, $0.0001 par value per
share, and 20,000,000 shares of preferred stock, $0.0001 par value per share.
COMMON STOCK
As of March 31, 2000, there were 32,070,605 shares of common stock
outstanding held by 15 stockholders of record. An additional 30,139,388 shares
of our common stock will be issued upon the automatic conversion of our
redeemable convertible preferred stock upon the closing of this offering. There
will be shares of common stock outstanding after giving effect to the
conversion of all outstanding shares of our redeemable convertible preferred
stock into common stock and the sale of the shares of common stock we are
offering hereby. All outstanding shares of common stock are, and the common
stock to be issued in this offering will be, fully paid and nonassessable.
The following summarizes the rights of holders of our common stock:
- each holder of common stock is entitled to one vote per share on all
matters to be voted upon by the stockholders, including the election of
directors;
- subject to preferences that may be applicable to the holders of
outstanding shares of preferred stock, if any, the holders of common
stock are entitled to receive such lawful dividends as may be declared by
the Board of Directors;
- upon our liquidation, dissolution or winding up, after satisfaction of
all our liabilities and the payment of any liquidation preference of any
outstanding preferred stock, the holders of shares of common stock will
be entitled to receive on a pro rata basis all of our assets remaining
for distribution;
- there are no redemption or sinking fund provisions applicable to our
common stock; and
- there are no preemptive or conversion rights applicable to our common
stock.
PREFERRED STOCK
Immediately after the closing of this offering, there will be no shares of
preferred stock outstanding because each issued and outstanding share of Series
A Preferred Stock will be converted into three shares of our common stock and
each share of Series B Preferred Stock will be converted into one share of our
common stock. However, our certificate of incorporation authorizes our Board of
Directors, without further action by the stockholders, to create and issue one
or more series of preferred stock and to fix the rights, preferences and
privileges thereof. Among other rights, the Board of Directors may determine,
without further vote or action by our stockholders:
- the number of shares constituting the series and the distinctive
designation of the series;
- the dividend rate on the shares of the series, whether dividends will be
cumulative, and if so, from which date or dates, and the relative rights
of priority, if any, of payment of dividends on shares of the series;
- whether the series will have voting rights in addition to the voting
rights provided by law and, if so, the terms of the voting rights;
- whether the series will have conversion privileges and, if so, the terms
and conditions of conversion;
- whether or not the shares of the series will be redeemable or
exchangeable, and, if so, the dates, terms and conditions of redemption
or exchange, as the case may be;
- whether the series will have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of
the sinking fund; and
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<PAGE> 65
- the rights of the shares of the series in the event of our voluntary or
involuntary liquidation, dissolution or winding up and the relative
rights or priority, if any, of payment of shares of the series.
Although we presently have no plans to issue any shares of preferred stock,
any future issuance of shares of preferred stock, or the issuance of rights to
purchase preferred shares, may delay, defer or prevent a change of control in
our company or an unsolicited acquisition proposal. The issuance of preferred
stock also could decrease the amount of earnings and assets available for
distribution to the holders of common stock or could adversely affect the rights
and powers, including voting rights, of the holders of the common stock.
WARRANTS
In May 1999, we entered into a $2,000,000 bridge loan agreement with
certain investors who subsequently purchased Series A Preferred Stock. In
connection with this agreement we issued warrants to these investors to purchase
an aggregate of 899,550 shares of common stock at an exercise price of $0.222
per share. These warrants expire in May 2009 and are immediately exercisable.
In August 1999, we entered into a master lease agreement with a financial
institution to provide up to $7,000,000 of equipment financing. In January 2000,
we increased the facility by $1,000,000 to a total of $8,000,000. In connection
with this agreement, we issued warrants to purchase an aggregate of 381,621
shares of common stock at a weighted average exercise price of $1.295 per share.
The warrants are exercisable for a period of ten years from the date of grant or
five years from the effective date of this offering, whichever is earlier. The
warrant contains a "net exercise" provision which allows the holder to exercise
the warrants without payment of cash.
In November 1999, we entered into a bridge loan agreement with certain
holders of our Series A Preferred Stock to borrow up to $9,000,000 in three
separate closings. In November 1999 and December 1999, we issued promissory
notes in the aggregate amount of $9,000,000, which notes were converted into
Series B Preferred Stock, and issued warrants to purchase an aggregate of up to
2,657,145 shares of common stock at a weighted average exercise price of $0.677
per share. These warrants expire in November 2009 and are immediately
exercisable.
In January 2000, we issued a warrant to purchase a maximum of 47,700 shares
of our common stock at a purchase price equal to $3.7567 per share to one of our
investors in connection with an equipment loan financing. The warrant is
exercisable at any time beginning on January 7, 2000 until the earlier of
January 7, 2010 or five years from the effective date of this offering.
In February 2000, we entered into a bridge loan agreement with one of our
stockholders and issued a promissory note in the principal amount of $630,000,
which note was converted into Series B Preferred Stock, and issued a warrant to
the stockholder to purchase up to 126,000 shares of common stock at an exercise
price of $2.44 per share. This warrant expires in February 2010 and is
immediately exercisable.
In connection with our Series B Preferred Stock financing, we issued to the
investors conditional warrants to purchase shares of our common stock at an
exercise price equal to the price per share in this offering, which become
exercisable if the price per share in this offering is within the range of $9.85
to $13.14 per share. If not, these warrants expire upon the closing of this
offering. If these warrants become exercisable, they will be exercisable until
the earlier of (i) April 21, 2005, (ii) two years following the close of this
offering; or (iii) a change in control transaction. In addition, we issued to
Thomas Weisel Partners LLC, the placement agent for the Series B Preferred Stock
financing, a warrant to purchase 169,827 shares of Series B Preferred Stock at
an exercise price of $6.57 per share, exercisable at any time prior to February
2005. Upon the automatic conversion of the Series B Preferred Stock into common
stock, this warrant will be automatically converted into a warrant to purchase
169,827 shares of common stock at the same exercise price.
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<PAGE> 66
REGISTRATION RIGHTS
The holders of our Series A and Series B Preferred Stock, which will
convert into an aggregate of 30,139,388 shares of common stock upon the closing
of this offering, have the right to require us to register their shares with the
Securities and Exchange Commission, or to include their shares in any
registration statement we file, so that the shares may be publicly resold.
Demand registration rights
- At any time after the earlier of March 31, 2001 and 180 days after the
closing of this offering the holders of at least 30% of the shares
issuable upon conversion of the Series A and Series B Preferred Stock
have the right to demand on three separate occasions that we file a
registration statement on a form other than Form S-3 so that they can
publicly sell their shares, as long as the aggregate market value of the
shares to be sold pursuant to the registration statement equals or
exceeds $5,000,000.
- If we are eligible to file a registration statement on Form S-3, holders
of at least (i) 20% of the shares issuable upon conversion of the Series
A Preferred Stock or (ii) 20% of the shares issuable upon conversion of
the Series B Preferred Stock and having registration rights have the
right to demand on two separate occasions that we file a registration
statement on Form S-3, as long as the aggregate market value of the
shares to be sold under the registration statement exceeds $2,500,000.
The underwriters of any underwritten offering will have the right to
limit the number of shares to be included in the registration.
Piggyback registration rights
If we register any shares for public sale, stockholders with registration
rights will have the right to include their shares in the registration. The
underwriters of any underwritten public offering will have the right to limit
the number of shares to be included in the registration; provided that the
number of shares to be included by holders with registration rights in the
registration shall not be reduced below 25% of the total number of shares to be
included in the registration, in any registration other than the initial public
offering. In addition, the underwriters of this offering have the right to
exclude all shares held by holders with registration rights.
Expenses of registration
We will pay all expenses relating to any demand or piggyback registration.
However, we will not pay for the expenses of any demand registration if the
request is subsequently withdrawn by the holders of a majority of the shares
having registration rights, subject to very limited exceptions.
Termination of registration rights
The registration rights described above will terminate five years after
this offering is completed. The registration rights will terminate earlier for a
particular stockholder:
- if a holder can resell all of its shares pursuant to Rule 144 of the
Securities Act of 1933;
- if we have completed this offering and are subject to the provisions of
the Securities Exchange Act of 1934; and
- the securities held by that holder total less than 1% of the outstanding
shares of common stock of Flashcom.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CHARTER PROVISIONS
We are subject to Section 203 of the Delaware General Corporation Law. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in any business combination with any
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<PAGE> 67
interested stockholder for a period of three years following the date that the
stockholder became an interested stockholder unless:
- prior to such date, the Board of Directors of the company approved either
the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the company outstanding at the time the
transaction commenced, excluding those shares owned by persons who are
directors and also officers, and employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
- on or subsequent to such date, the business combination is approved by
the Board of Directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the company and the interested
stockholder;
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the company;
- subject to exceptions, any transaction that results in the issuance or
transfer by the company of any stock of the company to the interested
stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the company.
In general, Section 203 defines an interested stockholder as an entity or
person beneficially owning 15% or more of the outstanding voting stock of the
company and any entity or person affiliated with or controlling or controlled by
the entity or person.
Our bylaws provide that candidates for director may be nominated only by
the Board of Directors or by a stockholder who gives written notice to us no
later than 60 days prior nor earlier than 90 days prior to the first anniversary
of the last annual meeting of stockholders. Our bylaws currently provide that
the number of directors shall be within a range of five and nine, initially set
at seven. The board currently consists of four members divided into three
different classes, with three vacancies. As a result, only one class of
directors will be elected at each annual meeting of our stockholders, with the
other classes continuing for the remainder of their respective terms. Between
stockholder meetings, the board may appoint new directors to fill vacancies or
newly created directorships.
Our certificate of incorporation requires that any action required or
permitted to be taken by our stockholders must be effected at a duly called
annual or special meeting of stockholders and may not be effected by a consent
in writing. Our certificate of incorporation also provides that the authorized
number of directors may be changed within a range between five and nine by
resolution of the Board of Directors. Delaware law and these charter provisions
may have the effect of deterring hostile takeovers or delaying changes in
control or our management, which could depress the market price of our common
stock.
TRANSFER AGENT
The transfer agent and registrar for our common stock is U.S. Stock
Transfer, 1745 Gardena Avenue, Suite 200, Glendale, California. Its phone number
is (818) 502-1404.
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<PAGE> 68
SHARES ELIGIBLE FOR FUTURE SALES
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices and adversely affect our ability
to raise additional capital in the capital markets at a time and price favorable
to us.
Upon completion of this offering and assuming no exercise of outstanding
options or warrants after March 31, 2000, we will have shares of
common stock outstanding ( shares if the underwriters'
over-allotment option is exercised in full). Of these shares, all of the shares
of common stock sold in this offering, plus any shares sold as a result of the
underwriters' exercise of the over-allotment option, will be freely tradable
without restriction under the Securities Act.
The remaining approximately 62,209,993 shares of outstanding common stock
held by existing stockholders are "restricted securities" under the Securities
Act or are subject to "lock-up" agreements. Of this amount, 50,780,429 shares
will be eligible for resale pursuant to Rule 144 commencing 90 days after the
date of this prospectus, and all of these shares will be subject to "lock-up"
agreements as described below. "Restricted securities" as defined under Rule 144
were issued and sold by us in reliance on exemptions from the registration
requirements of the Securities Act. These shares may be sold in the public
market only if registered or pursuant to an exemption from registration, such as
Rule 144, Rule 144(k) or Rule 701 under the Securities Act.
LOCK-UP AGREEMENTS
All of our officers, directors, warrant holders, option holders and
stockholders have agreed, pursuant to "lock-up" agreements, that they will not
offer, sell, contract to sell, pledge or otherwise dispose of, swap or hedge the
shares of common stock owned by them or any securities convertible into or
exchangeable for shares of common stock, for 180 days following the date of this
prospectus. The lock-up agreements permit exceptions to be made upon the prior
written consent of Salomon Smith Barney. In addition, certain employees who are
issued options prior to the date of this prospectus also will be required to
enter into lock-up agreements. Upon the expiration of the lock-up agreements,
approximately 50,780,429 shares of common stock held by such stockholders will
be eligible for resale immediately pursuant to Rule 144.
RULE 144
Under Rule 144 as currently in effect, beginning 90 days after the date of
this prospectus, a person (or persons whose shares are aggregated) who has
beneficially owned restricted securities for at least one year, including
persons who may be deemed our affiliates, would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of the
following:
- one percent of the number of shares of common stock then outstanding
(equal to approximately shares upon completion of this
offering); or
- the average weekly trading volume of the common stock as reported through
the Nasdaq National Market during the four calendar weeks preceding the
filing of a Form 144 with respect to such sale. Sales under Rule 144 are
also subject to certain manner of sale provisions, and notice
requirements and the availability of current public information about us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years (including the holding period
of any prior owner except an affiliate), is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144. Therefore, unless subject to the contractual
lock-up restrictions above or otherwise restricted, "144(k) shares" may be sold
immediately upon the completion of this offering.
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<PAGE> 69
RULE 701
Under Rule 701 as currently in effect, persons who purchase shares upon
exercise of options granted prior to the effective date of this offering may
sell such shares in reliance on Rule 144. Such sales need not comply with the
holding period requirements of Rule 144. In the case of non-affiliates, these
sales need not comply with the public information, volume limitations or notice
provisions of Rule 144. Upon the expiration of the lock-up agreements,
approximately shares of common stock issuable upon the exercise of
vested options will be eligible for resale immediately pursuant to Rule 701.
STOCK OPTIONS
We intend to file, after the closing of this offering, a Form S-8
registration statement under the Securities Act to register all shares of common
stock issuable under the 1999 Stock Option Plan and Employee Stock Purchase
Plan. This registration statement will become effective immediately upon filing,
and shares covered by this registration statement will thereupon be eligible for
sale in the public markets, subject to any lock-up agreements applicable thereto
and Rule 144 limitations applicable to affiliates. See "Management -- 1999 Stock
Option Plan," "Description of Capital Stock -- Registration Rights," and
"Underwriting."
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<PAGE> 70
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated , 2000, each underwriter named below has severally
agreed to purchase, and Flashcom has agreed to sell to the underwriter, the
number of shares set forth opposite the name of that underwriter.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Salomon Smith Barney Inc....................................
Thomas Weisel Partners LLC..................................
ING Barings LLC.............................................
Total.............................................
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares, other than those
covered by the over-allotment option described below, if they purchase any of
the shares.
The underwriters, for whom Salomon Smith Barney Inc., Thomas Weisel
Partners LLC and ING Barings LLC are acting as representatives, propose to offer
some of the shares directly to the public at the public offering price set forth
on the cover page of this prospectus and some of the shares to selected dealers
at the public offering price less a concession not in excess of $ per share.
The underwriters may allow, and those dealers may reallow, a concession not in
excess of $ per share on sales to other dealers. 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 Flashcom that the underwriters do not intend to confirm any sales to any
accounts over which they exercise discretionary authority.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to additional shares
of common stock at the public offering price less the underwriting discount. The
underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To the extent the
option is exercised, each underwriter will be obligated, subject to certain
conditions, to purchase a number of additional shares approximately
proportionate to that underwriter's initial purchase commitment.
We and our executive officers, directors, warrant holders, option holders
and stockholders have agreed that, for a period of 180 days from the date of
this prospectus, we and they will not, without the prior written consent of
Salomon Smith Barney Inc., offer, sell, contract to sell, pledge, or otherwise
dispose of, swap or hedge any shares of common stock of Flashcom or any
securities convertible into or exchangeable for common stock. Thomas Weisel
Partners LLC, one of the representatives, has agreed to a lock-up period of one
year from the date of this prospectus with respect to warrants it holds to
purchase shares of common stock. Salomon Smith Barney Inc. in its sole
discretion may release any of the securities subject to these lock-up agreements
at any time without notice.
At our request, Salomon Smith Barney Inc. reserved up to approximately five
percent of the shares being offered as directed shares for sale at the initial
public offering price to persons who are directors, officers or our employees,
or who are otherwise associated with us and our affiliates or employees, and who
have advised us of their desire to purchase these shares. The number of shares
of common stock available for sale to the general public will be reduced to the
extent of sales of directed shares to any of the persons for whom they have been
reserved. Any shares not so purchased will be offered by the underwriters on the
same basis as all other shares of common stock offered hereby. We have agreed to
indemnify the underwriters against specified liabilities and expenses, including
liabilities under the Securities Act of 1933, in connection with the sales of
the directed shares.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for the shares was
determined by negotiations among us and the representatives. Among the factors
considered in determining the initial public offering price were our record of
operations,
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our current financial condition, our future prospects, our markets, the economic
conditions in and future prospects for the industry in which we compete, our
management, and currently prevailing general conditions in the equity securities
markets, including current market valuations of publicly traded companies
considered comparable to us. There can be no assurance, however, that the prices
at which the shares will sell in the public market after this offering will not
be lower than the price at which they are sold by the underwriters or that an
active trading market in the common stock will develop and continue after this
offering.
We have applied to have our common stock included for quotation on the
Nasdaq Stock Market's National Market under the symbol "FLCM."
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us in connection with this offering. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares of common stock.
<TABLE>
<CAPTION>
PAID BY FLASHCOM
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share................................................... $ $
Total....................................................... $ $
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of common stock made for the purpose of preventing or retarding a
decline in the market price of the common stock while the offering is in
progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the Nasdaq
Stock Market's National Market or in the over-the-counter market, or otherwise
and, if commenced, may be discontinued at any time.
Thomas Weisel Partners LLC, one of the representatives, was organized and
registered as a broker/dealer in December 1998. Since December 1998, Thomas
Weisel Partners has acted as a lead or co-manager on numerous public offerings
of equity securities. Thomas Weisel Partners served as the placement agent for
our Series B Preferred Stock financing in February 2000. In connection with that
financing, we paid Thomas Weisel Partners a placement fee and issued them a
warrant to purchase 169,827 shares of our Series B Preferred Stock at a purchase
price of $6.57 per share. Upon the closing of this offering, the warrant will
automatically convert into a warrant to purchase the same number of shares of
common stock. Thomas Weisel Partners also is entitled to a placement fee with
respect to future financings done by us within six months of the closing of the
Series B Preferred Stock financing and has a right of first refusal to act as
our financial advisor in connection with certain future transactions. Except for
the foregoing, Thomas Weisel Partners does not have any material relationship
with us or any of our officers, directors or other controlling persons, except
with respect to its contractual relationship with us under the underwriting
agreement entered into in connection with this offering.
We estimate that the total expenses of this offering, excluding
underwriting discounts and commissions, will be $ .
67
<PAGE> 72
We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of any of those
liabilities.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered hereby
will be passed upon for Flashcom by Stradling Yocca Carlson & Rauth, a
Professional Corporation, Newport Beach, California. Certain legal matters in
connection with this offering will be passed upon for the representatives of the
underwriters by Paul, Hastings, Janofsky & Walker LLP. Certain investment
partnerships composed of certain current and former shareholders of Stradling
Yocca Carlson & Rauth, as well as a current individual shareholder of Stradling
Yocca Carlson & Rauth, beneficially own an aggregate of 76,696 shares of
preferred stock that will automatically convert into an aggregate of 136,764
shares of our common stock upon the closing of this offering.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1998 and 1999 and for the period from May 18, 1998
(inception) through December 31, 1998 and the year ended December 31, 1999, as
described in their report. We have included our financial statements in our
prospectus in reliance on Ernst & Young LLP's report given on their authority as
experts in accounting and auditing.
HOW TO GET ADDITIONAL INFORMATION ABOUT FLASHCOM
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 hereby. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement or the exhibits and schedules which are part of the registration
statement. Statements contained in this prospectus relating to the contents of
any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the registration statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified by such reference. For further information with
respect to Flashcom and the common stock, reference is made to the registration
statement and the exhibits and schedules thereto.
A copy of the registration statement may be inspected without charge at the
public reference facilities of the Securities and Exchange Commission located at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Securities and Exchange Commission located at Seven World Trade Center,
Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of all or any part of the registration statement
may be obtained at the prescribed rates from the Public Reference Section of the
Securities and Exchange Commission located at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and its public reference facilities in New York, New York
and Chicago, Illinois, upon the payment of the fees prescribed by the Securities
and Exchange Commission. The registration statement is also available through
the Securities and Exchange Commission's web site on the world wide web at
http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission. Such periodic reports,
proxy statements and other information will be available for inspection and
copying at the Securities and Exchange Commission's public reference rooms, our
web site and the web site of the Securities and Exchange Commission referred to
above. Information on our web site does not constitute a part of this
prospectus.
68
<PAGE> 73
FLASHCOM, INC.
FINANCIAL STATEMENTS
FOR THE PERIOD FROM MAY 18, 1998 (INCEPTION)
TO DECEMBER 31, 1998 AND THE YEAR ENDED
DECEMBER 31, 1999
WITH REPORT OF INDEPENDENT AUDITORS
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Audited Financial Statements
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statements of Stockholders' Equity (Deficit).............. F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................. F-7
</TABLE>
F-1
<PAGE> 74
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Flashcom, Inc.
We have audited the accompanying balance sheets of Flashcom, Inc. as of
December 31, 1998 and 1999, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the period from May 18, 1998
(Inception) to December 31, 1998 and the year ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Flashcom, Inc. at December
31, 1998 and 1999, and the results of its operations and its cash flows for the
period from May 18, 1998 (Inception) to December 31, 1998 and the year ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Orange County, California
March 31, 2000, except for the last
three paragraphs in Note 11, as to which
the date is April 25, 2000
F-2
<PAGE> 75
FLASHCOM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
-------------------------- DECEMBER 31,
1998 1999 1999
---------- ------------ -------------
(UNAUDITED)
(NOTE 11)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 875,000 $ 2,419,000
Accounts receivable, net of allowance for doubtful
accounts of $24,000 and $537,000, respectively.......... 62,000 1,916,000
Prepaids and other........................................ -- 1,627,000
Due from stockholder...................................... -- 433,000
---------- ------------
Total current assets.................................. 937,000 6,395,000
Property and equipment, net................................. 419,000 14,834,000
Deferred financing costs, net............................... -- 3,346,000
Customer acquisition costs, net............................. -- 4,010,000
Other assets................................................ -- 55,000
---------- ------------
Total assets................................................ $1,356,000 $ 28,640,000
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 787,000 $ 17,543,000
Accrued expenses and other................................ 10,000 3,197,000
Current portion of capital lease obligations.............. -- 1,678,000
Notes payable............................................. -- 9,054,000
Customer deposits......................................... -- 1,480,000
Deferred revenue.......................................... -- 883,000
Advances from affiliated companies........................ 225,000 403,000
---------- ------------
Total current liabilities............................. 1,022,000 34,238,000
Capital lease obligations, net of current portion........... -- 3,558,000
---------- ------------
Total liabilities..................................... 1,022,000 37,796,000
---------- ------------
Commitments and contingencies
Redeemable convertible preferred stock, $.001 par value:
Designated Series A shares -- 5,800,000;
Issued and outstanding shares -- 5,772,000 at December 31,
1999;
Liquidation preference -- $16,335,000..................... -- 16,335,000 $ --
---------- ------------ ------------
Stockholders' equity (deficit):
Preferred stock, $.001 par value:
Authorized shares -- 44,200,000; Issued and outstanding
shares -- none.......................................... -- -- --
Common stock, $.001 par value:
Authorized shares -- 100,000,000
Issued and outstanding shares -- 27,000,000 and
30,377,000 at December 31, 1998 and 1999, respectively
(47,692,000 pro forma)................................ 27,000 30,000 47,000
Additional paid-in capital................................ 988,000 19,004,000 35,322,000
Deferred stock compensation............................... -- (8,110,000) (8,110,000)
Notes receivable from stockholders........................ -- (2,961,000) (2,961,000)
Accumulated deficit....................................... (681,000) (33,454,000) (33,454,000)
---------- ------------ ------------
Total stockholders' equity (deficit).................. 334,000 (25,491,000) $ (9,156,000)
---------- ------------ ============
Total liabilities and stockholders' equity (deficit)........ $1,356,000 $ 28,640,000
========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 76
FLASHCOM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
MAY 18, 1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
-------------- ------------
<S> <C> <C>
Revenue..................................................... $ 299,000 $ 8,402,000
Operating expenses:
Network and operations.................................... 376,000 12,393,000
Sales and marketing....................................... 217,000 17,392,000
General and administrative................................ 371,000 7,656,000
Non-cash stock compensation............................... -- 916,000
----------- ------------
Total operating expenses............................... 964,000 38,357,000
Operating loss.............................................. (665,000) (29,955,000)
Other income (expense):
Interest expense, including amortization of deferred
financing costs........................................ -- (2,767,000)
Other..................................................... -- (50,000)
----------- ------------
Loss before provision for income tax........................ (665,000) (32,772,000)
Provision for income taxes.................................. 1,000 1,000
----------- ------------
Net loss.................................................... $ (666,000) $(32,773,000)
=========== ============
Basic and diluted net loss per share........................ $ (0.03) $ (1.21)
=========== ============
Shares used in computing net loss per share, basic and
diluted................................................... 22,821,000 27,018,000
=========== ============
Basic and diluted pro forma net loss per share
(unaudited)............................................... $ (0.89)
============
Shares used in computing pro forma net loss per share
(unaudited)............................................... 36,829,000
============
</TABLE>
See accompanying notes.
F-4
<PAGE> 77
FLASHCOM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL DEFERRED RECEIVABLE TOTAL
-------------------- PAID-IN STOCK FROM ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDERS DEFICIT EQUITY (DEFICIT)
---------- ------- ----------- ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 18, 1998...... -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock to
founding stockholders...... 22,500,000 22,000 -- -- -- (15,000) 7,000
Issuance of common stock..... 4,500,000 5,000 988,000 -- -- -- 993,000
Net loss..................... -- -- -- -- -- (666,000) (666,000)
---------- ------- ----------- ----------- ------------ ------------ ------------
Balance at December 31,
1998....................... 27,000,000 27,000 988,000 -- -- (681,000) 334,000
Repurchase of common stock... (4,500,000) (5,000) (995,000) -- -- -- (1,000,000)
Issuance of common stock..... 4,500,000 5,000 995,000 -- -- -- 1,000,000
Issuance of restricted common
stock...................... 3,166,000 3,000 2,945,000 -- (2,961,000) -- (13,000)
Issuance of common stock
warrants................... -- -- 5,998,000 -- -- -- 5,998,000
Exercise of employee stock
options.................... 211,000 -- 422,000 -- -- -- 422,000
Deferred stock
compensation............... -- -- 8,651,000 (8,651,000) -- -- --
Amortization of deferred
stock compensation......... -- -- -- 541,000 -- -- 541,000
Net loss..................... -- -- -- -- -- (32,773,000) (32,773,000)
---------- ------- ----------- ----------- ------------ ------------ ------------
Balance at December 31,
1999....................... 30,377,000 $30,000 $19,004,000 $(8,110,000) $ (2,961,000) $(33,454,000) $(25,491,000)
========== ======= =========== =========== ============ ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 78
FLASHCOM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
MAY 18, 1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
-------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................... $ (666,000) $(32,773,000)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 24,000 2,246,000
Provision for doubtful accounts........................... 36,000 513,000
Amortization of deferred financing costs.................. -- 2,657,000
Non-cash stock compensation expense....................... -- 916,000
Changes in operating assets and liabilities:
Accounts receivable.................................... (86,000) (2,367,000)
Prepaids and other assets.............................. -- (1,682,000)
Customer acquisition costs............................. -- (4,809,000)
Accounts payable....................................... 787,000 16,756,000
Accrued expenses and other............................. 10,000 3,241,000
Customer deposits...................................... -- 1,480,000
Deferred revenue....................................... -- 883,000
---------- ------------
Net cash provided by (used in) operating activities......... 105,000 (12,939,000)
INVESTING ACTIVITIES:
Capital expenditures........................................ (455,000) (10,254,000)
Due from shareholder........................................ -- (433,000)
---------- ------------
Net cash used in investing activities....................... (455,000) (10,687,000)
FINANCING ACTIVITIES:
Proceeds from the issuance of common stock.................. 1,000,000 1,000,000
Repurchase of common stock.................................. -- (1,000,000)
Proceeds from the issuance of bridge loans.................. -- 13,000,000
Proceeds from sales of redeemable convertible preferred
stock..................................................... -- 12,335,000
Exercise of employee stock options.......................... -- 47,000
Principal payments on capital lease obligations............. -- (390,000)
Net advances from affiliated companies...................... 225,000 178,000
---------- ------------
Net cash provided by financing activities................... 1,225,000 25,170,000
---------- ------------
Net increase in cash........................................ 875,000 1,544,000
Cash and equivalents at beginning of period................. -- 875,000
---------- ------------
Cash and equivalents at end of period....................... $ 875,000 $ 2,419,000
========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 79
FLASHCOM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. DESCRIPTION OF BUSINESS
Flashcom, Inc. (the "Company"), a Delaware corporation, is a leading
provider of broadband communications services to small and medium-sized
enterprises and residential customers nationwide. The Company currently uses
digital subscriber line, or DSL, technology to offer high-speed Internet access
and complementary services over standard copper telephone lines. DSL uses copper
wires that are the same as those used for regular voice telephone service to
transmit information between the central office of the local exchange carrier
("CO") and the customer's location. However, because DSL technology transmits
information in a digital format using more of the available bandwidth of the
copper wires and because DSL service connects the customer directly to the
Internet backbone at the CO, thereby bypassing the public switched telephone
network, it transforms the customer's telephone line into a high-speed, always-
on digital connection capable of transmission speeds far in excess of those
attainable using the same telephone line and a conventional analog modem.
The Company's predecessor, a Nevada corporation, was originally
incorporated on May 18, 1998. In March 1999, the Company was reincorporated as a
Delaware corporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, and reported amounts of revenues and expenses during the reporting
period. Actual results could differ materially from those estimates.
BUSINESS RISKS AND CREDIT CONCENTRATION
Flashcom operates within an industry that is subject to rapid technological
change and intense competition. The introduction of new technologies could have
a substantial impact on future operations of the Company.
The Company's operations are subject to significant risks and uncertainties
including competitive, financial, developmental, operational, technological,
regulatory and other risks associated with an emerging business.
The Company has service agreements with two national competitive local
exchange carriers ("CLECs") to provide installation services and DSL lines to
its customers. These two CLECs provided approximately 61% and 35%, respectively,
of the Company's DSL lines for the year ended December 31, 1999. Under these
agreements, which have original terms of one to two years, the Company is
committed to purchasing specified amounts of services in exchange for favorable
pricing arrangements. Management believes the Company's purchases of services
will exceed the amounts necessary under the agreements to receive the favorable
pricing. However, if the services purchased fall below the committed amounts,
the Company may be subject to an additional liability. Management also believes
these CLECs are able to fulfill their obligations to the Company under the
agreements.
REVENUE RECOGNITION
The Company derives the majority of its revenue from recurring monthly
access fees for high-speed, or broadband, communications services. Revenue from
broadband communication services are recognized as the services are provided.
Payments received in advance of services provided are recorded as deferred
F-7
<PAGE> 80
FLASHCOM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
revenue until the services are provided. Revenue from hardware sales and
installation services is recognized upon installation.
CUSTOMER ACQUISITION COSTS
Customer acquisition costs consist of amounts paid to third-party vendors
for customer equipment, installation costs and monthly customer fees incurred in
connection with the establishment of the Company's service in excess of related
fees charged to the customer, provided that such amounts are recoverable from
future revenue under the customer's service contract. These costs are
capitalized and amortized over the customer's contract service periods, which
range from one to two years. Amortization expense for the year ended December
31, 1999 was $799,000.
ADVERTISING EXPENSE
Advertising costs are expensed as incurred. Advertising expense for the
period ended December 31, 1998 and the year ended December 31, 1999 was $139,000
and $14,131,000, respectively.
STOCK-BASED COMPENSATION
The Company has elected to account for its stock-based compensation to
employees using the intrinsic value method described in Accounting Principles
Board Opinion No. 25 ("APB No. 25"), Accounting for Stock Issued to Employees.
NET LOSS PER SHARE
The Company computes net loss per share in accordance with SFAS No. 128,
Earnings per Share and SEC Staff Accounting Bulletin ("SAB") No. 98. Under the
provisions of SFAS No. 128 and SAB No. 98, basic and diluted net loss per share
is computed by dividing net loss for the period by the weighted average number
of shares of common stock outstanding during the period. The calculation of
diluted net loss per share excludes potential shares of common stock if their
effect is anti-dilutive. Potential common stock consists of shares of common
stock issuable upon the exercise of stock options and warrants and shares
issuable upon conversion of the Series A redeemable convertible preferred stock.
F-8
<PAGE> 81
FLASHCOM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table sets forth the computation of net loss per share:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 18, 1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
-------------- ------------
<S> <C> <C>
Numerator:
Net loss............................................... $ (666,000) $(32,773,000)
=========== ============
Denominator:
Weighted average shares outstanding.................... 22,821,000 27,331,000
Less: non-vested common shares outstanding............. -- (313,000)
----------- ------------
Denominator for basic and diluted loss per common
share.................................................. 22,821,000 27,018,000
===========
Assumed weighted-average common equivalent shares from
conversion of Series A redeemable convertible preferred
stock outstanding...................................... 9,811,000
------------
Denominator for pro forma basic and diluted loss per
common share (unaudited)............................... 36,829,000
============
Net loss per common share -- basic and diluted........... $ (0.03) $ (1.21)
=========== ============
Pro forma net loss per share -- basic and diluted
(unaudited)............................................ $ (0.89)
============
</TABLE>
The following table sets forth potential shares of common stock that are
not included in the diluted net loss per share calculation above, as their
effect would be anti-dilutive.
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Series A redeemable convertible preferred stock..... -- 17,315,000
Common stock warrants............................... -- 3,891,000
Employee stock options.............................. -- 7,110,000
Non-vested common shares............................ -- 3,166,000
---------- ----------
-- 31,482,000
========== ==========
</TABLE>
INCOME TAXES
The Company accounts for its income taxes using the asset and liability
method whereby deferred tax assets and liabilities are determined based upon
temporary differences between bases used for financial reporting and income tax
reporting purposes. Income taxes are provided based on the statutory tax rates
in effect at the time such temporary differences are expected to reverse. A
valuation allowance is provided for deferred tax assets as there is no assurance
that the Company will realize those assets through future operations.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
F-9
<PAGE> 82
FLASHCOM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments as of December
31, 1999 and 1998 approximate their respective fair values because of the short
maturities of these instruments. Such financial instruments consist of cash and
cash equivalents, amounts due from stockholder, notes payable and advances from
affiliated companies.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Maintenance and repairs are
charged to expense as incurred, and the cost of additions and betterments are
capitalized. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which range from one to seven years.
Leasehold improvements are amortized using the straight-line method over the
lesser of the lease term or the estimated useful life of the related asset.
DEFERRED FINANCING COSTS
Deferred financing costs represent the fair value assigned to common stock
warrants issued in connection with an equipment financing agreement and
convertible promissory notes (see Note 8) and are being amortized over the term
of the related debt. The fair value of these warrants was estimated at the date
of grant based on the Black-Scholes method. Amortization of these costs for the
year ended December 31, 1999 was $2,657,000 and is included in interest expense.
As of December 31, 1999, unamortized deferred financing costs related to
the convertible promissory notes were approximately $3,200,000, which will be
fully amortized in the quarter ended March 31, 2000.
LONG-LIVED ASSETS
The Company accounts for long-lived assets in accordance with Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and records
impairment losses on long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income, which establishes standards for reporting and
displaying comprehensive income and its components in the financial statements.
For the period ended December 31, 1998 and the year ended December 31, 1999, the
Company did not have any components of other comprehensive income.
INTERNALLY DEVELOPED SOFTWARE
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 requires companies
to capitalize certain costs of computer software developed or obtained for
internal use, provided that those costs are not research and development. The
Company adopted the provisions of SOP 98-1 during the year ended December 31,
1999.
F-10
<PAGE> 83
FLASHCOM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
3. COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS
PREPAIDS AND OTHER
Prepaids and other consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Prepaid computer maintenance........................ $ -- $ 649,000
Prepaid advertising................................. -- 431,000
Other............................................... -- 547,000
---------- ----------
$ -- $1,627,000
========== ==========
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1998 1999
-------- -----------
<S> <C> <C>
Software and computer equipment..................... $ 56,000 $ 2,637,000
Network equipment................................... 363,000 2,716,000
Office furniture and fixtures....................... 36,000 1,270,000
Leasehold improvements.............................. -- 601,000
Equipment under lease to subscribers................ -- 540,000
Information systems under development............... -- 8,553,000
-------- -----------
455,000 16,317,000
Less accumulated depreciation....................... (36,000) (1,483,000)
-------- -----------
$419,000 $14,834,000
======== ===========
</TABLE>
Depreciation expense related to property and equipment, including equipment
under capital leases, was $36,000 and $1,447,000 for the period ended December
31, 1998 and the year ended December 31, 1999, respectively.
ACCRUED EXPENSES AND OTHER
Accrued expenses and other consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1998 1999
------- ----------
<S> <C> <C>
Accrued payroll and related benefits.................. $ -- $ 785,000
Deferred supplier rebates............................. -- 2,154,000
Accrued other......................................... 10,000 258,000
------- ----------
$10,000 $3,197,000
======= ==========
</TABLE>
4. BORROWINGS
NOTES PAYABLE
In November 1999, the Company entered into convertible promissory note
agreements with certain of the Company's stockholders that provided for
borrowings of up to $9,000,000. These notes bear interest at a rate of 7% per
annum and are payable upon demand at any time after January 31, 2000. The
principal
F-11
<PAGE> 84
FLASHCOM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. BORROWINGS (CONTINUED)
and accrued interest outstanding under these agreements may be converted into
Series B preferred stock at the issuance price.
CAPITAL LEASE OBLIGATIONS
In August 1999, the Company entered into an equipment financing agreement
in the amount of $7,000,000 for the acquisition of capital equipment. Under the
agreement the Company may purchase qualifying computer equipment and software
until August 2000. The outstanding balance bears interest at an effective rate
of 12.1% per annum. The amount outstanding is secured by the underlying assets.
At December 31, 1999 the remaining amount available was $1,562,000.
5. INCOME TAXES
Income tax benefit computed at the statutory federal income tax rate (34%)
and income tax expense provided in the financial statements differ for the
period ended December 31, 1998 and the year ended December 31, 1999 as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1998 1999
--------- ------------
<S> <C> <C>
Benefit computed at the statutory rate............ $(226,000) $(11,142,000)
State income tax, net of federal benefit.......... (39,000) (1,877,000)
Permanent difference.............................. -- 198,000
Losses without benefit............................ 264,000 12,820,000
--------- ------------
Income tax expense................................ $ 1,000 $ 1,000
========= ============
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1998 1999
--------- ------------
<S> <C> <C>
Deferred tax assets (liabilities):
Net operating loss carryforward................. $ 275,000 $ 12,479,000
Allowance for doubtful accounts................. 9,000 214,000
Accrued vacation................................ -- 55,000
Amortization of deferred compensation........... -- 157,000
Other accruals.................................. -- 175,000
Depreciation.................................... (19,000) 6,000
--------- ------------
Total deferred tax assets.................... 265,000 13,086,000
Valuation allowance............................... (265,000) (13,086,000)
--------- ------------
Total net deferred tax assets................ $ -- $ --
========= ============
</TABLE>
At December 31, 1999, the Company had approximately $31 million in net
operating loss carryforwards for federal and state income tax purposes, which
begin to expire in 2006. The Company has provided a full valuation allowance
against its deferred tax assets due to uncertainties surrounding their
realization.
F-12
<PAGE> 85
FLASHCOM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
5. INCOME TAXES (CONTINUED)
Utilization of these net operating losses may be subject to an annual
limitation due to ownership change constraints set forth in the Internal Revenue
Code of 1986 and similar state tax provisions.
6. COMMITMENTS AND CONTINGENCIES
LEASES
The Company has entered into various capital and operating leases primarily
for property and equipment and office space. The future minimum annual lease
payments under these agreements as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- ----------
<S> <C> <C>
2000............................................... $ 2,203,000 $ 712,000
2001............................................... 2,203,000 599,000
2002............................................... 1,778,000 582,000
2003............................................... -- 551,000
2004............................................... -- 303,000
Thereafter......................................... -- 129,000
----------- ----------
Total minimum lease payments..................... 6,184,000 $2,876,000
==========
Less: amounts representing interest................ (948,000)
-----------
Present value of capital lease obligations......... 5,236,000
Less: current portion.............................. (1,678,000)
-----------
Long-term portion of capital lease obligations..... $ 3,558,000
===========
</TABLE>
Rent expense under operating leases for the period ended December 31, 1998
and for the year ended December 31, 1999 was $72,000 and $434,000, respectively.
LITIGATION
The Company is party to various legal actions arising in the ordinary
course of its business. The Company believes that the resolution of these legal
actions will not have a material adverse effect on the Company's financial
position, results of operations or cash flows.
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In June 1999, the Company raised proceeds of $16,335,000, including
conversion of $4,000,000 of bridge loans, through the issuance of 5,771,679
shares of Series A redeemable convertible preferred stock ("Preferred Stock",
"Preferred") at $2.83 per share.
DIVIDENDS
Dividends on the Preferred Stock are payable when and if declared by the
Board of Directors and are non-cumulative. In the event the Company declares a
dividend, the Preferred Stock holders are entitled to receive, prior to any
payment of dividends to holders of Common, annual dividends in the amount of 8%
($.226 per share) of the original purchase price of the Preferred. Thereafter,
holders of Preferred and Common participate ratably in additional dividends on a
common stock ("Common") equivalent basis.
F-13
<PAGE> 86
FLASHCOM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
VOTING
The holder of each share of Preferred is entitled to the number of votes
equal to the number of shares of common stock into which the holders' shares
would be converted.
LIQUIDATION
The Preferred Stock provides the holder with a liquidation preference of
$2.83 per share, plus all declared but unpaid dividends. Any remaining assets
are to be distributed ratably to the holders of Preferred and Common on an equal
basis until the holders of the Preferred have received 1.5 times ($4.25 per
share) the original purchase price of the Preferred. Thereafter, the remaining
assets, if any, are to be distributed to the holders of Common. Holders of the
Preferred Stock are entitled to redeem their shares at the liquidation value
described above if there is a merger, acquisition or sale of substantially all
of the assets of the Company in which the stockholders of the Company do not own
a majority of the outstanding shares of the surviving entity.
CONVERSION
Each holder may convert the Preferred Stock on a one-for-three basis into
17,315,000 common shares. The conversion rights of the holders are protected
from dilution, under certain circumstances. Each share of Preferred shall
automatically convert into shares of common stock upon (i) the date when at
least 51% of the shares then outstanding agree to such conversion, or (ii) the
closing of a firm commitment to underwrite a public offering pursuant to an
effective registration statement under the Securities Act of 1933 covering the
offer and sale of the Company's common stock at a price per share of not less
than $8.49 and resulting in proceeds to the Company of not less than
$20,000,000.
In the event the Preferred Stock is not converted or redeemed by June 8,
2004, the Preferred holders may require the Company to redeem such shares at
their original purchase price of $16,335,000 ($2.83 per share) plus any
declared, unpaid dividends.
8. STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
STOCK SPLIT AND AMENDMENT TO ARTICLES OF INCORPORATION
In November 1999, the Board of Directors approved a 3-for-1 split,
effective November 30, 1999, of the Company's common stock. All share and per
share amounts in the accompanying financial statements have been retroactively
restated to reflect the stock split.
In December 1999, the Board of Directors amended the Articles of
Incorporation to increase the number of common shares authorized to 100,000,000
and the number of preferred shares authorized to 50,000,000.
At December 31, 1999, the Company has reserved the following shares of its
Common Stock for issuance upon conversion of the issued and outstanding shares
of Series A redeemable convertible
F-14
<PAGE> 87
FLASHCOM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
8. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
preferred stock, exercise of warrants and exercise of stock options under the
1999 Incentive Stock Option, Non-Qualified Stock Option Restricted and Stock
Purchase Plan:
<TABLE>
<S> <C>
Reserved for redeemable convertible preferred stock......... 17,315,000
Reserved for common stock warrants.......................... 3,891,000
Reserved for stock options outstanding...................... 7,110,000
----------
28,316,000
==========
</TABLE>
NOTES RECEIVABLE FROM STOCKHOLDERS
In 1999, the Board of Directors approved issuance of 3,166,000 shares of
restricted common stock in connection with the employment of two key executives.
These share issuances are subject to repurchase by the Company in decreasing
amounts through October and November 2003, respectively, or upon the occurrence
of certain events. The notes are full recourse against the maker and are secured
by the underlying stock.
ISSUANCE OF WARRANTS
The following issuance of warrants are exercisable immediately upon grant
and expire through the later of ten years after the date of grant or five years
after the closing of an initial public offering.
In May 1999, the Company issued convertible promissory notes in the amount
of $2,000,000. The Company issued these noteholders warrants to purchase 900,000
shares of common stock at $0.222 per share.
The Company issued a warrant in connection with the equipment financing
agreement to a financial institution to purchase 333,921 shares of common stock
at a price of $0.943 per share.
In connection with the November 1999 and December 1999 convertible
promissory notes, the Company issued these noteholders warrants to purchase
2,657,000 shares of common stock at a weighted average exercise price of $0.677
per share.
STOCK OPTION PLAN
In June 1999, the Company adopted the Flashcom, Inc. 1999 Incentive Stock
Option, Nonqualified Stock Option and Restricted Stock Purchase Plan (the
"Plan") which provides for the issuance of 10,500,000 shares (as amended) of
common stock. In February 2000, the Company's Board of Directors voted to
increase the number of shares of common stock available for grant under the Plan
to 12,500,000. Options to acquire shares of the Company's common stock may be
issued under the Plan for a period of ten years following the Plan's adoption.
Employees, officers, directors and consultants are eligible to receive options
under the Plan. The Plan is administered by the Board of Directors or a
committee appointed for such purposes which has sole discretion and authority to
determine which eligible employees will receive options, when the options will
be granted and the terms and conditions of the options granted. Options
generally vest ratably over a four-year period commencing on the first
anniversary date of the grant.
F-15
<PAGE> 88
FLASHCOM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
8. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Stock option activity for the year ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
NUMBER OF PRICE PER WEIGHTED-AVERAGE
OPTIONS OPTION EXERCISE PRICE
---------- ------------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1998............... -- $ -- $ --
Granted.................................. 8,787,000 $0.22 - $1.00 $0.54
Exercised................................ (211,000) $0.22 $0.22
Forfeited................................ (1,466,000) $0.22 - $1.00 $0.28
---------- -----
Balance at December 31, 1999............... 7,110,000 $0.61
========== =====
</TABLE>
The following table summarizes additional information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------ ----------------------------
WEIGHTED- WEIGHTED-
AVERAGE WEIGHTED- AVERAGE
REMAINING AVERAGE EXERCISE PRICE
OPTIONS CONTRACTUAL EXERCISE OPTIONS OF EXERCISABLE
DATE OF OPTION GRANT EXERCISE PRICE OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE OPTIONS
-------------------- -------------- ----------- ------------ --------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
6/4/99..................... $0.22 2,068,000 9.42 $0.22 413,000 $0.22
10/26/99................... $0.44 1,303,000 9.55 $0.44 -- --
11/29/99................... $0.58 555,000 9.86 $0.58 -- --
11/30/99................... $1.00 3,184,000 9.92 $1.00 -- --
--------- ---- ----- ------- -----
$0.22 - $1.00 7,110,000 9.70 $0.61 413,000 $0.22
========= ==== ===== ======= =====
</TABLE>
The Company recorded approximately $8,651,000 of deferred compensation
representing the difference between the exercise price and the estimated fair
value of the Company's common stock on the date of grant for financial statement
presentation purposes. The amount has been presented as a reduction to
stockholders' equity and is being amortized over the vesting period of the
respective options. The Company amortized $541,000 of deferred compensation for
the year ended December 31, 1999.
The deferred compensation balance for option grants through December 31,
1999 will be amortized as follows: $2,163,000 per year up to and including the
year ended December 31, 2002 and $1,621,000 during the year December 31, 2003.
Pro forma information regarding net income or loss is required by SFAS 123
and has been determined as if the Company had accounted for its employee stock
options under the fair value method pursuant to SFAS 123, rather that the
intrinsic value method pursuant to APB No. 25. The fair value of these options
was estimated at the date of grant based on the minimum-value method, which does
not consider stock price volatility.
The following assumptions were used in valuing the stock option grants:
<TABLE>
<CAPTION>
DECEMBER 31
--------------
1998 1999
---- ----
<S> <C> <C>
Expected volatility......................................... 0% 0%
Risk-free interest rate..................................... 6.0% 5.5%
Expected life (in years).................................... 3.5 3.5
Expected rate of dividends.................................. 0% 0%
</TABLE>
F-16
<PAGE> 89
FLASHCOM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
8. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Had the Company determined compensation expense based on the fair value of
the option at the date of grant for the employee stock options under SFAS 123,
the Company's net loss and net loss per share would have increased to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1998 1999
--------- ------------
<S> <C> <C>
Net loss:
As reported..................................... $(666,000) $(32,773,000)
Pro forma....................................... (666,000) (33,462,000)
Basic and diluted net loss per share:
As reported..................................... $ (0.03) $ (1.21)
Pro forma....................................... $ (0.03) $ (1.24)
</TABLE>
9. RELATED PARTY TRANSACTIONS
Advances from affiliated companies consist of loans made to the Company
from three separate companies in which the Company's former Chairman and Chief
Executive Officer is the majority stockholder. The amounts are non-interest
bearing and payable on demand. Amounts due from stockholder is also non-interest
bearing and payable on demand.
The Company leases its current office space in California from a limited
partnership in which the former Chairman and Chief Executive Officer is a
partner. Prior to May 1999, the Company leased its former office space in
California from a limited partnership of which the former Chairman and Chief
Executive Officer is a limited partner. Included in rent expense presented in
Note 6 are amounts paid by the Company under these lease agreements, which
approximated $72,000 and $326,000 for the period ended December 31, 1998 and for
the year ended December 31, 1999, respectively.
10. SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid no cash for interest for the period ended December 31,
1998. Cash paid for interest during the year ended December 31, 1999 was
$117,000.
The Company paid no cash for income taxes for the period ended December 31,
1998 and the year ended December 31, 1999.
Non-cash investing and financing activities are as follows:
In May 1999, the Company issued warrants to purchase its common stock at
$0.222 per share. The non-cash value assigned to the warrants was $250,000.
In August 1999, the Company issued warrants to purchase its common stock at
$0.943 per share. The non-cash value assigned to these warrants was $122,000.
In November 1999, the Company issued warrants to purchase its common stock
at $0.583 per share. The non-cash value assigned to these warrants was
$4,222,000.
In December 1999, the Company issued warrants to purchase its common stock
at $1.00 per share. The non-cash value assigned to these warrants was
$1,404,000.
During 1999, the Company incurred capital lease obligations in the amount
of $5,438,000 for the purchase of property and equipment under the equipment
financing agreement.
F-17
<PAGE> 90
FLASHCOM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
11. SUBSEQUENT EVENTS
SERIES B PREFERRED STOCK OFFERING
In February and March 2000, the Company issued 12,824,351 shares of
redeemable convertible Series B preferred stock for $6.57 per share for total
gross cash proceeds of $84,255,987 and the conversion of $9,000,000 of
convertible promissory notes together with accrued interest. The holders of the
Series B preferred stock are entitled to receive annual dividends of $0.526 when
and if declared by the Board of Directors and $6.57 per share upon liquidation.
Each share of Series B preferred stock automatically converts into one share of
common stock upon the closing of a firm commitment underwritten initial public
offering ("IPO").
In connection with the Series B offering, the Company issued these
investors contingent warrants to purchase shares of common stock if the IPO
price is within the range of $9.85 to $13.14. The number of shares issuable upon
exercise of such warrants would be between 1,603,044 and 2,138,477 depending on
the IPO price. These warrants expire on the earlier of (i) five years from the
date of grant (ii) two years following the closing of an IPO, or (iii)
immediately preceding a change of control.
In February 2000, the Company used $9,000,000 of the proceeds from the sale
of the Series B convertible preferred stock to purchase 1,612,903 shares of
common stock from a co-founder at a price of $5.58 per share.
LEASE AGREEMENT
In February 2000, the Company entered into a ten year lease agreement for
new corporate office facilities. Monthly lease payments under this agreement
range from $203,000 to $255,000 over the term of the lease. The total
obligations under this agreement are $27,430,000.
INITIAL PUBLIC OFFERING
In April 2000, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission in connection
with a planned IPO. Upon the closing on the proposed IPO, the Company will file
an amended and restated certificate of incorporation, which will provide that
the authorized capital stock will consist of 400,000,000 shares of common stock,
$.0001 par value per share, and 20,000,000 shares of preferred stock, $.0001 par
value per share. The Company also adopted an Employee Stock Purchase Plan
covering 1,000,000 shares of the Company's common stock effective upon the
closing of the planned IPO and increased the number of shares available for
grant under the Company's 1999 Plan (see Note 8) to 15,000,000.
Upon the closing of the planned IPO, all of the then outstanding shares of
the Company's redeemable convertible preferred stock will be converted into
shares of common stock. The conversion of the redeemable convertible preferred
stock has been reflected in the accompanying unaudited pro forma balance sheet
information as if this conversion had occurred on December 31, 1999.
Unaudited pro forma net loss per share for the year ended December 31, 1999
is computed by dividing the net loss for the period by the weighted-average
number of shares of common stock outstanding, plus the pro forma effect of
assumed conversion of redeemable convertible preferred stock outstanding as of
December 31, 1999 into shares of common stock effective at the time of the
Company's IPO as if such conversion occurred on January 1, 1999 or at the date
of original issuance, if later.
F-18
<PAGE> 91
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
FLASHCOM, INC.
COMMON STOCK
[FLASHCOM LOGO]
------------
PROSPECTUS
, 2000
------------
SALOMON SMITH BARNEY
THOMAS WEISEL PARTNERS LLC
ING BARINGS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 92
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of the common stock being registered hereunder, all of which will be paid
by Flashcom. All of the amounts shown are estimates except for the Securities
and Exchange Commission registration fee, the Nasdaq National Market application
fee and the NASD filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $33,000
NASD filing fee............................................. 13,000
Nasdaq application fee...................................... *
-------
Printing expenses........................................... *
-------
Legal fees and expenses..................................... *
-------
Accounting fees and expenses................................ *
-------
Blue sky fees and expenses.................................. *
-------
Miscellaneous............................................... *
-------
Total............................................. $ *
=======
</TABLE>
- -------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) As permitted by Delaware law, our certificate of incorporation
eliminates the liability of directors to us or our stockholders for monetary
damages for breach of fiduciary duty as directors, except to the extent
otherwise required by Delaware law.
(b) Our certificate of incorporation provides that we will indemnify each
person who was or is made a party to any proceeding by reason of the fact that
such person is or was a director or officer of the company against all expense,
liability and loss reasonably incurred or suffered by such person in connection
therewith to the fullest extent authorized by Delaware law. Our bylaws provide
for a similar indemnity to our directors and officers to the fullest extent
authorized by Delaware law.
(c) We maintain liability insurance upon our officers and directors.
(d) Our certificate of incorporation also gives us the ability to enter
into indemnification agreements with each of our directors and officers. We have
entered into indemnification agreements with certain of our directors and
officers, which provide for the indemnification of our directors or officers
against any and all expenses, judgments, fines, penalties and amounts paid in
settlement, to the fullest extent permitted by law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by us from May 18, 1998 through
the date hereof involving sales of our securities that were not registered under
the Securities Act. All share amounts are adjusted to reflect a 400-for-1 stock
split that occurred in January 1999 and a 3-for-1 stock split that occurred in
December 1999.
In May 1998, we sold 22,500,000 shares of our common stock to Brad and
Andra Sachs, in exchange for services rendered to us in connection with our
incorporation and the set-up of our operations.
II-1
<PAGE> 93
In December 1998, we sold 4,500,000 shares of our common stock for a
purchase price of $0.222 per share to Crosspoint Venture Partners 1997, an
institutional investor, as part of a private financing arrangement.
In March 1999, we sold an aggregate of 4,500,000 shares of common stock at
$0.222 per share for an aggregate amount of $1,000,000 in cash to the following
entities: Communications Ventures III L.P. (3,214,287 shares), Communications
Ventures III CEO and Entrepreneurs Fund L.P. (160,713 shares), Mayfield IX
(1,068,750 shares) and Mayfield Associates Fund IV (56,250 shares).
In May 1999 we issued warrants to purchase up to 899,550 shares of our
common stock to certain lenders who subsequently purchased our Series A
Preferred Stock at an exercise price of $0.222. These warrants are exercisable
at any time beginning in May 1999 and expire in May 2009.
In June 1999, we granted options to purchase 1,085,000 shares of our common
stock at an exercise price of $0.222 per share to 84 employees pursuant to our
1999 Incentive Stock Option, Nonqualified Stock Option and Restricted Stock
Purchase Plan.
In June 1999, we entered into a Series A Preferred Stock Purchase Agreement
pursuant to which we sold 5,771,679 shares of our Series A Preferred Stock at
$2.83 per share to eight accredited investors for aggregate consideration of
approximately $16,335,000.
From July 1999 through April 2000 we sold restricted stock to certain of
our officers and directors at prices from $0.222 to $4.00 per share. The sales
were made pursuant to restricted stock purchase agreements and the purchase
prices were paid with promissory notes.
<TABLE>
<CAPTION>
NUMBER OF PER SHARE AGGREGATE
NAME SHARES CONSIDERATION CONSIDERATION
---- --------- ------------- -------------
<S> <C> <C> <C>
Paul Adams..................................... 1,125,000 $0.222 $ 249,750
Christopher Rose............................... 525,000 $0.583 $ 306,075
Vane Clayton................................... 500,000 $ 4.00 $2,000,000
Steve Fowler................................... 500,000 $ 2.00 $1,000,000
Chris Newton................................... 500,000 $ 2.00 $1,000,000
Steven Pacelli................................. 300,000 $ 2.00 $ 600,000
Wayne Boylston................................. 1,476,129 $ 4.00 $5,904,516
Richard Rasmus................................. 2,641,443 $ 1.00 $2,641,443
</TABLE>
In August 1999, in connection with an equipment financing, we issued a
warrant to purchase up to 333,921 shares of our common stock at a purchase price
equal to $0.943 per share to Comdisco Ventures, L.P. The warrant is exercisable
at any time beginning on August 18, 1999 until August 18, 2009 or five years
from the effective date of this offering. The warrant contains provisions that
protect the holder against dilution by adjustment of the exercise price and the
number of shares issuable thereunder upon the occurrence of certain events, such
as a stock dividend, stock split or combination, or recapitalization. The
exercise price is payable either (i) in cash or (ii) by a "cashless exercise" in
which that number of shares of stock underlying the warrant having a fair market
value at the time or exercise equal to the aggregate exercise price are
cancelled as payment of the exercise price.
In August 1999, we granted options to purchase 2,507,557 shares of our
common stock at an exercise price of $0.443 per share to 93 employees pursuant
to our 1999 Incentive Stock Option, Nonqualified Stock Option and Restricted
Stock Purchase Plan.
In September 1999, we granted options to purchase 280,500 shares of our
common stock at an exercise price of $0.443 per share to 112 employees pursuant
to our 1999 Incentive Stock Option, Nonqualified Stock Option and Restricted
Stock Purchase Plan.
In October 1999, we granted options to purchase 114,000 shares of our
common stock at an exercise price of $0.583 per share to 31 employees pursuant
to our 1999 Incentive Stock Option, Nonqualified Stock Option and Restricted
Stock Purchase Plan.
II-2
<PAGE> 94
In November 1999, we granted options to purchase 508,500 shares of our
common stock at an exercise price of $1.00 per share to 80 employees pursuant to
our 1999 Incentive Stock Option, Nonqualified Stock Option and Restricted Stock
Purchase Plan.
In November-December 1999, in connection with a bridge financing agreement,
we issued convertible promissory notes to five accredited institutional
investors for aggregate consideration of $9,000,000. The convertible promissory
notes were convertible into the preferred stock we issued in the next subsequent
equity financing following the date of such bridge financing agreement.
In November-December 1999, in connection with the bridge financing
agreement noted above, we issued warrants to purchase an aggregate of 2,657,145
shares of our common stock to five accredited institutional investors at
exercise prices ranging from $0.583 to $1.00 per share. Each warrant is
exercisable at any time beginning on November 9, 1999, December 1, 1999 or
December 20, 1999 until the earlier of
- November 9, 2009, December 1, 2009 or December 20, 2009, respectively, or
- the occurrence of a change in control transaction.
The warrants contain provisions that protect their holders against dilution
by adjustment of the exercise price and the number of shares issuable thereunder
or upon the occurrence of certain events, such as a stock dividend, reverse
stock split, or recapitalization. The exercise price is payable either (i) in
cash or (ii) by a "cashless exercise" in which that number of shares of stock
underlying the warrant having a fair market value at the time or exercise equal
to the aggregate exercise price are cancelled as payment of the exercise price.
Effective in January 2000 connection with an equipment financing, we issued
a warrant to purchase a maximum of 47,700 shares of our common stock at a
purchase price equal to $3.755 per share to Comdisco, Inc. The warrant is
exercisable at any time beginning on January 7, 2000 until January 7, 2010 or
five years from the effective date of our initial public offering. The warrant
contains provisions that protect against dilution by adjustment of the exercise
price and the number of shares issuable thereunder or upon the occurrence of
certain events, such as a stock dividend, reverse stock split, or
recapitalization. The exercise price is payable either (i) in cash or (ii) by a
"cashless exercise" in which that number of shares of stock underlying the
warrant having a fair market value at the time or exercise equal to the
aggregate exercise price are cancelled as payment of the exercise price.
In January 2000, we granted options to purchase 80,500 shares of our common
stock at an exercise price of $2.00 per share to 44 employees pursuant to our
1999 Incentive Stock Option, Nonqualified Stock Option and Restricted Stock
Purchase Plan.
In February 2000, in connection with a bridge financing agreement, we
issued a convertible promissory note and warrant to Middlefield Ventures, Inc.
The promissory note was convertible into the Series B Preferred Stock with an
aggregate value of $630,000, plus interest accrued from the date of issue of the
note. The warrant granted Middlefield the right to purchase up to 126,000 shares
of our common stock at an exercise price of $2.44 per share and was exercisable
at any time beginning on February 15, 2000 until February 15, 2010. The warrant
contains provisions that protect against dilution by adjustment of the exercise
price and the number of shares issuable thereunder or upon the occurrence of
certain events, such as a stock dividend, reverse stock split, or
recapitalization. The exercise price is payable either (i) in cash or (ii) by a
"cashless exercise" in which that number of shares of stock underlying the
warrant having a fair market value at the time or exercise equal to the
aggregate exercise price are cancelled as payment of the exercise price.
In February 2000, we granted options to purchase 213,000 shares of our
common stock at an exercise price of $4.00 per share to 32 employees pursuant to
our 1999 Incentive Stock Option, Nonqualified Stock Option and Restricted Stock
Purchase Plan.
In February 2000, we entered into a Series B Preferred Stock Purchase
Agreement pursuant to which we sold 12,824,351 shares of Series B Preferred
Stock at $6.57 per share to 33 accredited investors.
II-3
<PAGE> 95
In February 2000, in connection with the offer and sale of Series B
Preferred Stock, we issued warrants to 33 accredited investors who purchased our
Series B Preferred Stock, to purchase up to a number of shares of our common
stock as obtained by dividing $21,063,997 by the per share price of our common
stock in our initial public offering, provided that the warrant is exercisable
only if the initial public offering price is between $9.85 and $13.14 per share.
The warrants are exercisable at any time beginning when the initial public
offering price requirements are met and expire upon the earlier of five years
from the date of each warrant, two years following the close of this offering,
or immediately upon a change in control transaction. The warrants contain
provisions that protect against dilution by adjustment of the exercise price and
the number of shares issuable thereunder or upon the occurrence of certain
events, such as a stock dividend, reverse stock split, or recapitalization. The
exercise price is payable either (i) in cash or (ii) by a "cashless exercise" in
which that number of shares of stock underlying the warrant having a fair market
value at the time or exercise equal to the aggregate exercise price are
cancelled as payment of the exercise price.
The sales of the securities listed above were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or, with respect to
issuances to employees, Rule 701 promulgated under Section 3(b) of the
Securities Act as transactions by an issuer not involving a public offering or
transactions pursuant to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701. The recipients of securities in each
such transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the instruments
representing such securities issued in such transactions. All recipients had
adequate access, through their relationships with us, to information about us.
We used the proceeds of the stock sales for working capital and other general
corporate purposes.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Certificate of Incorporation of
Flashcom, as currently in effect
3.2 Amended and Restated Certificate of Incorporation of
Flashcom, to be effective upon the closing of this offering
3.3 Amended Bylaws of Flashcom, as currently in effect
3.4 Amended and Restated Bylaws of Flashcom, to be effective
upon the closing of this offering
5.1 Opinion of Stradling Yocca Carlson & Rauth, a Professional
Corporation*
10.1 1999 Incentive Stock Option, Nonqualified Stock Option and
Restricted Stock Purchase Plan, as amended and restated
10.2 Form of Stock Option Agreement pertaining to the 1999 Stock
Option Plan
10.3 Form of Restricted Stock Purchase Agreement pertaining to
the 1999 Stock Option Plan
10.4 Employee Stock Purchase Plan
10.5 Wayne Boylston Employment Letter
10.6 Richard Rasmus Employment Letter
10.7 Lease Agreement dated June 1, 1999 by and between Max Singer
Limited Partnership and Flashcom, Inc., as amended
10.8 Agreement of Lease dated February 18, 2000, by and between
Jamboree LLC and Flashcom, Inc.*
10.9 Services Agreement dated April 1, 1999 by and between Covad
Communications Group, Inc. and Flashcom, Inc.*
10.10 Provisioning Agreement dated November 11, 1999 by and
between Rhythms Links Inc. and Flashcom, Inc.*
</TABLE>
II-4
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.11 xDSL Services Agreement dated March 9, 1999 by and between
NorthPoint Communications, Inc. and Flashcom, Inc.*
10.12 Form of Indemnification Agreement for Officers and Directors
of Flashcom, Inc.
10.13 Separation Agreement dated October 20, 1999 by and between
Flashcom, Inc. and Paul Adams
10.14 Separation Agreement dated December 23, 1999 by and between
Flashcom, Inc. and Lawrence R. Webb
10.15 Stock Purchase Agreement dated February 8, 2000 by and
between Flashcom, Inc. and Andra Sachs
10.16 Series B Preferred Stock Purchase Agreement dated February
16, 2000 by and among Flashcom and the Investors noted
therein.
10.17 Amended and Restated Investors Rights Agreement dated
February 18, 2000, by and among Flashcom, the Series A
Holders, the Series B Holders and the Founders noted
therein.
10.18 Loan and Pledge Agreement dated May 10, 2000 by and between
Flashcom and Brad Sachs.*
23.1 Consent of Stradling Yocca Carlson & Rauth, a Professional
Corporation (to be contained in the opinion to be filed as
Exhibit 5.1 hereto)*
23.2 Consent of Ernst & Young LLP, independent auditors
24.1 Power of Attorney (contained on the signature page of this
Registration Statement)
27.1 Financial Data Schedule*
</TABLE>
- -------------------------
* To be filed by amendment.
(b) Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, 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 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:
(1) That, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant 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) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 97
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 Huntington
Beach, State of California, on the 12th day of May, 2000.
FLASHCOM, INC.
By: /s/ RICHARD RASMUS
------------------------------------
Richard Rasmus
President and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Flashcom, Inc., Inc. do
hereby constitute and appoint Richard Rasmus and Steven R. Pacelli, or either of
them, our true and lawful attorneys-in-fact and agents, each with full power to
sign for us or any of us in our names and in any and all capacities, any and all
amendments (including post-effective amendments) to this Registration Statement,
or any related registration statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with all exhibits thereto and other documents required in
connection therewith, and each of them with full power to do any and all acts
and things in our names and in any and all capacities, which such
attorneys-in-fact and agents, or either of them, may deem necessary or advisable
to enable Flashcom, Inc. to comply with the Securities Act of 1933, as amended,
and any rules, regulations, and requirements of the Securities and Exchange
Commission, in connection with this Registration Statement; and we hereby do
ratify and confirm all that the such attorneys-in-fact and agents, or either of
them, shall 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 in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RICHARD RASMUS President, Chief Executive Officer and May 12, 2000
- --------------------------------------------- Director (principal executive officer)
Richard Rasmus
/s/ M. WAYNE BOYLSTON Chief Financial Officer (principal May 12, 2000
- --------------------------------------------- financial and accounting officer)
M. Wayne Boylston
/s/ TODD BROOKS Director May 12, 2000
- ---------------------------------------------
Todd Brooks
/s/ DAVID HELFRICH Director May 12, 2000
- ---------------------------------------------
David Helfrich
Director May , 2000
- ---------------------------------------------
William Matthes
</TABLE>
II-6
<PAGE> 98
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Certificate of Incorporation of
Flashcom, as currently in effect
3.2 Amended and Restated Certificate of Incorporation of
Flashcom, to be effective upon the closing of this offering
3.3 Amended Bylaws of Flashcom, as currently in effect
3.4 Amended and Restated Bylaws of Flashcom, to be effective
upon the closing of this offering
5.1 Opinion of Stradling Yocca Carlson & Rauth, a Professional
Corporation*
10.1 1999 Incentive Stock Option, Nonqualified Stock Option and
Restricted Stock Purchase Plan, as amended and restated
10.2 Form of Stock Option Agreement pertaining to the 1999 Stock
Option Plan
10.3 Form of Restricted Stock Purchase Agreement pertaining to
the 1999 Stock Option Plan
10.4 Employee Stock Purchase Plan
10.5 Wayne Boylston Employment Letter
10.6 Richard Rasmus Employment Letter
10.7 Lease Agreement dated June 1, 1999 by and between Max Singer
Limited Partnership and Flashcom, Inc., as amended
10.8 Agreement of Lease dated February 18, 2000, by and between
Jamboree LLC and Flashcom, Inc.*
10.9 Services Agreement dated April 1, 1999 by and between Covad
Communications Group, Inc. and Flashcom, Inc.*
10.10 Provisioning Agreement dated November 11, 1999 by and
between Rhythms Links Inc. and Flashcom, Inc.*
10.11 xDSL Services Agreement dated March 9, 1999 by and between
NorthPoint Communications, Inc. and Flashcom, Inc.*
10.12 Form of Indemnification Agreement for Officers and Directors
of Flashcom, Inc.
10.13 Separation Agreement dated October 20, 1999 by and between
Flashcom, Inc. and Paul Adams
10.14 Separation Agreement dated December 23, 1999 by and between
Flashcom, Inc. and Lawrence R. Webb
10.15 Stock Purchase Agreement dated February 8, 2000 by and
between Flashcom, Inc. and Andra Sachs
10.16 Series B Preferred Stock Purchase Agreement dated February
16, 2000 by and among Flashcom and the Investors noted
therein.
10.17 Amended and Restated Investors Rights Agreement dated
February 18, 2000, by and among Flashcom, the Series A
Holders, the Series B Holders and the Founders noted
therein.
10.18 Loan and Pledge Agreement dated May 10, 2000 by and between
Flashcom and Brad Sachs.*
23.1 Consent of Stradling Yocca Carlson & Rauth, a Professional
Corporation (to be contained in the opinion to be filed as
Exhibit 5.1 hereto)*
23.2 Consent of Ernst & Young LLP, independent auditors
24.1 Power of Attorney (contained on the signature page of this
Registration Statement)
27.1 Financial Data Schedule*
</TABLE>
- -------------------------
* To be filed by amendment.
<PAGE> 1
AMENDED & RESTATED EXH. 3.1
CERTIFICATE OF INCORPORATION
OF
FLASHCOM, INC.
(Pursuant to Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware)
The undersigned, Richard Rasmus, hereby certifies that:
FIRST: He is the duly elected and acting President of Flashcom, Inc. a
Delaware corporation ( the "Corporation").
SECOND: That the original Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware on January 20, 1999.
THIRD: This Amended and Restated Certificate of Incorporation restates
and amends the Amended and Restated Certificate of Incorporation filed with the
Secretary of State of the State of Delaware on June 4, 1999, as amended to date.
FOURTH: The Certificate of Incorporation of this Corporation is hereby
amended and restated in its entirety as follows:
ARTICLE I
NAME
The name of this Corporation is Flashcom, Inc.
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, Wilmington, Delaware 19805, County of New Castle.
The name of the Corporation's registered agent at that address is the
Corporation Service Company.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware, as amended from time to time.
<PAGE> 2
ARTICLE IV
AUTHORIZED SHARES
4.1 Classes of Stock. This Corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the Corporation is authorized to issue
is One Hundred Fifty Million (150,000,000). One Hundred Million (100,000,000)
shares shall be Common Stock, $0.001 par value per share, and Fifty Million
(50,000,000) shares shall be Preferred Stock, $0.001 par value per share.
4.2 Rights, Preferences and Restrictions of Preferred Stock. The initial
two series of Preferred Stock shall be designated as "Series A Preferred Stock,"
consisting of Five Million Eight Hundred Thousand (5,800,000) shares, and the
"Series B Preferred Stock," consisting of Thirteen Million (13,000,000) shares.
The rights, preferences and restrictions granted to and imposed on the Series A
Preferred Stock and Series B Preferred Stock are set forth below in this Article
IV, at Section 4.3. The Board of Directors of this corporation (the "Board of
Directors") is expressly authorized to provide for the issuance of all or any of
the remaining shares of the Preferred Stock in one or more series, and to fix
the number of shares and to determine or alter for each such series, such
designations, preferences, and relative, participating, optional, or other
rights and such qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions adopted by the Board of
Directors providing for the issue of such shares and as may be permitted by the
General Corporation Law of the State of Delaware.
The authority of the Board with respect to each series shall include,
but not be limited to, determination of the following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series,
whether dividends shall be cumulative and, if so, from which date or
dates, and the relative rights of priority, if any, of payment of
dividends on shares of that series;
(c) Whether that series shall have voting rights, in
addition to the voting rights provided by law and, if so, the terms of
such voting rights;
(d) Whether that series shall have conversion privileges
and, if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as the
Board of Directors shall determine;
(e) Whether or not the shares of that series shall be
redeemable and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable
and the amount per share payable in case of redemption, which amount may
vary under different conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series and, if so, the terms
and amount of such sinking fund; and
2
<PAGE> 3
(g) The rights of the shares of that series in the event
of voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, and the relative rights of priority, if any, of payment
of shares of that series.
Subject to compliance with applicable protective voting rights which
have been granted to the Preferred Stock or series thereof in Certificates of
Designation or the corporation's Certificate of Incorporation ("Protective
Provisions"), but notwithstanding any other rights of the Preferred Stock or any
series thereof, 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 written consent),
or senior to any of those of any present or future class or series of Preferred
or Common Stock. Subject to compliance with applicable Protective Provisions,
the Board of Directors is also expressly authorized to increase or decrease (but
not below the number of shares of such series then outstanding) the number of
shares of any series subsequent to the issue of shares of that series. In case
the number of shares of any such series shall be so decreased, the shares
constituting such decrease shall resume the status they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
4.3 Rights, Preferences and Restrictions of Series A and Series B
Preferred Stock. The rights, preferences, privileges and restrictions granted to
and imposed on the two initial series of Preferred Stock, which shall be
designated "Series A Preferred Stock" and "Series B Preferred Stock" and which
shall consist of Five Million Eight Hundred Thousand (5,800,000) shares and
Thirteen Million (13,000,000) shares, respectively, are as set forth below in
this Section 4.3 of Article IV.
4.3.1 Dividend Provisions. Subject to the rights of any series of
Preferred Stock which may hereafter come into existence, the holders of shares
of Series A Preferred Stock and Series B Preferred Stock shall be entitled to
receive noncumulative dividends, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividend (payable
other than in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of this Corporation) on the Common Stock of this
Corporation, at the rate of Twenty-Three Cents ($0.23) per annum per share and
Fifty-Three Cents ($0.53) per annum per share, respectively, as adjusted for any
stock splits, combinations or dividends following the effectiveness of this
Amended and Restated Certificate of Incorporation with respect to such Series of
Preferred Stock, payable when, as, and if declared by the Corporation's Board of
Directors. In the event the Board of Directors elects to declare dividends in
excess of the preferential amounts referred to above, then such dividends shall
be declared equally on the Series A Preferred Stock, Series B Preferred Stock
and Common Stock, treating each share of Series A Preferred Stock and Series B
Preferred Stock as being equal to the number of shares of Common Stock
(including fractions of a share) into which such share is then convertible.
4.3.2 Liquidation, Dissolution or Winding Up.
(a) Preferences of Series A and Series B Preferred Stock.
In the event of any liquidation, dissolution, or winding up of the Corporation,
whether voluntary or involuntary, subject to the rights of any series of
Preferred Stock which may hereafter come into existence, (i) holders of each
share of Series A Preferred Stock shall be entitled to be paid out of the assets
of the Corporation available for distribution to holders of the Corporation's
capital stock, whether such
3
<PAGE> 4
assets are capital, surplus or earnings, an amount equal to Two Dollars
Eighty-Three and Two One-Hundredths Cents ($2.8302) per outstanding share (as
adjusted for any stock dividends, combinations or splits following the
effectiveness of this Amended and Restated Certificate of Incorporation with
respect to such shares) (the "Original Series A Issue Price"), plus any declared
but unpaid dividends (collectively, the "Series A Liquidation Amount"), and (ii)
holders of each share of Series B Preferred Stock shall be entitled to be paid
out of the assets of the Corporation available for distribution to holders of
the Corporation's capital stock, whether such assets are capital, surplus or
earnings, an amount equal to Six Dollars and Fifty-Seven Cents ($6.57) per
outstanding share (as adjusted for any stock dividends, combinations or splits
following the effectiveness of this Amended and Restated Certificate of
Incorporation with respect to such shares) (the "Original Series B Issue
Price"), plus any declared but unpaid dividends (collectively, the "Series B
Liquidation Amount"), before any sums shall be paid or any assets distributed
among the holders of shares of Common Stock or shares ranking junior on
liquidation to the Series A and Series B Preferred Stock. If the assets of the
Corporation shall be insufficient to permit the payment in full to the holders
of the Series A Preferred Stock and Series B Preferred Stock of the amounts thus
distributable, then, subject to the liquidation preferences of any subsequently
designated series of Preferred Stock, the entire assets of the Corporation
available for such distribution shall be distributed ratably among the holders
of the Series A Preferred Stock and Series B Preferred Stock, in proportion to
the full preferential amount which each such holder would otherwise be entitled
to receive. After such payment shall have been made in full to the holders of
the Series A Preferred Stock and Series B Preferred Stock or funds necessary for
such payment shall have been set aside by the Corporation in trust for the
account of holders of the Series A Preferred Stock and Series B Preferred Stock
so as to be available for such payment, subject to the rights of any
subsequently designated series of Preferred Stock, the remaining assets of the
Corporation available for distribution to stockholders shall be distributed
among the holders of Series A Preferred Stock and Common Stock pro rata based on
the number of shares of Common Stock held by each (assuming conversion of all
such Series A Preferred Stock) until the holders of Series A Preferred Stock
have received an aggregate amount equal to 1.5 times the Original Series A Issue
Price, (including the Series A Liquidation Amount as set forth above).
Thereafter, the remaining assets of the Corporation available for distribution
to stockholders shall be distributed ratably among the holders of Common Stock.
(b) Consolidation and Merger. A consolidation,
reorganization or merger, or similar transaction or series of transactions,
(other than a consolidation, reorganization or merger, or similar transaction or
series of transactions, in which the holders of voting securities of the
Corporation immediately before the consolidation, reorganization or merger, or
similar transaction or series of transactions, own (immediately after the
consolidation, reorganization or merger, or similar transaction or series of
transactions,) voting securities of the surviving or acquiring corporation, or
of a parent party of such surviving or acquiring corporation, possessing more
than 50% of the voting power of such surviving or acquiring corporation or
parent party) of the Corporation or a sale of all or substantially all of the
assets of the Corporation (any of which events is hereinafter referred to as a
"Reorganization") shall be regarded as a liquidation, dissolution or winding up
of the affairs of the Corporation within the meaning of this Section 4.3.2. The
Corporation shall give each holder of record of Series A Preferred Stock or
Series B Preferred Stock written notice of such impending transaction not later
than twenty (20) days prior to the stockholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. Such notice shall describe the then known material
terms and conditions of the impending transaction and the provisions of this
Section 4.3.2. The transaction shall in no event take place sooner than twenty
(20) days after the Corporation has given such notice provided for herein;
provided, however, that such
4
<PAGE> 5
periods may be shortened and such notice may be waived upon the written consent
of the holders of at least a majority of the voting power of all then
outstanding shares of Preferred Stock, voting together as a single class.
(c) Distributions Other Than Cash. Whenever the
distribution provided for herein shall be paid in property other than cash, the
value of such distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors of the Corporation. Any
securities shall be valued as follows:
(i) Securities not subject to investment letter or
other similar restrictions on free marketability:
(A) If traded on a securities exchange or
The Nasdaq Stock Market, the value shall be deemed to be the
average of the closing prices of the securities on such exchange
over the thirty-day period ending three (3) days prior to the
closing;
(B) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or
sale prices (whichever is applicable) over the thirty-day period
ending three (3) days prior to the closing; and
(C) If there is no active public market, the
value shall be the fair market value thereof, as mutually
determined by the corporation and the holders of at least a
majority of the voting power of all then outstanding shares of
Preferred Stock.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in Section 4.3.2(c)(ii)(A) to reflect the approximate
fair market value thereof, as mutually determined by the corporation and the
holders of at least a majority of the voting power of all then outstanding
shares of Preferred Stock.
4.3.3 No Reissuance of the Preferred Stock. No share or shares of
the Series A Preferred Stock or Series B Preferred Stock acquired by the
Corporation by reason of purchase, conversion or otherwise shall be reissued.
The Corporation may from time to time take such appropriate corporate action as
may be necessary to reduce the authorized number of shares of the Series A
Preferred Stock and/or Series B Preferred Stock accordingly.
4.3.4 Conversion. The holders of Series A Preferred Stock and
Series B Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred
Stock and each share of Series B Preferred Stock shall be convertible, at the
option of the holder thereof, at any time after the date of issuance of such
share, at the office of this Corporation or any transfer agent for such stock,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Original Series A Issue Price or the Original Series
B Issue Price, respectively, by the conversion price applicable to such share,
determined as hereafter provided, in effect on the date of conversion. The
conversion price per share applicable to the Series A Preferred Stock (the
"Series A Conversion Price") shall initially be Ninety-Four and Thirty-Four
One-Hundredths Cents ($.9434)
5
<PAGE> 6
per share; provided, however that the Series A Conversion Price shall be subject
to adjustment as set forth in subsection (d). The conversion price per share
applicable to the Series B Preferred Stock (the "Series B Conversion Price")
shall initially be the Original Series B Issue Price for such share; provided,
however that the Series B Conversion Price shall be subject to adjustment as set
forth in subsection (d).
(b) Automatic Conversion. Each share of Series A Preferred
Stock shall automatically be converted into shares of Common Stock at the Series
A Conversion Price in effect at the time immediately upon (a) the closing of a
firm commitment underwritten public offering by the Corporation of its shares of
Common Stock pursuant to an effective registration statement filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
in an offering with cash proceeds to the Corporation (net of underwriting
discounts and commissions) of not less than $20,000,000, at a per share price of
not less than Nine Dollars and Eighty-Five Cents ($9.85) per share (as adjusted
for any stock splits, combinations or dividends following the effectiveness of
this Amended and Restated Certificate of Incorporation with respect to the
Common Stock) ("Qualified Public Offering"), or (b) upon the vote or written
consent of holders of not less than a majority of the then-outstanding shares of
Series A Preferred Stock. Each share of Series B Preferred Stock shall
automatically be converted into shares of Common Stock at the Series B
Conversion Price in effect at the time immediately upon (a) the closing of a
firm commitment underwritten public offering by the Corporation of its shares of
Common Stock pursuant to an effective registration statement filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
in an offering with cash proceeds to the Corporation (net of underwriting
discounts and commissions) of not less than $20,000,000, at a per share price of
not less than Nine Dollars and Eighty-Five Cents ($9.85) per share (as adjusted
for any stock splits, combinations or dividends following the effectiveness of
this Amended and Restated Certificate of Incorporation with respect to the
Common Stock) ("Qualified Public Offering"), or (b) upon the vote or written
consent of holders of not less than a majority of the then-outstanding shares of
Series B Preferred Stock.
(c) Mechanics of Conversion. Before any holder of Series A
Preferred Stock or Series B Preferred Stock shall be entitled to convert the
same into shares of Common Stock pursuant to subsection 4.3.4(a), such holder
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of this Corporation or of any transfer agent for the Series A Preferred
Stock or Series B Preferred Stock, and shall give written notice to this
Corporation at its principal corporate office of such holder's election to
convert the same, and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued. This
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder, or to the nominee or nominees of such holders, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of Series A or Series B Preferred Stock to be converted,
and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock as of such date. In the event
of an automatic conversion pursuant to subsection 4.3.4(b), the outstanding
shares of Series A Preferred Stock and Series B Preferred Stock shall be
converted automatically without further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent, provided that the Corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such automatic conversion unless the certificates evidencing such shares of
Series A or Series B Preferred Stock are delivered to the
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Corporation or its transfer agent. If the conversion is in connection with a
Qualified Public Offering, the conversion may, at the option of any holder
tendering Series A or Series B Preferred Stock for conversion, be conditioned
upon the closing with the underwriters of the sale of securities pursuant to
such offering, in which event the person or persons entitled to receive the
Common Stock upon conversion of Series A or Series B Preferred Stock shall not
be deemed to have converted such Series A or Series B Preferred Stock until
immediately prior to the closing of such sale of securities.
(d) Conversion Price Adjustments of Preferred Stock for
Certain Dilutive Issuances, Splits and Combinations. The Series A Conversion
Price and the Series B Conversion Price shall be subject to adjustment from time
to time as follows:
(i) Adjustment for Certain Dilutive Issuances.
(A) Upon each issuance by this Corporation
following the effective date of this Amended and Restated Certificate of
Incorporation of any Additional Stock (as defined below) without consideration
or for a consideration per share less than the Series A Conversion Price or
Series B Conversion Price, as applicable, in effect immediately prior to the
issuance of such Additional Stock, then the Series A Conversion Price or Series
B Conversion Price, as applicable, in effect immediately prior to each issuance
shall forthwith (except as otherwise provided in this subsection (i)) be
adjusted to a price determined by multiplying such Conversion Price by a
fraction, (x) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such Additional Stock
plus the number of shares of Common Stock which the aggregate consideration
received by the Corporation for the total number of shares of Additional Stock
so issued would purchase at the Conversion Price in effect for such series
immediately prior to such issuance, and (y) the denominator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issuance of Additional Stock plus the number of shares of such Additional Stock
so issued. For the purpose of the above calculation, the number of shares of
Common Stock outstanding immediately prior to such issuance of Additional Stock
shall be calculated as if all shares of all series of Preferred Stock had been
fully converted into shares of Common Stock immediately prior to such issuance,
and any outstanding options, warrants or other rights for the purchase of shares
of stock or convertible securities shall be treated in the manner set forth in
subsection (i)(E) below.
(B) No adjustment of the Series A Conversion
Price or Series B Conversion Price shall be made in an amount less than One Cent
($0.01) per share, provided that any adjustments that are not required to be
made by reason of this sentence shall be carried forward and shall be either
taken into account in any subsequent adjustment made prior to three (3) years
from the date of the event giving rise to the adjustment being carried forward,
or shall be made at the end of three (3) years from the date of the event giving
rise to the adjustment being carried forward, and upon such adjustment the
Series A Conversion Price or Series B Conversion Price, as applicable, shall be
rounded up or down to the nearest cent. Except to the limited extent provided
for in subsections (i)(E)(3) and (E)(4), no adjustment of the Series A
Conversion Price or Series B Conversion Price pursuant to this subsection (i)
shall have the effect of increasing such Conversion Price above the Conversion
Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common
Stock for cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by this Corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.
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(D) In the case of the issuance of the
Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value thereof as
determined in good faith by the Board of Directors irrespective of any
accounting treatment.
(E) In the case of the issuance of options
to purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this subsection (i) and
subsection (ii):
(1) The aggregate maximum number of
shares of Common Stock deliverable upon exercise (whether or not then
exercisable) of such options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration (determined in the
manner provided in subsections (i)(C) and (D)), if any, received by the
Corporation upon the issuance of such options or rights plus the minimum
exercise price provided in such options or rights for the Common Stock covered
thereby.
(2) The aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in exchange (whether or
not then convertible or exchangeable) for any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by the Corporation for any such
securities and related options or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the Corporation upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner provided in
subsections (i)(C) and (D)).
(3) In the event of any change in the
number of shares of Common Stock deliverable or in the consideration payable to
this Corporation upon exercise of such options or rights or upon conversion of
or in exchange for such convertible or exchangeable securities, including, but
not limited to, a change resulting from the antidilution provisions thereof, the
Series A Conversion Price, to the extent in any way affected by or computed
using such options, rights or securities, shall be recomputed to reflect such
change, but no further adjustment shall be made for the actual issuance of
Common Stock or any payment of such consideration upon the exercise of any such
options or rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such
options or rights, the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such convertible or
exchangeable securities, the Series A Conversion Price or Series B Conversion
Price, as applicable, to the extent in any way affected by or computed using
such options, rights or securities, shall be recomputed to reflect the issuance
of only the number of shares of Common Stock (and convertible or exchangeable
securities that remain in effect) actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such securities.
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(5) The number of shares of Common
Stock deemed issued and the consideration deemed paid therefor pursuant to
subsections (i)(E)(1) and (2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either subsection
(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of
Common Stock issued (or deemed to have been issued pursuant to subsection
(i)(E)) by this Corporation other than the following:
(A) Common Stock issued pursuant to a
transaction described in subsection (iii) hereof;
(B) shares of Common Stock issuable or
issued to employees, independent contractors, consultants, officers or directors
of the Corporation pursuant to a stock option plan or restricted stock plan
approved by the Board of Directors of this Corporation (the "Permitted Employee
Shares");
(C) Common Stock issued upon conversion of
shares of Series A or Series B Preferred Stock;
(D) shares of Common Stock issued or
issuable in a public offering in connection with which all outstanding shares of
Preferred Stock will be converted to Common Stock;
(E) shares of Common Stock issued in
connection with the acquisition of all or part of another company by the
Corporation by merger or other reorganization, or by purchase of all or part of
the assets of another company, pursuant to a plan or arrangement approved by the
Board of Directors and by holders of at least a majority of the voting power of
all then outstanding shares of Preferred Stock;
(F) shares of Common Stock issued in
connection with equipment lease or bank financings, as approved by the Board of
Directors of the Corporation; or
(G) shares of Common Stock issued upon the
exercise of warrants issued prior to the effective date of this Amended and
Restated Certificate of Incorporation.
(iii) Adjustment for Splits and Dividends. In the
event the Corporation should at any time or from time to time following the
effectiveness of this Amended and Restated Certificate of Incorporation fix a
record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without payment of
any consideration by such holder for the additional shares of Common Stock or
the Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no record date
is fixed), the Series A Conversion Price and Series B Conversion Price shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of Series A Preferred Stock or Series B Preferred
Stock,
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respectively, shall be increased in proportion to such increase of the aggregate
of shares of Common Stock outstanding and those issuable with respect to such
Common Stock Equivalents.
(iv) Adjustment for Combinations. If the number of
shares of Common Stock outstanding at any time following the effectiveness of
this Amended and Restated Certificate of Incorporation is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Series A Conversion Price and Series B
Conversion Price shall be appropriately increased so that the number of shares
of Common Stock issuable on conversion of each share of the Series A Preferred
Stock or Series B Preferred Stock, respectively, shall be decreased in
proportion to such decrease in outstanding shares.
(e) Other Distributions. In the event this Corporation
shall declare a distribution payable in securities of other persons, evidences
of indebtedness issued by this Corporation or other persons, assets (excluding
cash dividends) or options or rights not referred to in subsection (iii), then,
in each such case, the holders of Series A Preferred Stock and Series B
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Series A or Series B
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
(f) Recapitalizations. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4.3.4 or Section 4.3.2 of this Article IV), provision shall be made
so that the holders of Series A Preferred Stock and Series B Preferred Stock
shall thereafter be entitled to receive upon conversion of such shares the
number of shares of stock or other securities or property of the Corporation or
otherwise, to which a holder of Common Stock deliverable upon conversion would
have been entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
4.3.4 with respect to the rights of the holders of Series A Preferred Stock and
Series B Preferred Stock after the recapitalization to the end that the
provisions of this Section 4.3.4 (including adjustment of the Series A
Conversion Price and Series B Conversion Price then in effect and the number of
shares purchasable upon conversion of Series A or Series B Preferred Stock)
shall be applicable after that event as nearly equivalent as is practicable.
(g) No Impairment. This Corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4.3.4 and in the taking of
all such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of Series A and Series B Preferred Stock
against impairment.
(h) No Fractional Shares and Certificate as to
Adjustments.
(i) No fractional shares shall be issued upon the
conversion of any share or shares of Series A or Series B Preferred Stock, and
the number of shares of Common Stock to be issued shall be rounded to the
nearest whole share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of shares of
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Series A Preferred Stock or Series B Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion
(ii) Upon the occurrence of each adjustment or
readjustment of the Series A Conversion Price or Series B Conversion Price
pursuant to this Section 4.3.4, this Corporation, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series A Preferred Stock or Series B
Preferred Stock, as applicable, a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This Corporation shall, upon the written request at any
time of any holder of Series A or Series B Preferred Stock, furnish or cause to
be furnished to such holder a like certificate setting forth (A) such adjustment
and readjustment, (B) the Series A Conversion Price or Series B Conversion
Price, as applicable, at the time in effect, and (C) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of a share of Series A Preferred Stock or Series
B Preferred Stock, as applicable.
(iii) Reservation of Stock Issuable Upon Conversion.
This Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series A and Series B Preferred Stock
such number of shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding shares of Series A and Series B
Preferred Stock; and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of Series A and Series B Preferred Stock, in addition to such
other remedies as shall be available to the holder of such Series A or Series B
Preferred Stock, this Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to this Amended and
Restated Certificate of Incorporation.
(iv) Notices. Any notice required by the provisions of
this Section 4.3.4 to be given to the holders of shares of Series A or Series B
Preferred Stock shall be deemed given if deposited in the United States
registered or certified mail, postage prepaid, return receipt requested and
addressed to each holder of record at his address appearing on the books of this
Corporation.
4.3.5 Redemption. Commencing (i) on or after June 4, 2004 and for
a period of one (1) month thereafter, (ii) on or after June 4, 2005 and for a
period of one (1) month thereafter or (iii) on or after June 4, 2006 and for a
period of one (1) month thereafter, upon the option and written election of any
holder of the Series A Preferred Stock or Series B Preferred Stock, the
Corporation shall redeem in three (3) equal annual installments (each payment
date being referred to herein as a "Redemption Date") that number of outstanding
shares of Series A Preferred Stock or Series B Preferred Stock, as applicable,
requested to be redeemed by such holder. The Corporation shall redeem all shares
of Series A Preferred Stock and Series B Preferred Stock to be redeemed
hereunder by paying for each share in cash an amount equal to the Original
Series A Issue Price or the Original Series B Issue Price, as applicable (as
adjusted for stock splits, stock dividends or similar events) plus all declared
but unpaid dividends, if any, such amount being referred to herein as the
"Redemption Price" for such shares.
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(i) Surrender of Stock. On or before each Redemption
Date, each holder of shares of Series A Preferred Stock or Series B Preferred
Stock to be redeemed shall surrender the certificate or certificates
representing such shares to the Corporation, and thereupon the Redemption Price
for such shares shall be payable to the order of the person whose name appears
on such certificate or certificates as the owner thereof, and each surrendered
certificate shall be cancelled and retired. In the event less than all shares
represented by such certificate are redeemed, a new certificate will be issued
representing the unredeemed shares.
(ii) Partial Redemption. From and after each
Redemption Date, unless there shall have been a default in payment of the
Redemption Price, all rights of the holders as to the shares of Series A
Preferred Stock to be redeemed on such date (except the right to receive the
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever. Subject to the rights of any series of
Preferred Stock that may from time to time come into existence, if the funds of
the Corporation legally available for redemption of shares of Series A Preferred
Stock and Series B Preferred Stock on any Redemption Date are insufficient to
redeem the total number of such shares to be redeemed on such date, those funds
which are legally available will be used to redeem the maximum possible number
of such shares proportionately based upon the respective Redemption Prices among
the holders of Series A Preferred Stock and Series B Preferred Stock to be
redeemed as of the Redemption Date. The shares of Series A Preferred Stock and
Series B Preferred Stock not redeemed shall remain outstanding and entitled to
all the rights and preferences provided herein. Subject to the rights of any
series of Preferred Stock that may from time to time come into existence, at any
time thereafter when additional funds of the Corporation are legally available
for the redemption of shares of Series A Preferred Stock and Series B Preferred
Stock, such funds will immediately be used to redeem the balance of the shares
which the Corporation has become obliged to redeem on any Redemption Date but
which it has not redeemed in accordance with the foregoing provisions.
(iii) Redemption Mechanics. If holders of outstanding
shares of Series A Preferred Stock or Series B Preferred Stock elect to have the
Corporation redeem a portion or all of their outstanding shares of Preferred
Stock as aforesaid, written notice to that effect shall be given by such holders
to the Corporation at least sixty (60) days prior to the applicable Redemption
Date, which notice shall also set forth the date fixed for redemption pursuant
to this Section 4.3.5. If such notice is given, then at least forty-five (45)
days prior to the applicable Redemption Date, written notice (hereinafter
referred to as the "Redemption Notice") shall be mailed, postage prepaid, by the
Corporation to each other holder of record of Series A Preferred Stock and each
other holder of record of Series B Preferred Stock, at its address shown on the
records of the Corporation. The Redemption Notice shall contain the following
information: (a) the number of shares of Series A Preferred Stock and Series B
Preferred Stock which are to be redeemed by the Corporation and the total number
of shares of Series A Preferred Stock and Series B Preferred Stock held by all
other holders; and (b) the Redemption Date and the applicable Redemption Prices
for such shares. Following receipt of the Redemption Notice, additional holders
may elect to participate in the redemption by delivery of written notice to that
effect given by such holders to the Corporation at least twenty (20) days prior
to the Redemption Date. Three (3) days prior to the applicable Redemption Date,
the Corporation shall deposit the aggregate Redemption Prices for the Series A
Preferred Stock and Series B Preferred Stock surrendered for redemption in the
Redemption Notice, and not yet redeemed or converted, with a bank or trust
company having aggregate capital and surplus in excess of $100,000,000 as a
trust fund for the benefit of the respective holders of the
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shares surrendered for redemption and not yet redeemed. Simultaneously, this
Corporation shall deposit irrevocable instructions and authority to such bank or
trust company to publish the Redemption Notice thereof (or to complete such
publication if theretofore commenced) and to pay, on and after the applicable
Redemption Date, the Redemption Price of the Series A Preferred Stock or the
Series B Preferred Stock, as applicable, to the holders thereof upon surrender
of their certificates. Any moneys deposited by the Corporation pursuant to this
Section 4.3.5 for the redemption of shares which are thereafter converted into
shares of Common Stock pursuant to Section 4.3.4 no later than the close of
business on the applicable Redemption Date shall be returned to the Corporation
forthwith upon such conversion. The balance of any moneys deposited by the
Corporation pursuant to this Section 4.3.5 remaining unclaimed at the expiration
of one year following the applicable Redemption Date shall thereafter be
returned to the Corporation, provided that the shareholder to which such monies
would be payable hereunder shall be entitled, upon proof of its ownership of the
Series A Preferred Stock or Series B Preferred Stock, as applicable, and payment
of any bond requested by the Corporation, to receive such monies, but without
interest, from the applicable Redemption Date.
4.3.6 Voting Rights.
(a) The holder of each share of Series A Preferred Stock
or Series B Preferred Stock shall have the right to one vote for each share of
Common Stock into which such share could then be converted, and with respect to
such vote, such holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock; provided, however, that
the rights of holders of Series A Preferred Stock and/or Series B Preferred
Stock to vote for directors shall be limited to the rights set forth in
Subsection 4.3.6(b) below, and shall be entitled, notwithstanding any provision
hereof, to notice of any stockholders' meeting in accordance with the Bylaws of
this Corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock have the
right to vote as a single class, unless otherwise prohibited by law. Fractional
votes shall not, however, be permitted and any fractional voting rights
available on an as-converted basis (after aggregating all shares into which
shares of Series A Preferred Stock and Series B Preferred Stock held by each
holder could be converted) shall be rounded to the nearest whole number (with
one-half being rounded upward).
(b) Until the closing of the Corporation's Qualified
Public Offering, two (2) of the members of the Board of Directors shall be
elected, removed or replaced solely by the vote of the holders of the Series A
Preferred Stock, voting as a separate class, one (1) of the members of the Board
of Directors shall be elected, removed or replaced solely by the vote of the
holders of the Series B Preferred Stock, voting as a separate class, two (2) of
the members of the Board of Directors shall be elected, removed or replaced
solely by the vote of the holders of the Common Stock, voting as a separate
class, and the remaining members, if any, will be elected, removed or replaced
by a vote of the outstanding shares of Common Stock and Preferred Stock voting
together as a single class, with each share of Preferred Stock being entitled to
a number of votes equal to the number of shares of Common Stock into which such
share is then convertible. If a vacancy on the Board of Directors is to be
filled by the Board of Directors, only a director or directors elected by the
same class of shareholders as those who would be entitled to vote to fill such
vacancy, if any, shall vote to fill such vacancy. No action by members of the
Board of Directors filling a vacancy on the Board of Directors shall be
effective until ten (10) days after all Board members who do not have a right to
vote on such appointment have received notice thereof. A majority of the Board
members entitled to receive such notice may waive such notice requirement on
behalf of all such Board members. In the
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event there are no directors remaining elected by the applicable class of
shareholders, the vacancy shall be filled by the affirmative vote of the holders
of a majority of the shares of such class.
4.3.7 Protective Provisions of Series A and Series B Preferred
Stock. So long as at least 500,000 shares of Series A Preferred Stock (as
adjusted for stock splits, combinations or similar events) are outstanding, or
at least 1,200,000 shares of Series B Preferred Stock (as adjusted for stock
splits, combinations or similar events) are outstanding, this Corporation shall
not, without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of a majority of the outstanding shares of such
series that are entitled to vote with respect thereto, take any of the following
actions:
(a) sell, convey, or otherwise dispose of or encumber all
or substantially all of its property or business or merge into or consolidate
with any other corporation (other than a wholly-owned subsidiary corporation )
or effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Corporation is disposed of;
(b) alter or change the rights, preferences or privileges
of the shares of such series of Preferred Stock so as to affect adversely the
shares;
(c) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Preferred Stock or Common
Stock;
(d) create (by new authorization, reclassification,
recapitalization or otherwise) any class or series of stock or any other
securities convertible into equity securities of this Corporation having a
preference over, or being on a parity with, the rights, preferences or
privileges of the Series A Preferred Stock and Series B Preferred Stock;
(e) effect a reclassification or recapitalization of the
outstanding capital stock of the Corporation in which any capital stock has any
preference or priority as to dividends or assets senior to or on parity with the
preferences of the Series A Preferred Stock and Series B Preferred Stock;
(f) amend or waive any provision of the Corporation's
Amended and Restated Certificate of Incorporation relating to such series of
Preferred Stock;
(g) authorize or pay any cash dividends with respect to
any share or shares of Common Stock;
(h) redeem, purchase or otherwise acquire (or pay into or
set aside for a sinking fund for such purpose) any share or shares of Common
Stock; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for the Corporation or any
subsidiary pursuant to agreements under which the Corporation has the option to
repurchase such shares at cost or at cost upon the occurrence of certain events,
such as the termination of employment; or
(i) effect the dissolution, liquidation or winding up of
the Corporation.
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4.4 Common Stock.
4.4.1 Dividend Rights. Subject to the prior rights of holders of
Preferred Stock and all other classes of stock at the time outstanding having
prior rights as to dividends, the holders of the Common Stock shall be entitled
to receive, when and as declared by the Board of Directors, out of any assets of
the Corporation legally available therefor, such dividends as may be declared
from time to time by the Board of Directors.
4.4.2 Liquidation Rights. Upon the liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation shall be
distributed as provided in Section 4.3.2 of this Article IV.
4.4.3 Redemption. The Common Stock is not redeemable.
4.4.4 Voting Rights. The holder of each share of Common Stock
shall have the right to one vote, and shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of this Corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE V
BOARD OF DIRECTORS AND MEETINGS OF STOCKHOLDERS
(a) The business and affairs of the Corporation shall be
managed by or under the director of the Board of Directors and elections of
directors need not be by written ballot unless otherwise provided in the Bylaws.
The number of directors of the Corporation shall be fixed from time to time by
the Board of Directors either by a resolution or Bylaw adopted by the Board of
Directors.
(b) Meetings of the stockholders may be held within or
without the State of Delaware, as the Bylaws may provide. The books of the
Corporation may be kept (subject to any provision contained in the Delaware
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 by the Bylaws of the
Corporation.
ARTICLE VI
LIMITATION OF DIRECTORS' LIABILITY
A director of this Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director (i) for any breach of his duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, (iii)
under Section 174 of the General Corporation Law of the State of Delaware, or
(iv) for any transaction from which the director derives an improper personal
benefit. If the General Corporation Law of the State of Delaware is hereafter
amended to authorize corporate action further limiting or eliminating the
personal liability of directors, then the liability of the directors of the
Corporation shall be limited or eliminated to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as so amended from time to
time. Any repeal or modification of this Article VI by the stockholders of the
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Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
ARTICLE VII
INDEMNIFICATION OF AGENTS
To the fullest extent permitted by applicable law, the Corporation is
authorized to provide indemnification of (and advancement of expenses to) agents
of the Corporation (and any other persons to which Delaware law permits the
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 Delaware General Corporation Law,
subject only to limits created by applicable Delaware law (statutory or
non-statutory), with respect to actions for breach of duty to the Corporation,
its stockholders, and others.
ARTICLE VIII
AMENDMENT OF BYLAWS
The Board of Directors of the Corporation shall have the power to make,
alter, amend, change, add to or repeal the Bylaws of the Corporation, subject to
the right of stockholders entitled to vote with respect thereto to alter and
repeal Bylaws made by the Board of Directors.
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
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.
* * *
16
<PAGE> 17
FIFTH: The foregoing Amended and Restated Certificate of Incorporation
has been approved by the Board of Directors by written consent in accordance
with Section 141(f) of the General Corporation Law of the State of Delaware.
SIXTH: The foregoing Amended and Restated Certificate of Incorporation
has been approved by the stockholders of the Corporation by written consent in
accordance with Section 228 of the General Corporation Law of the State of
Delaware.
SEVENTH: The foregoing Amended and Restated Certificate of Incorporation
has been duly adopted in accordance with the applicable provisions of Sections
242 and 245 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this certificate and
do affirm the foregoing as true under penalty of perjury this 16th day of
February, 2000.
/s/ Richard Rasmus
-----------------------------------
Richard Rasmus, President
17
<PAGE> 1
AMENDED & RESTATED EXH. 3.2
CERTIFICATE OF INCORPORATION
OF
FLASHCOM, INC.
(Pursuant to Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware)
The undersigned, Richard Rasmus, hereby certifies that:
FIRST: He is the duly elected President and Chief Executive Officer of
Flashcom, Inc. a Delaware corporation (the "Corporation").
SECOND: That the original Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware on January 20, 1999.
THIRD: This Amended and Restated Certificate of Incorporation restates
and amends the Amended and Restated Certificate of Incorporation filed with the
Secretary of State of the State of Delaware on February 18, 2000.
FOURTH: The Certificate of Incorporation of this Corporation is hereby
amended and restated in its entirety as follows:
ARTICLE I
NAME
The name of this Corporation is Flashcom, Inc.
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, Wilmington, Delaware 19805, County of New Castle.
The name of the Corporation's registered agent at that address is the
Corporation Service Company.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware, as amended from time to time.
<PAGE> 2
ARTICLE IV
AUTHORIZED SHARES
This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Corporation is authorized to issue is Four Hundred Twenty
Million (420,000,000). Four Hundred Million (400,000,000) shares shall be Common
Stock, $0.0001 par value per share, and Twenty Million (20,000,000) shares shall
be Preferred Stock, $0.0001 par value per share.
The Board of Directors of this Corporation (the "Board of Directors") is
expressly authorized to provide for the issuance of the shares of the Preferred
Stock in one or more series, and to fix the number of shares and to determine or
alter for each such series, such designations, preferences, and relative,
participating, optional, or other rights and such qualifications, limitations or
restrictions thereof, as shall be stated and expressed in the resolution or
resolutions adopted by the Board of Directors providing for the issue of such
shares and as may be permitted by the General Corporation Law of the State of
Delaware.
The authority of the Board with respect to each series shall include,
but not be limited to, determination of the following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series,
whether dividends shall be cumulative and, if so, from which date or
dates, and the relative rights of priority, if any, of payment of
dividends on shares of that series;
(c) Whether that series shall have voting rights, in
addition to the voting rights provided by law and, if so, the terms of
such voting rights;
(d) Whether that series shall have conversion privileges
and, if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as the
Board of Directors shall determine;
(e) Whether or not the shares of that series shall be
redeemable and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable
and the amount per share payable in case of redemption, which amount may
vary under different conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series and, if so, the terms
and amount of such sinking fund; and
(g) The rights of the shares of that series in the event
of voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, and the relative rights of priority, if any, of payment
of shares of that series.
2
<PAGE> 3
ARTICLE V
BOARD OF DIRECTORS AND STOCKHOLDERS
5.1 Board of Directors. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors and
elections of directors need not be by written ballot unless otherwise provided
in the Bylaws. The number of directors of the Corporation shall be fixed from
time to time by the Board of Directors either by a resolution or Bylaw adopted
by the Board of Directors. The Board of Directors shall be and is divided into
three classes, Class I, Class II and Class III. The number of directors in each
class shall be the whole number contained in the quotient arrived at by dividing
the number of authorized directors by three, and if a fraction is also contained
in such quotient then if such fraction is one-third (1/3) the extra director
shall be a member of Class III and if the fraction is two-thirds (2/3) one of
the extra directors shall be a member of Class III and the other shall be a
member of Class II. Each director shall serve for a term ending on the date of
the third annual meeting following the annual meeting at which such director was
elected; provided, however, that the directors of the Corporation as of the date
of filing of this Amended and Restated Certificate of Incorporation are hereby
each assigned to a class, and the director assigned to Class I shall serve for a
term ending on the date of the annual meeting in 2001, the directors assigned to
Class II shall serve for a term ending on the date of the annual meeting in
2002, and the directors assigned to Class III shall serve for a term ending on
the date of the annual meeting in 2003.
The members of the present Board of Directors are allocated as follows:
<TABLE>
<CAPTION>
Class I Class II Class III
---------------- --------------- -----------------
<S> <C> <C>
Richard Rasmus Todd Brooks William Matthes
David Helfrich
</TABLE>
In the event of any increase or decrease in the authorized number of
directors, (a) each director then serving as such shall nevertheless continue as
a director of the class of which he or she is a member until the expiration of
his or her current term, or his or her prior death, retirement, resignation or
removal, and (b) the newly created or eliminated directorships resulting from
such increase or decrease shall be apportioned by the Board of Directors to such
class or classes as shall, so far as possible, bring the number of directors in
the respective classes into conformity with the formula in this Section 5.1, as
applied to the new number of directors. Notwithstanding any of the foregoing
provisions of this Section 5.1, each director shall serve until his successor is
elected and qualified or until his death, retirement, resignation or removal. A
director may be removed by the stockholders only for cause. Should a vacancy
occur or be created, the remaining directors (even though less than a quorum)
may fill the vacancy for the full term of the class in which the vacancy occurs
or is created.
5.2 Stockholders. Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of such holders and may not be effected by any consent in
writing by such holders. At any annual meeting or special meeting of
stockholders of the Corporation, only such business shall be conducted as shall
have been brought before such meeting in the manner provided by the Bylaws of
the Corporation. Special meetings of the stockholders of the Corporation may be
called at any time by the Chairman of the Board, or by a majority of the Board
of Directors, or by a committee of the Board of Directors which has been duly
designated by the Board of Directors and whose powers and authority, as provided
in a resolution of the Board of Directors or in the Bylaws of the Corporation,
include the power to call such meetings,
3
<PAGE> 4
but such meetings may not be called by any other person or
persons. The stockholders may not call a special meeting. Meetings of the
stockholders may be held within or without the State of Delaware, as the Bylaws
may provide. The books of the Corporation may be kept (subject to any provision
contained in the Delaware 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 by
the Bylaws of the Corporation.
ARTICLE VI
LIMITATION OF DIRECTORS' LIABILITY
A director of this Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director (i) for any breach of his duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, (iii)
under Section 174 of the General Corporation Law of the State of Delaware, or
(iv) for any transaction from which the director derives an improper personal
benefit.
This Corporation shall, to the maximum extent permitted from time to
time under the law of the State of Delaware, indemnify and upon request shall
advance expenses to any person who is or was a party or is threatened to be made
a party to any threatened, pending or completed action, suit, proceeding or
claim, whether civil, criminal, administrative or investigative, by reason of
the fact that such person is or was or has agreed to be a director or officer of
this Corporation or while a director or officer is or was serving at the request
of this Corporation as a director, officer, partner, trustee, employee or agent
of any corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, against expenses
(including attorney's fees and expenses), judgments, fines, penalties and
amounts paid in settlement incurred in connection with the investigation,
preparation to defend or defense of such action, suit, proceeding or claim;
provided; however, that the foregoing shall not require this Corporation to
indemnify or advance expenses to any person in connection with any action, suit,
proceeding, claim or counterclaim initiated by or on behalf of such person. Such
indemnification shall not be exclusive of other indemnification rights arising
under any bylaw, agreement, vote of directors or stockholders or otherwise and
shall inure to the benefit of the heirs and legal representatives of such
person. Any person seeking indemnification under this Article 6 shall be deemed
to have met the standard of conduct required for such indemnification unless the
contrary shall be established.
If the General Corporation Law of the State of Delaware is hereafter
amended to authorize corporate action further limiting or eliminating the
personal liability of directors, then the liability of the directors of the
Corporation shall be limited or eliminated to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as so amended from time to
time. Any repeal or modification of this Article VI by the stockholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
4
<PAGE> 5
ARTICLE VII
INDEMNIFICATION OF AGENTS
To the fullest extent permitted by applicable law, the Corporation is
authorized to provide indemnification of (and advancement of expenses to) agents
of the Corporation (and any other persons to which Delaware law permits the
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 Delaware General Corporation Law,
subject only to limits created by applicable Delaware law (statutory or
non-statutory), with respect to actions for breach of duty to the Corporation,
its stockholders, and others.
ARTICLE VIII
AMENDMENT OF BYLAWS
The Board of Directors of the Corporation, as well as stockholders
holding at least 66 2/3% of the outstanding voting stock of the Corporation and
voting together as a single class, shall have the power to make, alter, amend,
change, add to or repeal the Bylaws of the Corporation.
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
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; provided,
however, that no amendment, alteration, change or repeal may be made to
Article V or this Article IX without the affirmative vote of the holders of at
least 66 2/3% of the outstanding voting stock of the Corporation, voting
together as a single class.
* * *
5
<PAGE> 6
FIFTH: The foregoing Amended and Restated Certificate of Incorporation
has been approved by the Board of Directors by written consent in accordance
with Section 141(f) of the General Corporation Law of the State of Delaware.
SIXTH: The foregoing Amended and Restated Certificate of Incorporation
has been approved by the stockholders of the Corporation by written consent in
accordance with Section 228 of the General Corporation Law of the State of
Delaware.
SEVENTH: The foregoing Amended and Restated Certificate of Incorporation
has been duly adopted in accordance with the applicable provisions of Sections
242 and 245 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has executed this certificate and do
affirm the foregoing as true under penalty of perjury this __th day of June,
2000.
-------------------------------------
Richard Rasmus
President and Chief Executive Officer
6
<PAGE> 1
EXHIBIT 3.3
BYLAWS
OF
FLASHCOM, INC.
A DELAWARE CORPORATION
AS ADOPTED JANUARY 22, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I
Section 1. Registered Office.......................................................1
Section 2. Other Offices...........................................................1
Section 3. Books...................................................................1
ARTICLE II
Section 1. Place of Meetings.......................................................1
Section 2. Annual Meetings.........................................................1
Section 3. Special Meetings........................................................1
Section 4. Notification of Business to be Transacted at Meeting....................1
Section 5. Notice; Waiver of Notice................................................2
Section 6. Quorum; Adjournment.....................................................2
Section 7. Voting..................................................................2
Section 8. Stockholder Action by Written Consent Without a Meeting.................2
Section 9. List of Stockholders Entitled to Vote...................................3
Section 10. Stock Ledger............................................................3
Section 11. Inspectors of Election..................................................3
Section 12. Organization............................................................3
Section 13. Order of Business.......................................................3
ARTICLE III
Section 1. Powers..................................................................4
Section 2. Number and Election of Directors........................................4
Section 3. Vacancies...............................................................4
Section 4. Time and Place of Meetings..............................................4
Section 5. Annual Meeting..........................................................4
Section 6. Regular Meetings........................................................5
Section 7. Special Meetings........................................................5
Section 8. Quorum; Vote Required for Action; Adjournment...........................5
Section 9. Action by Written Consent...............................................5
Section 10. Telephone Meetings......................................................6
Section 11. Committees..............................................................6
Section 12. Compensation............................................................6
Section 13. Interested Directors....................................................6
ARTICLE IV
Section 1. Officers................................................................7
Section 2. Appointment of Officers.................................................7
Section 3. Subordinate Officers....................................................7
Section 4. Removal and Resignation of Officers.....................................7
Section 5. Vacancies in Offices....................................................7
Section 6. Chairman of the Board...................................................7
Section 7. Vice Chairman of the Board..............................................8
Section 8. Chief Executive Officer.................................................8
Section 9. President...............................................................8
Section 10. Vice President..........................................................8
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
Section 11. Secretary...............................................................8
Section 12. Chief Financial Officer.................................................9
ARTICLE V
Section 1. Form of Certificates....................................................9
Section 2. Signatures..............................................................9
Section 3. Lost Certificates.......................................................9
Section 4. Transfers..............................................................10
Section 5. Record Holders.........................................................10
ARTICLE VI
Section 1. Right to Indemnification...............................................10
Section 2. Right of Indemnitee to Bring Suit......................................11
Section 3. Non-Exclusivity of Rights..............................................11
Section 4. Insurance..............................................................11
Section 5. Indemnification of Employees or Agents of the Corporation..............11
Section 6. Indemnification Contracts..............................................12
Section 7. Effect of Amendment....................................................12
ARTICLE VII
Section 1. Dividends..............................................................12
Section 2. Disbursements..........................................................12
Section 3. Fiscal Year............................................................12
Section 4. Corporate Seal.........................................................12
Section 5. Record Date............................................................12
Section 6. Voting of Stock Owned by the Corporation...............................13
Section 7. Construction and Definitions...........................................13
Section 8. Amendments.............................................................13
</TABLE>
ii
<PAGE> 4
EXH. 3.3
BYLAWS
OF
FLASHCOM, INC.
A DELAWARE CORPORATION
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICES. 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.
SECTION 3. BOOKS. The books of the Corporation may be kept within or
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. PLACE OF MEETINGS. All meetings of stockholders for the
election of directors shall be held at such place either within or without the
State of Delaware 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. Annual meetings of stockholders shall be
held at a time and date designated by the Board of Directors for the purpose of
electing directors and transacting such other business as may properly be
brought before the meeting.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President and shall be called
by the President or Secretary at the request in writing of a majority of the
Board of Directors, or at the request in writing of a stockholder or
stockholders owning stock of the Corporation possessing ten percent (10%) of the
voting power possessed by all of the then outstanding capital stock of any class
of the Corporation entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
SECTION 4. NOTIFICATION OF BUSINESS TO BE TRANSACTED AT MEETING. To be
properly brought before a meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a stockholder entitled to vote at the meeting.
SECTION 5. NOTICE; WAIVER OF NOTICE. Whenever stockholders are required
or permitted to take any action at a meeting, a written notice of the meeting
shall be given which shall state the
<PAGE> 5
place, date and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called. Unless otherwise required
by law, such notice shall be given not less than ten (10) nor more than sixty
(60) days before the date of the meeting to each stockholder of record entitled
to vote at such meeting. If mailed, such notice shall be deemed to be given when
deposited in the mail, postage prepaid, directed to the stockholder at his
address as it appears on the records of the Corporation. A written waiver of any
such notice signed by the person entitled thereto, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
SECTION 6. QUORUM; ADJOURNMENT. Except as otherwise required by law, or
provided by the Certificate of Incorporation or these Bylaws, the holders of a
majority of the capital stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum
for the transaction of business at all meetings of the stockholders. A meeting
at which a quorum is initially present may continue to transact business,
notwithstanding the withdrawal of enough votes to leave less than a quorum, if
any action taken is approved by at least a majority of the required quorum to
conduct that meeting. 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 of the time and place of the adjourned 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 which might have been
transacted at the meeting as originally noticed. 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 entitled to vote at the meeting.
SECTION 7. VOTING. Except as otherwise required by law, or provided by
the Certificate of Incorporation or these Bylaws, any question brought before
any meeting of stockholders at which a quorum is present shall be decided by the
vote of the holders of a majority of the stock represented and entitled to vote
thereat. Unless otherwise provided in the Certificate of Incorporation, each
stockholder represented at a meeting of stockholders shall be entitled to cast
one vote for each share of the capital stock entitled to vote thereat held by
such stockholder. Such votes may be cast in person or by proxy, but no proxy
shall be voted on or after three (3) years from its date, unless such proxy
provides for a longer period. Elections of directors need not be by ballot
unless the Chairman of the meeting so directs or unless a stockholder demands
election by ballot at the meeting and before the voting begins.
SECTION 8. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Except as otherwise provided in the Certificate of Incorporation, any action
which may be taken at any annual or special meeting of stockholders, may be
taken without a meeting and without prior notice, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. All such consents shall be filed with the
Secretary of the Corporation and shall be maintained in the corporate records.
Prompt notice of the taking of corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
2
<PAGE> 6
SECTION 9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer who has
charge of the stock ledger of the Corporation shall prepare and make, at least
ten (10) 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 (10) 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 of the Corporation who is present.
SECTION 10. STOCK LEDGER. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 9 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 11. INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, the Board of Directors may appoint one or more persons (who shall
not be candidates for office) as inspectors of election to act at the meeting or
any adjournment thereof. If an inspector or inspectors are not so appointed, or
if an appointed inspector fails to appear or fails or refuses to act at a
meeting, the Chairman of any meeting of stockholders may, and on the request of
any stockholder or his proxy shall, appoint an inspector or inspectors of
election at the meeting. The duties of such inspector(s) shall include:
determining the number of shares outstanding and the voting power of each; the
shares represented at the meeting; the existence of a quorum; the authenticity,
validity and effect of proxies; receiving votes, ballots or consents; hearing
and determining all challenges and questions in any way arising in connection
with the right to vote; counting and tabulating all votes or consents;
determining the result; and such acts as may be proper to conduct the election
or vote with fairness to all stockholders. In the event of any dispute between
or among the inspectors, the determination of the majority of the inspectors
shall be binding.
SECTION 12. ORGANIZATION. At each meeting of stockholders the Chairman
of the Board of Directors, if one shall have been elected, (or in his absence or
if one shall not have been elected, the President) shall act as Chairman of the
meeting. The Secretary (or in his absence or inability to act, the person whom
the Chairman of the meeting shall appoint secretary of the meeting) shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 13. ORDER OF BUSINESS. The order and manner of transacting
business at all meetings of stockholders shall be determined by the Chairman of
the meeting.
3
<PAGE> 7
ARTICLE III
DIRECTORS
SECTION 1. POWERS. Except as otherwise required by law or provided by
the Certificate of Incorporation, the business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors.
SECTION 2. NUMBER AND ELECTION OF DIRECTORS. Subject to any limitations
in the Certificate of Incorporation, the authorized number of directors of the
Corporation shall be between three (3) and seven (7) and is currently fixed at
three (3) until changed by an amendment to this Bylaw adopted by the affirmative
vote of a majority of the entire Board of Directors. Directors shall be elected
at each annual meeting of stockholders to replace directors whose terms then
expire, and each director elected shall hold office until his successor is duly
elected and qualified, or until his earlier death, resignation or removal. Any
director may resign at any time effective upon giving written notice to the
Board of Directors, unless the notice specifies a later time for such
resignation to become effective. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective. If
the resignation of a director is effective at a future time, the Board of
Directors may elect a successor prior to such effective time to take office when
such resignation becomes effective. Directors need not be stockholders.
SECTION 3. VACANCIES. Subject to the limitations in the Certificate of
Incorporation, vacancies in the Board of Directors resulting from death,
resignation, removal or otherwise 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, although less than a quorum, or by a sole
remaining director. Each director so selected shall hold office for the
remainder of the full term of office of the former director which such director
replaces and until his successor is duly elected and qualified, or until his
earlier death, resignation or removal. No decrease in the authorized number of
directors constituting the Board of Directors shall shorten the term of any
incumbent directors.
SECTION 4. TIME AND PLACE OF MEETINGS. The Board of Director shall hold
its meetings at such place, either within or without the State of Delaware, and
at such time as may be determined from time to time by the Board of Directors.
SECTION 5. ANNUAL MEETING. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of stockholders, on
the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. In the event such annual meeting is
not so held, the annual meeting of the Board of Directors may be held at such
place, either within or without the State of Delaware, on such date and at such
time as shall be specified in a notice thereof given as hereinafter provided in
Section 7 of this Article III or in a waiver of notice thereof.
SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held at such places within or without the State of Delaware at such date
and time as the Board of Directors may from time to time determine and, if so
determined by the Board of Directors, notices thereof need not be given.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President, the Secretary or by
any director. Notice of the date, time and place of special meetings shall be
delivered personally or by telephone to each director or sent by
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first-class mail or telegram, charges prepaid, addressed to each director at the
director's address as it is shown on the records of the Corporation. In case the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. In case the notice is
delivered personally or by telephone or telegram, it shall be delivered
personally or by telephone or to the telegraph company at least forty-eight (48)
hours before the time of the holding of the meeting. The notice need not specify
the purpose of the meeting. A written waiver of any such notice signed by the
person entitled thereto, whether before or after the time stated therein, shall
be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends
the meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
SECTION 8. QUORUM; VOTE REQUIRED FOR ACTION; ADJOURNMENT. Except as
otherwise required by law, or provided in the Certificate of Incorporation or
these Bylaws, a majority of the directors shall constitute a quorum for the
transaction of business at all meetings of the Board of Directors and the
affirmative vote of not less than a majority of the directors present at any
meeting at which there is a quorum shall be the act of the Board of Directors.
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.
A meeting at which a quorum is initially present may continue to transact
business, notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum to conduct that meeting.
When a meeting is adjourned to another time or place (whether or not a quorum is
present), notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the Board of Directors may transact any business which
might have been transacted at the original meeting.
SECTION 9. ACTION BY WRITTEN CONSENT. Unless otherwise restricted by the
Certificate of Incorporation, 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 the members of the Board of Directors or committee, as
the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or committee.
SECTION 10. TELEPHONE MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, members of the Board of Directors of the
Corporation, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors or such committee, as the
case may be, by conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this Section 10 shall constitute presence
in person at such meeting.
SECTION 11. COMMITTEES. The Board of Directors may, by resolution passed
unanimously by the entire Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board of Directors may designate one or more directors as alternate members of
any such committee, who may replace any absent or disqualified member at any
meeting of the committee. In the event of absence or disqualification of a
member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the committee member or members 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
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the absent or disqualified member. Any committee, to the extent allowed by law
and as provided in the resolution establishing such committee, shall have and
may exercise all the power and authority of the Board of Directors in the
management of the business and affairs of the Corporation, 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 provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Each
committee shall keep regular minutes of its meetings and report to the Board of
Directors when required.
SECTION 12. COMPENSATION. The directors may be paid such compensation
for their services as the Board of Directors shall from time to time determine.
SECTION 13. INTERESTED DIRECTORS. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or the committee thereof
which authorizes the contract or transaction, or solely because his of their
votes are counted for such purpose if: (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a
President, a Secretary, and a Chief Financial Officer and Treasurer. The
Corporation may also have, at the discretion of the Board of Directors, a
Chairman of the Board, a Vice Chairman of the Board, a Chief Executive Officer,
one or more Vice Presidents, one or more Assistant Financial Officers and
Treasurers, one or more Assistant Secretaries and such other officers as may be
appointed in accordance with the provisions of Section 3 of this Article IV.
SECTION 2. APPOINTMENT OF OFFICERS. The officers of the Corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article IV, shall be appointed by the Board of
Directors, and each shall serve at the pleasure of the Board, subject to the
rights, if any, of an officer under any contract of employment.
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SECTION 3. SUBORDINATE OFFICERS. The Board of Directors may appoint, and
may empower the Chief Executive Officer or President to appoint, such other
officers as the business of the Corporation may require, each of whom shall hold
office for such period, have such authority and perform such duties as are
provided in the Bylaws or as the Board of Directors may from time to time
determine.
SECTION 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights of
an officer under any contract, any officer may be removed at any time, with or
without cause, by the Board of Directors or, except in case of an officer chosen
by the Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation shall be without prejudice to
the rights of the Corporation under any contract to which the officer is a
party.
SECTION 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these Bylaws for regular appointments to that
office.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an
officer is elected, shall, if present, preside at meetings of the stockholders
and of the Board of Directors. He shall, in addition, perform such other
functions (if any) as may be prescribed by the Bylaws or the Board of Directors.
SECTION 7. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board,
if such an officer is elected, shall, in the absence or disability of the
Chairman of the Board, perform all duties of the Chairman of the Board and when
so acting shall have all the powers of and be subject to all of the restrictions
upon the Chairman of the Board. The Vice Chairman of the Board shall have such
other powers and duties as may be prescribed by the Board of Directors or the
Bylaws.
SECTION 8. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the
Corporation shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers of
the Corporation. He shall exercise the duties usually vested in the chief
executive officer of a corporation and perform such other powers and duties as
may be assigned to him from time to time by the Board of Directors or prescribed
by the Bylaws. In the absence of the Chairman of the Board and any Vice Chairman
of the Board, the Chief Executive Officer shall preside at all meetings of the
stockholders and of the Board of Directors.
SECTION 9. PRESIDENT. The President of the Corporation shall, subject to
the control of the Board of Directors and the Chief Executive Officer of the
Corporation, if there be such an officer, have general powers and duties of
management usually vested in the office of president of a corporation and shall
have such other powers and duties as may be prescribed by the Board of Directors
or the Bylaws or the Chief Executive Officer of the Corporation. In the absence
of the Chairman of the Board, Vice Chairman of the Board and Chief Executive
Officer, the President shall preside at all meetings of the Board of Directors
and stockholders.
SECTION 10. VICE PRESIDENT. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a Vice
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President designated by the Board of Directors, shall perform all the duties of
the President, and when so acting shall have all the powers of, and subject to
all the restrictions upon, the President. The Vice Presidents shall have such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board of Directors or the Bylaws, and
the President, or the Chairman of the Board.
SECTION 11. SECRETARY. The Secretary shall keep or cause to be kept, at
the principal executive office or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of Directors, committees
of Directors, and stockholders, with the time and place of holding, whether
regular or special, and, if special, how authorized, the notice given, the names
of those present at Directors' meetings or committee meetings, the number of
shares present or represented at stockholders' meetings, and a summary of the
proceedings.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the Corporation's transfer agent or
registrar, as determined by resolution of the Board of Directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required by the Bylaws or by
law to be given, and he shall keep or cause to be kept the seal of the
Corporation if one be adopted, in safe custody, and shall have such powers and
perform such other duties as may be prescribed by the Board of Directors or by
the Bylaws.
SECTION 12. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
Corporation. The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. He shall make such
disbursements of the funds of the Corporation as are authorized and shall render
from time to time an account of all of his transactions as Chief Financial
Officer and of the financial condition of the Corporation. The Chief Financial
Officer shall also have such other powers and perform such other duties as may
be prescribed by the Board of Directors or the Bylaws.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by, or in the name of
the Corporation (i) by the Chairman or Vice Chairman of the Board of Directors,
or the President or a Vice President and (ii) by the Chief Financial Officer and
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, certifying the number of shares owned by such stockholder in
the Corporation.
SECTION 2. SIGNATURES. Any or all of the signatures on the certificate
may be a 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 were such officer, transfer agent or registrar at the date of issue.
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SECTION 3. LOST CERTIFICATES. The Corporation may issue a new
certificate to be issued in place of any certificate 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 to be lost,
stolen or destroyed. The Corporation may, in the discretion of the Board of
Directors and as a condition precedent to the issuance of such new certificate,
require the owner of such lost, stolen, or destroyed certificate, or his legal
representative, to give the Corporation a bond (or other security) sufficient to
indemnify it against any claim that may be made against the Corporation
(including any expense or liability) on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these Bylaws or in any agreement with the
stockholder making the transfer. Transfers of stock shall be made on the books
of the Corporation only by the person named in the certificate or by his
attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be canceled before a new certificate shall be
issued.
SECTION 5. RECORD HOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the record
holder of shares to receive dividends, and to vote as such record holder, and to
hold liable for calls and assessments a person registered on its books as the
record holder 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 required by law.
ARTICLE VI
INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director or officer of another corporation or of
a partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a director
or officer or in any other capacity while serving as a director or officer,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith and such indemnification shall continue as to an indemnitee who has
ceased to be a director or officer and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided, however, that,
except as provided in Section 2 of this Article VI with respect to proceedings
to enforce rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was authorized by the Board
of Directors of the Corporation. The right to indemnification conferred in this
Section shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition (hereinafter an "advancement of expenses"); provided,
however, that, if the
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Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such indemnitee, including
without limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such indemnitee is not entitled to be indemnified for such expenses
under this Article VI or otherwise (hereinafter an "undertaking").
SECTION 2. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Section 1
of this Article VI is not paid in full by the Corporation within forty-five (45)
days after a written claim has been received by the Corporation, the indemnitee
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or part in any such suit or
in a suit brought by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the indemnitee shall be entitled to be
paid also the expense of prosecuting or defending such suit. In (i) any suit
brought by the indemnitee to enforce a right to indemnification hereunder (but
not in a suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) any suit by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking the
Corporation shall be entitled to recover such expenses upon a final adjudication
that, the indemnitee has not met the applicable standard of conduct set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified or to such advancement of expenses
under this Article VI or otherwise shall be on the Corporation.
SECTION 3. NON-EXCLUSIVITY OF RIGHTS. The rights of indemnification and
to the advancement of expenses conferred in this Article VI shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
SECTION 4. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
SECTION 5. INDEMNIFICATION OF EMPLOYEES OR AGENTS OF THE CORPORATION.
The Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses,
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article VI with respect to the indemnification and
advancement of expenses of directors or officers of the Corporation.
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SECTION 6. INDEMNIFICATION CONTRACTS. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determines, greater than, those provided for in this
Article VI.
SECTION 7. EFFECT OF AMENDMENT. Any amendment, repeal or modification of
any provision of this Article VI by the stockholders or the directors of the
Corporation shall not adversely affect any right or protection of a director or
officer of the Corporation existing at the time of such amendment, repeal or
modification.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to limitations contained in the General
Corporation Law of the State of Delaware and the Certificate of Incorporation,
the Board of Directors may declare and pay dividends upon the shares of capital
stock of the Corporation, which dividends may be paid either in cash, securities
of the Corporation or other property.
SECTION 2. DISBURSEMENTS. 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.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The Corporation shall have a corporate seal
in such form as shall be prescribed by the Board of Directors.
SECTION 5. RECORD DATE. 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 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) days 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. Stockholders on the record date are entitled to
notice and to vote or to receive the dividend, distribution or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the Corporation after the record date,
except as otherwise provided by agreement or by applicable law.
SECTION 6. VOTING OF STOCK OWNED BY THE CORPORATION. The Chairman of the
Board, the Chief Executive Officer, the President and any other officer of the
Corporation authorized by the Board of Directors shall have power, on behalf of
the Corporation, to attend, vote and grant proxies to be used at any meeting of
stockholders of any corporation (except this Corporation) in which the
Corporation may hold stock.
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SECTION 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction and definitions in the
General Corporation Law of the State of Delaware shall govern the construction
of these Bylaws.
SECTION 8. AMENDMENTS. Subject to the General Corporation Law of the
State of Delaware, the Certificate of Incorporation and these Bylaws, the Board
of Directors may by the affirmative vote of a majority of the entire Board of
Directors amend or repeal these Bylaws, or adopt other Bylaws as in their
judgment may be advisable for the regulation of the conduct of the affairs of
the Corporation. Unless otherwise restricted by the Certificate of
Incorporation, these Bylaws may be altered, amended or repealed, and new Bylaws
may be adopted, at any annual meeting of the stockholders (or at any special
meeting thereof duly called for that purpose) by a majority of the combined
voting power of the then outstanding shares of capital stock of all classes and
series of the Corporation entitled to vote generally in the election of
directors, voting as a single class, provided that, in the notice of any such
special meeting, notice of such purpose shall be given.
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AMENDMENT TO BYLAWS OF
FLASHCOM, INC.
The undersigned, Brad Sachs, President and Secretary of Flashcom, Inc.
(the "Company"), hereby certifies that pursuant to an Action by Unanimous
Written Consent of the Board of Directors of the Company on June 3, 1999, the
Board of Directors of the Company duly adopted resolutions to amend Section 2 of
Article III of the Bylaws of the Company to read as follows:
"Section 2. NUMBER AND ELECTION OF DIRECTORS. Subject to any
limitations in the Certificate of Incorporation, the
authorized number of directors of the Corporation shall be
between five (5) and nine (9) and is currently fixed at seven
(7) until changed by an amendment to this Bylaw adopted by the
affirmative vote of a majority of the entire Board of
Directors. Directors shall be elected at each annual meeting
of stockholders to replace directors whose terms then expire,
and each director elected shall hold office until his
successor is duly elected and qualified, or until his earlier
death, resignation or removal. Any director may resign at any
time effective upon giving written notice to the Board of
Directors, unless the notice specifies a later time for such
resignation to become effective. Unless otherwise specified
therein, the acceptance of such resignation shall not be
necessary to make it effective. If the resignation of a
director is effective at a future time, the Board of Directors
may elect a successor prior to such effective time to take
office when such resignation becomes effective. Directors need
not be stockholders."
IN WITNESS WHEREOF, the undersigned hereby executes this Certificate
effective as of June 3, 1999.
Flashcom, Inc.
/s/ BRAD SACHS
-----------------------------------
Brad Sachs, President and Secretary
<PAGE> 1
EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS
OF
FLASHCOM, INC.
A DELAWARE CORPORATION
AS EFFECTIVE ON [JUNE] __, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C> <C>
ARTICLE I OFFICES.......................................................................1
Section 1. Registered Office......................................................1
Section 2. Other Offices..........................................................1
Section 3. Books..................................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS......................................................1
Section 1. Place of Meetings......................................................1
Section 2. Annual Meetings........................................................1
Section 3. Special Meetings.......................................................1
Section 4. Notification of Business to be Transacted at Meeting...................1
Section 5. Notice; Waiver of Notice...............................................2
Section 6. Quorum; Adjournment....................................................2
Section 7. Voting.................................................................2
Section 8. No Action Without Meeting..............................................2
Section 9. Record Date for Stockholder Notice and Voting..........................2
Section 10. Stock Ledger...........................................................3
Section 11. Inspectors of Election.................................................3
Section 12. Organization...........................................................3
Section 13. Order of Business......................................................3
ARTICLE III DIRECTORS.....................................................................5
Section 1. Powers.................................................................5
Section 2. Number and Election of Directors.......................................5
Section 3. Vacancies..............................................................5
Section 4. Time and Place of Meetings.............................................6
Section 5. Annual Meeting.........................................................6
Section 6. Regular Meetings.......................................................6
Section 7. Special Meetings.......................................................6
Section 8. Quorum; Vote Required for Action; Adjournment..........................6
Section 9. Action by Written Consent..............................................7
Section 10. Telephone Meetings.....................................................7
Section 11. Committees.............................................................7
Section 12. Compensation...........................................................7
Section 13. Interested Directors...................................................7
Section 14. Removal of Directors...................................................8
ARTICLE IV OFFICERS......................................................................8
Section 1. Officers...............................................................8
Section 2. Appointment of Officers................................................8
Section 3. Subordinate Officers...................................................8
Section 4. Removal and Resignation of Officers....................................8
</TABLE>
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
(CONTINUED)
PAGE
<S> <C> <C>
Section 5. Vacancies in Offices...................................................9
Section 6. Chairman of the Board..................................................9
Section 7. Vice Chairman of the Board.............................................9
Section 8. Chief Executive Officer................................................9
Section 9. President..............................................................9
Section 10. Vice President.........................................................9
Section 11. Secretary..............................................................9
Section 12. Chief Financial Officer...............................................10
ARTICLE V STOCK........................................................................10
Section 1. Form of Certificates..................................................10
Section 2. Signatures............................................................10
Section 3. Lost Certificates.....................................................10
Section 4. Transfers.............................................................10
Section 5. Record Holders........................................................11
ARTICLE VI INDEMNIFICATION..............................................................11
Section 1. Right to Indemnification..............................................11
Section 2. Right of Indemnitee to Bring Suit.....................................11
Section 3. Non-Exclusivity of Rights.............................................12
Section 4. Insurance.............................................................12
Section 5. Indemnification of Employees or Agents of the Corporation.............12
Section 6. Indemnification Contracts.............................................12
Section 7. Effect of Amendment...................................................12
ARTICLE VII GENERAL PROVISIONS...........................................................13
Section 1. Dividends.............................................................13
Section 2. Disbursements.........................................................13
Section 3. Fiscal Year...........................................................13
Section 4. Corporate Seal........................................................13
Section 5. Record Date...........................................................13
Section 6. Voting of Stock Owned by the Corporation..............................13
Section 7. Construction and Definitions..........................................13
Section 8. Amendments............................................................13
</TABLE>
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AMENDED AND RESTATED EXH. 3.4
BYLAWS
OF
FLASHCOM, INC.
A DELAWARE CORPORATION
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICES. 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.
SECTION 3. BOOKS. The books of the Corporation may be kept within or
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. PLACE OF MEETINGS. All meetings of stockholders for the
election of directors shall be held at such place either within or without the
State of Delaware 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. Annual meetings of stockholders shall be
held at a time and date designated by the Board of Directors for the purpose of
electing directors and transacting such other business as may properly be
brought before the meeting.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Chairman of the Board, or by
a majority of the Board of Directors, or by a committee of the Board of
Directors which has been duly designated by the Board of Directors and whose
powers and authority, as provided in a resolution of the Board of Directors,
include the power to call such meetings, but such meetings may not be called by
any other person or persons. A stockholder or stockholders may not call a
special meeting of stockholders.
SECTION 4. NOTIFICATION OF BUSINESS TO BE TRANSACTED AT MEETING. To be
properly brought before a meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a stockholder entitled to vote at the meeting.
<PAGE> 5
SECTION 5. NOTICE; WAIVER OF NOTICE. Whenever stockholders are required
or permitted to take any action at a meeting, a written notice of the meeting
shall be given which shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise required by law, such notice shall be given not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
Corporation. A written waiver of any such notice signed by the person entitled
thereto, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 6. QUORUM; ADJOURNMENT. Except as otherwise required by law, or
provided by the Certificate of Incorporation or these Bylaws, the holders of a
majority of the capital stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum
for the transaction of business at all meetings of the stockholders. A meeting
at which a quorum is initially present may continue to transact business,
notwithstanding the withdrawal of enough votes to leave less than a quorum, if
any action taken is approved by at least a majority of the required quorum to
conduct that meeting. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the chairman of the meeting,
shall have power to adjourn the meeting from time to time, without notice other
than announcement at the meeting of the time and place of the adjourned 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
which might have been transacted at the meeting as originally noticed. 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 entitled to vote at the meeting.
SECTION 7. VOTING. Except as otherwise required by law, or provided by
the Certificate of Incorporation or these Bylaws, any question brought before
any meeting of stockholders at which a quorum is present shall be decided by the
vote of the holders of a majority of the stock represented and entitled to vote
thereat. Unless otherwise provided in the Certificate of Incorporation, each
stockholder represented at a meeting of stockholders shall be entitled to cast
one vote for each share of the capital stock entitled to vote thereat held by
such stockholder. Such votes may be cast in person or by proxy, but no proxy
shall be voted on or after three (3) years from its date, unless such proxy
provides for a longer period. Elections of directors need not be by ballot
unless the Chairman of the meeting so directs or unless a stockholder demands
election by ballot at the meeting and before the voting begins.
SECTION 8. NO ACTION WITHOUT MEETING. Any action required or permitted
to be taken by the stockholders of the Corporation must be effected at a duly
called annual or special meeting of such holders and may not be effected by any
consent in writing by such holders.
SECTION 9. RECORD DATE FOR STOCKHOLDER NOTICE AND VOTING. For purposes
of determining the holders entitled to notice of any meeting or to vote, the
Board of Directors may fix, in advance, a record date, which shall not be more
than sixty (60) days nor less than ten (10) days prior to the date of any such
meeting, and in such case only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the
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Corporation after the record date fixed as aforesaid, except as otherwise
provided in the Delaware General Corporation Law. If the Board of Directors does
not so fix a record date, the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
SECTION 10. STOCK LEDGER. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 9 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 11. INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, the Board of Directors may appoint one or more persons (who shall
not be candidates for office) as inspectors of election to act at the meeting or
any adjournment thereof. If an inspector or inspectors are not so appointed, or
if an appointed inspector fails to appear or fails or refuses to act at a
meeting, the Chairman of any meeting of stockholders may, and on the request of
any stockholder or his proxy shall, appoint an inspector or inspectors of
election at the meeting. The duties of such inspector(s) shall include:
determining the number of shares outstanding and the voting power of each; the
shares represented at the meeting; the existence of a quorum; the authenticity,
validity and effect of proxies; receiving votes, ballots or consents; hearing
and determining all challenges and questions in any way arising in connection
with the right to vote; counting and tabulating all votes or consents;
determining the result; and such acts as may be proper to conduct the election
or vote with fairness to all stockholders. In the event of any dispute between
or among the inspectors, the determination of the majority of the inspectors
shall be binding.
SECTION 12. ORGANIZATION. At each meeting of stockholders the Chairman
of the Board of Directors, if one shall have been elected, (or in his absence or
if one shall not have been elected, the President) shall act as Chairman of the
meeting. The Secretary (or in his absence or inability to act, the person whom
the Chairman of the meeting shall appoint secretary of the meeting) shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 13. ORDER OF BUSINESS.
(a) ANNUAL MEETINGS OF STOCKHOLDERS.
(i) Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders (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 was a stockholder
of record at the time of giving of notice provided for in this Bylaw, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Bylaw.
(ii) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to clause (c) of
paragraph (A)(1) of this Bylaw, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other business
must otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than the close of business on the
120th calendar day in advance of the first
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anniversary of the date the Corporation's proxy statement was released to
stockholders in connection with the preceding year's annual meeting; provided,
however, that if no annual meeting was held in the previous year or the date of
the annual meeting has been changed by more than 30 calendar days from the date
contemplated at the time of the previous year's proxy statement, a proposal
shall be received by the Corporation no later than the close of business on the
tenth day following the day on which notice of the date of the meeting was
mailed or public announcement of the date of the meeting was made, whichever
comes first. In no event shall the public announcement of an adjournment of an
annual meeting commence a new time period for the giving of a stockholder's
notice as described above. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or reelection
as a director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to applicable federal
securities laws, including, without limitation, Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
14a-11 thereunder (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); (b) as to
any other business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and number
of shares of the Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this Bylaw to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement by the Corporation naming all of
the nominees for director or specifying the size of the increased Board of
Directors at least 70 days prior to the first anniversary of the date of the
preceding years annual meeting, a stockholders notice required by this Bylaw
shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the Corporation not later than the close of
business on the tenth day following the day on which such public announcement is
first made by the Corporation.
(b) SPECIAL MEETINGS OF STOCKHOLDERS.
(i) Only such business shall be conducted at a special
meeting of stockholders as shall be brought before the meeting pursuant to the
Corporation's notice of meeting.
(ii) A stockholder's nomination of one or more persons for
election to the Board of Directors shall only be permitted to be made at a
special meeting of stockholders if: (i) the Corporation's notice of such meeting
specified that directors are to be elected at such special meeting; (ii) such
stockholder was a stockholder of record entitled to vote at the meeting at the
time of giving of notice provided for in this Bylaw; and (iii) if such
stockholder complies with the notice procedures set forth in this Bylaw. In the
event the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (A)(2) of this Bylaw shall be
delivered to the Secretary at the principal executive offices of the
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Corporation not earlier than the close of business on the 90th day prior to such
special meeting and not later than the close of business on the later of the
60th day prior to such special meeting or the 10th day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
(c) GENERAL.
(i) Only such persons who are nominated in accordance with
the procedures set forth in this Bylaw shall be eligible to serve as directors.
Except as otherwise provided by law, the Certificate of Incorporation or these
Bylaws, the chairman of the meeting shall have the power and authority to
determine the procedures of a meeting of stockholders, including, without
limitation, the authority to determine whether a nomination or any other
business proposed to be brought before the meeting was made or proposed, as the
case may be, in accordance with the procedures set forth in this Bylaw and, if
any proposed nomination or business is not in compliance with this Bylaw, to
declare that such defective proposal or nomination shall be disregarded.
(ii) For purposes of this Bylaw, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this
Bylaw, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect
any rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of preferred stock, if any, to elect directors
under certain circumstances.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. Except as otherwise required by law or provided by
the Certificate of Incorporation, the business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors.
SECTION 2. NUMBER AND ELECTION OF DIRECTORS. Subject to any limitations
in the Certificate of Incorporation, the authorized number of directors of the
Corporation shall be between five (5) and nine (9). The exact number of
directors shall be fixed from time to time by a resolution adopted by a majority
of the directors. Until otherwise fixed by the directors, the number of
directors constituting the entire Board of Directors shall be seven (7).
Directors shall be elected at each annual meeting of the stockholders to replace
those directors whose terms then expire, and each director elected shall hold
office until his successor is duly elected and qualified, or until his earlier
death, resignation or removal. The Board of Directors shall be classified as set
forth in the Certificate of Incorporation.
SECTION 3. VACANCIES. Subject to the limitations in the Certificate of
Incorporation, vacancies in the Board of Directors resulting from death,
resignation, removal or otherwise and
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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,
although less than a quorum, or by a sole remaining director. Each director so
selected shall hold office for the remainder of the full term of office of the
former director which such director replaces and until his successor is duly
elected and qualified, or until his earlier death, resignation or removal. No
decrease in the authorized number of directors constituting the Board of
Directors shall shorten the term of any incumbent directors.
SECTION 4. TIME AND PLACE OF MEETINGS. The Board of Directors shall hold
its meetings at such place, either within or without the State of Delaware, and
at such time as may be determined from time to time by the Board of Directors.
SECTION 5. ANNUAL MEETING. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of stockholders, on
the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. In the event such annual meeting is
not so held, the annual meeting of the Board of Directors may be held at such
place, either within or without the State of Delaware, on such date and at such
time as shall be specified in a notice thereof given as hereinafter provided in
Section 7 of this Article III or in a waiver of notice thereof.
SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held at such places within or without the State of Delaware at such date
and time as the Board of Directors may from time to time determine and, if so
determined by the Board of Directors, notices thereof need not be given.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President, the Secretary or by
any director. Notice of the date, time and place of special meetings shall be
delivered personally or by telephone to each director or sent by first-class
mail or telegram, charges prepaid, addressed to each director at the director's
address as it is shown on the records of the Corporation. In case the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. In case the notice is delivered
personally or by telephone or telegram, it shall be delivered personally or by
telephone or to the telegraph company at least twenty-four (24) hours before the
time of the holding of the meeting. The notice need not specify the purpose of
the meeting. A written waiver of any such notice signed by the person entitled
thereto, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 8. QUORUM; VOTE REQUIRED FOR ACTION; ADJOURNMENT. Except as
otherwise required by law, or provided in the Certificate of Incorporation or
these Bylaws, a majority of the directors shall constitute a quorum for the
transaction of business at all meetings of the Board of Directors and the
affirmative vote of not less than a majority of the directors present at any
meeting at which there is a quorum shall be the act of the Board of Directors.
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.
A meeting at which a quorum is initially present may continue to transact
business, notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum to conduct that meeting.
When a meeting is adjourned to another time or place (whether or
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not a quorum is present), notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting, the Board of Directors may transact any
business which might have been transacted at the original meeting.
SECTION 9. ACTION BY WRITTEN CONSENT. Unless otherwise restricted by the
Certificate of Incorporation, 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 the members of the Board of Directors or committee, as
the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or committee.
SECTION 10. TELEPHONE MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, members of the Board of Directors of the
Corporation, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors or such committee, as the
case may be, by conference telephone or other communications equipment by means
of which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this Section 10 shall constitute presence
in person at such meeting.
SECTION 11. COMMITTEES. The Board of Directors may, by resolution passed
unanimously by the entire Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board of Directors may designate one or more directors as alternate members of
any such committee, who may replace any absent or disqualified member at any
meeting of the committee. In the event of absence or disqualification of a
member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the committee member or members 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
the absent or disqualified member. Any committee, to the extent allowed by law
and as provided in the resolution establishing such committee, shall have and
may exercise all the power and authority of the Board of Directors in the
management of the business and affairs of the Corporation, 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 provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Each
committee shall keep regular minutes of its meetings and report to the Board of
Directors when required.
SECTION 12. COMPENSATION. The directors may be paid such compensation
for their services as the Board of Directors shall from time to time determine.
SECTION 13. INTERESTED DIRECTORS. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or the committee thereof
which authorizes the contract or transaction, or solely because his of their
votes are counted for such purpose if: (i) the material facts as to his or their
relationship or
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interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (ii) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee thereof, or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
SECTION 14. REMOVAL OF DIRECTORS. Any director or the entire Board of
Directors may be removed only for cause, by the holders of a majority of the
shares then entitled to vote at an election of directors.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a
President, a Secretary and a Chief Financial Officer. The Corporation may also
have, at the discretion of the Board of Directors, a Chairman of the Board, a
Vice Chairman of the Board, a Chief Executive Officer, one or more Vice
Presidents, one or more Assistant Financial Officers and Treasurers, one or more
Assistant Secretaries and such other officers as may be appointed in accordance
with the provisions of Section 3 of this Article IV.
SECTION 2. APPOINTMENT OF OFFICERS. The officers of the Corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article IV, shall be appointed by the Board of
Directors, and each shall serve at the pleasure of the Board, subject to the
rights, if any, of an officer under any contract of employment.
SECTION 3. SUBORDINATE OFFICERS. The Board of Directors may appoint, and
may empower the Chief Executive Officer or President to appoint, such other
officers as the business of the Corporation may require, each of whom shall hold
office for such period, have such authority and perform such duties as are
provided in the Bylaws or as the Board of Directors may from time to time
determine.
SECTION 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights of
an officer under any contract, any officer may be removed at any time, with or
without cause, by the Board of Directors or, except in case of an officer chosen
by the Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation shall be without prejudice to
the rights of the Corporation under any contract to which the officer is a
party.
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SECTION 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these Bylaws for regular appointments to that
office.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an
officer is elected, shall, if present, preside at meetings of the stockholders
and of the Board of Directors, unless otherwise determined by the Board of
Directors. He shall, in addition, perform such other functions (if any) as may
be prescribed by the Bylaws or the Board of Directors.
SECTION 7. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board,
if such an officer is elected, shall, in the absence or disability of the
Chairman of the Board, perform all duties of the Chairman of the Board and when
so acting shall have all the powers of and be subject to all of the restrictions
upon the Chairman of the Board. The Vice Chairman of the Board shall have such
other powers and duties as may be prescribed by the Board of Directors or the
Bylaws.
SECTION 8. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the
Corporation shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers of
the Corporation. He shall exercise the duties usually vested in the chief
executive officer of a corporation and perform such other powers and duties as
may be assigned to him from time to time by the Board of Directors or prescribed
by the Bylaws. In the absence of the Chairman of the Board and any Vice Chairman
of the Board, the Chief Executive Officer shall preside at all meetings of the
stockholders and of the Board of Directors.
SECTION 9. PRESIDENT. The President of the Corporation shall, subject to
the control of the Board of Directors and the Chief Executive Officer of the
Corporation, if there be such an officer, have general powers and duties of
management usually vested in the office of president of a corporation and shall
have such other powers and duties as may be prescribed by the Board of Directors
or the Bylaws or the Chief Executive Officer of the Corporation. In the absence
of the Chairman of the Board, Vice Chairman of the Board and Chief Executive
Officer, the President shall preside at all meetings of the Board of Directors
and stockholders.
SECTION 10. VICE PRESIDENT. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a Vice President designated by the Board
of Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of, and subject to all the restrictions upon, the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors or the Bylaws, and the President, or the Chairman of the
Board.
SECTION 11. SECRETARY. The Secretary shall keep or cause to be kept, at
the principal executive office or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders, with the time and place of holding, whether
regular or special, and, if special, how authorized, the notice given, the names
of those present at directors' meetings or committee meetings, the number of
shares present or represented at stockholders' meetings, and a summary of the
proceedings.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the Corporation's transfer agent or
registrar, as determined by resolution of the Board of Directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their
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addresses, the number and classes of shares held by each, the number and date of
certificates issued for the same, and the number and date of cancellation of
every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required by the Bylaws or by
law to be given, and he shall keep or cause to be kept the seal of the
Corporation if one be adopted, in safe custody, and shall have such powers and
perform such other duties as may be prescribed by the Board of Directors or by
the Bylaws.
SECTION 12. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
Corporation. The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. He shall make such
disbursements of the funds of the Corporation as are authorized and shall render
from time to time an account of all of his transactions as Chief Financial
Officer and of the financial condition of the Corporation. The Chief Financial
Officer shall also have such other powers and perform such other duties as may
be prescribed by the Board of Directors or the Bylaws.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by, or in the name of
the Corporation (i) by the Chairman or Vice Chairman of the Board of Directors,
or the President or a Vice President and (ii) by the Chief Financial Officer or
the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares owned by such
stockholder in the Corporation.
SECTION 2. SIGNATURES. Any or all of the signatures on the certificate
may be a 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 were such officer, transfer agent or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Corporation may issue a new
certificate to be issued in place of any certificate 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 to be lost,
stolen or destroyed. The Corporation may, in the discretion of the Board of
Directors and as a condition precedent to the issuance of such new certificate,
require the owner of such lost, stolen, or destroyed certificate, or his legal
representative, to give the Corporation a bond (or other security) sufficient to
indemnify it against any claim that may be made against the Corporation
(including any expense or liability) on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these Bylaws or in any agreement with the
stockholder making the transfer. Transfers of stock shall be made on the books
of the Corporation only by the person named in the
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certificate or by his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be cancelled before a new
certificate shall be issued.
SECTION 5. RECORD HOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the record
holder of shares to receive dividends, and to vote as such record holder, and to
hold liable for calls and assessments a person registered on its books as the
record holder 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 required by law.
ARTICLE VI
INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director or officer of another corporation or of
a partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a director
or officer or in any other capacity while serving as a director or officer,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith and such indemnification shall continue as to an indemnitee who has
ceased to be a director or officer and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided, however, that,
except as provided in Section 2 of this Article VI with respect to proceedings
to enforce rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was authorized by the Board
of Directors of the Corporation. The right to indemnification conferred in this
Section shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition (hereinafter an "advancement of expenses"); provided,
however, that, if the Delaware General Corporation Law requires, an advancement
of expenses incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such indemnitee, including without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking, by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined that such indemnitee is not entitled to be indemnified
for such expenses under this Article VI or otherwise (hereinafter an
"undertaking").
SECTION 2. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Section 1
of this Article VI is not paid in full by the Corporation within forty-five (45)
days after a written claim has been received by the Corporation, the indemnitee
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or part in any such suit or
in a suit brought by the Corporation to recover an advancement of expenses
pursuant to the
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terms of an undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met the applicable standard of conduct set forth in the
Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified or to such advancement of expenses
under this Article VI or otherwise shall be on the Corporation.
SECTION 3. NON-EXCLUSIVITY OF RIGHTS. The rights of indemnification and
to the advancement of expenses conferred in this Article VI shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
SECTION 4. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
SECTION 5. INDEMNIFICATION OF EMPLOYEES OR AGENTS OF THE CORPORATION.
The Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses,
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article VI with respect to the indemnification and
advancement of expenses of directors or officers of the Corporation.
SECTION 6. INDEMNIFICATION CONTRACTS. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determines, greater than, those provided for in this
Article VI.
SECTION 7. EFFECT OF AMENDMENT. Any amendment, repeal or modification of
any provision of this Article VI by the stockholders or the directors of the
Corporation shall not adversely affect any right or protection of a director or
officer of the Corporation existing at the time of such amendment, repeal or
modification.
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ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to limitations contained in the General
Corporation Law of the State of Delaware and the Certificate of Incorporation,
the Board of Directors may declare and pay dividends upon the shares of capital
stock of the Corporation, which dividends may be paid either in cash, securities
of the Corporation or other property.
SECTION 2. DISBURSEMENTS. 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.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The Corporation shall have a corporate seal
in such form as shall be prescribed by the Board of Directors.
SECTION 5. RECORD DATE. 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 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) days 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. Stockholders on the record date are entitled to
notice and to vote or to receive the dividend, distribution or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the Corporation after the record date,
except as otherwise provided by agreement or by applicable law.
SECTION 6. VOTING OF STOCK OWNED BY THE CORPORATION. The Chairman of the
Board, the Chief Executive Officer, the President and any other officer of the
Corporation authorized by the Board of Directors shall have power, on behalf of
the Corporation, to attend, vote and grant proxies to be used at any meeting of
stockholders of any corporation (except this Corporation) in which the
Corporation may hold stock.
SECTION 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction and definitions in the
General Corporation Law of the State of Delaware shall govern the construction
of these Bylaws.
SECTION 8. AMENDMENTS. Subject to the General Corporation Law of the
State of Delaware, the Certificate of Incorporation and these Bylaws, the Board
of Directors may by the affirmative vote of a majority of the entire Board of
Directors amend or repeal these Bylaws, or adopt other Bylaws as in their
judgment may be advisable for the regulation of the conduct of the affairs of
the Corporation. Unless otherwise restricted by the Certificate of
Incorporation, these Bylaws may be altered, amended or repealed, and new Bylaws
may be adopted, at any annual meeting of the stockholders (or at any special
meeting thereof duly called for that purpose) by
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holders of not less than 66-2/3% of the combined voting power of the then
outstanding shares of capital stock of all classes and series of the Corporation
entitled to vote generally in the election of directors, voting as a single
class, provided that, in the notice of any such special meeting, notice of such
purpose shall be given, and provided further that, such amendment would not
conflict with the Certificate of Incorporation. Any Bylaw made or altered by the
requisite number of stockholders may be altered or repealed by the Board of
Directors or may be altered or repealed by the requisite number of stockholders.
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FLASHCOM, INC. EXH. 10.1
AMENDED AND RESTATED
1999 INCENTIVE STOCK OPTION, NONQUALIFIED STOCK OPTION
AND RESTRICTED STOCK PURCHASE PLAN
The 1999 INCENTIVE STOCK OPTION, NONQUALIFIED STOCK OPTION AND
RESTRICTED STOCK PURCHASE PLAN (the "Plan"), established by FLASHCOM, INC., a
Delaware corporation (the "Company"), and adopted by its Board of Directors as
of the 4th day of June, 1999 (the "Effective Date"), is hereby amended and
restated in its entirety by action of its Board of Directors as of the 24th day
of April, 2000.
ARTICLE 1.
PURPOSES OF THE PLAN
1.1 PURPOSES. The purposes of the Plan are (a) to enhance the Company's
ability to attract and retain the services of qualified employees, officers and
directors (including non-employee officers and directors), and consultants and
other service providers upon whose judgment, initiative and efforts the
successful conduct and development of the Company's business largely depends,
and (b) to provide additional incentives to such persons or entities to devote
their utmost effort and skill to the advancement and betterment of the Company,
by providing them an opportunity to participate in the ownership of the Company
and thereby have an interest in the success and increased value of the Company.
ARTICLE 2.
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings
indicated:
2.1 ADMINISTRATOR. "Administrator" means the Board or, if the Board
delegates responsibility for any matter to the Committee, the term Administrator
shall mean the Committee.
2.2 AFFILIATED COMPANY. "Affiliated Company" means any "parent
corporation" or "subsidiary corporation" of the Company, whether now existing or
hereafter created or acquired, as those terms are defined in Sections 424(e) and
424(f) of the Code, respectively.
2.3 BOARD. "Board" means the Board of Directors of the Company.
2.4 CHANGE IN CONTROL. "Change in Control" shall mean (i) the
acquisition, directly or indirectly, by any person or group (within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the
beneficial ownership of securities of the Company possessing more than fifty
percent (50%) of the total combined voting power of all outstanding securities
of the Company; (ii) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction in which the holders of the
outstanding voting securities of the Company immediately prior to such merger or
consolidation hold, in the aggregate, securities possessing more than fifty
percent (50%) of the total combined voting power of all outstanding voting
securities of the surviving entity immediately after such merger or
consolidation; (iii) a reverse merger in which the Company is the surviving
entity but in which securities possessing more
<PAGE> 2
than fifty percent (50%) of the total combined voting power of all outstanding
voting securities of the Company are transferred to or acquired by a person or
persons different from the persons holding those securities immediately prior to
such merger; (iv) the sale, transfer or other disposition (in one transaction or
a series of related transactions) of all or substantially all of the assets of
the Company; or (v) the approval by the shareholders of a plan or proposal for
the liquidation or dissolution of the Company.
2.5 CODE. "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
2.6 COMMITTEE. "Committee" means a committee of two or more members of
the Board appointed to administer the Plan, as set forth in Section 7.1 hereof.
2.7 COMMON STOCK. "Common Stock" means the Common Stock, $.001 par value
of the Company, subject to adjustment pursuant to Section 4.2 hereof.
2.8 DISABILITY. "Disability" means permanent and total disability as
defined in Section 22(e)(3) of the Code. The Administrator's determination of a
Disability or the absence thereof shall be conclusive and binding on all
interested parties.
2.9 EFFECTIVE DATE. "Effective Date" means the date on which the Plan is
adopted by the Board, as set forth on the first page hereof.
2.10 EXERCISE PRICE. "Exercise Price" means the purchase price per share
of Common Stock payable upon exercise of an Option.
2.11 FAIR MARKET VALUE. "Fair Market Value" on any given date means the
value of one share of Common Stock, determined as follows:
a. If the Common Stock is then listed or admitted to trading on
the New York Stock Exchange, a NASDAQ market system or similar stock exchange
which reports closing sale prices, the Fair Market Value shall be the closing
sale price on the date of valuation on such stock exchange on which the Common
Stock is then listed or admitted to trading, or, if no closing sale price is
quoted on such day, then the Fair Market Value shall be the closing sale price
of the Common Stock on such exchange on the next preceding day for which a
closing sale price is reported.
b. If the Common Stock is not then listed or admitted to trading
on the New York Stock Exchange, a NASDAQ market system or similar stock exchange
which reports closing sale prices, the Fair Market Value shall be the average of
the closing bid and asked prices of the Common Stock in the over-the-counter
market on the date of valuation.
c. If neither (a) nor (b) is applicable as of the date of
valuation, then the Fair Market Value shall be determined by the Administrator
in good faith using any reasonable method of valuation, which determination
shall be conclusive and binding on all interested parties.
2.12 INCENTIVE OPTION. "Incentive Option" means any Option designated
and qualified as an "incentive stock option" as defined in Section 422 of the
Code.
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2.13 INCENTIVE OPTION AGREEMENT. "Incentive Option Agreement" means an
Option Agreement with respect to an Incentive Option.
2.14 NASD DEALER. "NASD Dealer" means a broker-dealer that is a member
of the National Association of Securities Dealers, Inc.
2.15 NONQUALIFIED OPTION. "Nonqualified Option" means any Option that is
not an Incentive Option. To the extent that any Option designated as an
Incentive Option fails in whole or in part to qualify as an Incentive Option,
including, without limitation, for failure to meet the limitations applicable to
a 10% Shareholder or because it exceeds the annual limit provided for in Section
5.6 below, it shall to that extent constitute a Nonqualified Option.
2.16 NONQUALIFIED OPTION AGREEMENT. "Nonqualified Option Agreement"
means an Option Agreement with respect to a Nonqualified Option.
2.17 OFFEREE. "Offeree" means a Participant to whom a Right to Purchase
has been offered or who has acquired Restricted Stock under the Plan.
2.18 OPTION. "Option" means any option to purchase Common Stock granted
pursuant to the Plan.
2.19 OPTION AGREEMENT. "Option Agreement" means the written agreement
entered into between the Company and the Optionee with respect to an Option
granted under the Plan.
2.20 OPTIONEE. "Optionee" means a Participant who holds an Option.
2.21 PARTICIPANT. "Participant" means an individual or entity who holds
an Option, a Right to Purchase or Restricted Stock under the Plan.
2.22 PURCHASE PRICE. "Purchase Price" means the purchase price per share
of Restricted Stock payable upon acceptance of a Right to Purchase.
2.23 RESTRICTED STOCK. "Restricted Stock" means shares of Common Stock
issued pursuant to Article 6 hereof, subject to any restrictions and conditions
as are established pursuant to such Article 6.
2.24 RIGHT TO PURCHASE. "Right to Purchase" means a right to purchase
Restricted Stock granted to an Offeree pursuant to Article 6 hereof.
2.25 SERVICE PROVIDER. "Service Provider" means a consultant or other
person or entity who provides services to the Company or an Affiliated Company
and who the Administrator authorizes to become a Participant in the Plan.
2.26 RESTRICTED STOCK PURCHASE AGREEMENT. "Restricted Stock Purchase
Agreement" means the written agreement entered into between the Company and the
Offeree with respect to a Right to Purchase offered under the Plan.
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2.27 10% SHAREHOLDER. "10% Shareholder" means a person who, as of a
relevant date, owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or of an
Affiliated Company.
ARTICLE 3.
ELIGIBILITY
3.1 INCENTIVE OPTIONS. Officers and other key employees of the Company
or of an Affiliated Company (including members of the Board if they are
employees of the Company or of an Affiliated Company) are eligible to receive
Incentive Options under the Plan.
3.2 NONQUALIFIED OPTIONS AND RIGHTS TO PURCHASE. Officers and other key
employees of the Company or of an Affiliated Company, members of the Board
(whether or not employed by the Company or an Affiliated Company), and Service
Providers are eligible to receive Nonqualified Options or Rights to Purchase
under the Plan.
3.3 LIMITATION ON SHARES. In no event shall any Participant be granted
Options or Rights to Purchase in any one calendar year pursuant to which the
aggregate number of shares of Common Stock that may be acquired thereunder
exceeds 1,000,000 shares.
ARTICLE 4.
PLAN SHARES
4.1 SHARES SUBJECT TO THE PLAN. A total of 15,000,000 shares of Common
Stock may be issued under the Plans, subject to adjustment as to the number and
kind of shares pursuant to Section 4.2 and 4.3 hereof. For purposes of this
limitation, in the event that (a) all or any portion of any Option or Right to
Purchase granted or offered under the Plan can no longer under any circumstances
be exercised, or (b) any shares of Common Stock are reacquired by the Company
pursuant to the terms of an Option Agreement or Restricted Stock Purchase
Agreement, the shares of Common Stock allocable to the unexercised portion of
such Option or such Right to Purchase, or the shares so reacquired, shall again
be available for grant or issuance under the Plan.
4.2 ANNUAL INCREASES IN SHARES. The number of shares authorized for
issuance under the Plan shall be automatically increased on the last day of
each fiscal year of the Company by a number of shares equal to two percent (2%)
of the shares of Common Stock outstanding on such date.
4.3 CHANGES IN CAPITAL STRUCTURE. In the event that the outstanding
shares of Common Stock are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of a recapitalization, stock split, combination of shares,
reclassification, stock dividend, or other change in the capital structure of
the Company, then appropriate adjustments shall be made by the Administrator to
the aggregate number and kind of shares subject to this Plan, and the number and
kind of shares and the price per share subject to outstanding Option Agreements,
Rights to Purchase and Restricted Stock Purchase Agreements in order to
preserve, as nearly as practical, but not to increase, the benefits to
Participants.
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<PAGE> 5
ARTICLE 5.
OPTIONS
5.1 OPTION AGREEMENT. Each Option granted pursuant to this Plan shall be
evidenced by an Option Agreement which shall specify the number of shares
subject thereto, the Exercise Price per share, and whether the Option is an
Incentive Option or Nonqualified Option. As soon as is practical following the
grant of an Option, an Option Agreement shall be duly executed and delivered by
or on behalf of the Company to the Optionee to whom such Option was granted.
Each Option Agreement shall be in such form and contain such additional terms
and conditions, not inconsistent with the provisions of this Plan, as the
Administrator shall, from time to time, deem desirable, including, without
limitation, the imposition of any rights of first refusal and resale obligations
upon any shares of Common Stock acquired pursuant to an Option Agreement. Each
Option Agreement may be different from each other Option Agreement.
5.2 EXERCISE PRICE. The Exercise Price per share of Common Stock covered
by each Option shall be determined by the Administrator, subject to the
following: (a) the Exercise Price of an Incentive Option shall not be less than
100% of Fair Market Value on the date the Incentive Option is granted, (b) the
Exercise Price of a Nonqualified Option shall not be less than 85% of Fair
Market Value on the date the Nonqualified Option is granted, and (c) if the
person to whom an Option is granted is a 10% Shareholder on the date of grant,
the Exercise Price shall not be less than 110% of Fair Market Value on the date
the Option is granted.
5.3 PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price shall be
made upon exercise of an Option and may be made, in the discretion of the
Administrator, subject to any legal restrictions, by: (a) cash; (b) check; (c)
the surrender of shares of Common Stock owned by the Optionee that have been
held by the Optionee for at least six (6) months, which surrendered shares shall
be valued at Fair Market Value as of the date of such exercise; (d) the
Optionee's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Optionee; (f) the waiver of compensation due or accrued to the Optionee for
services rendered; (g) provided that a public market for the Common Stock
exists, a "same day sale" commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably elects to exercise the Option and to sell a
portion of the shares so purchased to pay for the Exercise Price and whereby the
NASD Dealer irrevocably commits upon receipt of such shares to forward the
Exercise Price directly to the Company; (h) provided that a public market for
the Common Stock exists, a "margin" commitment from the Optionee and an NASD
Dealer whereby the Optionee irrevocably elects to exercise the Option and to
pledge the shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt of such shares to
forward the Exercise Price directly to the Company; or (i) any combination of
the foregoing methods of payment or any other consideration or method of payment
as shall be permitted by applicable corporate law.
5.4 TERM AND TERMINATION OF OPTIONS. The term and provisions for
termination of each Option shall be as fixed by the Administrator, but no Option
may be exercisable more than ten (10) years after the date it is granted. An
Incentive Option granted to a person who is a 10% Shareholder on the date of
grant shall not be exercisable more than five (5) years after the date it is
granted.
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5.5 VESTING AND EXERCISE OF OPTIONS. Each Option shall vest and become
exercisable in one or more installments at such time or times and subject to
such conditions, including without limitation the achievement of specified
performance goals or objectives, as shall be determined by the Administrator;
provided, however that Options granted to employees who are not officers,
directors or Service Providers shall vest and become exercisable in installments
of a minimum of 20% per year over a period of five (5) years from the date the
Option is granted.
5.6 ANNUAL LIMIT ON INCENTIVE OPTIONS. To the extent required for
"incentive stock option" treatment under Section 422 of the Code, the aggregate
Fair Market Value (determined as of the time of grant) of the Common Stock shall
not, with respect to which Incentive Options granted under this Plan and any
other plan of the Company or any Affiliated Company become exercisable for the
first time by an Optionee during any calendar year, exceed $100,000.
5.7 NONTRANSFERABILITY OF OPTIONS. No Option shall be assignable or
transferable except by will or the laws of descent and distribution, and during
the life of the Optionee shall be exercisable only by such Optionee.
5.8 RIGHTS AS STOCKHOLDER. An Optionee or permitted transferee of an
Option shall have no rights or privileges as a stockholder with respect to any
shares covered by an Option until such Option has been duly exercised and
certificates representing shares purchased upon such exercise have been issued
to such person.
5.9 COMPANY'S REPURCHASE PLAN. In the event of termination of a
Participant's employment or service as a director of the Company for any reason
whatsoever (including death or disability), the Option Agreement may provide, in
the discretion of the Administrator, that the Company, or its assignee, shall
have the right, exercisable at the discretion of the Administrator, to
repurchase shares of Common Stock acquired pursuant to the exercise of an Option
at any time prior to the consummation of the Company's initial public offering
of securities in an offering registered under the Securities Act of 1933, as
amended, and at the price equal to the Fair Market Value per share of Common
Stock (determined in accordance with Section 2.12 hereof) as of the date of
termination of Optionee's employment.
5.10 RESTRICTIONS ON UNDERLYING SHARES OF COMMON STOCK. Shares of Common
Stock issued pursuant to the exercise of an Option may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided in the Option Agreement.
ARTICLE 6.
RIGHTS TO PURCHASE
6.1 NATURE OF RIGHT TO PURCHASE. A Right to Purchase granted to an
Offeree entitles the Offeree to purchase, for a Purchase Price determined by the
Administrator, shares of Common Stock subject to such terms, restrictions and
conditions as the Administrator may determine at the time of grant ("Restricted
Stock"). Such conditions may include, but are not limited to, continued
employment or the achievement of specified performance goals or objectives.
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<PAGE> 7
6.2 ACCEPTANCE OF RIGHT TO PURCHASE. An Offeree shall have no rights
with respect to the Restricted Stock subject to a Right to Purchase unless the
Offeree shall have accepted the Right to Purchase within ten (10) days (or such
longer or shorter period as the Administrator may specify) following the grant
of the Right to Purchase by making payment of the full Purchase Price to the
Company in the manner set forth in Section 6.3 hereof and by executing and
delivering to the Company a Restricted Stock Purchase Agreement. Each Restricted
Stock Purchase Agreement shall be in such form, and shall set forth the Purchase
Price and such other terms, conditions and restrictions of the Restricted Stock,
consistent with the provisions of this Plan, as the Administrator shall, from
time to time, deem desirable. Each Restricted Stock Purchase Agreement may be
different from each other Restricted Stock Purchase Agreement.
6.3 PAYMENT OF PURCHASE PRICE. Subject to any legal restrictions,
payment of the Purchase Price upon acceptance of a Right to Purchase Restricted
Stock may be made, in the discretion of the Administrator, by: (a) cash; (b)
check; (c) the surrender of shares of Common Stock owned by the Offeree that
have been held by the Offeree for at least six (6) months, which surrendered
shares shall be valued at Fair Market Value as of the date of such exercise; (d)
the Offeree's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Offeree; (f) the waiver of compensation due or accrued to the Offeree for
services rendered; or (g) any combination of the foregoing methods of payment or
any other consideration or method of payment as shall be permitted by applicable
corporate law.
6.4 RIGHTS AS A STOCKHOLDER. Upon complying with the provisions of
Section 6.2 hereof, an Offeree shall have the rights of a stockholder with
respect to the Restricted Stock purchased pursuant to the Right to Purchase,
including voting and dividend rights, subject to the terms, restrictions and
conditions as are set forth in the Restricted Stock Purchase Agreement. Unless
the Administrator shall determine otherwise, certificates evidencing shares of
Restricted Stock shall remain in the possession of the Company until such shares
have vested in accordance with the terms of the Restricted Stock Purchase
Agreement.
6.5 RESTRICTIONS. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided in the Restricted Stock Purchase Agreement. In the event
of termination of a Participant's employment, service as a director of the
Company or Service Provider status for any reason whatsoever (including death or
disability), the Restricted Stock Purchase Agreement may provide, in the
discretion of the Administrator, that the Company shall have the right,
exercisable at the discretion of the Administrator, to repurchase (i) at the
original Purchase Price, any shares of Restricted Stock which have not vested as
of the date of termination, and (ii) at Fair Market Value, any shares of
Restricted Stock which have vested as of such date, on such terms as may be
provided in the Restricted Stock Purchase Agreement; provided that the right to
repurchase at the original purchase price lapses at the rate of at least 20% of
the shares per year over five (5) years from the date the Right to Purchase was
granted.
6.6 VESTING OF RESTRICTED STOCK. The Restricted Stock Purchase Agreement
shall specify the date or dates, the performance goals or objectives which must
be achieved, and any other conditions on which the Restricted Stock may vest.
7
<PAGE> 8
6.7 DIVIDENDS. If payment for shares of Restricted Stock is made by
promissory note, any cash dividends paid with respect to the Restricted Stock
may be applied, in the discretion of the Administrator, to repayment of such
note.
6.8 NONASSIGNABILITY OF RIGHTS. No Right to Purchase shall be assignable
or transferable except by will or the laws of descent and distribution.
ARTICLE 7.
ADMINISTRATION OF THE PLAN
7.1 ADMINISTRATOR. Authority to control and manage the operation and
administration of the Plan shall be vested in the Board, which may delegate such
responsibilities in whole or in part to a committee consisting of two (2) or
more members of the Board (the "Committee"). Members of the Committee may be
appointed from time to time by, and shall serve at the pleasure of, the Board.
As used herein, the term "Administrator" means the Board or, with respect to any
matter as to which responsibility has been delegated to the Committee, the term
Administrator shall mean the Committee.
7.2 POWERS OF THE ADMINISTRATOR. In addition to any other powers or
authority conferred upon the Administrator elsewhere in the Plan or by law, the
Administrator shall have full power and authority: (a) to determine the persons
to whom, and the time or times at which, Incentive Options or Nonqualified
Options shall be granted and Rights to Purchase shall be offered, the number of
shares to be represented by each Option and Right to Purchase and the
consideration to be received by the Company upon the exercise thereof; (b) to
interpret the Plan; (c) to create, amend or rescind rules and regulations
relating to the Plan; (d) to determine the terms, conditions and restrictions
contained in, and the form of, Option Agreements and Restricted Stock Purchase
Agreements; (e) to determine the identity or capacity of any persons who may be
entitled to exercise a Participant's rights under any Option or Right to
Purchase under the Plan; (f) to correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any Option Agreement or Restricted
Stock Purchase Agreement; (g) to accelerate the vesting of any Option or release
or waive any repurchase rights of the Company with respect to Restricted Stock;
(h) to extend the exercise date of any Option or acceptance date of any Right to
Purchase; (i) to provide for rights of first refusal and/or repurchase rights;
(j) to amend outstanding Option Agreements and Stock Purchase Agreements to
provide for, among other things, any change or modification which the
Administrator could have provided for upon the grant of an Option or Right to
Purchase or in furtherance of the powers provided for herein; and (k) to make
all other determinations necessary or advisable for the administration of the
Plan, but only to the extent not contrary to the express provisions of the Plan.
Any action, decision, interpretation or determination made in good faith by the
Administrator in the exercise of its authority conferred upon it under the Plan
shall be final and binding on the Company and all Participants.
7.3 LIMITATION ON LIABILITY. No employee of the Company or member of the
Board or Committee shall be subject to any liability with respect to duties
under the Plan unless the person acts fraudulently or in bad faith. To the
extent permitted by law, the Company shall indemnify each member of the Board or
Committee, and any employee of the Company with duties under the Plan, who was
or is a party, or is threatened to be made a party, to any threatened, pending
or completed proceeding, whether civil, criminal, administrative or
investigative, by reason of such person's conduct in the performance of duties
under the Plan.
8
<PAGE> 9
ARTICLE 8.
CHANGE IN CONTROL
8.1 CHANGE IN CONTROL.
a. In the event of a Change in Control of the Company, unless
otherwise provided in the following sentence, each Option outstanding under the
Plan shall automatically vest in full so that each such Option shall,
immediately prior to the effective date of the Change in Control, 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 foregoing notwithstanding, 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 connection with the Change in Control or (ii) such Option is
to be replaced with a cash incentive program of the successor corporation which
preserves the spread between the exercise price and the per share consideration
received by the stockholders of the Corporation in connection with the Change in
Control on the unvested Option shares 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 Administrator at the time of grant.
b. All outstanding repurchase rights for shares of Restricted
Stock 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
Change in Control, except to the extent: (i) those repurchase rights are
assigned to the successor corporation (or parent thereof) in connection with
such Change in Control, (ii) such repurchase rights are exercised and replaced
with a cash incentive program of the successor corporation (or parent thereof)
which preserves the spread between the purchase price and the per share
consideration received by the stockholders of the Corporation in connection with
the Change in Control and provides for the subsequent payout of the spread in
accordance with the same vesting schedule applicable to the shares subject to
the repurchase rights, or (iii) such accelerated vesting is precluded by other
limitations imposed by the Administrator at the time the repurchase right is
issued.
c. Immediately following the consummation of the Change in
Control, 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 Change in
Control shall be appropriately adjusted, immediately after such Change in
Control, to apply to the number and class of securities which would have been
issuable to the Optionee in consummation of such Change in Control, had the
Option been exercised immediately prior to such Change in Control. 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 Change
in Control 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.
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<PAGE> 10
e. The Administrator shall have the discretion, exercisable
either at the time the Option is granted or at any time while the Option remains
outstanding, to structure one or more Options so that those Options shall
automatically accelerate and vest in full or in part (and any repurchase rights
of the Corporation with respect to shares of Restricted Stock shall immediately
terminate in full or in part) upon the occurrence of a Change in Control,
whether or not those Options are to be assumed in the Change in Control.
f. The Administrator shall also have the discretion, exercisable
either at the time the Option is granted or 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 (and any repurchase rights of
the Corporation with respect to shares of Restricted Stock shall automatically
vest on an accelerated basis) by reason of a termination, other than for cause
as defined by applicable law, the terms of the Plan, the terms of an Option
Agreement or Restricted Stock Purchase Agreement, or the terms of a contract of
employment, of the Participant's employment with the Corporation within a
designated period following the effective date of any Change in Control in which
the Option is assumed. Any Option so accelerated shall remain exercisable for
the fully-vested Option shares until the expiration or sooner termination of the
Option term.
g. The portion of any Incentive Option accelerated in connection
with a Change in Control 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 Nonqualified Option under the
Code.
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.
ARTICLE 9.
AMENDMENT AND TERMINATION OF THE PLAN
9.1 AMENDMENTS. The Board may from time to time alter, amend, suspend or
terminate the Plan in such respects as the Board may deem advisable. No such
alteration, amendment, suspension or termination shall be made which shall
substantially affect or impair the rights of any Participant under an
outstanding Option Agreement or Restricted Stock Purchase Agreement without such
Participant's consent. The Board may alter or amend the Plan to comply with
requirements under the Code relating to Incentive Options or other types of
options which give Optionees more favorable tax treatment than that applicable
to Options granted under this Plan as of the date of its adoption. Upon any such
alteration or amendment, any outstanding Option granted hereunder may, if the
Administrator so determines and if permitted by applicable law, be subject to
the more favorable tax treatment afforded to an Optionee pursuant to such terms
and conditions.
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<PAGE> 11
9.2 PLAN TERMINATION. Unless the Plan shall theretofore have been
terminated, the Plan shall terminate on the tenth (10th) anniversary of the
Effective Date and no Options or Rights to Purchase may be granted under the
Plan thereafter, but Option Agreements, Restricted Stock Purchase Agreements and
Rights to Purchase then outstanding shall continue in effect in accordance with
their respective terms.
ARTICLE 10.
TAX WITHHOLDING
10.1 WITHHOLDING. The Company shall have the power to withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
any applicable Federal, state, and local tax withholding requirements with
respect to any Options exercised or Restricted Stock issued under the Plan. To
the extent permissible under applicable tax, securities and other laws, the
Administrator may, in its sole discretion and upon such terms and conditions as
it may deem appropriate, permit a Participant to satisfy his or her obligation
to pay any such tax, in whole or in part, up to an amount determined on the
basis of the highest marginal tax rate applicable to such Participant, by (a)
directing the Company to apply shares of Common Stock to which the Participant
is entitled as a result of the exercise of an Option or as a result of the
purchase of or lapse of restrictions on Restricted Stock or (b) delivering to
the Company shares of Common Stock owned by the Participant. The shares of
Common Stock so applied or delivered in satisfaction of the Participant's tax
withholding obligation shall be valued at their Fair Market Value as of the date
of measurement of the amount of income subject to withholding.
ARTICLE 11.
MISCELLANEOUS
11.1 BENEFITS NOT ALIENABLE. Other than as provided above, benefits
under the Plan may not be assigned or alienated, whether voluntarily or
involuntarily. Any unauthorized attempt at assignment, transfer, pledge or other
disposition shall be without effect.
11.2 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a
voluntary undertaking on the part of the Company and shall not be deemed to
constitute a contract between the Company and any Participant to be
consideration for, or an inducement to, or a condition of, the employment of any
Participant. Nothing contained in the Plan shall be deemed to give the right to
any Participant to be retained as an employee of the Company or any Affiliated
Company or to limit the right of the Company or any Affiliated Company to
discharge any Participant at any time.
11.3 APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of Common Stock pursuant to Option Agreements and Restricted Stock Purchase
Agreements, except as otherwise provided herein, will be used for general
corporate purposes.
11
\
<PAGE> 1
FLASHCOM, INC. EXH. 10.2
STOCK OPTION AGREEMENT
TYPE OF OPTION (CHECK ONE): [ ] INCENTIVE [ ] NONQUALIFIED
This Stock Option Agreement ("Agreement") is entered into as of
________________, ____, by and between FLASHCOM, INC., a Delaware corporation
(the "Company"), and ________________________ (the "Optionee") pursuant to the
Company's 1999 Incentive Stock Option, Nonqualified Stock Option and Restricted
Stock Purchase Plan (the "Plan").
1. GRANT OF OPTION. The Company hereby grants to Optionee an option (the
"Option") to purchase all or any portion of a total of _________________
(________) shares (the "Shares") of the Common Stock of the Company at a
purchase price of _______________ (_____) per share (the "Exercise Price"),
subject to the terms and conditions set forth herein and the provisions of the
Plan. If the box marked "Incentive" above is checked, then this Option is
intended to qualify as an "incentive stock option" as defined in Section 422 of
the Internal Revenue Code of l986, as amended (the "Code"). If this Option fails
in whole or in part to qualify as an incentive stock option, or if the box
marked "Nonqualified" is checked, then this Option shall to that extent
constitute a nonqualified stock option.
2. VESTING OF OPTION. The right to exercise this Option shall vest in
installments, and this Option shall be exercisable from time to time in whole or
in part as to any vested installment, as follows:
<TABLE>
<CAPTION>
This Option Shall
On or After: Be Exercisable As To:
------------ ---------------------
<S> <C> <C>
(i) the first anniversary of this Agreement: 25% of the Shares
(ii) the second anniversary of this Agreement: an additional 25% of the Shares
(iii) the third anniversary of this Agreement: an additional 25% of the Shares
(iv) the fourth anniversary of this Agreement: an additional 25% of the Shares
</TABLE>
No additional Shares shall vest after the date of termination of
Optionee's "Continuous Service" (as defined in Section 3 below), but this Option
shall continue to be exercisable in accordance with Section 3 hereof with
respect to that number of shares that have vested as of the date of termination
of Optionee's Continuous Service.
3. TERM OF OPTION. Optionee's right to exercise this Option shall
terminate upon the first to occur of the following:
(a) the expiration of ten (10) years from the date of this
Agreement;
(b) the expiration of three (3) months from the date of
termination of Optionee's Continuous Service if such termination occurs for any
reason other than permanent disability, death or voluntary resignation;
provided, however, that if Optionee dies during such three-month period the
provisions of Section 3(e) below shall apply;
<PAGE> 2
(c) the expiration of one (1) month from the date of termination
of Optionee's Continuous Service if such termination occurs due to voluntary
resignation; provided, however, that if Optionee dies during such one-month
period the provisions of Section 3(e) below shall apply;
(d) the expiration of one (1) year from the date of termination
of Optionee's Continuous Service if such termination is due to permanent
disability of the Optionee (as defined in Section 22(e)(3) of the Code);
(e) the expiration of one (1) year from the date of termination
of Optionee's Continuous Service if such termination is due to Optionee's death
or if death occurs during either the three-month or one-month period following
termination of Optionee's Continuous Service pursuant to Section 3(b) or 3(c)
above, as the case may be; or
(f) upon the consummation of a "Change in Control" (as defined in
Section 2.4 of the Plan), unless otherwise provided pursuant to Section 11
below.
As used herein, the term "Continuous Service" means (i) employment by
either the Company or any parent or subsidiary corporation of the Company, or by
a corporation or a parent or subsidiary of a corporation issuing or assuming a
stock option in a transaction to which Section 424(a) of the Code applies, which
is uninterrupted except for vacations, illness (except for permanent disability,
as defined in Section 22(e)(3) of the Code), or leaves of absence which are
approved in writing by the Company or any of such other employer corporations,
if applicable, (ii) service as a member of the Board of Directors of the Company
until Optionee resigns, is removed from office, or Optionee's term of office
expires and he or she is not reelected, or (iii) so long as Optionee is engaged
as a consultant or service provider to the Company or other corporation referred
to in clause (i) above.
4. EXERCISE OF OPTION. On or after the vesting of any portion of this
Option in accordance with Sections 2 or 11 hereof, and until termination of the
right to exercise this Option in accordance with Section 3 above, the portion of
this Option which has vested may be exercised in whole or in part by the
Optionee (or, after his or her death, by the person designated in Section 5
below) upon delivery of the following to the Company at its principal executive
offices:
(a) a written notice of exercise which identifies this Agreement
and states the number of Shares then being purchased (but no fractional Shares
may be purchased);
(b) a check or cash in the amount of the Exercise Price (or
payment of the Exercise Price in such other form of lawful consideration as the
Administrator may approve from time to time under the provisions of Section 5.3
of the Plan);
(c) a check or cash in the amount reasonably requested by the
Company to satisfy the Company's withholding obligations under federal, state or
other applicable tax laws with respect to the taxable income, if any, recognized
by the Optionee in connection with the exercise of this Option (unless the
Company and Optionee shall have made other arrangements for deductions or
withholding from Optionee's wages, bonus or other compensation payable to
Optionee, or by the withholding of Shares issuable upon exercise of this Option
or the delivery of Shares owned by the Optionee in accordance with Section 10.1
of the Plan, provided such arrangements satisfy the requirements of applicable
tax laws); and
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<PAGE> 3
(d) a letter, if requested by the Company, in such form and
substance as the Company may require, setting forth the investment intent of the
Optionee, or person designated in Section 5 below, as the case may be.
5. DEATH OF OPTIONEE; NO ASSIGNMENT. The rights of the Optionee under
this Agreement may not be assigned or transferred except by will or by the laws
of descent and distribution, and may be exercised during the lifetime of the
Optionee only by such Optionee. Any attempt to sell, pledge, assign,
hypothecate, transfer or dispose of this Option in contravention of this
Agreement or the Plan shall be void and shall have no effect. If the Optionee's
Continuous Service terminates as a result of his or her death, and provided
Optionee's rights hereunder shall have vested pursuant to Section 2 hereof,
Optionee's legal representative, his or her legatee, or the person who acquired
the right to exercise this Option by reason of the death of the Optionee
(individually, a "Successor") shall succeed to the Optionee's rights and
obligations under this Agreement. After the death of the Optionee, only a
Successor may exercise this Option.
6. REPRESENTATIONS AND WARRANTIES OF OPTIONEE.
(a) Optionee represents and warrants that this Option is being
acquired by Optionee for Optionee's personal account, for investment purposes
only, and not with a view to the distribution, resale or other disposition
thereof.
(b) Optionee acknowledges that the Company may issue Shares upon
the exercise of the Option without registering such Shares under the Securities
Act of l933, as amended (the "Securities Act"), on the basis of certain
exemptions from such registration requirement. Accordingly, Optionee agrees that
his or her exercise of the Option may be expressly conditioned upon his or her
delivery to the Company of an investment certificate including such
representations and undertakings as the Company may reasonably require in order
to assure the availability of such exemptions, including a representation that
Optionee is acquiring the Shares for investment and not with a present intention
of selling or otherwise disposing thereof and an agreement by Optionee that the
certificates evidencing the Shares may bear a legend indicating such
non-registration under the Securities Act and the resulting restrictions on
transfer. Optionee acknowledges that, because Shares received upon exercise of
an Option may be unregistered, Optionee may be required to hold the Shares
indefinitely unless they are subsequently registered for resale under the
Securities Act or an exemption from such registration is available.
(c) Optionee acknowledges receipt of a copy of the Plan and
understands that all rights and obligations connected with this Option are set
forth in this Agreement and in the Plan.
7. RIGHT OF FIRST REFUSAL.
(a) The Shares acquired pursuant to the exercise of this Option
may be sold by the Optionee only in compliance with the provisions of this
Section 7, and subject in all cases to compliance with the provisions of Section
6(b) hereof. Prior to any intended sale, Optionee shall first give written
notice (the "Offer Notice") to the Company specifying (i) his or her bona fide
intention to sell or otherwise transfer such Shares, (ii) the name and address
of the proposed purchaser(s), (iii) the number of Shares the Optionee proposes
to sell (the "Offered Shares"), (iv) the price for which he or she proposes to
sell the Offered Shares, and (v) all other material terms and conditions of the
proposed sale.
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<PAGE> 4
(b) Within thirty (30) days after receipt of the Offer Notice,
the Company or its nominee(s) may elect to purchase all or any portion of the
Offered Shares at the price and on the terms and conditions set forth in the
Offer Notice by delivery of written notice (the "Acceptance Notice") to the
Optionee specifying the number of Offered Shares that the Company or its
nominees elect to purchase. Within fifteen (15) days after delivery of the
Acceptance Notice to the Optionee, the Company and/or its nominee(s) shall
deliver to the Optionee payment of the amount of the purchase price of the
Offered Shares to be purchased pursuant to this Section 7, against delivery by
the Optionee of a certificate or certificates representing the Offered Shares to
be purchased, duly endorsed for transfer to the Company or such nominee(s), as
the case may be. Payment shall be made on the same terms as set forth in the
Offer Notice or, at the election of the Company or its nominees(s), by check or
wire transfer of funds. If the Company and/or its nominee(s) do not elect to
purchase all of the Offered Shares, the Optionee shall be entitled to sell the
balance of the Offered Shares to the purchaser(s) named in the Offer Notice at
the price specified in the Offer Notice or at a higher price and on the terms
and conditions set forth in the Offer Notice; provided, however, that such sale
or other transfer must be consummated within 60 days from the date of the Offer
Notice and any proposed sale after such 60-day period may be made only by again
complying with the procedures set forth in this Section 7.
(c) The Optionee may transfer all or any portion of the Shares to
a trust established for the sole benefit of the Optionee and/or his or her
spouse or children without such transfer being subject to the right of first
refusal set forth in this Section 7, provided that the Shares so transferred
shall remain subject to the terms and conditions of this Agreement and no
further transfer of such Shares may be made without complying with the
provisions of this Section 7.
(d) Any Successor of Optionee pursuant to Section 5 hereof, and
any transferee of the Shares pursuant to this Section 7, shall hold the Shares
subject to the terms and conditions of this Agreement and no further transfer of
the Shares may be made without complying with the provisions of this Section 7.
(e) The provisions of this Section 7 shall not apply to a sale of
the Shares to the Company pursuant to Section 8 below.
(f) The rights provided the Company and its nominee(s) under this
Section 7 shall terminate upon the closing of the initial public offering of
shares of the Company's Common Stock pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
Securities Act.
8. COMPANY'S REPURCHASE RIGHT.
(a) The Company shall have the right (but not the obligation) to
repurchase (the "Repurchase Right") any or all of the Shares acquired pursuant
to the exercise of this Option in the event that the Optionee's Continuous
Service (as defined in Section 3 above) should terminate for any reason
whatsoever, including without limitation Optionee's death, disability, voluntary
resignation or termination by the Company with or without cause. Upon exercise
of the Repurchase Right, the Optionee shall be obligated to sell his or her
Shares to the Company, as provided in this Section 8. The Repurchase Right may
be exercised by the Company at any time during the period commencing on the date
of termination of Optionee's Continuous Service and ending sixty (60) days after
the last to occur of the following:
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<PAGE> 5
(i) the termination of Optionee's Continuous Service;
(ii) the expiration of Optionee's right to exercise this
Option pursuant to Section 3 hereof; or
(iii) in the event of Optionee's death, receipt by the
Company of notice of the identity and address of Optionee's Successor (as
defined in Section 5 hereof).
(b) The purchase price for Shares repurchased hereunder (the
"Repurchase Price") shall be the Fair Market Value per share of Common Stock
(determined in accordance with Section 2.11 of the Plan) as of the date of
termination of Optionee's Continuous Service.
(c) Written notice of exercise of the Repurchase Right, stating
the number of Shares to be repurchased and the Repurchase Price per Share, shall
be given by the Company to the Optionee or his or her Successor, as the case may
be, during the period specified in Section 8(a) above.
(d) The Repurchase Price shall be payable, at the option of the
Company, by check or by cancellation of all or a portion of any outstanding
indebtedness of Optionee to the Company, or by any combination thereof. The
Repurchase Price shall be paid without interest within thirty (30) days after
delivery of the notice of exercise of the Repurchase Right, against delivery by
the Optionee or his or her Successor of a certificate or certificates
representing the Shares to be repurchased, duly endorsed for transfer to the
Company.
(e) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of the Shares by the Company shall be subject to
applicable restrictions contained in the applicable state law and in the
Company's and its subsidiaries' debt and equity financing agreements. If any
such restrictions prohibit the repurchase of Shares hereunder that the Company
has otherwise elected to make, the Company may make such repurchases as soon as
it is permitted to do so under such restrictions; provided, however, that,
notwithstanding such restrictions, the Company shall deliver a notice as
provided in paragraph 8(c) above, and shall remain bound by the terms of such
notice until such time as the Shares are actually purchased by the Company
pursuant to such notice.
(f) The rights provided the Company under this Section 8 shall
terminate upon the closing of the initial public offering of shares of the
Company's Common Stock pursuant to a registration statement filed with and
declared effective by the Securities and Exchange Commission under the
Securities Act.
9. RESTRICTIVE LEGENDS.
(a) Optionee hereby acknowledges that federal securities laws and
the securities laws of the state in which he or she resides may require the
placement of certain restrictive legends upon the Shares issued upon exercise of
this Option, and Optionee hereby consents to the placing of any such legends
upon certificates evidencing the Shares as the Company, or its counsel, may deem
necessary or advisable.
(b) In addition, all stock certificates evidencing the Shares
shall be imprinted with a legend substantially as follows:
5
<PAGE> 6
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO CERTAIN RESTRICTIONS ON TRANSFER, REPURCHASE RIGHTS AND A
RIGHT OF FIRST REFUSAL IN FAVOR OF THE CORPORATION AND/OR ITS
NOMINEE(S), AS SET FORTH IN A STOCK OPTION AGREEMENT DATED AS OF
____________, 200__. TRANSFER OF THESE SHARES MAY BE MADE ONLY IN
COMPLIANCE WITH THE PROVISIONS OF SAID AGREEMENT, A COPY OF WHICH
IS ON FILE AT THE PRINCIPAL OFFICE OF SAID CORPORATION. SUCH
TRANSFER RESTRICTIONS, REPURCHASE RIGHTS AND RIGHT OF FIRST
REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES."
10. ADJUSTMENTS UPON CHANGES IN CAPITAL STRUCTURE. In the event that the
outstanding shares of Common Stock of the Company are hereafter increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of a recapitalization, stock split,
combination of shares, reclassification, stock dividend or other change in the
capital structure of the Company, then appropriate adjustment shall be made by
the Administrator to the number of Shares subject to the unexercised portion of
this Option and to the Exercise Price per share, in order to preserve, as nearly
as practical, but not to increase, the benefits of the Optionee under this
Option, in accordance with the provisions of Section 4.2 of the Plan.
11. CHANGE IN CONTROL.
(a) In the event of a Change in Control of the Company, unless
otherwise provided in the following sentence, each Option outstanding under the
Plan shall automatically vest in full so that each such Option shall,
immediately prior to the effective date of the Change in Control, 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 foregoing notwithstanding, 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 Change in Control or (ii) such Option is to be replaced
with a cash incentive program of the successor corporation which preserves the
spread between the exercise price and the per share consideration received by
the stockholders of the Corporation in connection with the Change in Control on
the unvested Option shares 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
Administrator at the time of grant.
(b) Immediately following the consummation of the Change in
Control, all outstanding Options shall terminate and cease to be outstanding,
except to the extent assumed by the successor corporation (or parent thereof).
(c) Each Option which is assumed in connection with a Change in
Control shall be appropriately adjusted, immediately after such Change in
Control, to apply to the number and class of securities which would have been
issuable to the Optionee in consummation of such Change in Control, had the
Option been exercised immediately prior to such Change in Control. 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 Change
in Control and (ii) the exercise price payable
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<PAGE> 7
per share under each outstanding Option, provided the aggregate exercise price
payable for such securities shall remain the same.
(d) The portion of any Incentive Option accelerated in connection
with a Change in Control 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 Nonqualified Option under the
Code.
12. NO EMPLOYMENT CONTRACT CREATED. Neither the granting of this Option
nor the exercise hereof shall be construed as granting to the Optionee any right
with respect to continuance of employment by the Company or any of its
subsidiaries. The right of the Company or any of its subsidiaries to terminate
at will the Optionee's employment at any time (whether by dismissal, discharge
or otherwise), with or without cause, is specifically reserved.
13. RIGHTS AS STOCKHOLDER. The Optionee (or transferee of this option by
will or by the laws of descent and distribution) shall have no rights as a
stockholder with respect to any Shares covered by this Option until the date of
the issuance of a stock certificate or certificates to him or her for such
Shares, notwithstanding the exercise of this Option.
14. "MARKET STAND-OFF" AGREEMENT. Optionee agrees that, if requested by
the Company or the managing underwriter of any proposed public offering of the
Company's securities, Optionee will not sell or otherwise transfer or dispose of
any Shares held by Optionee without the prior written consent of the Company or
such underwriter, as the case may be, during such period of time, not to exceed
180 days following the effective date of the registration statement filed by the
Company with respect to such offering, as the Company or the underwriter may
specify.
15. INTERPRETATION. This Option is granted pursuant to the terms of the
Plan, and shall in all respects be interpreted in accordance therewith. The
Administrator shall interpret and construe this Option and the Plan, and any
action, decision, interpretation or determination made in good faith by the
Administrator shall be final and binding on the Company and the Optionee. As
used in this Agreement, the term "Administrator" shall refer to the committee of
the Board of Directors of the Company appointed to administer the Plan, and if
no such committee has been appointed, the term Administrator shall mean the
Board of Directors.
16. NOTICES. Any notice, demand or request required or permitted to be
given under this Agreement shall be in writing and shall be deemed given when
delivered personally or three (3) days after being deposited in the United
States mail, as certified or registered mail, with postage prepaid, and
addressed, if to the Company, at its principal place of business, attention: the
Chief Financial Officer, and if to the Optionee, at his or her most recent
address as shown in the employment or stock records of the Company.
17. ANNUAL AND OTHER PERIODIC REPORTS. During the term of this
Agreement, the Company will furnish to the Optionee copies of all annual and
other periodic financial and informational reports that the Company distributes
generally to its shareholders.
18. GOVERNING LAW. The validity, construction, interpretation, and
effect of this Option shall be governed by and determined in accordance with the
laws of the State of California.
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<PAGE> 8
19. SEVERABILITY. Should any provision or portion of this Agreement be
held to be unenforceable or invalid for any reason, the remaining provisions and
portions of this Agreement shall be unaffected by such holding.
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall be deemed one instrument.
21. CALIFORNIA CORPORATE SECURITIES LAW. The sale of the shares that are
the subject of this Agreement has not been qualified with the Commissioner of
Corporations of the State of California and the issuance of such shares or the
payment or receipt of any part of the consideration therefor prior to such
qualification is unlawful, unless the sale of such shares is exempt from such
qualification by Section 25100, 25102 or 25105 of the California Corporate
Securities Law of l968, as amended. The rights of all parties to this Agreement
are expressly conditioned upon such qualification being obtained, unless the
sale is so exempt.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
FLASHCOM, INC. OPTIONEE
By:
-------------------------- ----------------------------------------
Its:
------------------------- ----------------------------------------
(Signature)
(Type or print name)
8
<PAGE> 1
FLASHCOM, INC. EXH. 10.3
RESTRICTED STOCK PURCHASE AGREEMENT
This Restricted Stock Purchase Agreement is entered into as of
_______________, _____, by and between FLASHCOM, INC., a Delaware corporation
(the "Company"), and _______________________________________________ (the
"Purchaser") pursuant to the Company's 1999 Incentive Stock Option, Nonqualified
Stock Option and Restricted Stock Purchase Plan.
R E C I T A L S
A. Purchaser is an employee, officer, director, consultant or other
service provider of the Company, and in such capacity is key to the future
success of the Company.
B. The Company desires to issue and the Purchaser desires to purchase
Common Stock of the Company under the Company's 1999 Incentive Stock Option,
Nonqualified Stock Option and Restricted Stock Purchase Plan (the "Plan")
pursuant to the terms and conditions hereinafter set forth.
A G R E E M E N T
1. PURCHASE AND SALE OF SHARES. The Purchaser hereby agrees to purchase
from the Company, and the Company hereby agrees to sell to the Purchaser, shares
of its Common Stock (the "Shares") for a purchase price of $_________ per share
or $___________ in the aggregate (the "Purchase Price"). The Purchaser's rights
to acquire the Shares hereunder are nontransferable other than by will or the
laws of descent and distribution. The Shares shall be duly issued and a
certificate or certificates for the Shares are concurrently herewith being
issued in the name of Purchaser. Purchaser shall thereupon be a stockholder with
respect to all of the Shares represented by such certificate(s) and shall have
all of the rights of a shareholder with respect to all of the Shares, including
the right to vote the Shares and to receive all dividends and other
distributions paid with respect to the Shares. The Purchase Price is payable as
follows:
(a) By delivery of cash or check; or
(b) By delivery of a promissory note payable to the Company,
bearing interest from the date hereof and substantially in the form attached as
Exhibit A; or
(c) By the cancellation of indebtedness of the Company to the
Offeree; or
(d) By the waiver of compensation due or accrued to the Offeree
for services rendered; or
(e) By any combination of the foregoing methods of payment or any
other consideration or method of payment as shall be permitted by applicable
corporate law.
In the event payment of any portion or all of the Purchase Price is to
be made by delivery of a promissory note, Purchaser shall deliver to the Company
a pledge of the Shares or other securities or assets which may be listed in the
Pledge Agreement dated the date hereof and substantially in the form attached as
Exhibit B.
<PAGE> 2
2. STOCK RIGHTS AND BUY-BACK. The Shares shall be subject to the
following restrictions and repurchase rights.
(a) The Shares shall vest and become "Vested Shares" in
accordance with the following vesting schedule:
(i) Except as may otherwise be provided in this Agreement,
prior to the first anniversary of __________ (the "Vesting Commencement
Date"), none of the Shares shall be vested; and
(ii) Following the expiration of such one-year period, the
Shares shall vest on a cumulative basis at the rate of Twenty-Five
Percent (25%) of the aggregate number of the Shares per year on each
successive anniversary of the Vesting Commencement Date until the number
of the Shares shall thereby have become Vested Shares.
Shares which have not yet become vested are herein called "Unvested
Shares." In the event Purchaser's Continuous Service terminates for any reason
whatsoever, including without limitation, Purchaser's death, disability,
voluntary resignation or termination by the Company with or without cause (the
"Termination Date"), all vesting shall cease unless otherwise determined by the
Board of Directors. As used herein, "Continuous Service" shall be defined as (i)
employment by either the Company or any parent or subsidiary corporation of the
Company which is uninterrupted except for vacations, illness (except for
permanent disability, as defined in Section 22(e)(3) of the Code), or leaves of
absence which are approved in writing by the Company or any of such other
employer corporations, if applicable, (ii) service as a member of the Board of
Directors of the Company until Purchaser resigns, is removed from office, or
Purchaser's term of office expires and he or she is not reelected, or (iii) so
long as Purchaser is engaged as a consultant or service provider to the Company
or other corporation referred to in clause (i) above.
(b) The Company shall have the right (but not the obligation) to
repurchase (the "Repurchase Right") all or any part of the Shares in the event
that the Purchaser's Continuous Service (as defined in Section 2(a) above)
terminates. Upon exercise of the Repurchase Right, the Purchaser shall be
obligated to sell his or her Shares to the Company, as provided in this Section
2. In the event the Company does not exercise the Repurchase Right with respect
to all of the Shares, the Company shall nevertheless continue to have the Right
of First Refusal with respect to any remaining Shares as set forth in Section 3
below.
(c) For ninety (90) days after the Termination Date or other
event described in this Section 2, the Company may exercise the Repurchase Right
by giving Purchaser and/or any other person obligated to sell written notice of
the number of Shares which the Company desires to purchase. The Repurchase Price
for the Shares (as determined pursuant to Section 2(e) below) shall be payable,
at the option of the Company, by check or by cancellation of all or a portion of
any outstanding indebtedness of Purchaser to the Company, or by any combination
thereof.
(d) In aid of the repurchase provisions set forth herein,
Purchaser shall, immediately upon receipt of the certificate or certificates
representing the Shares, deposit the certificate or certificates, together with
a stock power or other instrument of transfer appropriately endorsed in blank,
with the Company as escrow holder of the certificate(s). In the event that the
Repurchase Right is not exercised by the Company, the Company shall cause the
certificate or certificates to be delivered into the possession of Purchaser.
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<PAGE> 3
(e) The repurchase price of the Shares (the "Repurchase Price")
shall be determined as follows:
(i) the Repurchase Price for any Vested Shares shall be
equal to the Fair Market Value (determined in accordance with Section
2.11 of the Plan) of such Vested Shares as of the Termination Date; and
(ii) the Repurchase Price for any Unvested Shares shall be
equal to the Purchase Price of such Unvested Shares.
(f) The rights provided the Company with respect to the Vested
Shares under this Section 2 shall terminate upon the closing of the initial
public offering of shares of the Company's Common Stock pursuant to a
registration statement filed with and declared effective by the Securities and
Exchange Commission under the Securities Act (a "Public Offering").
(g) If the Purchaser: (i) files a voluntary petition under any
bankruptcy or insolvency law or a petition for the appointment of a receiver or
makes an assignment for the benefit of creditors; (ii) is subjected
involuntarily to such a petition or assignment or to an attachment or other
legal or equitable interest with respect to the Shares and such involuntary
petition or assignment or attachment is not discharged within sixty (60) days
after its date; or (iii) is required to transfer the Shares by operation of law
or by order or decree of any court, then the Company shall have the option to
exercise the Repurchase Right, whether or not the Continuous Service of the
Purchaser shall then have terminated.
(h) The Company may assign its Repurchase Right under this
Section 2 and its right of first refusal under Section 3 below without the
consent of the Purchaser.
3. RIGHT OF FIRST REFUSAL. The Shares may be sold by the Purchaser only
in compliance with the provisions of this Section 3, and subject in all cases to
compliance with the provisions of Section 7 hereof.
(a) Prior to any intended sale of any or all of the Shares,
Purchaser shall first give written notice (the "Offer Notice") to the Company
specifying (i) his or her bona fide intention to sell or otherwise transfer such
Shares, (ii) the name(s) and address(es) of the proposed purchaser(s), (iii) the
number of Shares the Purchaser proposes to sell (the "Offered Shares"), (iv) the
price for which he or she proposes to sell the Offered Shares, and (v) all other
material terms and conditions of the proposed sale.
(b) Within thirty (30) days after receipt of the Offer Notice,
the Company or its nominee(s) may elect to purchase all or any portion of the
Offered Shares at the price and on the terms and conditions set forth in the
Offer Notice by delivery of written notice (the "Acceptance Notice") to the
Purchaser specifying the number of Offered Shares that the Company or its
nominees elect to purchase. Within fifteen (15) days after delivery of the
Acceptance Notice to the Purchaser, the Company and/or its nominee(s) shall
deliver to the Purchaser by check or wire transfer the amount of the purchase
price of the Offered Shares to be purchased pursuant to this Section 3, against
delivery by the Purchaser of a certificate or certificates representing the
Offered Shares to be purchased, duly endorsed for transfer to the Company or
such nominee(s), as the case may be. If the Company and/or its nominee(s) do not
elect to purchase all of the Offered Shares, the Purchaser shall be entitled to
sell the balance of the Offered Shares to the purchaser(s) named in the Offer
Notice at
3
<PAGE> 4
the price specified in the Offer Notice or at a higher price and on the terms
and conditions set forth in the Offer Notice, provided, however, that such sale
or other transfer must be consummated within sixty (60) days from the date of
the Offer Notice and any proposed sale after such 60-day period may be made only
by again complying with the procedures set forth in this Section 3.
(c) The Purchaser may transfer all or any portion of the Shares
to a trust established for the sole benefit of the Purchaser and/or his or her
spouse or children without such transfer being subject to the right of first
refusal set forth in this Section 3, provided that the Shares so transferred
shall remain subject to the terms and conditions of this Agreement and no
further transfer of such Shares may be made without complying with the
provisions of this Section 3.
(d) Any successor of Purchaser and any transferee of the Shares
pursuant to this Section 3, shall hold the Shares subject to the terms and
conditions of this Agreement and no further transfer of the Shares may be made
without complying with the provisions of this Section 3.
(e) The rights provided the Company and its nominee(s) under this
Section 3 shall terminate upon the consummation of a Public Offering as defined
in Section 2(f) above. All Shares of the Purchaser acquired under this Agreement
shall continue to be subject to all of the applicable restrictions under Section
2 above prior to or following any Public Offering.
4. CHANGE IN CONTROL. In the event of a Change in Control of the
Company, all outstanding repurchase rights with respect to the Shares shall
terminate automatically, and the Shares 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 Change in Control, (ii) such repurchase rights are exercised and replaced
with a cash incentive program of the successor corporation (or parent thereof)
which preserves the spread between the purchase price and the per share
consideration received by the stockholders of the Corporation in connection with
the Change in Control and provides for the subsequent payout of the spread in
accordance with the same vesting schedule applicable to the shares subject to
the repurchase rights, or (iii)such accelerated vesting is precluded by other
limitations imposed by the Administrator at the time the repurchase right is
issued. Immediately following the consummation of the Change in Control, all
outstanding Rights to Purchase shall terminate and cease to be outstanding,
except to the extent assumed by the successor corporation (or parent thereof).
5. RECAPITALIZATION. In the event that, as the result of a stock split
or stock dividend or combination of shares or any other change, or exchange for
other securities, by reclassification, or recapitalization of the Shares,
Purchaser shall be entitled to new or additional or different shares of stock or
securities, the certificate or certificates for, or other evidences of, such new
or additional or different shares or securities shall be imprinted with the
legend provided in Section 6, and shall be deposited with the Company as escrow
holder under the terms and conditions provided in Section 2(d) herein, together
with a stock power or other instrument or transfer appropriately endorsed. In
such event, any and all new, substituted or additional securities or other
property (other than cash) to which the Purchaser is entitled by reason of his
ownership of the Shares shall be immediately subject to the Repurchase Right and
Right of First Refusal and be included in the word "Shares" for all purposes of
the Repurchase Right and Right of First Refusal with the same force and effect
as the Shares subject to the Repurchase Right and the Right of First Refusal
under the terms of Sections 2 and 3. While the total Repurchase Price shall
remain the same after each such event, the per share price shall be
appropriately adjusted. Shares acquired as provided in this Section 5 shall be
deemed to have been acquired at the time of acquisition of the Shares on which
such Shares were distributed.
4
<PAGE> 5
6. RESTRICTIVE LEGENDS. All certificates representing the Shares subject
to the provisions of this Agreement shall, in addition to any legend required to
be placed thereon by federal or state securities laws, have endorsed thereon the
following legend:
"ANY DISPOSITION OF ANY INTEREST IN THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS, AND THE SECURITIES REPRESENTED
BY THIS CERTIFICATE ARE SUBJECT TO A REPURCHASE RIGHT AND A RIGHT OF
FIRST REFUSAL CONTAINED IN A CERTAIN AGREEMENT BETWEEN THE RECORD HOLDER
AND THE CORPORATION, A COPY OF WHICH WILL BE MAILED TO ANY HOLDER OF
THIS CERTIFICATE UPON WRITTEN REQUEST TO THE SECRETARY OF THE
CORPORATION."
7. INVESTMENT REPRESENTATIONS. The Purchaser acknowledges that he is
aware that the Shares to be issued to him by the Company pursuant to this
Agreement have not been registered under the Securities Act of 1933, as amended.
In this connection, the Purchaser warrants and represents to the Company as
follows:
(a) The Purchaser is purchasing the Shares solely for the
Purchaser's own account for investment and not with a view to or for sale or
distribution of the Shares or any portion thereof and not with any present
intention of selling, offering to sell or otherwise disposing of or distributing
the Shares or any portion thereof. The Purchaser also represents that the entire
legal and beneficial interest of the Shares the Purchaser is purchasing is being
purchased for, and will be held for the account of, the Purchaser only and
neither in whole nor in part for any other person.
(b) The Purchaser has heretofore discussed the Company and its
plans, operations and financial condition with its officers and that the
Purchaser has heretofore received all such information as the Purchaser deems
necessary and appropriate to enable the Purchaser to evaluate the financial risk
inherent in making an investment in the Shares of the Company and the Purchaser
further represents and warrants that the Purchaser has received satisfactory and
complete information concerning the business and financial condition of the
Company in response to all inquiries in respect thereof.
(c) The Purchaser realizes that the purchase of the Shares is a
highly speculative investment and represents that the Purchaser is able, without
impairing the Purchaser's financial condition, to hold the Shares for an
indefinite period of time and to suffer a complete loss on the investment.
(d) The Company hereby discloses to the Purchaser and the
Purchaser hereby acknowledges that:
(i) the Shares have not been registered under the
Securities Act of 1933, as amended (the "Act"), and such Shares must be
held indefinitely unless a transfer of them is subsequently registered
under the Act or an exemption from such registration is available;
(ii) the share certificate representing the Shares will be
stamped with the legends restricting transfer specified in this
Agreement between the Company and the Purchaser; and
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<PAGE> 6
(iii) the Company will make a notation in its records of
the aforementioned restrictions on transfer and legends.
(e) The Purchaser understands that the Shares are restricted
securities within the meaning of Rule 144 promulgated under the Act; that the
exemption from registration under Rule 144 will not be available in any event
for at least one (1) year from the date of sale of the Shares to the Purchaser,
and even then will not be available unless (i) a public trading market then
exists for the Shares of the Company, (ii) adequate current public information
concerning the Company is then available to the public, (iii) the Purchaser has
been the beneficial owner and the Purchaser has paid the full Purchase Price for
the Shares at least one (1) year prior to the sale, and (iv) other terms and
conditions of Rule 144 are complied with; and that any sale of the Shares may be
made by it only in limited amounts in accordance with such terms and conditions,
as amended from time to time.
(f) Without in any way limiting any of the other provisions of
this Agreement or its representations set forth above, the Purchaser further
agrees that the Purchaser shall in no event make any disposition of all or any
portion of the Shares which the Purchaser is purchasing unless and until:
(i) there is then in effect a Registration Statement under
the Act covering such proposed disposition and such disposition is made
in accordance with said Registration Statement; or
(ii) (A) the Purchaser shall have notified the Company of
the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed
disposition, (B) the Purchaser shall have furnished the Company with an
opinion of counsel to the effect that such disposition will not require
registration of such shares under the Act, and (C) such opinion of
counsel shall have been concurred in by counsel for the Company and the
Company shall have advised the Purchaser of such concurrence.
8. UNPERMITTED TRANSFERS. The Company shall not be required (a) to
transfer on its books any Shares of the Company which shall have been sold or
transferred in violation of any of the provisions set forth in this Agreement or
(b) to treat as owner of such shares or to accord the right to vote as such
owner or to pay dividends to any transferee to whom such shares shall have been
so transferred. In the event of a sale of Shares by the Purchaser pursuant to
Section 3, the Purchaser shall furnish to the Company proof that such sale was
made in compliance with the provisions of Section 3 as to price and general
terms of such sale.
9. TAX ELECTIONS. Purchaser acknowledges that Purchaser has considered
the advisability of all tax elections in connection with the purchase of the
Shares hereunder, including the making of an election under Section 83(b) under
the Internal Revenue Code of 1986, as amended, and that the Company has no
responsibility for the making of any such election.
10. "MARKET STAND-OFF" AGREEMENT. Purchaser agrees that, if requested by
the Company or the managing underwriter of any proposed Public Offering of the
Company's securities, Purchaser will not sell or otherwise transfer or dispose
of any Shares held by Purchaser without the prior written consent of the Company
or such underwriter, as the case may be, during such period of time, not to
exceed one hundred eighty (180) days following the effective date of the
registration
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<PAGE> 7
statement filed by the Company with respect to such Public Offering, as the
Company or the underwriter may specify.
11. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties pertaining to its subject matter and supersedes all
contemporaneous written or oral agreements and understandings of the parties,
either express or implied. The parties agree to execute such further instruments
and to take such further action as may reasonably be necessary to carry out the
intent of this Agreement.
12. NO EMPLOYMENT CONTRACT CREATED. Nothing in this Agreement shall
affect in any manner whatsoever the right or power of the Company, or a parent
or subsidiary of the Company, to terminate the Purchaser's employment, for any
reason, with or without cause.
13. NOTICES. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by certified mail with postage and
fees prepaid, addressed to the other party at the address hereinafter shown
below his or its signature or at such other address as such party may designate
by ten days' advance written notice to the other party.
14. ASSIGNMENT. Purchaser may not transfer or assign his or her benefits
or rights or delegate his or her duties or obligations under this Agreement
without the prior written consent of the Company.
15. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
the successors and assigns of the Company and be binding upon the Purchaser and
his or her heirs, executors, administrators, successors and assigns.
16. GOVERNING LAW, VENUE AND JURISDICTION. This Agreement shall be
construed in accordance with the laws of the State of California without
reference to choice of law principles, as to all matters, including, but not
limited to, matters of validity, construction, effect or performance. The
exclusive venue and jurisdiction for resolution of all matters arising out of or
relating to this Agreement shall be the courts located in San Mateo County,
California, or, if applicable, the Federal Courts in the Northern District of
California.
17. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
18. SEVERABILITY. In the event any court, administrative agency or other
governmental entity with appropriate jurisdiction and authority determines that
any term or part of this Agreement is invalid or unenforceable, the remainder of
this Agreement shall remain in full force and effect.
19. AMENDMENT. This Agreement may be amended only by an instrument in
writing executed by the parties hereto.
20. All waivers hereunder must be made in writing, and failure of any
party at any time to require another party's performance of any obligation under
this Agreement shall not affect, limit or waive a party's right at any time to
require strict performance of that obligation thereafter. Any waiver of any
breach of any provision of this Agreement shall not be construed in any way as a
7
<PAGE> 8
waiver of any continuing or succeeding breach of such provision or waiver or
modification of the provision.
21. RECEIPT OF PLAN. The Purchaser acknowledges that the Purchaser has
been furnished with a copy of the Company's 1999 Incentive Stock Option,
Nonqualified Stock Option and Restricted Stock Purchase Plan.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
FLASHCOM, INC. PURCHASER
By:
----------------------------- --------------------------------
Its:
----------------------------
Address: Address:
8
<PAGE> 9
CONSENT OF SPOUSE
I acknowledge that I have read the foregoing Agreement and that I know
its contents. I am aware that by its provisions, my spouse agrees, among other
things, to a right of first refusal, to the granting of rights to purchase and
to the imposition of certain restrictions on the transfer of the shares of
FLASHCOM, INC., a Delaware corporation (the "Company"), including my community
interest therein (if any), which rights and restrictions may survive my spouse's
death. I hereby consent to such rights and restrictions and approve of the
provisions of the Agreement.
I further agree that in the event of a dissolution of the marriage
between myself and my spouse, in connection with which I secure or am awarded
shares of the common stock of the Company, or any interest therein through
property settlement agreement or otherwise, I shall receive and hold said shares
subject to all the provisions and restrictions contained in the foregoing
Agreement, including any option of the Company or its nominee to purchase such
shares or interest from me.
I also acknowledge that I have been advised to obtain independent
counsel to represent my interests with respect to this Agreement but that I have
declined to do so and I hereby expressly waive my right to such independent
counsel.
Date: , 200__
----------------- ---------------------------------------
Spouse of
-----------------------------
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EXHIBIT A
PROMISSORY NOTE
(____%* Interest, Due _______)
$ -----------------, -----
---------------------- Westminster, California
For value received, the undersigned promises to pay to FLASHCOM, INC.
(the "Company"), the sum of ____________________________________ Dollars
($_____) in full by or before the ________ anniversary date of the date hereof,
together with interest thereon as hereinafter provided.
The undersigned shall have the right to prepay said principal amount at
any time in whole or in part without penalty. Simple annual interest at the rate
of ____________ percent (_____%) per annum on unpaid principal shall be paid
annually on each anniversary of the date hereof and upon each prepayment of
principal, if any.
The entire outstanding principal and interest shall be due and payable
if any one or more of the following events shall have occurred:
(a) The making by the undersigned of any assignment for the
benefit of creditors or the filing by or against the undersigned of any petition
in bankruptcy if such proceeding not be discharged within ninety (90) days of
any such making or filing.
(b) The occurrence of any termination of Continuous Service as
set forth in the Restricted Stock Purchase Agreement of even date herewith
between the undersigned and the Company.
If any installment of principal and/or interest is not paid when due,
the holder hereof may, at its option, declare the entire amount of this note
immediately due and payable.
All payments hereon shall be credited first to accrued but unpaid
interest, and the balance, if any, shall be credited to principal.
If legal action is instituted for the collection of this note, the
undersigned promises to pay such sum as the Court may adjudge reasonable as
attorneys' fees.
This note is given pursuant to that certain Restricted Stock Purchase
Agreement of even date herewith, between the Company and the undersigned and is
subject to all of the terms, rights and remedies set forth therein.
- --------
* A fixed rate of interest is to be determined from time to time by action
of the Board of Directors in accordance with prevailing rates and the Internal
Revenue Service prescribed interest rules.
<PAGE> 11
This note is secured by a Pledge Agreement of even date herewith between
the Company and the undersigned.
2
<PAGE> 12
EXHIBIT B
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT ("Agreement") is executed as of this _____ day of
____________, 2000, between FLASHCOM, INC., a Delaware corporation (the
"Company"), and __________________________________________ ("Purchaser").
For the considerations and undertakings set forth herein, the parties do
hereby agree as follows:
1. To secure payment to the Company of a promissory note ("Note") in the
face amount of _______________________ Dollars ($__________), and extensions or
renewals thereof, which was executed concurrently with the execution of this
Pledge Agreement pursuant to a Restricted Stock Purchase Agreement of even date
herewith between the Company and Purchaser, Purchaser hereby assigns and grants
to the Company a security interest in ___________________ (______) shares
("Shares") of the Common Stock of the Company acquired in connection with the
Restricted Stock Purchase Agreement, together with securities or other
collateral (if any) other than such Shares, all described as follows:
Issuer Certificate No. of Shares Registered Owner
------ ----------- ------------- ----------------
Purchaser does hereby deposit with the Company, as pledge holder, such
certificates, together with duly executed stock transfer powers.
2. Subject to any obligations of Purchaser under the Restricted Stock
Purchase Agreement, the Company agrees that within a reasonable time after all
or any portion of the Note is paid by Purchaser, the Company shall release and
deliver to Purchaser the number of Shares held hereunder for which such payment
was received. The Company, in its discretion, may release portions of the Shares
upon periodic principal payments or deposit of other or additional security
under the Note. All Shares released and delivered to Purchaser shall be free and
clear of the restrictions of this Pledge Agreement.
3. Unless and until Purchaser defaults in his performance under the
terms of the Note, the terms of this Pledge Agreement and/or the terms of the
Restricted Stock Purchase Agreement, the Shares held by the Company at any time
under this Pledge Agreement shall remain registered in the name of Purchaser on
the records of the Company, and Purchaser may vote the Shares on all corporate
questions (if the same shall be entitled to voting rights) and shall be entitled
to receive all dividends and other amounts accruing as a result of his ownership
of the Shares.
4. In the event the Purchaser defaults in the performance of any of the
terms of the Note, this Pledge Agreement or the Restricted Stock Purchase
Agreement, the Company may exercise any and all rights which it may have under
the California Uniform Commercial Code or any other applicable statute, case,
ruling regulation or law; subject, however, to all permits, orders, consents,
rules and regulations of the California Commissioner of Corporations and the
Securities and Exchange Commission and the Federal Reserve Board relating
hereto, to which Purchaser agrees to be bound.
<PAGE> 13
5. If during the term of this Pledge Agreement the Company should become
a party to any merger, consolidation or other reorganization, this Pledge
Agreement shall be adjusted so as to apply to the securities to which a holder
of the Shares subject to this Pledge Agreement would have been entitled upon
such merger, consolidation or reorganization; and, if during the term of this
Pledge Agreement the Company shall be dissolved or its existence otherwise
terminated, then that portion of the assets and consideration to which a holder
of the Shares subject to this Pledge Agreement would have been entitled in such
transaction shall be the subject matter of this Pledge Agreement for the
remainder of its term. This Section 5 shall in no way limit the right of the
Company to repurchase shares under the Restricted Stock Purchase Agreement.
6. This Pledge Agreement shall inure to the benefit of and be binding
upon the heirs, executors and administrators of the parties hereto.
7. The rights, powers and remedies given to the Company by this
Agreement shall be in addition to all rights, powers and remedies given to the
Company under the Restricted Stock Purchase Agreement or any statute or rule of
law. Any forbearance or failure or delay by the Company in exercising any right,
power or remedy hereunder shall not be deemed to be a waiver of such right,
power or remedy, nor shall any single or partial exercise of any right, power or
remedy preclude the further exercise thereof.
8. The Board of Directors may demand and receive payment or additional
security if for any reason the collateral hereunder is insufficient to meet
minimum requirements established under federal or state securities or banking
regulations or as may be necessary to bring the Note and the security into
compliance with any such law or regulations. Any failure of Purchaser to meet
any such demand shall be deemed a default under this Pledge Agreement and under
the note secured hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
FLASHCOM, INC. PURCHASER
By:
------------------------------- -----------------------------
Its:
------------------------------
4
<PAGE> 1
FLASHCOM, INC. EXH. 10.4
EMPLOYEE STOCK PURCHASE PLAN
This EMPLOYEE STOCK PURCHASE PLAN (the "Plan") is hereby established by
FLASHCOM, INC., a Delaware corporation (the "Company") effective [June] __, 2000
(the "Effective Date").
ARTICLE I
PURPOSE OF THE PLAN
1.1 PURPOSE. The Company has determined that it is in its best interest
to provide incentives to attract and retain employees and to increase employee
morale by providing a program through which employees of the Company, and of
such of the Company's subsidiaries as the Company's Board of Directors (the
"Board of Directors") may from time to time designate (each a "Designated
Subsidiary", and collectively, "Designated Subsidiaries"), may acquire a
proprietary interest in the Company through the purchase of shares of the common
stock of the Company ("Company Stock"). The Plan is hereby established by the
Company to permit employees to subscribe for and purchase directly from the
Company shares of the Company Stock at a discount from the market price, and to
pay the purchase price in installments by payroll deductions. The Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code of 1986, as amended from time to time (the "Code").
The provisions of the Plan are to be construed in a matter consistent with the
requirements of Section 423 of the Code. The Plan is not intended to be an
employee benefit plan under the Employee Retirement Income Security Act of 1974,
and therefore is not required to comply with that Act.
ARTICLE II
DEFINITIONS
2.1 COMPENSATION. "Compensation" means the amount indicated on the Form
W-2, including any elective deferrals with respect to a plan of the Company
qualified under either Section 125 or Section 401(a) of the Code, issued to an
employee by the Company.
2.2 EMPLOYEE. "Employee" means each person currently employed by the
Company or any of its Designated Subsidiaries, any portion of whose income is
subject to withholding of income tax or for whom Social Security retirement
contributions are made by the Company or any Designated Subsidiary.
2.3 EFFECTIVE DATE. "Effective Date" means the effective date of the
Company's first Registration Statement filed with the Securities and Exchange
Commission registering Company Stock.
2.4 5% OWNER. "5% Owner" means an Employee who, immediately after the
grant of any rights under the Plan, would own Company Stock or hold outstanding
options to purchase Company Stock possessing 5% or more of the total combined
voting power of all classes of stock of
1
<PAGE> 2
the Company. For purposes of this Section, the ownership attribution rules of
Code Section 425(d) shall apply.
2.5 GRANT DATE. "Grant Date" means the first day of each Offering Period
(July 1 and January 1) under the Plan. However, for the first Offering Period,
the Grant Date shall be the Effective Date.
2.6 PARTICIPANT. "Participant" means an Employee who has satisfied the
eligibility requirements of Section 3.1 and has become a participant in the Plan
in accordance with Section 3.2.
2.7 PLAN YEAR. "Plan Year" means the twelve consecutive month period
ending on the last day of October.
2.8 OFFERING PERIOD. "Offering Period" means the six-month periods from
January 1 through June 30 and July 1 through December 31 of each Plan Year.
However, the first Offering Period shall commence on the Effective Date and end
December 31, 2000 regardless of whether such initial Offering Period is more or
less than six months.
2.9 PURCHASE DATE. "Purchase Date" means the last day of each Offering
Period (June 30 or December 31).
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY. Each Employee of the Company, or any Designated
Subsidiary, who, on the Grant Date, is customarily engaged on a
regularly-scheduled basis of more than twenty (20) hours per week and who has
been employed for at least ninety (90) days (or, for the initial Offering Period
only, such Employees who are employed on the Effective Date) in the rendition of
personal services to the Company, or any Designated Subsidiary, may become a
Participant in the Plan on the Grant Date coincident with or next following his
satisfaction of such requirements of employment with the Company or any
Designated Subsidiary.
3.2 PARTICIPATION. An Employee who has satisfied the eligibility
requirements of Section 3.1 may become a Participant in the Plan upon his
completion and delivery to the Human Resources Department of the Company of a
stock purchase agreement provided by the Company (the "Stock Purchase
Agreement") authorizing payroll deductions. Payroll deductions for a Participant
shall commence on the Grant Date coincident with or next following the filing of
the Participant's Stock Purchase Agreement and shall remain in effect until
revoked by the Participant by the filing of a notice of withdrawal from the Plan
under Article VIII or by the filing of a new Stock Purchase Agreement providing
for a change in the Participant's payroll deduction rate under Section 5.2.
2
<PAGE> 3
3.3 SPECIAL RULES. Under no circumstances shall:
(a) A 5% Owner be granted a right to purchase Company Stock under
the Plan;
(b) A Participant be entitled to purchase Company Stock under the
Plan which, when aggregated with all other employee stock purchase plans of the
Company, exceed an amount equal to the Aggregate Maximum. "Aggregate Maximum"
means an amount equal to $_____ worth of Company Stock (determined using the
fair market value of such Company Stock at each applicable Grant Date) during
each calendar year; or
(c) The number of shares of Company Stock purchasable by a
Participant on any Purchase Date shall not exceed ________ shares, subject to
periodic adjustments under Section 10.4.
ARTICLE IV
OFFERING PERIODS
4.1 OFFERING PERIODS. The initial grant of the right to purchase Company
Stock under the Plan shall occur on the Effective Date and terminate on December
31, 2000. Thereafter, the Plan shall provide for Offering Periods commencing on
each Grant Date and terminating on the next following Purchase Date.
ARTICLE V
PAYROLL DEDUCTIONS
5.1 PARTICIPANT ELECTION. Upon completion of the Stock Purchase
Agreement, each Participant shall designate the amount of payroll deductions to
be made from his or her paycheck to purchase Company Stock under the Plan. The
amount of payroll deductions shall be designated in whole percentages of
Compensation, not to exceed 20%. The amount so designated upon the Stock
Purchase Agreement shall be effective as of the next Grant Date and shall
continue until terminated or altered in accordance with Section 5.2 below.
5.2 CHANGES IN ELECTION. A Participant may terminate participation in
the Plan at any time prior to the close of an Offering Period as provided in
Article VIII. A Participant may decrease the rate of payroll deductions once
during each Offering Period by completing and delivering to the Human Resources
Department of the Company a new Stock Purchase Agreement setting forth the
desired change. A Participant may also terminate payroll deductions and have
accumulated deductions for the Offering Period applied to the purchase of
Company Stock as of the next Purchase Date by completing and delivering to the
Human Resources Department a new Stock Purchase Agreement setting forth the
desired change. Any change under this Section shall become effective on the next
payroll period (to the extent practical under the Company's payroll practices)
following the delivery of the new Stock Purchase Agreement.
5.3 PARTICIPANT ACCOUNTS. The Company shall establish and maintain a
separate account ("Account") for each Participant. The amount of each
Participant's payroll deductions shall be credited to his Account. No interest
will be paid or allowed on amounts credited to a Participant's Account. All
payroll deductions received by the Company under the Plan are general corporate
3
<PAGE> 4
assets of the Company and may be used by the Company for any corporate purpose.
The Company is not obligated to segregate such payroll deductions.
ARTICLE VI
GRANT OF PURCHASE RIGHTS
6.1 RIGHT TO PURCHASE SHARES. On each Grant Date, each Participant shall
be granted a right to purchase at the price determined under Section 6.2 that
number of shares and partial shares of Company Stock that can be purchased or
issued by the Company based upon that price with the amounts held in his
Account, subject to the limits set forth in Section 3.3. In the event that there
are amounts held in a Participant's Account that are not used to purchase
Company Stock, such amounts shall remain in the Participant's Account and shall
be eligible to purchase Company Stock in any subsequent Offering Period.
6.2 PURCHASE PRICE. The purchase price for any Offering Period shall be
the lesser of:
(a) 85% of the Fair Market Value of Company Stock on the Grant
Date; or
(b) 85% of the Fair Market Value of Company Stock on the Purchase
Date.
6.3 FAIR MARKET VALUE. "Fair Market Value" means for the initial Grant
Date (which is the Effective Date), the price per share at which the Common
Stock is to be sold to the public in the initial public offering of the Common
Stock. For any subsequent date thereafter, "Fair Market Value" shall mean the
value of one share of Company Stock, determined as follows:
(a) If the Company Stock is then listed or admitted to trading on
the Nasdaq National Market System or a stock exchange which reports closing sale
prices, the Fair Market Value shall be the closing sale price on the date of
valuation on the Nasdaq National Market System or principal stock exchange on
which the Company Stock is then listed or admitted to trading, or, if no closing
sale price is quoted or no sale takes place on such day, then the Fair Market
Value shall be the closing sale price of the Company Stock on the Nasdaq
National Market System or such exchange on the next preceding day on which a
sale occurred.
(b) If the Company Stock is not then listed or admitted to
trading on the Nasdaq National Market System or a stock exchange which reports
closing sale prices, the Fair Market Value shall be the average of the closing
bid and asked prices of the Company Stock in the over-the-counter market on the
date of valuation.
(c) If neither (a) nor (b) is applicable as of the date of
valuation, then the Fair Market Value shall be determined by the Administrator
in good faith using any reasonable method of valuation, which determination
shall be conclusive and binding on all interested parties.
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<PAGE> 5
ARTICLE VII
PURCHASE OF STOCK
7.1 PURCHASE OF COMPANY STOCK. Absent an election by the Participant to
terminate and have his or her Account returned, on each Purchase Date, the Plan
shall purchase on behalf of each Participant the maximum number of whole shares
of Company Stock at the purchase price determined under Section 6.2 above as can
be purchased with the amounts held in each Participant's Account. In the event
that there are amounts held in a Participant's Account that are not used to
purchase Company Stock, all such amounts shall be held in the Participant's
Account and carried forward to the next Offering Period.
7.2 DELIVERY OF COMPANY STOCK.
(a) Company Stock acquired under the Plan may either be issued
directly to Participants or may be issued to a contract administrator
("Administrator") engaged by the Company to administer the Plan under Article
IX. If the Company Stock is issued in the name of the Administrator, all Company
Stock so issued ("Plan Held Stock") shall be held in the name of the
Administrator for the benefit of the Plan. The Administrator shall maintain
accounts for the benefit of the Participants which shall reflect each
Participant's interest in the Plan Held Stock. Such accounts shall reflect the
number of whole and partial shares of Company Stock that are being held by the
Administrator for the benefit of each Participant.
(b) Any Participant may elect to have the Company Stock purchased
under the Plan from his or her Account be issued directly to the Participant.
Any election under this paragraph shall be on the forms provided by the Company
and shall be issued in accordance with paragraph (c) below.
(c) In the event that Company Stock under the Plan is issued
directly to a Participant, the Company will deliver to each Participant a stock
certificate or certificates issued in his name for the number of shares of
Company Stock purchased as soon as practicable after the Purchase Date. Where
Company Stock is issued under this paragraph, only full shares of stock will be
issued to a Participant. The time of issuance and delivery of shares may be
postponed for such period as may be necessary to comply with the registration
requirements under the Securities Act of 1933, as amended, the listing
requirements of any securities exchange on which the Company Stock may then be
listed, or the requirements under other laws or regulations applicable to the
issuance or sale of such shares.
ARTICLE VIII
WITHDRAWAL
8.1 IN SERVICE WITHDRAWALS. At any time prior to the Purchase Date of an
Offering Period, any Participant may withdraw the amounts held in his Account by
executing and delivering to the Human Resources Department for the Company
written notice of withdrawal on the form provided by the Company. In such a
case, the entire balance of the Participant's Account shall be paid to the
Participant, without interest, as soon as is practicable. Upon such
notification, the Participant shall cease to participate in the Plan for the
remainder of the Offering Period in which the notice is given. Any Employee who
has withdrawn under this Section shall be excluded from participation in the
Plan for the remainder of the Offering Period, but may then be reinstated as a
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<PAGE> 6
participant for a subsequent Offering Period by executing and delivering a new
Stock Purchase Agreement to the Human Resources Department of the Company.
8.2 TERMINATION OF EMPLOYMENT.
(a) In the event that a Participant's employment with the Company
terminates for any reason, the Participant shall cease to participate in the
Plan on the date of termination. As soon as is practical following the date of
termination, the entire balance of the Participant's Account shall be paid to
the Participant or his beneficiary, without interest.
(b) A Participant may file a written designation of a beneficiary
who is to receive any shares of Company Stock purchased under the Plan or any
cash from the Participant's Account in the event of his or her death subsequent
to a Purchase Date, but prior to delivery of such shares and cash. In addition,
a Participant may file a written designation of a beneficiary who is to receive
any cash from the Participant's Account under the Plan in the event of his death
prior to a Purchase Date under paragraph (a) above.
(c) Any beneficiary designation under paragraph (b) above may be
changed by the Participant at any time by written notice. In the event of the
death of a Participant, the Committee may rely upon the most recent beneficiary
designation it has on file as being the appropriate beneficiary. In the event of
the death of a Participant where no valid beneficiary designation exists or the
beneficiary has predeceased the Participant, the Committee shall deliver any
cash or shares of Company Stock to the executor or administrator of the estate
of the Participant, or if no such executor or administrator has been appointed
to the knowledge of the Committee, the Committee, in its sole discretion, may
deliver such shares of Company Stock or cash to the spouse or any one or more
dependents or relatives of the Participant, or if no spouse, dependent or
relative is known to the Committee, then to such other person as the Committee
may designate.
ARTICLE IX
PLAN ADMINISTRATION
9.1 PLAN ADMINISTRATION.
(a) Authority to control and manage the operation and
administration of the Plan shall be vested in the Board of Directors (the
"Board") for the Company, or a committee ("Committee") thereof. The Board or
Committee shall have all powers necessary to supervise the administration of the
Plan and control its operations.
(b) In addition to any powers and authority conferred on the
Board or Committee elsewhere in the Plan or by law, the Board or the Committee
shall have the following powers and authority:
(i) To designate agents to carry out responsibilities
relating to the Plan;
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<PAGE> 7
(ii) To administer, interpret, construe and apply this
Plan and to answer all questions which may arise or which may be raised under
this Plan by a Participant, his beneficiary or any other person whatsoever;
(iii) To establish rules and procedures from time to time
for the conduct of its business and for the administration and effectuation of
its responsibilities under the Plan; and
(iv) To perform or cause to be performed such further acts
as it may deem to be necessary, appropriate, or convenient for the operation of
the Plan.
(c) Any action taken in good faith by the Board or Committee in
the exercise of authority conferred upon it by this Plan shall be conclusive and
binding upon a Participant and his beneficiaries. All discretionary powers
conferred upon the Board shall be absolute.
9.2 LIMITATION ON LIABILITY. No Employee of the Company nor member of
the Board or Committee shall be subject to any liability with respect to his
duties under the Plan unless the person acts fraudulently or in bad faith. To
the extent permitted by law, the Company shall indemnify each member of the
Board or Committee, and any other Employee of the Company with duties under the
Plan who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed proceeding, whether civil, criminal,
administrative, or investigative, by reason of the person's conduct in the
performance of his duties under the Plan.
ARTICLE X
COMPANY STOCK
10.1 LIMITATIONS ON PURCHASE OF SHARES. The maximum number of shares of
Company Stock that shall be made available for sale under the Plan shall be one
million five hundred thousand (1,500,000) shares, subject to adjustment under
Section 10.4 below. The shares of Company Stock to be sold to Participants under
the Plan will be issued by the Company. If the total number of shares of Company
Stock that would otherwise be issuable pursuant to rights granted pursuant to
Section 6.1 of the Plan at the Purchase Date exceeds the number of shares then
available under the Plan, the Company shall make a pro rata allocation of the
shares remaining available in as uniform and equitable manner as is practicable.
In such event, the Company shall give written notice of such reduction of the
number of shares to each participant affected thereby and any unused payroll
deductions shall be returned to such participant if necessary.
10.2 VOTING COMPANY STOCK. The Participant will have no interest or
voting right in shares to be purchased under Section 6.1 of the Plan until such
shares have been purchased.
10.3 REGISTRATION OF COMPANY STOCK. Shares to be delivered to a
Participant under the Plan will be registered in the name of the Participant
unless designated otherwise by the Participant.
10.4 CHANGES IN CAPITALIZATION OF THE COMPANY. Subject to any required
action by the stockholders of the Company, the number of shares of Company Stock
covered by each right under the Plan which has not yet been exercised and the
number of shares of Company Stock which have been authorized for issuance under
the Plan but have not yet been placed under rights or which have been returned
to the Plan upon the cancellation of a right, as well as the Purchase Price per
share of Company Stock covered by each right under the Plan which has not yet
been exercised, shall be
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<PAGE> 8
proportionately adjusted for any increase or decrease in the number of issued
shares of Company Stock resulting from a stock split, stock dividend, spin-off,
reorganization, recapitalization, merger, consolidation, exchange of shares or
the like. Such adjustment shall be made by the Board of Directors for the
Company, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Company Stock subject to any right
granted hereunder.
10.5 MERGER OF COMPANY. In the event that the Company at any time
proposes to merge into, consolidate with or enter into any other reorganization
pursuant to which the Company is not the surviving entity (including the sale of
substantially all of its assets or a "reverse" merger in which the Company is
the surviving entity), the Plan shall terminate, unless provision is made in
writing in connection with such transaction for the continuance of the Plan and
for the assumption of rights theretofore granted, or the substitution for such
rights of new rights covering the shares of a successor corporation, with
appropriate adjustments as to number and kind of shares and prices, in which
event the Plan and the rights theretofore granted or the new rights substituted
therefor, shall continue in the manner and under the terms so provided. If such
provision is not made in such transaction for the continuance of the Plan and
the assumption of rights theretofore granted or the substitution for such rights
of new rights covering the shares of a successor corporation, then the Board of
Directors or its committee shall cause written notice of the proposed
transaction to be given to the persons holding rights not less than 10 days
prior to the anticipated effective date of the proposed transaction, and,
concurrent with the effective date of the proposed transaction, such rights
shall be exercised automatically in accordance with Section 7.1 as if such
effective date were a Purchase Date of the applicable Offering Period unless a
Participant withdraws from the Plan as provided in Section 8.1.
ARTICLE XI
MISCELLANEOUS MATTERS
11.1 AMENDMENT AND TERMINATION. The Plan shall terminate on January 1,
20__. Since future conditions affecting the Company cannot be anticipated or
foreseen, the Company reserves the right to amend, modify, or terminate the Plan
at any time. Upon termination of the Plan, all benefits shall become payable
immediately. Notwithstanding the foregoing, no such amendment or termination
shall affect rights previously granted, nor may an amendment make any change in
any right previously granted which adversely affects the rights of any
Participant. In addition, no amendment may be made without prior approval of the
stockholders of the Company if such amendment would:
(a) Increase the number of shares of Company Stock that may be
issued under the Plan;
(b) Materially modify the requirements as to eligibility for
participation in the Plan; or
(c) Materially increase the benefits which accrue to Participants
under the Plan.
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11.2 STOCKHOLDER APPROVAL. Continuance of the Plan and the effectiveness
of any right granted hereunder shall be subject to approval by the stockholders
of the Company, within twelve months before or after the date the Plan is
adopted by the Board.
11.3 BENEFITS NOT ALIENABLE. Benefits under the Plan may not be assigned
or alienated, whether voluntarily or involuntarily. Any attempt at assignment,
transfer, pledge or other disposition shall be without effect, except that the
Company may treat such act as an election to withdraw funds in accordance with
Article VIII.
11.4 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a
voluntary undertaking on the part of the Company and shall not be deemed to
constitute a contract between the Company and any Employee or to be
consideration for, or an inducement to, or a condition of, the employment of any
Employee. Nothing contained in the Plan shall be deemed to give the right to any
Employee to be retained in the employ of the Company or to interfere with the
right of the Company to discharge any Employee at any time.
11.5 GOVERNING LAW. To the extent not preempted by Federal law, all
legal questions pertaining to the Plan shall be determined in accordance with
the laws of the State of Delaware.
11.6 NON-BUSINESS DAYS. When any act under the Plan is required to be
performed on a day that falls on a Saturday, Sunday or legal holiday, that act
shall be performed on the next succeeding day which is not a Saturday, Sunday or
legal holiday. Notwithstanding the above, Fair Market Value shall be determined
in accordance with Section 6.3.
11.7 COMPLIANCE WITH SECURITIES LAWS. Notwithstanding any provision of
the Plan, the Committee shall administer the Plan in such a way to ensure that
the Plan at all times complies with any requirements of Federal Securities Laws.
For example, affiliates may be required to make irrevocable elections in
accordance with the rules set forth under Section 16b-3 of the Securities
Exchange Act of 1934.
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Exhibit 10.5
[FLASHCOM LETTERHEAD]
M. Wayne Boylston
244 Unity Drive
Marietta, Georgia 30064
Dear Wayne:
We are pleased to offer you a position with Flashcom, Inc. (the
"Company") as its Chief Financial Officer. You will be primarily responsible for
all aspects of the Company's accounting, finance and tax returns, investor
relations and you will assist from time to time with various corporate legal
matters and mergers and acquisitions. You will be expected to perform your
principal service to the Company in Orange County, California.
You will receive salary at the rate of $200,000 per year, which will be
paid in accordance with the Company's normal payroll procedures. You will also
be entitled to a $75,000 interest-free loan payable to you after 30 days of
employment. If you voluntarily terminate your employment other than for good
reason (as hereinafter defined) within one year of the receipt of such loan, the
loan will be due and payable to the Company within 30 days of your termination
date. This loan will be forgiven upon the earlier to occur of (i) one year
following the date of receipt, or (ii) at such time as the Company should
terminate your employment without cause or you shall terminate your employment
with good reason. As used herein, the term "good reason" shall mean (x) your
assignment to duties inconsistent in any material respect with the duties set
forth in the first paragraph of this letter (it being agreed that employment as
the Company's Chief Financial Officer shall not be inconsistent with such
duties), (y) any failure by the Company to provide you with the compensation and
benefits set forth in this letter (other than failures not made in bad faith and
which are remedied by the Company within five (5) business days after notice
thereof) or (z) any failure by the Company to require any successor entity to
expressly assume and agree to perform the terms of this agreement. As used
herein, the term "cause" shall mean that you (i) commit a material breach of
your duty of loyalty to the Company; (ii) commit an act or fail to act, where
such act or failure to act constitutes intentional misconduct, a reckless
disregard of the consequences of such act or failure to act, or gross
negligence; (iii) commit a felony, or a misdemeanor involving moral turpitude,
or which subjects the Company or any subsidiary or affiliate to civil
liabilities or civil or criminal penalties or fines; or (iv) refuse or fail to
perform any or your material duties to the satisfaction of the Board of
Directors of the Company and such refusal or failure has continued after you
have received at least one (1) written warning specifically advising you of such
failure or refusal and the remedial actions which are necessary to be taken by
you and you have been given a reasonable time period after such warning to take
such remedial actions.
In addition, you will be eligible to receive a bonus for $100,000 during
the first year of your employment with the Company. Such bonus shall be paid in
four quarterly installments on the last day of each quarter beginning with the
quarter ending June 30, 2000 based upon achievement of milestones to be agreed
upon by you and the Chief Executive Officer prior to the beginning of each such
quarter, provided that the first quarterly bonus shall be guaranteed. The
Company will reimburse you for moving expenses, commuting expenses to and from
Georgia and family travel in connection with house-hunting, in each case based
on receipts dated no later than twelve (12) months
<PAGE> 2
M. Wayne Boylston
February 25, 2000
Page 2 of 4
after the date of this letter, with such amounts being grossed-up so as to
provide for reimbursement in after-tax dollars up to $150,000, inclusive of such
tax gross-up. As a Company employee, you will also be eligible to receive the
medical insurance and other employee benefits generally available from time to
time to the highest tier of employees of the Company. Further, in connection
with your purchase of a home in Southern California, the Company will extend to
you a loan, secured by a second lien on the home you purchase, for up to
$250,000 at the minimum federal interest rate applicable at the time of your
purchase, or if not permissible by the lender, by other collateral acceptable to
you, the Company and the lender. The loan must be repaid upon the first to occur
of (i) 60 days following the closing of the sale by you of your home in Georgia,
(ii) 60 days following a liquidity event of the Company whereby you receive cash
proceeds of at least $250,000 (including an initial public offering of our
common stock or the sale of substantially all of our stock or assets), (iii)
twelve months following termination of your employment by the Company without
cause or by you for good reason, or (iv) six months following any other
termination of your employment with the Company. In addition, the Company agrees
to pay reasonable expenses, based on receipts which you provide to the Company,
of up to $3,000 a month toward the rent on your house in Southern California or,
if you purchase a house in California, the debt service on the mortgage, until
the earlier to occur of (a) the twelfth monthly installment made under such
arrangement (with aggregate payments not to exceed $36,000) or (b) the sale of
your house in Georgia.
Also in connection with your employment, the Company will grant you the
right to purchase restricted shares of Common Stock equal to two percent (2%) of
the Company's currently outstanding shares of Common Stock on an as-converted
and fully diluted basis, or 1,476,129 shares (based on 31,707,379 shares of
Common Stock, 17,315,037 shares of Series A Preferred Stock (as converted),
12,927,108 shares of Series B Preferred Stock, 4,064,316 warrants to purchase
shares of Common Stock and 12,500,000 total shares reserved for issuance under
the Company's option plan). Your right to purchase shares of restricted stock
shall be at an exercise price of $4.00 per share, provided we receive from you a
countersigned copy of this letter accepting the terms of your employment by the
Company no later than 5:00 p.m. EST on Friday, February 25, 2000. The restricted
shares shall be issued to you pursuant to the terms and conditions contained in
the Company's standard form of restricted stock purchase agreement in
substantially the form enclosed for your reference, which provides for, among
other things, vesting of 25% of the shares after one year of employment and
monthly vesting thereafter until all shares become vested shares. In addition,
in the event of a Change of Control of the Company (as defined in the Plan), if
the Company or its successor elects to terminate its employment relationship
with you or if you terminate your employment for good reason, you will receive
accelerated vesting equal to twelve (12) months additional vesting. The Company
will offer you the option of paying the exercise price for your shares by any of
the methods set forth in Section 1 of the Company's restricted stock purchase
agreement, to the extent permitted by applicable laws.
Your employment will commence promptly after you have served any
required notice period with your current employer, but in any event within 31
days following execution of this Agreement. You should be aware that your
employment with the Company is for no specified period and constitutes "at-will"
employment. As a result, you are free to resign at any time, for any reason or
for no reason. Similarly, the Company is free to conclude its employment
relationship with you at any time, with or without cause. However, if the
Company elects to terminate its employment relationship with you without cause,
or if you terminate your employment for good reason, you and
<PAGE> 3
M. Wayne Boylston
February 25, 2000
Page 3 of 4
the Company agree that you will sign a standard form of settlement agreement
stating the terms below and a general release, and in consideration therefore,
the Company will provide you a settlement of (i) acceleration of vesting equal
to the greater of (A) six (6) months additional vesting or (B) vesting through
the first twelve (12) month cliff of your vesting schedule, and (ii) six (6)
months salary. With respect to the shares that are to vest or the cash that is
to be paid to you pursuant to this paragraph, one-sixth of such shares or cash
shall vest or be paid to you, as the case may be, monthly, in each case subject
to your compliance with the terms of the settlement agreement.
For purposes of federal immigration law, you will be required to provide
to the Company documentary evidence of your identity and eligibility for
employment in the United States. Such documentation must be provided to us
within three (3) business days of your date of hire, or our employment
relationship with you may be terminated.
I have enclosed our standard Proprietary Information Agreement. If you
accept this offer, please return to me a signed copy of that agreement.
In the event of any dispute or claim relating to or arising out of our
employment relationship, you and the Company agree that all such disputes shall
be fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in Orange County, California.
To indicate your acceptance of the Company's offer, please sign and date
this letter in the space provided below and return it to me. A duplicate
original is enclosed for your records. This letter, along with the agreement
relating to proprietary rights between you and the Company, set forth the terms
of your employment with the Company and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
except by a written agreement, signed by the Company and by you.
<PAGE> 4
M. Wayne Boylston
February 25, 2000
Page 4 of 4
We look forward to your joining the Flashcom team! Please acknowledge
your acceptance of this offer by returning a signed copy of this offer letter to
us by February 25, 2000, the date on which this offer expires.
If you have any questions about the contents of this letter, or
employment at the Company, please feel free to contact me at 714-799-2365.
FLASHCOM, INC.
/s/ RICHARD RASMUS
- -----------------------------------------
Richard Rasmus
President and Chief Executive Officer
AGREED TO AND ACCEPTED this
25th day to February, 2000.
/s/ M. WAYNE BOYLSTON
- ----------------------------------------
M. Wayne Boylston
Enclosures: Duplicate Original Letter
Form of Stock Option Agreement
Proprietary Information Agreement
<PAGE> 1
Exhibit 10.6
[FLASHCOM LETTERHEAD]
November 16, 1999
Richard N. Rasmus
9 Westview Road
Bryn Mawr, PA 19010
Dear Richard:
We are pleased to offer you a position with Flashcom, Inc. (the
"Company") as its President and Chief Operating Officer, commencing as soon as
possible. Immediately following the closing of the Series B financing, you will
assume the title and role of President and CEO. Prior to and following the
Series B financing, you will be an officer of the company and a board member,
and you will report directly to the Board of Directors. Your primary
responsibilities will be to lead the Company's business, including: sales,
marketing, operations and other areas of the business. The other executive
officers of the Company, including Chris Rose, the acting Chief Financial
Officer, will report directly to you. You will be expected to perform your
principal service to the Company in Orange County, California.
You will receive salary at the rate of $200,000 per year, which will be
paid in accordance with the Company's normal payroll procedures. You will also
be entitled to a $75,000 interest-free loan payable to you after 30 days of
employment. If you voluntarily terminate your employment other than for good
reason (as hereinafter defined) within one year of the receipt of such loan, the
loan will be due and payable to the Company within 30 days of your termination
date. This loan will be forgiven upon the earlier to occur of (i) one year
following the date of receipt, or (ii) at such time as the Company should
terminate your employment without cause or you shall terminate your employment
with good reason. As used herein, the term "good reason" shall mean (x) your
assignment to duties inconsistent in any material respect with the duties set
forth in the first paragraph of this letter (it being agreed that employment as
the Company's President and Chief Operating Officer shall not be inconsistent
with such duties), (y) any failure by the Company to provide you with the
compensation and benefits set forth in this letter (other than failures not made
in bad faith and which are remedied by the Company within five (5) business days
after notice thereof) or (z) any failure by the Company to require any successor
entity to expressly assume and agree to perform the terms of this agreement.
In addition, you will be eligible to receive a bonus of $100,000 during
the first year of your employment with the Company. Such bonus shall be paid in
four quarterly installments on the last day of each quarter beginning with the
quarter ending March 31, 2000 based upon achievement of milestones to be agreed
upon by you and the Board of Directors prior to the beginning of each such
quarter, provided that the first quarterly bonus shall be guaranteed. The
Company will reimburse you for up to $150,000 in moving expenses, commuting
expenses to and from Pennsylvania, legal expenses incurred in connection with
the negotiation and signing of this agreement and family travel in connection
with house-hunting, in each case based on receipts dated no later than twelve
(12) months after the date of this letter. As a Company employee, you will also
be eligible to receive the
<PAGE> 2
Mr. Richard Rasmus
November 11, 1999
Page 2 of 4
medical insurance and other employee benefits generally available from time to
time to the highest tier of employees of the Company.
Further, in connection with your purchase of a home in Southern
California, the Company will extend to you a loan, secured by a second lien on
the home you purchase, for up to $250,000 at the minimum federal interest rate
applicable at the time of your purchase, or if not permissible by the lender, by
other collateral acceptable to you, the Company and the lender. The loan must be
repaid upon the first to occur of (i) 60 days following the closing of the sale
by you of your home in Bryn Mawr, PA, (ii) 60 days following a liquidity event
of the Company whereby you receive cash proceeds of at least $250,000 (including
an initial public offering of our common stock or the sale of substantially all
of our stock or assets), (iii) twelve months following termination of your
employment by the Company without cause or by you for good reason, or (iv) six
months following any other termination of your employment with the Company. In
addition, the Company agrees to pay reasonable expenses, based on receipts which
you provide to the Company, of up to $3,000 per month toward the rent on your
house in Southern California or, if you purchase a house in California, the debt
service on the mortgage, until the earlier to occur of (a) the twelfth monthly
installment made under such arrangement (with aggregate payments not to exceed
$36,000), or (b) the sale of your house in Bryn Mawr, PA.
Also in connection with your employment, the Company will grant you an
option to purchase shares of Common Stock equal to five percent (5%) of the
Company's currently outstanding shares of Common Stock (including shares
issuable to you) on an as-converted and fully diluted basis, or 880,481 shares
(based on 9,245,312 shares of Common Stock, 5,771,679 shares of Series A
Preferred Stock and 1,888,157 options and warrants currently outstanding). Your
option shall be issued at an exercise price per share equal to the fair market
value of the Common Stock (which shall not exceed the initial conversion price
of the Series B Preferred Stock sold in our currently contemplated financing) as
determined by the Board at its first meeting following the start of your
employment with the Company, and pursuant to the terms and conditions contained
in the Company's standard form of stock option agreement in substantially the
form enclosed for your reference, which provides for, among other things,
vesting of 25% after one year of employment and additional vesting of 25% upon
each additional year of employment. Such option shall, to the maximum extent
allowable by law, constitute an incentive stock option, and the remaining
portion of such option shall constitute a nonqualified stock option. The Company
will offer you the option of paying the exercise price for your option by any of
the methods set forth in Section 5.3 of the Company's option plan, to the extent
permitted by applicable laws.
Your employment will commence promptly after you have served any
required notice period with your current employer, but in any event within 31
days following execution of this Agreement. You should be aware that your
employment with the Company is for no specified period and constitutes "at-will"
employment. As a result, you are free to resign at any time, for any reason or
for no reason. Similarly, the Company is free to conclude its employment
relationship with you at any time, with or without cause. However, if the
Company elects to terminate its employment relationship with you without cause,
or if you terminate your employment for good reason, you and the Company agree
that you will sign a standard form of settlement agreement stating the terms
below and a general release, and in consideration therefor, the Company will
provide you a settlement of (i) acceleration of vesting of the exercisability of
the option to be granted to you equal to the greater of (A) twelve (12) months
of additional vesting or (B) vesting through the first year
<PAGE> 3
Mr. Richard Rasmus
November 11, 1999
Page 3 of 4
cliff of your vesting schedule, and (ii) twelve (12) months' salary plus
$50,000. With respect to the shares that are to vest or cash that is to be paid
to you pursuant to this paragraph, one-twelfth of such shares or cash shall vest
or be paid to you, as the case may be, monthly, in each case subject to your
compliance with the terms of the settlement agreement.
You have provided the Company with copies of all agreements you have in
connection with your employment by Comcast (the "Employment Agreements"), which
include a covenant not to compete and certain prohibitions against using
confidential information. You represent to the Company that (i) you have
provided to the Company complete and accurate copies of all agreements you have
in connection with your employment by Comcast (via a memo to Todd Brooks, David
Helfrich, Brad Sachs and Connie Adair dated September 11, 1999 and a Comcast
employment offer letter faxed to the Company's legal counsel by your attorney,
Ivan Dreyer, on November 11, 1999), and that the Employment Agreements set forth
your entire agreement with Comcast material to our evaluation of your
obligations under the Employment Agreements, (ii) that you have, or by the time
your employment with Comcast terminates, will have, returned all written
materials of Comcast that may contain confidential or other proprietary
information of Comcast and (iii) that you will not bring, use, provide or show
any confidential or other proprietary information of Comcast to or for the
benefit of the Company. In reliance on the truth and accuracy of your
representations, the Company agrees to protect and indemnify you from any cost,
damages and liabilities that you may become subjected to were Comcast to
commence any action, suit or other proceeding against you arising out of or in
connection with the termination of your employment or alleging a violation or
breach of your Employment Agreement (any such action, suit or proceeding
including any counterclaim asserted therein being referred to as a
"Proceeding"). The Company hereby acknowledges that the Executive would not
relocate and accept employment with the Company without the foregoing
indemnities. The Company hereby agrees to indemnify you and hold you harmless
from and against any and all expenses (including the fees and expenses of
attorneys and other advisors), court costs, cost of investigation, cost of
travel, losses, liabilities, claims, damages, judgments and fines (collectively,
"Damages") awarded against you or paid in any settlement consented to by the
Company arising out of or in connection with any Proceeding. You shall give the
Company prompt notice of any such Proceeding, shall contest or prosecute, as
applicable, any such Proceeding, with counsel selected by the Company and
reasonably acceptable to you, and shall keep the Company informed with respect
to the status thereof unless the representation of you by the Company's counsel
would be inappropriate due to conflicting interests, in which event you may
employ counsel of your choice in such defense and the Company will advance the
reasonable fees and expenses of such counsel as it would have had you engaged
counsel selected by the Company. You agree, however, that you shall not enter
into any settlement without the consent of the Company, which consent shall not
be unreasonably withheld or delayed.
In addition, if in connection with any Proceeding you are enjoined from
continuing to work for the Company, the Company will continue to pay your base
salary only for a period until you find other employment (not to exceed twelve
(12) months); provided that during such period you agree to use your reasonable
best efforts to secure a comparable position with another employer. If you are
enjoined, unless we otherwise agree, you will be deemed to have voluntarily
terminated your employment as of the date of the injunction (except that in such
case, the $75,000 loan need only be repaid within 90 days) and the Company's
sole obligation to you hereunder shall be to pay you your
<PAGE> 4
Mr. Richard Rasmus
November 11, 1999
Page 4 of 4
base salary as provided in the preceding sentence and to indemnify you as
provided in the preceding paragraph.
For purposes of federal immigration law, you will be required to provide
to the Company documentary evidence of your identity and eligibility for
employment in the United States. Such documentation must be provided to us
within three (3) business days of your date of hire, or our employment
relationship with you may be terminated.
I have enclosed our standard Proprietary Information Agreement. If you
accept this offer, please return to me a signed copy of that agreement.
In the event of any dispute or claim relating to or arising out of our
employment relationship, you and the Company agree that all such disputes shall
be fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in Orange County, California. HOWEVER, we agree that
this arbitration provision shall not apply to any disputes or claims relating to
or arising out of our indemnity obligations hereunder or the misuse or
misappropriation of the Company's trade secrets or proprietary information.
To indicate your acceptance of the Company's offer, please sign and date
this letter in the space provided below and return it to me. A duplicate
original is enclosed for your records. This letter, along with the agreement
relating to proprietary rights between you and the Company, set forth the terms
of your employment with the Company and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
except by a written agreement, signed by the Company and by you.
We look forward to your joining the Flashcom team! Please acknowledge
your acceptance of this offer by returning a signed copy of this offer letter to
us by November 18, 1999. This offer expires on November 18, 1999.
If you have any questions about the contents of this letter, or
employment at the Company, please feel free to contact Todd Brooks or Brad
Sachs.
FLASHCOM, INC.
/s/ Brad Sachs /s/ Todd A. Brooks
- ------------------------------------- ------------------------------------
Brad Sachs Todd A. Brooks
Chief Executive Officer & Chairman Director
AGREED TO AND ACCEPTED this
16th day of November, 1999.
/s/ Richard N. Rasmus
- ------------------------------------
Richard N. Rasmus
Enclosures: Duplicate Original Letter
Form of Stock Option Agreement
Proprietary Information Agreement
<PAGE> 1
LEASE AGREEMENT EXH. 10.7
THIS LEASE AGREEMENT (this "Lease") is entered into as of June 1, 1999, by and
between Max Singer Limited Partnership (Landlord"), and Flashcom, Inc., a
Delaware corporation ("Tenant").
ARTICLE 1
PREMISES
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord that
certain real property situated in Orange County, California, commonly known as
5312 Bolsa Ave. and as shown on Exhibit A attached hereto, the Premises for the
"Term" (as defined in Article 2) and upon the terms, covenants and conditions
set forth in this Lease.
ARTICLE 2
TERM
This Lease shall be effective from and after, and the term of this Lease
("Term") shall commence on June 1, 1999 (the "Commencement Date"). The Term
shall expire and this Lease shall automatically terminate, unless sooner
terminated in accordance with the provisions of this Lease, on May 31, 2004.
ARTICLE 3
CONDITION OF PREMISES
Tenant hereby accepts the Premises in its "as-is" condition, and Landlord makes
no representation or warranty of any kind with respect to the Premises.
ARTICLE 4
RENTAL
4.1 MONTHLY RENTAL. Tenant shall pay to Landlord Thirty Five Thousand and No/100
Dollars ($35,000.00) ("Monthly Rental"), in advance, on or before the first
(1st) day of each month, without prior demand and without offset or deduction,
commencing on the Commencement Date. Should the Commencement Date be a day other
than the first (1st) day of a calendar month, then the monthly installment of
Monthly Rental for the first partial month shall be equal to one-thirtieth
(1/30th) of the monthly installment of Monthly Rental for each day from the
Commencement Date to the end of the partial month.
4.2 ADDITIONAL RENTAL. In addition to Monthly Rental, Tenant shall pay to
Landlord, as "Additional Rental", all sums required to be paid by Tenant to
Landlord pursuant to this Lease (including, but not limited to, interest, late
charges, "Taxes" (as defined in Section 5.1 of this Lease), utilities,
maintenance expenses, insurance premiums, reimbursement for attorneys' fees and
expenses and auditing costs). Landlord shall have the same rights and remedies
for the nonpayment of Additional Rental as it has with respect to the nonpayment
of Monthly Rental. Monthly Rental and
<PAGE> 2
Additional Rental are collectively referred to herein as "Rent." It is the
intention of Landlord and Tenant that Rent shall be paid to Landlord absolutely
net without deduction of any amount of any nature whatsoever.
4.3 PLACE OF PAYMENT. Tenant shall pay Rent to Landlord at 23 Ridgeline Ave.,
Newport Beach, Ca. 92660 Attention: Accounts Receivable, or to such other
address as Landlord may from time to time designate in writing to Tenant.
4.4 LATE PAYMENTS. If Tenant fails to pay any Rent within ten (10) days after
the same is due, the unpaid amounts shall bear interest at the rate of ten
percent (10%) per annum from the date due to and including the date of payment.
In addition, Tenant acknowledges that the late payment of any installment of
Rent will cause Landlord to incur certain costs and expenses, the exact amount
of which are extremely difficult or impractical to fix. These costs and expenses
may include, but are not limited to, administrative and collection costs and
processing and accounting expenses. Therefore, if any installment of Rent is not
received by Landlord from Tenant within ten (10) business days after receipt of
notice from Landlord, Tenant shall immediately pay to Landlord a late charge
equal to three percent (3%) of the amount of any installment of Rent paid late.
Landlord and Tenant agree that this late charge represents a reasonable estimate
of the costs and expenses Landlord will incur and is fair compensation to
Landlord for its loss suffered by reason of late payment by Tenant. Upon
accrual, all such late charges shall be deemed Additional Rental.
ARTICLE 5
TAXES
5.1 REAL PROPERTY TAXES.
(a) As used in this Lease, the term "Taxes" shall include any
form of tax, assessment (general, special or otherwise), license fee, license
tax, use tax, tax or excise on rental, or any other levy, charge, expense or
imposition imposed by any federal, state, county or city authority having
jurisdiction, or any political subdivision thereof, or any school, agricultural,
lighting, drainage or other improvement or special assessment district
(individually and collectively, "Governmental Agencies") on any interest of
Landlord or Tenant (including any legal or equitable interest of Landlord or its
mortgagee, if any) in the Premises or the underlying realty, including any
increases in the foregoing due to a change of ownership, new construction or any
other reason. The term "Taxes" shall not include Landlord's general income,
inheritance, estate or gift taxes.
(b) From and after the Commencement Date, Tenant shall pay, prior
to delinquency, all of the Taxes applicable to the Premises directly to the
appropriate taxing authority. Taxes for any partial year shall be prorated. If
Tenant fails to pay the Taxes, Landlord may, at its option, pay such unpaid
Taxes, along with penalties and interest, if any, and Tenant shall, within ten
(10) written days after demand therefor from Landlord, reimburse all Taxes,
penalties and interest paid by Landlord, and such amounts shall constitute
Additional Rental.
5.2 OTHER PROPERTY TAXES. Tenant shall pay, prior to delinquency, all taxes,
assessments, license fees and public charges levied, assessed or imposed upon
its business operation, trade fixtures and other personal property in, on or
upon the Premises. No taxes, assessments, fees or charges referred to in this
Section 5.2 shall be considered Taxes under the provisions of Section 5.1.
2
<PAGE> 3
ARTICLE 6
UTILITIES
Tenant agrees to pay directly to the appropriate utility company all charges for
utility services supplied to Tenant or to the Premises. Landlord shall not be
liable for any failure or interruption of any utility or service. No failure or
interruption of any utility or service shall entitle Tenant to terminate this
Lease or discontinue making payments of Rent. If Tenant fails to pay when due
any charges referred to in this Article 6, Landlord may pay the charge and
Tenant shall reimburse Landlord, as Additional Rental, for any amount so paid by
Landlord within ten (10) days after demand therefor.
ARTICLE 7
TENANT'S CONDUCT OF BUSINESS
7.1 PERMITTED USE. Tenant shall use the Premises solely for office use, and for
no other use or purpose. Tenant shall not change the use of the Premises without
the prior written consent of Landlord, which consent shall not be unreasonably
withheld or delayed.
7.2 COMPLIANCE WITH LAWS. Tenant shall, at its sole cost and expense, comply
with all current and future federal, state and local health, safety,
anti-discrimination, environmental, building, zoning, police and other laws,
statutes, ordinances, rules and regulations applicable to Tenant, the Premises,
or Tenant's use of the Premises (collectively, "Applicable Laws"). Without
limiting the generality of the foregoing, Tenant shall, at its sole cost and
expense, make all alterations, additions, improvements, repairs and replacements
to the Premises required by any current or future Applicable Law. Tenant shall
indemnify, defend (with counsel reasonably acceptable to Landlord) and hold
harmless Landlord and its members, managers, officers, employees,
representatives, contractors and agents (collectively, "Landlord" for purposes
of this Section 7.2) from and against, and shall pay for, all losses, costs,
expenses, claims, damages, causes of action and liabilities of any kind
(including but not limited to, court costs and reasonable attorneys' fees)
arising from or relating to any liabilities, lawsuits, administrative actions or
any other matter which may now or in the future involve Landlord by reason of,
resulting from, in connection with, or arising in any manner whatsoever out of
Tenant's breach of its obligations under this Section 7.2.
7.3 HAZARDOUS MATERIALS RESTRICTIONS. Without obtaining Landlord's prior written
consent, which consent shall not be unreasonably withheld, Tenant shall not, and
shall not allow any individual or entity granted or allowed access to or use of
the Premises (as tenant, occupant, user, contractor or otherwise) by Tenant, or
any employee or other agent or representative of any of the foregoing to, (i)
use, generate, manufacture, treat, store, dispose, dump, handle or bring any
Hazardous Materials on, under, in or over the Premises, (ii) conduct or permit
any activity that may cause or threatens to cause a release of any Hazardous
Material in, on, to, under, from or above the Premises, (iii) conduct or permit
any activity that may result, or could result, in the imposition of a lien on
the Premises or a restriction upon the operation or use of the Premises, (iv)
place any underground storage tank or treatment facility in, on or under the
Premises, or (v) place, incorporate, dispose of or install any asbestos or
asbestos-containing materials, or any polychlorinated biphenyls in, on or under
the Premises. Notwithstanding the foregoing, Landlord agrees that Tenant's
operation of its business as presently conducted shall not violate this Section
7.3, and Landlord's permission shall not be required with respect to any
particular Hazardous Materials to the extent such Hazardous
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Materials are presently used by Tenant in the operation of its business and in
accordance with Applicable Laws.
7.4 PERMITTED USE OF HAZARDOUS MATERIALS. If Landlord grants its permission for
Tenant to use, generate, manufacture, treat, store, dispose, dump, handle or
bring any Hazardous Materials on, under, in or over the Premises (collectively
"Tenant's Use"), then Tenant shall notify Landlord in writing at least ten (10)
days prior to their first appearance on the Premises. Such notification shall
include identification (type and common name) and quantities of all Hazardous
Materials, or any combination thereof, which are to be introduced on the
Premises. Tenant shall, at its sole cost and expense, comply with all Applicable
Laws and Landlord's rules and regulations concerning such Hazardous Materials.
If Landlord in good faith believes that Tenant has violated the provisions of
this Section, then Landlord may, at any time or from time to time, at Tenant's
sole cost and expense, require Tenant to conduct monitoring or evaluation
activities with respect to Hazardous Materials on the Premises, which monitoring
and evaluation shall be performed by environmental specialists approved in
writing in advance by Landlord. Such monitoring and/or evaluation activity may
include, but is not limited to, soil testing, air testing, production waste
stream analysis, and groundwater testing.
7.5 ENVIRONMENTAL REPORTS. Tenant shall promptly notify Landlord of, and shall
promptly provide Landlord with true, correct, complete and legible copies of,
any environmental reports or notices relating to the Premises which may be filed
or prepared by or on behalf of, or delivered to or served upon, Tenant,
including but not limited to reports filed pursuant to any self-reporting
requirements, reports filed pursuant to any Applicable Law or this Lease, all
permit applications, permits, monitoring reports, workplace exposure and
community exposure warnings or notices and all correspondence and other
documents associated with actual or threatened investigation or enforcement
action by any governmental entity or third party. In addition, Tenant shall
promptly notify Landlord of, and shall promptly provide Landlord with true,
correct, complete and legible copies of, environmental items relating to the
Premises which may be filed or prepared by or on behalf of, or delivered to or
served upon, Tenant. In the event of a release of any Hazardous Material on the
Premises or to the environment from the Premises, Tenant shall promptly notify
Landlord and provide Landlord with copies of all reports and correspondence with
or from all governmental agencies, authorities or any other persons relating to
such release.
7.6 DEFINITION OF HAZARDOUS MATERIALS. The term "Hazardous Materials", as used
in this Lease, shall include, without limitation, flammables, explosives,
radioactive materials, asbestos, polychlorinated bipheyls (PCB's), chemicals
known to cause cancer or reproductive toxicity, pollutants, contaminants,
hazardous wastes, toxic substances or related materials, petroleum and petroleum
products and substances declared to be hazardous or toxic under any law or
regulation now or hereafter enacted or promulgated by any government authority.
7.7 PARKING. Tenant shall be entitled to use all of the parking spaces available
for the Premises, subject to reasonable restrictions imposed by Landlord from
time to time.
7.8 RULES AND REGULATIONS. Landlord may promulgate and enforce reasonable
rules and regulations regarding Tenant's use of the Premises, provided that no
such rules or regulations may supersede or contradict the express terms of this
Lease.
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ARTICLE 8
MAINTENANCE, REPAIRS AND ALTERATIONS
8.1 LANDLORD'S RIGHT OF ENTRY. Landlord, its agents, contractors, servants and
employees may enter the Premises following twenty-four (24) hours' written
notice to Tenant and Landlord's good faith efforts to coordinate such entry with
Tenant's on-site management so as to minimize interference with Tenant's
business operations (except in a case of emergency in which event Landlord may
enter at any time without notice to Tenant): (a) to examine the Premises; (b) to
perform any obligation or exercise any right or remedy of Landlord under this
Lease; (c) to make repairs, alterations, improvements or additions to the
Premises as Landlord reasonably deems necessary or desirable; (d) to perform
work necessary to comply with Applicable Laws; and (e) to perform work that
Landlord deems necessary to prevent waste or deterioration in connection with
the Premises should Tenant fail to commence such repairs or, after commencing
same, fail to diligently pursue such repairs to completion within three (3) days
after written demand by Landlord. If Landlord makes any repairs that Tenant is
obligated to make pursuant to the terms of this Lease, Tenant shall pay to
Landlord the cost of such repairs with interest at the maximum lawful rate from
the date of such expenditure by Landlord, as Additional Rental, within ten (10)
days after receipt of written demand from Landlord therefor.
8.2 TENANTS MAINTENANCE OBLIGATIONS. Tenant, at its sole cost and expense, shall
keep the Premises in the same condition and repair existing as of the
Commencement Date, and shall make replacements necessary to keep the Premises in
such condition, normal wear and tear, casualty and condemnation excepted. In no
event shall Tenant be obligated to repair or remedy any condition or any defect
of the Premises existing as of the Commencement Date. All replacements shall be
of a quality equal to or exceeding that of the original. All costs and expenses
incurred, by either Tenant directly or by Landlord that are passed through to
Tenant pursuant to the terms of this Lease, for items whose useful life will
exceed the then-remaining term of the Lease shall be defined as "Capital
Expenses". Tenant and Landlord shall share such Capital Expenses such that
Tenant shall only pay for the unamortized portion of such Capital Expenses such
that Tenant's portion of such Capital Expenses shall be calculated by
multiplying the Capital Expense by a fraction the numerator of which is the
remaining term of the Lease (without extension) as of the date of the Capital
Expense and the denominator of which is the useful life of the item as of the
date of the Capital Expense. Landlord shall pay for the balance of such Capital
Expense. In addition, Tenant shall contract with a reputable, licensed service
company for the regular (but not less frequently than quarterly) maintenance,
repair and/or replacement (when necessary) of the heating, ventilating and air
conditioning equipment serving the Premises and shall provide Landlord with a
copy of any service contract within ten (10) days following its execution. If
Tenant fails to perform any of its obligations under this Section, then Landlord
may, but shall not be obligated to, perform such obligations and to collect a
reserve or bill Tenant for the cost of same, as Additional Rental. The sum so
billed to Tenant shall become due to Landlord within ten (10) days after
Landlord's written demand therefor.
8.3 ALTERATIONS. Without the prior written approval of Landlord, Tenant shall
not make or cause to be made to the Premises any additions, renovations,
alterations, improvements, reconstructions or changes (collectively,
"Alterations") (i) costing in excess of Twenty Thousand Dollars ($20,000) for
any such Alteration, (ii) affecting the structural components, exterior,
mechanical systems, fire sprinkler systems, exterior walls, floors, ceilings or
roof of the Premises, or (iii) requiring or resulting in any penetration of the
roof, walls or floor of the Premises. Tenant shall submit to Landlord reasonably
detailed plans and specifications for all proposed Alterations when
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requesting Landlord's approval of the proposed Alteration. Landlord shall not
unreasonably withhold, condition or delay its approval of such plans and
specifications. All Alterations installed in compliance with this Section shall
remain upon the Premises and shall become Landlord's property upon their
installation unless otherwise agreed in writing by the parties. All Alterations
shall be done in a good and workmanlike manner, in conformity with all
Applicable Laws. Landlord may require Tenant to provide demolition and/or lien
and completion bonds in a form and amount reasonably satisfactory to Landlord.
Tenant shall give Landlord at least twenty (20) days' written notice prior to
the commencement of any Alterations to the Premises. Landlord shall have the
right to post notices of non-responsibility and any other notices required or
permitted by Applicable Law to avoid liability for any work performed by or on
behalf of Tenant. Tenant shall keep the Premises free and clear of all
mechanics' liens arising out of any work performed by or on behalf of Tenant. If
Tenant makes or causes to be made any Alteration in violation of this Section,
then Landlord shall have the right to require Tenant to remove such Alteration
and restore the Premises to the condition existing prior to the making of such
Alteration.
ARTICLE 9
EMINENT DOMAIN
9.1 TAKING. The term "Taking", as used in this Article 9, shall mean an
appropriation or taking under the power of eminent domain by any public or
quasi-public authority or a voluntary sale or conveyance in lieu of condemnation
but under threat of condemnation.
9.2 TOTAL TAKING. In the event of a Taking of the entire Premises, this Lease
shall terminate and expire as of the date possession is delivered to the
condemning authority, and Landlord and Tenant shall each be released from any
liability accruing pursuant to this Lease after the date of such termination,
but Rent for the last month of Tenant's occupancy shall be prorated, and
Landlord shall refund to Tenant any Rent paid in advance.
9.3 PARTIAL TAKING. If there is a Taking of (a) more than seventy percent (70%)
of the area of the Premises or, (b) a portion of the Premises and, regardless of
the amount taken, the remainder of the Premises is not a single undivided parcel
of property (each a "Partial Taking"), or (c) any portion of a building on the
Premises is taken, then either Landlord or Tenant may terminate this Lease as of
the date Tenant is required to vacate a portion of the Premises, upon giving
notice in writing of such election to the other party within thirty (30) days
after receipt by Tenant from Landlord of written notice that a portion of the
Premises shall be or has been so appropriated or Taken.
9.4 AWARD. The entire award or compensation in any such condemnation proceeding,
whether for a total or partial Taking, or for diminution in the value of the
leasehold or for the fee, shall belong to and be the property of Landlord.
Without derogating the rights of Landlord under the preceding sentence, Tenant
shall be entitled to recover from the condemning authority such compensation as
may be separately awarded by the condemning authority to Tenant or recoverable
from the condemning authority by Tenant in its own right for the taking of trade
fixtures, inventory, equipment, and other personal property owned by Tenant,
Tenant's goodwill and for the expense of removing and relocating its personal
property and business.
9.5 CONTINUATION OF LEASE. In the event of a Partial Taking, if neither Landlord
nor Tenant elect to terminate this Lease as provided above, thereafter, Monthly
Rental shall be reduced
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on an equitable basis, taking into account the relative value of the portion
Taken as compared to the portion remaining, and Landlord shall be entitled to
receive the total award or compensation in such proceedings.
ARTICLE 10
ASSIGNMENT AND SUBLETTING
10.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not assign, sublet or license all
or any part of this Lease or the Premises (collectively, "Assignment" or
"Assign") without Landlord's prior written consent, which consent shall not be
unreasonably withheld. Any purported Assignment without Landlord's prior written
consent shall be void and of no force or effect and shall not confer any estate
or benefit on anyone. Further, any such purported Assignment shall constitute an
event of default by Tenant. A consent by Landlord to any single Assignment shall
not be deemed to be a consent to any other Assignment.
10.2 PROCEDURES. Should Tenant desire to enter into an Assignment requiring
Landlord's consent, Tenant shall request, in writing, Landlord's consent to the
proposed Assignment at least five (5) days before the intended effective date of
the proposed Assignment, which request shall include the following: (a) business
terms of the proposed Assignment including its effective date, terms and
conditions, (b) a description of the identity, net worth and previous business
experience of the proposed assignee or sublessee ("Assignee" for purposes of
this Article 10), and (c) any further information relevant to the proposed
Assignment that Landlord may reasonably request. Within five (5) days after
receipt of Tenant's request for consent to the proposed Assignment together with
all of the above-required information, Landlord shall respond and shall have the
right either to: (i) consent to the proposed Assignment, or (ii) refuse to
consent to the proposed Assignment.
10.3 NO RELEASE. No Assignment, whether with or without Landlord's consent,
shall relieve Tenant from its covenants and obligations under this Lease.
10.4 FORM. Any Assignment shall be evidenced by an instrument in form and
content reasonably satisfactory to Landlord and executed by Tenant and the
Assignee.
ARTICLE 11
INSURANCE AND INDEMNITY
11.1 TENANT'S INSURANCE. Tenant, at its sole cost and expense, shall procure,
pay for and keep in full force and effect throughout the Term the following
types of insurance, in at least the amounts and in the forms specified below:
(a) Comprehensive or commercial general liability insurance with
combined single limit for bodily injury, personal injury, death and property
damage liability coverage in the amount of the greater of (i) Two Million
Dollars ($2,000,000) per occurrence, or (ii) the current limit carried by
Tenant. Such policy shall insure against any and all liability of the insureds
with respect to the Premises or arising out of the maintenance, use or occupancy
of the Premises or related to the exercise of any rights of Tenant pursuant to
this Lease, and shall be subject to increases in amount as Landlord may
reasonably require from time to time. All such liability insurance shall
specifically insure the performance by Tenant of the indemnity agreement as to
liability for injury to or death of
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persons and injury or damage to property set forth in this Lease. Further, all
such liability insurance shall include, but not be limited to, personal injury,
blanket contractual, cross-liability and severability of interest clauses,
products/completed operations, broad form property damage, independent
contractors, owned, nonowned and hired vehicles and, if alcoholic beverages are
served, sold, consumed or obtained in the Premises, liquor law liability.
(b) Worker's compensation coverage as required by law, including
employer's liability coverage, with a limit of not less than Five Hundred
Thousand Dollars ($500,000) and waiver by Tenant's insurer of any right of
subrogation against Landlord by reason of any payment pursuant to such coverage.
(c) Business interruption or loss of income insurance in amounts
sufficient to insure Tenant's business operations for a period of not less than
one (1) year.
(d) Plate glass insurance covering all plate glass on the
Premises at full replacement value. Tenant shall have the option either to
insure this risk or to self-insure.
(e) Insurance covering all of Tenant's leasehold improvements,
Alterations permitted under Article 8, trade fixtures, merchandise and personal
property from time to time in, on or about the Premises in an amount not less
than their full replacement value from time to time, including replacement cost
endorsement, providing protection against any peril included within the
classification Fire and Extended Coverage, sprinkler damage, vandalism,
malicious mischief and such other additional perils as covered in an "all risks"
standard insurance policy. Any policy proceeds shall be used for the repair or
replacement of the property damaged or destroyed unless this Lease shall cease
and terminate under the provisions of Article 12.
(f) Any insurance policies designated necessary by Landlord with
regard to Tenant's or Tenant's contractors' construction of any Alterations
including, but not limited to, contingent liability and "all risks" builders'
risk insurance, in amounts acceptable to Landlord.
(g) A policy of insurance insuring against all risks of direct
physical loss or damage (excepting loss or damage caused by flood or earthquake)
to any or all buildings and other improvements located on the property where the
Premises are located in an amount equal to or greater than the full replacement
cost of all such buildings and improvements, the exact amount and type of such
insurance to be approved, in writing, by Landlord in its reasonable discretion.
Any such insurance may be brought within the coverage of any so-called blanket
policy or policies of insurance carried and maintained by Tenant.
11.2 POLICY FORM. All policies of insurance required of Tenant herein shall be
issued by insurance companies with general policy holder's rating of not less
than A- and a financial rating of not less than Class X, as rated in the most
current available "Best's Key Rating Guide", and which are qualified to do
business in the State of California. All such policies, except for the Worker's
Compensation coverage, shall name, and shall be for the mutual and joint benefit
and protection of, Landlord, Tenant and Landlord's agents and mortgagee(s) or
beneficiary(ies) as additional insureds. The policies described in subparagraphs
(c), (e) and (g) of Section 11.1 above shall also name Landlord and Landlord's
mortgagee(s) or beneficiary(ies), to the extent identified to Tenant in writing,
as loss payees. Executed copies of the policies of insurance or certificates
thereof shall be delivered to Landlord concurrently with Tenant's execution of
this Lease. Thereafter, executed copies of renewal policies or certificates
thereof shall be delivered to Landlord within thirty (30) days
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prior to the expiration of the term of each policy. All policies of insurance
delivered to Landlord must contain a provision that the company writing the
policy will give to Landlord thirty (30) days' prior written notice of any
cancellation or lapse or the effective date of any reduction in the amounts of
insurance. All policies required of Tenant herein shall be endorsed to read that
such policies are primary policies and any insurance carried by Landlord or
Landlord's property manager shall be noncontributing with such policies. No
policy required to be maintained by Tenant shall have a deductible greater than
Ten Thousand Dollars ($10,000) unless approved in writing by Landlord.
11.3 BLANKET POLICIES. Notwithstanding anything to the contrary contained in
this Article 11, Tenant's obligation to carry insurance may be satisfied by
coverage under a so-called blanket policy or policies of insurance; provided,
however, that the coverage afforded Landlord will not be reduced or diminished
and the requirements set forth in this Lease are otherwise satisfied by such
blanket policy or policies.
11.4 TENANT'S INDEMNITY. "Landlord" for the purposes of this Section 11.4 shall
mean and include Landlord and Landlord's successors, assigns, members, managers,
officers, employees, representatives, contractors and agents. To the fullest
extent permitted by law, Tenant covenants with Landlord that Landlord shall not
be liable for any damage or liability of any kind or for any injury to or death
of persons or damage to property of Tenant or any other person occurring at any
time, whether before or after the Commencement Date, from any cause whatsoever
related to the use, occupancy or enjoyment of the Premises by Tenant or any
invitee, licensee or other person on the Premises, or any other person holding
under Tenant. Tenant shall indemnify, defend (with counsel reasonably acceptable
to Landlord) and hold harmless Landlord from and against any real or alleged
damage or injury and from all claims, actions, causes of action, demands,
rights, damages, costs (including attorney's fees and court costs), liabilities,
debts, obligations, judgments, remedies, benefits, losses and expenses of any
kind whatsoever (collectively, "Claims") which may now or in the future be
incurred or suffered by Landlord by reason of, arising out of or connected with
(i) Tenant's use, occupancy or enjoyment of the Premises and its facilities,
(ii) any repairs, Alterations or improvements that Tenant may make or cause to
be made upon the Premises, (iii) any breach of this Lease by Tenant, (iv) any
condition relating to the environment or any other matter within the
jurisdiction of, or regulated by, any Applicable Law that arose or arises while
Tenant was or is in possession of the Premises, (v) the release of Hazardous
Materials in, on, to, from, under or above the Premises that occurred or occurs
while Tenant was or is in possession of the Premises; or (vi) any violation or
alleged violation of any Applicable Law based, in whole or in part, on the acts
or omissions of Tenant, whenever occurring, or the operation or use of the
Premises by Tenant; provided, however (and though Tenant shall in all cases
accept any tender of defense of any action or proceeding in which Landlord is
named or made a party and shall, notwithstanding any allegations of wrong-doing
or misconduct on the part of Landlord, defend Landlord as provided herein),
Tenant shall not be liable for such damage or injury to the extent and in the
proportion that the same is ultimately determined to be attributable to the
negligence or intentional misconduct of Landlord. This obligation to indemnify
shall include all of Landlord's reasonable attorneys' fees, litigation costs,
investigation costs and court costs and all other costs, expenses and
liabilities incurred by Landlord or its counsel from the first notice that any
claim or demand is to be made or may be made, and shall also include
indemnification for consequential damages, including but not limited to loss of
profit, loss of investment, loss of product and business interruption. Tenant's
obligations under this Section 11.4 shall survive the termination of this Lease.
The agreement to indemnify, defend and hold harmless set forth in this Section
11.4 is in addition to, and in no way shall be construed to limit or replace,
any other rights or remedies which Landlord may have against Tenant at law or in
equity.
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11.5 LANDLORD'S INDEMNITY. Landlord shall defend (with counsel reasonably
acceptable to Tenant), indemnify and hold harmless Tenant and its affiliates,
predecessors, successors and assigns, and their respective officers, directors,
shareholders, subsidiaries, employees, agents and representatives, from and
against any and all Claims arising, whether before or after the expiration or
earlier termination of this Lease, out of or in connection with any negligence
or intentional misconduct of Landlord or Landlord's employees, agents,
representatives, or contractors.
11.6 WAIVER OF SUBROGATION. Except to the extent that insurance required to be
maintained by Tenant pursuant to this Article 11 covers loss to Landlord,
Landlord and Tenant each waive any rights each may have against the other on
account of any loss or damage occasioned to Landlord or Tenant, as the case may
be, their respective property, or the Premises or its contents, arising from any
liability, loss, damage or injury caused by fire or other casualty for which
property insurance is carried or required to be carried pursuant to this Lease.
The insurance policies obtained by Landlord and Tenant pursuant to this Lease
shall contain endorsements waiving any right of subrogation which the insurer
may otherwise have against the noninsuring party. The foregoing release and the
foregoing requirement for waivers of subrogation shall be operative only so long
as the same shall neither preclude the obtaining of such insurance nor diminish,
reduce or impair the liability of any insurer. If Landlord has contracted with a
third party for the management of the Premises, the waiver of subrogation by
Tenant herein shall also run in favor of such third party. This Section 11.6
shall in no way affect or impair Tenant's release, indemnity and other
obligations under this Lease.
11.7 FAILURE BY TENANT TO MAINTAIN INSURANCE. If Tenant refuses or neglects to
secure and maintain insurance policies complying with the provisions of this
Article 11, Landlord may secure the appropriate insurance policies and Tenant
shall pay, within ten (10) days after demand by Landlord therefor, the cost of
same to Landlord as Additional Rental.
11.8 SUFFICIENCY OF COVERAGE. Neither Landlord nor any of Landlord's agents make
any representation that the types of insurance and limits specified to be
carried by Tenant under this Lease are adequate to protect Tenant. If Tenant
believes that any such insurance coverage is insufficient, Tenant shall provide,
at its sole cost and expense, such additional insurance as Tenant deems
adequate. Nothing contained herein shall limit Tenant's liability under this
Lease.
ARTICLE 12
DAMAGE
12.1 CASUALTY. Within ninety (90) days after the date of damage to the Premises
by fire or other casualty, subject to reasonable delays, not caused by Tenant,
in obtaining applicable permits, Tenant shall commence the repair,
reconstruction and restoration of the Premises and shall diligently prosecute
the same to completion. In addition, Tenant, at its sole cost and expense, shall
repair and restore all of Tenant's leasehold improvements, and shall replace its
stock in trade, trade fixtures, furniture, furnishings and equipment.
12.2 ABATEMENT. Rent payable hereunder shall not be abated during any period of
repair, reconstruction and restoration. Tenant shall not be entitled to any
compensation or damages from Landlord for loss of use of the whole or any part
of the Premises or the building of which the Premises are a part, Tenant's
personal property or any inconvenience or annoyance occasioned by such damage,
repair, reconstruction or restoration.
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12.3 WAIVER OF TERMINATION. Tenant waives any statutory rights of termination
which may arise by reason of any partial or total destruction of the Premises.
ARTICLE 13
DEFAULTS BY TENANT
13.1 EVENTS OF DEFAULT. Should Tenant at any time:
(a) be in default with respect to any payment of Rent or any
other charge payable by Tenant pursuant to this Lease for a period of five (5)
days after written notice from Landlord to Tenant (provided, however, any notice
shall be in lieu of, and not in addition to, any notice required under Section
1161 of the Code of Civil Procedure of California or any similar, superseding
statute), or
(b) be in default in the prompt and full performance of any other
of its promises, covenants or agreements herein contained for more than thirty
(30) days after written notice thereof from Landlord to Tenant specifying the
particulars of the default (provided, however, any notice shall be in lieu of,
and not in addition to, any notice required under Section 1161 of the Code of
Civil Procedure of California or any similar, superseding statute), or
(c) vacate or abandon the Premises and stop paying Rent, or
(d) make any general assignment for the benefit of creditors, or
(e) have filed against Tenant a petition to have Tenant adjudged
a bankrupt or a petition for reorganization or arrangement under any law,
statute, ordinance, rule or regulation relating to bankruptcy (unless, in the
case of a petition filed against Tenant, same is dismissed within sixty (60)
days), or
(f) institute any proceedings under the Bankruptcy Code or any
similar or successor statute, code or act, or should an appointed trustee or
receiver take possession of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease where possession is not restored
to Tenant within sixty (60) days, or
(g) have substantially all of Tenant's assets located at the
Premises or Tenant's interest in this Lease attached or judicially seized where
the seizure is not discharged within sixty (60) days, then Landlord may treat
the occurrence of any one (1) or more of the foregoing events as a material
breach of this Lease and, in addition to any or all other rights and remedies
available to Landlord at law or in equity, Landlord shall have the right, at
Landlord's option, without further notice or demand of any kind to Tenant or any
other person, (i) to declare the Term ended and to re-enter and take possession
of the Premises and remove all persons therefrom, or (ii) without declaring this
Lease terminated and without terminating Tenant's right to possession, to
re-enter the Premises and occupy the whole or any part for and on account of
Tenant and to collect any unpaid rentals and other charges which have become
payable or which may thereafter become payable, or (iii) even though it may have
re-entered the Premises as provided in subparagraph (ii) of this Section 13.1,
to thereafter elect to terminate this Lease and all of the rights of Tenant in
or to the Premises. Landlord has the remedy described in California Civil Code
Section 1951.4 (Landlord may continue this Lease in effect after Tenant's breach
and abandonment and recover Rent as it
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becomes due, Tenant has the right to sublet or assign, subject only to
reasonable limitations). Landlord shall not be deemed to have terminated this
Lease, or the liability of Tenant to pay any Rent or other charges later
accruing, by any re-entry of the Premises pursuant to subparagraph (ii) of this
Section 13.1, or by any action in unlawful detainer or otherwise to obtain
possession of the Premises, unless Landlord shall have notified Tenant in
writing that it has so elected to terminate this Lease.
13.2 TERMINATION OF LEASE. Should Landlord elect to terminate this Lease
pursuant to the provisions of subparagraphs (i) or (iii) of Section 13.1,
Landlord may recover from Tenant, as damages, the following: (a) The worth at
the time of award of any unpaid rental which had been earned at the time of the
termination, plus (b) the worth at the time of award of the amount by which the
unpaid rental which would have been earned after termination until the time of
award exceeds the amount of rental loss Tenant proves could have been reasonably
avoided, plus (c) the worth at the time of award of the amount by which the
unpaid rental for the balance of the Term after the time of award exceeds the
amount of rental loss that Tenant proves could be reasonably avoided, plus (d)
any other amounts necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under this
Lease or which, in the ordinary course of things, would be likely to result
therefrom including, but not limited to, any costs or expenses incurred by
Landlord in (i) retaking possession of the Premises, including, but not limited
to, reasonable attorneys' fees and court costs therefor, (ii) maintaining or
preserving the Premises after any default, (iii) preparing the Premises for
reletting to a new tenant, including, but not limited to, repairs or alterations
to the Premises, (iv) leasing commissions, or (v) any other costs necessary or
appropriate to relet the Premises, plus (e) at Landlord's election, any other
amounts in addition to or in lieu of the foregoing as may be permitted from time
to time by the laws, statutes, ordinances, rules or regulations of the State of
California.
As used in subparagraphs (a) and (b) of Section 13.2, the "worth at the time of
award" is computed by allowing interest at the maximum lawful rate. As used in
subparagraph (c) of Section 13.2, the "worth at the time of award" is computed
by discounting such amount at the discount rate of the Federal Reserve Bank
situated nearest to the location of the Premises at the time of award plus one
percent (1%).
13.3 DEFINITION OF RENTAL. For purposes of this Article 13 only, the term
"rental" shall be deemed to be Monthly Rental, Additional Rental and all other
sums required to be paid by Tenant pursuant to the terms of this Lease. All
sums, other than Monthly Rental, shall, for the purpose of calculating any
amount due under the provisions of subparagraph (c) of Section 13.2, be computed
on the basis of the average monthly amount accruing during the immediately
preceding sixty (60) month period, except that if it becomes necessary to
compute these sums before the sixty (60) month period has occurred, then these
sums shall be computed on the basis of the average monthly amount accruing
during the shorter period.
13.4 NONMONETARY DEFAULTS. Notwithstanding any other provision of this Article
13, if the default complained of, other than a default for the payment of
monies, cannot be cured within the period requiring curing, as specified in the
written notice relating to the default, then, the default shall be deemed to be
cured if Tenant, within the notice period, shall have commenced to cure the
default and shall thereafter diligently and continuously prosecute same to
completion.
13.5 ASSIGNMENT OF RENTS AND PROFITS. In the event of default by Tenant
hereunder, Tenant hereby grants to and confers upon Landlord the right, power
and authority, at Landlord's sole option and without affecting any of Landlord's
other rights or remedies hereunder, to collect all rents
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and profits received by Tenant as a result of the possession by Tenant of the
Premises. Such amounts shall include, but shall not be limited to, amounts due
under sublease, license or concession arrangements. Upon any such default,
Landlord shall have the right to collect such rents and profits, including those
past due and unpaid. The collection of such rents and profits shall not cure,
waive or satisfy any default or notice of default hereunder.
ARTICLE 14
DEFAULTS BY LANDLORD
14.1 LANDLORD'S LIABILITY. If Landlord fails to perform any of the terms,
covenants, or conditions contained in this Lease on its part to be performed
within thirty (30) days after written notice of default (or if more than thirty
(30) days shall be required because of the nature of the default, if Landlord
shall fail to commence to cure the default after written notice and diligently
prosecute the same to completion), then to the extent permitted below, Landlord
shall be liable to Tenant for all damages sustained by Tenant as a direct result
of Landlord's breach and Tenant shall not be entitled to terminate this Lease as
a result thereof. It is expressly understood and agreed that any judgment
against Landlord resulting from any default or other claim under this Lease
shall be satisfied only out of Landlord's interest in the Premises, including,
but not limited to, the net rents, issues, profits and other income actually
received from the operation of the Premises, and Tenant shall have no claim
against Landlord (as Landlord is defined in Section 11.4) or any of Landlord's
personal assets for satisfaction of any judgment with respect to this Lease or
the Premises.
14.2 CURE BY ASSIGNEE. If any part of the Premises is at any time subject to a
mortgage or a deed of trust, and this Lease or the rentals due from Tenant
hereunder are assigned by Landlord to a mortgagee, trustee or beneficiary
("Mortgagee" for purposes of this Article 14 only) and Tenant is given written
notice of the assignment including the post office address of Mortgagee, then
Tenant shall also give written notice of any default by Landlord to Mortgagee,
specifying the default in reasonable detail and affording Mortgagee a reasonable
opportunity to cure such default and on behalf of Landlord.
ARTICLE 15
SUBORDINATION, ATTORNMENT AND TENANT'S CERTIFICATE
15.1 SUBORDINATION. If Tenant receives a fully executed non-disturbance
agreement in a form reasonably acceptable to Tenant allowing Tenant to remain in
possession of the Premises on the terms of this Lease after a foreclosure sale
or deed in lieu, provided Tenant is not in default beyond applicable notice and
cure periods, then, upon written request of Landlord, Landlord's mortgagee, the
beneficiary of a deed of trust of Landlord, or a lessor of Landlord, Tenant will
subordinate its rights pursuant to this Lease in writing to the lien of any
mortgage, deed of trust or the interest of any lease in which Landlord is the
lessee (or, at Landlord's option, cause the lien of said mortgage, deed of trust
or the interest of any lease in which Landlord is the lessee to be subordinated
to this Lease), and to all advances made or hereafter to be made upon the
security thereof.
15.2 ATTORNMENT. In the event any proceedings are brought for foreclosure, or in
the event of the exercise of the power of sale under any mortgage or deed of
trust made by Landlord encumbering the Premises, or should a lease in which
Landlord is the lessee be terminated, Tenant shall attorn to the purchaser or
lessor under such lease upon any foreclosure, sale or lease
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termination, and shall recognize the purchaser or lessor as Landlord under this
Lease, provided that the purchaser or lessor shall acquire and accept the
Premises subject to this Lease.
15.3 TENANT'S CERTIFICATE. Tenant agrees, upon not less than ten (10) days prior
notice by Landlord, to execute, acknowledge and deliver to Landlord, a statement
in writing in such form as may be reasonably required by Landlord or Landlord's
mortgagee or beneficiary ("Tenant's Certificate"). It is intended that any
Tenant's Certificate delivered pursuant hereto may be relied upon by Landlord,
any prospective tenant of the Premises, any current or prospective mortgagee or
beneficiary, or by any other party who may reasonably rely on such statement. At
Landlord's option, the failure to deliver such Tenant's Certificate within such
time shall be a default under this Lease by Tenant, and it shall be conclusively
presumed, and shall constitute a representation and warranty by Tenant, that (i)
this Lease is in full force and effect without modification, and (ii) Landlord
is not in breach or default of any of its obligations under the Lease.
15.4 NON-DISTURBANCE AGREEMENT. Upon execution of this Lease, Landlord shall
deliver to Tenant a non-disturbance agreement, executed by Landlord's existing
lender(s), if any, in a form reasonably acceptable to Tenant that will allow
Tenant to remain in possession of the Premises on the terms of this Lease after
a foreclosure sale or deed in lieu, provided Tenant is not then in default under
this Lease beyond applicable notice and cure periods.
15.5 MORTGAGE CHANGES. Tenant shall not unreasonably withhold its consent to
changes or amendments to this Lease requested by the holder of a mortgage or
deed of trust or such similar financing instrument encumbering Landlord's fee
interest in the Premises so long as such changes do not materially alter the
economic terms of this Lease or materially diminish the rights, or materially
increase the obligations, of Tenant.
ARTICLE 16
QUIET ENJOYMENT
Upon Tenant's payment of Monthly Rental and Additional Rental, and its
observation and performance of all of the terms, covenants and conditions of
this Lease to be observed and performed by Tenant, Tenant shall peaceably and
quietly hold and enjoy the Premises from and after delivery thereof to Tenant;
subject, however, to (a) the rights of the parties as set forth in this Lease,
(b) any mortgage or deed of trust to which this Lease is subordinate, (c) any
ground or underlying leases, agreements and encumbrances to which this Lease is
subordinate, (d) all matters of record, and (e) disturbances, odors and similar
inconveniences which are commonly associated with properties of the type and
size of the Premises and/or with tenants located in such properties.
ARTICLE 17
NOTICES
Every notice, demand or request (collectively "Notice") required hereunder or by
law to be given by either party to the other shall be in writing. Every
provision of this Lease which provides that either party shall notify the other
of any particular matter shall be governed by this Section. Notices shall be
given by personal service, by United States certified or registered mail,
postage prepaid, return receipt requested, by telegram, mailgram or same-day or
overnight private courier, or by facsimile addressed to the party to be served
at the following address:
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To Landlord: Max Singer Limited Partnership
23 Ridgeline Ave.
Newport Beach, Ca. 92660
Attention: Property Manager
To Tenant: Flashcom, Inc.,
a Delaware corporation
5312 Bolsa Ave.
Huntington Beach, Ca. 92649
Attention: Office Manager
or such other address as the party to be served may from time to time designate
in a Notice to the other party. Notice personally served shall be effective when
delivered to the party upon whom such Notice is served. If served by registered
or certified mail, Notice shall be conclusively deemed served on the date shown
on the return receipt, but if delivery is refused or the Notice is unclaimed,
Notice shall conclusively be deemed given forty eight (48) hours after mailing.
If served by telegram, mailgram or private courier, Notice to the addressee
shall be conclusively deemed given as confirmed by the telegraphic agency or
private courier service making delivery. If served by facsimile, Notice shall be
conclusively be deemed served on the date sent, provided that electronic
confirmation of successful transmission is obtained.
ARTICLE 18
MISCELLANEOUS
18.1 WAIVER. Any waiver by either party of a breach by the other party of a
term, covenant or condition of this Lease shall not be construed as a waiver of
a subsequent breach of the same term, covenant or condition. The consent or
approval by either party to anything requiring such party's consent or approval
shall not be deemed a waiver of such party's right to withhold consent or
approval of any subsequent similar act. No breach of a term, covenant or
condition of this Lease shall be deemed to have been waived by the other party
unless the waiver is in writing and is signed by such party.
18.2 RIGHTS CUMULATIVE. Except as provided herein to the contrary, and subject
to the specific limitations contained in Article 14, the respective rights and
remedies of the parties specified in this Lease shall be cumulative and in
addition to any rights and remedies not specified in this Lease.
18.3 ENTIRE AGREEMENT. It is understood that there are no oral or written
agreements or representations between the parties hereto relating to this Lease
and this Lease supersedes and cancels any and all previous negotiations,
arrangements, representations, agreements and understandings, if any, between
Landlord and Tenant relating to the leasing of the Premises from Landlord to
Tenant.
18.4 AMENDMENTS IN WRITING. No provision of this Lease may be amended except by
an agreement in writing signed by Landlord and Tenant.
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18.5 NO PRINCIPAL/AGENT RELATIONSHIP. Nothing contained in this Lease shall be
construed as creating the relationship of principal and agent or of partnership
or joint venture between Landlord and Tenant.
18.6 GOVERNING LAW. This Lease shall be governed by and construed in accordance
with the laws, statutes, rules and regulations of the state in which the
Premises are located, without giving effect to the choice of law provisions
thereof.
18.7 SEVERABILITY. If any provision of this Lease or the application of such
provision to any person, entity or circumstance is found invalid or
unenforceable by a court of competent jurisdiction, such provision shall be
enforced to the fullest extent permitted by law, such determination shall not
affect the other provisions of this Lease, and all other provisions of this
Lease shall be deemed valid and enforceable.
18.8 SUCCESSORS. All rights and obligations of Landlord and Tenant under this
Lease shall extend to and bind the respective heirs, executors, administrators
and the permitted concessionaires, successors, subtenants and assignees of the
parties. If there is more than one (1) Tenant hereunder, each shall be bound
jointly and severally by the terms, covenants and conditions contained in this
Lease.
18.9 TIME OF THE ESSENCE. Time is of the essence of all provisions of this Lease
of which time is an element.
18.10 WARRANTY OF AUTHORITY. If either Tenant or Landlord is a corporation,
limited liability company or partnership, each individual executing this Lease
on behalf of the corporation, limited liability company or partnership
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of the corporation, limited liability company or
partnership and that this Lease is binding upon the corporation, limited
liability company or partnership.
18.11 WAIVER OF RIGHTS OF REDEMPTION. Tenant waives any and all rights of
redemption granted under any present and future laws, statutes, ordinances,
rules and regulations in the event Landlord obtains the right to possession of
the Premises by reason of the violation by Tenant of any of the terms, covenants
and conditions of this Lease or otherwise.
18.12 NO BROKERAGE COMMISSIONS. Tenant and Landlord each represent and warrant
to the other party that no broker or finder can properly claim a right to a
commission or finder's fee based upon contacts between the claimant and the
warranting party with respect to the other party or the Premises. Tenant and
Landlord shall indemnify, defend and hold each other harmless from and against
any loss, cost or expense, including, but not limited to, reasonable attorneys'
fees and court costs, resulting from any claim for a fee or commission by any
broker or finder in connection with the Premises and this Lease resulting from
the indemnifying party's actions.
18.13 NO RECORDING. Tenant shall not record this Lease or any short form
memorandum of this Lease.
18.14 TRANSFER OF LANDLORD'S INTEREST. Should Landlord sell, exchange or assign
this Lease (other than a conditional assignment as security for a loan), then
Landlord, as transferor, shall be relieved of any and all obligations on the
part of Landlord accruing under this Lease from
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and after the date of such transfer provided that Landlord's successor in
interest shall assume such obligations from and after such date.
18.15 INTEREST ON PAST DUE OBLIGATIONS. Except where another rate of interest or
accrual period is specifically provided for in this Lease, any amount due from
either party to the other under this Lease which is not paid when due, shall
bear interest at the rate per annum ("Interest Rate") equal to the prime
interest rate charged by Wells Fargo Bank plus two (2) percentage points (but in
no event to exceed the maximum lawful rate) from the date ten (10) days after
such amount was originally due to and including the date of payment.
18.16 RIGHT TO SHOW PREMISES. During the last one hundred twenty (120) days of
the Term or earlier termination of this Lease, Landlord shall have the right to
go upon the Premises to show same to prospective tenants or purchasers and to
post appropriate signs, during normal business hours and upon no less than
twenty-four (24) hours' prior written notice to Tenant.
18.17 LIENS. Tenant shall pay all costs for work performed by or on account of
it and shall keep the Premises free and clear of mechanics' liens or any other
liens. Tenant shall give Landlord immediate notice of any lien recorded against
the Premises as a result of any work of improvement performed by or on behalf of
Tenant. Tenant shall, within thirty (30) days after recordation of any lien
cause such lien to be discharged or removed of record by either paying the
amount thereof or recording a statutory lien release bond in an amount equal to
one hundred fifty percent (150%) of the amount of said lien. If Tenant fails to
do so, Landlord shall have the right, but not the obligation, in addition to all
other rights and remedies available to Landlord under this Lease, at law and in
equity, to either pay and discharge such lien, without regard to the validity
thereof, or procure and cause to be recorded a statutory lien release bond, and
to collect from Tenant as Additional Rental (i) all costs incurred by Landlord
in paying and discharging such lien, or in procuring such bond, and (ii) all
expenses incurred by Landlord in connection with such lien including, but not
limited to, reasonable attorneys' fees and court costs, recording fees and
administrative costs and expenses.
18.18 TRADE FIXTURES, PERSONAL PROPERTY AND ALTERATIONS. Upon the expiration or
earlier termination of the Term, Tenant shall, at its sole cost and expense,
remove from the Premises all of Tenant's trade fixtures, furniture, equipment,
signs, improvements, additions and Alterations to the extent such items are not
permanently affixed to the Premises, except for any such items with respect to
which Landlord agreed otherwise at the time of installation by Tenant, and
immediately repair any damage occasioned to the Premises by reason of such
removal so as to leave the Premises in a neat and clean condition. Tenant may,
within thirty (30) days' prior notice to Landlord, encumber or finance its
movable fixtures and equipment installed in the Premises, and no such
encumbrance or financing shall be deemed an Assignment, provided such
encumbrance or financing creates a security interest in such movable fixtures
and equipment only, and confers no interest in the Premises. All trade fixtures,
signs and other personal property installed in or attached to the Premises by
Tenant must be new or like new when so installed or attached.
18.19 FORCE MAJEURE. Any prevention, delay or stoppage due to strikes, lockouts,
labor disputes, acts of God, inability to obtain labor or materials or
reasonable substitutes therefor, governmental restrictions, governmental
regulations, governmental controls, judicial orders, enemy or hostile
governmental action, civil commotion, fire or other casualty, and other causes
(except financial) beyond the reasonable control of the party obligated to
perform, shall excuse the performance by that party for a period equal to the
prevention, delay or stoppage, except the obligations imposed with regard to
Rent to be paid by Tenant pursuant to this Lease; provided the
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party prevented, delayed or stopped shall have given the other party written
notice thereof within thirty (30) days after such event causing the prevention,
delay or stoppage.
18.20 TERMINATION AND HOLDING OVER. This Lease shall terminate without further
notice upon the expiration of the Term. Upon the expiration or earlier
termination of the Term, Tenant shall peaceably and quietly surrender the
Premises broom-clean and in the same condition as the Premises were in on the
Commencement Date, reasonable wear and tear and any damage to the Premises which
Tenant is not required to repair pursuant to this Lease excepted. Should Tenant
hold over in the Premises beyond the expiration or earlier termination of this
Lease, the holding over shall not constitute a renewal or extension of this
Lease or give Tenant any rights under this Lease. In such event, Landlord may,
in its sole discretion, either (i) upon written notice to Tenant, treat Tenant
as a month-to-month tenant at will, subject to all of the terms, covenants and
conditions in this Lease, except that Monthly Rental shall be an amount equal to
one and one-half (1-1/2) times the sum of Monthly Rental which was payable by
Tenant for the period immediately preceding the expiration or earlier
termination of this Lease, or (ii) proceed with an unlawful detainer action and
pursue all other rights and remedies available to Landlord. If Tenant fails to
surrender the Premises upon the expiration or earlier termination of this Lease,
Tenant shall indemnify, defend (with counsel reasonably acceptable to Landlord)
and hold harmless Landlord from and against, all Claims which may accrue
therefrom including, but not limited to, any claims made by any succeeding
tenant or purchaser of the Premises founded on or resulting from Tenant's
failure to surrender. Acceptance by Landlord of any Rent after the expiration or
earlier termination of this Lease shall not constitute a consent to a holdover
hereunder, constitute acceptance of Tenant as a tenant at will, or result in a
renewal of this Lease.
18.21 ATTORNEYS' FEES AND PROCESSING CHARGES. If it becomes necessary for either
Landlord or Tenant to employ an attorney to enforce its rights pursuant to this
Lease because of the default of the other party, the defaulting party will
reimburse the non-defaulting party for the non-defaulting party's reasonable
attorneys' fees, court costs and expert fees. Tenant shall also indemnify,
defend (with counsel reasonably acceptable to Landlord) and hold harmless
Landlord from and against all Claims Landlord may incur if Landlord becomes or
is made a party to any claim or action (a) instituted by Tenant against any
third party, or by any third party against Tenant, or by or against any person
holding any interest under or using the Property by license of or agreement with
Tenant; (b) for foreclosure of any lien for labor or material furnished to or
for Tenant or such other person; (c) otherwise arising out of or resulting from
any act or transaction of Tenant or any party claiming under Tenant or that
relate to the Property, or such other person; or (d) necessary to protect
Landlord's interest under this Lease in a bankruptcy proceeding or other
proceeding under Title 11 of the United States Code, as amended.
If at the request of Tenant or in connection with any such transaction initiated
by Tenant, Landlord shall prepare, review or execute any amendment,
modification, consent to Assignment, approval, fixture subordination, waiver or
other agreement or instrument relating to this Lease or the Premises, Tenant
agrees to pay to Landlord, as Additional Rental, (i) a reasonable processing
charge to be determined by Landlord, which charge shall not exceed One Thousand
Dollars ($1,000) and (ii) Landlord's reasonable attorneys' fees and expenses
incurred in connection with the evaluation and documentation thereof. Landlord
may, at its option, require the payment of all or a portion of such changes
and/or fees in advance.
18.22 WAIVER OF TRIAL BY JURY. Landlord and Tenant desire and intend that any
disputes arising between them with respect to or in connection with this Lease
be subject to expeditious
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resolution in a court trial without a jury. Therefore, Landlord and Tenant each
hereby waive the right to trial by jury of any cause of action, claim,
counterclaim or cross-complaint in any action, proceeding or other hearing
brought by either Landlord against Tenant or Tenant against Landlord on any
matter whatsoever arising out of, or in any way connected with, this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises,
any claim of injury or damage, or the enforcement of any remedy under any law,
statute or regulation, emergency or otherwise, now or hereafter in effect.
ARTICLE 19
OPTION TO RENEW
19.1 GRANT OF OPTION. Provided that this Lease shall be in full force and
effect, Tenant shall not have been in default beyond all applicable cure periods
under any of Tenant's obligations under this Lease more than three (3) times
during the Term, and Tenant shall not be in default under any of Tenant's
obligations under this Lease either at the time of Tenant's election to exercise
the Option (as defined below) or upon the commencement of the Option Term (as
defined below), Tenant shall have two (2) options to extend the Term (each an
"Option", and collectively, "Options") for additional consecutive terms of sixty
(60) months each to commence upon the expiration of the initial Term or the
Option Term, as applicable. If the Term is extended, all of the terms and
provisions of this Lease shall extend to and be applicable during the Term so
extended (the "Option Term"), except as specifically set forth in this Exhibit
to the contrary. The Options granted to Tenant pursuant to this Lease are
personal to the original Tenant and shall not be assignable or transferable to
any person.
19.2 EXERCISE OF OPTION. Such Options shall be exercised by Tenant giving
written notice thereof to Landlord at least nine (9) months but no more than
twelve (12) months prior to the expiration of the then current Term, and
Tenant's right to exercise any consecutive Option shall be contingent upon
Tenant's exercise of the previous Option. The exercise of an Option shall be
irrevocable.
19.3 OPTION RENTAL. Monthly Rental for each Option Term ("Option Rental") shall
be the greater of (i) the then current Monthly Rental, or (ii) the fair market
five-year fixed triple net base rent of the Premises as of the date of the
exercise of the Option. Tenant shall also continue to pay Additional Rental as
required by this Lease. If the parties are unable to agree on the Option Rental
within thirty (30) days after the date of the exercise of the Option, then the
Option Rental shall be determined by the following procedure: Within sixty (60)
days after the date of the exercise of the Option, Landlord and Tenant will
attempt to agree on a single MAI appraiser with at least five (5) years
experience in appraising industrial properties in the county in which the
Premises are located (a "Qualified Appraiser"). If the parties agree on a single
Qualified Appraiser, then each party shall submit to such Qualified Appraiser
its opinion of the fair market five-year fixed triple net base rent of the
Premises as of the date of the exercise of the Option. The sole responsibility
of the Qualified Appraiser will be to determine which of the rental amounts
submitted by Landlord and Tenant most accurately reflects the fair market
five-year fixed triple net base rent of the Premises as of the date of the
exercise of the Option. The Qualified Appraiser shall select either Landlord's
or Tenant's rental amount and such amount shall be the Option Rental. The
Qualified Appraiser has no right to propose a middle ground or any modification
of either of the determinations made by either party. The Qualified Appraiser's
choice will be submitted to the parties within twenty (20) days after his or her
selection. Such determination will bind both Landlord and Tenant and will
establish the Option
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Rental. If the parties are unable to agree on a single Qualified Appraiser
within such thirty (30) day period, each party will appoint a Qualified
Appraiser. Each such Qualified Appraiser will then designate a third Qualified
Appraiser, who shall make the determination described above. Each party will pay
one-half (1/2) of the fees and expenses of the determining Qualified Appraiser.
Each party will pay the fees and expenses of the Qualified Appraiser selected by
it, if applicable.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease on the day
and year first above written.
"Landlord" "Tenant"
Max Singer Limited Partnership, Flashcom, Inc.,
a California LLP a Delaware corporation
By: /s/ Bradford H. Sachs By: /s/ Bradford H. Sachs
----------------------- -----------------------
Its: Partner Its: President / CEO
---------------------- ----------------------
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EXHIBIT A
PREMISES
5312 Bolsa Avenue
Huntington Beach, Ca., 92649
1
<PAGE> 22
FIRST AMENDMENT TO LEASE AGREEMENT[PART OF EXH. 10.7]
This First Amendment to Lease Agreement (the "First Amendment") is
entered into as of January 14, 2000 by and between Bradford H. Sachs, a married
man as his sole and separate property ("Sachs") as landlord, and Flashcom, Inc.,
a Delaware corporation ("Tenant").
R E C I T A L S
A. WHEREAS, Sachs purchased the property consisting of approximately
25,200 rentable square feet located at 5312 Bolsa Avenue, Huntington Beach,
California (the "Premises") are a part (the "Property") as indicated by that
certain Grant Deed dated March 30, 1999 (the "Grant Deed"). The Grant Deed was
executed by Korean American Food Marketing Institute, a California corporation,
as grantor, in favor of Sachs as grantee. The Grant Deed was recorded in the
Official Records of Orange County, California (the "Official Records") on May
17, 1999 as Instrument No. 19990361838; and
B. WHEREAS, in order to confirm title to the Property in Sachs as the
sole owner, Andra Sachs, a married woman, executed an Interspousal Transfer Deed
dated May 13, 1999, which was recorded in the Official Records on May 17, 1999
as Instrument No. 1990361839; and
C. WHEREAS, Max Singer Limited Partnership ("MSLP") as landlord, and
Tenant, entered into that certain Lease Agreement as of June 1, 1999 (the
"Lease") with respect to the Premises; and
D. WHEREAS, Sachs executed the Lease in his capacity as a partner of
MSLP; and
E. WHEREAS, the parties to the Lease now recognize that the Lease was
entered into by landlord in the incorrect name and the parties desire to enter
into this First Amendment to correct the name of the landlord under the Lease.
NOW THEREFORE, the parties desire to enter into this First Amendment on
the terms set forth below.
1. Incorporation of Recitals. The foregoing recitals are incorporated
herein by this reference.
2. Correction of Name of Landlord. The name of the "Landlord" as defined
in the Lease is hereby corrected and changed from MSLP to Sachs. Upon execution
of this First Amendment by Sachs as Landlord, and by Tenant, the original Lease
shall be deemed to have been executed in the name of Sachs as Landlord, and by
Tenant as "Tenant", on the identical terms and conditions as appear therein.
3. No Further Modifications. Except as specifically modified by the
terms of this First Amendment, the Lease shall remain in full force and effect.
<PAGE> 23
IN WITNESS WHEREOF, landlord and tenant have entered into this First
Amendment as of the date first set forth above.
Landlord:
/s/ Bradford H. Sachs
-----------------------------------------
Bradford H. Sachs, a married man as his
sole and separate property
Tenant:
Flashcom, Inc., a Delaware corporation
By: /s/ Richard N. Rasmus
--------------------------------------
Name: Richard N. Rasmus
------------------------------------
Title: President / COO
-----------------------------------
<PAGE> 1
INDEMNIFICATION AGREEMENT EXH. 10.12
This INDEMNIFICATION AGREEMENT ("Agreement") is made on April __, 2000,
between FLASHCOM, INC., a Delaware corporation (the "Company"), and
___________________________ ("Indemnitee"), an officer and/or member of the
Board of Directors of the Company and which shall be effective concurrent with
the commencement of Indemnitee's position as a officer and/or director of the
Company.
WHEREAS, the Company desires the benefits of having Indemnitee serve as
an officer and/or director secure in the knowledge that expenses, liabilities
and losses incurred by him in his good faith service to the Company will be
borne by the Company or its successors and assigns in accordance with applicable
law; and
WHEREAS, the Company desires that Indemnitee resist and defend against
what Indemnitee may consider to be unjustified investigations, claims, actions,
suits and proceedings which have arisen or may arise in the future as a result
of Indemnitee's service to the Company notwithstanding that conditions in the
insurance markets may make directors' and officers' liability insurance coverage
unavailable or available only at premium levels which the Company may deem
inappropriate to pay; and
WHEREAS, the parties believe it appropriate to memorialize and reaffirm
the Company's indemnification obligations to Indemnitee and, in addition, set
forth the indemnification agreements contained herein;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties agree as follows:
1. INDEMNIFICATION. Indemnitee shall be indemnified and held harmless by
the Company to the fullest extent permitted by its Certificate of Incorporation,
Bylaws and applicable law, as the same exists or may hereafter be amended,
against all expenses, liabilities and loss (including attorneys' fees,
judgments, fines, and amounts paid or to be paid in any settlement approved in
advance by the Company, such approval not to be unreasonably withheld)
(collectively, "Indemnifiable Expenses") actually reasonably incurred or
suffered by Indemnitee in connection with any present or future threatened,
pending or contemplated investigation, claim, action, suit or proceeding,
whether civil, criminal, administrative or investigative (collectively,
"Indemnifiable Litigation"), (i) to which Indemnitee is or was a party or is
threatened to be made a party by reason of any action or inaction in
Indemnitee's capacity as a director or officer of the Company, or (ii) with
respect to which Indemnitee is otherwise involved by reason of the fact that
Indemnitee is or was serving as a director, officer, employee or agent of the
Company, or of any subsidiary or division, or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. Notwithstanding the
foregoing, Indemnitee shall have no right to indemnification for expenses and
the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended.
2. INTERIM EXPENSES. The Company agrees to pay Indemnifiable Expenses
incurred by Indemnitee in connection with any Indemnifiable Litigation in
advance of the final disposition thereof, provided that the Company has received
an undertaking by or on behalf of Indemnitee,
<PAGE> 2
substantially in the form attached hereto as Exhibit A, to repay the amount so
advanced to the extent that it is ultimately determined that Indemnitee is not
entitled to be indemnified by the Company under this Agreement or otherwise. The
advances to be made hereunder shall be paid by the Company to Indemnitee within
twenty (20) days following delivery of a written request therefor by Indemnitee
to the Company.
3. PROCEDURE FOR MAKING DEMAND. Indemnitee shall, as a condition
precedent to his right to be indemnified under this Agreement, give the Company
notice in writing as soon as practicable of any claim made against Indemnitee
for which indemnification will or could be sought under this Agreement. Notice
to the Company shall be directed to the Chief Executive Officer of the Company
at the address set forth in Section 10 hereof (or such other address as the
Company shall designate in writing to Indemnitee). Notice shall be deemed
received three business days after the date postmarked and sent by certified or
registered mail, properly addressed; otherwise notice shall be deemed received
when such notice shall actually be received by the Company. In addition,
Indemnitee shall give the Company such information and cooperation as it may
reasonably require and as shall be within Indemnitee's power. Any
indemnification provided for in Section 1 shall be made no later than forty-five
(45) days after receipt of the written request of Indemnitee.
4. FAILURE TO INDEMNIFY.
(a) If a claim under this Agreement, or any statute, or under any
provision of the Company's Certificate of Incorporation or Bylaws providing for
indemnification, is not paid in full by the Company, within forty-five (45) days
after a written request for payment thereof has been received by the Company,
Indemnitee may, but need not, at any time thereafter bring an action against the
Company to recover the unpaid amount of the claim and, subject to Section 11 of
this Agreement, if successful in whole or in part, Indemnitee shall also be
entitled to be paid for the expense (including attorneys' fees) of bringing such
action.
(b) It shall be a defense to such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action,
suit or proceeding in advance of its final disposition) that Indemnitee has not
met the standard of conduct which make it permissible under applicable law for
the Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of interim expenses pursuant to Section 2 hereof unless
and until such defense may be finally adjudicated by court order or judgment
from which no further right of appeal exists. It is the parties' intention that
if the Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its board of directors,
independent legal counsel, or its stockholders) to have made a determination
that indemnification of Indemnitee is proper in the circumstances because
Indemnitee has met the applicable standard of conduct required by applicable
law, nor an actual determination by the Company (including its board of
directors, any committee or subgroup of the board of directors, independent
legal counsel, or its stockholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
5. NOTICE TO INSURERS. If, at the time of the receipt of a notice of a
claim pursuant to Section 3 thereof, the Company has director and/or officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or
2
<PAGE> 3
desirable action to cause such insurers to pay, on behalf of the indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such policies.
6. RETENTION OF COUNSEL. In the event that the Company shall be
obligated to pay Indemnifiable Expenses as a result of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by Indemnitee, which approval shall
not be unreasonably withheld, upon the delivery to Indemnitee of written notice
of its election to do so. After delivery of such notice, approval of such
counsel by Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to Indemnitee under this Agreement for any fees of
counsel subsequently incurred by that Indemnitee with respect to that same
proceeding, provided that (i) Indemnitee shall have the right to employ his or
her counsel in any such proceeding at Indemnitee's expense, and (ii) if (A) the
employment of counsel by Indemnitee has been previously authorized by the
Company, (B) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (C) the Company shall not, in fact, have employed counsel to
assume defense of such proceeding, then the fees and expenses of Indemnitee's
counsel shall be at the expense of the Company.
7. SUCCESSORS. This Agreement establishes contract rights which shall be
binding upon, and shall inure to the benefit of, the successors, assigns, heirs
and legal representatives of the parties hereto.
8. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company may be
required in the future to undertake to the Securities and Exchange Commission to
submit the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee, and, in that event, the Indemnitee's rights and the Company's
obligations hereunder shall be subject to that determination.
9. CONTRACT RIGHTS NOT EXCLUSIVE. The contract rights conferred by this
Agreement shall be in addition to, but not exclusive of, any other right which
Indemnitee may have or may hereafter acquire under any statute, provision of the
Company's Certificate of Incorporation or Bylaws, agreement, vote of
shareholders or disinterested directors, or otherwise.
10. INDEMNITEE'S OBLIGATIONS. The Indemnitee shall promptly advise the
Company in writing of the institution of any investigation, claim, action, suit
or proceeding which is or may be subject to this Agreement and keep the Company
generally informed of, and consult with the Company with respect to, the status
of any such investigation, claim, action, suit or proceeding. Notices to the
Company shall be directed to Flashcom, Inc., 5312 Bolsa Avenue, Huntington
Beach, California 92649, Attn: Steven R. Pacelli, Vice President and General
Counsel (or other such address as the Company shall designate in writing to
Indemnitee). Notice shall be deemed received three days after the date
postmarked if sent by certified or registered mail, properly addressed. In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
3
<PAGE> 4
11. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, a court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement, or to enforce
or interpret any other terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
12. SEVERABILITY. Should any provision of this Agreement, or any clause
hereof, be held to be invalid, illegal or unenforceable, in whole or in part,
the remaining provisions and clauses of this Agreement shall remain fully
enforceable and binding on the parties.
13. MODIFICATION AND WAIVER. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether of
not similar) nor shall such waiver constitute a continuing waiver.
14. CHOICE OF LAW. The validity, interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
Delaware.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
FLASHCOM, INC.:
By:
----------------------------------
Its:
---------------------------------
INDEMNITEE:
Name:
--------------------------------
5
<PAGE> 6
EXHIBIT A
UNDERTAKING AGREEMENT
This UNDERTAKING AGREEMENT is made on April __, 2000, between FLASHCOM,
INC., a Delaware corporation (the "Company") and __________________________, an
officer and/or member of the board of directors of the Company ("Indemnitee").
WHEREAS, Indemnitee may become involved in investigations, claims,
actions, suits or proceedings which have arisen or may arise in the future as a
result of Indemnitee's service to the Company; and
WHEREAS, Indemnitee desires that the Company pay any and all expenses
(including, but not limited to, attorneys' fees and court costs) actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf in defending or
investigating any such suits or claims and that such payment be made in advance
of the final disposition of such investigations, claims, actions, suits or
proceedings to the extent that Indemnitee has not been previously reimbursed by
insurance; and
WHEREAS, the Company is willing to make such payments but, in accordance
with Section 145 of the General Corporation Law of the State of Delaware, the
Company may make such payments only if it receives an undertaking to repay from
Indemnitee; and
WHEREAS, Indemnitee is willing to give such an undertaking;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties agree as follows:
1. In regard to any payments made by the Company to Indemnitee pursuant
to the terms of the Indemnification Agreement dated April __, 2000, between the
Company and Indemnitee, Indemnitee hereby undertakes and agrees to repay to the
Company any and all amounts so paid promptly and in any event within thirty (30)
days after the disposition, including any appeals, of any litigation or
threatened litigation on account of which payments were made, but only to the
extent that Indemnitee is ultimately found not entitled to be indemnified by the
Company under the Bylaws of the Company and Section 145 of the General
Corporation Law of the State of Delaware, or other applicable law.
2. This Agreement shall not affect in any manner rights which Indemnitee
may have against the Company, any insurer or any other person to seek
indemnification for or reimbursement of any expenses referred to herein or any
judgment which may be rendered in any litigation or proceeding.
A-1
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
FLASHCOM, INC.:
By:
----------------------------------
Its:
---------------------------------
INDEMNITEE:
Name:
--------------------------------
A-2
<PAGE> 1
Exhibit 10.13
[FLASHCOM LETTERHEAD]
Paul Adams
53 Bennett Road
Watertown, MA 02472
Re: Separation Agreement
Dear Paul:
I am pleased that we have reached agreement on the terms for your
separation from employment with Flashcom. Once signed by you, this letter will
serve as our final agreement on the following terms:
1. RESIGNATION: You hereby resign voluntarily from employment with
Flashcom effective October 8, 1999. You of course will be paid all salary,
accrued vacation, and reimbursable expenses due through that date, regardless of
whether you sign this letter. Since you never became covered by the Company's
group health plans, you are not entitled to continuation coverage under COBRA.
2. UNEMPLOYMENT BENEFITS: The Company will not contest your eligibility
for unemployment compensation if you report to the State that your employment
ended due to a reorganization.
3. RETURN OF COMPANY PROPERTY: If you have not done so already, you must
gather up and return all Company property in your possession or under your
control. This includes but is not limited to all keys, credit cards, original
and copies of documents, and all office, computer, or telephone equipment.
4. SEPARATION BENEFITS: In consideration for your signing this
agreement, the Company will provide the following severance pay and benefits:
A. SALARY CONTRIBUTION: The Company will continue paying your
current base salary through its regular payroll from October 9, 1999,
until January 8, 2000, minus appropriate withholding and payroll
deductions.
B. RESTRICTED STOCK: The Company will waive its right to
repurchase 70, 312 shares of the 375,000 shares of the Company's common
stock that you purchased under your Restricted Stock Agreement dated
July 31, 1999, and allow you to purchase those shares for $46,875.00 in
cash. Upon receipt of your cash payment, the Company will cancel your
outstanding promissory note and existing share certificate, which will
effectuate the Company's repurchase of the balance of your shares, and
then will issue you a new share certificate representing your 70,312
shares.
5. COOPERATION: You agree to cooperate in assuring a smooth and orderly
transition of your duties and responsibilities. You and the management of the
Company will refrain from making any disparaging comments about the other or
from interfering in any way with the other's business or
<PAGE> 2
future employment. In responding to inquiries about you from prospective
employers, the Company will disclose your dates of employment, title, final rate
of pay, and the fact that you resigned voluntarily, provided you refer all such
inquiries to my attention.
6. FINAL SETTLEMENT: Since these benefits go beyond what you are
entitled to under the Company's policies, you agree that this separation
agreement constitutes a full and final settlement of any and all claims, known
or unknown, of any kind that you or your dependents may have to date against the
Company or any of its parent or affiliated companies and their offices,
directors, shareholders, employees, insurors, agents, successors, or assigns,
and you agree to dismiss and never to bring any legal or administrative action
based on any such claim. This includes but is not limited to claims arising from
your hiring, employment, compensation, or termination, or arising under equal
employment laws such as Title VII of the Civil Rights Act of 1964 or the
Massachusetts Fair Employment Practices Act.
7. CONFIDENTIALITY: You agree to keep this agreement, including the fact
and amount of pay and benefits, strictly confidential to the fullest extent
allowed by law, but you may disclose it to your attorney or accountant.
8. TRADE SECRETS: During your employment, you were entrusted with access
to highly confidential trade secrets of the Company concerning its customers and
prospects, finances, sales and marketing programs, business plans, personnel,
and other subjects. You agree to keep all such information confidential and not
to use or disclose it for any purpose after your termination.
9. VOLUNTARY AGREEMENT: You acknowledge that you are entering into this
agreement freely and voluntarily, with a full understanding of its terms
including the release of all claims. You are free to consult an attorney if you
so desire before signing this agreement.
10. COMPLETE AGREEMENT: You agree that this letter sets forth all of the
terms of your agreement with the Company, but that any other agreements you have
signed with the Company concerning confidential information or assignment of
inventions shall remain in effect.
11. NO ADMISSION: You acknowledge that this is not an admission of
wrongdoing by you or the Company, and shall not be used as evidence of guilt. If
you elect not to sign this letter, you will still receive your final salary and
accrued vacation, but this letter will become null and void.
To confirm that you agree to these terms, please sign and date the
enclosed copy of this letter, and return it to me in the enclosed envelope so
that we can provide you with your severance package.
I wish you the best in your future endeavors.
Very truly yours,
(s) Brad Sachs Dated October 20, 1999
- ---------------
I agree to the terms stated in this letter.
(s) Paul Adams Dated October 18, 1999
- ---------------
<PAGE> 1
Exhibit 10.14
December 23, 1999
Lawrence R. Webb
813 N. Martel Avenue
Unit D
Los Angeles, CA 90046
Re: Separation Agreement
Dear Larry:
I am pleased that we have reached agreement on the terms for your
separation from employment with Flashcom. Once signed by you, this letter will
serve as our final agreement on the following terms:
1. TERMINATION: Your employment with Flashcom will terminate by mutual
[/s/ LRW] agreement effective December 3, 1999, and you are relieved of all
duties and responsibilities as of that date. You of course will be paid all
salary, accrued vacation, and reimbursable expenses due through that date,
regardless of whether you sign this letter.
2. UNEMPLOYMENT BENEFITS: The Company will not contest your eligibility
for unemployment compensation if you report to the State that your employment
ended due to a reorganization.
3. RETURN OF COMPANY PROPERTY: If you have not done so already, you must
gather up and return all Company property in your possession or under your
control. This includes but is not limited to all keys, credit cards, originals
and copies of documents, and all office, computer, or telephone equipment.
4. SEPARATION BENEFITS: In consideration for your signing this
agreement, the Company will provide the following severance pay and benefits
once this agreement takes effect:
A. SALARY CONTINUATION: The Company will continue paying your
current base salary through its regular payroll for a period of two [/s/
LRW] months from December 3, 1999, through February 3, 2000, minus
appropriate withholding and payroll deductions.
B. STOCK OPTIONS: Notwithstanding the vesting schedule set forth
in your Stock Option Agreement dated as of June 4, 1999, the Company
hereby agrees to accelerate the vesting of and make immediately
exercisable 10,000 of your outstanding stock options [/s/ LRW] (for
30,000 (thirty thousand) options after giving effect to the three for
one split of the outstanding shares of the Company's outstanding stock
effective December 7, 1999) effective as of December 3, 1999, and you
will thereafter have the right to exercise those options and purchase
10,000 shares of common stock of the Company in accordance with the
terms of your Stock Option Agreement and the Company's 1999 Incentive
Stock Option, Nonqualified Stock Option and Restricted Stock Purchase
Plan (the "Plan") as such terms relate to the exercise of vested stock
options upon termination of employment. All of your other outstanding
options will lapse in accordance with the terms of your Stock Option
Agreement and the Plan.
<PAGE> 2
C. GROUP MEDICAL CONTINUATION: If you elect to continue your
group medical coverage after your termination date, the Company will
continue paying the premiums for such coverage until the end of June
2000 or until you become covered by another group medical plan,
whichever occurs first. Any further coverage beyond that date will be at
your expense.
5. COOPERATION: You agree to cooperate in assuring a smooth and orderly
transition of your duties and responsibilities as specifically requested by the
Company, but you are not to report to the Company or take any action on its
behalf after your termination date. You and the management of the Company will
refrain from making any disparaging comments about the other or from interfering
in any way with the other's business or future employment. In responding to
inquiries about you from prospective employers, the Company will disclose your
dates of employment, title, and final rate of pay, provided you refer all such
inquiries to the attention of Human Resources.
6. FINAL SETTLEMENT: Since these benefits go beyond what you are
entitled to under the Company's policies, you agree that this separation
agreement constitutes a full and final settlement of any and all claims, known
or unknown, of any kind that you or your dependants may have to date against the
Company or any of its parent or affiliated companies and their offices,
directors, shareholders, employees, insurors, agents, successors, or assigns,
and you agree to dismiss and never to bring any legal or administrative action
based on any such claim. This includes but is not limited to claims arising from
your hiring, employment, compensation, or termination, or claims for any form of
employment discrimination or harassment arising under equal employment laws such
as title VII of the Civil Rights Act of 1964, the Age Discrimination in
Employment Act, or the California Fair Employment and Housing Act.
7. CONFIDENTIALITY: You agree to keep this agreement, including the fact
and amount of pay and benefits, strictly confidential to the fullest extent
allowed by law, but you may disclose it to your attorney or accountant.
8. TRADE SECRETS: During your employment, you were entrusted with access
to highly confidential trade secrets of the Company concerning its customers and
prospects, finances, sales and marketing programs, business plans, personnel,
and other subjects. You agree to keep all such information confidential and not
to use or disclose it for any purpose after your termination. You must also
comply with all applicable laws regarding the use or disclosure of inside
information relating to your stock options.
9. VOLUNTARY AGREEMENT: You acknowledge that you are entering into this
agreement freely and voluntarily, with a full understanding of its terms
including the release of all claims. You are advised to consult an attorney if
you so desire before signing this agreement.
10. COMPLETE AGREEMENT: You agree that this letter sets forth all of the
terms of your agreement with the Company, and supersedes any other agreements
you may have with the Company, but that any other agreements you have signed
with the Company concerning confidential information or assignment of inventions
shall remain in effect.
11. NO ADMISSION: You acknowledge that this is not an admission of poor
performance or wrongdoing by you or the Company, and shall not be used as
evidence of guilt.
<PAGE> 3
If you elect not to sign this letter, you will still receive your final salary
and accrued vacation through your termination date, but this agreement will
become null and void.
12. EFFECTIVE DATE: To assure that you agree voluntarily to these terms,
including the release of all claims you may have against the Company, you will
have a period of twenty-one (21) days after you receive this agreement which to
decide whether or not to sign it. Once you have signed this agreement, you will
have an additional period of seven (7) days after signing in which to revoke
your acceptance by notifying me in writing, and returning any severance benefits
you may have received. This agreement will not take effect and you will not be
entitled to the severance pay and benefits until that seven day period has
lapsed without your revoking your acceptance.
I will look forward to receiving a signed copy of this agreement. I wish
you the best in your future endeavors.
Very truly yours,
/s/ Richard N. Rasmus
- -----------------------------------
I agree to the terms stated in this letter (with modifications noted).
/s/ Lawrence R. Webb Dated: December 23, 1999
- --------------------------------------
<PAGE> 1
Exhibit 10.15
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the 8th
day of February, 2000, by and between Flashcom, Inc., a Delaware corporation
(the "Company"), certain stockholders of the Company set forth on Schedule A
hereto (the "Lenders") and Andra Sachs ("Seller"), who hereby agree as follows:
RECITALS
A. On September 3, 1999, Seller and the Lenders entered into a Loan and
Pledge Agreement (the "Loan Agreement") whereby the Lenders loaned to Seller $1
million as evidenced by nonrecourse promissory notes payable to the Lenders (the
"Notes"), which Notes were secured by a pledge of 500,000 shares of Common Stock
of the Company pursuant to the Loan Agreement.
B. In connection with the Loan Agreement, Seller entered into Purchase
Option Agreements with the Lenders whereby Seller granted an option to the
Lenders to purchase shares of Common Stock of the Company (the "Purchase
Options") owned by Seller. In addition, in connection with the Loan Agreement,
Seller entered into certain Put Option Agreements with the Lenders whereby
Seller was granted the right to require the Lenders to purchase shares of Common
Stock of the Company (the "Put Options") owned by Seller.
C. Pursuant to an amendment to the Loan Agreement dated concurrently
herewith (the "Amendment to Loan Agreement"), the Lenders and Seller have agreed
to amend the Loan Agreement and any ancillary agreements to provide that: (i)
the Lenders will agree to purchase and Seller will agree to sell shares of
Common Stock of the Company having an aggregate purchase price of $1 million for
a purchase price equal to 85% of the per share purchase price received by the
Company at the closing of a sale of the Company's Series B Preferred Stock in a
presently contemplated equity financing, and (ii) the Company shall agree to
redeem a number of shares of Common Stock from Seller for an aggregate purchase
of $9 million at a per share purchase price equal to 85% of the per share
purchase price received by the Company at the closing of a sale of the Company's
Series B Preferred Stock in a presently contemplated equity financing.
1. PURCHASE AND SALE OF STOCK.
1.1 PURCHASE BY LENDERS. Subject to the terms and conditions of this
Agreement, each Lender agrees, severally and not jointly, to purchase at the
Closing (as defined herein) and Seller agrees to sell and transfer to each
Lender at the Closing shares of the Company's Common Stock having an aggregate
purchase price of $1.0 million at a per share purchase price equal to
eighty-five percent (85%) of the per share purchase price received by the
Company in a sale of shares of the Company's Series B Preferred Stock pursuant
to the Private Placement Memorandum of the Company dated December 7, 1999 (the
"Per Share Purchase Price") in the proportionate amounts set forth opposite each
Lender's name on Schedule A hereto.
1.2 PURCHASE BY THE COMPANY. Subject to the terms and conditions of this
Agreement, the Company agrees to purchase at the Closing and Seller agrees to
sell and transfer to the Company at the Closing shares of the Company's Common
Stock having an aggregate purchase price of $9.0 million at the Per Share
Purchase Price.
<PAGE> 2
2. CLOSING.
(a) The purchase and sale of the Common Stock shall take place at
the offices of Stradling Yocca Carlson & Rauth, counsel to the Company, in
Newport Beach, California, at 5:00 p.m. on February 11, 2000, or at such other
time and place as the Company and Seller shall mutually agree, either orally or
in writing (which time and place are designated as the "Closing").
(b) At the Closing, Seller shall deliver to each Lender and to
the Company certificates representing the shares of Common Stock that Seller is
selling, against payment of the purchase price therefor by check, wire transfer,
cancellation of indebtedness, or such other form of payment as shall be mutually
agreed upon by such Lender, the Company and Seller.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to Seller that:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware, has all requisite corporate power and authority
to own and operate its properties and assets and to carry on its business as now
conducted and as presently proposed to be conducted, to execute and deliver this
Agreement, the Amendment to Loan Agreement, to purchase and to purchase and
redeem the Common Stock to be purchased pursuant to Section 1.2 hereof, and to
carry out the provisions of this Agreement and the Amendment to Loan Agreement.
3.2 AUTHORIZATION. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, and the Amendment to Loan Agreement, the
performance of all obligations of the Company hereunder and thereunder at the
Closing has been taken or will be taken prior to the Closing, and this Agreement
and the Amendment to Loan Agreement, when executed and delivered, will
constitute valid and legally binding obligations of the Company, enforceable in
accordance with their respective terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies.
3.3 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation
or default (i) of any provision of its Amended and Restated Certificate of
Incorporation, as amended, or Bylaws (ii) of any provision of any mortgage,
indenture, agreement, instrument, or contract to which it is a party or by which
it is bound, except where such violation or default would not have a material
adverse effect on the Company, or (iii) to the best of its knowledge, of any
federal or state, statute, rule, regulation or restriction. The execution,
delivery, and performance by the Company of this Agreement, Amendment to Loan
Agreement, and the consummation of the transactions contemplated hereby and
thereby, will not result in any such violation or be in material conflict with
or constitute, with or without the passage of time or giving of notice, either a
material default under any such provision or an event that results in the
creation of any material lien, charge, or encumbrance upon any assets of the
Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of
any material permit, license, authorization, or approval applicable to the
Company, its business or operations, or any of its assets or properties.
<PAGE> 3
3.4 GOVERNMENTAL CONSENTS. No consent, approval, qualification, order or
authorization of, or filing with, any local, state, or federal governmental
authority is required on the part of the Company in connection with the
Company's valid execution, delivery, or performance of this Agreement and the
Amendment to Loan Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE LENDERS.
Each Lender hereby, severally and not jointly, represents and warrants
to Seller that:
4.1 AUTHORIZATION. Such Lender has full power and authority to enter
into this Agreement, the Amendment to Loan Agreement and any other agreement to
which such Lender is a party, the execution and delivery of which is
contemplated hereby, and that each such agreement, when executed and delivered,
will constitute a valid and legally binding obligation of such Lender,
enforceable against such Lender in accordance with its terms.
4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with each
Lender in reliance upon such Lender's representation to Seller, which by such
Lender's execution of this Agreement such Lender hereby confirms, that the
Common Stock to be purchased by such Lender (the "Securities") will be acquired
for investment for such Lender's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and that such
Lender has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, each Lender
further represents that such Investor does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of the
Common Stock.
4.3 RELIANCE UPON LENDERS' REPRESENTATIONS. Each Lender understands that
the Common Stock is not registered under the Securities Act of 1933, as amended
(the "Securities Act"), on the ground that the sale provided for in this
Agreement and the sale of the Securities hereunder is exempt from registration
under the Securities Act, and that Seller's reliance on such exemption is
predicated on the Lender's representations set forth herein.
4.4 RECEIPT OF INFORMATION. Each Lender represents that such Lender has
received all the information such Lender considers necessary or appropriate for
deciding whether to purchase the Common Stock. Each Lender further represents
that such Lender has had an opportunity to ask questions and receive answers
from the Company and Seller regarding the terms and conditions of the offering
of the Common Stock and the business, properties, prospects, and financial
condition of the Company and to obtain additional information (to the extent the
Company possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify the accuracy of any information furnished
to such Lender or to which such Lender had access.
4.5 INVESTMENT EXPERIENCE. Each Lender represents that such Lender is
experienced in evaluating and investing in private placement transactions of
securities of companies in a similar stage of development and acknowledges that
such Lender is able to fend for himself, herself or itself, can bear the
economic risk of such Lender's investment, and has such knowledge and experience
in financial and business matters that such Lender is capable of evaluating the
merits and risks of the investment in the Common Stock. If other than an
individual, Lender also represents such Lender has not been organized for the
purpose of acquiring the Common Stock.
<PAGE> 4
4.6 ACCREDITED INVESTOR. Each Lender severally and not jointly further
represents to Seller that such Lender is an Accredited Investor as defined in
Rule 501(a) promulgated under the Securities Act.
4.7 RESTRICTED SECURITIES. Each Lender understands that the Common Stock
may not be sold, transferred, or otherwise disposed of without registration
under the Securities Act or an exemption therefrom, and that in the absence of
an effective registration statement covering the Common Stock or an available
exemption from registration under the Securities Act, the Common Stock must be
held indefinitely. In particular, such Investor is aware that the Common Stock
may not be sold pursuant to Rule 144 promulgated under the Securities Act unless
all of the conditions of that Rule are met. Among the conditions for use of Rule
144 may be the availability of current information to the public about the
Company. Such information is not now available and the Company has no present
plans to make such information available.
4.8 LEGENDS. To the extent applicable, each certificate or other
document evidencing any of the Common Stock shall be endorsed with the legends
substantially in the form set forth below:
(a) The following legend under the Securities Act:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO
THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED."
(b) Any legend imposed or required by the Company's Bylaws, any
other applicable agreements, or applicable state securities laws.
5. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller hereby represents and warrants to the Company and the Lenders
that:
5.1 AUTHORIZATION. Seller has full power and authority to enter into
this Agreement, the Amendment to Loan Agreement and any other agreement to which
Seller is a party, the execution and delivery of which is contemplated hereby,
to sell and transfer the shares of Common Stock hereunder, and that each such
agreement, when executed and delivered, will constitute a valid and legally
binding obligation of Seller, enforceable against Seller in accordance with its
terms.
5.2 TITLE. Seller has, and on the Closing Date will have, good and
marketable title to the shares of Common Stock proposed to be sold by Seller
hereunder on the Closing Date and full right, power and authority to enter into
this Agreement and the Amendment to Loan Agreement and to sell, assign, transfer
and deliver such shares of Common Stock hereunder, free and clear of all voting
trusts arrangements, liens, encumbrances, equities, security interests,
restrictions and claims whatsoever other than pursuant to that certain
Investors' Rights Agreement dated as of June 8, 1999 between, among others, the
Lenders, Seller and the Company, and that certain Stock Restriction, Right of
First Refusal and Co-Sale Agreement dated as of June 8, 1999 between, among
others, the
<PAGE> 5
Lenders, Seller and the Company (the "Restrictions"). The Company and the Lender
have obtained waivers of the Restrictions. Upon delivery of and payment for such
shares of Common Stock hereunder of the Restrictions, the Lenders and the
Company, as the case may be, will acquire good and marketable title thereto,
free and clear of all liens, encumbrances, equities, claims, restrictions,
security interests, voting trusts or other defects of title whatsoever.
5.3 COMPLIANCE WITH OTHER INSTRUMENTS. The performance of this Agreement
and the consummation of the transactions contemplated hereby will not result in
a breach or violation by Seller of any of the terms or provisions of, or
constitute a default by Seller under, any indenture, mortgage, deed of trust,
trust (constructive or other), loan agreement, lease, franchise, license or
other agreement or instrument to which Seller is a party or by which Seller or
any of her properties are bound, or any statute, judgment, decree, order, rule
or regulation of any court or governmental agency or body applicable to Seller
or any of her properties.
6. CONDITIONS OF THE LENDERS' AND THE COMPANY'S OBLIGATIONS AT CLOSING.
The obligations of each Lender and the Company under subparagraph 1.1
and 1.2, respectively, of this Agreement are subject to the fulfillment on or
before the Closing of each of the following conditions, the waiver of which
shall not be effective against the Company or any Lender who does not consent in
writing thereto:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Seller contained in Section 5 shall be true on and as of the Closing with the
same effect as though such representations and warranties had been made on and
as of the date of the Closing.
6.2 PERFORMANCE. Seller shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by her on or before the Closing.
6.3 QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with and prior to the lawful sale and
transfer of the Common Stock pursuant to this Agreement shall be duly obtained
and effective as of the Closing.
6.4 SERIES B PREFERRED STOCK CLOSING. The closing of the sale and
issuance of shares of Series B Preferred Stock pursuant to the financing
contemplated by the Private Placement Memorandum shall have been consummated.
7. CONDITIONS OF SELLER'S OBLIGATIONS AT CLOSING.
The obligations of Seller to each Lender and the Company under this
Agreement are subject to the fulfillment on or before the Closing of each of the
following conditions.
7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of each Lender and the Company contained in Section 3 and 4, respectively, shall
be true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
<PAGE> 6
7.2 QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with and prior to the lawful sale and
transfer of the Common Stock pursuant to this Agreement shall be duly obtained
and effective as of the Closing.
7.3 PURCHASE OF SHARES. The Seller shall have received payment for all
of the shares of Common Stock being sold pursuant to this Agreement.
8. MISCELLANEOUS.
8.1 ENTIRE AGREEMENT. This Agreement and the Amendment to Loan Agreement
constitute the entire agreement among the parties and no party shall be liable
or bound to any other party in any manner by any warranties, representations, or
covenants except as specifically set forth herein or therein.
8.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended 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.
8.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
8.4 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.
8.5 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.
8.6 NOTICES. Unless otherwise provided, all notices and other
communications required or permitted under this Agreement shall be in writing
and shall be mailed by United States first-class mail, postage prepaid, sent by
facsimile or delivered personally by hand or by a courier addressed to the party
to be notified at the address or facsimile number indicated for such person on
the signature page hereof, or at such other address or facsimile number as such
party may designate by ten (10) days' advance written notice to the other
parties hereto. All such notices and other written communications shall be
effective on the date of mailing, confirmed facsimile transfer or delivery.
8.7 FINDER'S FEES. Each party represents that it neither is nor will be
obligated for any finder's fee or commission in connection with this
transaction.
8.8 EXPENSES. Irrespective of whether the Closing is effected, the
Company, each Lender and Seller shall pay all costs and expenses that it incurs
with respect to the negotiation, execution, delivery, and performance of this
Agreement.
8.9 ATTORNEYS' FEES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement or the Amendment to Loan
Agreement, the prevailing party shall be
<PAGE> 7
entitled to reasonable attorneys' fees, costs, and disbursements in addition to
any other relief to which such party may be entitled.
8.10 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, the Lenders and the Seller.
8.11 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.
8.12 INFORMATION CONFIDENTIAL. Each party acknowledges that the
information received by it pursuant hereto is confidential and for such party's
use only, and it will refrain from using such information or reproducing,
disclosing, or disseminating such information to any other person (other than
its employees, affiliates, agents, or partners having a need to know the
contents of such information and its attorneys), except in connection with the
exercise of rights under this Agreement, unless the Company has made such
information available to the public generally or it is required by a
governmental body to disclose such information.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
FLASHCOM, INC.
Dated: February ___, 2000 By: /s/ Richard Rasmus
---------------------------------------
Richard Rasmus, President and Chief
Operating Officer
MAYFIELD IX
Dated: February ___, 2000 By: /s/ Todd Brooks
---------------------------------------
Todd Brooks
MAYFIELD ASSOCIATES FUND IV
Dated: February ___, 2000 By: /s/ Todd Brooks
---------------------------------------
Todd Brooks
<PAGE> 8
COMMUNICATIONS VENTURES III, L.P.
Dated: February ___, 2000 By: /s/ David Helfrinch
---------------------------------
David Helfrich
COMMUNICATIONS VENTURES III CEO &
ENTREPRENEURS' FUND
Dated: February ___, 2000 By: /s/ David Helfrinch
---------------------------------
David Helfrich
Dated: February ___, 2000 /s/ Andra Sachs
---------------------------------
Andra Sachs
<PAGE> 9
SCHEDULE A
LENDERS
<TABLE>
<CAPTION>
AGGREGATE
PURCHASE PRICE FOR
NAME SHARES TO BE PURCHASED
- ---- ----------------------
<S> <C>
COMMUNICATIONS VENTURES III, LP $ 451,965.00
COMMUNICATIONS VENTURES III CEO & $ 22,598.00
ENTREPRENEURS' FUND
MAYFIELD IX $ 495,674.85
MAYFIELD ASSOCIATES FUND IV $ 26,088.15
FLASHCOM, INC. $9,000,000.00
</TABLE>
<PAGE> 1
FLASHCOM, INC. EXH. 10.16
SERIES B PREFERRED STOCK
PURCHASE AGREEMENT
THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is
entered into as of February 16, 2000, by and between FLASHCOM, INC., a Delaware
corporation (the "Company"), and each of the persons or entities listed on
Schedule A hereto, each of which is herein referred to as an "Investor," who
hereby agree as follows:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF SERIES B PREFERRED STOCK.
(a) The Company shall adopt and file with the Secretary of State
of the State of Delaware on or before the First Closing (as defined below) an
Amended and Restated Certificate of Incorporation in the form attached hereto as
Exhibit A (the "Restated Certificate").
(b) Subject to the terms and conditions of this Agreement, each
Investor agrees, severally and not jointly, to purchase at the First Closing or
Second Closing, as applicable, and the Company agrees to sell and issue to each
Investor at such Closing, that number of shares of the Company's Series B
Preferred Stock set forth opposite each Investor's name on Schedule A hereto at
a purchase price of Six Dollars and Fifty-Seven Cents ($6.57) per share. The
Series B Preferred Stock will have the rights, preferences, privileges and
restrictions set forth in the Restated Certificate.
1.2 CLOSINGS.
(a) First Closing. The initial closing of the purchase and sale
of the Series B Preferred Stock to those Investors listed on Schedule A hereto
under the heading "First Closing" shall take place at the offices of Stradling
Yocca Carlson & Rauth, counsel to the Company, in Newport Beach, California, at
10:00 a.m. on February 18, 2000, or at such other time and place as the Company
and such Investors purchasing a majority of the shares of Series B Preferred
Stock to be sold to such Investors at such Closing shall mutually agree, either
orally or in writing (which time and place are designated as the "First
Closing").
(b) Second Closing. A second closing of the purchase and sale of
the Series B Preferred Stock to those Investors listed on Schedule A hereto
under the heading "Second Closing" shall take place at the offices of Stradling
Yocca Carlson & Rauth, counsel to the Company, in Newport Beach, California, at
10:00 a.m. on February 29, 2000, or at such other time and place as the Company
and Investors purchasing a majority of the shares of Series B Preferred Stock to
be sold to such Investors at such Closing shall mutually agree, either orally or
in writing (which time and place are designated as the "Second Closing").
(c) At each Closing, the Company shall deliver to each Investor
purchasing shares at such Closing a certificate representing the shares of
Series B Preferred Stock that such Investor is purchasing, against payment of
the purchase price therefor by check, wire transfer, cancellation of
indebtedness, conversion of convertible promissory notes, or any combination
thereof, or such other form of payment as shall be mutually agreed upon by such
Investor and the Company.
1
<PAGE> 2
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to each Investor that, except
as set forth on a Schedule of Exceptions attached hereto as Exhibit B,
specifically identifying the relevant subparagraph(s) hereof, which exceptions
shall be deemed to be representations and warranties as if made hereunder:
2.1 ORGANIZATION; GOOD STANDING, QUALIFICATION. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware, has all requisite corporate power and authority
to own and operate its properties and assets and to carry on its business as now
conducted and as presently proposed to be conducted, to execute and deliver this
Agreement, the Amended and Restated Investors' Rights Agreement (as defined in
Section 4.8), and the Amended and Restated Right of First Refusal and Co-Sale
Agreement (as defined in Section 4.9), to issue and sell the Series B Preferred
Stock and the Common Stock issuable upon conversion of the Series B Preferred
Stock, and to carry out the provisions of this Agreement, the Amended and
Restated Investors' Rights Agreement, the Amended and Restated Right of First
Refusal and Co-Sale Agreement, and the Restated Certificate. The Company is duly
qualified and is authorized to transact business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of its activities
and of its properties (both owned and leased) makes such qualification
necessary, except where the failure to so qualify would not have a material
adverse effect on the business, properties, prospects, or financial condition of
the Company.
2.2 AUTHORIZATION. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, and the Amended and Restated Investors' Rights
Agreement, and the Amended and Restated Right of First Refusal and Co-Sale
Agreement, the performance of all obligations of the Company hereunder and
thereunder and the authorization, issuance (or reservation for issuance, as
applicable), sale, and delivery of the Series B Preferred Stock being sold
hereunder and the Common Stock issuable upon conversion of the Series B
Preferred Stock has been taken or will be taken prior to the Closing, and this
Agreement, the Amended and Restated Investors' Rights Agreement, and the Amended
and Restated Right of First Refusal and Co-Sale Agreement, when executed and
delivered, will constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, and (iii) to the extent that the
indemnification provisions contained in the Amended and Restated Investors'
Rights Agreement may be limited by applicable laws.
2.3 VALID ISSUANCE OF PREFERRED AND COMMON STOCK. The Series B Preferred
Stock that is being purchased by the Investors hereunder, when issued, sold, and
delivered in accordance with the terms of this Agreement for the consideration
expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, the Amended and Restated
Investors' Rights Agreement and the Amended and Restated Right of First Refusal
and Co-Sale Agreement and under applicable state and federal securities laws.
The Common Stock issuable upon conversion of the Series B Preferred Stock has
been duly and validly reserved for issuance and, upon issuance in accordance
with the terms of the Restated Certificate, will be duly and validly issued,
fully paid, and nonassessable and will be free of restrictions on transfer other
than restrictions on transfer under this
2
<PAGE> 3
Agreement, the Amended and Restated Investors' Rights Agreement, the Amended and
Restated Right of First Refusal and Co-Sale Agreement and under applicable state
and federal securities laws.
2.4 CAPITALIZATION AND VOTING RIGHTS. The authorized capital of the
Company will consist, immediately prior to the Closing, of:
(a) Preferred Stock. 50,000,000 shares of Preferred Stock, $0.001
par value, of which 5,800,000 have been designated Series A Preferred Stock, of
which 5,771,679 are issued and outstanding and convertible into 17,315,037
shares of Common Stock, and 12,861,500 which have been designated Series B
Preferred Stock, none of which shall be outstanding prior to the First Closing,
and up to all of which shall be outstanding immediately following the Second
Closing. The rights, privileges and preferences of the Series A Preferred Stock
and Series B Preferred Stock are as stated in the Restated Certificate.
(b) Common Stock. 100,000,000 shares of common stock, $0.001 par
value ("Common Stock"), of which 31,707,379 shares are issued and outstanding.
(c) Immediately following the Closing, all issued and outstanding
shares of Series A Preferred Stock, Series B Preferred Stock and Common Stock
have been or will be duly authorized and validly issued, have been or will be
fully paid and nonassessable, and have been or will be issued in accordance with
the registration or qualification provisions of the Securities Act of 1933, as
amended (the "Securities Act") and any relevant state securities laws or
pursuant to valid exemptions therefrom. Except for (i) the conversion privileges
of the Series A Preferred Stock and the Series B Preferred Stock or (ii) as
otherwise disclosed on Schedule 2.4, there are not outstanding any options,
warrants, rights (including conversion or preemptive rights and rights of first
refusal), or agreements of any kind for the purchase or acquisition from the
Company of any of its securities. The Company has reserved 12,500,000 shares of
its Common Stock for purchase upon exercise of options and/or rights to purchase
to be granted in the future under the Company's 1999 Incentive Stock Option,
Nonqualified Stock Option and Restricted Stock Plan (the "1999 Plan"). Except as
disclosed on Schedule 2.4, the Company is not a party or subject to any
agreement or understanding, and, to the best of the Company's knowledge, there
is no agreement or understanding between any persons that affects or relates to
the voting or giving of written consents with respect to any security or the
voting by a director of the Company.
(d) Schedule 2.4 sets forth a true, complete and correct list of
the holders of record of the Company's Common Stock and Series A Preferred
Stock, which list shall identify the name and address of each such holder and
the number of shares of Common and/or Series A Preferred Stock held by each such
holder. Schedule 2.4 also sets forth a true, complete and correct list of the
holders of record of the Company's outstanding warrants, options and other
rights to purchase or subscribe for shares of Common Stock or Preferred Stock.
2.5 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation
or default (i) of any provision of its Amended and Restated Certificate of
Incorporation, as amended or Bylaws, as amended (ii) of any provision of any
mortgage, indenture, agreement, instrument, or contract to which it is a party
or by which it is bound, except where such violation or default would not have a
material adverse effect on the Company, or (iii) to the best of its knowledge,
of any federal or state, statute, rule, regulation or restriction. The
execution, delivery, and performance by the Company of this Agreement, the
Amended and Restated Investors' Rights Agreement, and the Amended and Restated
Right of First Refusal and Co-Sale Agreement, and the consummation of the
transactions
3
<PAGE> 4
contemplated hereby and thereby, will not result in any such violation or be in
material conflict with or constitute, with or without the passage of time or
giving of notice, either a material default under any such provision or an event
that results in the creation of any material lien, charge, or encumbrance upon
any assets of the Company or the suspension, revocation, impairment, forfeiture,
or nonrenewal of any material permit, license, authorization, or approval
applicable to the Company, its business or operations, or any of its assets or
properties.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, qualification, order or
authorization of, or filing with, any local, state, or federal governmental
authority is required on the part of the Company in connection with the
Company's valid execution, delivery, or performance of this Agreement, the
offer, sale or issuance of the Series B Preferred Stock by the Company, or the
issuance of Common Stock upon conversion of the Series B Preferred Stock, except
(i) the filing of the Restated Certificate with the Secretary of State of the
State of Delaware, and (ii) such filings as have been made prior to the Closing,
except any post-closing filings as may be required under applicable state
securities laws, which will be timely filed within the applicable periods
therefor. The Company has not offered shares of its Series B Preferred Stock or
any substantially similar securities of the Company for sale to, or solicited
any offers to buy from, or otherwise approached or negotiated in respect thereof
with, any person other than the Investors, and the Company will not take any
action that will cause the issuance and delivery of the shares of its Series B
Preferred Stock as contemplated hereby to constitute a violation of the
Securities Act or the California Corporate Securities Law of 1968, as amended
(the "California Securities Law").
2.7 SUBSIDIARIES. The Company does not own or control, directly or
indirectly, any interest in any other corporation, partnership, limited
liability company, association, or other business entity. The Company is not a
participant in any joint venture, partnership, or similar arrangement.
2.8 CONTRACTS AND OTHER COMMITMENTS. Except as set forth on Schedule
2.8, the Company does not have and is not bound by any contract, agreement,
lease, or other commitment, written or oral, absolute or contingent, other than
(i) contracts for the purchase of supplies and services that were entered into
in the ordinary course of business and that do not involve more than $50,000,
(ii) sales or services contracts entered into in the ordinary course of business
and that do not involve more than $50,000, (iii) contracts terminable at will by
the Company on no more than thirty (30) days' notice without material cost or
liability to the Company and (iv) contracts that are not material to the conduct
of the Company's business. All contracts, agreements and instruments to which
the Company is a party are valid, binding, and in full force and effect, without
any material breach by the Company or, to the best of the Company's knowledge,
any other party thereto and are enforceable by the Company in accordance with
their terms.
2.9 RELATED-PARTY TRANSACTIONS. Except as set forth on Schedule 2.9, no
employee, officer, stockholder or director of the Company or member of his or
her immediate family is indebted to the Company, nor is the Company indebted (or
committed to make loans or extend or guarantee credit) to any of them, other
than (i) for payment of salary for services rendered, (ii) reimbursement for
reasonable expenses incurred on behalf of the Company, and (iii) for other
standard employee benefits made generally available to all employees including
stock option agreements outstanding under any stock option plan approved by the
Board of Directors of the Company. To the best of the Company's knowledge, none
of such persons has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation that competes with the
Company. Except as set forth on Schedule 2.9, no officer, director, or
stockholder or any member of their immediate families is,
4
<PAGE> 5
directly or indirectly, interested in any contract with the Company (other than
such contracts as relate to any such person's ownership of capital stock or
other securities of the Company). Schedule 2.9 contains a list of all agreements
or transactions currently in effect between the Company and Brad Sachs, Andra
Sachs or any person or entity owned or controlled by either of them in which the
amount involved exceeds $60,000.
2.10 REGISTRATION RIGHTS. Except as provided in the Amended and Restated
Investors' Rights Agreement, the Company is presently not under any obligation
and has not granted any rights to register under the Securities Act any of its
presently outstanding securities or any of its securities that may subsequently
be issued.
2.11 LICENSES; PERMITS. The Company has all franchises, permits,
licenses, and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects, or financial condition of the
Company, and believes it can obtain, without undue burden or expense, any
similar authority for the conduct of its business as presently planned to be
conducted. The Company is not in default in any material respect under any of
such franchises, permits, licenses or other similar authority.
2.12 LITIGATION. Except as set forth on Schedule 2.12, there is no
action, suit, proceeding, or investigation pending or, to the Company's
knowledge, currently threatened against the Company that questions the validity
of this Agreement, the Amended and Restated Investors' Rights Agreement, or the
Amended and Restated Right of First Refusal and Co-Sale Agreement or the right
of the Company to enter into such agreements, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or in
the aggregate, in any adverse change in the assets, business, properties,
prospects, or financial condition of the Company, its properties or assets, or
in any material impairment of the right or ability of the Company to carry on
its business as now conducted or proposed to be conducted. The Company is not a
party to, named in or subject to, and none of its assets are bound by, any
order, writ, injunction, judgment, or decree of any court, government agency, or
instrumentality. There is no action, suit, proceeding or investigation initiated
by the Company currently pending or that the Company currently intends to
initiate.
2.13 YEAR 2000 COMPLIANCE. All of the Company's products (including
products currently under development) record, store, process and calculate and
present calendar dates falling on and after January 1, 2000, and calculate any
information dependent on or relating to such dates in the same manner and with
the same functionality, data integrity and performance as the products record,
store, process, calculate and present calendar dates on or before December 31,
1999, or calculate any information dependent on or relating to such dates
(collectively "Year 2000 Compliant"). The Company's computer system and its
products have been tested and, based on the results of these tests, the Company
believes that its internal systems, including without limitation, its accounting
systems, as well as its products, are Year 2000 Compliant. The Company has not
conducted a review of the computer hardware and software systems of third
parties which may be affected by the Year 2000 problem.
2.14 OFFERING. Subject in part to the truth and accuracy of each
Investor's representations set forth in this Agreement, the offer, sale and
issuance of the Series B Preferred Stock as contemplated by this Agreement are
exempt from the registration requirements of the Securities Act, and the
qualification requirements of the California Securities Law, and neither the
Company nor any authorized agent acting on its behalf will take any action
hereafter that would cause the loss of any such exemption.
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2.15 TITLE TO PROPERTY AND ASSETS; LIENS. The Company has good and
marketable title to its properties and assets, in each case subject to no
mortgage, pledge, lien, lease, encumbrance, or charge, other than (a) liens
resulting from taxes which have not yet become delinquent, or (b) minor liens,
encumbrances, or defects of title which do not, individually or in the
aggregate, materially detract from the value of the property subject thereto or
materially impair the operations of the Company.
2.16 FINANCIAL STATEMENTS. The Company has delivered to each Investor
its audited financial statements for the period from May 18, 1998 (inception) to
December 31, 1998, and for the period from January 1, 1999 to June 30, 1999 and
its unaudited financial statements for the eleven-month period ended November
30, 1999 (the "Financial Statements"). The Financial Statements fairly present
the financial condition and operating results of the Company as of the dates,
and for the periods, indicated therein. The Financial Statements have been
prepared in accordance with U.S. generally accepted accounting principles
consistently applied throughout the periods indicated, except that interim
financial statements are subject to normal year-end audit adjustments (which
will not be material either individually or in the aggregate) and lack
footnotes. Except as set forth on Schedule 2.16 or in the Financial Statements,
the Company has no material liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business consistent with past
practices subsequent to November 30, 1999 and (ii) obligations under contracts
and commitments incurred in the ordinary course of business consistent with past
practices, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company. Except
as disclosed in the Financial Statements or on Schedule 2.16, the Company is not
a guarantor or indemnitor of any indebtedness of any other person, firm, or
corporation.
2.17 CHANGES. Except as set forth on Schedule 2.17, since November 30,
1999, there has not been:
(a) any change in the assets, liabilities, financial condition,
or operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business consistent with
past practices that have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of the Company (as such business is presently
conducted and as it is presently proposed to be conducted);
(c) any waiver or compromise by the Company of a material right
or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business consistent with past practices and that is not material to
the business, properties, prospects, or financial condition of the Company (as
such business is presently conducted and as it is presently proposed to be
conducted);
(e) any material change to a material contract or arrangement by
which the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any key employee, officer or director;
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(g) any sale, assignment, or transfer of any patents, trademarks,
copyrights, trade secrets, or other intangible assets material to the Company;
(h) any resignation or termination of employment of any key
employee of the Company; and the Company, to the best of its knowledge, does not
know of the impending resignation or termination of employment of any such
employee,
(i) any mortgage, pledge, transfer of a security interest in, or
lien, created by the Company, with respect to any of its material properties or
assets, except for liens of the type described in Section 2.15;
(j) any loans or guarantees made by the Company to or for the
benefit of its employees, stockholders, officers, or directors, or any members
of their immediate families, other than travel advances and other advances made
in the ordinary course of its business consistent with past practices;
(k) any declaration, setting aside, or payment of any dividend or
other distribution of the Company's assets in respect of any of the Company's
capital stock, or any direct or indirect redemption, purchase, or other
acquisition of any of such stock by the Company;
(l) any other event or condition of any character that might
materially and adversely affect the business, properties, prospects, or
financial condition of the Company (as such business is presently conducted and
as it is presently proposed to be conducted); or
(m) any agreement or commitment by the Company to do any of the
things described in this Section 2.17.
2.18 INTELLECTUAL PROPERTY. Except as set forth on Schedule 2.18, the
Company has sufficient title and ownership of all patents, patent applications,
licenses, trademarks, service marks, trade names, inventions, processes,
formulae, trade secrets, franchises, copyrights and other proprietary rights
(collectively, "Intellectual Property Rights") employed in or necessary for the
operation of its business as now conducted and as proposed to be conducted with
no known infringement of or conflict with the rights of others. Such ownership
and title are exclusive and not subject to termination without the Company's
consent. Except as set forth on Schedule 2.18, there are no outstanding options,
licenses, or agreements of any kind relating to the foregoing Intellectual
Property Rights, nor is the Company bound by or a party to any options, licenses
or agreements of any kind with respect to the Intellectual Property Rights of
any other person or entity. The Company is not aware of any third party that is
infringing or violating any of its Intellectual Property Rights. Except as set
forth on Schedule 2.18, the Company has not received any communications alleging
that the Company has violated or, by conducting its business as proposed, would
violate any of the Intellectual Property Rights of any other person or entity.
The Company does not believe it is or will be necessary to use any inventions of
any of its employees (or persons it currently intends to hire) made prior to
their employment by the Company.
2.19 EMPLOYEES; EMPLOYEE COMPENSATION. To the best of the Company's
knowledge, after reasonable inquiry, no employee of the Company is obligated
under any contract (including licenses, covenants, or commitments of any nature)
or other agreement, or subject to any judgment, decree or order of any court or
administrative agency that would conflict with such employee's obligation to use
his or her best efforts to promote the interests of the Company or that would
conflict
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with the Company's business as conducted or as proposed to be conducted. To the
best of the Company's knowledge, after reasonable inquiry, no employee of the
Company is in violation of any term of any employment contract, proprietary
information and inventions agreement, non-competition agreement, or any other
contract or agreement relating to the relationship of any such employee with the
Company or any previous employer. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's business by the employees of the
Company, nor the conduct of the Company's business as proposed, will, to the
best of the Company's knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company has no collective bargaining agreements with any of its employees and to
the best of the Company's knowledge there is no labor union organizing activity
pending or threatened with respect to the Company. Except as set forth on
Schedule 2.19, there is no pension, health, profit sharing, bonus, stock
purchase, stock option, hospitalization, insurance, severance, or any other
employee benefit or welfare benefit plan with respect to any officer or employee
of the Company which is subject to the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"). The Company is not aware that any officer or key
employee, or that any group of key employees, intends to terminate their
employment with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing. Subject to general principles
related to wrongful termination of employees, the employment of each officer and
employee of the Company is terminable at the will of the Company. Schedule 2.19
contains a true, complete and correct list of all employment agreements,
severance agreements, compensation plan agreements or arrangements or other
agreements or contractual obligations relating to the employment or service of
any of the Company's employees. True, complete and correct copies of all such
agreements have been delivered or made available to special counsel for the
Investors.
2.20 PROPRIETARY INFORMATION.
(a) The Company has taken all reasonable security measures to
protect the secrecy, confidentiality, and value of all trade secrets, know-how,
inventions, designs, processes, and technical data required to conduct its
business.
(b) Each officer, employee, or consultant of the Company has
signed, and each such future officer, employee or consultant will sign, a
proprietary information agreement substantially in the Company's standard form
of such agreement (a copy of which form has been provided to the Investors'
counsel), each of which agreements remains in full force and effect as of the
date hereof. To the best of the Company's knowledge, none of the Company's
current or former officers, employees, or consultants is or will be in violation
thereof, and the Company will use its best efforts to prevent any such
violation.
2.21 TAX RETURNS, PAYMENTS, AND ELECTIONS. The Company has filed all tax
returns (federal, state or local) it has been required to file prior to the date
hereof and the Company has paid all taxes that have been due and payable, and
the Company has no material liability for any federal, state or local taxes. The
Company has not elected to be treated as an S Corporation or a collapsible
corporation pursuant to Section 341(f) or Section 1362(a) of the Internal
Revenue Code of 1986, as amended ("Code"), nor has it made any other elections
pursuant to the Code (other than elections that relate solely to methods of
accounting, depreciation or amortization) that would have a material effect on
the Company, its financial condition, its business as presently conducted or
proposed to be conducted or any of its properties or material assets. The
Company has never had any tax deficiency proposed or assessed against it and has
not executed any waiver of any statute of limitations on the
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assessment or collection of any tax or governmental charge. The Company has
withheld or collected from each payment made to each of its employees, the
amount of all taxes, including, but not limited to, federal income taxes,
Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes
required to be withheld or collected therefrom, and has paid the same to the
proper tax receiving officers or authorized depositaries, except where the
failure to do so would not have a material adverse effect on the Company.
2.22 INSURANCE. The Company has adequate insurance, with financially
sound and reputable insurers, with respect to its properties, business and
operations, that are of a character customarily insured by entities engaged in
the same or a similar business similarly situated, against loss or damage of the
kinds customarily insured against by such entities, which insurance is of such
types as are customarily carried under similar circumstances by such other
entities. Schedule 2.22 sets forth a list of all of such insurance including
coverage amounts and deductibles.
2.23 ENVIRONMENTAL AND SAFETY MATTERS. The operations of the Company (a)
have been, and are now, in compliance in all material respects with all
applicable environmental laws, (b) the Company has obtained all environmental,
health, and safety permits, licenses, and approvals necessary for its operation,
all such permits, licenses, and approvals are in effect, and the Company is in
compliance in all respects with the terms and conditions thereof, (c) with
respect to any property currently or formerly owned, leased, or operated by the
Company, the Company is not subject to any judicial or administrative
proceedings or any order from, or agreement with, any governmental authority,
and the Company has no knowledge of any pending or threatened investigation by
any governmental authority, relating to any violation or alleged violation of
any environmental law, any release or threatened release of a hazardous
substance into the environment, or any remedial action that may be necessary in
connection with any such violation or release, (d) the Company has not filed any
notice under any environmental law indicating past or present treatment,
storage, disposal or release of a hazardous substance into the environment, and
(e) the Company has not received notice of a claim that it may be liable as a
result of a release or threatened release of hazardous substances, and, to the
knowledge of the Company, there is no basis for any such claim, action, suit, or
investigation with respect to any environmental law.
2.24 QUALIFIED SMALL BUSINESS STOCK. As of the Closing Date, the Series
B Preferred Stock and the shares of Common Stock issuable upon exercise thereof
should constitute "qualified small business stock" as defined in Section 1202(c)
of the Code, and the Company shall make all filings required under Section
1202(d)(1)(c) of the Code, any related Treasury Regulations and any state laws
or regulations.
2.25 REAL PROPERTY HOLDING COMPANY. The Company is not and has not been
at any time a "United States real property holding corporation" as defined in
Section 897 of the Code.
2.26 INVESTMENT COMPANY. The Company is not, and after the receipt of
the proceeds from the sale of the Shares hereunder will not be, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
2.27 ACCOUNTING. The Company maintains a system of accounting
established and administered in accordance with generally accepted accounting
principles and has in place reasonable internal controls which are adequate and
appropriate for the Company.
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2.28 REGULATORY MATTERS. The Company's business as currently conducted
and as currently proposed to be conducted complies in all material respects with
applicable federal and state laws, rules, statutes, regulations and orders,
including without limitation any of the foregoing promulgated by the U.S.
Federal Communications Commission and state public utility commissions (or other
regulatory authorities having jurisdiction) relating to the provision of data
communications services and telecommunications services. The Company has
obtained all permits and regulatory approvals and authorizations necessary for
it to conduct its business as currently conducted and as currently proposed to
be conducted, except where the failure to have same would not have a material
adverse effect on the Company.
2.29 OFFERING MEMORANDUM. The Confidential Private Placement Memorandum
dated December 7, 1999 prepared in connection with the Series B Preferred Stock
financing did not, as of the date thereof, and does not, as of the date hereof,
contain any untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided,
however, that with respect to the projections contained in such Private
Placement Memorandum, the Company only represents that such projections were
prepared in good faith and that the Company believes that there is a reasonable
basis for such projections.
2.30 DISCLOSURE. The Company has provided each Investor with all the
information that such Investor has requested for deciding whether to purchase
the Series B Preferred Stock. Neither this Agreement nor any other written
agreements or certificates made or delivered in connection herewith, taken as a
whole, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not misleading.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.
Each Investor hereby, severally and not jointly, represents and warrants
to the Company that:
3.1 AUTHORIZATION. Such Investor has full power and authority to enter
into this Agreement, the Amended and Restated Investors' Rights Agreement and
the Amended and Restated Right of First Refusal and Co-Sale Agreement, and that
each such agreement, when executed and delivered, will constitute a valid and
legally binding obligation of such Investor, enforceable against such Investor
in accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) to the extent that the indemnification
provisions contained in the Amended and Restated Investors' Rights Agreement may
be limited by applicable laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with each
Investor in reliance upon such Investor's representation to the Company, which
by such Investor's execution of this Agreement such Investor hereby confirms,
that the Series B Preferred Stock to be purchased by such Investor, and the
Common Stock issuable upon conversion of the Series B Preferred Stock
(collectively, the "Securities") will be acquired for investment for such
Investor's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, each Investor further
represents that such Investor does not have any contract, undertaking, agreement
or arrangement with any person to sell,
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transfer or grant participation to such person or to any third person, with
respect to any of the Series B Preferred Stock or the Common Stock acquired on
conversion of the Series B Preferred Stock.
3.3 RELIANCE UPON INVESTORS' REPRESENTATIONS. Such Investor understands
that the Series B Preferred Stock is not, and the Common Stock acquired on
conversion of the Series B Preferred Stock at the time of issuance may not be,
registered under the Securities Act on the ground that the sale provided for in
this Agreement and the issuance of the Securities hereunder is exempt from
registration under the Securities Act pursuant to Section 4(2) thereof, and that
the Company's reliance on such exemption is predicated on the Investors'
representations set forth herein.
3.4 RECEIPT OF INFORMATION. Such Investor represents that such Investor
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Series B Preferred
Stock and the business, properties, prospects, and financial condition of the
Company and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify the accuracy of any information furnished to such
Investor or to which such Investor had access. The foregoing, however, does not
limit or modify the representations and warranties of the Company in Section 2
of this Agreement or the right of the Investors to rely thereon.
3.5 INVESTMENT EXPERIENCE. Such Investor represents that such Investor
is experienced in evaluating and investing in private placement transactions of
securities of companies in a similar stage of development, can bear the economic
risk of such Investor's investment, and has such knowledge and experience in
financial and business matters that such Investor is capable of evaluating the
merits and risks of the investment in the Series B Preferred Stock. If other
than an individual, Investor also represents such Investor has not been
organized for the purpose of acquiring the Series B Preferred Stock.
3.6 ACCREDITED INVESTOR. Such Investor represents to the Company that
except as otherwise disclosed to the Company, in writing, prior to such
Investor's execution hereof, such Investor is an Accredited Investor as defined
in Rule 501(a) promulgated under the Securities Act.
3.7 RESTRICTED SECURITIES. Such Investor understands that the Series B
Preferred Stock (and any Common Stock issued on conversion of the Series B
Preferred Stock) may not be sold, transferred, or otherwise disposed of without
registration under the Securities Act or an exemption therefrom, and that in the
absence of an effective registration statement covering the Series B Preferred
Stock and any Common Stock issued on conversion of the Series B Preferred Stock
or an available exemption from registration under the Securities Act, the Series
B Preferred Stock and any Common Stock issued on conversion of the Series B
Preferred Stock must be held indefinitely. In particular, such Investor is aware
that the Series B Preferred Stock (and any Common Stock issued on conversion of
the Series B Preferred Stock) may not be sold pursuant to Rule 144 promulgated
under the Securities Act unless all of the conditions of that Rule are met.
Among the conditions for use of Rule 144 may be the availability of current
information to the public about the Company. Such information is not now
available and the Company has no present plans to make such information
available.
3.8 LEGENDS. To the extent applicable, each certificate or other
document evidencing any of the Series B Preferred Stock and any Common Stock
issued on conversion of the Series B Preferred Stock shall be endorsed with the
legends substantially in the form set forth below:
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(a) The following legend under the Securities Act:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER SUCH ACT, OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR OTHER
EVIDENCE, SATISFACTORY TO THE COMPANY AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) Any legend imposed or required by the Company's Bylaws, the
Amended and Restated Right of First Refusal and Co-Sale Agreement or applicable
state securities laws.
4. CONDITIONS OF INVESTORS' OBLIGATIONS AT FIRST CLOSING.
The obligations of each Investor purchasing shares at the First Closing
under subparagraph 1.1(b) of this Agreement are subject to the fulfillment on or
before the First Closing of each of the following conditions, the waiver of
which shall not be effective against any such Investor who does not consent in
writing thereto:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in Section 2 shall be true on and as of the First
Closing with the same effect as though such representations and warranties had
been made on and as of the date of the First Closing.
4.2 PERFORMANCE. The Company shall have performed and complied with all
agreements, obligations, and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the First Closing.
4.3 COMPLIANCE CERTIFICATE; SECRETARY'S CERTIFICATE. The President of
the Company shall deliver to each Investor purchasing shares at the First
Closing a certificate certifying that the conditions specified in paragraphs
4.1, 4.2, 4.4 and 4.6 have been fulfilled. The Company shall have delivered a
certificate, executed on behalf of the Company by its Secretary, dated as of the
date of the First Closing, certifying the Board of Directors and stockholder
resolutions approving this Agreement and the other agreements to which the
Company is a party as indicated herein, and the issuance of the Series B
Preferred Stock, the reservation of the underlying Common Stock and certifying
the current versions of the Company's Amended and Restated Certificate of
Incorporation and Bylaws.
4.4 QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with and prior to the lawful issuance and
sale of the Series B Preferred Stock to the Investors purchasing shares at the
First Closing pursuant to this Agreement shall be duly obtained and effective as
of the First Closing.
4.5 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated at the First Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to the Investors purchasing shares at the First Closing,
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who shall have received all such counterpart original and certified or other
copies of such documents as they may reasonably request.
4.6 BYLAWS. The Bylaws of the Company shall provide that the size of the
Board of Directors shall be set from five (5) to nine (9) persons, with the
current number being fixed at seven (7) persons.
4.7 AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT. The Company, the
holders of a majority of the Series A Preferred Stock, each Investor purchasing
shares at the First Closing and Brad Sachs (the "Founder") shall have executed
and delivered the Amended and Restated Investors' Rights Agreement in the form
attached hereto as Exhibit C (the "Amended and Restated Investors' Rights
Agreement").
4.8 AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT.
The Company, each Investor purchasing shares at the First Closing and Brad Sachs
shall have executed and delivered the Amended and Restated Right of First
Refusal and Co-Sale Agreement in the form attached hereto as Exhibit D (the
"Amended and Restated Right of First Refusal and Co-Sale Agreement").
4.9 RESTATED CERTIFICATE. The Company shall have filed the Restated
Certificate, in the form attached hereto as Exhibit A, with the Delaware
Secretary of State.
4.10 OPINION OF COMPANY COUNSEL. The Investors purchasing shares at the
First Closing shall have received from Stradling Yocca Carlson & Rauth, a
Professional Corporation, counsel to the Company, an opinion dated as of the
date of the First Closing, in the form attached hereto as Exhibit E.
4.11 WARRANT TO PURCHASE COMMON STOCK. The Company shall have executed
and delivered to each Investor purchasing shares at the First Closing a warrant
to purchase common stock of the Company in the form attached hereto as Exhibit
F.
4.12 SETTLEMENT AGREEMENT. The settlement agreement dated February 11,
2000 among Andra Sachs, the Company and the other parties thereto in the form
provided to special counsel to the Investors, shall have been executed and
delivered by all parties thereto.
5. CONDITIONS OF INVESTORS' OBLIGATIONS AT SECOND CLOSING.
The obligations of each Investor purchasing shares at the Second Closing
under subparagraph 1.1(b) of this Agreement are subject to the fulfillment on or
before the Second Closing of each of the following conditions, the waiver of
which shall not be effective against any such Investor who does not consent in
writing thereto:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in Section 2 shall be true on and as of the Second
Closing with the same effect as though such representations and warranties had
been made on and as of the date of the Second Closing.
5.2 PERFORMANCE. The Company shall have performed and complied with all
agreements, obligations, and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Second Closing.
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5.3 COMPLIANCE CERTIFICATE; SECRETARY'S CERTIFICATE. The President of
the Company shall deliver to each Investor purchasing shares at the Second
Closing a certificate certifying that the conditions specified in paragraphs
5.1, 5.2, 5.4, 5.6 and 5.11 have been fulfilled. The Company shall have
delivered a certificate, executed on behalf of the Company by its Secretary,
dated as of the date of the Second Closing, certifying the Board of Directors
and stockholder resolutions approving this Agreement and the other agreements to
which the Company is a party as indicated herein, and the issuance of the Series
B Preferred Stock, the reservation of the underlying Common Stock and certifying
the current versions of the Company's Amended and Restated Certificate of
Incorporation and Bylaws.
5.4 QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with and prior to the lawful issuance and
sale of the Series B Preferred Stock pursuant to this Agreement (in addition to
those referenced in Section 5.12 below) shall be duly obtained and effective as
of the Second Closing.
5.5 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated at the Second Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to the Investors purchasing shares at the Second Closing, who shall
have received all such counterpart original and certified or other copies of
such documents as they may reasonably request.
5.6 BOARD OF DIRECTORS. Effective as of the Second Closing, the
directors of the Company shall be Brad Sachs, David Helfrich, Todd Brooks, Kevin
Fong, Richard Rasmus, Andra Sachs and a designee of Behrman Capital.
5.7 AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT. The Company, the
holders of a majority of the Series A Preferred Stock and each Investor
purchasing shares at the Second Closing (the "Founder") shall have executed and
delivered the Amended and Restated Investors' Rights Agreement in the form
attached hereto as Exhibit C (the "Amended and Restated Investors' Rights
Agreement").
5.8 AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT.
The Company and each Investor purchasing shares at the Second Closing shall have
executed and delivered the Amended and Restated Right of First Refusal and
Co-Sale Agreement in the form attached hereto as Exhibit D (the "Amended and
Restated Right of First Refusal and Co-Sale Agreement").
5.9 OPINION OF COMPANY COUNSEL. The Investors purchasing shares at the
Second Closing shall have received from Stradling Yocca Carlson & Rauth, a
Professional Corporation, counsel to the Company, an opinion dated as of the
date of the Second Closing, in the form attached hereto as Exhibit E.
5.10 WARRANT TO PURCHASE COMMON STOCK. The Company shall have executed
and delivered to each Investor purchasing shares at the Second Closing a warrant
to purchase common stock of the Company in the form attached hereto as Exhibit
F.
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5.11 SETTLEMENT AGREEMENT. The settlement agreement dated February 11,
2000 among Andra Sachs, the Company and the other parties thereto in the form
provided to special counsel to the Investors, shall have been executed and
delivered by all parties thereto.
5.12 HART-SCOTT-RODINO FILING. If any Investor's purchase of shares at
the Second Closing is subject to the filing requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, such filings
shall have been made and the waiting period with respect thereto shall have
expired or been terminated. The Company and any such Investor shall make such
filings as soon as practicable following the date hereof, and shall use their
commercially reasonable best efforts to cause early termination of any waiting
period under such Act.
5.13 SATISFACTION OF OTHER CONDITIONS. The conditions set forth in
Sections 4.6, 4.9 and 4.12 above shall have been fulfilled by the Company.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT EACH CLOSING.
The obligations of the Company to each Investor under this Agreement are
subject to the fulfillment on or before the Closing applicable to such Investor
of each of the following conditions by that Investor.
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of each Investor contained in Section 3 shall be true on and as of the Closing
applicable to such Investor with the same effect as though such representations
and warranties had been made on and as of the date of such Closing.
6.2 QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with and prior to the lawful issuance and
sale of the Series B Preferred Stock pursuant to this Agreement shall be duly
obtained and effective as of such Closing.
6.3 PURCHASE OF SHARES. The Company shall have received payment for all
of the shares of Series B Preferred Stock being sold at such Closing pursuant to
this Agreement.
6.4 AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT. The Company, the
holders of Series A Preferred Stock, each Investor purchasing shares at such
Closing and the Founder shall have executed and delivered the Amended and
Restated Investors' Rights Agreement in the form attached hereto as Exhibit C.
6.5 AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT.
The Company, holders of a majority of the shares of Series A Preferred Stock,
each Investor purchasing shares at such Closing and the Founder shall have
executed and delivered the Amended and Restated Right of First Refusal and
Co-Sale Agreement in the form attached hereto as Exhibit D.
6.6 HART-SCOTT-RODINO FILING. If any Investor's purchase of shares at
the Second Closing is subject to the filing requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, such filings
shall have been made and the waiting period with respect thereto shall have
expired or been terminated. The Company and any such Investor shall make such
filings as soon as practicable following the date hereof, and shall use their
commercially reasonable best efforts to cause early termination of any waiting
period under such Act.
15
<PAGE> 16
7. MISCELLANEOUS.
7.1 ENTIRE AGREEMENT. This Agreement, the Amended and Restated
Investors' Rights Agreement, and the Amended and Restated Right of First Refusal
and Co-Sale Agreement constitute the entire agreements among the parties with
respect to the subject matter hereof and no party shall be liable or bound to
any other party in any manner by any warranties, representations, or covenants
except as specifically set forth herein or therein.
7.2 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
permitted transferees of any shares of Series B Preferred Stock sold hereunder
or any Common Stock issued upon conversion thereof). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
7.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
7.4 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.
7.5 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.
7.6 NOTICES. Unless otherwise provided, all notices and other
communications required or permitted under this Agreement shall be in writing
and shall be mailed by United States first-class mail, postage prepaid, sent by
facsimile or delivered personally by hand or by a courier addressed to the party
to be notified at the address or facsimile number indicated for such person on
Schedule A attached hereto, or at such other address or facsimile number as such
party may designate by ten (10) days' advance written notice to the other
parties hereto. All such notices and other written communications shall be
effective on the date of mailing, confirmed facsimile transfer or delivery.
Notwithstanding the foregoing, all notices and other communications to Intel
Corporation ("Intel") shall be sent to the following address:
Intel Corporation
2200 Mission College Blvd.
Mail Stop RN6-46
Santa Clara, California 95052
Attn: M&A Portfolio Manager
Fax Number: (408) 765-6038
With copies to:
Intel Corporation
2200 Mission College Blvd.
Santa Clara, California 95052
16
<PAGE> 17
Attn: General Counsel
Fax Number: (408) 765-1859
7.7 FINDER'S FEES. Except as set forth on Schedule 7.7, each party
represents that it neither is nor will be obligated for any finder's fee or
commission in connection with this transaction. Each Investor agrees to
indemnify and to hold harmless the Company from any liability for any commission
or compensation in the nature of a finder's fee (and the cost and expenses of
defending against such liability or asserted liability) for which the Investor
or any of its officers, partners, employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees, or
representatives is responsible.
7.8 EXPENSES. The Company and each Investor shall pay all costs and
expenses that it incurs with respect to the negotiation, execution, delivery,
and performance of this Agreement; provided, however, that the Company will pay
the reasonable, documented fees and disbursements up to an aggregate of $40,000
of special legal counsel and certain outside consultants for the Investors in
connection with this transaction.
7.9 ATTORNEYS' FEES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the Amended and Restated
Investors' Rights Agreement, the Amended and Restated Right of First Refusal and
Co-Sale Agreement or the Restated Certificate, the prevailing party shall be
entitled to reasonable attorneys' fees, costs, and disbursements in addition to
any other relief to which such party may be entitled.
7.10 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
Common Stock not previously sold to the public that is issued or issuable upon
conversion of the Series B Preferred Stock, voting as a single class. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any securities purchased under this Agreement at the time
outstanding (including securities into which such securities have been
converted), each future holder of all such securities, and the Company.
Notwithstanding anything herein to the contrary, no amendment or waiver to any
of the following sections or provisions of this Agreement shall be effective
without the written consent of Intel: (i) Section 7.12 and (ii) any other
provision or section of this Agreement that specifically mentions Intel.
7.11 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.
7.12 DISPUTE RESOLUTION. If there arises a dispute between any party to
this Agreement, including, without limitation Intel, and any other party to this
Agreement regarding this Agreement, those parties agree to negotiate in good
faith to resolve the dispute between them regarding this Agreement. If the
negotiations do not resolve the dispute to the reasonable satisfaction of both
parties, then each party shall nominate one partner, member or senior officer of
the rank of Vice President or higher as its representative. These
representatives shall, within thirty (30) days of a written request by either
party to call such a meeting, meet in person and alone (except for one
17
<PAGE> 18
assistant for each party) and shall attempt in good faith to resolve the
dispute. If the disputes cannot be resolved by such senior managers in such
meeting, the parties agree that they shall, if requested in writing by either
party, meet within thirty (30) days after such written notification for one day
with an impartial mediator and consider dispute resolution alternatives other
than litigation. If any alternative method of dispute resolution is not agreed
upon within thirty (30) days after the one day mediation, either party may begin
litigation proceedings. This procedure shall be a prerequisite before taking any
additional action hereunder.
7.13 INFORMATION CONFIDENTIAL.
(a) Disclosure of Terms. The terms and conditions of this
Agreement, the Amended and Restated Investors' Rights Agreement, the Amended and
Restated Right of First Refusal and Co-sale Agreement and any other agreement to
which the Investors are parties, the execution and delivery of which is
contemplated hereby (collectively, the "Financing Terms"), including their
existence, shall be considered confidential information and shall not be
disclosed by any party hereto to any third party except in accordance with the
provisions set forth below.
(b) Press Releases, Etc. Within sixty (60) days of the closing of
the transaction contemplated by the Financing Terms, the Company may issue a
press release in the form provided by Intel disclosing that Intel has invested
in the Company; provided that the release does not disclose any of the Financing
Terms and the final form of the press release is approved in advance in writing
by Intel which approval shall not be unreasonably withheld. No other
announcement regarding Intel in a press release, conference, advertisement,
announcement, professional or trade publication, mass marketing materials or
otherwise to the general public may be made without such Intel's prior written
consent.
(c) Permitted Disclosures. Notwithstanding the foregoing, (i) any
party may disclose any of the Financing Terms to its current or bona fide
prospective investors, employees, investment bankers, lenders, accountants and
attorneys, in each case only where such persons or entities are under
appropriate nondisclosure obligations whether by written agreement, position of
trust or confidence, fiduciary duty, or otherwise; (ii) any party may disclose
(other than in a press release or other public announcement described in
subsection (b)) solely the fact that the Investors are investors in the Company
to any third parties without the requirement for the consent of any other party
or nondisclosure obligations; and (iii) Intel may disclose its investment in the
Company and the Financing Terms to third parties or to the public at its sole
discretion and, if it does so, the other parties hereto shall have the right to
disclose to third parties any such information disclosed in a press release or
other public announcement by Intel.
(d) Legally Compelled Disclosure. In the event that any party is
requested or becomes legally compelled (including without limitation, pursuant
to securities laws and regulations) to disclose the existence of this Agreement,
the Amended and Restated Investors' Rights Agreement, the Amended and Restated
Right of First Refusal and Co-Sale Agreement and any other agreement to which
the Investors are parties, the execution and delivery of which is contemplated
hereby, or any of the Financing Terms hereof in contravention of the provisions
of this Section 7.13, such party (the "Disclosing Party") shall provide the
other parties (the "Non-Disclosing Parties") with prompt written notice of that
fact so that the appropriate party may seek (with the cooperation and reasonable
efforts of the other parties) a protective order, confidential treatment or
other appropriate remedy. In such event, the Disclosing Party shall furnish only
that portion of the information which is legally
18
<PAGE> 19
required and shall exercise reasonable efforts to obtain reliable assurance that
confidential treatment will be accorded such information to the extent
reasonably requested by any Non-Disclosing Party.
(e) Other Information. The provisions of this Section 7.13 shall
be in addition to, and not in substitution for, the provisions of any separate
nondisclosure agreement executed by any of the parties hereto with respect to
the transactions contemplated hereby. Additional disclosures and exchange of
confidential information between the Company and Intel (including without
limitation, any exchanges of information with any Intel board observer) shall be
governed by the terms of the Corporate Non-Disclosure Agreement No. 5710225,
dated May 4, 1999, executed by the Company and Intel, and any Confidential
Information Transmittal Records ("CITR") provided in connection therewith.
(f) All notices under this Section 7.13 shall be made pursuant to
Section 7.6 of this Agreement.
19
<PAGE> 20
SIGNATURE PAGE TO FLASHCOM, INC. STOCK PURCHASE AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
FLASHCOM, INC.
By: /s/ RICHARD RASMUS
----------------------------------------
Richard Rasmus, President and
Chief Operating Officer
INVESTORS:
Investor Name:
------------------------------
Signed:
-------------------------------------
Print Name:
---------------------------------
Its:
----------------------------------------
[The Agreement contains counterpart
signature pages for each investor appearing
in Schedule A hereto]
20
<PAGE> 21
SCHEDULE A
INVESTORS
<TABLE>
<CAPTION>
NAME AND ADDRESSES OF INVESTORS NO. SHARES OF SERIES B
IN SERIES B PREFERRED STOCK PREFERRED PURCHASED PURCHASE PRICE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
FIRST CLOSING
The New Economy Fund 1,522,070 $10,000,000
c/o Capital Research and Management Company
333 South Hope Street, 53rd Floor
Los Angeles, California 90017
SMALLCAP World Fund, Inc. 1,484,018 9,750,000
c/o Capital Research and Management Company
333 South Hope Street, 53rd Floor
Los Angeles, California 90017
American Variable Insurance Series Global 38,052 250,000
Small Capitalization Fund
c/o Capital Research and Management Company
333 South Hope Street, 53rd Floor
Los Angeles, California 90017
Blueprint Ventures Emerging Communications 1,225,800 8,053,507
Fund I, L.P.
Embarcadero Center Four, Suite 580
San Francisco, California 94115
Attn: Bart Schachter
C.E. Unterberg, Towbin Private Equity 456,621 3,000,000
Partners II, L.P.
c/o C.E. Unterberg Towbin
10 East 50th Street
New York, New York 10022
Attn: Mark G. Hadlock
Intel Corporation 552,548 3,630,242
2200 Mission College Blvd.
Mail Stop RN6-46
Santa Clara, California 95052
Attn: M&A Portfolio Manager
With copies to:
Intel Corporation
2200 Mission College Blvd.
Santa Clara, California 95052
Attn: General Counsel
</TABLE>
1
<PAGE> 22
<TABLE>
<CAPTION>
NAME AND ADDRESSES OF INVESTORS NO. SHARES OF SERIES B
IN SERIES B PREFERRED STOCK PREFERRED PURCHASED PURCHASE PRICE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
BancBoston Capital Inc. 456,621 3,000,000
435 Tasso Street, Suite 250
Palo Alto, California 94301
Attn: Maia Heymann
Carlyle High Yield Partners, L.P. 456,621 3,000,000
520 Madison Avenue, 41st Floor
New York, New York 10022
Attn: Greg Margolies
Kohlberg, Kravis, Roberts & Co. 350,076 2,300,000
2800 Sand Hill Road, Suite 200
Menlo Park, California 94025
Attn: Adam Clammer
The Raptor Global Portfolio Ltd. 454,642 2,987,000
c/o Tudor Investment Corporation
40 Rowes Wharf, 2nd Floor
Boston, Massachusetts 02110
Attn: Rick Ganong
Altar Rock Fund, L.P. 1,979 13,000
c/o Tudor Investment Corporation
40 Rowes Wharf, 2nd Floor
Boston, Massachusetts 02110
Attn: Rick Ganong
Comdisco, Inc. 129,376 850,000
6111 North River Road
Rosemont, Illinois 60018
Attn: Venture Group
TW Trust 38,052 250,002
8144 Walnut Hill Lane, Suite 1010
Dallas, Texas 95231
Attn: Connie Adair
CVT Management LLC 30,441 200,000
7385 Caminito Bassano
La Jolla, California 92037
Attn: Alex Roudi
</TABLE>
2
<PAGE> 23
<TABLE>
<CAPTION>
NAME AND ADDRESSES OF INVESTORS NO. SHARES OF SERIES B
IN SERIES B PREFERRED STOCK PREFERRED PURCHASED PURCHASE PRICE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Internet Investor LLC, Series 8 30,441 199,997
450 Springfield Avenue, Suite 201
Summit, New Jersey 07901
Attn: Frederick R. Krueger
Bahram Nour-Omid and 30,441 200,000
Doris Nour-Omid, Trustees,
Nour-Omid Family Trust
2219 Tunbridge Court
Los Angeles, California 90077
Sean Tayebi 30,441 200,000
939 Coast Boulevard, #16D
La Jolla, California 92037
BridgeWest, LLC 76,104 500,000
c/o Kathy Munro
4370 La Jolla Village Drive, Suite 400
San Diego, California 92122
Steve Lehman 76,104 500,000
25742 Simpson Place
Calabasas, California 91302-3154
Blackcross 76,104 500,000
369 San Miguel Drive, Suite 300
Newport Beach, California 92660
Attn: Blake Bertea
Sean Stanfield 15,221 100,000
16751 Edgewater Lane
Huntington Beach, California 92649
Remington Industries 30,441 200,000
3848 McKinley Street
Corona, California 91719
Attn: Jeff Silvers
David Fuchs 30,441 200,000
1775 Newell Road
Palo Alto, California 94303
Kevin Wendle 30,441 200,000
10671 Chalon Road
Los Angeles, California 90077
</TABLE>
3
<PAGE> 24
<TABLE>
<CAPTION>
NAME AND ADDRESSES OF INVESTORS NO. SHARES OF SERIES B
IN SERIES B PREFERRED STOCK PREFERRED PURCHASED PURCHASE PRICE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
SECOND CLOSING
Behrman Capital II L.P. 3,003,417 19,732,450
c/o Behrman Capital
126 East 56th Street
New York, NY 10022
Attn: Grant G. Behrman
With copies to:
Behrman Capital
4 Embarcadero Center, Suite 3640
San Francisco, CA 94111
Attn: William Matthes
Strategic Entrepreneur Fund II L.P. 40,723 267,550
c/o Behrman Capital
126 East 56th Street
New York, NY 10022
Attn: Grant G. Behrman
With copies to:
Behrman Capital
4 Embarcadero Center, Suite 3640
San Francisco, CA 94111
Attn: William Matthes
Communication Ventures III, L.P. 850,256 5,586,180
505 Hamilton Avenue, Ste. 305
Palo Alto, California 94301
Communication Ventures III CEO & 42,513 279,308
Entrepreneurs Fund
505 Hamilton Avenue, Ste. 305
Palo Alto, California 94301
Mayfield IX 863,990 5,676,416
2800 Sand Hill Road
Menlo Park, California 94025
Mayfield Associates Fund IV 45,473 298,760
2800 Sand Hill Road
Menlo Park, California 94025
Flash Trust 308,220 2,025,005
c/o Mayfield Funds
2800 Sand Hill Road
Menlo Park, California 94025
</TABLE>
4
<PAGE> 25
<TABLE>
<CAPTION>
NAME AND ADDRESSES OF INVESTORS NO. SHARES OF SERIES B
IN SERIES B PREFERRED STOCK PREFERRED PURCHASED PURCHASE PRICE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
SYCR Investment Partnership 2000 39,052 256,570
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
SYCR Investment Fund II, LLC 7,610 50,000
660 Newport Center Dr., Suite 1600
Newport Beach, California 92660
TOTAL: 12,824,351 $84,255,987
</TABLE>
5
<PAGE> 26
EXHIBIT A
RESTATED CERTIFICATE
A-1
<PAGE> 27
EXHIBIT B
SCHEDULE OF EXCEPTIONS
B-1
<PAGE> 28
EXHIBIT C
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
C-1
<PAGE> 29
EXHIBIT D
AMENDED AND RESTATED RIGHT OF FIRST REFUSAL
AND CO-SALE AGREEMENT
D-1
<PAGE> 30
EXHIBIT E
FORM OF OPINION OF COMPANY COUNSEL
E-1
<PAGE> 31
EXHIBIT F
FORM OF WARRANT
F-1
<PAGE> 1
FLASHCOM, INC. EXH. 10.17
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (this "Agreement")
is made and entered into as of the 18th day of February, 2000, by and between
Flashcom, Inc., a Delaware corporation (the "Company"), the persons identified
on Exhibit A-1 attached hereto (the "Series A Holders"), the persons identified
on Exhibit A-2 attached hereto (the "Series B Holders") and the persons
identified on Exhibit A-3 attached hereto (the "Founders").
R E C I T A L S
WHEREAS, in connection with the Company's issuance of 5,771,679 shares
of Series A Preferred Stock (the "Series A Shares") pursuant to that certain
Series A Preferred Stock Purchase Agreement (the "Series A Purchase Agreement")
dated as of June 8, 1999, the Company entered into an Investors' Rights
Agreement with the Series A Holders as a condition to the Closing thereunder.
WHEREAS, in connection with the Company's issuance of up to 12,861,500
shares of Series B Preferred Stock (the "Series B Shares") pursuant to that
certain Series B Preferred Stock Purchase Agreement dated as of even date
herewith, the Company, the Series A Holders and the Series B Holders have agreed
to enter into this Amended and Restated Investors' Rights Agreement as a
condition to Closing thereunder.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereto agree as follows:
1. DEFINITIONS.
As used herein:
1.1 The term "Holder" means the Series A Holders and the Series B
Holders having the right to acquire Registrable Shares or any assignee thereof
in accordance with Section 2.10 hereof.
1.2 The terms "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
1.3 For the purposes hereof, the term "Registrable Shares" means
and includes (i) the shares of common stock of the Company issued or issuable
upon conversion of the Series A Shares and the Series B Shares, (ii) the shares
of common stock issued or issuable upon exercise of the warrants dated as of May
7, November 9, December 1 and December 20, 1999 and February 14, 2000 issued to
certain of the Series A Holders, the Series B Holders, the Investors and their
respective affiliates, (iii) the shares of common stock issued to the Series A
Holders as the date hereof, and (iv) any common stock of the Company issued, or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued, as a result of a stock split, dividend or other distribution
with respect to or in exchange for or in replacement of the shares referenced in
(i), (ii) or (iii) above, excluding in all cases, however, any Registrable
Shares sold by a person in a transaction in which his or her rights under
Section 2 are not assigned.
<PAGE> 2
1.4 The term "Ownership Percentage" means and includes, with
respect to each Holder of Registrable Shares requesting inclusion of Registrable
Shares in an offering pursuant to this Agreement, the number of Registrable
Shares held by such Holder divided by the aggregate of all Registrable Shares
held by all Holders requesting registration in such offering.
1.5 The term "Piggyback Registrable Shares" means and includes
(i) Registrable Shares, and (ii) any common stock of the Company held by any
Founder or any common stock of the Company issued, or issuable upon conversion
or exercise of any warrant, right or other security which is issued, as a result
of a stock split, dividend, or other distribution with respect to or in exchange
for or in replacement of the shares of common stock held by any Founder.
1.6 The term "Securities Act" means the Securities Act of 1933,
as amended.
1.7 The term "Public Offering" means and includes the closing of
a firm commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act, covering the offer and sale of
securities to the general public for the account of the Company.
2. REGISTRATION RIGHTS.
2.1 "PIGGY BACK" REGISTRATION. If at any time the Company shall
determine to register under the Securities Act (including pursuant to a demand
of any stockholder of the Company exercising registration rights other than
pursuant to Section 2.2 hereof) any of its common stock (other than a
registration relating solely to the sale of securities to participants in a
Company employee benefits 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 Piggyback Registrable Shares or
a registration in which the only common stock being registered is common stock
issuable upon conversion of debt securities which are also being registered), it
shall send to each Holder and to each Founder written notice of such
determination and, if within fifteen (15) days after receipt of such notice,
such Holder or such Founder shall so request in writing, the Company shall use
its commercially reasonable best efforts to include in such registration
statement all or any part of the Piggyback Registrable Shares that such Holder
or such Founder requests to be registered. If such registration involves an
underwritten public offering and the total amount of securities, including
Piggyback Registrable Shares, requested by stockholders to be included in such
offering exceeds the amount of securities that the managing underwriter
determines in its sole discretion is compatible with the success of the
offering, then the Company shall be required to include in the offering only
that number of such securities, including Piggyback Registrable Shares, which
the managing underwriter determines in its sole discretion will not jeopardize
the success of the offering (the securities so included to be apportioned in the
following order of priority (A) first, to the Company, (B) second, among the
Holders requesting to sell common stock issuable upon conversion of Series A
Shares and Series B Shares according to each such Holder's Ownership Percentage,
(C) third, to the Founders requesting to sell Piggyback Registrable Shares
according to the total amount of securities held by each such Founder, and (D)
fourth, to the extent additional securities may be included therein, pro rata
among the other selling stockholders according to the total amount of securities
owned by each such stockholder); provided, however, that in any registration
other than the initial Public Offering of the Company's common stock, the number
of shares requested to be included by the Holders shall not be reduced below 25%
of the total number of securities to be provided in the registration. For
purposes of the preceding parenthetical concerning apportionment, for any
selling stockholder which is a holder of Piggyback Registrable
2
<PAGE> 3
Shares and which is a partnership or corporation, the partners, retired partners
and stockholders 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 stockholder," and any
pro-rata reduction with respect to such "selling stockholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling stockholder" as defined in
this sentence. If any Holder or Founder disapproves of the terms of such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the underwriter. No incidental right under this Section 2.1 shall be
construed to limit any registration required under Section 2.2.
2.2 REQUIRED REGISTRATION.
(a) At any time or times not earlier than the earlier of
either (i) 180 days after the completion by the Company of its initial Public
Offering or (ii) March 31, 2001, one or more Holders of at least 30% of the
shares of common stock issued or issuable upon conversion of the Series A Shares
and the Series B Shares may require the Company to register some or all of such
Holders' Registrable Shares, provided that each such registration covers an
offering with an aggregate offering price of at least $5,000,000. Such Holder(s)
shall notify the Company in writing that it or they intend to offer or cause to
be offered for public sale of all or any portion of the Registrable Shares, and
within ten (10) days of the receipt after such notice, the Company will so
notify all holders of Registrable Shares.
(b) Upon written request of any Holder given within thirty
(30) days after the receipt by such Holder from the Company of such
notification, the Company will use its commercially reasonable best efforts to
cause all or any part of the Registrable Shares that may be requested by any
Holder thereof (including the Holder or Holders giving the initial notice of
intent to offer (each an "Initiating Holder" and collectively the "Initiating
Holders")) to be registered under the Securities Act as expeditiously as
possible. The Company shall file a registration statement covering the
Registrable Shares so requested to be registered as soon as practical, but in
any event within sixty (60) days after receipt by the Company of the request of
the Initiating Holder.
(c) Notwithstanding anything contained in this Section 2.2
or Section 2.3 to the contrary, if the Company furnishes to the Holders
requesting any registration pursuant to such sections a certificate signed by
the President of the Company stating that, in the good faith judgment of the
Board of Directors of the Company, such registration would be detrimental to the
Company and that it is in the best interests of the Company to defer the filing
of a registration statement, then the Company shall have the right to defer the
filing of a registration statement with respect to such offering for a period of
not more than ninety (90) days from receipt by the Company of the request by the
Initiating Holder; provided, however, that the Company may not exercise such
right more than once in any twelve-month period.
(d) If the Initiating Holders intend to distribute the
Registrable Shares covered by their request by means of an underwriting, they
shall so advise the Company as part of their request and the Company shall
include such information in the written notice referred to above.
(e) If the registration to be effected pursuant to this
Section 2.2 is a registration in connection with the Company's initial Public
Offering, the underwriter shall be selected by the Company and shall be
reasonably acceptable to a majority in interest of the Initiating Holders. In
all subsequent registrations effected pursuant to this Section 2.2, the
underwriter shall be
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selected by a majority in interest of the Initiating Holders and shall be
reasonably acceptable to the Company. In any event, the right of any Holder to
include his, her or its Registrable Shares in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Shares in the underwriting to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriters selected for such underwriting.
(f) Notwithstanding the foregoing, 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 Shares which would otherwise
be underwritten pursuant hereto, and the number of shares of Registrable Shares
that may be included in the underwriting shall be allocated among the Holders
requesting inclusion in such underwriting pursuant to Section 2.2(b) above
according to each such Holder's Ownership Percentage. No shares proposed to be
registered by the Company or by any party other than the Holders requesting
inclusion in such registration pursuant to Section 2.2(b) above shall be
included in the underwriting unless all shares requested to be included in such
underwriting pursuant to Section 2.2(b) are included therein.
(g) Notwithstanding the foregoing, the Company shall not
be obligated to effect, or to take any action to effect, any registration
pursuant to this Section 2.2: (i) after the Company has effected three (3)
registrations pursuant to this Section 2.2 and such registrations have been
declared or ordered effective, (ii) during the period starting with the date
sixty (60) days prior to the Company's good faith estimate of filing of, and
ending on a date one hundred eighty (180) days after the effective date of, a
registration statement filed under the Securities Act (other than a registration
relating solely to the sale of securities to participants in a Company stock
plan), provided that the Company is actively employing in good faith its
commercially reasonable best efforts to cause such registration statement to
become effective, or (iii) if the Initiating Holders propose to dispose of
shares of Registrable Shares that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 2.3 below.
2.3 REGISTRATION ON FORM S-3. In case the Company shall receive
from a Holder or Holders of (x) at least twenty percent (20%) of the shares of
common stock issued or issuable upon conversion of the Series A Shares or (y) at
least twenty percent (20%) of the Shares of Common Stock issued or issuable upon
conversion of the Series B Shares, a written request or requests that the
Company effect a registration on Form S-3 (or any similar form promulgated by
the Securities and Exchange Commission) and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) as soon as practicable, use its commercially
reasonable best efforts to effect such registration and all such qualifications
and compliances as may be so requested and as would permit or facilitate the
sale and distribution of all or such portion of such Holder's or Holders'
Registrable Shares as are specified in such request, together with all or such
portion of the Registrable Shares of any other Holder or Holders joining in such
request as are specified in a written request given within twenty (20) 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 2.3: (1) if Form S-3 is
not available for such
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offering by the Holders; (2) 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 seriously
detrimental to the Company and its stockholders 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 ninety (90) days after receipt of the request of the Holder or Holders
under this Section 2.3; provided, however, that the Company shall not utilize
this right more than once in any twelve month period; (3) if such Form S-3
registration covers an offering with reasonably anticipated aggregate proceeds
of less than $2,500,000; or (4) if the Company has effected two (2)
registrations pursuant to this Section 2.3 within the past twelve (12) months
and such registrations have been declared or ordered effective.
(c) Subject to the foregoing, the Company shall use its
commercially reasonable best efforts to file a registration statement covering
the Registrable Shares and other securities so requested to be registered as
soon as practicable after receipt of the request or requests of the Holders.
Registrations effected pursuant to this Section 2.3 shall not be counted as a
demand for registration effected pursuant to Section 2.2. If the Holders giving
the initial notice propose to offer the Registrable Shares by means of an
underwriting, the terms of Sections 2.2(d) and (e) shall apply.
2.4 EFFECTIVENESS.
(a) The Company will use its commercially reasonable best
efforts to maintain the effectiveness for up to nine (9) months of any
registration statement pursuant to which any of the Registrable Shares are being
offered; provided, however, that: (i) such nine-month 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 Shares on Form S-3 which are intended to be offered
on a continuous or delayed basis, such nine-month period shall be extended, if
necessary, to keep the registration statement effective until the earlier to
occur of (A) eighteen (18) months following the effectiveness of the
registration statement, or (B) the date that all such Registrable Shares are
sold, provided that Rule 415, or any successor rule under Securities Act,
permits an offering on a continuous or delayed basis, and provided further that
applicable rules under Securities 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 Securities 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
Securities Exchange Act of 1934, as amended (the "Exchange Act"), in the
registration statement.
(b) The Company will from time to time amend or supplement
such registration statement and the prospectus contained therein as and to the
extent necessary to comply with the Securities Act and any applicable state
securities statute or regulation.
2.5 INDEMNIFICATION.
(a) Indemnification of Holders. In the event that the
Company registers any of the Registrable Shares under the Securities Act, the
Company will indemnify and hold harmless each Holder and each underwriter of the
Registrable Shares so registered (including any
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broker or dealer through whom such shares may be sold) and each person, if any,
who controls such Holder or any such underwriter within the meaning of Section
15 of the Securities Act from and against any and all losses, claims, damages,
expenses or liabilities (or any action in respect thereof), joint or several, to
which they or any of them become subject under the Securities Act, Exchange Act
or other federal or state law or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse each such Holder,
each such underwriter and each such controlling person, if any, for any legal or
other expenses reasonably incurred by them or any of them, as such expenses are
incurred, in connection with investigating or defending any actions whether or
not resulting in any liability, insofar as such losses, claims, damages,
expenses, liabilities or actions arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement, in any preliminary or amended preliminary prospectus or
in the prospectus (or the registration statement or prospectus as from time to
time amended or supplemented by the Company); (ii) arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading; or (iii) any violation by the Company of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation under the
Securities Act, the Exchange Act or any state securities law; provided, however,
that the indemnity contained in this Section 2.5(a) will not apply where such
untrue statement or omission was made in such registration statement,
preliminary prospectus or prospectus in reliance upon and in conformity with
information furnished in writing to the Company in connection therewith by such
Holder of Registrable Shares, any such underwriter or any such controlling
person expressly for use therein. Promptly after receipt by any Holder of
Registrable Shares, any underwriter or any controlling person of notice of the
commencement of any action in respect of which indemnity may be sought against
the Company, such Holder of Registrable Shares, or such underwriter or such
controlling person, as the case may be, will notify the Company in writing of
the commencement thereof, and, subject to the provisions hereinafter stated, the
Company shall assume the defense of such action (including the employment of
counsel, who shall be counsel reasonably satisfactory to such Holder of
Registrable Shares, such underwriter or such controlling person, as the case may
be), and the payment of expenses insofar as such action shall relate to any
alleged liability in respect of which indemnity may be sought against the
Company. Such Holder of Registrable Shares, any such underwriter or any such
controlling person shall have the right to employ separate counsel in any such
action and to participate in the defense thereof in the event the representation
of such Holder, underwriter or controlling person by counsel retained by or on
the behalf of the Company would be inappropriate due to conflicts of interest
between any such person and any other party represented by such counsel in such
proceeding or action, in which case the Company shall pay, as incurred, the fees
and expenses of not more than one such separate counsel. The Company shall not
be liable to indemnify any person under this Section 2.5(a) for any settlement
of any such action effected without the Company's consent (which consent shall
not be unreasonably withheld). The Company shall not, except with the approval
of each party being indemnified under this Section 2.5(a) (which approval will
not be unreasonably withheld), consent to entry of any judgment or enter into
any settlement that does not include as an unconditional term thereof the giving
by the claimant or plaintiff to the parties being so indemnified of a release
from all liability in respect to such claim or litigation.
(b) Indemnification of Company. In the event that the
Company registers any of the Registrable Shares under the Securities Act, each
Holder of the Registrable Shares so registered will indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed the
registration statement, each underwriter of the Registrable Shares so registered
(including any broker or dealer through whom any of such shares may be sold) and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act from and
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against any and all losses, claims, damages, expenses or liabilities (or any
action in respect thereof), several but not joint, to which they or any of them
may become subject under the Securities Act or under any other statute or at
common law or otherwise, and, except as hereinafter provided, will reimburse the
Company and each such director, officer, underwriter or controlling person for
any legal or other expenses reasonably incurred by them or any of them, as such
expenses are incurred, in connection with investigating or defending any actions
whether or not resulting in any liability, insofar as such losses, claims,
damages, expenses, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in the
registration statement, in any preliminary or amended preliminary prospectus or
in the prospectus (or the registration statement or prospectus as from time to
time amended or supplemented) or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein not misleading, but only to
the extent that any such statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Company in connection
therewith by such Holder, expressly for use therein; provided that in no event
shall the total amount for which any Holder shall be liable hereunder exceed the
net proceeds from the offering received by such Holder. Promptly after receipt
of notice of the commencement of any action in respect of which indemnity may be
sought against such Holder of Registrable Shares, the Company will notify such
Holder of Registrable Shares in writing of the commencement thereof, and such
Holder of Registrable Shares shall, subject to the provisions hereinafter
stated, assume the defense of such action (including the employment of counsel,
who shall be counsel reasonably satisfactory to the Company) and the payment of
expenses insofar as such action shall relate to the alleged liability in respect
of which indemnity may be sought against such Holder of Registrable Shares. The
Company and each such director, officer, underwriter or controlling person shall
have the right to employ separate counsel in any such action and to participate
in the defense thereof in the event the representation of the Company, any of
its officers or directors or any underwriter or controlling person by counsel
retained by or on the behalf of such Holder would be inappropriate due to
conflicts of interest between any such person and any other party represented by
such counsel in such proceeding or action, in which case such Holder shall pay,
as incurred, the fees and expenses of not more than one such separate counsel.
Notwithstanding the two preceding sentences, if the action is one in which the
Company may be obligated to indemnify any Holder of Registrable Shares pursuant
to Section 2.5, the Company shall have the right to assume the defense of such
action, subject to the right of such holders to participate therein as permitted
by Section 2.5. Such Holder shall not be liable to indemnify any person for any
settlement of any such action effected without such Holder's consent (which
consent shall not be unreasonably withheld). Such Holder shall not, except with
the approval of the Company (which approval shall not be unreasonably withheld),
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to the party being so indemnified of a release from all liability in respect to
such claim or litigation.
2.6 CONTRIBUTION. If the indemnification provided for in Section
2.5 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
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<PAGE> 8
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; provided that in no event shall contributions by a Holder
hereunder exceed the net proceeds from the offering received by such Holder. No
person guilty of fraudulent misrepresentation (with the meaning of Section 11(f)
of the Securities Act) shall be entitled to contributions from any person who is
not guilty of such fraudulent representation.
2.7 EXCHANGE ACT REGISTRATION. With a view to making available to
the Holders the benefits of Rule 144 promulgated under Securities Act and any
other rule or regulation of the Securities and Exchange Commission (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) use its commercially reasonable best efforts to 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 reasonable action, including the voluntary
registration of its common stock under Section 12 of the Exchange Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Shares, 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 on a timely basis with the SEC all information
that the SEC may require under either of Section 13 or Section 15(d) of the
Exchange Act and, so long as it is required to file such information, take all
action that may be required as a condition to the availability of Rule 144 under
the Securities Act (or any successor exemptive rule hereinafter in effect) with
respect to the Company's common stock;
(d) furnish to any Holder forthwith upon request (i) a
written statement by the Company as to its compliance with the reporting
requirements of Rule 144, (ii) a copy of the most recent annual or quarterly
report of the Company as filed with the SEC, and (iii) any other reports and
documents that a Holder may reasonably request in availing itself of any rule or
regulation of the SEC allowing a Holder to sell any such Registrable Shares
without registration.
2.8 FURTHER OBLIGATIONS OF THE COMPANY. Whenever the Company is
required hereunder to register Registrable Shares, it agrees that it shall also
do the following:
(a) Furnish to each selling Holder such copies of the
registration statement (including any amendments thereto) and each preliminary
and final prospectus and any other documents that such Holder may reasonably
request to facilitate the public offering of its Registrable Shares;
(b) Use its commercially reasonable best efforts to
register or qualify the Registrable Shares to be registered pursuant to this
Agreement under the applicable securities or "blue sky" laws of such
jurisdictions as any selling Holder may reasonably request; provided, however,
that the Company shall not be obligated to qualify to do business in any
jurisdiction where
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it is not then so qualified or to take any action that would subject it to the
service of process in suits other than those arising out of the offer or sale of
the securities covered by the registration statement in any jurisdiction where
it is not then so subject;
(c) Notify each Holder of Registrable Shares covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under Securities 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;
(d) Cause all such Registrable Shares registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed;
(e) Provide a transfer agent and registrar for all
Registrable Shares registered pursuant hereunder and a CUSIP number for all such
Registrable Shares, in each case not later than the effective date of such
registration;
(f) 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;
(g) Furnish, at the request of any Holder requesting
registration of Registrable Shares pursuant to this Section 2, on the date that
such Registrable Shares are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 2, 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 Shares; and
(ii) "comfort" letters signed by the Company's
independent public accountants who have examined and reported on the Company's
financial statements included in the registration statement, to the extent
permitted by the standards of the American Institute of Certified Public
Accountants, covering substantially the same matters with respect to the
registration statement (and the prospectus included therein) and (in the case of
the accountants "comfort" letters) with respect to events subsequent to the date
of the financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' "comfort" letters delivered to the underwriters in
underwritten public offerings of securities, but only if and to the extent that
the Company is required to deliver or cause the delivery of such opinion or
"comfort" letters to the underwriters in an underwritten public offering of
securities;
(h) Permit each selling Holder or his counsel or other
representatives to inspect and copy such corporate documents and records as may
reasonably be requested by them; and
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(i) Furnish to each selling Holder, upon request, a copy
of all documents filed and all correspondence from or to the SEC in connection
with any such offering unless confidential treatment of such information has
been requested of the SEC.
2.9 EXPENSES. In the case of a registration under Sections 2.1,
2.2 or 2.3 the Company shall bear all costs and expenses of each such
registration, including, but not limited to, printing, legal and accounting
expenses, SEC filing fees, "blue sky" fees and expenses, and all NASD, stock
exchange listing and qualification fees (including (i) in connection with the
Company's initial Public Offering, reasonable fees and disbursements of counsel
for the Company in its capacity as counsel to the selling Holders hereunder;
provided, however, if Company counsel does not make itself available for this
purpose, the Company will pay the reasonable fees and disbursements of one
counsel for the selling Holders selected by them, and (ii) in connection with
any subsequent registrations pursuant to Section 2.2, reasonable fees and
disbursements of one counsel for the selling Holders selected by them not to
exceed $35,000); provided, however, that the Company shall have no obligation to
pay or otherwise bear (i) any portion of the underwriter's commissions or
discounts attributable to the Registrable Shares being offered and sold by the
Holders of Registrable Shares, or (ii) any of such expenses if the payment of
such expenses by the Company is prohibited by the laws of a state in which such
offering is qualified and only to the extent so prohibited; provided, however,
that the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to Section 2.3 if the registration
request is subsequently withdrawn at the request of the Holders initiating such
registration (in which case, subject to the last provision of this Section 2.9
all Holders initiating such registration shall bear such expenses pro rata based
upon the total number of Registrable Shares requested to be included therein by
each such Holder); provided, further, that the Company shall not be required to
pay for any expenses of any registration proceeding begun pursuant to Section
2.2 if the registration request is subsequently withdrawn at the request of the
Initiating Holders (in which case, subject to the last provision of this Section
2.9 all Initiating Holders shall bear such expenses pro rata based upon the
total number of Registrable Shares requested to be included therein by each such
Holder), unless such Initiating Holders agree to forfeit their right to one
demand registration pursuant to Section 2.2; provided further, however, that if
at the time of such withdrawal of registration request under Section 2.2 or 2.3,
(a) the Initiating Holders have learned of a material adverse change in the
condition, business, or prospects of the Company not known to such Holders at
the time of their request, and (b) such Initiating Holders have withdrawn the
request with reasonable promptness following discovery of such material adverse
change, then such Initiating Holders shall not be required to pay any of such
expenses with respect to any registration under either Section 2.2 or 2.3, and
shall retain their rights pursuant to Section 2.2.
2.10 TRANSFER OF REGISTRATION RIGHTS. The registration rights of
a Holder of Registrable Shares or of a Founder of Piggyback Registrable Shares,
under this Agreement may be transferred (i) in the case of an individual, to any
member of the immediate family of such individual or to any trust for the
benefit of the individual or any such family member or members, (ii) to any
partner or affiliate of a Holder, and (iii) to any transferee provided that the
transferee receives at least 100,000 Registrable Shares and/or Piggyback
Registrable Shares (as adjusted for stock splits, combinations and the like). In
the event of a transfer of registration rights as provided in (i), (ii) or (iii)
above, the transferee shall execute a counterpart to this Agreement and agree to
be bound by the terms of this Agreement. The transferor shall provide the
Company with written notice of such transfer within a reasonable time.
Notwithstanding the foregoing, the registration rights of a Holder or a Founder
under this Agreement may not be transferred to an entity, or a person controlled
by, under common control with or controlling such entity, which is a direct
competitor of the Company.
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2.11 NO SUPERIOR RIGHTS. The Company will not grant registration
rights to any person or entity without first obtaining the prior written consent
of the Holders of a majority of the Series A Shares and the Series B Shares,
voting together on an "as converted" basis as a single class.
2.12 MARKET STAND-OFF AGREEMENT. Provided that all officers and
directors are also so bound, no Holder or Founder shall, to the extent requested
by the Company or any managing underwriter of the Company, sell or otherwise
transfer or dispose of (other than to donees who agree to be similarly bound)
any Registrable Shares during a period (the "Stand-Off Period") up to 180 days
following the effective date of a registration statement of the Company filed
under the Securities Act for the initial Public Offering (or such shorter period
as the Company or managing underwriter may authorize) except for securities sold
as part of the offering covered by such registration statement in accordance
with the provisions of this Agreement. In order to enforce the foregoing
covenant, the Company may impose stock transfer restrictions with respect to the
Registrable Shares of each Holder or Piggyback Registrable Shares held by each
Founder until the end of the Stand-Off Period. Notwithstanding the foregoing,
the obligations described in this Section 2.12 shall not apply to a registration
relating solely to employee benefit plans on Form S-8 or similar forms which may
be promulgated in the future, or a registration relating solely to an SEC Rule
145 transaction on Form S-4 or similar forms which may be promulgated in the
future.
2.13 TERMINATION OF REGISTRATION RIGHTS. The obligations of the
Company to register any Holder's Registrable Shares pursuant to this Section 2
shall terminate five (5) years after the Company's initial Public Offering
("Initial Offering"). In addition, a Holder's registration rights shall expire
if (a) the Company has completed its Initial Offering and is subject to
provisions of the Exchange Act, (b) all Registrable Securities held by and
issuable to such Holder (and its affiliates, partners, former partners, members
and former members) may be sold under Rule 144(k), and (c) Registrable
Securities held by such Holder equal less than one percent (1%) of the
outstanding shares of common stock of the Company (on an as converted basis).
3. RIGHT OF FIRST REFUSAL ON COMPANY ISSUANCES.
3.1 PRO RATA RIGHT. The Company hereby grants to each Holder who
holds at least 200,000 Series A Shares, Series B Shares, or common stock issued
upon conversion thereof (as adjusted for any combinations, consolidations, stock
distributions or stock dividends with respect to such shares), the right of
first refusal to purchase a pro rata share of all New Securities (as defined in
paragraph 3.2 below) which the Company may, from time to time, propose to sell
and issue. A Holder's pro rata share, for purposes of this right of first
refusal, is a ratio, (A) the numerator of which is the number of shares of
common stock held by such Holder or issuable upon conversion of the Series A
Shares or Series B Shares, as the case may be, then held by such Holder on the
date of the Company's written notice pursuant to paragraph 3.3 below; and (B)
the denominator of which is the total number of shares of common stock then
outstanding (assuming full conversion and exercise of all securities convertible
or exercisable into shares of common stock). The Holder shall also be entitled
to a right of first refusal to purchase on a pro rata basis, any shares not
elected to be purchased by the other Holders pursuant to this Section 3.1 in
accordance with the terms set forth in Section 3.3 below. This right of first
refusal shall be subject to the following additional provisions of this Section
3. The right of first refusal in this Section 3.1 shall not be applicable (i) to
the issuance or sale of New Securities to employees, consultants, officers or
directors pursuant to any stock purchase plan or arrangement, stock option plan
or other stock incentive plan or agreement approved by the Board of Directors,
(ii) to or after consummation of an Initial Offering, (iii) to the issuance of
New Securities pursuant to the conversion or exercise of convertible or
exercisable securities, (iv) to
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the issuance of New Securities in connection with a bona fide business
acquisition by the Company, whether by merger, consolidation, sale of assets,
sale or exchange of stock or otherwise, or (v) to the issuance of New Securities
in connection with debt financing transactions through a bank or other financial
institution or equipment lease financings.
3.2 DEFINITION OF NEW SECURITIES. "New Securities" shall mean any
capital stock of the Company whether now authorized or not, and rights, options
or warrants to purchase capital stock, and securities of any type whatsoever
that are, or may become, convertible into or exercisable for shares of capital
stock.
3.3 REQUIRED NOTICES. In the event the Company proposes to
undertake an issuance of New Securities, it shall give each Holder written
notice, pursuant to the provisions of Section 9 hereof, of the proposed
issuance, describing the type of New Securities, the price, the general terms
upon which the Company proposes to issue the same and the pro rata portion of
such New Securities such Holder is entitled to purchase. Each Holder shall have
thirty (30) days after the date of receipt of such notice to agree to purchase
such Holder's pro rata share of such New Securities for the price and upon the
general terms specified in the notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased. In the event
the Holders fail to fully exercise the right of first refusal as to their pro
rata share of New Securities (the "Unexercised Securities") offered within said
thirty (30) day period, the Company shall give each Holder who has elected to
exercise such right of first refusal notice that it may elect to purchase all or
any portion of the Unexercised Securities upon similar terms as previously
offered. Each such Holder shall have thirty (30) days after the date of receipt
of such notice to agree to purchase all or any portion of the Unexercised
Securities by giving written notice to the Company and stating therein the
quantity of Unexercised Securities to be purchased; provided that if the Holders
in the aggregate elect to purchase more shares than are available as Unexercised
Securities, such securities shall be allocated to such Holders on a pro rata
basis according to each such Holder's Ownership Percentage.
3.4 COMPANY'S RIGHT TO SELL. In the event the Holders in the
aggregate fail to exercise the right of first refusal as to all of the New
Securities offered within the 30 or 60 day period, as applicable, provided in
Section 3.3 above, the Company shall have sixty (60) days after the expiration
of such period to sell or enter into an agreement (pursuant to which the sale of
New Securities covered thereby shall be closed, if at all, within sixty (60)
days from the date of said agreement) and to sell all such New Securities
respecting which the Holders' options were not exercised, at a price and upon
general terms no more favorable in any material respect to the purchasers
thereof than specified in the Company's notice. In the event the Company has not
sold within said sixty (60) day period or entered into an agreement to sell all
such New Securities within said sixty (60) day period (or sold and issued all
such New Securities in accordance with the foregoing within sixty (60) days from
the date of said agreement), the Company shall not thereafter issue or sell any
New Securities, without first offering such securities to the Holders in the
manner provided above.
3.5 ASSIGNMENT. The right of first refusal set forth in this
Section 3 is nonassignable, except that (a) such right is assignable by each
Holder to any wholly-owned subsidiary, to any entity under common investment
management with such Holder (in the case of any Holder that is an investment
company), or to any corporation, entity or other person which is, within the
meaning of the Securities Act, controlled by any such Holder, (b) such right is
assignable between and among any of the Holders, (c) upon the death of any
individual Holder, such right shall pass to the beneficiaries under the deceased
Holder's last will and testament or to the distributees of
12
<PAGE> 13
the deceased Holder's estate, and (d) such right is assignable by a partnership
to its partners in connection with distributions to the partners and if so
assigned will be treated as one Holder for purposes of this Section 3.
3.6 TERMINATION. The right of first refusal granted to Holders
pursuant to this Section 3 shall terminate upon the closing of the Company's
initial firm commitment underwritten public offering; provided that such right
shall not be applicable to the securities issued in such public offering.
4. COVENANTS. The Company further agrees to the following covenants
which shall remain in effect until expiration as provided in Section 4.5 below:
4.1 INFORMATION RIGHTS.
(a) The Company shall furnish to each Investor (provided
that such Investor agrees to maintain the confidentiality thereof, it being
understood that, in the case of Intel, such agreement is set forth in that
certain Corporate Non-Disclosure Agreement dated May 4, 1999), as soon as
practicable after the end of each fiscal year, and in any event within ninety
(90) days thereafter, audited consolidated balance sheets of the Company and its
subsidiaries, if any, as at the end of such fiscal year, and audited
consolidated statements of income and cash flows of the Company and its
subsidiaries, if any, for such fiscal year, prepared in accordance with
generally accepted accounting principles, all in reasonable detail and
accompanied by a report and opinion thereon, by independent public accountants
selected by the Company's Board of Directors.
(b) In addition to the information specified in Section
4.1(a) above, the Company shall furnish to any Holder of at least 1,000,000
Series A Shares, Series B Shares, or common stock issued upon conversion thereof
(as adjusted for any combinations, consolidations, stock distributions or stock
dividends with respect to such shares), the following reports provided such
Holder agrees to maintain the confidentiality of the following information to
the extent specified by the Board of Directors (it being understood that, in the
case of Intel, such agreement is set forth in that certain Corporate
Non-Disclosure Agreement dated May 4, 1999):
(i) As soon as practicable, but in any event within
forty-five (45) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited profit or loss statement and
statement of cash flows, and an unaudited balance sheet as of the end of such
fiscal quarter;
(ii) As soon as practicable, but in any event within
thirty (30) days after the end of each month an unaudited monthly profit and
loss statement and cash flow statement and balance sheet; and
(iii) As soon as practicable, but in any event at
least thirty (30) days before the end of each fiscal year, a budget and business
plan for the next fiscal year, in such manner and form as approved by the Board
of Directors of the Company, which financial plan shall include a projection of
income and a projected cash flow statement for such fiscal year and a projected
balance sheet as of the end of such fiscal year.
(c) Provided the Holder continues to hold at least 1,000,000
Series A Shares, Series B Shares, or common stock issued upon conversion thereof
(as adjusted for any
13
<PAGE> 14
combinations, consolidations, stock distributions or stock dividends with
respect to such shares), the Holder or Holder's representation shall have the
right during normal business hours, to visit and inspect the properties of the
Company, including its corporation and financial records, and to discuss its
business and finances with officers of the Company.
(d) The rights granted pursuant to this Section 4.1 may
not be assigned or otherwise conveyed by any Holder or by any subsequent
transferee of any such rights without the written consent of the Company, which
consent shall not be unreasonably withheld; provided that the Company may refuse
such written consent if the proposed transferee is a competitor of the Company;
and provided further, that no such written consent shall be required if the
transfer is in connection with the transfer of securities to any partner or
retired partner of any Holder that is a general or limited partnership or to any
such partner's estate.
(e) The rights granted pursuant to this Section 4.1 shall
terminate upon the Company's Initial Offering. Following the Company's Initial
Offering, the Company shall deliver to Intel copies of the Company's 10-K's,
10-Q's, 8-K's and Annual Reports to Stockholders promptly after such documents
are filed with the SEC.
4.2 EMPLOYEE STOCK OPTIONS AND RESTRICTED STOCK. All options or
restricted stock issued pursuant to the Company's stock option plans and
restricted stock purchase plans shall be approved by the Board of Directors and
shall be subject to a vesting period of not less than four years, unless an
exception to the standard vesting is approved by the Board of Directors.
Additionally, unless otherwise approved by the Board of Directors, the Company
shall cause each employee who becomes a holder of shares of the Company's common
stock, whether through purchase of restricted stock or otherwise, to execute a
stock restriction agreement, pursuant to which the Company shall have right (but
not the obligation) to repurchase at the purchase price paid by the employee all
or any part of the shares held by the employee in the event the employee's
employment with the Company is terminated prior to 48 months from the date of
employment; provided, however, that on the first anniversary of employee's
employment with the Company, 25% of the employee's shares shall no longer be
subject to repurchase, and, provided further that each month following the first
anniversary of employee's employment with the Company, an additional 1.56% of
the employees shares no longer be subject to repurchase. All shares of common
stock held by employees of the Company shall be subject to a right of first
refusal granted to the Company.
4.3 PROPRIETARY RIGHTS AGREEMENTS. Each officer, employee or
consultant of the Company will execute a proprietary information agreement in a
form approved by the Company's Board of Directors.
4.4 APPROVAL OF EXPENDITURES. All agreements or transactions
involving expenditures in excess of $1,000,000 shall be reviewed and approved by
the Company's Board of Directors.
4.5 ELECTION OF DIRECTOR. For so long as entities affiliated with
Behrman Capital ("Behrman Entities") hold at least 50% of the Series B Shares
originally purchased by them pursuant to that certain Series B Preferred Stock
Purchase Agreement dated February 16, 2000 (the "Series B Purchase Agreement")
or common stock issued upon conversion of such Series B Shares, all parties to
this Agreement that hold shares of Series B Preferred Stock shall, at any annual
or special meeting of stockholders at which directors of the Company are to be
elected, vote all such shares of Series B Preferred Stock in favor of the
election of the nominee of Behrman Capital. This Section 4.5 shall
14
<PAGE> 15
apply with equal force to actions by written consent relating to the election of
directors of the Company.
4.6 EXPIRATION OF COVENANTS. The covenants set forth in this
Section 4 shall expire and be of no further force or effect upon the Company's
Initial Offering.
5. RIGHT OF PURCHASE IN INITIAL OFFERING.
(a) Notwithstanding any other provisions of this Agreement, in
the event that the Company undertakes the initial Public Offering of its Common
Stock (the "Initial Offering"), the Company shall request, and use its
commercially reasonable best efforts to cause, the managing underwriter or
underwriters of the Initial Offering to establish a directed shares program (a
"Directed Shares Program"), pursuant to which a limited number of the securities
to be offered in the Initial Offering ("Directed Shares") would be offered to
"friends of the Company" at the initial public offering price. In the event that
any such Directed Shares Program were established, each Series B Holder would
have the right to purchase on a priority basis, at a minimum, such number of
Directed Shares determined by multiplying (i) such Series B Holder's Pro-Rata
Share (as defined in Section 3.1) by (ii) the total number of Directed Shares;
provided that the managing underwriter or underwriters may reduce the number of
Directed Shares included in any Directed Shares Program to the extent counsel to
the Company reasonably deems necessary to comply with applicable laws and
regulations, including without limitation those promulgated by the SEC and/or
The National Association of Securities Dealers, Inc. In the event that the
provisions of this Section 5 may be deemed an offer to sell securities, such
offer shall be void ab initio.
(b) Each Series B Holder shall have the right to apportion their
participation in the Initial Offering pursuant to this Section 5 among any of
its partners, members, shareholders, affiliates or any other person or entity
under common investment management with such Series B Holder.
(c) Each Series B Holder shall, as a condition to its
participation in any Directed Share Program, execute such other documents as may
be required of all participants in the Directed Share Program as deemed
necessary by the Company and the Underwriters.
(d) The rights described in this Section 5 shall terminate and be
of no further force and effect following the consummation of the Company's
Initial Offering.
6. ASSIGNABILITY. This Agreement shall be binding upon and inure to the
benefit of the respective heirs, successors and assigns of the parties hereto.
7. LAW. This Agreement shall be governed by and construed in accordance
with the laws of the State of California.
8. AMENDMENT. 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 (i) the Company, and (ii) the holders of a majority of the
Registrable Shares. Notwithstanding anything herein to the contrary, no
amendment or waiver to Section 16 of this Agreement shall be effective without
the written consent of Intel.
15
<PAGE> 16
9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
10. NOTICE. Unless otherwise provided, any notice required or permitted
under this Agreement shall be in writing, shall be effective upon receipt or, if
earlier, (i) five (5) days after deposit with the U.S. postal service or other
applicable postal service, if delivered by registered or certified mail, postage
prepaid, return receipt requested, (ii) upon delivery, if delivered by hand,
(iii) one (1) business day after the day of deposit with Federal Express or
similar overnight courier, freight prepaid, if delivered by overnight courier or
(iv) one (1) business day after the day of facsimile transmission, if delivered
by facsimile transmission with copy by first class mail, postage prepaid, and
shall be addressed as follows:
If to Intel, to: Intel Corporation
2200 Mission College Blvd.
Mail Stop RN6-46
Santa Clara, California 95052
Attn: M&A Portfolio Manager
Fax Number: (408) 765-6038
with copies to: Intel Corporation
2200 Mission College Blvd.
Santa Clara, California 95052
Attn: General Counsel
Fax Number: (408) 765-1859
If to any Series A Holder, to: The name and address set forth on Exhibit A-1
hereto.
If to any Series B Holder, to: The name and address set forth on Exhibit A-2
hereto.
If to a Founder, to: The name and address set forth on Exhibit A-3
hereto.
If to the Company, to: Flashcom, Inc.
5312 Bolsa Avenue
Huntington Beach, CA 92649
Attn: General Counsel
Facsimile: (714) 799-2412
with a copy to: K.C. Schaaf, Esq.
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660
Facsimile: (949) 725-4100
Each of the parties herewith shall be entitled to specify another
address by giving notice as aforesaid to each of the other parties hereto.
11. 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.
16
<PAGE> 17
12. 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.
13. AGGREGATION OF STOCK. All shares of Registrable Shares 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.
14. ENTIRE AGREEMENT. This Agreement (including the Exhibits hereto, if
any) constitutes the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof.
15. REFERENCES. Any references to forms or schedules governed by the
Securities Act or Exchange Act means such forms or schedules under the
Securities Act and Exchange Act as in effect on the date hereof or any successor
forms or schedules subsequently adopted by the SEC.
16. DISPUTE RESOLUTION. If there arises a dispute between any party to
this Agreement, including, without limitation Intel, and any other party to this
Agreement regarding this Agreement, those parties agree to negotiate in good
faith to resolve the dispute between them regarding this Agreement. If the
negotiations do not resolve the dispute to the reasonable satisfaction of both
parties, then each party shall nominate one partner, member or senior officer of
the rank of Vice President or higher as its representative. These
representatives shall, within thirty (30) days of a written request by either
party to call such a meeting, meet in person and alone (except for one assistant
for each party) and shall attempt in good faith to resolve the dispute. If the
disputes cannot be resolved by such senior managers in such meeting, the parties
agree that they shall, if requested in writing by either party, meet within
thirty (30) days after such written notification for one day with an impartial
mediator and consider dispute resolution alternatives other than litigation. If
any alternative method of dispute resolution is not agreed upon within thirty
(30) days after the one day mediation, either party may begin litigation
proceedings. This procedure shall be a prerequisite before taking any additional
action hereunder.
17. INFORMATION CONFIDENTIAL. The parties hereto are bound by the
confidentiality and non-disclosure provisions of Section 7.13 of the Series B
Purchase Agreement.
17
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Investors' Rights Agreement to be executed by their respective officers
thereunto duly authorized, as of the date first above written.
FLASHCOM, INC.
By: /s/ RICHARD RASMUS
-----------------------------------------
Richard Rasmus,
President and Chief Operating Officer
SERIES A HOLDERS:
COMMUNICATIONS VENTURES III, L.P.
By: Com Ven III, LLC, its General Partner
By: /s/ CLIFF HIGGERSON
-----------------------------------------
Its: Member
----------------------------------------
COMMUNICATIONS VENTURES III CEO &
ENTREPRENEURS FUND
By: Com Ven III, LLC, its General Partner
By: /s/ CLIFF HIGGERSON
-----------------------------------------
Its: Member
----------------------------------------
<PAGE> 19
MAYFIELD IX
By: Mayfield IX Management, LLC, its General
Partner
By: /s/ GEORGE A. PAVLOV
-----------------------------------------
Its: Authorized Signatory
----------------------------------------
MAYFIELD ASSOCIATES FUND IV
By: Mayfield IX Management, LLC, its General
Partner
By: /s/ GEORGE A. PAVLOV
-----------------------------------------
Its: Authorized Signatory
----------------------------------------
INTEL CORPORATION
By: /s/ ARVIND SODHANI
-----------------------------------------
Its: Vice President and Treasurer
----------------------------------------
SYCR INVESTMENT FUND I, LLC
By: /s/ STEPHEN T. FREEMAN
-----------------------------------------
Its:
----------------------------------------
/s/ K.C. SCHAAF
--------------------------------------------
K.C. Schaaf
--------------------------------------------
John McQuillan
20
<PAGE> 20
SIGNATURE PAGE TO FLASHCOM, INC. AMENDED AND RESTATED INVESTORS' RIGHTS
AGREEMENT
SERIES B HOLDERS:
Investor Name:
------------------------------
Signature:
------------------------------
Print Name:
------------------------------
Its:
------------------------------
[The Agreement contains counterpart
signature pages for each investor listed
in Schedule A hereto]
<PAGE> 21
EXHIBIT A-1
LISTING OF HOLDERS OF SERIES A PREFERRED STOCK
<TABLE>
<CAPTION>
NAME AND ADDRESSES OF HOLDERS NO. SHARES OF SERIES A
OF SERIES A PREFERRED STOCK PREFERRED
- --------------------------------------------------------------------------
<S> <C>
Communication Ventures III, L.P. 1,682,553
505 Hamilton Avenue, Ste. 305
Palo Alto, California 94301
Communication Ventures III CEO & 84,127
Entrepreneurs Fund
505 Hamilton Avenue, Ste. 305
Palo Alto, California 94301
Mayfield IX 2,685,323
2800 Sand Hill Road
Menlo Park, California 94025
Mayfield Associates Fund IV 141,333
2800 Sand Hill Road
Menlo Park, California 94025
Intel Corporation 1,059,996
2200 Mission College Blvd.
Mail Stop RN6-46
Santa Clara, California 95052
Attn: M&A Portfolio Manager
With copies to:
Intel Corporation
2200 Mission College Blvd.
Santa Clara, California 95052
Attn: General Counsel
SYCR Investment Fund I, LLC 17,667
660 Newport Center Dr., Suite 1600
Newport Beach, California 92660
K.C. Schaaf 12,367
660 Newport Center Dr., Suite 1600
Newport Beach, California 92660
John McQuillan 88,333
c/o Ann Burnham
McQuillan Ventures
1620 Sudbury Road
Concord, Massachusetts 01742
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT A-2
LISTING OF HOLDERS OF SERIES B PREFERRED STOCK
NAME AND ADDRESSES OF INVESTORS NO. SHARES OF SERIES B
IN SERIES B PREFERRED STOCK PREFERRED PURCHASED
- --------------------------------------------------------------------------
<S> <C>
FIRST CLOSING
The New Economy Fund 1,522,070
c/o Capital Research and Management Company
333 South Hope Street, 53rd Floor
Los Angeles, California 90017
SMALLCAP World Fund, Inc. 1,484,018
c/o Capital Research and Management Company
333 South Hope Street, 53rd Floor
Los Angeles, California 90017
American Variable Insurance Series Global 38,052
Small Capitalization Fund
c/o Capital Research and Management Company
333 South Hope Street, 53rd Floor
Los Angeles, California 90017
Blueprint Ventures Emerging Communications 1,225,800
Fund I, L.P.
Embarcadero Center Four, Suite 580
San Francisco, California 94115
Attn: Bart Schachter
C.E. Unterberg, Towbin Private Equity 456,621
Partners II, L.P.
c/o C.E. Unterberg Towbin
10 East 50th Street
New York, New York 10022
Attn: Mark G. Hadlock
Intel Corporation 552,548
2200 Mission College Blvd.
Mail Stop RN6-46
Santa Clara, California 95052
Attn: M&A Portfolio Manager
With copies to:
Intel Corporation
2200 Mission College Blvd.
Santa Clara, California 95052
Attn: General Counsel
</TABLE>
<PAGE> 23
<TABLE>
<CAPTION>
NAME AND ADDRESSES OF INVESTORS NO. SHARES OF SERIES B
IN SERIES B PREFERRED STOCK PREFERRED PURCHASED
- --------------------------------------------------------------------------
<S> <C>
BancBoston Capital Inc. 456,621
435 Tasso Street, Suite 250
Palo Alto, California 94301
Attn: Maia Heymann
Carlyle High Yield Partners, L.P. 456,621
520 Madison Avenue, 41st Floor
New York, New York 10022
Attn: Greg Margolies
Kohlberg, Kravis, Roberts & Co. 350,076
2800 Sand Hill Road, Suite 200
Menlo Park, California 94025
Attn: Adam Clammer
The Raptor Global Portfolio Ltd. 454,642
c/o Tudor Investment Corporation
40 Rowes Wharf, 2nd Floor
Boston, Massachusetts 02110
Attn: Rick Ganong
Altar Rock Fund, L.P 1,979
c/o Tudor Investment Corporation
40 Rowes Wharf, 2nd Floor
Boston, Massachusetts 02110
Attn: Rick Ganong
Comdisco, Inc. 129,376
6111 North River Road
Rosemont, Illinois 60018
Attn: Venture Group
TW Trust 38,052
8144 Walnut Hill Lane, Suite 1010
Dallas, Texas 95231
Attn: Connie Adair
CVT Management LLC 30,441
7385 Caminito Bassano
La Jolla, California 92037
Attn: Alex Roudi
</TABLE>
2
<PAGE> 24
<TABLE>
<CAPTION>
NAME AND ADDRESSES OF INVESTORS NO. SHARES OF SERIES B
IN SERIES B PREFERRED STOCK PREFERRED PURCHASED
- --------------------------------------------------------------------------
<S> <C>
Internet Investor LLC, Series 8 30,441
450 Springfield Avenue, Suit 201
Summit, New Jersey 07901
Attn: Frederick R. Krueger
Bahram Nour-Omid and 30,441
Doris Nour-Omid Trustee,
Nour-Omid Family Trust
2219 Tunbridge Court
Los Angeles, California 90077
Sean Tayebi 30,441
939 Coast Boulevard, #16D
La Jolla, California 92037
BridgeWest LLC 76,104
c/o Kathy Munro
4370 La Jolla Village Drive, Suite 400
San Diego, California 92122
Steve Lehman 76,104
25742 Simpson Place
Calabasas, California 91302-3154
Blake Bertea 76,104
Blackcross
369 San Miguel Drive, Suite 300
Newport Beach, California 92660
Sean Stanfield 15,221
16751 Edgewater Lane
Huntington Beach, California 92649
Remington Industries 30,441
3848 McKinley Street
Corona, California 91719
Attn: Jeff Silvers
David Fuchs 30,441
1775 Newell Road
Palo Alto, California 94303
Kevin Wendle 30,441
10671 Chalon Road
Los Angeles, California 90077
</TABLE>
3
<PAGE> 25
<TABLE>
<CAPTION>
NAME AND ADDRESSES OF INVESTORS NO. SHARES OF SERIES B
IN SERIES B PREFERRED STOCK PREFERRED PURCHASED
- --------------------------------------------------------------------------
SECOND CLOSING
<S> <C>
Behrman Capital II L.P. 3,003,417
c/o Behrman Capital
126 East 56th Street
New York, NY 10022
Attn: Grant G. Behrman
With copies to:
Behrman Capital
4 Embarcadero Center, Suite 3640
San Francisco, CA 94111
Attn: William Matthes
Strategic Entrepreneur Fund II L.P. 40,273
c/o Behrman Capital
126 East 56th Street
New York, NY 10022
Attn: Grant G. Behrman
With copies to:
Behrman Capital
4 Embarcadero Center, Suite 3640
San Francisco, CA 94111
Attn: William Matthes
Communication Ventures III, L.P. 850,256
505 Hamilton Avenue, Ste. 305
Palo Alto, California 94301
Communication Ventures III CEO & 42,513
Entrepreneurs Fund
505 Hamilton Avenue, Ste. 305
Palo Alto, California 94301
Mayfield IX 863,990
2800 Sand Hill Road
Menlo Park, California 94025
Mayfield Associates Fund IV 45,473
2800 Sand Hill Road
Menlo Park, California 94025
Flash Trust 308,220
c/o Mayfield Funds
2800 Sand Hill Road
Menlo Park, California 94025
</TABLE>
4
<PAGE> 26
<TABLE>
<CAPTION>
NAME AND ADDRESSES OF INVESTORS NO. SHARES OF SERIES B
IN SERIES B PREFERRED STOCK PREFERRED PURCHASED
- --------------------------------------------------------------------------
SECOND CLOSING
<S> <C>
SYCR Investment Partnership 2000 39,052
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
SYCR Investment Fund II, LLC 7,610
660 Newport Center Dr., Suite 1600
Newport Beach, California 92660
TOTAL: 12,824,351
==========
</TABLE>
5
<PAGE> 27
EXHIBIT A-3
LISTING OF FOUNDERS
<TABLE>
<CAPTION>
NAMES AND ADDRESSES OF FOUNDERS NO. OF SHARES OF COMMON STOCK
- ------------------------------------------------- ----------------------------------
<S> <C>
Brad Sachs 11,250,000
Andra Sachs 11,250,000
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Summary Financial
and Operating Data", "Selected Financial and Operating Data", and "Experts" and
to the use of our report dated March 31, 2000, except for the last three
paragraphs of Note 11, as to which the date is April 25, 2000, in the
Registration Statement and related Prospectus of Flashcom, Inc. for the
registration of shares of its common stock to be filed with the Securities and
Exchange Commission on or about May 12, 2000.
/s/ ERNST & YOUNG LLP
Orange County, California
May 12, 2000
