<PAGE>
As filed with the Securities and Exchange Commission on January 11, 2000.
File No. 333-87885
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TELAXIS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 3679 04-2751645
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
20 Industrial Drive East
South Deerfield, MA 01373-0109
(413) 665-8551
(Address, including ZIP code, and telephone number, including area code, of
registrant's principal executive offices)
John L. Youngblood
President and Chief Executive Officer
TELAXIS COMMUNICATIONS CORPORATION
20 Industrial Drive East
South Deerfield, MA 01373-0109
(413) 665-8551
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
Copies to:
DAVID L. LOUGEE, ESQ. WILLIAM R. KOLB, ESQ.
JEFFREY L. DONALDSON, ESQ. JOHN D. HANCOCK, ESQ.
Mirick, O'Connell, DeMallie & Lougee, Foley, Hoag & Eliot llp
llp One Post Office Square
100 Front Street Boston, MA 02109
Worcester, Massachusetts 01608-1477 (617) 832-1000
(508) 791-8500
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
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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 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. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
maximum Amount of
Title of each class of aggregate registration
securities to be registered offering price fee
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<S> <C> <C>
Common Stock, $.01 par value...................... $73,600,000 $21,682.00(1)
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</TABLE>
(1) A fee of $20,141.10 was paid with the initial filing of this Registration
Statement with the Commission on September 27, 1999. A supplemental fee of
$1,540.90 was paid in connection with the filing of Pre-Effective Amendment
No. 2 on December 21, 1999.
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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and 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 JANUARY 11, 2000
4,000,000 Shares
[TELAXIS COMMUNICATIONS LOGO APPEARS HERE]
Common Stock
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Prior to this offering, there has been no public market for our common stock.
The initial public offering price of the common stock is expected to be between
$14.00 and $16.00 per share. Our common stock has been approved for listing on
The Nasdaq Stock Market's National Market under the symbol "TLXS."
The underwriters have an option to purchase a maximum of 600,000 additional
shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 6.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Telaxis
-------- ------------- -----------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Banc of America Securities LLC
CIBC World Markets
The date of this prospectus is , 2000
<PAGE>
[Graphic depiction of our point-to multipoint architecture showing a picture of
our access hub equipment and a picture of our customer premises equipment. The
graphic shows hub equipment installed on a building sending and receiving
information to and from customer premises equipment installed at a home, a small
business, a multiple dwelling unit and institutions. The graphic contains the
heading "Addressing the demand for broadband access" and the subheading
"Enabling high-speed Internet access and electronic commerce."]
<PAGE>
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TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 6
Special Note Regarding Forward-
Looking Statements................. 14
Use of Proceeds..................... 15
Dividend Policy..................... 15
Capitalization...................... 16
Dilution............................ 18
Selected Financial Data............. 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 20
Business............................ 31
</TABLE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Management....................... 45
Material Relationships and
Related-Party Transactions...... 53
Principal Stockholders........... 56
Description of Capital Stock..... 58
Shares Eligible for Future Sale.. 62
Underwriting..................... 64
Notice to Canadian Residents..... 66
Legal Matters.................... 67
Experts.......................... 67
Where You Can Find More
Information..................... 67
Index to Financial Statements.... F-1
</TABLE>
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You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
Dealer Prospectus Delivery Obligation
Until , 2000 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to its unsold allotments or subscriptions.
"Telaxis Communications," "Telaxis" and the Telaxis logo are our trademarks.
All other trademarks or service marks appearing in this prospectus are
trademarks or service marks of the respective companies that own them.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully.
Telaxis Communications Corporation
We develop and supply high-speed, or broadband, wireless access equipment
used by network service providers to deliver integrated voice, video and data
services to business and residential subscribers. Our products provide a high
performance alternative to other access technologies, such as traditional
copper wires, digital subscriber lines and cable modems, that connect the
network service provider and the subscriber. Our products enable high-speed
Internet access, electronic commerce, remote access, telecommuting and
extensions of corporate networks to branch offices.
Our product line consists of wireless transmitter and receiver equipment
that is installed outdoors in a circular geographic service area, or cell. Each
cell has equipment at its center called a hub that transmits and receives data
to and from customer premises equipment installed at multiple subscriber
locations. This cell-based arrangement is commonly referred to as point-to-
multipoint architecture. Using our point-to-multipoint products, network
service providers can enter markets quickly and economically, and then expand
their networks by adding customer premises equipment as the number of
subscribers grows.
We have developed two families of broadband point-to-multipoint wireless
access products. Our modular hubs and customer premises equipment can be
rapidly tailored for competitive site demonstrations and initial commercial
deployments. These modular products address a network service provider's need
to offer new services and enter new markets quickly. Our planar hubs and
customer premises equipment, so named because they integrate the functionality
of multiple conventional modules onto a flat printed circuit board, can be
mass-produced using low-cost, highly automated manufacturing techniques. These
planar products address a network service provider's need for cost-effective
deployment to many subscribers.
We sell our products primarily to network system integrators, such as
Newbridge Networks and Motorola, which include our products in broadband
wireless systems sold to network service providers. Our products have been
successfully demonstrated at more than 40 sites worldwide over the last four
years. We believe this experience is unmatched by any other supplier of
broadband point-to-multipoint wireless access equipment. As a result of these
demonstrations, our products have been selected, either directly or by network
system integrators, for commercial deployment by network service providers,
including:
. American Wireless . Korea Telecom
. BellSouth Movicom . Maxlink Communications
. Formus . Telenordia
Our objective is to be the leading developer and supplier of broadband
point-to-multipoint wireless access equipment for use by network service
providers worldwide. Our strategy to accomplish this objective is to:
. Penetrate the global market with our two product families
. Capitalize upon our early customer acceptance
. Expand strategic relationships with network system integrators
. Reduce product costs while increasing performance and adding
functionality
. Leverage technology partnerships
. Establish brand identity
3
<PAGE>
Our principal executive offices and manufacturing facilities are located at
20 Industrial Drive East, South Deerfield, Massachusetts 01373-0109. Our
telephone number is (413) 665-8551. Our web site is located at
www.telaxiscomm.com. Information contained in our web site is not incorporated
by reference into this prospectus, and you should not consider information
contained in our web site as part of this prospectus. Our company was
incorporated in Massachusetts in 1982.
The Offering
Common stock offered.............. 4,000,000 shares
Common stock outstanding after
this offering.................... 15,332,312 shares
Use of proceeds................... For general corporate purposes and for
potential acquisitions.
Proposed Nasdaq National Market TLXS
symbol...........................
The number of shares to be outstanding after the offering is based on the
number of shares of common stock outstanding as of December 31, 1999 and gives
effect to the conversion of all outstanding shares of our preferred stock into
10,488,440 shares of common stock upon the closing of this offering. This
number excludes:
. 1,881,763 shares that we may issue upon the exercise of options
outstanding as of December 31, 1999 at a weighted average exercise price
of $2.66 per share
. 2,116,711 shares available for issuance upon the exercise of options
which have been or may be granted after December 31, 1999 under our
active stock plans
. 1,221,370 shares that we may issue upon the exercise of warrants
outstanding as of December 31, 1999 at a weighted average exercise price
of $1.19 per share
Recent Financial Results
We expect that our revenues for the quarter ended December 31, 1999 will be
approximately $4.2 million. At this time we have not determined the amount of
our operating loss or the amount of our loss from continuing operations for the
quarter ended December 31, 1999.
4
<PAGE>
Summary Financial Data
(in thousands, except per share data)
The following tables summarize our financial data. The statement of
operations data reflect only our continuing operations. You should read our
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The pro forma balance sheet data reflect
the conversion of our currently outstanding redeemable preferred stock into
common stock upon the closing of this offering. The pro forma as adjusted
balance sheet data reflect our sale of 4,000,000 shares of common stock in this
offering at an assumed initial public offering price of $15.00 per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
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1996 1997 1998 1998 1999
------- ------- -------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Sales...................... $ 201 $ 1,733 $ 2,386 $ 1,447 $ 5,504
Gross margin (loss)........ (306) (1,022) (5,131) (1,873) 401
Operating loss............. (1,829) (6,726) (13,172) (7,932) (5,441)
Loss from continuing
operations................ $(2,239) $(6,712) $(11,253) $(7,076) $(5,947)
Basic and diluted loss per
share from
continuing operations..... $ (4.15) $(14.16) $ (22.87) $(14.38) $(11.14)
Shares used in computing
basic and diluted
loss per share............ 540 474 492 492 534
Pro forma basic and diluted
loss per share from
continuing operations(1).. $ (1.78) $ (0.76)
Shares used in computing
pro forma basic
and diluted loss per
share(1).................. 6,319 7,833
</TABLE>
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(1) For an explanation of these computations, see Note 1 to our financial
statements.
<TABLE>
<CAPTION>
September 30, 1999
-----------------------------------
Pro Forma
Actual Pro Forma As Adjusted
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................. $ 12,158 $12,158 $66,958
Working capital........................... 12,372 12,372 67,172
Total assets.............................. 25,958 25,958 80,758
Long-term debt and capital lease
obligations, net of current portion...... 1,602 1,602 1,602
Redeemable preferred stock................ 47,793 -- --
Total stockholders' (deficit) equity...... (31,399) 16,394 71,194
</TABLE>
Except where we state otherwise, the information we present in this
prospectus:
. reflects the discontinuation of our millimeter-wave products business
segment
. reflects the amendment of our charter to increase the authorized number
of shares of common stock to 100,000,000 shares and change our name to
"Telaxis Communications Corporation" from "Millitech Corporation"
. reflects a one for two reverse stock split of our common stock effective
December 16, 1999
. assumes that the underwriters do not exercise their option to purchase
600,000 additional shares after the closing of this offering
5
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. The risks and
uncertainties described below are not the only ones that we face. Additional
risks and uncertainties not presently known to us or that we currently believe
are immaterial also may impair our business operations. If any of the following
risks occurs, our business, operating results and financial condition could be
seriously harmed. In addition, the trading price of our common stock could
decline due to any of these risks, and you may lose all or part of your
investment.
Risks Related To Our Business
We have incurred substantial losses and may not be profitable in the future.
Our continuing operations have not achieved profitability. We cannot predict
whether we will become profitable. Our failure to achieve profitability within
the time frame that investors expect may cause the market price of our common
stock to decline. We had losses from continuing operations of $5.9 million in
the nine months ended September 30, 1999, $11.3 million in 1998 and $6.7
million in 1997. As a result of losses from continuing and discontinued
operations, at September 30, 1999, we had an accumulated deficit of $32.9
million. We have generated relatively small amounts of product sales. We do not
believe that our sales growth rates are sustainable because those rates are
calculated from a small revenue base. In addition, we intend to increase
expenditures in all areas, including manufacturing and engineering, research
and development, and sales and marketing, in order to execute our business
strategy. As a result, we expect to continue to incur significant quarterly
losses for at least the next several quarters.
Our sales and operating results in future periods are likely to fluctuate
significantly and may fail to meet or exceed the expectations of securities
analysts or investors, causing our stock price to fall.
Our quarterly sales and operating results are difficult to predict and may
continue to fluctuate significantly from quarter to quarter. If our quarterly
sales or operating results fall below the expectations of securities analysts
or investors, the price of our common stock could fall substantially.
Our quarterly results may fluctuate for several reasons, including the
following:
. the timing and size of orders for our products
. the mix of our product sales, which we expect will shift over time
generally toward our less profitable customer premises equipment
. the hiring and loss of personnel, particularly in manufacturing and
sales and marketing, including significant recruiting bonuses or other
hiring expenses
. our lengthy sales cycle, which typically ranges from six to 18 months,
making it difficult for us to predict our future business operations and
make plans for the future
. our manufacturing capacity constraints and our ability to fulfill orders
. the timing of our investments in additional manufacturing capacity
. unforeseen additional charges related to our discontinued operations
We have only recently focused on the broadband point-to-multipoint wireless
access market and, as a result, it is difficult to predict our future prospects
in this market.
Historically, our operations focused on a business segment that we
discontinued in August 1999. We classify the results of that segment as a
discontinued operation in our financial statements. We shipped our first
prototype broadband point-to-multipoint wireless access equipment for trial in
1995. However, the commercial
6
<PAGE>
market for these products did not emerge until recently. We received the first
volume order for our broadband point-to-multipoint wireless access products in
June 1999. Accordingly, you have limited financial data that you can use to
evaluate our future prospects in the broadband point-to-multipoint wireless
access market. You should evaluate our prospects in light of the risks,
expenses and challenges we will encounter because of our recent focus on this
market.
We depend upon a small number of network system integrators and the loss of one
or more of them would limit our ability to generate sales.
We depend on a small number of network system integrators to market, sell,
install, finance and support broadband point-to-multipoint wireless access
systems that include our products. Our network system integrators' failure to
accomplish these tasks successfully would cause our sales to fall below our
expectations. One network system integrator, Newbridge Networks, accounted for
81% of our sales in the nine months ended September 30, 1999 and Newbridge
Networks, Convergence Communications and Nexsatel accounted for 68% of our
sales in 1998. These sales related primarily to site demonstrations and initial
commercial deployments. We have no long-term purchase commitments or exclusive
purchase agreements with these or any other customers. Because there are a
relatively small number of network system integrators with the resources and
technical expertise necessary to offer broadband point-to-multipoint wireless
access systems, and because these network system integrators extensively test
and evaluate products such as ours before making a purchase decision, we may be
unable to replace our network system integrators quickly. Moreover, because we
may be able to supply only a few network system integrators, we may be unable
to reduce our dependence on a few customers. Our network system integrators
could stop purchasing products from us because our products do not meet their
needs, because they cannot sell broadband point-to-multipoint wireless access
solutions profitably or for other reasons, such as a corporate reorganization,
acquisition or other transaction that alters their strategic focus. Newbridge
Networks has recently publicly disclosed that it has deployed a comprehensive
strategic action plan which may include the sale of the company. We do not
control our network system integrators and have little, if any, influence over
their strategic decisions. Those decisions could limit our prospects in ways we
cannot predict. If our customers reduce orders for our products, we could lose
sales and suffer damage to our reputation in the industry.
The failure of our network system integrators to sell broadband point-to-
multipoint wireless access solutions that include our products would harm our
sales.
Even if our products meet all of our network system integrators' needs,
other factors may impede the success of their broadband point-to-multipoint
wireless access solutions. For example, installation costs may be high and
difficult to reduce. In addition, our network system integrators may not have
or use the financial, marketing and other resources necessary to ensure that
their solutions will succeed in the marketplace. For example, network service
providers may insist that network system integrators provide extensive
financing for the deployment of large broadband point-to-multipoint wireless
access networks, and our network system integrators may be unwilling or unable
to provide the necessary financial resources. Without providing financing, our
network system integrators may be unable to sell systems containing our
products, which would reduce or delay our sales.
We may not be able to manufacture our products as quickly as our customers
require, which could cause us to lose sales.
Currently, we are unable to manufacture products as quickly as our customers
require. This manufacturing constraint could cause us to lose sales, damage our
reputation, incur financial liabilities and jeopardize our long-term prospects.
If we receive any substantial order in the near future, we may be unable to
fulfill the order on a timely basis. We currently have a single line of
assembly, and equipment downtime at any stage of the assembly process would
halt production. We believe we will need to build additional manufacturing
capacity in the near future.
7
<PAGE>
We have only limited experience dealing with the type of highly specialized,
third-party manufacturers we will need to engage, and our failure to obtain
satisfactory performance from third-party manufacturers could cause us to lose
sales.
We believe we will need to engage third-party manufacturers to supplement
our manufacturing capacity. Few, if any, third-party manufacturers have the
technical capabilities to meet our quality standards and production goals.
Therefore, it may be difficult and time-consuming to identify and engage an
appropriate third-party manufacturer. Any third-party manufacturer we engage
may not perform to our expectations. We will have little, if any, control over
their performance. Their failure to meet our expectations in any respect could
cause us to lose sales and harm our reputation. Moreover, we have limited
experience dealing with third-party manufacturers and may encounter unforeseen
problems that are costly, time-consuming and difficult to resolve. If we are
unable to engage a third-party manufacturer, we will need to build additional
manufacturing facilities of our own.
Our products include single-source components, and our inability to obtain
these components would halt production and could hurt our sales and lower our
margins.
We currently purchase a number of important components, including electronic
filters, semiconductor devices, circuit boards, frequency references and
housings, from single-source suppliers for which alternative sources are not
readily available. Any delay or interruption in the supply of these components
could impair our ability to deliver our products and could reduce our sales.
Any of our single-source suppliers could enter into exclusive agreements with
or be acquired by our competitors, increase their prices, refuse to sell their
products, discontinue products or go out of business. Even if alternative
suppliers are available to us, identifying them is difficult and time-
consuming, and they may not meet our quality standards. We may not be able to
obtain sufficient quantities of these components on the same or substantially
the same terms. Consolidations among our suppliers could result in other sole-
source supply situations. An increase in the cost of these components could
make our products less competitive and lower our margins.
As our customers enter new markets, we sometimes have to adapt our products
rapidly to the frequency and regulatory requirements that exist in those
markets, and we may incur significant costs making the necessary modifications.
Each of our products is designed for a specific range of frequencies.
Because different governments license different portions of the frequency
spectrum for the broadband wireless access market, and because network service
providers license a multitude of specific frequencies, we sometimes have to
adapt our products rapidly to use different frequencies. This design process
can be difficult and time-consuming, and could therefore increase our costs and
cause delays in the delivery of products to our customers.
We may be unable to achieve the continuing cost reductions and technological
improvements required for our products to remain competitive.
We expect that market conditions, particularly falling prices for competing
broadband access solutions, will force us to reduce our prices over time. If we
do not continue to reduce our product costs, we will continue to incur
operating losses. In order to reduce product costs, we must use low-cost,
automated manufacturing techniques, increase manufacturing volume and improve
yield. Low-cost automated manufacturing of products such as ours has not been
demonstrated to be feasible in high volumes. We may not have and may not be
able to acquire the experience, technical know-how and other resources to
achieve these goals.
Our products have been purchased primarily by network system integrators for
site demonstrations and for sales to network service providers for initial
commercial deployments. Before our network system integrators commit to future
orders for our products, they may establish additional product specifications,
manufacturing parameters or other conditions of sale that we cannot meet. Our
failure or unwillingness to meet those specifications, parameters or conditions
could prevent us from achieving enough sales to obtain and sustain
profitability.
8
<PAGE>
We expect to expand our operations significantly, and our failure to manage our
expansion could lead to customer dissatisfaction, cost inefficiencies and lost
sales opportunities.
We are rapidly and significantly expanding our operations, including the
number of our employees, the geographic scope of our activities and our product
offerings. Our failure to manage growth effectively could cause delay in sale
and delivery of our products and lead to unanticipated costs. This expansion
has placed a significant strain on all of our resources. To manage our growth,
we must hire, train and manage significant numbers of qualified employees,
particularly engineering, sales, marketing and manufacturing personnel. In
addition, we are reassigning or retraining approximately 20 employees from our
discontinued operations to work in our continuing operations and we are
converting facilities from our discontinued operations for use in our
continuing operations. We expect that this hiring, training and conversion
process will be difficult and time-consuming.
We expect to continue to derive a substantial portion of our sales from
international sources, and difficulties associated with international
operations could result in less favorable terms with our network system
integrators.
We sell substantially all of our products to domestic and foreign network
system integrators, which offer systems including our products to network
service providers on a global basis. We believe our products are primarily used
by network service providers outside the United States. Sales outside the
United States frequently involve additional risks and difficulties, including:
. licenses, tariffs and other trade barriers imposed on products such as
ours
. political and economic instability
. compliance with a wide variety of complex laws and treaties relating to
telecommunications equipment
If our network system integrators suffer losses as a result of any of these
factors in connection with foreign deployments, they could seek to renegotiate
terms or otherwise pass those losses on to us.
The loss of John Youngblood or any of our other executive officers or other key
employees could impair our ability to implement our business plan successfully.
Our executive officers and key employees and in particular John Youngblood,
our President and Chief Executive Officer, are crucial to our future success.
Dr. Youngblood has the longest tenure of any member of our management team and
is one of only two members of our management team who has experience serving as
an executive officer of a public company. If we lost the services of Dr.
Youngblood or any of our other executive officers or key employees, we might
lack needed leadership, experience, industry expertise and technical expertise,
and we would have to devote substantial resources to finding a replacement.
Until we found a suitable replacement, our management team would be incomplete,
which would make it difficult for us to execute our business plan effectively.
Our future success will depend in part on our ability to protect our
proprietary product and manufacturing process designs, and if we do not enforce
and protect our intellectual property, we could lose any competitive advantage
we have.
Our success depends to a significant degree upon the preservation and
protection of our product and manufacturing process designs and other
proprietary technology. Our intellectual property rights, and our ability to
enforce those rights, may be inadequate to prevent others from using our
technology or substantially similar technology they may independently develop.
The use of that technology by others could eliminate any competitive advantage
we have, cause us to lose sales and lead to lower prices for our products. To
protect our proprietary technology, we generally limit access to our
technology, treat portions of our technology as trade secrets and obtain
confidentiality or non-disclosure agreements from persons with access to our
technology. We have also obtained and applied for patents in the United States
and other countries, and we rely on protections available under copyright and
trademark law. These steps may be inadequate to provide the protection we need.
A significant portion of our proprietary technology is know-how, and employees
with know-how may depart before
9
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transferring their know-how to other employees. Moreover, the laws of other
countries where we market our products may afford even less protection for our
intellectual property. If we resort to legal proceedings to enforce our
intellectual property rights, the proceedings could be burdensome and costly,
even if we were to prevail.
Claims by others that we have violated their intellectual property rights could
prevent the sale of our products and cause us to pay damages.
If we were to discover that any of our products violated the intellectual
property rights of a third party, we might be unable to redesign our product to
avoid violating their rights, and we might be unable to obtain a license on
commercially reasonable terms to use their intellectual property. We may be
prevented from continuing to sell that product, which could cause us to lose
sales. For instance, we have received a letter claiming that we may owe patent
license fees for wafers we purchased for research and development purposes not
involving our continuing operations. We do not conduct comprehensive patent
searches to determine whether the technology used in our products infringes any
patents, and any searching we do conduct would not reveal technology covered by
confidential patent applications. Any claim that we infringe or otherwise
violate the intellectual property rights of others could cause us to incur
substantial costs defending against the claim, even if the claim is invalid,
and could distract our management from our business. Furthermore, a party
making a claim could obtain a judgment that requires us to pay substantial
damages. A judgment could also include an injunction or other court order that
could prevent us from selling our products.
RISKS RELATED TO OUR INDUSTRY
The broadband point-to-multipoint wireless access industry is new and its
future is uncertain. If significant demand for this technology does not
develop, we will not be able to generate significant sales.
Broadband point-to-multipoint wireless access technology is new and unproven
in the marketplace. This technology may prove unsuitable for widespread
commercial deployment, in which case it is unlikely we could generate enough
sales to obtain and sustain profitability. Many factors will influence the
success or failure of broadband wireless access technology, including:
. its capacity to handle growing demands for faster transmission of
increasing amounts of video, voice and data
. its cost-effectiveness and performance compared to other forms of
broadband access, whose prices and performance continue to improve
. its reliability and security
. whether the products can be manufactured in sufficient volume
. its suitability for a sufficient number of geographic regions
. the availability of sufficient frequencies for network service providers
to deploy products at commercially reasonable rates
. the availability of sufficient site locations for network service
providers to install products at commercially reasonable rates
. safety and environmental concerns regarding broadband wireless
transmissions
Many competing technologies may serve our target market, and if the broadband
point-to-multipoint technology upon which our products is based does not
succeed as a solution for broadband access, we would not be able to sustain or
grow our business.
Broadband point-to-multipoint wireless access solutions are also competing
with other high-speed solutions such as digital subscriber lines, cable, fiber,
other high-speed wire, satellite and point-to-point wireless technologies. Many
of these alternative technologies can take advantage of existing installed
infrastructure and
10
<PAGE>
have achieved significantly greater market acceptance and penetration than
broadband point-to-multipoint wireless access technologies. Moreover, current
broadband point-to-multipoint wireless access technology has inherent technical
limitations that may inhibit its widespread adoption in many areas, including
the need for line-of-sight installation and reduced communication distance in
bad weather. We expect broadband point-to-multipoint access technologies to
face increasing competitive pressures from both current and future alternative
technologies. In light of these factors, many network service providers may be
reluctant to invest heavily in broadband point-to-multipoint wireless access
solutions and, accordingly, the market for these solutions may fail to develop
or may develop more slowly than we expect. Either outcome would limit our sales
opportunities and make it difficult for us to be profitable.
The broadband point-to-multipoint wireless access industry is intensely
competitive, and our failure to compete effectively could hurt our sales and
reduce our margins.
The market for broadband point-to-multipoint wireless access equipment is
rapidly evolving and highly competitive. A number of large telecommunications
equipment suppliers, such as Alcatel, Ericsson and Nortel Networks, as well as
a number of smaller companies, have developed or are developing products that
compete with ours. Many of our competitors are substantially larger than we are
and have significantly greater financial, sales, marketing, distribution,
technical, manufacturing and other resources. These competitors may make
strategic acquisitions or establish cooperative relationships among themselves
or with third parties to increase their ability to gain market share rapidly.
We expect to face increasing competitive pressures from both current and future
competitors in the markets we serve.
RISKS RELATED TO THIS OFFERING AND OWNERSHIP OF OUR COMMON STOCK
The market price of our common stock is likely to be volatile and you may not
be able to resell your shares at or above the initial public offering price.
The market price of our common stock could fluctuate significantly for many
reasons, including the following:
. our financial performance or the performance of our competitors
. technological innovations or other trends in our industry
. successes or failures at significant product evaluations or site
demonstrations
. the introduction of new products by us or our competitors
. the arrival or departure of key personnel
. acquisitions, strategic alliances or joint ventures involving us or our
competitors
. changes in estimates of our performance or recommendations by securities
analysts
. decisions by major participants in the communications industry
. decisions by investors to de-emphasize investment categories, groups or
strategies that include our company or industry
. market conditions in the industry, the financial markets and the economy
as a whole
In addition, the stock market has recently experienced extreme price and
volume fluctuations. These fluctuations are often unrelated to the operating
performance of particular companies. These broad market fluctuations may cause
declines in the market price of our common stock. When the market price of a
company's stock drops significantly, stockholders often institute securities
class action lawsuits against the company. A lawsuit against us could cause us
to incur substantial costs and could divert the time and attention of our
management and other resources.
11
<PAGE>
Future sales of common stock by our existing stockholders could cause our stock
price to fall.
If our stockholders sell substantial amounts of common stock in the public
market, including shares that we may issue upon the exercise of outstanding
options and warrants, the market price of our common stock could fall. The
perception among investors that these sales will occur could produce the same
effect. After this offering, we will have approximately 15,332,312 shares of
common stock outstanding. The shares we are selling in this offering will be
freely tradeable in the public market. If we take into account the lock-up
agreements executed by our existing stockholders, the remaining shares of
common stock outstanding after this offering will be available for sale in the
public market as follows:
<TABLE>
<CAPTION>
Percent of
Total
Number of Shares
Shares Outstanding Date of Availability for Sale
--------- ----------- --------------------------------------------------------
<C> <C> <S>
209,953 1.85 , 2000 (date of this prospectus) to , 2000 (90
days after the date of this prospectus)
15,831 0.14 , 2000 (90 days after the date of this prospectus)
to , 2000 (180 days after the date of this
prospectus), in some cases under Rule 144
7,659,547 67.59 , 2000 (180 days after the date of this
prospectus), in some cases under Rule 144
3,446,982 30.42 At various times after , 2000
</TABLE>
Our underwriters could waive the selling restrictions imposed by the lock-up
agreements at any time, which could accelerate the resale of outstanding shares
of common stock. In addition, at December 31, 1999, there were outstanding
warrants to purchase 51,777 shares and options to purchase 1,000 shares not
restricted by lock-up agreements. The shares that we may issue upon exercise of
the warrants will become available for sale in the public market under Rule 144
and the shares that we may issue upon exercise of the options will become
available for sale in the public market upon vesting and after we file a
registration statement covering those shares. We intend to file a registration
statement for this purpose after this offering. In addition, some of our
securityholders have rights to require us to register their shares for resale
in the public market. For a more detailed description, see "Description of
Capital Stock--Registration Rights," "Shares Eligible for Future Sale" and
"Underwriting."
We have anti-takeover defenses that could delay or prevent an acquisition of
our company, which could depress our stock price or lessen any premium over
market price that an acquirer might otherwise pay.
Our articles of organization and by-laws and Massachusetts law contain
provisions that might enable our management to resist a takeover of our
company. These provisions could discourage, delay or prevent a change in
control of our company or an acquisition of our company at a price that many
stockholders may find attractive. These provisions may also discourage proxy
contests and make it more difficult for our stockholders to elect directors and
take other corporate actions. The existence of these provisions could limit the
price that investors might be willing to pay in the future for shares of our
common stock. For a description of these provisions, see "Description of
Capital Stock--Anti-takeover Provisions of Massachusetts Law and Our Articles
of Organization and By-Laws."
If we cannot raise additional capital we may need on acceptable terms, we may
not achieve our business goals.
If we do not have sufficient capital to fund our operations, we may be
forced to discontinue product development, reduce our sales and marketing
efforts, forego attractive business opportunities and lose the ability to
respond to competitive pressures. We expect that the net proceeds from this
offering, cash on hand and borrowings under our credit facility will be
sufficient to meet our working capital and capital expenditure needs for at
least the next 12 months. After that, we may need to raise additional funds,
and additional financing may not be available on favorable terms, if at all. We
may also require additional capital to acquire or
12
<PAGE>
invest in complementary businesses or products or obtain the right to use
complementary technologies. If we issue additional equity securities to raise
funds, the ownership percentage of our existing stockholders would be reduced.
New investors may demand rights, preferences or privileges senior to those of
existing holders of our common stock.
You will suffer dilution because the net tangible book value of shares
purchased in this offering will be substantially lower than the initial public
offering price.
The initial public offering price will significantly exceed the net tangible
book value per share of our common stock. Accordingly, if you purchase common
stock in this offering, you will incur immediate and substantial dilution of
your investment. If outstanding options or warrants are exercised, you will
incur additional dilution.
13
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Business," contains forward-looking statements.
These statements relate to future events or our future financial performance,
and involve known and unknown risks, uncertainties, and other factors that may
cause our actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance
or achievements expressed or implied by these forward-looking statements. These
risks and other factors include those listed under "Risk Factors" and elsewhere
in this prospectus. In some cases, you can identify forward-looking statements
by terminology such as "may," "will," "should," "expects," "intends," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," "continue," or
the negative of these terms or other comparable terminology. These statements
are only predictions. Actual events or results may differ materially. In
evaluating these statements, you should specifically consider the risks
outlined under "Risk Factors." These factors may cause our actual results to
differ materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of
the forward-looking statements after the date of this prospectus to conform
these statements to actual results.
14
<PAGE>
USE OF PROCEEDS
We expect to receive net proceeds of approximately $54.8 million from the
sale of 4,000,000 shares of common stock, or approximately $63.2 million from
the sale of 4,600,000 shares if the underwriters exercise their over-allotment
option in full, assuming an initial public offering price of $15.00 per share
and after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us.
We intend to use the net proceeds of this offering primarily for general
corporate purposes. We may also use a portion of the net proceeds to acquire
complementary businesses, products and technologies or to establish joint
ventures that we believe will complement our current or future business.
However, we have no specific plans, agreements or commitments to do so and are
not currently engaged in any negotiations for any acquisition or joint venture.
Pending our use of these proceeds, we will invest the net proceeds in short-
term, interest-bearing, investment-grade securities. The amounts that we
actually expend for general corporate purposes will vary significantly
depending on a number of factors, including future sales growth and the amount
of cash we generate from operations, if any.
DIVIDEND POLICY
We have never declared or paid any cash dividends. We currently intend to
retain any future earnings to fund the development and growth of our business.
In addition, under our credit facilities, we generally cannot pay dividends
without our creditors' consent. Therefore, we currently do not anticipate
paying cash dividends in the foreseeable future.
15
<PAGE>
CAPITALIZATION
The following table presents:
. our actual capitalization as of September 30, 1999
. our pro forma capitalization as of September 30, 1999, after adjustment
for:
(a) the conversion of our currently outstanding redeemable preferred
stock into 10,488,440 shares of common stock upon the closing of
this offering
(b) the amendments of our charter
. our pro forma as adjusted capitalization as of September 30, 1999, which
adjusts for our sale of 4,000,000 shares of common stock at an assumed
initial public offering price of $15.00 per share, after deducting
estimated underwriting discounts and commissions and estimated offering
expenses payable by us
You should read the following table in conjunction with our financial
statements and accompanying notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of September 30, 1999
-----------------------------------
Pro Forma
Actual Pro Forma As Adjusted
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Lines of credit and current maturities of long-term debt.... $ 1,286 $ 1,286 $ 1,286
======== ======== ========
Current maturities of capital lease obligations............. $ 771 $ 771 $ 771
======== ======== ========
Long-term debt:
Long-term debt, net of current portion.................... $ 1,066 $ 1,066 $ 1,066
Capital lease obligations, net of current portion......... 536 536 536
-------- -------- --------
Total long-term debt, net of current portion............ 1,602 1,602 1,602
-------- -------- --------
Redeemable preferred stock, $.01 par value; issued in
classes A, B, D and E; 22,080,000 total shares authorized
and 20,976,881 total shares issued and outstanding, actual;
no shares authorized, issued or outstanding, pro forma and
pro forma as adjusted...................................... 47,793 -- --
Stockholders' (deficit) equity:
Preferred stock, $.01 par value; 4,500,000 shares authorized
and no shares issued or outstanding, actual, pro forma and
pro forma as adjusted...................................... -- -- --
Common stock, $.01 par value; 36,000,000 shares authorized
and 782,986 shares issued and outstanding, actual;
100,000,000 authorized, pro forma and pro forma as
adjusted; 11,271,426 shares issued and outstanding, pro
forma; 15,271,426 shares issued and outstanding, pro
forma as adjusted........................................ 8 123 152
Additional paid-in capital................................ 1,911 49,589 104,360
Note receivable........................................... (281) (281) (281)
Accumulated deficit....................................... (32,859) (32,859) (32,859)
Unearned compensation..................................... (178) (178) (178)
-------- -------- --------
Total stockholders' (deficit) equity.................... (31,399) 16,394 71,194
-------- -------- --------
Total capitalization.................................... $ 17,996 $ 17,996 $ 72,796
======== ======== ========
</TABLE>
16
<PAGE>
The foregoing information excludes the following shares as of December 31,
1999:
. 1,881,763 shares that we may issue upon the exercise of options
outstanding as of December 31, 1999 at a weighted average exercise price
of $2.66 per share
. 2,116,711 shares available for issuance upon the exercise of options
which have been or may be granted after December 31, 1999 under our
active stock plans
. 1,221,370 shares that we may issue upon the exercise of warrants
outstanding as of December 31, 1999 at a weighted average exercise price
of $1.19 per share
17
<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted by 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 our common stock
immediately after this offering. Our pro forma net tangible book value at
September 30, 1999 was approximately $16.4 million, or $1.46 per share of
common stock. Pro forma net tangible book value per share represents total
tangible assets less total liabilities, divided by the pro forma number of
shares of common stock outstanding at September 30, 1999, and assumes the
conversion of our currently outstanding shares of redeemable preferred stock
into 10,488,440 shares of common stock upon the closing of this offering.
Assuming our sale of 4,000,000 shares of common stock at an assumed initial
public offering price of $15.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by us, our pro forma as adjusted net tangible book value at September 30, 1999
would have been $71.2 million, or $4.66 per share. This represents an immediate
increase in pro forma net tangible book value of $3.20 per share to existing
stockholders and an immediate dilution of $10.34 per share to new investors, or
approximately 68.9% of the assumed initial public offering price of $15.00 per
share. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $15.00
Pro forma net tangible book value per share at September 30,
1999.......................................................... $1.46
Increase per share attributable to new investors............... 3.20
-----
Pro forma as adjusted net tangible book value per share after the
offering........................................................ 4.66
------
Dilution per share to new investors.............................. $10.34
======
</TABLE>
The following table shows, on a pro forma as adjusted basis at September 30,
1999, the number of shares of common stock purchased from us, the total
consideration paid to us and the average price paid per share by existing
stockholders and by new investors purchasing common stock in this offering,
after adjustment for:
. the conversion of our currently outstanding shares of redeemable
preferred stock into common stock
. our sale of 4,000,000 shares of common stock at an assumed initial
public offering price of $15.00 per share, before deducting estimated
underwriting discounts and commissions and estimated offering expenses
payable by us
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
------------------ -------------------- Per
Number Percent Amount Percent Share
---------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 11,271,426 73.8% $ 48,991,000 44.9% $ 4.35
New investors................... 4,000,000 26.2% 60,000,000 55.1% $15.00
---------- ----- ------------ -----
Total......................... 15,271,426 100.0% $108,991,000 100.0%
========== ===== ============ =====
</TABLE>
This discussion assumes no exercise of any stock options or warrants
outstanding as of September 30, 1999. At that date, there were 1,720,427 shares
that we may issue upon the exercise of outstanding options at a weighted
average exercise price of $1.62 per share and 1,229,695 shares that we may
issue upon the exercise of outstanding warrants at a weighted average exercise
price of $1.18. If holders exercise these outstanding options or warrants,
there will be further dilution of $0.51 per share to new investors.
Additionally, there were 2,327,534 shares available for issuance upon the
exercise of options which have been or may be granted under our active stock
plans after September 30, 1999.
18
<PAGE>
SELECTED FINANCIAL DATA
You should read the following selected financial data with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and notes appearing elsewhere in this prospectus. The
following statement of operations data reflect only our continuing operations,
which had minimal operating activity during the years ended December 31, 1994
and 1995. The statement of operations data for the years ended December 31,
1996, 1997 and 1998 and the balance sheet data at December 31, 1997 and 1998
are derived from the financial statements and notes audited by
PricewaterhouseCoopers LLP appearing elsewhere in this prospectus. The
statement of operations data for the years ended December 31, 1994 and 1995 and
the balance sheet data as of December 31, 1994, 1995 and 1996 are derived from
financial statements not appearing in this prospectus. The statement of
operations data for the nine months ended September 30, 1998 and September 30,
1999 and balance sheet data as of September 30, 1999 are unaudited. In our
opinion, all necessary adjustments, which consist only of normal recurring
adjustments, have been included to present fairly the unaudited nine-month
results, which should be read with our financial statements and notes appearing
elsewhere in this prospectus. Historical results are not necessarily indicative
of results that may be expected for any future period. We have never declared
or paid any cash dividends.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
----- ----- ------- ------- -------- ----------- -----------
(unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Sales................... $ -- $ -- $ 201 $ 1,733 $ 2,386 $ 1,447 $ 5,504
Cost of sales........... -- -- 507 2,755 7,517 3,320 5,103
----- ----- ------- ------- -------- ------- -------
Gross margin (loss)..... -- -- (306) (1,022) (5,131) (1,873) 401
Operating expenses
Research and
development, net..... -- -- 598 3,926 4,993 3,888 3,368
Selling and
marketing............ -- -- 353 667 1,006 619 710
General and
administrative....... -- -- 572 1,111 2,042 1,552 1,717
Stock compensation
cost................. -- -- -- -- -- -- 47
----- ----- ------- ------- -------- ------- -------
Total operating
expenses............ -- -- 1,523 5,704 8,041 6,059 5,842
----- ----- ------- ------- -------- ------- -------
Operating loss.......... -- -- (1,829) (6,726) (13,172) (7,932) (5,441)
Other income (expense).. -- -- (410) (626) 757 (171) (506)
----- ----- ------- ------- -------- ------- -------
Loss from continuing
operations before
income taxes........... -- -- (2,239) (7,352) (12,415) (8,103) (5,947)
Income tax benefit...... -- -- -- (640) (1,162) (1,027) --
----- ----- ------- ------- -------- ------- -------
Loss from continuing
operations............. -- -- $(2,239) $(6,712) $(11,253) $(7,076) $(5,947)
Basic and diluted loss
per share from
continuing operations.. -- -- $ (4.15) $(14.16) $ (22.87) $(14.38) $(11.14)
Shares used in computing
basic and diluted
loss per share......... -- -- 540 474 492 492 534
Pro forma basic and
diluted loss per share
from continuing
operations(1).......... $ (1.78) $ (0.76)
Shares used in computing
pro forma basic
and diluted loss per
share(1)............... 6,319 7,833
</TABLE>
- ---------------------
(1) For an explanation of these computations, see Note 1 to our financial
statements.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------- September 30,
1994 1995 1996 1997 1998 1999
------- ------- ------- -------- -------- -------------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 1,078 $ 1,071 $ 1,213 $ 10,294 $ 2,635 $ 12,158
Working capital......... 3,694 3,962 3,266 8,439 3,271 12,372
Total assets............ 11,597 12,016 10,728 20,059 14,955 25,958
Long-term debt and
capital lease
obligations,
net of current
portion................ 2,385 1,929 3,257 1,690 1,047 1,602
Redeemable preferred
stock.................. 12,467 12,467 12,465 25,425 32,793 47,793
Total stockholders'
deficit................ (7,258) (6,693) (9,560) (14,998) (24,591) (31,399)
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our financial
statements and the accompanying notes.
Overview
We develop and supply broadband point-to-multipoint wireless access
equipment used by network service providers to deliver integrated voice, video
and data services to business and residential subscribers. We sell our products
primarily to network system integrators, which include our products in
broadband wireless systems sold to network service providers. We have developed
two families of broadband point-to-multipoint wireless access products. Our
modular hubs and customer premises equipment can be rapidly tailored for
competitive site demonstrations and initial commercial deployments. These
modular products address a network service provider's need to offer new
services and enter new markets quickly, which is often referred to as
"accelerated time-to-market." Our planar hubs and customer premises equipment,
based on a printed circuit board design, can be mass-produced using low-cost,
highly automated manufacturing techniques. These planar products address a
network service provider's need for cost-effective deployment to many
subscribers.
We commenced operations in 1982 and have derived the significant majority of
our sales from our millimeter-wave products business segment. Millimeter waves
are electromagnetic waves having wavelengths between one and ten millimeters.
In August 1999, we adopted a plan to focus all of our resources on our
broadband point-to-multipoint wireless access business segment and to dispose
of the millimeter-wave products segment. We decided to dispose of this segment
because it would have required us to reallocate financial and management
resources from the more attractive broadband point-to-multipoint wireless
access business segment. As a result, we have presented the operations of the
millimeter-wave products segment as a discontinued operation in our financial
statements. The following management's discussion and analysis focuses on our
ongoing broadband point-to-multipoint wireless access business.
Our first prototype broadband point-to-multipoint wireless access equipment
was evaluated in a trial in 1995. Before receiving our first volume order for
equipment in June 1999, virtually all of our shipments of products were for
site demonstrations and initial commercial deployments. To date, we have
assembled all of our products in-house. We will use third-party manufacturers
to supplement our manufacturing capacity.
We intend to increase expenditures in all areas, including manufacturing and
engineering, research and development, and sales and marketing. These increases
in operating expenses are not always apparent from our historical financial
statements. As our sales continue to grow, our operating expenses as a
percentage of sales will decrease even though we will significantly increase
amounts spent on research and development, selling and marketing, and general
and administrative. This spending will support expansion of our production and
design areas, greater recruiting efforts, and a larger customer support
organization to address the continuing growth in the market for broadband
wireless access equipment.
For the nine months ended September 30, 1999, approximately 83% of our sales
were to a customer located in Canada and 16% were to customers located in the
United States. For the year ended December 31, 1998, approximately 48% of our
sales were to customers located in the United States, 30% of our sales were to
a customer located in Canada, 12% of our sales were to a customer in Ecuador,
and 10% of our sales were to customers located in other countries, including
South Korea, England and Australia. We expect that sales to customers located
outside the United States will continue to be significant.
20
<PAGE>
Results of Operations
The following table provides continuing operations data as a percentage of
sales for the periods presented. The percentages may not add due to rounding.
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
-------------------------- ---------------
1996 1997 1998 1998 1999
-------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................. 252.2 159.0 315.0 229.4 92.7
-------- ------ ------ ------ ------
Gross margin (loss)............ (152.2) (59.0) (215.0) (129.4) 7.3
Operating expenses
Research and development,
net......................... 297.5 226.5 209.3 268.7 61.2
Selling and marketing........ 175.6 38.5 42.2 42.8 12.9
General and administrative... 284.6 64.1 85.6 107.3 31.2
Stock compensation cost...... -- -- -- -- 0.8
-------- ------ ------ ------ ------
Total operating expenses... 757.8 329.1 337.0 418.7 106.1
-------- ------ ------ ------ ------
Operating loss................. (910.0) (388.1) (552.1) (548.2) (98.9)
Other income (expense)......... (204.0) (36.1) 31.7 (11.8) (9.2)
-------- ------ ------ ------ ------
Loss from continuing operations
before income taxes........... (1,113.9) (424.2) (520.3) (560.0) (108.0)
Income tax benefit............. -- (36.9) (48.7) (71.0) --
-------- ------ ------ ------ ------
Loss from continuing
operations.................... (1,113.9)% (387.3)% (471.6)% (489.0)% (108.0)%
</TABLE>
Nine Months Ended September 30, 1998 and 1999
Sales
Sales increased 280% from $1.5 million for the nine months ended September
30, 1998 to $5.5 million for the nine months ended September 30, 1999. This
increase primarily reflects the increase in sales of our planar products from
$357,000 in 1998 to $4.2 million in 1999.
Cost of Sales
Cost of sales consists of component and material costs, direct labor costs,
warranty costs, overhead related to manufacturing our products and customer
support costs. Cost of sales increased 54% from $3.3 million for the nine
months ended September 30, 1998 to $5.1 million for the nine months ended
September 30, 1999. This increase was attributable primarily to increased
shipments of our planar products. Gross margins were negative 129% for the nine
months ended September 30, 1998 and were 7% for the nine months ended September
30, 1999. This improvement was attributable primarily to increased shipments of
our higher margin planar products and a significant shipment of modular
products at favorable pricing terms.
Research and Development Expenses
Research and development expenses consist primarily of personnel and related
costs associated with our product development efforts. These include costs for
development of products and components, test equipment and related facilities.
Our gross research and development expenses decreased 6% from $4.4 million for
the nine months ended September 30, 1998 to $4.1 million for the nine months
ended September 30, 1999. Of this decrease $300,000 is attributable to the
reassignment of a group of engineers to a customer support function and
$200,000 reflects the elimination of a senior management position. Net of these
changes our research and development costs actually increased by $100,000. Some
of our customers have provided funding to offset our development costs for
specific products. Net of these reimbursements, our research and development
expenses decreased 13% from $3.9 million for the nine months ended September
30, 1998 to $3.4 million for the nine months ended September 30, 1999.
21
<PAGE>
Selling and Marketing Expenses
Selling and marketing expenses consist of employee salaries and benefits,
consultant fees, and expenses for advertising, travel, technical assistance,
trade shows, and promotional and demonstration materials. Selling and marketing
expenses increased 15% from $619,000 for the nine months ended September 30,
1998 to $710,000 for the nine months ended September 30, 1999. We added
personnel to our customer support group which cost approximately $700,000 and
we increased marketing efforts in targeting key accounts. Partially offsetting
the cost of these efforts was approximately $600,000 of savings from the
reduction of senior management and staff as we relocated our sales function
from Texas to Massachusetts. Our selling and marketing expenses as a percentage
of sales decreased from 43% for the nine months ended September 30, 1998 to 13%
for the nine months ended September 30, 1999. This was the result of increasing
sales by 280% while only adding three personnel to our selling and marketing
organization.
General and Administrative Expenses
General and administrative expenses consist primarily of executive,
administrative, human resources, quality assurance, management information
systems and finance related costs. General and administrative expenses
increased 11% from $1.6 million for the nine months ended September 30, 1998 to
$1.7 million for the nine months ended September 30, 1999. In the nine months
ended September 30, 1999, we incurred expenditures of approximately $360,000
for recruiting and relocation, and we also continued spending on our new
management information system. However, these costs were partially offset by
the reassignment of personnel to selling and marketing.
Other Income (Expense)
Other income (expense) consists of interest earned on cash and cash
equivalents offset by interest expense and miscellaneous non-operating
expenses. Total other expense increased 196% from $171,000 for the nine months
ended September 30, 1998 to $506,000 for the nine months ended September 30,
1999. Interest income decreased by $145,000 in 1999 as a result of lower
invested cash balances. Additionally, interest expense increased by $190,000
due to amortization of $267,000 for a discount on subordinated promissory
notes.
Income Tax Benefit
In the nine months ended September 30, 1998, we have recorded an income tax
benefit in continuing operations because the loss from continuing operations
offsets income from discontinued operations. No tax benefit has been recorded
in the nine months ended September 30, 1999 due to the uncertainty in deducting
current losses against future taxable income.
Years Ended December 31, 1996, 1997 and 1998
Sales
Sales increased $1.5 million from $201,000 in 1996 to $1.7 million in 1997.
Sales increased 38% from 1997 to $2.4 million in 1998. The increase in sales
from 1996 to 1997 was attributable to increased sales of modular products as
well as sales of individual modules. The increase in sales from 1997 to 1998
reflects $200,000 from an increase in sales of modular products as well as
$500,000 from sales of our newly-introduced planar products.
Cost of Sales
Cost of sales increased by $2.2 million from $507,000 in 1996 to $2.8
million in 1997. Cost of sales increased $4.8 million from 1997 to $7.5 million
in 1998. The increase in cost of sales from 1996 to 1997 was attributable to
increased shipments of modular products as well as shipments of individual
modules. The increase in cost of sales from 1997 to 1998 was attributable to
increased shipments of modular products as well
22
<PAGE>
as shipments of our newly-introduced planar products. Gross margins were
negative 152% in 1996, negative
59% in 1997, and negative 215% in 1998. These negative gross margins resulted
from the inefficiencies of low volume orders designed and manufactured to
encourage site demonstrations of our products and demonstrate the viability of
broadband point-to-multipoint wireless technology. We also developed automated
manufacturing processes and added capacity and personnel in anticipation of
future volume orders for our products. In 1998, we incurred a charge of $1.1
million to write off obsolete inventory. We purchased various components and
materials for certain equipment designs in advance of production in order to
accelerate development and testing for rapid product deployment. Higher costs
were incurred for low volume purchases and accelerated deliveries from
suppliers to support the accelerated development schedules. During a review of
the value of the total material costs for certain products compared to the
estimated future selling prices, we recorded a reserve to reduce selected
inventory amounts to their expected net realizable value. While we will
continue to periodically review the costs of our materials compared to the
estimated future selling prices, future reserves are not expected to be
significant as the majority of our material purchases are now in greater
quantities and in support of production schedule requirements.
Research and Development Expenses
Our gross research and development expenses increased $3.4 million from
$598,000 in 1996 to $4.0 million in 1997. Gross research and development
expenses increased 50% from 1997 to $6.0 million in 1998. The increase from
1996 to 1997 reflected significant investments to develop our modular products
and adapt them for different frequency ranges. The increase from 1997 to 1998
reflected significant investments to develop our planar products and adapt our
modular products for additional frequency ranges. These activities required us
to substantially increase the size of our research and development staff by
52%, from 29 personnel at the end of 1997 to 44 at the end of 1998. Net of
customer reimbursements, our research and development expenses increased $3.3
million from $598,000 in 1996 to $3.9 million in 1997. Net research and
development increased 27% from 1997 to $5.0 million in 1998.
Selling and Marketing Expenses
Selling and marketing expenses increased 89% from $353,000 in 1996 to
$667,000 in 1997. Selling and marketing expenses increased 51% from 1997 to
$1.0 million in 1998. The increase in selling and marketing expenses from 1996
to 1997 was attributable to our increased efforts to expand our presence in the
broadband wireless access marketplace and initiate contacts with various
network system integrators and network service providers. Approximately
$600,000 of the increase in selling and marketing expenses from 1997 to 1998
was attributable to our hiring of additional key personnel to enhance our
relationships with major customers and prospects. From 1996 through 1998, we
invested significantly in installation and demonstration of our equipment at
various locations worldwide.
General and Administrative Expenses
General and administrative expenses increased 94% from $572,000 in 1996 to
$1.1 million in 1997. General and administrative expenses increased 84% from
1997 to $2.0 million in 1998. The increase from 1996 to 1997 resulted from our
intensified recruiting efforts. Also, travel costs increased, as our executives
worked to promote the company and increase our recognition in the
telecommunications industry. The increase in general and administrative
expenses from 1997 to 1998 was attributable to the reconfiguration of
facilities to expand our manufacturing and engineering operations. In addition,
we began to implement a new integrated financial and management information
system. We recorded charges of $125,000 and $77,000 for the years ended
December 31, 1997 and December 31, 1998 due to a specific review of our
patents. These patents related to previously divested businesses and we
determined that there were no future expected royalties or other income streams
related to these patents. For these patents, the remaining net book value was
written off. As of December 31, 1998, there was no remaining book value for
these patents.
23
<PAGE>
Other Income (Expense)
Total other expense increased 53% from $410,000 in 1996 to $626,000 in 1997.
Total other expense changed from $626,000 in expense in 1997 to $757,000 in
income in 1998. The increase in other expense from 1996 to 1997 was
attributable to additional interest incurred on $3 million of subordinated
notes and additional borrowings under our bank line of credit. The change in
other expense from 1997 to other income in 1998 was primarily due to the
recognition of $997,000 in income related to the termination of a development
contract with a customer. Interest expense in 1998 was $210,000 lower than in
1997 due to repayment of the subordinated notes and bank line of credit.
Interest income increased by $193,000 due to proceeds invested
from a private placement completed in October 1997.
Income Tax Benefit
We have recorded an income tax benefit in continuing operations because the
loss from continuing operations offsets income from discontinued operations.
For 1997, the income tax benefit from continuing operations is net of
additional tax expense of $264,000, due to an increase in the valuation
allowance recorded against deferred tax assets.
Quarterly Results of Operations
The following table provides, for the periods presented, continuing
operations data derived from our statement of operations in dollars and as a
percentage of sales. The statement of operations data have been derived from
our unaudited financial statements. In management's opinion, these statements
have been prepared on substantially the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial information for
the periods presented. This information should be read with our financial
statements and notes appearing elsewhere in this prospectus. The operating
results in any quarter are not necessarily indicative of the results that may
be expected for any future period.
24
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30,
1998 1998 1998 1998 1999 1999 1999
--------- -------- --------- -------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Sales .................. $ 414 $ 623 $ 410 $ 939 $ 1,177 $ 1,585 $ 2,742
Cost of sales .......... 1,164 835 1,322 4,196 1,650 1,162 2,291
------- ------- ------- ------- ------- ------- -------
Gross margin (loss) .... (750) (212) (912) (3,257) (473) 423 451
Operating expenses
Research and
development
expenditures.......... 1,384 1,445 1,567 1,583 1,054 1,548 1,512
Research and
development
reimbursement......... -- -- (508) (478) (120) (306) (320)
------- ------- ------- ------- ------- ------- -------
Research and
development, net .... 1,384 1,445 1,059 1,105 934 1,242 1,192
Selling and marketing
...................... 181 288 149 388 318 164 228
General and
administrative ....... 517 554 481 490 372 636 709
Stock compensation
cost.................. -- -- -- -- -- -- 47
------- ------- ------- ------- ------- ------- -------
Total operating
expenses ............ 2,082 2,287 1,689 1,983 1,624 2,042 2,176
------- ------- ------- ------- ------- ------- -------
Operating loss ......... (2,832) (2,499) (2,601) (5,240) (2,097) (1,619) (1,725)
Other income (expense)
Interest expense ...... (127) (132) (112) (102) (68) (109) (384)
Income from contract
cancellation.......... -- -- -- 997 -- -- --
Interest income ....... 118 66 16 33 17 8 30
------- ------- ------- ------- ------- ------- -------
Total other income
(expense) ........... (9) (66) (96) 928 (51) (101) (354)
------- ------- ------- ------- ------- ------- -------
Loss from continuing
operations before
income taxes .......... (2,841) (2,565) (2,697) (4,312) (2,148) (1,720) (2,079)
Income tax benefit ..... 191 464 372 135 -- -- --
------- ------- ------- ------- ------- ------- -------
Loss from continuing
operations ............ $(2,650) $(2,101) $(2,325) $(4,177) $(2,148) $(1,720) $(2,079)
As a Percentage of
Sales(1):
Sales .................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales .......... 281.2 134.0 322.4 446.9 140.2 73.3 83.6
------- ------- ------- ------- ------- ------- -------
Gross margin (loss) .... (181.2) (34.0) (222.4) (346.9) (40.2) 26.7 16.4
Operating expenses
Research and
development
expenditures ......... 334.3 231.9 382.2 168.5 89.5 97.7 55.1
Research and
development
reimbursement......... -- -- (123.9) (50.9) (10.2) (19.3) (11.7)
------- ------- ------- ------- ------- ------- -------
Research and
development, net .... 334.3 231.9 258.3 117.7 79.4 78.4 43.4
Selling and marketing
...................... 43.7 46.2 36.3 41.3 27.0 10.3 8.3
General and
administrative ....... 124.9 88.9 117.3 52.2 31.6 40.1 25.9
Stock compensation
cost.................. -- -- -- -- -- -- 1.7
------- ------- ------- ------- ------- ------- -------
Total operating
expenses ............ 502.9 367.1 412.0 211.1 138.0 128.8 79.4
------- ------- ------- ------- ------- ------- -------
Operating loss ......... (684.1) (401.1) (634.4) (558.0) (178.2) (102.1) (62.9)
Other income (expense)
Interest expense ...... (30.7) (21.2) (27.3) (10.9) (5.8) (6.9) (14.0)
Income from contract
cancellation ......... -- -- -- 106.2 -- -- --
Interest income ....... 28.5 10.6 3.9 3.5 1.4 0.5 1.1
------- ------- ------- ------- ------- ------- -------
Total other income
(expense) ........... (2.2) (10.6) (23.4) 98.8 (4.3) (6.4) (12.9)
------- ------- ------- ------- ------- ------- -------
Loss from continuing
operations before
income taxes .......... (686.2) (411.7) (657.8) (459.2) (182.5) (108.5) (75.8)
Income tax benefit ..... 46.1 74.5 90.7 14.4 -- -- --
------- ------- ------- ------- ------- ------- -------
Loss from continuing
operations ............ (640.1)% (337.2)% (567.1)% (444.8)% (182.5)% (108.5)% (75.8)%
</TABLE>
- ---------------------
(1) Percentages may not add due to rounding.
25
<PAGE>
Our past sales and results of operations have fluctuated significantly from
quarter to quarter, and we expect these fluctuations to continue in the future.
The following discussion highlights significant events that have impacted our
sales and financial results for the seven quarters in the period ended
September 30, 1999.
Our sales have increased each quarter beginning in the quarter ended
December 31, 1998. This increase was attributable primarily to increased
shipments of our planar products. Cost of sales has generally increased
primarily as a result of the increase in units shipped. We also incurred a
charge of $1.1 million in the quarter ended December 31, 1998 to write off
obsolete inventory. Before the quarter ended June 30, 1999, we generally had
negative gross margins. These negative gross margins reflect substantial
discounts provided to encourage site demonstrations of our products and
demonstrate the viability of broadband point-to-multipoint wireless access
technology. Our gross margins improved significantly in each quarter in 1999
when compared to the corresponding quarter in 1998. This improvement was
attributable primarily to the increased shipments of our higher-margin planar
products. Our total operating expenses decreased as a percentage of sales in
each quarter beginning in the quarter ended December 31, 1998. This decrease
reflects the reduction of senior management positions as we reorganized our
sales, research and development, and administrative functions in the quarter
ended December 31, 1998. In addition, some of our customers have provided
funding to offset our development costs for specific products. Our operating
loss decreased as a percentage of sales in each quarter beginning in the
quarter ended December 31, 1998. The change from other expense to other income
in the quarter ended December 31, 1998 was the result of the recognition of
$1.0 million of other income related to the termination of a development
contract with a customer.
The following table provides, for the periods presented, a summary of our
discontinued operations financial data derived from our statement of
operations.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------ -----------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales........................ $13,467 $14,686 $12,211 $9,554 $ 6,518
Gross margin................. 3,188 5,742 5,899 4,844 2,464
Income (loss) from
discontinued operations
before income taxes......... (202) 2,246 2,886 2,550 258
Income tax expense
(benefit)................... (328) 904 1,162 1,027 0
Loss on disposition of MMWP
segment..................... -- -- -- -- (1,900)
------- ------- ------- ------ -------
Income (loss) from
discontinued operations..... $ (530) $ 1,342 $ 1,724 $1,523 $(1,642)
</TABLE>
Discontinued operations for the years ended December 31, 1996, 1997 and 1998
Sales increased $1.2 million from $13.5 million in 1996 to $14.7 million in
1997. This increase was attributable to our success in securing large orders
for very specialized programs with a few major customers. Sales decreased by
$2.5 million from 1997 to 1998 due to a decline in work performed on some large
contracts with major customers. Our gross margin and income from discontinued
operations improved in both 1997 and 1998 as we benefited from our experience
in the design and manufacture of very technical systems and components in the
millimeter wave frequencies.
Discontinued operations for the nine months ended September 30, 1998 and 1999
The decline in sales experienced in the nine months ended September 30, 1998
continued through the fourth quarter of 1998. Sales declined further to $6.5
million for the nine months ended September 30, 1999 as a result of the decline
in the worldwide demand for the types of millimeter wave products sold by this
business segment. Gross margins remained significantly favorable at 37% for the
nine months ended September 30, 1999 as the size of the business was reduced to
remain profitable. A decision was made to dispose of this segment in
26
<PAGE>
August of 1999, and a provision of $1.9 million is reflected in the September
30, 1999 results of operations. This amount includes a $300,000 reserve for
operating losses during the phaseout period, and a $1.6 million reserve for the
assets to be disposed of.
Liquidity and Capital Resources
Since 1997, we have financed our operations primarily through the sale of
redeemable preferred stock and, to a much lesser extent, from cash generated by
our discontinued operations. We have also issued subordinated notes and used
equipment lease financing and bank lines of credit to provide cash. Our line of
credit and long term debt agreements in effect at September 30, 1999 contain
certain financial covenants of which the most restrictive are the maintenance
of a minimum debt-to-equity ratio and various profitability requirements. The
1997 and 1998 events of default disclosed in the footnotes to the financial
statements relate to the late reporting of audited year end financial results
and failure to meet a profitability requirement. The line of credit related to
the 1997 default was fully repaid and not renewed. We raised net proceeds of
$12.8 million in 1997, $7.3 million in 1998 and $14.9 million in 1999 from the
issuance of redeemable preferred stock.
At September 30, 1999, we had cash and cash equivalents of $12.2 million. At
September 30, 1999, we had $500,000 of bank borrowings under our line of credit
facility. This line of credit is collateralized by our assets and interest is
payable on the outstanding balance at a rate of prime plus 1% (prime was 8.25%
at September 30, 1999).
At September 30, 1999, we had approximately $1.9 million in long-term debt,
of which $612,000 is due through December 2000 with an interest rate of 10%,
$375,000 is due through June 2003 with an interest rate of 10%, and $941,000 is
due through April 2003 with an interest rate of 7.8%.
At December 31, 1998, we had approximately $1.5 million in capital lease
obligations, which are due through 2003.
Cash used in operating activities for the nine months ended September 30,
1999 was $5.1 million compared to $5.0 million for the nine months ended
September 30, 1998. Cash used in operating activities was $8.5 million in 1998,
$426,000 in 1997 and $1.8 million in 1996. Cash used in operating activities
has primarily represented funding of our net losses.
Cash used in investing activities for the nine months ended September 30,
1999 was $1.6 million compared to $3.4 million for the nine months ended
September 30, 1998. Cash used in investing activities was $3.7 million in 1998
and $817,000 in 1997. In each period, these amounts related primarily to the
purchase of equipment used in our manufacturing and research and development
activities. Cash provided by investing activities was $28,000 in 1996 and
resulted from the sale of certain property and equipment, net of additional
equipment purchases.
Cash provided by financing activities for the nine months ended September
30, 1999 was $16.2 million compared to cash used by financing activities of
$1.2 million in the nine months ended September 30, 1998. The financing
activities for the nine months ended September 30, 1999 consisted of the sale
of redeemable preferred stock and the issuance of term notes collateralized by
equipment. Cash provided by financing activities was $4.5 million in 1998 and
$10.3 million in 1997. In each of these years, financing activities consisted
primarily of the issuance of redeemable preferred stock. Cash provided by
financing activities was $1.9 million in 1996 and resulted from borrowings
under a bank line of credit and proceeds from the issuance of term notes.
Our future cash requirements will depend upon a number of factors, including
the timing and level of research and development activities and sales and
marketing campaigns, and our ability to significantly increase our
manufacturing volumes. We believe that our cash and cash equivalent balances
and the proceeds from this offering will provide sufficient capital to fund our
operations for at least 12 months. Thereafter, we may require additional
capital to fund our operations. In addition, from time to time we evaluate
opportunities to acquire complementary technologies or companies. Should we
identify any of these opportunities, we may need to raise
27
<PAGE>
additional capital to fund the acquisitions and our operations. There can be no
assurance that financing will be available to us on favorable terms or at all.
Year 2000 Issues
Many currently installed computer systems, software products and other
devices do not properly recognize dates after December 31, 1999. This "year
2000" problem could result in product failures, system failures or
miscalculations causing disruptions of operations. If the computer systems,
software products and devices upon which we rely do not correctly process dates
after December 31, 1999, our business could be adversely affected.
State of Readiness--Products. We have reviewed all of our products and their
components to determine whether they are date-sensitive. Based on our review,
we do not believe there are any date-sensitive features in any of our products
or their components. Accordingly, we believe our products, as well as our
inventories of product components, are year 2000 compliant. Nothing has
occurred since January 1, 2000 which has altered our belief.
State of Readiness--Third Parties. Because we depend on third parties, such
as single source suppliers, network system integrators and contract
manufacturers, we are assessing their year 2000 compliance. We have circulated
written surveys to our material component suppliers regarding their internal
year 2000 compliance. We have received and reviewed completed surveys from a
majority of our component suppliers. We are pursuing the suppliers that have
not responded to our survey for more information regarding their year 2000
compliance. The suppliers who responded to our survey stated that they believe
they are year 2000 compliant or will be year 2000 compliant by December 31,
1999. We have also had discussions regarding year 2000 compliance with our
network system integrator customers and selected third-party manufacturers we
may engage, but have not received definite assurances that year 2000 problems
will not materially affect their ability to do business with us. We did not
know by December 31, 1999 and currently do not know the year 2000 readiness of
all third parties with which we do business. However, we have experienced no
material changes in our relationships with these third parties due to Year 2000
problems.
State of Readiness--Internal Systems. We have completed our evaluation of
all of our internal systems for year 2000 compliance. These systems include our
information technology systems, such as our financial systems, enterprise
resource planning systems, network hardware, server and PC operating systems,
and core software applications, including our design software. These systems
also include our non-information technology systems, such as our telephone
switches, security systems, and office and facilities equipment. In most cases,
we obtained these systems from third parties, and our evaluation consisted of
inquiries made to vendors to determine whether their products were year 2000
compliant. As a result of our evaluation, we replaced desktop computers and
upgraded and tested our network software and several software applications. We
believe that our critical internal systems are now year 2000 compliant. Nothing
has occurred since January 1, 2000 which has altered our belief.
Costs of Remediation. We estimate that the total costs that we incurred in
order to comply with year 2000 requirements was approximately $30,000. This
amount represents only our costs of upgrading or replacing software and
hardware ahead of schedule in order to obtain year 2000 compliant versions. We
do not separately track the internal costs of our year 2000 remediation
efforts. These costs consist primarily of payroll expenses for our information
systems personnel and selected research and development personnel.
Risks and Contingency Plans--Products. Despite our review and experience,
our products may contain year 2000 defects or use components with year 2000
defects. Our contingency plan is to re-design our products to be year 2000
compliant or to use year 2000 compliant components. This redesign process could
be difficult and time-consuming, and the associated costs may be material. If
components are not year 2000 compliant, we would have to replace our
inventories of those components, and compliant alternatives may not be readily
available. Moreover, we have represented to our customers that our products are
year 2000 compliant. If our products are not year 2000 compliant, we could be
liable for the damages caused by our erroneous representation, and we could
also lose sales. These liabilities or lost sales could be significant, which
could harm our business.
28
<PAGE>
Risks and Contingency Plans--Third Parties. We do not know the year 2000
readiness of our material suppliers that have not completed our survey.
Moreover, the suppliers who returned our surveys may have been mistaken or
untruthful in responding to the survey. If year 2000 problems disrupt the
operations of our suppliers, we may be unable to obtain necessary components
for our products. Because we lack alternative suppliers for many components, we
are unable to develop contingency plans. Similarly, year 2000 problems that
affect our network system integrators, or their network service provider
customers, could cause them to reduce or defer purchases or deployments of our
products. Because we depend on and have little or no control over our network
system integrators, we are unable to develop contingency plans. We cannot
predict the impact that year 2000 problems will have on our business
relationships with other third parties, and do not have specific contingency
plans for those third parties. These problems could harm our business. However,
since January 1, 2000, we have experienced no material problems with suppliers,
network system integrators, or other third parties due to Year 2000 problems.
Risks and Contingency Plans--Internal Systems. Because we believe our
internal systems are year 2000 compliant, we have not developed and do not
intend to develop any specific contingency plans for year 2000 problems that
may arise with these systems. If we encounter a year 2000 problem with a
critical system, the problem could severely disrupt our operations, damage our
reputation, distract us from planned business activities and cause us to incur
significant expenses to remedy the problem. We have not encountered any
material problem with any critical internal system since January 1, 2000 due to
Year 2000 problems.
Worst Case Scenario. We believe that our worst case scenario would be the
inability of one or more of our key suppliers to deliver materials necessary
for us to manufacture our products. This could lead to lost sales, which could
harm our reputation and could prevent our products from gaining the market
acceptance we need to be successful. We have not experienced any material
disruption in our business since January 1, 2000 due to the inability of any of
our key suppliers to deliver necessary materials to us due to Year 2000
problems.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS No. 131"), which establishes
standards for reporting information about operating segments in interim and
annual financial reporting. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 is effective for fiscal years beginning after December 15, 1997.
SFAS No. 131 did not have a material effect on our financial statements.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1 is effective for
fiscal years beginning after December 15, 1998 and provides guidance over
accounting for computer software developed or obtained for internal use
including the requirement to capitalize and amortize specified costs. We have
adopted the provisions of SOP 98-1 for our six month period ended June 30,
1999.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities (SFAS No.
133), which establishes accounting and reporting standards for derivative
instruments and hedging activities. The statement requires recognition of all
derivatives at fair value in the financial statements. FASB Statement No. 137,
Accounting for Derivative Instruments and Hedging Activities Deferral of the
Effective Date of FASB Statement No. 133, an amendment of FASB Statement No.
133, defers implementation of SFAS No. 133 until fiscal years beginning after
June 15, 2000. We have reviewed SFAS No. 133 and believe that, upon
implementation, the standard will not have a significant effect on our
financial statements.
29
<PAGE>
Disclosures About Market Risk
The following discusses our exposure to market risk related to changes in
interest rates, equity prices and foreign currency exchange rates. This
discussion contains forward-looking statements that are exposed to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors, including those discussed in "Risk Factors."
As of September 30, 1999, we had cash and cash equivalents of $12.2 million.
Substantially all of these amounts consisted of highly liquid investments with
remaining maturities at the date of purchase of less than 90 days. These
investments are exposed to interest rate risk and will decrease in value if
market interest rates increase. A hypothetical increase or decrease in market
interest rates by 10 percent from the September 30, 1999 rates would cause the
fair value of these short-term investments to decline by an insignificant
amount. Due to the short duration of these investments, an immediate increase
in interest rates would not have a material effect on our financial condition
or results of operations. Declines in interest rates over time will, however,
reduce our interest income.
We do not own any material equity investments. Therefore, we do not
currently have any direct equity price risk.
Currently, all sales to international customers are denominated in United
States dollars and, accordingly, we are not currently exposed to foreign
currency exchange rate risks.
30
<PAGE>
BUSINESS
Overview
We develop and supply broadband wireless access equipment. Using our
products, network service providers can deliver integrated voice, video and
data services to their customers to enable high-speed Internet access,
electronic commerce and remote access. We design our products so network
service providers can enter markets quickly and economically, and then expand
their networks efficiently as the number of subscribers grows.
Industry Background
The Growing Demand for Broadband Communications
The amount of data being transmitted over the Internet and private
communications networks is increasing rapidly due to the growing number of
users accessing these networks and the increasing range of data-intensive
activities for which they use these networks. Businesses increasingly use the
Internet to enhance their reach to customers and suppliers with applications
such as electronic commerce, supply chain management, web hosting, global
marketing and customer support. Businesses are also using the Internet to
create data networks among corporate sites, remote offices and telecommuters in
order to facilitate employee communications, e-mail, file sharing, and research
and analysis. Consumers use the Internet to communicate, collect and publish
information, conduct retail purchases and access online entertainment. These
network-based business and consumer activities require the transmission of
increasingly large amounts of data quickly and reliably. As a result, broadband
access is becoming increasingly important.
Deregulation and Competition are Driving Deployment of Broadband Access
Technologies
Global telecommunications deregulation is creating significant competition
among providers of advanced communications services, thereby accelerating the
deployment of broadband access technologies. In the United States, incumbent
telephone companies such as Ameritech, Bell Atlantic, BellSouth, GTE, Pacific
Bell, SBC Communications and US West were, until recently, the exclusive
providers of the copper wire connections between their network backbones and
subscribers, commonly known as the "last mile." The federal Telecommunications
Act of 1996 intensified the competitive environment in the United States by
requiring telephone companies to lease portions of their networks, including
the last mile, to competing carriers. Additionally, telephone companies and
cable operators are seeking to expand their service offerings by entering each
others' markets. Similar deregulation and competition are occurring in many
regions of the world. To compete in this environment, many network service
providers seek to differentiate themselves and maximize revenue per subscriber
by offering integrated voice, video and data services, which require broadband
access.
Developing Regions are Installing Communications Infrastructure
In many parts of the world, communication services are either inadequate or
non-existent due to the lack of existing infrastructure. A number of countries,
such as Argentina and Columbia, in developing regions have privatized their
state-owned telecommunications monopolies and recently opened their markets to
competitive network service providers. In constructing new networks, many
network service providers deploy broadband access technologies to expand the
services they offer and maximize revenue.
Traditional Network Access Solutions Have Limitations
To meet the growing demand for high-speed data transmission, many network
service providers have installed high-speed fiber optic transmission equipment,
switches and routers in the Internet backbone and in interoffice networks. The
Internet backbone consists of high speed data highways that serve as major
access points to which other networks connect. While the network backbone is
capable of delivering data at very high speeds, a bottleneck exists in the last
mile, which was originally built to provide traditional analog telephone
service.
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Along the fiber optic network backbone, data moves at speeds up to 10
billion bits per second, or 10 Gbps. Subscribers have traditionally connected
to the backbone using dial-up analog modems, which transmit data at rates up to
56.6 thousand bits per second, or 56.6 Kbps, or using integrated services
digital network, or ISDN, modems, which transmit data at rates up to 128 Kbps.
At these modem speeds, several minutes are often required to access a media-
rich web site, and several hours may be required to transfer or download large
files. This bottleneck frustrates subscribers and limits the capability of
network service providers to satisfy the demand for high-speed Internet access,
multimedia entertainment, real-time telecommuting and branch office inter-
networking. Additionally, the continued growth in both the number of analog
modem users and their time spent connected to the Internet compounds the
congestion experienced on many networks.
Where subscribers require higher-speed connections, network service
providers have traditionally deployed copper-based T1 services in the United
States and E1 services internationally. A T1 line is a high-capacity, dedicated
telecommunications line which can support data transmission rates of up to 1.5
million bits per second, or 1.5 Mbps, which is 26.5 times the speed of analog
modems. An E1 line can support data transmission rates of up to 2.0 Mbps, or 35
times the speed of analog modems. Although T1 and E1 services have met the
broadband access needs of many large businesses, these services are either
unavailable to or prohibitively expensive for many small businesses, remote
offices, telecommuters and consumers.
Alternative Access Solutions are Emerging
Because analog and integrated services digital network modem technologies do
not satisfy the high-speed access needs of many subscribers, and T1 or E1
access is often unavailable or prohibitively expensive, alternative access
solutions have been developed such as:
Digital Subscriber Line. Digital subscriber line, or DSL, technology
improves the data transmission rate of a telephone company's existing copper
wire network. However, most deployments offer either high-speed asymmetrical
services or slower symmetrical services. Asymmetrical data rates provide higher
transmission speeds from the network to the subscriber and lower speeds from
the subcriber to the network. Symmetrical data rates provide equal transmission
speeds to and from the subscriber. Digital subscriber line transmission rates
are limited by the length and quality of available copper wires.
Cable. Two-way cable modems enable asymmetrical data services to be
delivered over a network originally designed to provide television service to
residential subscribers. Cable networks connect to the home using coaxial
cable, which has greater transmission capacity than the copper wires used by
telephone companies. However, these networks often are costly to upgrade for
two-way data services.
Fiber. Fiber offers the highest data transmission rate of any access
solution, but is the most costly to deploy. Corporations and institutions use
fiber connections where critical operations require these data rates.
Satellite. Broadband satellite solutions enable asymmetrical, two-way access
services. These solutions use broadcast satellite technology for high-speed
transmissions from the network service provider to the subscriber, but use
slower wire-based connections to transmit data from the subscriber to the
network service provider. The data rate available to each subscriber in a
service area decreases as usage increases.
Point-to-Point Wireless. Point-to-point wireless technology enables
symmetrical data services using a dedicated link between a subscriber and a
network. However, the network service provider must install dedicated equipment
at each end of a link for each new subscriber. Therefore, economies of scale,
in this case the ability to reduce installation costs as the number of
subscribers increases, are limited.
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Broadband Point-to-Multipoint Wireless. Broadband point-to-multipoint
wireless technology provides higher-speed symmetrical access than all other
alternative broadband solutions except high-cost dedicated links using fiber or
point-to-point wireless. Broadband point-to-multipoint wireless access
technology also offers the following advantages:
. Rapid Deployment. Network service providers can initiate service quickly
because they are not required to install copper wire, cable or fiber.
. Low-cost Market Entry. Network service providers can initiate service
economically with one hub and a small number of customer premises
equipment units.
. Economies of Scale. Network service providers can add subscribers
rapidly and cost-effectively, as each installed hub can support many
customer premises equipment units.
The chart below compares the data transmission rates to and from the
subscriber that can be achieved using the broadband access solutions discussed
above.
[CHART SHOWING BROADBAND ACCESS DATA RATES]
Mass Deployment of Broadband Point-to-Multipoint Solutions Presents Challenges
Broadband point-to-multipoint wireless access equipment typically must be
tailored for frequency requirements that vary from country to country and
within each country. A further complication is caused by the lack of universal
standards for equipment specifications and protocols. As a result, suppliers of
broadband point-to-multipoint wireless access equipment face challenges in
achieving economies of scale and developing cost-effective products suitable
for deployment to many subscribers.
Conventional industry practice is to build broadband point-to-multipoint
wireless access equipment using multiple modules connected by small metal pipes
and wires. This approach requires considerable hand assembly and tuning and is
not suited to automated manufacturing. Therefore, assembly is often outsourced
to low-cost labor environments, which greatly reduces the ability to deliver
tailored products in a timely fashion.
An opportunity exists to substantially reduce the cost of broadband point-
to-multipoint wireless access equipment by integrating the functionality of
multiple conventional modules onto printed circuit boards, thereby enabling the
use of low-cost manufacturing processes. However, major technical difficulties
have plagued the development and production of printed circuit boards that
operate at high frequencies and at high data rates because they typically
generate distorted or unwanted signals.
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The Telaxis Solution
Our solution consists of two product families that enable both the adoption
and growth of broadband wireless access for a diverse range of markets and
applications worldwide. Our modular products address a network service
provider's need for rapid time-to-market. Our planar products address a network
service provider's need for cost-effective deployment to many subscribers.
Modular products for rapid time-to-market
Our modular products feature a flexible architecture that enables us to
deliver a tailored solution in as little as four to six weeks for network
service provider site demonstrations and initial stages of deployment. This
allows network service providers using our modular products to be among the
first to offer broadband wireless services in new markets. We are able to
achieve rapid turnaround for the following reasons:
. Extensive Design Expertise and Database. Our 17 years of experience in
millimeter-wave design and manufacturing provides us with an extensive
database of circuit designs that we can readily simulate and modify.
. Flexible Platform. We have developed a flexible multiple module
architecture that enables us to modify our products rapidly to address
different frequencies, customer interfaces and performance requirements.
. Proven Modules. Through successful demonstrations in more than 40 site
demonstrations over the past four years, we have developed a large
number of transmitters, receivers and other modules that we can quickly
reproduce in our automated manufacturing facility.
. Integrated Facilities. Our integrated design and manufacturing
facilities allow us to produce a custom circuit from concept to
completion in a matter of days.
Planar products for cost-effective mass deployment
Large-scale commercial buildouts by network service providers require cost-
effective products. Our planar products integrate the functionality of multiple
conventional modules onto printed circuit boards, thereby enabling the use of
low-cost automated manufacturing processes. We believe we are the only provider
of broadband point-to-multipoint wireless access equipment that has
successfully implemented these manufacturing techniques. As a result, we are
able to offer products suitable for deployment to many subscribers with the
following benefits over our modular products:
. Lower cost
. Greater reliability
. Smaller size
Strategy
Our objective is to be the leading worldwide provider of broadband point-to-
multipoint wireless access equipment. Our strategy to accomplish this objective
is to:
Penetrate the global market with our two product families. Our strategy is
to secure new customer relationships by delivering tailored products to network
system integrators and network service providers more rapidly than our
competitors. Once network service providers and network system integrators use
our modular products in successful site demonstrations and initial deployments,
we are strategically positioned to sell them our cost-effective planar products
for deployment to many subscribers.
Capitalize upon our early customer acceptance. We shipped our first
broadband point-to-multipoint access prototype in 1995. Our equipment has been
successfully demonstrated in more than 40 site demonstrations worldwide. We
believe this experience is unmatched by any other supplier. As a result of
these site demonstrations, our products have been selected, either directly or
by network system integrators, for initial commercial deployment by many
network service providers. We intend to build upon this acceptance of our
products to become the primary provider of broadband point-to-multipoint
wireless access equipment to these and other network service providers as they
deploy commercial buildouts.
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Expand strategic relationships with network system integrators. We believe
successful deployment of broadband wireless access equipment requires close
working relationships with network system integrators. We have established
relationships with Newbridge Networks, Motorola and Hughes Network Systems
Europe for product marketing, development and supply. Our relationships with
key industry leaders offer us insight into market requirements and deployment
trends, which shapes development of our long-term product strategy. We intend
to build upon our existing relationships and establish new relationships with
network system integrators to increase distribution of our products and build
brand awareness.
Reduce product costs while increasing performance and adding
functionality. We continue to reduce the cost and improve the reliability of
our planar products by integrating various components directly into the circuit
board design. We are also developing a customer premises equipment unit with an
antenna integrated into its aluminum enclosure, which will significantly reduce
product cost and size. In order to reduce our customers' installation costs, we
are developing products with simple cabling and mounting hardware.
Leverage technology partnerships. We have established a relationship with
the University of Massachusetts to design proprietary millimeter-wave
integrated circuits to achieve higher levels of integration and reduce costs.
We have a joint design and manufacturing relationship with California Amplifier
to combine our complementary expertise in designing and manufacturing low-cost
wireless products. We intend to continue to partner with other technology
developers to maintain and enhance our technology leadership position.
Establish brand identity. We intend to establish brand awareness with
network service providers and to build upon our position in the broadband
point-to-multipoint wireless access equipment market. Historically, our
products have been sold primarily under private label by prominent network
system integrators. In the future, we will increasingly brand or co-brand our
products to build name recognition. In addition, we plan to invest in a broad
range of marketing programs, including participation in trade shows,
advertising in print publications, direct marketing to major customers and web-
based marketing.
Products
We have two product families, consisting of modular products which can be
rapidly tailored for new markets and planar products for cost-effective
deployment to many subscribers. Our modular and planar product families consist
of hub and customer premises equipment that is installed outdoors in a circular
geographic service area, or cell. Our products provide capacity for data rates
several times the rates supported by today's modem technology. We believe that
the highest symmetrical data rate available with today's point-to-multipoint
modem technology is 35 Mbps. Our products operate at various frequencies
ranging from 24 gigahertz, or GHz, to 44 GHz, and are available with a range of
interfaces, including hybrid fiber coax, or HFC, and Digital Audio-Visual
Council, or DAVIC.
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Customer Premises Equipment Products.
We have concentrated our development efforts on the customer premises
equipment unit. Because multiple customer premises equipment units are
supported by each hub, cost reduction of the customer premises equipment unit
has the most significant impact on the ability of a network service provider to
deploy broadband access services to its customers on a cost-effective basis.
Our modular customer premises equipment units address our customers' need for
rapid time-to-market, and our planar customer premises equipment units address
their need for cost-effective deployment to many subscribers.
Modular Customer Premises Equipment. Our
modular customer premises equipment unit can
be quickly adapted to meet the individual
frequency, performance and interface
requirements of a network service provider.
This product is currently available with
Digital Audio-Visual Council or hybrid fiber
coax interfaces.
[PHOTOGRAPH OF OUR MODULAR CUSTOMER PREMISES EQUIPMENT]
Planar Customer Premises Equipment. Our
planar customer premises equipment unit is a
highly integrated unit using single-board,
planar architecture that enables highly
automated, cost-effective manufacturing.
These units enable network service providers
to lower their costs of deployment in
commercial service buildouts. This product is
currently available with a Digital Audio-
Visual Council interface and we are
developing a hybrid fiber coax interface.
[PHOTOGRAPH OF OUR PLANAR CUSTOMER PREMISES EQUIPMENT]
We are also developing a planar customer premises equipment unit that
incorporates a proprietary antenna and is designed to achieve significant size
and cost reductions. This customer premises equipment unit is designed to
address the low-cost, high volume consumer market segment if it emerges.
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<PAGE>
Hub Products
Each hub provides two-way connectivity to multiple customer premises
equipment units out to a range of approximately two to three miles.
Modular hub. Our modular hub can be
quickly adapted to meet the performance and
interface requirements of a network service
provider. This hub has the flexibility to
accommodate various combinations of
transmitter or receiver modules within a
single housing. Antennas can be included
within the housing or attached externally.
This hub is available with Digital Audio-
Visual Council or hybrid fiber coax
interfaces.
[PHOTOGRAPH OF OUR MODULAR HUB]
Planar hub. Our planar hub consists of
separate transmitter and receiver units that
are deployed together to provide two-way
connectivity. The receiver unit works in
conjunction with one or more transmitter
units to form a hub. The planar hub unit
enables network service providers to lower
their costs of deployment in commercial
service buildouts. The planar hub is
available with Digital Audio-Visual Council
or hybrid fiber coax interfaces.
[PHOTOGRAPH OF OUR PLANAR HUB]
Technology
Our 17 years of experience in millimeter-wave technology is the foundation
for our capability in the broadband point-to-multipoint wireless market. Our
products transmit and receive signals at various frequencies ranging from 24
GHz to 44 GHz and interface with modems that operate at frequencies below 2
GHz. A key element of our competitive advantage stems from our ability to
integrate millimeter-wave and microwave semiconductor devices and other
electronic components onto a single printed circuit board inside an aluminum
enclosure which is a functioning element of the overall product. The result is
an integrated outdoor unit using planar architecture that enables highly
automated, cost-effective manufacturing.
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<PAGE>
Millimeter-wave technology uses frequencies that are ten times higher than
microwave technology, resulting in electronic components that are ten times
smaller. The higher frequency causes greater signal interference between
components, depending on their location and spacing on the circuit board. The
small size of the components and the need to place them precisely on the
circuit board present challenges for the design, development and manufacturing
of millimeter-wave products.
Historically, hand tuning of each unit was required to prevent the products
from transmitting excessively distorted or unwanted signals that could
interfere with other radios or electronic equipment, which is prohibited by
governmental agencies worldwide. Our years of experience in developing products
that operate at high frequencies enable us to minimize excessively distorted or
unwanted signals and eliminate the need for hand tuning during the
manufacturing process. Furthermore, our automated processes are highly
repeatable, thereby minimizing mechanical misalignments in the placement of
components onto printed circuit boards. These misalignments contribute directly
to the creation of distorted and unwanted signals.
In order to integrate millimeter-wave and microwave technologies into an
outdoor unit using planar architecture, we have developed additional expertise
in several areas, including:
. Micro-controller adaptation. We design interface circuits and software
to incorporate micro-controllers into our products. These micro-
controllers provide our products a high degree of functionality,
including automatic adaptation to changing operating environments.
. Antennas. We design antennas and other sophisticated waveguide-based
components to reduce the size, cost and complexity of the packaging of
our products, while improving performance.
. Reference oscillators. We design and integrate reference oscillators
onto our printed circuit boards to minimize signal distortion and to
reduce cost.
. Microwave translation circuits. We design and integrate microwave
translation circuits enabling our products to interface with various
modems.
. Power supplies. We have a development program underway to integrate
power supplies onto our printed circuit boards to reduce cost and
increase reliability.
. Material selection and mechanical assemblies. We select materials and
design mechanical assemblies using the aluminum enclosure as a
functional part of the product. This has enabled us to minimize unwanted
signal interference while protecting our electronic components from
damage.
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<PAGE>
The accompanying photograph contrasts the physical architecture of our
modular and planar customer premises equipment.
[PHOTOGRAPH CONTRASTING OUR PLANAR AND MODULAR CUSTOMER PREMISES EQUIPMENT]
Customers
We sell our products primarily to network system integrators, including
Newbridge and Motorola Networks. The network system integrators in turn develop
complete broadband network solutions for their customers, the network service
providers. Occasionally, we sell our products directly to network service
providers. Our equipment has been successfully demonstrated at more than 40
sites worldwide over the last four years. We believe this experience is
unmatched by any other supplier of broadband point-to-multipoint wireless
access equipment. As a result of these demonstrations, we have been selected,
either directly or by network system integrators, to supply equipment for
commercial deployment by network service providers, including:
<TABLE>
<S> <C>
. Home Telephone
. American Wireless
. Korea Telecom
. BellSouth Movicom
. Maxlink Communications
. Central Texas Communications
. South Central Telecom
. Convergence Communications
. Telenordia
. Formus
. Tri-Corners Telecom
</TABLE>
. Gateway Telecom
The network system integrators to whom we sell products have issued press
releases with respect to their relationships with the network service providers
listed above. The network system integrators have also confirmed to us that
they plan to use our products in the systems to be sold by them to all of the
network service providers listed above except Convergence Communications. We
have a direct relationship with Convergence Communications and have received
its permission to list its name in this prospectus. However, we have not sought
the permission of the other network service providers listed above to list
their names in this prospectus.
For the nine months ended September 30, 1999, sales to Newbridge Networks
represented 83% of sales and sales to Convergence Communications represented
11% of sales. For the year ended December 31, 1998, sales to Newbridge Networks
represented 30% of sales, sales to Convergence Communications represented 26%
of sales, and sales to Nexsatel, an affiliate of Formus, represented 12% of
sales.
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<PAGE>
Network System Integrator Relationships
We have established relationships with four network system integrators to
facilitate the deployment of our products and to meet the requirements of
network service providers. In June 1999, three of these network system
integrators introduced solutions that include our products at the Supercomm
trade show in Atlanta.
. Newbridge Networks. We have entered into product development and
reseller agreements with Newbridge Networks. In these agreements, we
agreed to develop, manufacture, and sell products to Newbridge Networks.
The reseller agreement provides that product prices were fixed from
August 7, 1998 through August 6, 1999 and after that can only increase
by the greater of 5% or the increase in the consumer price index in any
given year. That agreement allows Newbridge Networks to reschedule and
cancel orders upon payment of specified fees. It also restricts our
ability to change or discontinue products without prior notice to
Newbridge Networks. It requires us to provide spares and repair service
as well as technical support and training. It also provides that either
party may terminate the agreement upon breach by the other. The product
development agreement obligates us to design products based on
specifications that are mutually decided from time to time. We retain
rights to any intellectual property developed through the design
process. The agreement also provides for training and a product
acceptance procedure. In addition, in both agreements, we provided a
warranty for our products (including Year 2000 compliance) and an
intellectual property indemnity. The term of the reseller agreement is
from August 7, 1998 through August 6, 2001 and will automatically renew
for successive one year terms unless terminated by either party. The
term of the product development agreement is from August 7, 1998 until
the later of August 6, 2003 or us performing our obligations under that
agreement. Through this relationship, our equipment has been evaluated
in site demonstrations in North America, South America, Asia and Europe.
As a result of these site demonstrations, Newbridge Networks has
selected our equipment for commercial deployment in Canada, Argentina
and the United States.
. Motorola. Motorola has deployed our equipment in site demonstrations in
North America and Asia. We are currently developing equipment for
commercial deployment in the United States. In our agreement with
Motorola, we agreed to provide them with products during the period from
November 30, 1999 to December 31, 2001. If Motorola's sales of products
do not develop as planned, Motorola will be liable to us only for a
rolling 20 weeks for unassembled hardware at a maximum unit price per
customer premise equipment and hub, but Motorola is responsible for our
fixed commitments within a rolling 16 week window up to a maximum unit
price per customer premises equipment and hub. This agreement also
provides that Motorola has access and inspection rights and has the
ability to issue stop work orders and make changes to the requested
products. Motorola will not treat any of our information disclosed to
them confidentially unless they agree otherwise. Motorola may terminate
this agreement and seek damages if we fail to perform in accordance with
this agreement. We provided a warranty for our products (including Year
2000 compliance) and an indemnity for violations of law and patent
infringement.
. Hughes Network Systems Europe. We have entered into a joint marketing
and sales agreement with Hughes Network Systems Europe. In this
agreement, we agreed to work together with Hughes Network Systems Europe
to develop and pursue new business opportunities using our products and
products of Hughes Network Systems Europe. This agreement also provides
for the confidential treatment of information, sale of products between
us and Hughes Network Systems Europe, provision of technical training,
support, and repair, and each party bearing its own costs. The term of
this agreement is from August 12, 1998 to August 11, 2000. Through this
relationship, our equipment has undergone site demonstrations in North
America and Europe.
. LG Information & Communications. We have received a purchase order from
LG Information & Communications for the development of demonstration
equipment for potential deployment in Korea. This purchase order provides
for the payment to us of certain development costs and our selling certain
demonstration equipment to LG Information & Communications. Pursuant to
this purchase order, we provide a warranty for the demonstration equipment
and agreed to provide repair service for the
40
<PAGE>
equipment. It also requires us to support LG Information & Communications
in passing the qualification tests of its customer. We are in the process
of negotiating a definitive development and supply agreement with LG
Information & Communications.
Manufacturing
Conventional industry practice is to build point-to-multipoint wireless
access equipment using multiple modules connected by small metal pipes and
wires. This approach has evolved from the more mature microwave industry,
where hand assembly and hand tuning is common due to low volume production. We
have developed extensive expertise in automated assembly and testing of
printed circuit board, planar products that operate at frequencies many times
higher than those used in the microwave industry. We have focused this
experience on the development of manufacturing strategies for high-volume
production of cost-effective broadband wireless access products for deployment
to many subscribers.
Concurrent process development. We develop our automated manufacturing
processes concurrently with the design and development of our millimeter-wave
products. These concurrent activities facilitate the design of products that
can be manufactured with very high tolerances, thereby minimizing unwanted and
distorted signals and eliminating the need for hand tuning.
Automated component assembly. Our automated manufacturing technology
enables the repeated, high-precision placement and attachment of small chips,
and the bonding of wires between the chips and the printed circuit board. In
the production of millimeter-wave devices, this high precision is the critical
requirement to minimize distorted and unwanted signals and to achieve
acceptable performance.
Final assembly and test. Our final assembly and automated test facility is
designed for pilot production runs ranging from several hundred to a few
thousand units. We use these pilot production runs to validate our
manufacturing processes in a carefully controlled environment at our
facilities. For high-volume production, we are supplementing our manufacturing
capacity by establishing relationships with development and manufacturing
partners. We have entered into a joint design and manufacturing agreement with
California Amplifier. In this agreement, California Amplifier has agreed to
manufacture our existing customer premises equipment units, to assist us in
designing improvements to lower the cost of our existing customer premises
equipment units, and to manufacture the redesigned customer premises equipment
units.We are committed to purchase at least 50,000 customer premises equipment
units by December 31, 2001 and we have to pay a penalty for every customer
premises equipment unit below 50,000 we do not buy. However, we have the right
to terminate this agreement and avoid the penalty if the price of the
redesigned customer premises equipment units does not meet specified targets.
The term of our agreement with California Amplifier is from October 14, 1999
through the earlier of December 31, 2002 or the completion by a party of its
obligations under the agreement. We have also signed a memorandum of
understanding with C-MAC Industries concerning the possibility of C-MAC
Industries manufacturing products for us. The memorandum of understanding
obligates us to begin buying the necessary equipment for C-MAC Industries to
manufacture products, obligates C-MAC Industries to send personnel to our
facility in Massachusetts for training in January 2000, and obligates us to
pay C-MAC Industries an hourly rate for those personnel and to reimburse C-MAC
Industries for expenses incurred by those employees. There is no stated term
of the memorandum of understanding, but it does contemplate signing definitive
documentation on or before February 15, 2000.
Marketing, Sales and Customer Service
Marketing
The global communications equipment industry is dominated by a limited
number of network system integrators. As a result, we focus our marketing
efforts on network system integrators and their customers, the network service
providers. Our marketing activities target technical experts and product
managers who heavily influence purchase decisions. Additionally, we coordinate
with our network system integrator partners to support their marketing
programs. We regularly provide them with design information, technical data
and promotional material to enable their sales forces to promote our products.
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<PAGE>
We build brand awareness through several promotional programs, including the
following:
. Participation in trade shows
. Speaking at industry forums
. Web-based communication and promotion
. Publication of press releases
Sales
Our sales approach is to start by building a technical relationship with the
network system integrator. Typically, a senior executive from our technical
organization initiates discussions regarding a potential partnership. We then
assign an account manager to coordinate our efforts and focus our resources on
developing the relationship. This account manager aligns our engineering teams
and managers with their counterparts in the network system integrator's
organization to provide highly responsive technical and operational support
during site demonstrations of our equipment. After successful demonstration of
our products, we often adapt them for incorporation into the network system
integrator's broadband point-to-multipoint wireless systems. We support the
network system integrator in site demonstrations with network service
providers. The objective of these site demonstrations is the adoption of our
equipment for deployment to many subscribers.
Customer Service
A key element of our sales approach is to be highly responsive to customers'
needs. We provide customer service in the following areas:
. System engineering. We provide engineering support for system site
demonstrations, site surveys, specification development, integration of
third-party equipment, installation and follow-on test support.
. Problem resolution. We provide prompt responses to customer problem
reports, including telephone support, field service, and repair or
replacement of equipment.
. Field support. Our customer service personnel are on call to provide
global field support. We provide field support primarily for site
demonstrations and initial deployments.
. Repairs. We maintain a repair center staffed with technicians who work
directly with our quality assurance team to analyze failures and repair
equipment.
Currently, we conduct all customer support activities from our South
Deerfield, Massachusetts headquarters. Customer support is ancillary to the
sale of our products and is not currently considered to be a separate revenue-
generating line of business. As network buildouts progress, we intend to
establish support centers closer to our major customer deployments.
Research and Development
The goal of our development activities is to reduce the cost and increase
the functionality of our products, while adapting them to the frequency and
interface specifications required for new markets. Our experience in
millimeter-wave and microwave technologies enables us to develop cost-effective
broadband point-to-multipoint wireless access products. We continue to advance
our core competencies and to extend these core competencies to meet rapidly
changing market needs. We are pursuing several development projects, including:
. Adapting our products to additional frequencies
. Developing additional modem interfaces
. Integrating microwave components into planar architectures
. Improving our products to reduce deployment costs
. Integrating the antenna into the aluminum enclosure
. Developing proprietary semiconductor devices
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Our multidisciplinary research and development team consists of engineers
and scientists whose specialities include microwave engineering, millimeter-
wave engineering, electrical engineering, mechanical engineering, chemistry,
physics, computer science and materials science. We also maintain close working
relationships with the University of Massachusetts and various technical
organizations.
Competition
The market for broadband point-to-multipoint wireless access equipment is
rapidly evolving and highly competitive. A number of large telecommunications
equipment suppliers, such as Alcatel, Ericsson and Nortel Networks, as well as
a number of smaller companies, have developed or are developing products that
compete with ours. Many of our competitors are substantially larger than we are
and have significantly greater financial, sales, marketing, distribution,
technical, manufacturing and other resources. These competitors may make
strategic acquisitions or establish cooperative relationships among themselves
or with third parties to increase their ability to gain market share rapidly.
We expect to face increasing competitive pressures from both current and future
competitors in the markets we serve.
The rapid technological developments within the network equipment industry
result in frequent changes to our group of competitors. The principal
competitive factors in our market include:
. Product availability
. Relationships with network system integrators and network service
providers
. Product performance, features and inter-operability
. Product development speed
. Price
. Ability to manufacture and distribute products
. Technical support and customer service
. Brand recognition
Broadband point-to-multipoint wireless access solutions are also competing
with other high-speed solutions such as digital subscriber lines, cable, fiber,
other high-speed wire, satellite and point-to-point wireless technologies. Many
of these alternative technologies can take advantage of existing installed
infrastructure and have achieved significantly greater market acceptance and
penetration than broadband point-to-multipoint wireless access technologies. We
expect to face increasing competitive pressures from both current and future
technologies in the broadband access market.
Intellectual Property
Our success depends to a significant degree upon the preservation and
protection of our product and manufacturing process designs and other
proprietary technology. Although we employ a variety of intellectual property
in the development and manufacturing of our products, we believe that none of
our intellectual property is individually critical to our current operations.
However, taken as a whole, we believe our intellectual property rights are
significant. To protect our proprietary technology, we generally limit access
to our technology, treat portions of our technology as trade secrets and obtain
confidentiality or non-disclosure agreements from persons with access to our
technology. All of our employees have signed our standard confidentiality
agreement. This agreement prohibits the employees from disclosing our
confidential information, technology developments, and business practices and
from disclosing any confidential information entrusted to us by other parties.
All of our consultants who have access to our confidential information have
signed an agreement requiring them to keep confidential and not disclose our
non-public, confidential information.
To date, we have been granted one material United States patent. This patent
relates to our antenna and transceiver designs and will remain in force until
October, 2015. In addition, we have two United States patent applications
pending. We have counterpart patents pending in three international
jurisdictions. We plan to
43
<PAGE>
continue to pursue intellectual property protection in foreign countries
(primarily in the form of international patents) in instances where the
technology covered is considered important enough to justify the added expense.
We also rely on protections available under copyright and trademark law.
Our intellectual property rights, and our ability to enforce those rights,
may be inadequate to prevent others from using our technology or substantially
similar technology they may independently develop. The use of that technology
by others could eliminate any competitive advantage we have, cause us to lose
sales and otherwise harm our business. A significant portion of our proprietary
technology is know-how, and employees with know-how may depart before
transferring their know-how to other employees. Moreover, the laws of other
countries where we market our products may afford even less protection for our
intellectual property. If we resort to legal proceedings to enforce our
intellectual property rights, the proceedings could be burdensome and costly,
even if we were to prevail.
Facilities
We lease approximately 78,000 square feet of facilities comprised of three
buildings in South Deerfield, Massachusetts. One building is used for
engineering and a second for manufacturing. The third building is used for
manufacturing and is being included in the sale of our millimeter-wave products
segment. The term of the lease for the two facilities that we will continue to
use expires in September 2000. We also lease approximately 4,200 square feet in
Richardson, Texas, which is used for engineering. We believe that our existing
facilities are adequate to meet our current requirements and that suitable
space will be available as needed.
Employees
On December 31, 1999, we had 184 employees in our continuing operations,
including approximately 96 in manufacturing, 45 in engineering, 12 in quality
assurance, 8 in sales, marketing and customer service and 23 in finance and
administration. We are not a party to any collective bargaining agreement. We
believe that relations with our employees are good.
Legal Proceedings
We are not currently a party to any material legal proceedings.
44
<PAGE>
MANAGEMENT
Directors and Executive Officers
Our directors, executive officers and key employees are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Albert E. Paladino, 67 Chairman of the Board of Directors
Sc.D.(1)...............
John L. Youngblood, 58 President, Chief Executive Officer and Director
Ph.D.(1)...............
Mervyn N. FitzGerald.... 56 Senior Vice President, Operations
Ransom D. Reynolds...... 57 Senior Vice President, Business Development
Dennis C. Stempel....... 36 Vice President, Chief Financial Officer and Treasurer
David L. Renauld........ 33 Vice President, Legal and Corporate Affairs, Secretary and Clerk
Kenneth R. Wood(2)...... 45 Vice President, Engineering
Robert F. Browning(2)... 43 Vice President, Manufacturing
Allan M. Doyle, 70 Director
Jr.(1)(3)..............
Robert C. Fleming(1).... 43 Director
James W. Fordyce(3)..... 57 Director
David A. Norbury........ 49 Director
Matthew S. Robison...... 38 Director
</TABLE>
- ---------------------
(1) Member of the compensation committee
(2) Key employee
(3) Member of the audit committee
Dr. Albert E. Paladino has been our Chairman of the Board since January 1992
and a director since March 1984. Since December 1998, he has been a private
investor. He was a General Partner of Advanced Technology Ventures, a venture
capital firm, from 1981 through 1998. He is a member of the board of directors
of TranSwitch Corporation, a publicly-traded developer of semiconductor
solutions for the communications markets, and RF Micro Devices, a publicly-
traded manufacturer of radio frequency integrated circuit components. He is
also Chairman of Onex Communications Corporation, a developer of semiconductor
solutions for the emerging converged communications networks. Dr. Paladino
holds a B.S. and an M.S. in engineering from Alfred University and an Sc.D. in
materials science from the Massachusetts Institute of Technology.
Dr. John L. Youngblood has been our Chief Executive Officer and a director
since June 1992, and our President since March 1993. From August 1991 to June
1992, he was a management consultant. From May 1991 to August 1991, Dr.
Youngblood served as Executive Vice President of IMO Industries, a manufacturer
of analytical and optical instruments, electronic and mechanical controls, and
power transmission products. From January 1985 to May 1991, he held various
positions, including Chairman, Chief Executive Officer and President, at
Kollmorgen Corporation, a publicly-traded manufacturer of high-performance
electronic motion control products. He holds a B.S. in electrical engineering
from the University of Texas at Arlington, and both an M.S. and a Ph.D. in
electrical engineering from Oklahoma State University.
Mervyn N. FitzGerald has been our Senior Vice President, Operations since
September 1999. From September 1996 to September 1999, Mr. FitzGerald served as
Vice President, Operations and Customer Service for the broadband wireless
access division of Nortel Networks, a provider of communications products and
services. From February 1995 to September 1996, he served as General Manager of
AlliedSignal Canada, a Canadian subsidiary of Allied Signal Inc., a diversified
aerospace manufacturer. From February 1992 to February 1995, he served as Vice
President, Operations for C-MAC Industries, a contract manufacturing company.
Mr. FitzGerald holds a B.S. in applied nuclear and solid state physics from
Polytechnic of the South Bank in London, England.
Ransom D. Reynolds has been our Senior Vice President, Business Development
since February 1995. From February 1993 to February 1995, Mr. Reynolds served
as a Vice President of our company with general
45
<PAGE>
management responsibilities. From May 1987 to February 1993, Mr. Reynolds
served as Director of the electro-optical division of Kollmorgen Corporation.
He holds a B.S. in physics from Southwest Texas State University and an M.B.A.
from the University of Houston.
Dennis C. Stempel has been our Vice President, Chief Financial Officer and
Treasurer since April 1999. From November 1998 to April 1999, Mr. Stempel
served as our Director of Finance. From April 1996 to November 1998, he served
as a controller at Pratt & Whitney, a division of United Technologies
Corporation and a manufacturer of aircraft engines and space propulsion
systems. From March 1993 to April 1996, he served as the Director of Finance
for Anocoil Corporation, a manufacturer of lithographic printing plates. He
worked for Coopers & Lybrand from 1989 to 1993, including serving as a
certified public accountant from 1992 to 1993. Mr. Stempel holds a B.S. in
accounting from the University of Massachusetts.
David L. Renauld has been our Vice President, Legal and Corporate Affairs
and Secretary since November 1999. He has been our Clerk since May 1999. From
January 1997 to November 1999, he was an attorney with Mirick, O'Connell,
DeMallie & Lougee, LLP, a law firm in Worcester, Massachusetts. From September
1991 to December 1996, he was an attorney with Richards, Layton & Finger, a law
firm in Wilmington, Delaware. Mr. Renauld holds a B.A. in Mathematics/Arts from
Siena College and a J.D. from Cornell University.
Kenneth R. Wood has been our Vice President, Engineering since December
1997. From April 1990 to December 1997, he was our Senior Microwave Engineer
and Program Manager. Mr. Wood holds a B.S. in electrical engineering from the
University of Pretoria and an M.S. in microwaves from the University of London.
Robert F. Browning has been our Vice President, Manufacturing since July
1996. From December 1992 to July 1996, he served first as our manager and then
as our Director of Manufacturing. Mr. Browning holds a B.S. in electrical
engineering from Western New England College.
Allan M. Doyle, Jr. has been a director since March 1984. From 1964 to May
1996, Mr. Doyle served as a member of the board of directors of Kollmorgen
Corporation. Before his retirement in 1990, he served as Vice Chairman of the
board of directors of Kollmorgen, and before that he served as Chief Financial
Officer. From 1990 to 1993, Mr. Doyle was an Associate Professor of Management
at Union College. Mr. Doyle holds a B.A. in industrial administration from
Union College and an M.B.A. from the Columbia University School of Business.
Robert C. Fleming has been a director since November 1997. Since November
1995, he has been a General Partner of Prism Venture Partners, a venture
capital firm. From July 1993 to November 1995, he was a General Partner of
Norwest Venture Capital, also a venture capital firm. Mr. Fleming holds an A.B.
in engineering from Dartmouth College and an M.B.A. from the Wharton School.
James W. Fordyce has been a director since June 1987. He has served as a
General Partner of Prince Ventures, a venture capital firm, since 1981. Mr.
Fordyce holds a B.A. in English literature from the University of Pennsylvania,
a Master's degree in Politics, Philosophy and Economics from Oxford University,
and an M.B.A. from the Harvard Business School.
David A. Norbury has been a director since September 1999. He has been
President, Chief Executive Officer and a director of RF Micro Devices since
September 1992. Mr. Norbury holds a B.S. in electrical engineering from the
University of Michigan, an M.S. in electrical engineering from Stanford
University and an M.B.A. from Santa Clara University.
Matthew S. Robison has been a director since November 1997. Mr. Robison has
served as Vice President and Senior Technology Analyst for Ferris, Baker Watts,
an investment banking firm, since January 1999. From January 1997 to January
1999, Mr. Robison was a General Partner at Botti Brown Asset Management, an
asset management firm. From October 1994 to January 1997, Mr. Robison served as
Vice President and Research Analyst for Montgomery Securities. Mr. Robison
currently serves as a director of Anaren Microwave, a publicly-traded
manufacturer of wireless, satellite and electronics products. Mr. Robison holds
a B.S. from the University of Denver.
46
<PAGE>
Our board of directors is divided into three classes, with one class of
directors elected each year at the annual meeting of stockholders for a three-
year term of office. Messrs. Fleming and Doyle will serve in the class whose
terms expire in 2000. Messrs. Robison and Fordyce will serve in the class whose
terms expire in 2001. Drs. Youngblood and Paladino and Mr. Norbury will serve
in the class whose terms expire in 2002. Our executive officers are elected
annually by the directors and serve at the discretion of the directors. There
are no family relationships among our directors and executive officers.
Committees of the Board of Directors
We have a compensation committee, consisting of Drs. Youngblood and
Paladino, and Messrs. Doyle and Fleming. The compensation committee:
. reviews the compensation and benefits of our executive officers and
recommends stock option grants under our stock option plans
. makes recommendations to the board of directors regarding compensation
matters
We have an audit committee, consisting of Messrs. Doyle and Fordyce. The
audit committee:
. reviews and evaluates our audit and control functions
. reviews the results and scope of the audit and other services provided
by our independent auditors
. makes recommendations to the board of directors regarding the selection
of independent auditors
We have a finance and executive committee, consisting of Drs. Paladino and
Youngblood and Mr. Fleming. The finance and executive committee:
. maintains continuity between the board of directors and our executive
officers
. acts on behalf of the board of directors between meetings but refers any
major decisions to the full board of directors
Director Compensation
After this offering, we will pay all non-employee directors:
. a $10,000 annual retainer for serving on the board
. a $2,000 annual retainer for serving as chairman of a standing committee
of the board
. $1,000 for each board meeting attended in person
. $500 for each committee meeting attended in person
We will also reimburse our non-employee directors for reasonable expenses
incurred in attending meetings of the board of directors and its committees.
In addition to cash compensation, we intend to grant:
. a non-qualified stock option to purchase 12,000 shares of our common
stock that vests in three equal annual installments beginning on the
date of grant to each new non-employee director elected or appointed to
the board
. a fully vested, non-qualified stock option to purchase 9,000 shares of
our common stock to each incumbent non-employee director immediately
following each annual meeting of stockholders, as long as the director
has served at least one year before the date of the annual meeting
In May 1999, we granted an option to purchase 4,500 shares of our common
stock at $1.00 per share to Dr. Paladino, Messrs. Doyle, Fordyce, Robison and
Welch and Prism Venture Partners. In August 1999, we granted Dr. Paladino an
option to purchase 40,000 shares of our common stock at $2.50 per share and an
47
<PAGE>
additional option to purchase 10,099 shares of our common stock at $4.50 per
share, both in recognition of his active role in the management and financing
activities of our company. In September 1999, we granted an option to purchase
6,000 shares of our common stock at $4.50 per share to Mr. Norbury as a newly
appointed director. In December 1999, we granted an option to Dr. Paladino to
purchase 12,500 shares of our common stock at $12.60 per share, also in
recognition of his active role in management and financing activities of our
company.
Compensation Committee Interlocks and Insider Participation
The board of directors has a compensation committee consisting of four of
our directors. Dr. Youngblood, our President and Chief Executive Officer,
served as a member of our compensation committee during 1999. Dr. Youngblood
participated in discussions regarding the compensation of our executive
officers. None of our executive officers or members of our board of directors
serves as a member of the board of directors or compensation committee of any
other entity that has an executive officer serving as a member of our board of
directors or compensation committee, except that Dr. Paladino serves as a
member of the board of directors and of the compensation committee of RF Micro
Devices, of which Mr. Norbury, one of our directors, is President and Chief
Executive Officer.
Executive Compensation
Summary Compensation. The following table summarizes the compensation earned
for services rendered to us in all capacities during 1999 by our Chief
Executive Officer and our other executive officers who earned more than
$100,000 in salary and bonus during 1999. We refer to these executives as our
"named executive officers" elsewhere in this prospectus. The compensation
summarized in this table does not include medical, group life insurance, or
other plan benefits that are available generally to all of our salaried
employees or perquisites or other personal benefits that do not in the
aggregate exceed the lesser of $50,000 or 10% of the officer's salary and
bonus.
48
<PAGE>
Summary Compensation Table
For 1999
<TABLE>
<CAPTION>
Long-Term
Compensation
---------------------
Annual Compensation Awards
------------------- ---------------------
Securities Underlying
Name and Principal Position Salary ($) Options (#)
- --------------------------- ------------------- ---------------------
<S> <C> <C>
John L. Youngblood................... $224,744 135,000
President and Chief Executive
Officer
Ransom D. Reynolds................... 158,105 50,000
Senior Vice President, Business
Development
Dennis C. Stempel.................... 145,390 57,500
Vice President, Chief Financial
Officer and Treasurer
</TABLE>
Option Grants in 1999. The following table provides information regarding
all options granted to our named executive officers in 1999. Amounts reported
in the last two columns of the table represent hypothetical values that the
holder could realize by exercising the options immediately before their
expiration, assuming the value of our common stock appreciates at the specified
compounded annual rates over the terms of the options. These numbers are
calculated based on the SEC's rules and do not represent our estimate of future
stock price growth. Actual gains, if any, on stock option exercises and common
stock holdings will depend on the timing of exercise and the future performance
of our common stock. We may not achieve the rates of appreciation assumed in
this table, and the named executive officers may not receive the calculated
amounts. This table does not take into account any appreciation in the price of
our common stock from the date of grant to the current date. The values shown
are net of the option exercise price, but do not include deductions for taxes
or other expenses associated with the exercise.
Option Grants in 1999
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of
Number of Percent of Stock Price
Securities Total Options Appreciation for
Underlying Granted to Exercise Option Term
Options Employees in Price Expiration ---------------------
Name Granted (#) Fiscal Year (%) ($/Share) Date 5% ($) 10% ($)
- ---- ----------- --------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John L. Youngblood...... 90,000 13.9% $ 2.50 08/02/09 141,501 158,954
13,491 2.1 12.60 12/15/09 106,904 270,915
31,509 5.0 12.60 12/15/09 249,680 632,737
Ransom D. Reynolds...... 40,000 6.2 2.50 08/02/09 62,889 70,646
10,000 1.5 12.60 12/15/09 79,241 200,811
Dennis C. Stempel....... 30,000 4.6 1.00 04/1/09 18,866 21,194
20,000 3.1 2.50 08/02/09 31,445 35,323
7,500 1.2 12.60 12/15/09 59,431 150,609
</TABLE>
All options were granted at fair market value on the date of grant as
determined by our board of directors. The board of directors determined the
fair market value of our common stock based on various factors, including the
illiquid nature of an investment in our common stock, recent sales of
redeemable preferred stock, our limited operating history and our future
prospects.
Each of these options vests over a four-year period, vesting as to 20% of
the shares that may be purchased under the option on the date of grant (except
for Mr. Youngblood's December 15, 1999 non-qualified stock option which vests
as to 20% of the shares on the earlier of the filing of a registration
statement on a Form S-8 or one year from the date of grant) and as to an
additional 20% on each anniversary of the date of grant until the option has
fully vested. These options become fully vested upon the occurrence of any of
the following events:
. a merger or consolidation of our company with any other company
. the sale of substantially all of our assets
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<PAGE>
. the sale of more than 50% of our outstanding stock to an unrelated
person or group
All incentive stock options granted to the named executive officers in 1999
terminate on the earliest of:
. three months after the date of termination of the executive's employment
if he ceases to be employed by us except as a result of his death or
disability
. one year after his death or disability
. 10 years from the date of grant
All non-qualified stock options granted to the named executive officers in
1999 terminate on the earlier of:
. one year after the executive's death, disability, or date of termination
of the executive's employment
. 10 years from the date of grant
Fiscal Year-End Option Values. The following table provides information
regarding the value of all unexercised options held by the named executive
officers at the end of 1999. The value of unexercised in-the-money options
represents the difference between the fair market value of our common stock on
December 31, 1999 and the option exercise price, multiplied by the number of
shares underlying the option. There was no public trading market for our
common stock on December 31, 1999. Accordingly, in this table and this table
only, we have assumed that the fair market value of our common stock on
December 31, 1999 was $15.00, the assumed initial public offering price.
1999 Aggregated Option Exercises
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Shares
of Common Stock Value of Unexercised
Underlying Unexercised In-the-Money
Options at Fiscal Options at
Shares Year-End (#) Fiscal Year-End ($)
Acquired on Value ------------------------- -------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John L. Youngblood...... 25,000 350,000 234,785 187,714 3,239,284 2,018,714
Ransom D. Reynolds...... 5,000 70,000 73,000 87,000 986,800 1,077,200
Dennis C. Stempel....... 2,000 28,000 17,500 58,000 221,600 718,400
</TABLE>
Employment Agreement and Change-of-Control Provisions
In January 1994, we entered into an employment agreement with Dr.
Youngblood. Dr. Youngblood's employment agreement had an original term of 24
months and now renews automatically on a quarterly basis, provided that Dr.
Youngblood's employment has not terminated before the renewal date. Dr.
Youngblood's annual compensation was initially set at an annual base salary of
$190,000, and has since been increased to his current annual base salary of
$220,000. We currently furnish Dr. Youngblood with a company automobile at our
expense. Dr. Youngblood is entitled to receive severance payments for a
minimum of six months and a maximum of 24 months after termination of his
employment depending on the circumstances under which his employment
terminates. If we terminate Dr. Youngblood's employment for cause, he will not
be entitled to severance payments. The maximum 24-month severance period will
only apply if we terminate Dr. Youngblood's employment without cause after we
undergo a "change of control" that was not approved by a majority of our board
of directors. A "change of control" is defined in Dr. Youngblood's agreement
to include any transaction that results in a person or group holding 50% or
more of the combined voting power of our outstanding securities or changes to
our board of directors that result in the persons who were either directors on
the date of Dr. Youngblood's employment agreement or their nominated
successors no longer comprising a majority of the board.
Substantially all unvested options held by Dr. Youngblood, Mr. Reynolds and
Mr. Stempel will vest and become immediately exercisable upon the occurrence
of any of the following events:
. our merger or consolidation with another company,
. the sale of substantially all of our assets to another company
. the sale of more than 50% of our outstanding capital stock to an
unrelated person or group
50
<PAGE>
Stock Plans
We currently maintain the three stock plans described below. We refer to
these stock plans as the "active stock plans" elsewhere in this prospectus.
<TABLE>
<CAPTION>
Shares or Options
Outstanding Shares Available for
Shares or Options Issued Issuance Under
Adoption Expiration Reserved Under Plan as of Plan as of
Plan Name Date Date Under Plan December 31, 1999 December 31, 1999
--------- -------- ---------- ---------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
1996 Stock
Plan...... 01/26/96 01/26/06 300,000 139,500 160,500
1997 Stock
Plan...... 06/11/97 06/11/07 1,850,000 1,643,789 206,211
1999 Stock
Plan...... 09/13/99 09/13/09 1,750,000 -- 1,750,000
</TABLE>
In addition to the active stock plans, as of December 31, 1999, there were a
total of approximately 221,950 shares that may be purchased under options
issued under our 1986 Stock Option Plan, 1987 Stock Plan and 1988 Stock Plan.
Although those three plans have expired and no new options, stock or other
stock rights may be issued under those plans, the outstanding options under
those plans will remain outstanding until their expiration or exercise.
The 1986 Plan provided for the grant of incentive stock options to
employees, including officers and directors who are employees. The other stock
plans provide for the grant of incentive stock options to employees and non-
qualified stock options and stock awards to employees, directors and
consultants. Additionally, the 1996, 1997 and 1999 Stock Plans provide for the
grant of stock appreciation rights to employees, directors and consultants.
The compensation committee of the board of directors administers the stock
plans and recommends to the board of directors the terms of stock rights
granted, including the exercise price, the number of shares that may be
purchased under individual option awards and the vesting period of options. The
exercise price of incentive stock options cannot be lower than 100% of the fair
market value of the common stock on the date of grant and, in the case of
incentive stock options granted to holders of more than 10% of our voting
power, not less than 110% of the fair market value. The term of an incentive
stock option cannot exceed ten years, and the term of an incentive stock option
granted to a holder of more than 10% of our voting power cannot exceed five
years. Stock purchase rights may be issued either alone, in addition to, or in
tandem with other awards granted under the stock plans and/or cash awards made
outside of the stock plans. Incentive stock options granted under our stock
plans generally become exercisable over a four-year period, with 20% of the
shares that may be purchased under the option vesting on the date of grant and
20% vesting on each anniversary of the date of grant until fully vested.
The board of directors may amend, modify or terminate the stock plans at any
time as long as the amendment, modification or termination does not impair the
rights of plan participants under outstanding options or other stock rights.
We intend to file, after the effective date of this offering, a registration
statement on Form S-8 to register up to approximately 3,998,474 shares of
common stock reserved for issuance under the stock plans described above. The
registration statement will become effective automatically upon filing. After
the registration statement has been filed, shares issued under the stock plans
may be sold in the open market, unless the sale is limited by the provisions of
Rule 144 applicable to affiliates or the lock-up agreements.
Our 401(k) Plan
In 1990, we adopted a 401(k) plan for our employees. The plan is governed by
the Employee Retirement Income Security Act of 1974. All of our employees who
are at least 18 years old may make salary reduction contributions under the
plan. Employees must have six months of qualified service to qualify for all
other contributions under the plan. In general, a participant may contribute up
to 15% of his or her annual
51
<PAGE>
compensation. We may elect to make both matching contributions and
discretionary contributions under the plan. In recent years, we have made
matching contributions equal to up to 60% of the participant's contributions.
Any discretionary profit-sharing contributions we may make in a year would be
allocated to plan participants based on the proportion that the participant's
compensation for the year bears to the compensation of all participants for the
year. We did not make any discretionary contributions in 1999. Total employee
and employer contributions under the plan for any participant may not exceed
the lesser of 25% of compensation or $30,000. Participants are immediately
vested in their voluntary contributions under the plan and vest in all other
contributions under the plan based on their years of service. Participants are
fully vested after four years of qualified service. We may modify, amend or
terminate the plan as permitted by the Employee Retirement Income Security Act
of 1974. If we terminate the plan, participants will become fully vested in
their account balances under the plan.
Our Incentive Compensation Plan
Each year, we adopt an incentive compensation plan for our employees.
Compensation available under the plan consists of both cash and stock options
calculated according to a formula based on our achievement of specified key
operating objectives. Typically, the plan has a component for management and
key employees and a separate component for other employees. Consultants and
advisors may also be eligible to participate under the plan. Under our 1999
incentive compensation plan, we issued 535,383 options to purchase common stock
but did not make any cash payments.
52
<PAGE>
MATERIAL RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
The following is a description of transactions since January 1, 1996 to
which we have been a party and in which the amount involved exceeded $60,000
and any director, executive officer or holder of more than five percent of our
capital stock had or will have a direct or indirect material interest.
Since January 1, 1996, we have issued preferred stock, promissory notes,
and warrants as follows:
. 10% Note Financing. On September 25, 1996 and July 31, 1997, we issued
an aggregate of $3,000,000 in principal amount of 10% subordinated
convertible notes due September 1998 and July 1999, respectively. As
part of this transaction, we issued warrants to the participating
investors to purchase an aggregate of 900,000 shares of our common stock
at an exercise price of $1.00 per share.
. Class D Financing. On November 21, 1997 and December 18, 1997, we issued
an aggregate of 7,200,000 shares of our Class D redeemable preferred
stock at a purchase price of $1.80 per share. As a result of the one for
two reverse split of our common stock effective December 16, 1999, every
two shares of this preferred stock convert into one share of common
stock.
. Class E Financing. On October 27, 1998, November 13, 1998, December 29,
1998, and September 17, 1999, we issued an aggregate of 9,941,508 shares
of our Class E redeemable preferred stock at a purchase price of $2.25
per share. As a result of the one for two reverse split of our common
stock effective December 16, 1999, every two shares of this preferred
stock convert into one share of common stock.
. 9.75% Note Financing. On April 15, 1999 and July 16, 1999, we issued an
aggregate of $2,000,000 in principal amount of 9.75% subordinated
promissory notes due on the earlier of December 31, 1999 or the date we
sell equity securities for at least $5,000,000. As part of this
transaction, we issued warrants to the participating investors to
purchase an aggregate of 200,000 shares of our common stock at an
exercise price of $1.00 per share.
Our executive officers, directors and 5% stockholders participated in the
foregoing transactions as follows:
<TABLE>
<CAPTION>
10% Note Class D Class E 9.75% Note
Financing Financing Financing Financing
------------------- --------- --------- ------------------
Number Number of Number of Number
Principal of Class D Class E Principal of
Purchaser Amount Warrants Shares Shares Amount Warrants
--------- ---------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Directors and executive
officers:
Albert E. Paladino...... $ 25,000 7,500 14,088 39,692 $ 8,250 825
John L. Youngblood...... 30,000 9,000 16,906 13,949 4,000 400
Ransom D. Reynolds...... 30,000 9,000 16,906 8,889 -- --
Allan M. Doyle, Jr. .... 25,000 7,500 14,088 6,595 -- --
James W. Fordyce........ 102,485 30,745 57,755 25,154 3,000 300
Five percent
stockholders:
SVE Star Ventures
Group.................. -- -- 1,497,689 3,744,015 400,000 40,000
Prism Venture Partners
I, L.P. ............... -- -- 1,666,667 711,111 600,000 60,000
Alliance Technology
Ventures Group......... -- -- -- 2,248,889 306,000 30,600
Techgains Group......... -- -- 555,556 1,006,754 210,000 21,000
Axiom Venture Partners
II, L.P. .............. -- -- 1,111,112 412,916 240,000 24,000
Spring Point Group...... -- -- 555,556 655,614 -- --
Prince Venture Partners
II Limited
Partnership............ 375,000 112,500 211,333 409,594 200,000 20,000
United of Omaha Life
Insurance Company...... 1,000,000 300,000 563,555 -- -- --
</TABLE>
Mr. Fleming, a member of our board of directors, is affiliated with Prism
Venture Partners I, L.P. Mr. Fordyce, a member of our board of directors, is
affiliated with Prince Venture Partners II Limited Partnership.
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The SVE Star Ventures Group is comprised of five affiliated entities -- Star
Growth Enterprise, SVE Star Ventures Enterprises No. V, SVM Star Ventures
Management GmbH No. 3, SVE Star Ventures Managementgesellschaft mbH Nr. 3 & Co.
Betelligungs KG Nr. 2, and SVE Star Ventures Enterprises No. VII. Collectively,
these entities beneficially own 5% or more of our capital stock.
The Alliance Technology Venture Group is comprised of two affiliated
entities -- Alliance Technology Ventures II, L.P. and ATV II Affiliates Fund,
L.P. Collectively, these entities beneficially own 5% or more of our capital
stock.
The Techgains Group is comprised of three affiliated entities - Technology
Associates Management Co., Ltd., Techgains International Corp., and Techgains
Corp. Collectively, these entities beneficially own 5% or more of our capital
stock.
The Spring Point Group is comprised of two affiliated entities - Spring
Point Partners L.P. and Spring Point Offshore Fund. Collectively, these
entities beneficially own 5% or more of our capital stock.
In September 1999, we agreed to issue 112,500 shares of common stock to
Mervyn N. FitzGerald, our Senior Vice President, Operations, for a purchase
price of $2.50 per share. In connection with this issuance of shares, we loaned
Mr. FitzGerald the $281,250 purchase price. We also agreed to grant Mr.
FitzGerald a cash bonus equal to the amount of Federal and state income taxes
he is required to pay in connection with the stock grant and to grant him an
additional cash bonus to include taxes payable with respect to the cash bonus.
The interest rate on the loan is the applicable federal rate, and the loan must
be repaid upon Mr. FitzGerald's sale of the shares. These shares vested 20% on
the date of issuance and will vest as to an additional 20% on the next four
anniversaries of the date of issuance. The unvested shares may be repurchased
at a price of $2.50 per share upon Mr. FitzGerald's termination of employment.
All unvested shares will immediately vest upon the occurrence of any of the
following events:
. our merger or consolidation with another company
. the sale of substantially all of our assets to another company
. the sale of more than 50% of our outstanding capital stock to an unrelated
person or group
Sale of Contraband Detection System Business. In June 1996, we sold the
assets, contracts and documentation relating to our contraband detection
systems business to Millimetrix LLC, a company controlled by Dr. G. Richard
Huguenin. At the time of the sale, Dr. Huguenin was one of our directors and
executive officers. We received the following as consideration for this
business:
. $606,873 in cash
. a $250,000 promissory note, payable over time
. 19.9% of the ownership of Millimetrix
. the right to receive royalty payments
As part of the transaction, we granted Millimetrix a license to use
intellectual property related to the business and the right to acquire the
licensed intellectual property if agreed conditions were met. Millimetrix also
assumed operating leases related to the business, agreed to lease space from
us, and hired some of our employees.
In connection with the sale, Dr. Huguenin resigned as one of our directors
and executive officers and surrendered all of his outstanding stock options. At
the same time, we repurchased 206,666 shares of our common stock from Dr.
Huguenin for $103,333 and granted him a non-qualified stock option to purchase
135,000 shares of common stock at an exercise price of $1.00 per share.
Millimetrix failed to perform its obligations in connection with this
transaction, and we have obtained a judgment against it in the amount of
approximately $378,000. In October 1999, we renegotiated that transaction
54
<PAGE>
with Millimetrix and involved Millivision, L.L.C., a joint venture between
Millimetrix and one other entity. We released Millimetrix and Dr. Huguenin from
substantially all claims, including the $378,000 judgment, and Millimetrix
released any claims to the intellectual property relating to our contraband
detection systems business. We granted Millivision a license to use the
intellectual property related to that business. Millivision agreed to pay us
royalties in the minimum amount of $200,000. Millimetrix, Millivision and Dr.
Huguenin also agreed not to compete with us with respect to broadband wireless
telecommunications equipment.
Our Policy on Interested Transactions
We have adopted a policy whereby contracts and business arrangements with
our officers, directors or stockholders, entities they own in whole or in part,
or entities for whom they serve as officers, directors, trustees or members
must be on an arm's-length basis and approved by the board of directors. Our
articles of organization and by-laws require approval of the contract or
transaction by a majority of the independent directors who have no interest in
the contract or transaction.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table provides information regarding the beneficial ownership
of our outstanding common stock as of December 31, 1999, and as adjusted to
reflect our sale of common stock in this offering, by:
. each person or group that we know owns more than 5% of the common stock,
. each of our directors,
. each of our executive officers, and
. all of our directors and executive officers as a group.
Beneficial ownership is determined under rules of the SEC and includes
shares over which the indicated beneficial owner exercises voting and/or
investment power. Shares of common stock that we may issue upon the exercise of
options or warrants currently exercisable or exercisable within 60 days of
December 31, 1999 are deemed outstanding for computing the percentage ownership
of the person holding the options or warrants but are not deemed outstanding
for computing the percentage ownership of any other person. Except as we
otherwise indicate, we believe the beneficial owners of the common stock listed
below, based on information furnished by them, have sole voting and investment
power over the number of shares listed opposite their names. Unless we
otherwise indicate, the address for each stockholder below is c/o Telaxis
Communications Corporation, 20 Industrial Drive East, South Deerfield,
Massachusetts 01373-0109.
The following table and footnotes reflect the conversion of our preferred
stock into common stock. Due to the one for two reverse split of our common
stock effective December 16, 1999, every two shares of preferred stock convert
into one share of common stock.
<TABLE>
<CAPTION>
Shares Issuable Number of Shares
pursuant to Beneficially Owned Percentage of
Warrants and Options (Including the Shares Outstanding
Exercisable within Number of Shares ----------------------
60 days of shown in the Before After
Name of Beneficial Owner December 31, 1999 first column) Offering Offering
- ------------------------ -------------------- ------------------ --------- ---------
<S> <C> <C> <C> <C>
SVE Star Ventures 40,000 2,834,217 24.9% 18.4%
Group(1)...............
Possart Strasse No. 9
81679 Munich, Germany
Prism Venture Partners 62,000 1,254,389 11.0 8.2
I, L.P.................
c/o Prism Venture
Management, Inc.
100 Lowder Brook Drive,
Suite 2500
Westwood, MA 02090
Robert C. Fleming(2).... 0 1,254,389 11.0 8.2
Alliance Technology 30,600 1,155,044 10.2 7.5
Ventures Group(3)......
8995 Westside Parkway,
Suite 200
Alpharetta, GA 30004
Techgains Group(4)...... 21,000 802,155 7.1 5.2
2378 West 239th Street
Torrance, CA 90501
Axiom Venture Partners 24,000 786,014 6.9 5.1
II, L.P................
City Place II--17th
Floor
185 Asylum Street
Hartford, CT 06103
James W. Fordyce(5)..... 32,545 673,011 5.9 4.3
Spring Point Group(6)... 0 605,585 5.3 4.0
1 Montgomery Street,
Suite 3300
San Francisco, CA 94104
Prince Venture Partners 132,500 585,511 5.1 3.8
II Limited
Partnership............
10 South Wacker Drive,
Suite 2575
Chicago, IL 60606
United of Omaha Life 300,000 581,777 5.0 3.7
Insurance Company......
c/o Mutual of Omaha
Insurance Company
Mutual of Omaha Plaza
Omaha, NE 68175
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Shares Issuable Number of Shares
pursuant to Beneficially Owned Percentage of
Warrants and Options (Including the Shares Outstanding
Exercisable within Number of Shares ---------------------
60 days of shown in the Before After
Name of Beneficial Owner December 31, 1999 first column) Offering Offering
- ------------------------ -------------------- ------------------ --------- ---------
<S> <C> <C> <C> <C>
John L. Youngblood...... 264,185 298,612 2.6 1.9
Albert E. Paladino...... 50,099 121,150 1.1 *
Mervyn N.
FitzGerald(7).......... 1,500 114,000 1.0 *
Ransom D. Reynolds...... 96,000 108,897 1.0 *
Allan M. Doyle, Jr...... 9,000 32,841 * *
Dennis C. Stempel....... 17,500 20,611 * *
David L. Renauld........ 14,500 15,500 * *
David A. Norbury........ 2,000 13,111 * *
Matthew S. Robison...... 7,500 13,055 * *
All executive officers
and directors as a
group
(11 persons)........... 494,829 2,665,177 22.5 16.8
</TABLE>
- ---------------------
* Less than 1%.
(1) Represents (a) 1,111,111 shares held by Star Growth Enterprise, (b)
517,992 shares held by SVE Star Ventures Enterprises No. V, (c) 489,426
shares held by SVM Star Ventures Management GmbH Nr. 3, (d) 91,963 shares
held by SVE Star Ventures Management GmbH Nr. 3 & Co. Betelligungs KG Nr.
2, (e) 583,724 shares held by SVE Star Ventures Enterprises No. VII and
(f) warrants held by SVE Star Ventures Enterprises No. VII to purchase
40,000 shares of common stock.
(2) Mr. Fleming is a general partner and co-manager of Prism Venture Partners
I, L.P. The shares listed represent the 1,254,389 shares beneficially
held by Prism Venture Partners I, L.P. Mr. Fleming disclaims beneficial
ownership of the shares beneficially held by Prism Venture Partners I,
L.P., except for his pecuniary interest in those shares. Mr. Fleming's
address is the same as the address of Prism Venture Partners I, L.P.
(3) Represents (a) 1,102,222 shares held by Alliance Technology Ventures II,
L.P., (b) warrants held by Alliance Technology Ventures II, L.P. to
purchase 30,000 shares of common stock, (c) 22,222 shares held by ATV II
Affiliates Fund, L.P. and (d) warrants held by ATV II Affiliates Fund,
L.P. to purchase 600 shares of common stock.
(4) Represents (a) 28,377 shares held by Technology Associates Management
Co., Ltd., (b) a warrant to purchase 1,000 shares held by Technology
Associates Management Co., Ltd., (c) 300,000 shares held by Techgains
International Corp., (d) a warrant held by Techgains International Corp.
to purchase 10,000 shares of common stock, (e) 452,778 shares held by
Techgains Corp. and (f) a warrant held by Techgains Corp. to purchase
10,000 shares of common stock.
(5) Mr. Fordyce is a general partner of Prince Venture Partners II Limited
Partnership. The shares listed represent (a) 453,011 shares beneficially
held by Prince Venture Partners II Limited Partnership, (b) 54,954 shares
held by Mr. Fordyce, (c) 1,500 shares that we may issue upon exercise of
stock options held by Mr. Fordyce within 60 days of December 31, 1999,
(d) warrants held by Mr. Fordyce to purchase 31,045 shares of common
stock and (e) warrants held by Prince Venture Partners II Limited
Partnership to purchase 132,500 shares of common stock. Mr. Fordyce
disclaims beneficial ownership of the shares beneficially held by Prince
Venture Partners II Limited Partnership, except for his pecuniary
interest in those shares.
(6) Represents 407,807 shares held by Spring Point Partners L.P. and 197,778
shares held by Spring Point Offshore Fund.
(7) Of the shares held by Mr. FitzGerald, 90,000 may be repurchased by us.
See "Material Relationships and Related-Party Transactions."
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, we will be authorized to issue up to
100,000,000 shares of common stock, $.01 par value, and 4,500,000 shares of
undesignated preferred stock, $.01 par value. As of December 31, 1999, there
were 843,872 shares of common stock outstanding held of record by 131
stockholders and 20,976,881 shares of redeemable preferred stock held by 85
stockholders. Upon the closing of this offering, these shares of redeemable
preferred stock will automatically convert into 10,488,440 shares of common
stock at a ratio of one share of common stock for every two shares of preferred
stock due to the December 16, 1999 reverse stock split. Following this
offering, there will be 15,332,312 shares of common stock outstanding, or
15,932,312 shares if the underwriters exercise their over-allotment option in
full, assuming no exercise of outstanding options or warrants.
Common Stock
The holders of common stock are entitled to one vote per share on all
matters to be voted on by stockholders. When a quorum is present at a meeting,
the holders of a majority of the common stock present or represented and voting
on a matter will decide any matter to be voted on by the stockholders except
where a class vote is required by law or the articles of organization or where
a larger vote is required by law or the articles of organization. Elections are
determined by a plurality of the votes cast by stockholders entitled to vote at
the election. The holders of common stock are entitled to receive ratably any
dividends the board of directors declares, after payment of any preferential
dividends to the holders of preferred stock. Dividends are non-cumulative. If
we are liquidated, dissolved or wound up, the holders of common stock will be
entitled to share pro rata all assets remaining after payment of liabilities
and liquidation preferences of any outstanding shares of preferred stock.
Holders of common stock have no preemptive rights or rights to convert their
common stock into any other securities. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and non-assessable, and the shares of common stock to be
issued in this offering will be fully paid and non-assessable. The rights,
preferences and privileges of holders of common stock may be adversely affected
by the rights, preferences and privileges of holders of preferred stock that
the board of directors may designate and issue in the future. As of December
31, 1999, there were 5,219,844 shares of common stock reserved for issuance
upon the exercise of options and warrants. On that date, there were outstanding
stock options to purchase an aggregate of 1,881,763 shares of common stock and
warrants to purchase an aggregate of 1,221,370 shares of common stock.
Preferred Stock
Upon the closing of this offering, our articles of organization will
authorize our board of directors, without any action by our stockholders, to
issue up to 4,500,000 shares of undesignated, or "blank check," preferred stock
in one or more classes or series. The board also has the authority to fix the
designations, powers, preferences, privileges and relative, participating,
optional or special rights and the qualifications, limitations or restrictions
of any preferred stock, including dividend rights, conversion rights, voting
rights, terms of redemption and liquidation preferences, any or all of which
may be greater than the rights of the common stock. The board of directors,
without stockholder approval, can issue preferred stock with voting, conversion
or other rights that could adversely affect the voting power and other rights
of the holders of common stock. Our board could quickly issue preferred stock
with terms that could delay or prevent a change in control of our company or
make removal of our management more difficult. Additionally, the issuance of
preferred stock may decrease the market price of the common stock. We have no
plans to issue any preferred stock.
Warrants
As of December 31, 1999, there were warrants outstanding to purchase a total
of 1,221,370 shares at a weighted average exercise price of $1.19 per share.
These warrants expire on various dates from December 21, 2000 to July 30, 2007.
58
<PAGE>
Registration Rights
After this offering, the holders of 10,634,299 shares of common stock and
warrants to purchase 1,002,195 shares of common stock, or their permitted
transferees, will be entitled to register those shares under the Securities
Act. These registration rights are contained in four agreements, one with some
of our stockholders (currently covering 10,634,299 shares and warrants to
purchase 943,750 shares) and three separate agreements with three of our
lenders (in the aggregate covering warrants to purchase 58,445 shares of common
stock on an as-converted basis). As described below, the agreement with our
stockholders provides for both demand registration rights and piggyback
registration rights while the agreements with our lenders only provide for
piggyback registration rights.
Demand Registration Rights. At any time after six months following the
closing of this offering, the holders of at least 40% of the registrable
securities under the agreement with our stockholders may require that we use
our diligent best efforts to register some or all of those registrable
securities under the Securities Act at our expense on two occasions. In
addition, the holders of at least 20% of the registrable securities under the
agreement with our stockholders may require that we use our diligent best
efforts to register some or all of those registrable securities under the
Securities Act on Form S-2 or S-3 or similar short-form registration, as long
as we are eligible to use a short-form registration and the value of the
securities to be registered is reasonably anticipated to exceed $1,000,000.
Only the first two short-form registrations will be at our expense. Limitations
and conditions may be imposed on registrable securities that are included in a
registration.
Piggyback Registration Rights. If we propose to register any of our
securities under the Securities Act for our own account or for the account of
any of our stockholders, holders of registrable securities under each of the
four agreements granting registration rights are entitled, with limitations and
conditions, to receive notice of that registration and to include registrable
securities in that registration at our expense. One of the limitations is the
ability of any underwriter of any of those offerings to reduce the number of
shares proposed to be registered in view of market conditions.
We intend to file, after the effective date of this offering, a registration
statement on Form S-8 to register up to approximately 3,998,474 shares of
common stock reserved for issuance under our stock plans. The registration
statement will become effective automatically upon filing. After the
registration statement has been filed, shares issued under the stock plans may
be sold in the open market, unless the sale is limited by the provisions of
Rule 144 applicable to our affiliates or the lock-up agreements. For more
information, see "Shares Eligible for Future Sale."
Anti-takeover Provisions of Massachusetts Law and Our Articles or Organization
and By-Laws
Provisions of Massachusetts law and our articles or organization and by-laws
may discourage takeover attempts not previously approved by our board of
directors, including takeovers that some stockholders may deem to be in their
best interest. These provisions may inhibit temporary fluctuations in the
market price of our common stock that might otherwise result from actual or
rumored takeover attempts. These provisions could also delay or frustrate the
removal of incumbent directors or the assumption of control by stockholders,
even if it would be beneficial to our stockholders. These provisions could also
discourage or make more difficult a merger, tender offer or proxy contest, even
if it would be beneficial to stockholders, and could depress the market price
of our common stock. Our board of directors believes that these provisions are
appropriate to protect the interests of our stockholders. Our board of
directors has no present plans to adopt any other measures or devices which may
have an anti-takeover effect.
Classified Board of Directors. Our articles of organization provide for a
board of directors that is divided into three classes. The first class of
directors will hold office until the first annual meeting of stockholders
following this offering, the second class of directors will hold office until
the second annual meeting of stockholders following this offering, and the
third class of directors will hold office until the third annual meeting of
stockholders following this offering. After each annual meeting, the directors
elected at that meeting will serve a three-year term. Stockholders may remove
our directors only for cause.
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<PAGE>
Meetings of Stockholders. Our by-laws provide that annual meetings of
stockholders will be held at the date, time and place, either within or outside
the Commonwealth of Massachusetts, as the board of directors may determine. A
special meeting of the stockholders may be called only by our President, our
board of directors, or the holders of at least 30% of our outstanding voting
stock.
Amendment of By-Laws. Our articles of organization and by-laws provide that
the by-laws may be amended or repealed by the board of directors or by the
stockholders. An amendment by stockholders requires the affirmative vote of the
holders of at least 75% of the outstanding capital stock entitled to vote
generally at the meeting.
This system of electing directors, the ability of stockholders to remove
directors only for cause and the inability of stockholders holding less than
30% of the outstanding voting stock to call a special meeting may discourage
someone from making a tender offer or otherwise attempting to obtain control of
our company and may maintain the incumbency of the board of directors.
Massachusetts Statutory Business Combination Provision. The provisions of
Chapter 110F of the Massachusetts General Laws, an anti-takeover law, will
apply to us after this offering has been completed. In general, this statute
prohibits a Massachusetts corporation with more than 200 stockholders of record
from engaging in a "business combination" with an "interested stockholder" for
a period of three years after the date of the transaction in which the person
becomes an interested stockholder, unless:
. before that date, the board of directors approved either the business
combination or the transaction that resulted in the stockholder's
becoming an interested stockholder,
. the interested stockholder acquires 90% of the outstanding voting stock
of the corporation (excluding shares held by affiliates of the
corporation) at the time the stockholder becomes an interested
stockholder, or
. the business combination is approved by both the board of directors and
holders of two-thirds of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder).
A "business combination" includes a merger, consolidation, stock or asset
sales, and other specified transactions involving the corporation or any direct
or indirect majority-owned subsidiary of the corporation resulting in a
financial benefit to the interested stockholder. Generally, an "interested
stockholder" is:
. a person who, alone or together with affiliates and associates, owns
five percent or more of the corporation's voting stock, or 15% or more
in the case of persons eligible to file a Schedule 13G under the
Securities Exchange Act,
. an affiliate or associate of the corporation who at any time within the
three-year period preceding the date of the transaction owned five
percent or more of the corporation's voting stock, or 15% or more in the
case of persons eligible to file a Schedule 13G under the Securities
Exchange Act, or
. the affiliates and associates of any affiliate or associate of the
corporation.
A person is not an "interested stockholder" if its ownership of shares in
excess of the five percent or fifteen percent limitation is the result of
action taken solely by us, but the person will become an "interested
stockholder" if the person thereafter acquires additional shares of voting
stock, except as a result of further corporate action not caused, directly or
indirectly, by the person. We may at any time elect not to be governed by
Chapter 110F by amending our articles of organization or by-laws by a vote of a
majority of the stockholders entitled to vote. This amendment would not be
effective for 12 months and would not apply to a business combination with any
person who became an interested stockholder before the adoption of the
amendment.
In addition, Massachusetts General Laws Chapter 110D, entitled "Regulation
of Control Share Acquisitions," provides, in general, that any stockholder of a
Massachusetts corporation with more than 200 stockholders of record who
acquires voting stock of the corporation in a "control share acquisition" may
not vote the shares so acquired (or shares acquired within 90 days before or
after the "control share acquisition") unless a majority of the other
stockholders of the corporation entitled to vote so authorize. In general, a
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"control share acquisition" includes the acquisition by any person of
beneficial ownership of shares which, when added to all other shares
beneficially owned by the person, would entitle the person to vote:
. between 20% and 33 1/3%,
. between 33 1/3% and 50%, or
. more than 50% of the outstanding voting stock of the corporation.
A "control share acquisition" generally does not include, for example, the
acquisition of shares directly from the issuing corporation. In addition,
Chapter 110D permits a corporation to provide in its articles of organization
or by-laws that the corporation may redeem, for fair value, all of the shares
acquired in a control share acquisition if the interested stockholder does not
deliver a control share acquisition statement or if the interested stockholder
delivers a control share acquisition statement but the stockholders of the
corporation do not authorize voting rights for those shares.
Massachusetts General Laws Chapter 156B, Section 50A, requires that
publicly-held Massachusetts corporations that have not "opted out" of Section
50A have a classified board of directors consisting of three classes as nearly
equal in size as possible. Section 50A also provides that directors who are
classified may be removed by the stockholders only for cause. Our articles of
organization reflect the requirements of Section 50A.
Limitations on Liability and Indemnification
Our articles of organization limit the liability of our directors as
permitted by Massachusetts law. No director will be personally liable to us or
our stockholders for monetary damages resulting from his or her conduct as a
director except liability for:
. breach of the director's duty of loyalty
. acts or omissions not in good faith or which involved intentional
misconduct or knowing violations of law
. unlawful distributions and loans to insiders
. transactions from which the director personally received a benefit in
money, property or services to which the director was not legally
entitled
Our by-laws provide that we will indemnify any person made a party to a
proceeding because he or she was or is a director, officer, employee or other
agent of ours and that we may advance or reimburse reasonable expenses incurred
by him or her before the final disposition of the proceeding if he or she
undertakes to repay those expenses if he or she is adjudicated to be not
entitled to indemnification. In addition, we have the right, before a final
adjudication, to compromise and settle a proceeding and pay expenses, if a
compromise and settlement of a proceeding is in our best interests. The
provisions of our by-laws that would provide for indemnification of directors
for liabilities arising under the Securities Act are, in the opinion of the
SEC, against public policy as expressed in the Securities Act and are therefore
unenforceable.
We maintain a liability insurance policy, which may insure our directors and
officers against liability they may incur for serving in their capacities as
directors and officers.
We believe that the limitation of liability provisions in our articles or
organization, the indemnification provisions in our by-laws and our liability
insurance policy will facilitate our ability to continue to attract and retain
qualified individuals to serve as directors and officers.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Registrar and
Transfer Company.
The Nasdaq Stock Market's National Market Listing
Our common stock has been approved for listing on The Nasdaq Stock Market's
National Market under the symbol "TLXS."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock.
The market price of our common stock could drop if our existing stockholders
sell large numbers of shares of our common stock in the public market or if
investors perceive that sales of large numbers of shares could occur. These
factors could also make it more difficult to raise funds through future
offerings of common stock.
After this offering, there will be outstanding 15,332,312 shares of common
stock, or 15,932,312 shares if the underwriters exercise their over-allotment
option in full, assuming no exercise of outstanding options or warrants after
December 31, 1999. Of these shares, the 4,000,000 shares sold in this offering,
or 4,600,000 shares if the underwriters exercise their over-allotment option in
full, will be freely tradable without restriction under the Securities Act
except for any shares purchased by our "affiliates" as defined in Rule 144
under the Securities Act. The remaining 11,332,312 shares are "restricted
securities" within the meaning of Rule 144. The restricted securities may not
be sold unless they are registered under the Securities Act or are sold under
an exemption from registration, such as the exemption provided by Rule 144.
Our executive officers, directors and a majority of our other
securityholders have entered into lock-up agreements in which they have agreed
that, for a period of 180 days after the date of this prospectus, they will not
offer, sell, contract to sell, pledge or otherwise dispose of any shares of our
common stock, or any securities convertible into or exchangeable or exercisable
for any shares of our common stock, or publicly disclose their intention to
make any offer, sale, contract, pledge or disposal, without the prior written
consent of Credit Suisse First Boston Corporation. In addition, we have agreed
in the underwriting agreement that, for a period of 180 days after the date of
this prospectus, we will not offer, sell, contract to sell, pledge or otherwise
dispose of any shares of our common stock, or any securities convertible into
or exchangeable or exercisable for any shares of our common stock, or publicly
disclose our intention to make any offer, sale, contract, pledge or disposal,
without the prior written consent of Credit Suisse First Boston Corporation,
unless the transaction is specifically permitted in the underwriting agreement.
We have similarly agreed that, with limited exceptions, we will not file a
registration statement with the SEC or publicly disclose our intention to do
so. Credit Suisse First Boston Corporation may, at any time and without notice,
waive any of the terms of these lock-up agreements.
Under these lock-up agreements, our outstanding shares of common stock will
be available for sale in the public market as follows:
<TABLE>
<CAPTION>
Percent of
Total
Number of Shares
Shares Outstanding Date of Availability for Sale
--------- ----------- --------------------------------------------------------
<C> <C> <S>
209,953 1.85 , 2000 (date of this prospectus) to , 2000 (90
days after the date of this prospectus)
15,831 0.14 , 2000 (90 days after the date of this prospectus)
to , 2000 (180 days after the date of this
prospectus), in some cases under Rule 144
7,659,547 67.59 , 2000 (180 days after the date of this
prospectus), in some cases under Rule 144
3,446,982 30.42 At various times after , 2000
</TABLE>
In addition, as of December 31, 1999, there were outstanding options to
purchase 1,881,763 shares of common stock and warrants to purchase 1,221,370
shares of common stock. Of these options and warrants, the sale of 3,050,356
will be limited by lock-up agreements.
62
<PAGE>
Rule 144. In general, beginning 90 days after the date of this prospectus
any person (or persons whose shares are aggregated) who has beneficially owned
shares for at least one year is entitled under Rule 144 to sell, within any
three-month period, a number of shares that does not exceed the greater of:
. 1% of the then-outstanding shares of common stock, which will equal
approximately 153,000 shares immediately after this offering
. the average weekly trading volume in the common stock during the four
calendar weeks immediately preceding the date on which the seller files
a notice of the sale on Form 144 with the SEC
Requirements relating to notice, manner of sale and the availability of
current public information about us must also be met for sales under Rule 144.
Rule 144(k). A person (or persons whose shares are aggregated) who has not
been our affiliate at any time during the three months immediately preceding a
sale, and who has beneficially owned the shares for at least two years, would
be entitled to sell the shares under Rule 144(k) without regard to the volume
limitations, notice requirements and other conditions of Rule 144.
Rule 701. In general, each of our directors, officers, employees,
consultants or advisors who purchased shares from us before the date of this
prospectus in connection with a compensatory stock plan or other written
compensatory agreement will be eligible to sell those shares under Rule 701 in
the public market 90 days after the date of this prospectus in reliance on Rule
144, but without complying with all of the restrictions of Rule 144, such as
the holding period. In addition, Rule 701 will apply to shares of common stock
we issue upon exercise of the options we granted before the effective date of
this offering.
We intend to file, after the effective date of this offering, a registration
statement on Form S-8 to register up to approximately 3,998,474 shares of
common stock reserved for issuance under our stock plans. The registration
statement will become effective automatically upon filing. After the
registration statement has been filed, shares issued under the stock plans may
be sold in the open market, unless the sale is limited by the provisions of
Rule 144 applicable to our affiliates or the lock-up agreements.
For a description of the registration rights of our securityholders, see
"Description of Capital Stock--Registration Rights."
63
<PAGE>
UNDERWRITING
Under the terms and conditions contained in an underwriting agreement dated
, 2000, we have agreed to sell to the underwriters named below, for whom
Credit Suisse First Boston Corporation, Banc of America Securities LLC and CIBC
World Markets Corp. are acting as representatives, the following respective
numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
Banc of America Securities LLC.....................................
CIBC World Markets Corp............................................
---------
Total............................................................ 4,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 600,000 additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share on
the sales to other broker/dealers. After the initial public offering, the
public offering price, concession and discount to broker/dealers may be changed
by the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts
and Commissions
paid by us............. $ $ $ $
Expenses payable by us.. $ $ $ $
</TABLE>
Two employees of CIBC World Markets Corp., including the research analyst
that will cover us, own redeemable preferred stock that will convert into
shares of common stock upon completion of this offering. The employees
purchased the stock on the same terms as the other participants in the private
placements of stock which occurred in November and December 1997 and in
September 1999. In the aggregate, these employees purchased 0.39% of the stock
sold in the 1997 private placement and 0.17% of the stock sold in the 1999
private placement. These transactions included the purchase in September 1999
by the research analyst from CIBC World Markets Corp. who will cover us of
11,111 shares of our Class E redeemable preferred stock for $25,000. Upon
completion of this offering, these shares will convert into 5,555 shares of
common stock. Under the rules of the National Association of Securities
Dealers, Inc., this purchase of securities may be deemed to be underwriting
compensation in connection with this offering. In accordance with the rules of
the National Association of Securities Dealers, Inc., these shares will be
restricted from sale or other transfer until one year after the date of this
prospectus, except as permitted by those rules.
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
64
<PAGE>
We and our executive officers, directors and a majority of our other
securityholders have agreed not to offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or, in our case, file with the
Securities and Exchange Commission a registration statement under the
Securities Act relating to, any shares of common stock or securities
convertible into or exchangeable or exercisable for any common stock, or
publicly disclose the intention to make any offer, sale, contract, pledge,
disposition or filing, without the prior written consent of Credit Suisse First
Boston Corporation for a period of 180 days after the date of this prospectus,
with exceptions for outstanding stock options and warrants.
The underwriters have reserved for sale, at the initial public offering
price, up to 200,000 shares of common stock for business partners, employees,
and directors who may wish to purchase common stock in this offering. The
number of shares available for sale to the general public in this offering will
be reduced by the number of reserved shares purchased. Any reserved shares not
purchased will be offered by the underwriters to the general public on the same
terms as the other shares.
A limited number of shares may be made available via the Internet to
customers of one or more underwriters participating in this offering. If any
underwriter uses the Internet to make offers and sales, a copy of our
preliminary prospectus in electronic format will be made available on a web
site maintained by the underwriter or through a hosting arrangement entered
into by the underwriter with a third party. After the prospectus is made
available, the underwriter will accept conditional offers to purchase shares
from its customers that complete and pass an online eligibility profile. Some
underwriters may require that a customer have a minimum account balance in
order to participate in the offering. All conditional offers to purchase shares
must be reconfirmed by the customer or they will not be accepted. Conditional
offers may be withdrawn at any time before the customer receives a notice of
acceptance from the underwriter. If the demand for shares from customers
submitting online conditional offers exceeds the amount of shares available for
Internet distribution, the underwriter will use a random allocation method to
distribute shares to customers. There are no plans to direct shares to
particular purchasers via the Internet.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make.
Our common stock has been approved for listing on The Nasdaq Stock Market's
National Market under the symbol "TLXS."
Before this offering, there has been no public market for our common stock.
The initial public offering price was determined by negotiation between us and
the representatives. The principal factors considered in determining the public
offering price included:
. the information in this prospectus and otherwise available to the
representatives
. the history of and the prospects for the industry in which we compete
. the ability of our management
. the prospects for our future earnings
. the present state of our development and our current financial condition
. the general condition of the securities markets at the time of this
offering
. the recent market prices of, and the demand for, publicly-traded common
stock of generally comparable companies
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids under Regulation M under the
Exchange Act.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
65
<PAGE>
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilization transaction or in a
syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may occur
on The Nasdaq Stock Market's National Market or otherwise and, if commenced,
may be discontinued at any time.
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made under securities laws which will vary depending on
the relevant jurisdiction, and which may require resales to be made under
available statutory exemptions or under a discretionary exemption granted by
the Canadian securities regulatory authority that has jurisdiction. Purchasers
are advised to seek legal advice prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will represent to us and the dealer from whom the purchase
confirmation is received that:
. the purchaser is entitled under the provincial securities laws that
apply to the purchaser to purchase the common stock without the benefit
of a prospectus qualified under these securities laws
. the purchaser is purchasing as principal and not as agent if the
purchaser is not allowed to purchase as agent under the provincial
securities laws that apply to the purchaser
. the purchaser has reviewed the text above under "Resale Restrictions"
Rights of Action of Ontario Purchasers
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named in
this prospectus may be located outside Canada and, as a result, it may not be
possible for Canadian purchasers to serve process within Canada upon the issuer
or these persons. All or a substantial portion of the assets of the issuer and
these persons may be located outside Canada and, as a result, it may not be
possible to satisfy a judgment against the issuer or these persons in Canada or
to enforce a judgment obtained in Canadian courts against the issuer or these
persons outside Canada.
66
<PAGE>
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser under this offering. This report must be
in the form attached to British Columbia Securities Commission Blanket Order
BOR #95/17, a copy of which may be obtained from us. Only one report must be
filed for common stock acquired on the same date and under the same prospectus
exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult with their own legal and
tax advisors about the tax consequences of an investment in the common stock in
their particular circumstances and about the eligibility of the common stock
for investment by the purchaser under Canadian legislation.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Mirick, O'Connell, DeMallie & Lougee, LLP, Worcester,
Massachusetts. Partners and associates in the firm own an aggregate of 18,250
shares of common stock and have options to purchase an additional 8,625 shares
of common stock. The execution and delivery of the underwriting agreement for
this offering will be passed upon for the underwriters by Foley, Hoag & Eliot
LLP, Boston, Massachusetts.
EXPERTS
PricewaterhouseCoopers LLP, independent accountants, have audited the
financial statements of Telaxis Communications Corporation as of December 31,
1997 and 1998, and for each of the three years in the period ended December 31,
1998 which are included in this prospectus and registration statement. Our
financial statements are included in this prospectus in reliance on the report
of PricewaterhouseCoopers LLP, given on their authority as experts in auditing
and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1. This
prospectus, which forms a part of the registration statement, does not contain
all of the information included in the registration statement and its exhibits.
References in this prospectus to any contract or other document are not
necessarily complete and, if we filed the contract or document as an exhibit to
the registration statement, you should refer to the exhibit for more
information. You may review a copy of the registration statement, including
exhibits and schedules filed with it, at the SEC's public reference facilities
in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the SEC located at 7 World Trade Center, Suite
1300, New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. You may also obtain copies of the
materials from the Public Reference Section of the SEC, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You will have to pay a
fee to the SEC for the copies. The SEC maintains a web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding companies that file electronically with the
SEC.
We intend to furnish our stockholders with annual reports containing
financial statements audited by independent certified public accountants and
will make available quarterly reports containing unaudited summary financial
information for each of the first three quarters of each fiscal year.
67
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Balance Sheets............................................................. F-3
Statements of Operations and Comprehensive Loss............................ F-4
Statements of Changes in Stockholders' Deficit............................. F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Telaxis Communications Corporation
In our opinion, the accompanying balance sheets and the related statements
of operations and comprehensive loss, of changes in stockholders' deficit and
of cash flows present fairly, in all material respects, the financial position
of Telaxis Communications Corporation (formerly known as Millitech Corporation,
the "Company") at December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of Telaxis Communications
Corporation's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut March 5, 1999, except for Note 2
as to which the date is August 24, 1999,
Note 19 as to which the date is
October 18, 1999, and Note 20
as to which the date is December 16, 1999
F-2
<PAGE>
TELAXIS COMMUNICATIONS CORPORATION
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31, Pro Forma
------------------ September 30, September 30,
1997 1998 1999 1999
-------- -------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents.... $ 10,294 $ 2,635 $ 12,158 $ 12,158
Accounts receivable, less
allowance for doubtful
accounts ($210 in 1997; $368
in 1998 and $273 in 1999)... 2,744 3,013 1,366 1,366
Contracts in process......... 85 139 -- --
Inventories.................. 3,162 3,093 4,722 4,722
Net assets to be disposed
of.......................... -- -- 1,811 1,811
Other current assets......... 96 97 277 277
-------- -------- -------- --------
Total current assets....... 16,381 8,977 20,334 20,334
Property, plant and
equipment, net.............. 3,430 5,922 5,446 5,446
Patents and intangible
assets, net of accumulated
amortization................ 121 -- -- --
Other assets................. 127 56 178 178
-------- -------- -------- --------
Total assets............... $ 20,059 $ 14,955 $ 25,958 $ 25,958
======== ======== ======== ========
Liabilities, Redeemable
Preferred Stock and
Stockholders' (Deficit) Equity
Current liabilities
Lines of credit.............. $ 1,500 $ -- $ 500 $ 500
Accounts payable............. 2,268 2,209 3,663 3,663
Customer prepayments......... 1,028 204 183 183
Accrued expenses............. 1,968 2,060 2,020 2,020
Income taxes payable......... 53 41 39 39
Current maturities of long-
term debt................... 508 379 786 786
Current maturities of capital
lease obligations........... 617 813 771 771
-------- -------- -------- --------
Total current liabilities.. 7,942 5,706 7,962 7,962
Long-term debt................. 729 350 1,066 1,066
Capital lease obligations...... 961 697 536 536
-------- -------- -------- --------
Total liabilities.......... 9,632 6,753 9,564 9,564
-------- -------- -------- --------
Commitments and contingencies
Redeemable Preferred Stock
Redeemable preferred stock,
Class A, $.01 par value;
$3.25 redemption value;
authorized 3,090,323 shares
(3,270,000 in 1997); issued
and outstanding 3,045,696
shares...................... 9,899 9,899 9,899 --
Redeemable preferred stock,
Class B, $.01 par value;
$3.25 redemption value;
authorized 789,677 shares
(1,250,000 in 1997); issued
and outstanding 789,677
shares...................... 2,566 2,566 2,566 --
Redeemable preferred stock,
Class C, $.01 par value;
authorized 0 shares (400,000
in 1997); none issued ...... -- -- -- --
Redeemable preferred stock,
Class D, $.01 par value;
$1.80 redemption value;
authorized 7,200,000 shares;
issued and outstanding
7,200,000 shares............ 12,960 12,960 12,960 --
Redeemable preferred stock,
Class E, $.01 par value;
$2.25 redemption value;
authorized 11,000,000 shares
in 1999 and 4,000,000 shares
in 1998; issued and
outstanding 9,941,508 shares
in 1999, 3,274,841 shares in
1998........................ -- 7,368 22,368 --
-------- -------- -------- --------
25,425 32,793 47,793
Stockholders' (Deficit) Equity
(See Note 20)
Preferred stock, $.01 par
value; 4,500,000 shares
authorized in 1999; none
issued...................... -- -- -- --
Common stock, $.01 par value;
authorized 36,000,000 shares
in 1999, 25,000,000 shares
in 1998 and 20,000,000
shares in 1997; issued and
outstanding 782,986 shares
in 1999, 987,920 shares in
1998 and 983,394 shares in
1997........................ 10 10 8 123
Additional paid-in capital... 733 669 1,911 49,589
Note receivable.............. -- -- (281) (281)
Accumulated deficit.......... (15,741) (25,270) (32,859) (32,859)
Unearned compensation........ -- -- (178) (178)
-------- -------- -------- --------
Total stockholders'
(deficit) equity.......... (14,998) (24,591) (31,399) 16,394
-------- -------- -------- --------
Total liabilities,
redeemable preferred stock
and stockholders'
(deficit) equity.......... $ 20,059 $ 14,955 $ 25,958 $ 25,958
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
TELAXIS COMMUNICATIONS CORPORATION
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine months ended
Year ended December 31, September 30,
-------------------------- -----------------------
1996 1997 1998 1998 1999
------- ------- -------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Sales..................... $ 201 $ 1,733 $ 2,386 $ 1,447 $ 5,504
Cost of sales............. 507 2,755 7,517 3,320 5,103
------- ------- -------- ------- -------
Gross margin (loss)....... (306) (1,022) (5,131) (1,873) 401
Operating expenses
Research and development,
net..................... 598 3,926 4,993 3,888 3,368
Selling and marketing.... 353 667 1,006 619 710
General and
administrative.......... 572 1,111 2,042 1,552 1,717
Stock compensation cost.. -- -- -- -- 47
------- ------- -------- ------- -------
Total operating
expenses................ 1,523 5,704 8,041 6,059 5,842
------- ------- -------- ------- -------
Operating loss............ (1,829) (6,726) (13,172) (7,932) (5,441)
------- ------- -------- ------- -------
Other income (expense)
Interest expense......... (423) (683) (473) (371) (561)
Income from contract
cancellation............ -- -- 997 -- --
Interest income.......... 13 40 233 200 55
Other.................... -- 17 -- -- --
------- ------- -------- ------- -------
Total other income
(expense)............... (410) (626) 757 (171) (506)
------- ------- -------- ------- -------
Loss from continuing
operations before income
taxes.................... (2,239) (7,352) (12,415) (8,103) (5,947)
Income tax benefit........ -- (640) (1,162) (1,027) --
------- ------- -------- ------- -------
Loss from continuing
operations............... (2,239) (6,712) (11,253) (7,076) (5,947)
------- ------- -------- ------- -------
Discontinued operations:
Income (loss) from
operations of MMWP
segment, net of taxes of
$328, $904, $1,162,
$1,027 (unaudited) and
$0 (unaudited) for the
years ended December 31,
1996, 1997, and 1998 and
for the nine months
ended September 30, 1998
and 1999, respectively.. (530) 1,342 1,724 1,523 258
Loss on disposition of
MMWP segment, including
provision of $300
(unaudited) for
operating losses during
the phase-out period,
net of $0 (unaudited)
for taxes............... -- -- -- -- (1,900)
------- ------- -------- ------- -------
Income (loss) from
discontinued operations.. (530) 1,342 1,724 1,523 (1,642)
------- ------- -------- ------- -------
Net loss and comprehensive
loss..................... $(2,769) $(5,370) $ (9,529) $(5,553) $(7,589)
======= ======= ======== ======= =======
Basic and diluted earnings
(loss) per share from:
Continuing operations.... $ (4.15) $(14.16) $ (22.87) $(14.38) $(11.14)
======= ======= ======== ======= =======
Discontinued operations.. $ (0.98) $ 2.83 $ 3.50 $ 3.10 $ (3.07)
======= ======= ======== ======= =======
Net loss................. $ (5.13) $(11.33) $ (19.37) $(11.28) $(14.21)
======= ======= ======== ======= =======
Shares used in computing
basic and diluted
earnings (loss) per
share.................... 540 474 492 492 534
======= ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
TELAXIS COMMUNICATIONS CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Additional
----------------- Paid-in Note Unearned Accumulated
Shares Amount Capital Receivable Compensation Deficit Total
--------- ------ ---------- ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1995................... 1,092,860 $ 11 $ 898 $ (7,602) $ (6,693)
Exercise of common stock
options................ 11,500 -- 5 5
Treasury stock acquired
and retired............ (206,666) (2) (101) (103)
Net loss................ (2,769) (2,769)
--------- ---- ------ ----- ---- -------- --------
Balances, December 31,
1996................... 897,694 9 802 -- (10,371) (9,560)
Exercise of common stock
options................ 85,700 1 42 43
Other................... (111) (111)
Net loss................ (5,370) (5,370)
--------- ---- ------ ----- ---- -------- --------
Balances, December 31,
1997................... 983,394 10 733 -- (15,741) (14,998)
Exercise of common stock
options................ 4,526 -- 2 2
Other................... (66) (66)
Net loss................ (9,529) (9,529)
--------- ---- ------ ----- ---- -------- --------
Balances, December 31,
1998................... 987,920 10 669 -- (25,270) (24,591)
Sale of common stock.... 225,000 2 504 (281) (225) -- --
Issuance of preferred
stock warrants......... -- -- 140 -- -- -- 140
Issuance of common stock
warrants............... -- -- 266 -- -- -- 266
Exercise of common stock
options................ 330,552 3 170 173
Exercise of warrants.... 22,500 -- 11 11
Amortization of unearned
compensation........... 47 47
Other................... 144 144
Net loss................ (7,589) (7,589)
Reverse stock split (See
Note 20)............... (782,986) (7) 7 -- -- -- --
--------- ---- ------ ----- ---- -------- --------
Balances, September 30,
1999 (unaudited)....... 782,986 $ 8 $1,911 $(281) (178) $(32,859) $(31,399)
========= ==== ====== ===== ==== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
TELAXIS COMMUNICATIONS CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine months ended
Year ended December 31, September 30,
------------------------- -----------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net loss................... $(2,769) $(5,370) $(9,529) $(5,553) $(7,589)
Adjustments to reconcile
net loss to net cash
utilized by operating
activities:
Depreciation and
amortization.............. 1,176 1,563 2,076 1,425 2,072
Loss on disposition of MMWP
segment................... -- -- -- -- 1,900
Non-cash compensation
expense................... -- -- -- -- 225
Gain on sale of property
and equipment............. (241) -- -- -- --
Deferred income taxes...... 322 277 -- -- --
Changes in assets and
liabilities
Accounts receivable....... 1,240 (161) (269) 477 229
Contracts in process...... (68) 449 (54) (46) 23
Inventories............... (866) 220 69 (2,132) (3,577)
Other current assets...... 41 31 (1) (142) (149)
Accounts payable and
accrued expenses......... (927) 1,911 32 1,873 1,804
Customer prepayments...... 427 601 (824) (913) (10)
Income taxes payable...... (134) 53 (13) (3) (2)
------- ------- ------- ------- -------
Net cash utilized by
operating activities..... (1,799) (426) (8,513) (5,014) (5,074)
------- ------- ------- ------- -------
Cash flows from investing
activities
Additions to property and
equipment................. (556) (778) (3,706) (3,409) (1,487)
Proceeds from sale of
property and equipment.... 642 -- -- -- --
Reduction (addition) to
other assets.............. (58) (39) 20 (7) (74)
------- ------- ------- ------- -------
Net cash provided
(utilized) by investing
activities............... 28 (817) (3,686) (3,416) (1,561)
------- ------- ------- ------- -------
Cash flows from financing
activities
Proceeds from note
payable................... 2,000 -- -- -- 2,000
Net (repayment) borrowing
under line of credit...... 1,500 500 (1,500) (300) 500
Proceeds from long-term
debt...................... -- 1,000 -- -- 1,420
Repayments of long-term
debt and capital lease
obligations............... (1,415) (994) (1,264) (951) (862)
Issuance of common stock
upon exercise of options
and warrants.............. 6 43 2 2 184
Issuance of redeemable
preferred stock........... -- 9,917 7,368 -- 12,950
Stock issuance costs....... -- (111) (66) -- (34)
Redemption of preferred
stock..................... (3) -- -- -- --
Treasury stock acquired and
retired................... (103) -- -- -- --
Addition to other assets... (72) (31) -- -- --
------- ------- ------- ------- -------
Net cash provided
(utilized) by financing
activities............... 1,913 10,324 4,540 (1,249) 16,158
------- ------- ------- ------- -------
Net increase (decrease) in
cash and cash equivalents.. 142 9,081 (7,659) (9,679) 9,523
Cash and cash equivalents at
beginning of period........ 1,071 1,213 10,294 10,294 2,635
------- ------- ------- ------- -------
Cash and cash equivalents at
end of period.............. $ 1,213 $10,294 $ 2,635 $ 615 $12,158
======= ======= ======= ======= =======
Supplemental disclosure of
cash flow information
Cash paid (received) during
the period for
Income taxes paid (net of
cash refunds received).... $ 167 $ (62) $ -- $ -- $ (55)
Interest paid.............. 423 615 240 368 291
Non-cash investing and
financing activities:
Equipment acquired under
capital lease agreements.. 130 1,781 689 689 438
Conversion of notes and
accrued interest to
preferred stock........... -- 3,043 -- -- --
Issuance of preferred stock
for subordinated
promissory note........... -- -- -- -- 2,000
Note received for issuance
of common stock........... -- -- -- -- 281
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
TELAXIS COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
We develop and supply broadband point-to-multipoint wireless access
equipment used by network service providers to deliver integrated voice, video
and data services to business and residential customers. We sell our products
primarily to network system integrators that include our products in broadband
wireless systems sold to network service providers.
We commenced operations in 1982 and have derived the significant majority of
our sales from our millimeter-wave products business segment. In August 1999,
we adopted a plan to focus all of our resources on our broadband point-to-
multipoint wireless access business segment and to dispose of the millimeter-
wave products segment. As a result, we have presented the operations of the
millimeter-wave products segment as a discontinued operation in our financial
statements (see Note 2).
The following is a summary of significant accounting policies:
Unaudited Interim Financial Data
The financial information as of September 30, 1999 and for the nine months
ended September 30, 1998 and 1999 is unaudited. In the opinion of management,
the interim financial information includes all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of the results
for the interim periods. The results of operations for the nine months ended
September 30, 1999 are not necessarily indicative of the results to be expected
for any future period.
Unaudited Pro Forma Balance Sheet
The outstanding shares of the Company's preferred stock Series A, B, D and E
automatically convert to common stock upon a public offering resulting in gross
proceeds of at least $15,000,000 and with an offering price of $9.75, $9.75,
$9.75, and $4.50 per share, respectively. These conversions have been reflected
in the unaudited pro forma balance sheet as of September 30, 1999.
Cash and Cash Equivalents
The Company considers highly liquid investments with a maturity of three
months or less at the time of purchase to be cash equivalents.
Revenue Recognition
Sales under short-term contracts and for stock items are recognized when
deliveries are made. Sales under cost-reimbursement contracts are recorded as
costs are incurred and include estimated earned fees in the proportion that
costs incurred to date bear to total estimated costs.
Sales under certain fixed-price and fixed-price incentive contracts are
recorded utilizing the percentage of completion method, in which costs and
estimated gross margin are recorded as the work is performed. Income is accrued
based upon the percentage that costs incurred to date bear to estimated total
costs after giving effect to the most recent estimates of costs and funding at
completion.
Fees under certain contracts may be increased or decreased under cost or
performance incentive provisions which measure actual performance against
established targets or specific criteria. Incentive fee awards or penalties are
included in sales or cost of sales at the time the amounts can be reasonably
determined.
F-7
<PAGE>
TELAXIS COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
As some contracts extend over one or more years, revisions in cost and
profit estimates during the course of the work are reflected in the accounting
period in which the facts which require the revision become known. At the time
a loss on a contract becomes known, the entire amount of the estimated ultimate
loss on the contract is accrued.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash, cash equivalents and trade accounts
receivable. The Company places its cash investments with high-quality financial
institutions. The Company extends credit to its customers based on an
evaluation of the customer's financial condition and history and generally does
not require collateral. The Company has historically incurred minimal credit
losses. Approximately 24% and 27% of accounts receivable at December 31, 1997
and 1998 are due from customers who each comprise more than 10% of the total
outstanding accounts receivable. At September 30, 1999, approximately 98% of
accounts receivable was due from one customer.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Comprehensive Income
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income. For
the years ended December 31, 1996, 1997 and 1998 and for the nine months ended
September 30, 1998 and 1999, comprehensive loss equaled net loss.
Research and Development
The Company incurs research and development costs in the exploration of
commercially viable applications of its millimeter-wave and microwave
technology.
The Company also incurs research and development costs under customer-funded
contracts. Costs of approximately $1,640,000 and $1,727,000 are recorded net of
the associated customer funding of $67,000 and $986,000 in the years ended
December 31, 1997 and 1998, respectively. Costs of approximately $978,000
(unaudited) and $664,000 (unaudited) are shown net of the associated customer
funding of $508,000 (unaudited) and $746,000 (unaudited) for the nine months
ended September 30, 1998 and 1999 respectively. There were no customer-funded
contracts in the year ended December 31, 1996. Significant terms of customer-
funded research and development arrangements include granting the customer a
non-exclusive, royalty-free right and license to use and distribute the product
and its related sales and technical literature that is developed by the Company
under the agreement. The Company is not obligated to repay any of the funds
received under these contracts.
Inventories
Inventories are stated at the lower of cost (average cost method) or market.
During 1998, the Company recorded a related reserve of approximately $1,068,000
to adjust inventory to its net realizable value.
F-8
<PAGE>
TELAXIS COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed
using the straight-line method based upon the estimated useful lives of the
assets as follows:
<TABLE>
<CAPTION>
Asset Life
----- -------------
<S> <C>
Machinery and equipment........................................ 5 to 7 years
Furniture and fixtures......................................... 7 to 10 years
Leasehold improvements......................................... 5 to 10 years
Equipment under capital leases................................. 5 to 7 years
</TABLE>
Leasehold improvements and equipment under capital leases are amortized over
the lesser of the life of the lease or the useful lives of the improvements or
equipment.
When assets are sold or retired, the related cost and accumulated
depreciation are removed from their respective accounts and any resulting gain
or loss is included in income.
Patents and Intangible Assets
Patents and intangible assets are recorded at cost and are amortized using
the straight-line method over 10 years.
Under FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, the Company reviews long-
lived assets and certain identifiable intangibles for impairment at each
reporting date based on the expected future cash flows of the assets compared
to the carrying value of the asset. To the extent that such carrying value
exceeds expected future cash flows, a writedown in intangibles is recorded. The
Company recorded charges of $125,000 and $76,664 for the years ended December
31, 1997 and 1998, respectively, as a result of a specific review of our
patents. These patents related to previously divested businesses and the
Company determined that there were no future expected royalties or other income
streams related to these patents. For these patents, the remaining net book
value was written off. As of December 31, 1998, there was no remaining book
value for these patents.
Income Taxes
Deferred tax assets and liabilities are computed annually for differences
between the financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted tax
laws and rates applicable to periods in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
In the accompanying statement of operations, the Company has recorded an
income tax expense attributable to discontinued operations based upon its
pretax income. Since the Company's continuing losses exceed its income from
discontinued operations, an income tax benefit has been recorded against
continuing operations only to the extent of the income tax expense attributable
to discontinued operations in accordance with SFAS No. 109, Accounting for
Income Taxes. Tax expense also includes the impact of any changes in deferred
tax assets and liabilities.
F-9
<PAGE>
TELAXIS COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Earnings Per Share
Earnings per share has been computed by dividing the loss from continuing
operations, income (loss) from discontinued operations and net loss by the
weighted average common shares outstanding. No effect has been given to the
exercise of common stock options, stock warrants, convertible notes, and
redeemable preferred stock, since the effect would be antidilutive on
continuing operations for all reporting periods. Pro forma basic and diluted
loss per share have been computed assuming the conversion of all outstanding
shares of redeemable preferred stock into common shares, as if the shares had
converted immediately upon their issuance. The following table presents the
calculation of historical and pro forma per share amounts (in thousands, except
per share data):
<TABLE>
<CAPTION>
Nine months ended
Year ended December 31, September 30,
-------------------------- -----------------------
1996 1997 1998 1998 1999
------- ------- -------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Historical:
Loss from continuing
operations.............. $(2,239) $(6,712) $(11,253) $(7,076) $(5,947)
======= ======= ======== ======= =======
Weighted average shares
of common stock
outstanding............. 540 474 492 492 534
======= ======= ======== ======= =======
Basic and diluted loss
per share from
continuing operations... $ (4.15) $(14.16) $ (22.87) $(14.38) $(11.14)
======= ======= ======== ======= =======
Income (loss) from
discontinued
operations.............. $ (530) $ 1,342 $ 1,724 $ 1,523 $(1,642)
======= ======= ======== ======= =======
Weighted average shares
of common stock
outstanding............. 540 474 492 492 534
======= ======= ======== ======= =======
Basic and diluted income
(loss) per share from
discontinued
operations.............. $ (0.98) $ 2.83 $ 3.50 $ 3.10 $ (3.07)
======= ======= ======== ======= =======
Net loss................. $(2,769) $(5,370) $ (9,529) $(5,553) $(7,589)
======= ======= ======== ======= =======
Weighted average shares
of common stock
outstanding............. 540 474 492 492 534
======= ======= ======== ======= =======
Basic and diluted net
loss per share.......... $ (5.13) $(11.33) $ (19.37) $(11.28) $(14.21)
======= ======= ======== ======= =======
Pro Forma (unaudited):
Weighted average shares
of common stock
outstanding............. 492 534
Pro forma adjustment to
reflect weighted average
effect of assumed
conversion of
outstanding redeemable
preferred stock into
common stock............ 5,827 7,299
-------- -------
Weighted average shares
used to compute pro
forma basic and diluted
loss per share.......... 6,319 7,833
======== =======
Pro forma basic and
diluted loss per share
from continuing
operations.............. $ (1.78) $ (0.76)
======== =======
</TABLE>
F-10
<PAGE>
TELAXIS COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Derivative Instruments
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, which establishes accounting and reporting standards for
derivative instruments and hedging activities. The statement requires
recognition of all derivatives at fair value in the financial statements. FASB
Statement No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133, an
amendment of FASB Statement No. 133, defers implementation of Statement No.
133 until fiscal years beginning after June 15, 2000. The Company has reviewed
Statement No. 133 and believes that, upon implementation, the standard will
not have a significant effect on its financial statements.
Reclassification
Certain 1996, 1997 and 1998 amounts have been reclassified to conform to
the current year's presentation.
2. Discontinued Operations
In August 1999, the Board of Directors voted and authorized management to
dispose of the Company's millimeter-wave products (MMWP) business segment.
This segment consists of the development and manufacture of millimeter-wave
components and assemblies, including antennas and quasi-optical products,
multiplexer products, and passive waveguide products.
Accordingly, the Company has restated its historical financial statements
to present the MMWP segment's operating results as a discontinued operation.
The results of the MMWP operations, including provisions for termination
costs, employee benefits, losses during the phase-out period of $300,000 and
an estimated loss on disposal of $1,600,000 resulting from the write-down of
inventory and equipment, have been segregated from continuing operations and
reported as a separate line item in the statement of operations and
comprehensive loss. The Company anticipates selling the MMWP business segment
during the first quarter of 2000.
The assets and liabilities of the MMWP segment at September 30, 1999,
consisting primarily of accounts receivable, inventories, equipment, accounts
payable and accrued expenses, have been segregated as net assets to be
disposed of in the amount of $1,811,000 (unaudited) in the accompanying
balance sheet.
Sales for the MMWP segment were $13,467,000, $14,686,000, $12,211,000,
$9,554,000 (unaudited) and $6,517,000 (unaudited) for the years ended December
31, 1996, 1997 and 1998 and for the nine months ended September 30, 1998 and
1999, respectively.
3. Contracts in Process
Contracts in process consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------ September 30,
1997 1998 1999
-------- -------- -------------
(unaudited)
<S> <C> <C> <C>
Costs and estimated profit or loss on
uncompleted contracts.................. $ 10,618 $ 13,488 $--
Less billings to date................... (10,533) (13,349) --
-------- -------- ----
$ 85 $ 139 $--
======== ======== ====
</TABLE>
Unbilled amounts are recorded on a percentage of completion method and are
recoverable upon shipment of the product, presentation of billings, or
completion of the contract.
F-11
<PAGE>
TELAXIS COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------- September 30,
1997 1998 1999
------ ------ -------------
(unaudited)
<S> <C> <C> <C>
Work in process.................................. $ 997 $ 918 $2,332
Parts and subassemblies.......................... 2,165 2,175 2,390
------ ------ ------
$3,162 $3,093 $4,722
====== ====== ======
</TABLE>
5. Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------- September 30,
1997 1998 1999
------- -------- -------------
(unaudited)
<S> <C> <C> <C>
Machinery and equipment................... $ 7,841 $ 10,962 $ 9,139
Furniture and fixtures.................... 622 740 675
Leasehold improvements.................... 1,508 1,980 1,778
Equipment under capital leases............ 2,785 3,469 3,055
------- -------- -------
12,756 17,151 14,647
Less accumulated depreciation and
amortization............................. (9,326) (11,229) (9,201)
------- -------- -------
$ 3,430 $ 5,922 $ 5,446
======= ======== =======
</TABLE>
The net book value of all equipment under capital leases was approximately
$1,581, $1,487 and $1,134 (unaudited) at December 31, 1997 and 1998, and
September 30, 1999, respectively.
Depreciation expense for the years ended December 31, 1996, 1997 and 1998
was $1,101, $1,393 and $1,903, respectively. Depreciation expense for the nine
months ended September 30, 1998 and 1999 was $1,349 (unaudited) and $1,790
(unaudited), respectively.
6. Accrued Expenses
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------- September 30,
1997 1998 1999
------ ------ -------------
(unaudited)
<S> <C> <C> <C>
Accrued payroll, commissions and related
expenses..................................... $ 909 $1,002 $ 736
Accrued warranty expense...................... 342 492 580
Accrued contract costs........................ 647 334 244
Other accrued expenses........................ 70 232 160
Accrued loss on disposition of MMWP segment... -- -- 300
------ ------ ------
$1,968 $2,060 $2,020
====== ====== ======
</TABLE>
7. Lines of Credit
Lines of credit at December 31, 1997 consisted of a collateralized line of
credit of $1,500,000. Collateral for the line of credit consisted of all assets
of the Company. The maximum amount that could be borrowed
F-12
<PAGE>
TELAXIS COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
under this agreement was limited to 80% of bank-approved domestic accounts
receivable plus 75% of bank-approved international accounts receivable.
Interest accrued at the rate of prime plus 1%. (Prime was 8.5% at December 31,
1997.) The line of credit expired on October 31, 1998 and was not renewed by
the Company.
In August 1999, the Company entered into a revolving line of credit
agreement with a bank. The agreement provides for an initial borrowing of up to
$1,000,000, which is increased by $500,000 upon the Company's raising an
additional $3,000,000 in stockholders' equity and increased by $500,000 upon
receipt of a machinery and equipment appraisal, for a total amount available of
$2,000,000. Interest is payable on the outstanding balance of the line at prime
plus 1%. Prime was 8.25% at September 30, 1999. The line is collateralized by
all assets of the Company and expires on August 19, 2000. The agreement
requires the Company to comply with certain covenants, including net income and
tangible net worth. At September 30, 1999, $500,000 (unaudited) was outstanding
under this line of credit.
In connection with the revolving line of credit agreement, the bank received
a warrant to purchase 44,445 shares of the Company's Series E preferred stock
at $2.25 per share (see Note 20). The warrants were recorded at their fair
market value of $71,699 resulting in debt issuance costs of $71,699. These
costs will be amortized over the one year term of the line of credit. The
warrant expires in August 2006.
8. Notes Payable
In April 1999, the Company received $1,000,000 (unaudited) in proceeds from
subordinated promissory notes to certain preferred shareholders, common
stockholders, officers and directors as bridge financing. The notes bear
interest at 9.75% and are payable at the earlier of December 31, 1999 or the
sale of equity securities of the Company of at least $5,000,000. The note
holders received warrants for the purchase of 200,000 shares (unaudited) of the
Company's common stock at an exercise price of $.50 per share (see Note 20).
The warrants were recorded at their fair value of $72,012 resulting in a
discount to the notes of $72,012. This discount was fully amortized as interest
expense when the notes were refinanced in September 1999. The warrants expire
in July 2007.
In July 1999, the Company received an additional $1,000,000 (unaudited) in
proceeds from subordinated promissory notes issued to certain preferred
stockholders, common stockholders, officers and directors as bridge financing.
The notes bear interest at 9.75% and are to be paid in full on the earlier of
December 31, 1999 or the sale of the Company's equity securities having an
aggregate sales price of at least $5,000,000. The note holders received
warrants for the purchase of 200,000 shares (unaudited) of the Company's common
stock at $.50 per share (see Note 20). The warrants were recorded at their fair
value of $178,712 resulting in a discount to the notes of $178,712. This
discount was fully amortized as interest expense when the notes were refinanced
in September 1999. The warrants expire in July 2007.
The subordinated promissory notes required repayment on the earlier of
December 31, 1999 or at the time of sale of at least $5,000,000 of equity
securities. In September 1999, at the noteholder's election, $2,000,000 of such
notes were repaid through the issuance of $2,000,000 of Class E preferred
stock.
F-13
<PAGE>
TELAXIS COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. Long-Term Debt
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December
31,
------------ September 30,
1997 1998 1999
------ ---- -------------
(unaudited)
<S> <C> <C> <C>
Uncollateralized subordinated note, due
December 2000, quarterly principal payments
of $87,500 with interest at 10% (see Note
13).......................................... $1,138 $700 $ 612
Uncollateralized subordinated note, due June
2003, monthly principal payments of $8,333
with interest at 10% (see Note 13)........... 99 29 375
Collateralized equipment notes, due April
2003, monthly principal and interest payments
of $24,695, with interest at 7.8%............ -- -- 941
------ ---- ------
1,237 729 1,928
Less unamortized debt discount................ -- -- (76)
Less current portion.......................... (508) (379) (786)
------ ---- ------
$ 729 $350 $1,066
====== ==== ======
</TABLE>
The maturities of long-term debt outstanding are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(unaudited)
<S> <C> <C>
1999.............................................. $379 $ 786
2000.............................................. 350 502
2001.............................................. -- 364
2002.............................................. -- 276
---- ------
$729 $1,928
==== ======
</TABLE>
During 1997, the Company issued subordinated convertible notes totaling
$1,000,000. In conjunction with these notes, the Company issued a total of
600,000 common stock warrants (see Note 20). In 1997, the $1,000,000
subordinated convertible notes and $2,000,000 subordinated convertible notes
issued previously, together with accrued interest of $43,000, were converted
into 1,690,656 shares of Class D redeemable preferred stock (see Notes 13 and
14).
The subordinated note due June 2003 and the line of credit (Note 7) contain
debt covenant requirements related to financial ratios, including a quick
ratio, debt-to-equity ratio and debt service coverage. The Company was in
default of certain of these covenants as of and for the years ended December
31, 1997 and 1998. The lenders of the line of credit have waived the defaults
as of and for the year ended December 31, 1997. The line of credit expired and
was not renewed in 1998. The lenders of the subordinated note have waived the
default as of and for the year ended December 31, 1998 and through the year
ending December 31, 1999.
In May 1999, the Company entered into a senior loan and security agreement
which provides for the issuance of up to $2,000,000 in promissory notes. As of
September 30, 1999, $941,000 (unaudited) in promissory notes were outstanding
against this agreement. The notes are collateralized by machinery, equipment,
intangible and other assets of the Company. The notes require an additional
interest compensation payment at the end of the term of the notes. The payment,
at the option of the Company, is either 12.5% of the original principal of the
note, or six months of payments in the amount of 2.43% of the original
principal of the note. In conjunction with these notes, the Company issued
44,445 (unaudited) Class E preferred stock warrants which expire in May 2006
(see Notes 14 and 20). The warrants were recorded at their fair value of
$68,787 resulting in a discount to the notes of $68,787. This discount will be
amortized over the term of the notes of four years.
F-14
<PAGE>
TELAXIS COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
In June 1999, the Company paid the balance of its uncollateralized
subordinated note due June 1999 and issued a new uncollateralized subordinated
note due June 2003 to the same lender totaling $400,000 (unaudited). The
previous note due June 1999 required monthly payments of $5,833 with interest
at 10%. In conjunction with the new note due June 2003, the Company issued
40,000 (unaudited) common stock warrants that expire July 2007 (see Notes 14
and 20). The warrants were recorded at their fair value of $14,977 resulting in
a discount to the note of $14,977. This discount will be amortized over the
term of the note of four years. The Company also extended the duration of the
lender's outstanding Class A preferred stock warrants to June 2003.
10. Leases
The Company leases its operating facility and certain equipment under
operating and capital leases which extend through 2003. Certain leases include
renewal options.
Future minimum annual lease payments under these lease agreements at
December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
Year ending Leases Leases
----------- --------- -------
<S> <C> <C>
1999...................................................... $ 659 $ 864
2000...................................................... 242 585
2001...................................................... 149 340
2002...................................................... 91 123
2003...................................................... 60 --
------ ------
Future minimum lease payments............................. $1,201 1,912
======
Less amount representing interest......................... (402)
------
Present value of net minimum lease payments............... 1,510
Less current portion...................................... (813)
------
Long-term portion......................................... $ 697
======
</TABLE>
The Company has a ten-year operating lease for its primary operating
facility. The building lease requires the Company to pay utilities, insurance,
maintenance costs and real estate taxes. The building is leased from a
preferred stockholder.
In addition, the Company leases equipment under various leases for periods
ranging from one to five years. Some of these leases contain options to
purchase the equipment at the termination of the lease at a price equal to fair
market value.
Total rental expense charged to operations under operating leases was
approximately $439,000, $521,000, $624,000, $361,000 (unaudited) and $405,000
(unaudited) for the years ended December 31, 1996, 1997 and 1998 and for the
nine months ended September 30, 1998 and 1999, respectively.
11. Incentive Compensation Plan
The Company maintains an incentive compensation plan. All payouts are at the
Board of Directors' discretion. No compensation expense was recognized under
this plan for the years ended December 31, 1996, 1997 and 1998 or for the nine
months ended September 30, 1998 and 1999.
F-15
<PAGE>
TELAXIS COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
12. Income Taxes
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1997 1998
---- ----- -------
<S> <C> <C> <C>
Continuing operations:
Current tax expense
(benefit):
Federal................. $-- $ 3 $ --
State................... -- (16) --
---- ----- -------
-- (13) --
---- ----- -------
Deferred tax expense
(benefit):
Federal................. -- (529) (981)
State................... -- (98) (181)
---- ----- -------
-- (627) (1,162)
---- ----- -------
Income tax benefit related
to continuing
operations............... -- (640) (1,162)
---- ----- -------
Discontinued operations:
Current tax expense:
Federal................. $-- $ 763 $ 981
State................... 6 141 181
---- ----- -------
6 904 1,162
---- ----- -------
Deferred tax expense:
Federal................. 304 -- --
State................... 18 -- --
---- ----- -------
322 -- --
---- ----- -------
Income tax expense related
to discontinued
operations............... 328 904 1,162
---- ----- -------
Total income tax
expense................ $328 $ 264 $ --
==== ===== =======
</TABLE>
The provision for income taxes differs from the amount computed utilizing
the federal statutory rate of 34% as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
---------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Federal statutory rate.. (34.0)% (34.0)% (34.0)%
State taxes, net of
federal effect......... (6.2) (4.3) (7.6)
Other................... (0.6) 7.6 (2.2)
Change in valuation
allowance.............. 54.3 35.9 43.8
----- ----- -----
13.5% 5.2% 0.0%
===== ===== =====
</TABLE>
F-16
<PAGE>
TELAXIS COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
The tax effects of temporary differences that give rise to deferred tax
assets (liabilities) at December 31, 1997 and 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1998
------------------ -------------------
Current Noncurrent Current Noncurrent
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Inventory reserves................... $ 263 $ -- $ 1,134 $ --
Vacation liability................... 130 -- 173 --
Warranty............................. 75 -- 198 --
Allowance for reserve accounts....... 84 -- 148 --
Accrued contract costs............... 157 -- 121 --
Other................................ 117 (38) 253 (85)
Investment........................... -- -- -- (173)
Depreciation......................... -- 110 -- 138
Tax credit carryovers................ -- 226 -- 383
Net operating loss carryforwards..... -- 4,223 -- 7,231
----- ------- ------- -------
Gross deferred tax benefit........... 826 4,521 2,027 7,494
Valuation allowance.................. (826) (4,521) (2,027) (7,494)
----- ------- ------- -------
$ -- $ -- $ -- $ --
===== ======= ======= =======
</TABLE>
At December 31, 1998, the Company has approximately $18,996 ($11,563 in
1997) of net operating loss carryforwards and $288 ($200 in 1997) of investment
and research and development tax credit carryforwards available for federal
income tax purposes. There are approximately $14,584 of net operating losses
($6,999 in 1997) and approximately $96 in investment and research and
development tax credit carryforwards available in 1998 ($12 in 1997) for state
tax purposes.
Expiration of these carryforwards commenced in 1998 and will continue
through 2013. It is possible that the net operating loss carryforward amounts
that may be used in a single year may be limited.
13. Preferred Stock
The Company has issued and outstanding Class A, B, D and E preferred stock
(see Note 20). Each of the classes has redemption rights, a liquidation
preference, conversion rights, and dividend rights:
. Each Class A, B, D and E share may be converted at the option of the
holder into a share of common stock at a price of $3.25, $3.25, $1.80
and $2.25, respectively. Conversion would occur automatically upon a
public offering resulting in gross proceeds of at least $15,000,000 and
with an offering price of at least $9.75, $9.75, $9.75 and $4.50 per
share for the Class A, B, D, and E shares, respectively. Each Class D
and E share would automatically be converted into common stock upon the
conversion of 90% or more of the authorized stock of the class.
. The Class A, B, D and E shares have a liquidation preference in the
amount of $3.25, $3.25, $1.80 and $2.25, respectively, plus all declared
and unpaid dividends.
. The holders of Class A, B, D and E shares are entitled to receive, when
and as declared by the Board of Directors, non-cumulative annual cash
dividends of $.26, $.26, $.144 and $.18 per share, respectively. No
dividends have been declared by the Board of Directors.
. Certain of the classes of preferred stock have liquidation rights,
voting rights and cash dividend rights in preference to the other
preferred stock.
During 1997, the stockholders authorized 400,000 shares of preferred stock
to be known as Class C preferred stock. The Class C shares are entitled to one
vote per share at any stockholders' meeting. During
F-17
<PAGE>
TELAXIS COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
1998, the stockholders reduced the authorized shares of Class C to zero and at
December 31, 1998, there were no Class C preferred shares outstanding.
During 1997, the Company issued 7,200,000 shares of Class D preferred stock
at $1.80 per share for an aggregate of $12,960,000 (see Note 20). As part of
the Class D preferred stock issue, the holders of the Company's subordinated
convertible notes agreed to convert the principal amount of $3,000,000 and
accrued interest of $43,000 into 1,690,656 shares of Class D preferred stock
(see Notes 9 and 20). The balance of the proceeds, equal to $9,917,000, was
received in cash.
During 1998, the Company issued 3,274,841 shares of Class E preferred stock
at $2.25 per share for an aggregate of $7,368,000 (see Note 20). In September
1999, the Company issued 6,666,667 (unaudited) shares of its Series E preferred
stock for $15,000,000 (unaudited), prior to issuance expenses (see Note 20). Of
the total proceeds, approximately $2,000,000 (unaudited) was used to retire the
$2,000,000 (unaudited) in subordinated promissory notes from the bridge
financings, resulting in approximately $13,000,000 (unaudited) of net proceeds.
The Company shall offer to redeem the Class A and Class B preferred shares
at the rate of 20% per year at $3.25 per share, plus an amount equal to all
declared and unpaid dividends. All Class A and Class B redemptions can be
waived at the option of two-thirds of the respective Class A or Class B
preferred stockholders. As part of the agreement in 1998 to issue Class E
preferred stock, the Class A and Class B preferred stockholders elected to
postpone their redemption rights until 2003.
On October 21, 2003 and on the first and second anniversaries thereof, the
Company shall offer to redeem from each Class D and Class E preferred holder, a
maximum of one-third, two-thirds and one hundred percent, respectively, of the
total number of shares held by each stockholder at a price equal to the greater
of $1.80 and $2.25, respectively, plus all declared and unpaid dividends, or
the fair market value as determined by the Board of Directors (see Note 20).
The Class D preferred stockholders agreed to postpone their redemption from
2002 to 2003, as part of the 1998 Class E preferred stock issuance.
The Company has recorded all of its Class A, B, D, and E redeemable
preferred stock at the maximum redemption amount as of each balance sheet date
presented.
The aggregate amounts of potential required future redemptions as of
December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Class A Class B Class D Class E
------------- ------------- -------------- -------------
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999............... -- $ -- -- $ -- -- $ -- -- $ --
2000............... -- -- -- -- -- -- -- --
2001............... -- -- -- -- -- -- -- --
2002............... -- -- -- -- -- -- -- --
2003............... 609 1,980 158 513 2,400 4,320 1,092 2,456
Thereafter......... 2,437 7,919 632 2,053 4,800 8,640 2,183 4,912
----- ------ --- ------ ----- ------- ----- ------
3,046 $9,899 790 $2,566 7,200 $12,960 3,275 $7,368
===== ====== === ====== ===== ======= ===== ======
</TABLE>
F-18
<PAGE>
TELAXIS COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
14. Stock Warrants
The Company has issued stock warrants for its preferred and common stock as
follows:
<TABLE>
<CAPTION>
Class A Class E
Preferred Stock Preferred Stock Common Stock
------------------- --------------- --------------------
Exercise
Exercise Number Price Exercise
Number of Price Per of Per Number of Price Per
Shares Share Shares Share Shares Share
--------- --------- ------ -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Exercisable at December
31, 1995............... 28,000 $3.25 -- -- 125,000 $0.50
Granted................. -- -- -- -- 1,200,000 0.50
------ ----- ------ ----- --------- -----
Exercisable at December
31, 1996............... 28,000 3.25 -- -- 1,325,000 0.50
Granted................. -- -- -- -- 600,000 0.50
------ ----- ------ ----- --------- -----
Exercisable at December
31, 1997............... 28,000 3.25 -- -- 1,925,000 0.50
Granted................. -- -- -- -- -- --
------ ----- ------ ----- --------- -----
Exercisable at December
31, 1998............... 28,000 3.25 -- -- 1,925,000 0.50
Granted................. -- -- 88,890 $2.25 440,000 0.50
Exercised .............. -- -- -- -- (22,500) 0.50
------ ----- ------ ----- --------- -----
Exercisable at September
30, 1999 (unaudited)
(See Note 20).......... 28,000 $3.25 88,890 $2.25 2,342,500 $0.50
====== ===== ====== ===== ========= =====
</TABLE>
The Company issued 1,200,000, 600,000, and 40,000 (unaudited) common stock
warrants during 1996, 1997 and the nine months ended September 30, 1999 in
conjunction with subordinated convertible debt of $2,000,000 and $1,000,000 and
a subordinated note of $400,000, respectively (see Notes 9 and 20). In
addition, 400,000 common stock warrants were issued during the nine months
ended September 30, 1999 in conjunction with the bridge financing (see Notes 7
and 20).
The outstanding common stock warrants have an exercise price of $.50 and
expire as follows (see Note 20):
<TABLE>
<CAPTION>
Expiration
Number of Warrants Date
------------------ --------------
<S> <C>
102,500....................................................... December 2000
1,200,000..................................................... September 2006
840,000....................................................... July 2007
</TABLE>
The outstanding Class A preferred stock warrants have an exercise price of
$3.25 and expire in June 2003 (see Notes 8 and 20). The outstanding Class E
preferred stock warrants have an exercise price of $2.25 and expire in May 2006
(see Notes 9 and 20).
15. Stock Options and Common Stock Issued
The Company has stock option plans that provide for the granting of options
to employees, directors and consultants (see Note 20). The plans permit the
granting of options to purchase a maximum of 2,327,534 shares of common stock
at prices and require that the options be exercisable at the prices and at the
times as determined by the Board of Directors, not to exceed ten years from
date of issuance.
As of December 31, 1998, 2,405,955 options are available for issuance under
these plans. However, the Class D preferred stockholders' agreement limits the
number of additional options that may be issued without the approval of the
Class D stockholders. As of December 31, 1998, under this agreement,
approximately 881,000 of the total 2,405,955 options available may be granted
by the Board of Directors without approval by the Class D stockholders. The
stock options for employees generally have a vesting requirement of four years
whereby 20% of the options granted vest at the time of issuance and the
remainder vest at a rate of 20% per year on the anniversary date of the
issuance.
F-19
<PAGE>
TELAXIS COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
The aggregate stock option transactions for these plans are as follows:
<TABLE>
<CAPTION>
Number of Weighted average
Shares exercise price
--------- ----------------
<S> <C> <C>
Balance, December 31, 1995..................... 983,300 $0.50
Granted...................................... 375,000 0.50
Exercised.................................... (11,500) 0.50
Canceled or expired.......................... (366,900) 0.50
--------- -----
Balance, December 31, 1996..................... 979,900 0.50
Granted...................................... 410,000 0.50
Exercised.................................... (85,700) 0.50
--------- -----
Balance, December 31, 1997 (745,700
exercisable).................................. 1,304,200 0.50
Granted...................................... 1,880,773 0.50
Exercised.................................... (4,526) 0.50
Canceled or expired.......................... (705,728) 0.50
--------- -----
Balance, December 31, 1998 (1,355,006
exercisable).................................. 2,474,719 0.50
Granted...................................... 1,177,973 1.41
Exercised.................................... (330,552) 0.53
Canceled or expired.......................... (153,286) 0.50
--------- -----
Balance, September 30, 1999 (1,252,473
exercisable)(unaudited) (See Note 20)......... 3,168,854 $0.84
========= =====
</TABLE>
The weighted average contractual life of options outstanding at December 31,
1998 is 6.8 years.
Additionally, the Company has options outstanding at December 31, 1998 to
purchase 2,000 shares of the Company's common stock for $1.00 per share and
270,000 shares of the Company's common stock for $.50 per share (see Note 20).
The option to purchase 2,000 shares was granted to a consultant under a
restricted stock purchase agreement. The option to purchase 270,000 shares was
granted in 1996 under the terms of a sales agreement (see Note 19).
During the nine months ended September 30, 1999, the Company issued 225,000
(unaudited) shares of restricted common stock at $1.25 per share to an officer
in exchange for a note receivable (see Note 20). The note bears interest at
6.25% and matures in September 2009. In the event the individual is no longer
employed by the Company, the Company retains the right to repurchase the
shares. This repurchase right expires at a rate of 20% upon sale and 20% per
year each anniversary date of the issuance. The Company recognized $225,000 in
unearned compensation for the difference between the fair value of the stock
and the purchase price in this transaction. For the nine months ended September
30, 1999, the Company recognized $46,875 (unaudited) in compensation expense.
The Company granted options to non-employees during the nine months ended
September 30, 1999 and accordingly recognized $225,000 (unaudited) in non-cash
compensation expense.
F-20
<PAGE>
TELAXIS COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its stock-based
compensation plans. Had compensation cost for the Company's stock option plans
been determined under SFAS No. 123, Accounting for Stock-Based Compensation,
the Company's pro forma net loss and net loss per share would have been as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
1996 1997 1998
------- ------- -------
(in thousands, except
per share data)
<S> <C> <C> <C>
Net loss:
As reported..................................... $(2,769) $(5,370) $(9,529)
Pro forma....................................... (2,795) (5,412) (9,662)
Net loss per share:
As reported..................................... (5.13) (11.33) (19.37)
Pro forma....................................... (5.18) (11.42) (19.64)
</TABLE>
The above pro forma effects may not be representative of the effects for
future years, as option grants typically vest over several years and additional
options are generally granted each year.
The fair value of each option grant has been estimated on the date of grant
using the minimum value pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate........................... 6.84% 6.47% 5.58%
Expected life..................................... 8 years 8 years 8 years
Volatility........................................ 0% 0% 0%
Dividend yield.................................... -- -- --
</TABLE>
The weighted average fair value of those options granted in 1996, 1997 and
1998 was $0.21, $0.20 and $0.18, respectively.
16. Common and Preferred Stock Reserved (see Note 20)
During 1998, the stockholders authorized an additional 5,000,000 shares of
common stock.
As a result of the outstanding preferred stock, outstanding stock warrants,
stock option plans and restricted stock purchase agreement, the Company has
reserved 18,700,073 shares of common stock at December 31, 1997 and 22,263,841
shares at December 31, 1998, and 28,000 shares of Class A preferred stock at
December 31, 1997 and 1998.
During the nine months ended September 30, 1999, the stockholders voted to
authorize 4,500,000 (unaudited) shares of preferred stock $.01 par value, to
increase the authorized shares of the Series E preferred stock to 11,000,000
(unaudited) and to increase the authorized shares of common stock to 36,000,000
(unaudited).
17. Segment Information
During 1998, the Company adopted the provisions of FASB Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information. FASB
Statement No. 131 establishes standards for disclosures about operating
segments, products and services, geographic areas and major customers.
F-21
<PAGE>
TELAXIS COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Prior to the Company's decision to discontinue its millimeter-wave products
(MMWP) business segment (see Note 2), the Company developed and manufactured
products in two business segments, the MMWP and broadband wireless access (BWA)
segments. As a result of this decision, the Company now operates in only the
BWA segment. Products of the BWA segment include hub and customer premises
equipment.
The BWA segment's sales by country are (in thousands):
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, September 30,
------------------ -----------------------
1996 1997 1998 1998 1999
---- ------ ------ ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
United States..................... $173 $ 225 $1,153 $ 431 $ 862
Canada............................ 1 -- 713 566 4,579
Other countries................... 27 1,508 520 450 63
---- ------ ------ ------ ------
$201 $1,733 $2,386 $1,447 $5,504
==== ====== ====== ====== ======
</TABLE>
The Company's research and production facilities and accompanying long-lived
assets are located in the United States.
Sales to individual customers in excess of 10% of total BWA segment revenues
are presented in the following table (in thousands):
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, September 30,
------------------ -----------------------
1996 1997 1998 1998 1999
---- ------ ------ ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Individual customers in excess
of 10% of revenues:
Customer A.................... $ 20 $ -- $ -- $ -- $ --
Customer B.................... 95 -- -- -- --
Customer C.................... 59 -- -- -- --
Customer D.................... 27 674 -- -- --
Customer E.................... -- 584 -- -- --
Customer F.................... -- -- 296 296 --
Customer G.................... -- -- 614 -- 612
Customer H.................... -- -- 713 566 4,579
Customer I ................... -- -- -- 316 --
---- ------ ------ ------ ------
201 1,258 1,623 1,178 5,191
Other customers................ -- 475 763 269 313
---- ------ ------ ------ ------
Total sales.................... $201 $1,733 $2,386 $1,447 $5,504
==== ====== ====== ====== ======
</TABLE>
18. Employee Savings and Profit-Sharing Plan
The Company sponsors an employee savings and profit-sharing plan for all
employees. Full-time employees become eligible for participation after one-half
year of service. The Company provides a 50% matching of employee contributions,
up to a maximum of $2,000 ($1,750 in 1997). An additional contribution is
determined at the discretion of the Board of Directors.
The Company's contributions to this plan amounted to approximately $132,000,
$147,000 and $191,000 for the years ended December 31, 1996, 1997 and 1998 and
$158,000 (unaudited) and $199,000 (unaudited) for the nine months ended
September 30, 1998 and 1999, respectively.
F-22
<PAGE>
TELAXIS COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
19. Related-Party Transactions
The Company had sales to a preferred stockholder of approximately $728,000,
$1,028,000 and $953,000 during 1996, 1997 and 1998, and $752,000 (unaudited)
and $1,084,000 (unaudited) for the nine months ended September 30, 1998 and
1999, respectively. Included in accounts receivable at December 31, 1997 and
1998 are approximately $378,000 and $160,000 due from these sales. These
transactions comprise subcontracts associated with the preferred stockholder's
contracts with the U.S. Government, and are contracted under federal
contracting guidelines. The sales and related accounts receivable from this
customer are included in discontinued operations.
The Company holds a promissory note receivable of $250,000 as the result of
a 1996 license and sales agreement with a limited liability company established
and partly owned by a former stockholder/employee. The Company also owns a
19.9% interest in the company. At December 31, 1997 and 1998, the Company has
reserved for the entire amount due on the note receivable of approximately
$213,000 and $200,000, respectively, and has no value assigned to its 19.9%
interest in the limited liability company. The Company has obtained a judgment
against the limited liability company in the amount of approximately $378,000.
In October 1999, the Company renegotiated that transaction with Millimetrix and
involved Millivision, L.L.C., a joint venture between Millimetrix and one other
entity. The Company released Millimetrix and Dr. Huguenin from substantially
all claims, including the $378,000 judgment, and Millimetrix released any
claims to the intellectual property relating to the Company's contraband
detection systems business. Millivision agreed to pay the Company royalties in
the minimum amount of $200,000. Millimetrix, Millivision and Dr. Huguenin also
agreed not to compete with the Company with respect to broadband wireless
telecommunications equipment.
20. Subsequent Events
On October 13, 1999, the stockholders voted to change the name of the
Company from Millitech Corporation to Telaxis Communications Corporation. In
addition, the shareholders voted to increase the authorized shares of common
stock to 100,000,000.
On December 16, 1999, the stockholders voted to effect a one for two reverse
stock split effective as of that date. The terms of the then outstanding
preferred stock, preferred stock warrants, common stock options and common
stock warrants provide for a similar one for two adjustment on their conversion
and exercise prices, respectively. The September 30, 1999 balance sheet and the
accompanying shares outstanding and per share earnings (loss) amounts for the
years ended December 31, 1998, 1997 and 1996 and for the nine months ended
September 30, 1999 and 1998 have been adjusted to reflect this reverse stock
split.
F-23
<PAGE>
[Graphic depiction of our two families of broadband point-to-multipoint wireless
access products. This includes two photographs, one labeled "Modular Products"
with a description that reads "Rapidly tailored for competitive trials and
initial commercial deployments". The second photograph is labeled "Planar
Products" with a description that reads "Mass-produced using low-cost, highly
automated manufacturing techniques".]
<PAGE>
[Logo of Telaxis Communications Corporation]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses (other than the underwriting
compensation expected to be incurred) in connection with the offering described
in this Registration Statement. All of the amounts (except the SEC Registration
Fee, the NASD Filing Fee and The Nasdaq Stock Market's National Market Listing
Fee) are estimates.
<TABLE>
<S> <C>
SEC Registration Fee................................................ $ 21,682
NASD Filing Fee..................................................... 7,860
The Nasdaq Stock Market's National Market Listing Fee............... 95,000
Blue Sky Fees and Expenses.......................................... 7,500
Printing and Engraving Costs........................................ 100,000
Legal Fees and Expenses............................................. 350,000
Accounting Fees and Expenses........................................ 350,000
Transfer Agent and Registrar Fees and Expenses...................... 10,000
Miscellaneous....................................................... 57,958
----------
Total............................................................. $1,000,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Section 67 of Chapter 156B of the Massachusetts General Laws, or the
Massachusetts Business Corporation Law (the "MBCL"), provides that the
indemnification of directors, officers, employees and other agents of a
corporation, and persons who serve at its request as directors, officers,
employees or other agents of another organization, or who serve at its request
in any capacity with respect to any employee benefit plan, may be provided by
it to whatever extent shall be specified in or authorized by (i) the articles
of organization or (ii) a by-law adopted by the stockholders or (iii) a vote
adopted by the holders of a majority of the shares of stock entitled to vote on
the election of directors. Except as the articles of organization or by-laws
otherwise require, indemnification of any such persons who are not directors of
the corporation may be provided by it to the extent authorized by the
directors. Such indemnification may include payment by the corporation of
expenses incurred in defending a civil or criminal action or proceeding in
advance of the final disposition of such action or proceeding, upon receipt of
an undertaking by the person indemnified to repay such payment if he shall be
adjudicated not to be entitled to indemnification, which undertaking may be
accepted without reference to the financial ability of such person to make
repayment. Any such indemnification may be provided although the person to be
indemnified is no longer an officer, director, employee or agent of the
corporation or of such other organization or no longer serves with respect to
any such employee benefit plan. Section 67 further provides that no
indemnification shall be provided for any person with respect to any matter as
to which he shall have been adjudicated in any proceeding not to have acted in
good faith in the reasonable belief that his action was in the best interest of
the corporation or, to the extent that such matter relates to service with
respect to any employee benefit plan, in the best interests of the participants
or beneficiaries of such employee benefit plan.
The Company's by-laws provide that the Company shall indemnify each person
who is, or shall have been, a director, officer, employee or agent of the
Company, or who is serving or shall have served, at the request of the Company,
as a director or officer of another organization or in any capacity with
respect to any employee benefit plan of the Company, against all liabilities
and expenses (including judgments, fines, penalties, amounts paid or to be paid
in settlement and reasonable attorney's fees) imposed upon or incurred by any
such person in connection with or arising out of claims made, or any action,
suit or proceeding threatened or brought against him or in which he may be
involved by reason of any action taken omitted by him as a director, officer,
employee or agent, or as a result of any service with respect to any such
employee benefit plan.
II-1
<PAGE>
Section 13(b)(1 1/2) of Chapter 156B of the MBCL permits a corporation to
include in its articles of organization a provision eliminating or limiting the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 61 or
62 of the MBCL (relating to unlawful payment of dividends, unlawful stock
purchase and redemption and loans to insiders) or (iv) for any transaction from
which the director derived an improper personal benefit. Article VI of the
Company's Articles of Organization provides that the Company's directors shall
not be liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, expect in the circumstances set forth
in the MBCL.
Section 67 of the MBCL also affords a Massachusetts corporation the power to
obtain insurance on behalf of its directors and officers against liabilities
incurred by them in those capacities. The Company currently maintains a
directors and officers liability insurance policy.
The Underwriting Agreement filed as Exhibit 1.1 provides that the
Underwriters named therein will indemnify and hold harmless the Company and
each director, officer or controlling person of the Company from and against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"), and the Underwriting Agreement provides that
such Underwriters will contribute to certain liabilities of such persons under
the Securities Act.
Item 15. Recent Sales of Unregistered Securities.
The Company has issued or sold the following unregistered securities within
the past three years:
. an aggregate of 262,376 shares of common stock at prices ranging from
$1.00 to $4.50 per share through December 31, 1999 to our employees,
directors and consultants upon the exercise of options held by those
individuals and issued under one or more of our stock plans;
. an aggregate of 8,325 shares of common stock at $1.00 per share in
December 1999 to a warrant holder upon the exercise of warrants;
. stock options to purchase an aggregate of 143,749 shares of common stock
at an exercise price of $12.60 per share in December 1999 to a total of 53
employees and consultants under the Company's 1997 Stock Plan.
. stock options to purchase an aggregate of 69,000 shares of common stock
at an exercise price of $8.00 per share in November 1999 to a total of 7
employees under the Company's 1997 Stock Plan;
. 4,074 shares of common stock at $2.25 per share in November 1999 to an
executive recruitment firm pursuant to a contractual obligation;
. 112,500 shares of restricted common stock at $2.50 per share in
September 1999 under our 1997 Stock Plan to one employee;
. an aggregate of 6,666,667 shares of Class E preferred stock at $2.25 per
share in September 1999 to 47 accredited investors;
. an aggregate of 11,250 shares of common stock at $1.00 per share in
September 1999 to one accredited investor upon the exercise of warrants
held by that individual that were issued in September 1996 and July
1997;
. stock options to purchase an aggregate of 185,943 shares of common stock
at an exercise price of $4.50 per share between August 24, 1999 and
September 13, 1999 to a total of 177 employees, directors and
consultants under the Company's 1997 stock plan;
. a warrant to purchase 44,445 shares of Class E preferred stock at $2.25
per share in August 1999 to a commercial lender;
. warrants to purchase an aggregate of 100,000 shares of common stock at
$1.00 per share in July 1999 to 12 accredited investors;
II-2
<PAGE>
. stock options to purchase an aggregate of 277,112 shares of common stock
at an exercise price of $2.50 per share between July 14, 1999 and August
2, 1999 to a total of 11 employees, directors and consultants under the
Company's 1997 stock plan;
. a warrant to purchase 20,000 shares of common stock at $1.00 per share
in June 1999 to one accredited investor;
. a warrant to acquire 44,445 shares of Class E preferred stock at $2.25
per share in May 1999 to a lease financing company;
. warrants to purchase an aggregate of 100,000 shares of common stock at
$1.00 per share in April 1999 to 14 accredited investors;
. an aggregate of 3,274,841 shares of Class E preferred stock at $2.25 per
share in October, November and December 1998 to 32 accredited investors;
. an aggregate of 7,200,000 shares of Class D preferred stock at $1.80 per
share in November and December 1997 to 38 accredited investors;
. warrants to acquire an aggregate of 900,000 shares of common stock at
$1.00 per share in September 1996 and July 1997 to 23 accredited
investors;
. stock options to purchase an aggregate of 1,270,067 shares of common
stock at an exercise price of $1.00 per share between October 1, 1996
and May 18, 1999 to a total of 189 employees, directors and consultants
under the Company's 1997 stock plan;
The foregoing numbers relating to our common stock have been adjusted to
reflect the one for two reverse stock split which became effective on December
16, 1999. As a result of the reverse stock split, every two shares of our
preferred stock will convert into one share of our common stock upon the
closing of this offering.
Each of the sales described above were completed without registration under
the Securities Act in reliance upon one or more of the following exemptions:
. Section 4(2) of the Securities Act or Rule 506 of Regulation D
promulgated under the Securities Act for transactions not involving a
public offering; or
. Rule 701 promulgated under the Securities Act with respect to certain of
the options and shares of common stock issued to the Company's
employees, directors and consultants.
None of the sales of the securities issued by the Company have involved the
use of an underwriter, and no commissions were paid in connection with the sale
of any of the securities issued by the Company.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.****
3.1 Restated Articles of Organization of the Company, as amended.***
3.2 Amended and Restated By-laws of the Company.**
4.1 Form of certificate evidencing ownership of Common Stock of the
Company.***
5.1 Opinion of Mirick, O'Connell, DeMallie & Lougee, LLP.****
10.1 1986 Stock Plan of the Company.
10.2 1987 Stock Plan of the Company.
10.3 1988 Stock Plan of the Company.
10.4 1996 Stock Plan of the Company.
10.5 1997 Stock Plan of the Company.
10.6 1999 Stock Plan of the Company.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.7 Employment Agreement by and between the Company and John L. Youngblood
dated January 25, 1994.
10.8 Reseller Agreement by and between the Company and Newbridge Networks
Corporation dated August 7, 1998.+
10.9 Professional Services Agreement by and between the Company and
Newbridge Networks Corporation dated August 7, 1998.+
10.10 Revised Purchase Order by and between the Company and Motorola dated
September 20, 1999.+
10.11 Supply Agreement by and between the Company and California Amplifier,
Inc. dated October 14, 1999.+
10.12 Lease by and between the Company and Edward J. O'Leary-Raymond M.
Vincunas Partnership dated January 16, 1990.**
10.13 Lease by and between the Company and Lloyd C. Green and Mildred E.
Green dated June 30, 1998.**
10.14 Revolving Line of Credit Agreement by and between the Company and
Boston Federal Savings Bank dated August 20, 1999.
10.15 Fourth Amended and Restated Registration Rights Agreement dated
September 17, 1999.**
10.16 Registration Rights Agreement by and between the Company and Boston
Federal Savings Bank dated August 20, 1999.
10.17 Registration Rights Agreement by and between the Company and Phoenix
Leasing Incorporated dated May 19, 1999.**
10.18 Purchase Agreement by and between the Company and Massachusetts
Technology Development Corporation dated June 1988.**
10.19 First Amendment to the Purchase Agreement by and between the Company
and Massachusetts Technology Development Corporation dated December
28, 1988.***
10.20 Second Amendment to the Purchase Agreement by and between the Company
and Massachusetts Technology Development Corporation dated June 17,
1999.***
10.21 Employee Stock Purchase Agreement by and between the Company and
Mervyn Fitzgerald dated September 16, 1999.***
10.22 Tax Agreement by and between the Company and Mervyn Fitzgerald dated
September 16, 1999.***
10.23 Memorandum of Understanding by and between the Company and C-MAC
Industries Inc. dated December 20, 1999.****
23.1 Consent of PricewaterhouseCoopers LLP.****
23.2 Consent of Mirick, O'Connell, DeMallie & Lougee, LLP (incorporated in
the Opinion as filed as Exhibit 5.1 above).
24.1 Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ---------------------
All non-marked Exhibits listed above were filed with the Commission on
September 27, 1999.
* To be filed by amendment.
** Filed with Amendment No. 1.
*** Filed with Amendment No. 2.
**** Filed with this Amendment No. 3.
+ Refiled with this Amendment No. 3. Certain portions of this Exhibit have
been omitted pursuant to a request for confidential treatment filed with
the Commission.
(b) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
All other financial statement schedules have been omitted because they are
not required, not applicable, or the information to be included in the
financial statement schedules is included in the Financial Statements or the
notes thereto.
II-4
<PAGE>
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance on 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 is declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Boston, Commonwealth of Massachusetts, on January 10, 2000.
Telaxis Communications Corporation
By: /s/ John L. Youngblood*
----------------------------------
John L. Youngblood
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to 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/ John L. Youngblood* President, Chief Executive January 10, 2000
______________________________________ Officer and Director
John L. Youngblood
/s/ Dennis C. Stempel Vice President, Chief January 10, 2000
______________________________________ Financial Officer,
Dennis C. Stempel Treasurer, and Principal
Accounting Officer
/s/ Albert E. Paladino* Director January 10, 2000
______________________________________
Albert E. Paladino
/s/ Allan M. Doyle, Jr.* Director January 10, 2000
______________________________________
Allan M. Doyle, Jr.
/s/ Robert C. Fleming* Director January 10, 2000
______________________________________
Robert C. Fleming
/s/ James W. Fordyce* Director January 10, 2000
______________________________________
James W. Fordyce
/s/ David A. Norbury* Director January 10, 2000
______________________________________
David A. Norbury
/s/ Matthew S. Robison* Director January 10, 2000
______________________________________
Matthew S. Robison
</TABLE>
* By Dennis C. Stempel, attorney-in-fact pursuant to a Power of Attorney
previously filed.
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.****
3.1 Restated Articles of Organization of the Company, as amended.***
3.2 Amended and Restated By-laws of the Company.**
4.1 Form of certificate evidencing ownership of Common Stock of the
Company.***
5.1 Opinion of Mirick, O'Connell, DeMallie & Lougee, LLP.****
10.1 1986 Stock Plan of the Company.
10.2 1987 Stock Plan of the Company.
10.3 1988 Stock Plan of the Company.
10.4 1996 Stock Plan of the Company.
10.5 1997 Stock Plan of the Company.
10.6 1999 Stock Plan of the Company.
10.7 Employment Agreement by and between the Company and John L. Youngblood
dated January 25, 1994.
10.8 Reseller Agreement by and between the Company and Newbridge Networks
Corporation dated August 7, 1998.+
10.9 Professional Services Agreement by and between the Company and
Newbridge Networks Corporation dated August 7, 1998.+
10.10 Revised Purchase Order by and between the Company and Motorola dated
September 20, 1999.+
10.11 Supply Agreement by and between the Company and California Amplifier,
Inc. dated October 14, 1999.+
10.12 Lease by and between the Company and Edward J. O'Leary-Raymond M.
Vincunas Partnership dated January 16, 1990.**
10.13 Lease by and between the Company and Lloyd C. Green and Mildred E.
Green dated June 30, 1998.**
10.14 Revolving Line of Credit Agreement by and between the Company and
Boston Federal Savings Bank dated August 20, 1999.
10.15 Fourth Amended and Restated Registration Rights Agreement dated
September 17, 1999.**
10.16 Registration Rights Agreement by and between the Company and Boston
Federal Savings Bank dated August 20, 1999.
10.17 Registration Rights Agreement by and between the Company and Phoenix
Leasing Incorporated dated May 19, 1999.**
10.18 Purchase Agreement by and between the Company and Massachusetts
Technology Development Corporation dated June 1988.**
10.19 First Amendment to the Purchase Agreement by and between the Company
and Massachusetts Technology Development Corporation dated December
28, 1988.***
10.20 Second Amendment to the Purchase Agreement by and between the Company
and Massachusetts Technology Development Corporation dated June 17,
1999.***
10.21 Employee Stock Purchase Agreement by and between the Company and
Mervyn Fitzgerald dated September 16, 1999.***
10.22 Tax Agreement by and between the Company and Mervyn Fitzgerald dated
September 16, 1999.***
10.23 Memorandum of Understanding by and between the Company and C-MAC
Industries Inc. dated
December 20, 1999.****
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
23.1 Consent of PricewaterhouseCoopers LLP.****
23.2 Consent of Mirick, O'Connell, DeMallie & Lougee, LLP (incorporated in
the Opinion as filed as Exhibit 5.1 above).
24.1 Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ---------------------
All non-marked Exhibits listed above were filed with the Commission on
September 27, 1999.
* To be filed by amendment.
** Filed with Amendment No. 1.
*** Filed with Amendment No. 2.
**** Filed with this Amendment No. 3.
+ Refiled with this Amendment No. 3. Certain portions of this Exhibit have
been omitted pursuant to a request for confidential treatment filed with
the Commission.
<PAGE>
Exhibit 1.1
4,000,000
Telaxis Communications Corporation
Common Stock
UNDERWRITING AGREEMENT
----------------------
, 2000
Credit Suisse First Boston Corporation
Banc of America Securities LLC
CIBC World Markets Corp.,
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Ladies and Gentlemen:
1. Introductory. Telaxis Communications Corporation, a Massachusetts
corporation ("COMPANY"), proposes to issue and sell 4,000,000 shares ("FIRM
SECURITIES") of its common stock, $0.01 par value ("SECURITIES"), and also
proposes to issue and sell to the Underwriters, at the option of the
Underwriters, an aggregate of not more than 600,000 additional shares ("OPTIONAL
SECURITIES") of its Securities as set forth below. The Firm Securities and the
Optional Securities are herein collectively called the "OFFERED SECURITIES". As
part of the offering contemplated by this Agreement, Credit Suisse First Boston
Corporation ("CSFBC" or the "DESIGNATED UNDERWRITER") has agreed to reserve out
of the Firm Securities purchased by it under this Agreement, up to 200,000
shares, for sale to the Company's directors, officers, employees and other
parties associated with the Company (collectively, "PARTICIPANTS"), as set forth
in the Prospectus (as defined herein) under the heading "Underwriting" (the
"DIRECTED SHARE PROGRAM"). The Firm Securities to be sold by the Designated
Underwriter pursuant to the Directed Share Program (the "DIRECTED SHARES") will
be sold by the Designated Underwriter pursuant to this Agreement at the public
offering price. Any Directed Shares not orally confirmed for purchase by a
Participant by the end of the business day on which this Agreement is executed
will be offered to the public by the Underwriters as set forth in the
Prospectus. The Company hereby agrees with the several Underwriters named in
Schedule A hereto ("UNDERWRITERS") as follows:
2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333-87885) relating to the Offered
Securities, including a form of prospectus, has been filed with the
Securities and Exchange
<PAGE>
Commission ("COMMISSION") and either (i) has been declared effective under
the Securities Act of 1933, as amended ("ACT") and is not proposed to be
amended or (ii) is proposed to be amended by amendment or post-effective
amendment. If such registration statement ("INITIAL REGISTRATION
STATEMENT") has been declared effective, either (i) an additional
registration statement ("ADDITIONAL REGISTRATION STATEMENT") relating to
the Offered Securities may have been filed with the Commission pursuant to
Rule 462(b) ("RULE 462(B)") under the Act and, if so filed, has become
effective upon filing pursuant to such Rule and the Offered Securities all
have been duly registered under the Act pursuant to the initial
registration statement and, if applicable, the additional registration
statement or (ii) such an additional registration statement is proposed to
be filed with the Commission pursuant to Rule 462(b) and will become
effective upon filing pursuant to such Rule and upon such filing the
Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such additional
registration statement. If the Company does not propose to amend the
initial registration statement or if an additional registration statement
has been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("RULE 462(c)") under the Act
or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "EFFECTIVE TIME" with respect to the initial
registration statement or, if filed prior to the execution and delivery of
this Agreement, the additional registration statement means (i) if the
Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment thereto
(if any) filed prior to the execution and delivery of this Agreement, was
declared effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (ii) if the Company has advised the
Representatives that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as of which
such registration statement, as amended by such amendment or post-effective
amendment, as the case may be, is declared effective by the Commission. If
an additional registration statement has not been filed prior to the
execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "EFFECTIVE TIME" with respect
to such additional registration statement means the date and time as of
which such registration statement is filed and becomes effective pursuant
to Rule 462(b). "EFFECTIVE DATE" with respect to the initial registration
statement or the additional registration statement (if any) means the date
of the Effective Time thereof. The initial registration statement, as
amended at its Effective Time, including all information contained in the
additional registration statement (if any) and deemed to be a part of the
initial registration statement as of the Effective Time of the additional
registration statement pursuant to the General Instructions of the Form on
which it is filed and including all information (if any) deemed to be a
part of the initial registration statement as of its Effective Time
pursuant to Rule 430A(b) ("RULE 430A(B)") under the Act, is hereinafter
referred to as the "INITIAL REGISTRATION STATEMENT". The
2
<PAGE>
additional registration statement, as amended at its Effective Time,
including the contents of the initial registration statement incorporated
by reference therein and including all information (if any) deemed to be a
part of the additional registration statement as of its Effective Time
pursuant to Rule 430A(b), is hereinafter referred to as the "ADDITIONAL
REGISTRATION STATEMENT". The Initial Registration Statement and the
Additional Registration Statement are herein referred to collectively as
the "REGISTRATION STATEMENTS" and individually as a "REGISTRATION
STATEMENT". The form of prospectus relating to the Offered Securities, as
first filed with the Commission pursuant to and in accordance with Rule
424(b) ("RULE 424(B)") under the Act or (if no such filing is required) as
included in a Registration Statement, is hereinafter referred to as the
"PROSPECTUS". No document has been or will be prepared or distributed in
reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (i) on the Effective
Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all respects to the requirements of the Act and the
rules and regulations of the Commission ("RULES AND REGULATIONS") and did
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) on the Effective Date of the
Additional Registration Statement (if any), each Registration Statement
conformed, or will conform, in all respects to the requirements of the Act
and the Rules and Regulations and did not include, or will not include, any
untrue statement of a material fact and did not omit, or will not omit, to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading and (iii) on the date of this
Agreement, the Initial Registration Statement and, if the Effective Time of
the Additional Registration Statement is prior to the execution and
delivery of this Agreement, the Additional Registration Statement each
conforms, and at the time of filing of the Prospectus pursuant to Rule
424(b) or (if no such filing is required) at the Effective Date of the
Additional Registration Statement in which the Prospectus is included, each
Registration Statement and the Prospectus will conform, in all respects to
the requirements of the Act and the Rules and Regulations, and neither of
such documents includes, or will include, any untrue statement of a
material fact or omits, or will omit, to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading. If the Effective Time of the Initial Registration Statement is
subsequent to the execution and delivery of this Agreement: on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement and the Prospectus will conform in all respects to
the requirements of the Act and the Rules and Regulations, neither of such
documents will include any untrue statement of a material fact or will omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and no Additional Registration
Statement has been or will be filed. The two preceding sentences do not
apply to statements in or omissions from a Registration Statement or the
Prospectus based upon written information furnished to the Company by any
Underwriter through the
3
<PAGE>
Representatives specifically for use therein, it being understood and
agreed that the only such information is that described as such in Section
7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of The Commonwealth of
Massachusetts, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus; and the
Company is duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which its ownership or lease of
property or the conduct of its business requires such qualification.
(d) The Company does not own or hold, directly or indirectly, any
capital stock, equity security, partnership interest, membership interest
or other equity interest in any other organization or entity.
(e) The Offered Securities and all other outstanding shares of capital
stock of the Company have been duly authorized. All outstanding shares of
capital stock of the Company are, and, when the Offered Securities have
been delivered and paid for in accordance with this Agreement on each
Closing Date (as defined below), such Offered Securities will have been,
validly issued, fully paid and nonassessable. The authorized capital stock
of the Company conforms to the description thereof contained in the
Prospectus. The stockholders of the Company have no preemptive rights with
respect to the Securities. The information set forth under the caption
ACapitalization" in the Prospectus is true and correct. There are no
outstanding subscriptions, rights, warrants, options, calls, convertible
securities, commitments of sale or liens granted or issued by the Company
relating to or entitling any person to purchase or otherwise to acquire any
shares of the capital stock of the Company, except as otherwise disclosed
in the Registration Statement.
(f) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person that would
give rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment in connection with
this offering.
(g) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to require
the Company to include such securities in the securities registered
pursuant to a Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the Company under the
Act, except such agreements as have been filed as exhibits to the
Registration Statement and described in the Prospectus. The description of
each such agreement in the Prospectus is an accurate summary of the
material terms of such agreement, and all rights under each such agreement
of the type described in this paragraph have been fully satisfied or
waived.
4
<PAGE>
(h) The Offered Securities have been approved for listing on The
Nasdaq Stock Market's National Market, subject to notice of issuance.
(i) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and such
as may be required under state securities laws.
(j) The execution, delivery and performance of this Agreement, and the
issuance and sale of the Offered Securities, will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, any statute, any rule, regulation or order of any governmental
agency or body or any court, domestic or foreign, having jurisdiction over
the Company or any of its properties, or any agreement or instrument to
which the Company is a party or by which the Company is bound or to which
any of the properties of the Company is subject, or the charter or by-laws
of the Company, and the Company has full power and authority to authorize,
issue and sell the Offered Securities as contemplated by this Agreement.
(k) This Agreement has been duly authorized, executed and delivered by
the Company.
(l) Except as disclosed in the Prospectus, the Company has good and
marketable title to all real properties and all other properties and assets
owned by it, in each case free from liens, encumbrances and defects that
would materially affect the value thereof or materially interfere with the
use made or to be made thereof by the Company; and except as disclosed in
the Prospectus, the Company holds any leased real or personal property
under valid and enforceable leases with no exceptions that would materially
interfere with the use made or to be made thereof by the Company.
(m) The Company has such permits, licenses, consents, exemptions,
franchises, authorizations and other approvals (each, an "AUTHORIZATION")
of, and has made all filings with and notices to, all governmental or
regulatory authorities and self-regulatory organizations and all courts and
other tribunals as are necessary to own, lease, license and operate its
properties and to conduct its business, except where the failure to have
any such Authorization or to make any such filing or notice would not,
individually or in the aggregate, have a material adverse effect on the
condition (financial or other), business, properties or results of
operations of the Company ("MATERIAL ADVERSE EFFECT"). Each such
Authorization is valid and in full force and effect and the Company is in
compliance with all the terms and conditions thereof and with the rules and
regulations of the authorities and governing bodies having jurisdiction
with respect thereto; and no event has occurred (including, without
limitation, the receipt of any notice from any authority or governing body)
that allows or, after notice or lapse of time or both, would allow,
revocation, suspension or termination of any such Authorization or that has
resulted or,
5
<PAGE>
after notice or lapse of time or both, would result in any other impairment
of the rights of the holder of any such Authorization; and such
Authorizations contain no restrictions that are burdensome to the Company;
except where such failure to be valid and in full force and effect or to be
in compliance, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, have a Material Adverse
Effect.
(n) No labor dispute with the employees of the Company exists or, to
the knowledge of the Company, is imminent that might have a Material
Adverse Effect. The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"). No "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability. The Company has not
incurred and does not expect to incur liability under (i) Title VI of ERISA
with respect to termination of, or withdrawal from, any "pension plan" or
(ii) Section 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder
("CODE"). Each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has occurred, whether
by action or by failure to act, that would cause the loss of such
qualification.
(o) The Company owns, possesses or can acquire on reasonable terms,
adequate trademarks, service marks, trade names and other rights to
inventions, designs, computer programs, computer code, communications
protocols, security devices, trade secrets, formats, audiovisual works,
algorithms, know-how, processes, patents, mask works, copyrights,
confidential information, proprietary information and other intellectual
property (collectively, "INTELLECTUAL PROPERTY RIGHTS") necessary to
conduct the business now operated or proposed to be operated by the Company
as described in the Prospectus, or presently employed by the Company.
Except as described in the Prospectus, the Company has not received any
notice of, and has no knowledge of, any infringement of or conflict with
any rights or asserted rights of the Company by others, or of any rights or
asserted rights of others by the Company, with respect to any intellectual
property rights that, if determined adversely to the Company, would
individually or in the aggregate have a Material Adverse Effect. To the
Company's knowledge, none of the intellectual property rights owned by or
licensed by or to the Company is invalid or unenforceable. The Company has
enforceable agreements with each employee, consultant or other person or
party engaged by the Company providing for the assignment to the Company of
all intellectual property rights in the work performed for or on behalf of
the Company by such employee, consultant, person or party, and for the
protection of the trade secrets and other confidential information of the
Company.
(p) The Company is not in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or any
court, domestic or foreign,
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relating to the use, disposal or release of hazardous or toxic substances
or relating to the protection or restoration of the environment or human
exposure to hazardous or toxic substances (collectively, "ENVIRONMENTAL
LAWS"), does not own or operate any real property contaminated with any
substance that is subject to any environmental laws, is not liable for any
off-site disposal or contamination pursuant to any environmental laws, and
is not subject to any claim relating to any environmental laws, which
violation, contamination, liability or claim would individually or in the
aggregate have a Material Adverse Effect; and the Company is not aware of
any pending investigation which might lead to such a claim.
(q) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Company or any of
its properties that, if determined adversely to the Company, would
individually or in the aggregate have a Material Adverse Effect, or would
materially and adversely affect the ability of the Company to perform its
obligations under this Agreement, or which are otherwise material in the
context of the sale of the Offered Securities; and no such actions, suits
or proceedings are threatened or, to the Company's knowledge, contemplated.
(r) There are no legal or governmental proceedings pending or
threatened to which the Company is or could be a party or to which any of
its property is or could be subject that are required to be described in
the Registration Statement or the Prospectus and are not so described.
There are no statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration Statement that are not so
described or filed as required. No relationship, direct or indirect,
exists between the Company on the one hand and the officers, directors,
stockholders, customers or suppliers of the Company on the other hand that
is required to be described in the Registration Statement or the Prospectus
that is not so described.
(s) The financial statements included in each Registration Statement
and the Prospectus present fairly the financial position of the Company as
of the dates shown and its results of operations and cash flows for the
periods shown, and such financial statements have been prepared in
conformity with the generally accepted accounting principles in the United
States applied on a consistent basis; the schedules included in each
Registration Statement present fairly the information required to be stated
therein; and the assumptions used in preparing the pro forma financial
statements included in each Registration Statement and the Prospectus
provide a reasonable basis for presenting the significant effects directly
attributable to the transactions or events described therein, the related
pro forma adjustments give appropriate effect to those assumptions, and the
pro forma columns therein reflect the proper application of those
adjustments to the corresponding historical financial statement amounts.
The summary and selected financial data contained in the Registration
Statement and Prospectus present fairly the information shown therein and
have been compiled on a basis consistent with the financial statements
presented therein and the books and records of the Company.
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(t) PricewaterhouseCoopers LLP are independent public accountants with
respect to the Company as required by the Act and the Rules and
Regulations.
(u) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(v) The Company has filed all tax returns that are required to be
filed or has requested extensions thereof (except in any case in which the
failure so to file would not have a Material Adverse Effect) and the
Company has paid all taxes required to be paid by it and any other
assessment, fine or penalty levied against it, to the extent that any of
the foregoing is due and payable, except for any tax, assessment, fine or
penalty that is currently being contested in good faith or as described in
or contemplated by the Registration Statement or the Prospectus. All tax
liabilities (including those being contested in good faith) for the periods
covered by the financial statements of the Company that are included in the
Registration Statement have been adequately provided for in such financial
statements.
(w) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the business in which the Company is engaged and
for the value of its properties. The Company (i) has not received notice
from any insurer or agent of such insurer that substantial capital
improvements or other material expenditures will have to be made in order
to continue such insurance and (ii) has no reason to believe that it will
not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers at a
cost that would not have a Material Adverse Effect.
(x) Except as described in the Prospectus: (a) all of the products of
the Company (including products currently under development) will record,
store, process, calculate and present calendar dates falling on and after
(and if applicable, spans of time including) January 1, 2000, and will
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 (herein collectively called "YEAR
2000 COMPLIANT"); (b) all of the products of the Company (1) will lose no
functionality with respect to the introduction of records containing dates
falling on or after January 1, 2000 and (2) will be interoperable with
other products used and distributed by the Company that may deliver records
to products of
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the Company or receive records from products of the Company, or interact
with the products of the Company, including back-up and archived data; and
(c) all of the internal computer and technology products and systems of the
Company are Year 2000 Compliant.
(y) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus, there has
been no material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or other),
business, properties or results of operations of the Company, and, except
as disclosed in or contemplated by the Prospectus, there has been no
dividend or distribution of any kind declared, paid or made by the Company
on any class of its capital stock.
(z) The minute books of the Company made available to the Underwriters
contain a complete summary of all meetings and actions of the directors,
any committees thereof and the stockholders of the Company since the time
of its incorporation and reflect accurately and fairly in all respects all
transactions referred to in such minutes.
(aa) The Company is not and, after giving effect to the offering and
sale of the Offered Securities and the application of the proceeds thereof
as described in the Prospectus, will not be an "investment company" as
defined in the Investment Company Act of 1940.
(ab) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to
cause or result in stabilization or manipulation of the price of the
Securities to facilitate the sale or resale of the Offered Securities.
(ac) The Registration Statement, the Prospectus and any preliminary
prospectus comply, and any further amendments or supplements thereto will
comply, with any applicable laws or regulations of foreign jurisdictions in
which the Prospectus or any preliminary prospectus, as amended or
supplemented, if applicable, are distributed in connection with the
Directed Share Program. No authorization, approval, consent, license,
order, registration or qualification of or with any government,
governmental instrumentality or court, other than such as have been
obtained, is necessary under the securities law and regulations of foreign
jurisdictions in which the Directed Shares are offered outside the United
States.
(ad) The Company has not offered, or caused the Underwriters to offer,
any Offered Securities to any person pursuant to the Directed Share Program
with the specific intent to unlawfully influence (i) a customer or supplier
of the Company to alter the customer's or supplier's level or type of
business with the Company or (ii) a trade journalist or publication to
write or publish favorable information about the Company or its products.
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<PAGE>
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $ per share, the respective numbers
of shares of Firm Securities set forth opposite the names of the Underwriters in
Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives for the
accounts of the Underwriters, at the office of CSFBC, Eleven Madison Avenue, New
York, New York 10010-3629, against payment of the purchase price in Federal
(same day) funds by official bank check or checks or wire transfer to an account
at a bank acceptable to CSFBC drawn to the order of the Company, at the office
of Mirick, O'Connell, DeMallie & Lougee, LLP, 100 Front Street, Worcester,
Massachusetts 01608, at [10:00] A.M., New York time, on ,
2000, or at such other time not later than seven full business days thereafter
as CSFBC and the Company determine, such time being herein referred to as the
"FIRST CLOSING DATE". For purposes of Rule 15c6-1 under the Securities Exchange
Act of 1934, the First Closing Date (if later than the otherwise applicable
settlement date) shall be the settlement date for payment of funds and delivery
of securities for all the Offered Securities sold pursuant to the offering. The
certificates for the Firm Securities so to be delivered will be in definitive
form, in such denominations and registered in such names as CSFBC requests and
will be made available for checking and packaging at the above office of CSFBC
at least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from time
to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities. Such Optional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Securities set forth opposite such Underwriter's name
bears to the total number of shares of Firm Securities (subject to adjustment by
CSFBC to eliminate fractions) and may be purchased by the Underwriters only for
the purpose of covering over-allotments made in connection with the sale of the
Firm Securities. No Optional Securities shall be sold or delivered unless the
Firm Securities previously have been, or simultaneously are, sold and delivered.
The right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "OPTIONAL CLOSING DATE", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "CLOSING DATE"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representatives for
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the accounts of the several Underwriters, at the office of CSFBC, Eleven Madison
Avenue, New York, N.Y. 10010-3629, against payment of the purchase price
therefor in Federal (same day) funds by official bank check or checks or wire
transfer to an account at a bank acceptable to CSFBC drawn to the order of the
Company, at the above office of Mirick, O'Connell, DeMallie & Lougee, LLP. The
certificates for the Optional Securities being purchased on each Optional
Closing Date will be in definitive form, in such denominations and registered in
such names as CSFBC requests upon reasonable notice prior to such Optional
Closing Date and will be made available for checking and packaging at the above
office of CSFBC at a reasonable time in advance of such Optional Closing Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company. The Company agrees with the several
Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CSFBC,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this Agreement
or (B) the fifteenth business day after the Effective Date of the Initial
Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration Statement
is prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as
of such execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective amendment
thereto with the Commission pursuant to and in accordance with Rule 462(b)
on or prior to 10:00 P.M., New York time, on the date of this Agreement or,
if earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later date
as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to amend or
supplement the initial or any additional registration statement as filed or
the related prospectus or the Initial Registration Statement, the
Additional Registration Statement (if any) or the Prospectus and will not
effect such amendment or supplementation without CSFBC's consent, which
consent shall not be unreasonably withheld; and the Company will also
advise CSFBC promptly of the effectiveness of each Registration Statement
(if its Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of a Registration
Statement or the Prospectus and of the institution by the Commission of any
stop order proceedings in respect of a Registration Statement and will use
its best efforts to prevent the issuance of any such stop order and to
obtain as soon as possible its lifting, if issued.
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(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Act, the Company will promptly
notify CSFBC of such event and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will
correct such statement or omission or an amendment which will effect such
compliance. Neither CSFBC's consent to, nor the Underwriters' delivery of,
any such amendment or supplement shall constitute a waiver of any of the
conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional Registration
Statement) that will satisfy the provisions of Section 11(a) of the Act.
For the purpose of the preceding sentence, "AVAILABILITY DATE" means the
45th day after the end of the fourth fiscal quarter following the fiscal
quarter that includes such Effective Date, except that, if such fourth
fiscal quarter is the last quarter of the Company's fiscal year,
"AVAILABILITY DATE" means the 90th day after the end of such fourth fiscal
quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (four of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a
prospectus relating to the Offered Securities is required to be delivered
under the Act in connection with sales by any Underwriter or dealer, the
Prospectus and all amendments and supplements to such documents, in each
case in such quantities as CSFBC requests. The Prospectus shall be so
furnished on or prior to 3:00 P.M., New York time, on the business day
following the later of the execution and delivery of this Agreement or the
Effective Time of the Initial Registration Statement. All other documents
shall be so furnished as soon as available. The Company will pay the
expenses of printing and distributing to the Underwriters all such
documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and will continue such qualifications in effect so long as
required for the distribution; provided, however, that the Company shall
not be obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a securities dealer in any
jurisdiction in which it would not otherwise be obligated to so file or
qualify.
(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as
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<PAGE>
practicable after the end of each fiscal year, a copy of its annual report
to stockholders for such year; and the Company will furnish to the
Representatives (i) as soon as available, a copy of each report and any
definitive proxy statement of the Company filed with the Commission under
the Securities Exchange Act of 1934 or mailed to stockholders, and (ii)
from time to time, such other information concerning the Company as CSFBC
may reasonably request.
(h) The Company will pay all expenses incident to the performance of
its obligations under this Agreement, including, without limitation, (i)
any filing fees and other expenses (including fees and disbursements of
counsel) incurred in connection with qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and the printing of memoranda relating thereto, (ii) the filing
fee incident to, and the reasonable fees and disbursements of counsel to
the Underwriters in connection with, the review by the National Association
of Securities Dealers, Inc. (the "NASD") of the Offered Securities, (iii)
any travel expenses of the Company's officers and employees and any other
expenses of the Company in connection with attending or hosting meetings
with prospective purchasers of the Offered Securities and (iv) expenses
incurred in distributing preliminary prospectuses and the Prospectus
(including any amendments and supplements thereto) to the Underwriters.
(i) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly,
or file with the Commission a registration statement under the Act relating
to, any additional shares of its Securities or securities convertible into
or exchangeable or exercisable for any shares of its Securities, or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of CSFBC, except
(i) issuances of Securities pursuant to the conversion or exchange of
convertible or exchangeable securities or the exercise of warrants or
options, in each case outstanding on the date hereof, (ii) grants of
employee stock options pursuant to the terms of a plan in effect on the
date hereof, (iii) issuances of Securities pursuant to the exercise of such
options, and (iv) the filing with the Commission of one or more
registration statements on Form S-8 (or any successor form) with respect to
Securities issued or issuable under a plan that has expired or is in effect
on the date hereof.
(j) In connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted to the extent required
by the NASD or the rules of the NASD from sale, transfer, assignment,
pledge or hypothecation for a period of three months following the date of
the effectiveness of the Registration Statement. The Designated
Underwriter will notify the Company as to which Participants will need to
be so restricted. The Company will direct the transfer agent to place stop
transfer restrictions upon such securities for such period of time.
(k) The Company will pay all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Share Program
and stamp duties, similar taxes or duties or other taxes, if any, incurred
by the underwriters in connection with the Directed Share Program.
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Furthermore, the company covenants with the Underwriters that the
Company will comply with all applicable securities and other applicable
laws, rules and regulations in each foreign jurisdiction in which the
Directed Shares are offered in connection with the Directed Share Program.
6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, shall be prior to the filing of
the amendment or post-effective amendment to the registration statement to
be filed shortly prior to such Effective Time), of PricewaterhouseCoopers
LLP confirming that they are independent public accountants within the
meaning of the Act and the applicable published Rules and Regulations
thereunder and stating to the effect that:
(i) in their opinion the financial statements and schedules
examined by them and included in the Registration Statements comply as
to form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations;
(ii) they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards
No. 71, Interim Financial Information, on the unaudited financial
statements included in the Registration Statements;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial statements
of the Company, inquiries of officials of the Company who have
responsibility for financial and accounting matters and other
specified procedures, nothing came to their attention that caused them
to believe that:
(A) the unaudited financial statements included in the
Registration Statements do not comply as to form in all material
respects with the applicable accounting requirements of the Act
and the related published Rules and Regulations or any material
modifications should be made to such unaudited financial
statements for them to be in conformity with generally accepted
accounting principles;
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(B) at the date of the latest available balance sheet read
by such accountants, or at a subsequent specified date not more
than three business days prior to the date of such letter, there
was any change in the capital stock or any increase in short-term
indebtedness or long-term debt of the Company or, at the date of
the latest available balance sheet read by such accountants,
there was any decrease in the Company's net current assets or net
assets, as compared with amounts shown on the latest balance
sheet included in the Prospectus; or
(C) for the period from the closing date of the latest
income statement included in the Prospectus to the closing date
of the latest available income statement read by such accountants
there were any decreases, as compared with the corresponding
period of the previous year and with the period of corresponding
length ended the date of the latest income statement included in
the Prospectus, in sales or operating loss or in the total or per
share amounts of loss from continuing operations;
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and
(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the general accounting records of the Company subject
to the internal controls of the Company's accounting system or are
derived directly from such records by analysis or computation) with
the results obtained from inquiries, a reading of such general
accounting records and other procedures specified in such letter and
have found such dollar amounts, percentages and other financial
information to be in agreement with such results, except as otherwise
specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and delivery
of this Agreement, "REGISTRATION STATEMENTS" shall mean the initial
registration statement as proposed to be amended by the amendment or post-
effective amendment to be filed shortly prior to its Effective Time, (ii)
if the Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement but the Effective Time of the
Additional Registration is subsequent to such execution and delivery,
"REGISTRATION STATEMENTS"
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shall mean the Initial Registration Statement and the additional
registration statement as proposed to be filed or as proposed to be amended
by the post-effective amendment to be filed shortly prior to its Effective
Time, and (iii) "PROSPECTUS" shall mean the prospectus included in the
Registration Statements.
(b) If the Effective Time of the Initial Registration Statement is not
prior to the execution and delivery of this Agreement, such Effective Time
shall have occurred not later than 10:00 P.M., New York time, on the date
of this Agreement or such later date as shall have been consented to by
CSFBC. If the Effective Time of the Additional Registration Statement (if
any) is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York
time, on the date of this Agreement or, if earlier, the time the Prospectus
is printed and distributed to any Underwriter, or shall have occurred at
such later date as shall have been consented to by CSFBC. If the Effective
Time of the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with the
Commission in accordance with the Rules and Regulations and Section 5(a) of
this Agreement. Prior to such Closing Date, no stop order suspending the
effectiveness of a Registration Statement shall have been issued, and no
proceedings for that purpose shall have been instituted or, to the
knowledge of the Company or the Representatives, shall be contemplated by
the Commission.
(c) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company which, in the
judgment of a majority in interest of the Underwriters including the
Representatives, is material and adverse and makes it impractical or
inadvisable to proceed with completion of the public offering or the sale
of and payment for the Offered Securities; (ii) any downgrading in the
rating of any debt securities of the Company by any Anationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g)
under the Act), or any public announcement that any such organization has
under surveillance or review its rating of any debt securities of the
Company (other than an announcement with positive implications of a
possible upgrading, and no implication of a possible downgrading, of such
rating); (iii) any suspension or limitation of trading in securities
generally on the New York Stock Exchange, or any setting of minimum prices
for trading on such exchange, or any suspension of trading of any
securities of the Company on any exchange or in the over-the-counter
market; (iv) any banking moratorium declared by U.S., Federal or New York
authorities; or (v) any outbreak or escalation of major hostilities in
which the United States is involved, any declaration of war by Congress or
any other substantial national or international calamity or emergency if,
in the judgment of a majority in interest of the Underwriters including the
Representatives, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the
Offered Securities.
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(d) The Representatives shall have received an opinion, dated such
Closing Date, of Mirick, O'Connell, DeMallie & Lougee, LLP, counsel for the
Company, to the effect that:
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of The Commonwealth of
Massachusetts, with corporate power and authority to own its
properties and conduct its business as described in the Prospectus;
and the Company is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in which its
ownership or lease of property or the conduct of its business requires
such qualification and the failure to be so qualified would have a
Material Adverse Effect;
(ii) The Offered Securities delivered on such Closing Date and
all other outstanding shares of the Common Stock of the Company have
been duly authorized and validly issued, are fully paid and
nonassessable and conform to the description thereof contained in the
Prospectus; the Company has authorized and outstanding capital stock
as set forth under the heading "Capitalization" in the Prospectus as
of the date specified therein; the certificates for the Offered
Securities, in the form approved by the Board of Directors of the
Company and filed with the Commission, are in due and proper form; and
no stockholder of the Company has any preemptive rights with respect
to the Securities pursuant to any statute, the Company's articles of
organization or by-laws, or, to such counsel's knowledge, any
contract, agreement or understanding with the Company;
(iii) Except as described in or contemplated by the Prospectus,
to the knowledge of such counsel, there are no outstanding securities
of the Company convertible into, exchangeable or exercisable for, or
evidencing the right to purchase or subscribe for, any shares of the
capital stock of the Company, and there are no outstanding or
authorized options, warrants or other securities or rights obligating
the Company to issue any shares of its capital stock or any securities
convertible into, exchangeable or exercisable for, or evidencing the
right to purchase or subscribe for, any shares of such capital stock;
(iv) There are no contracts, agreements or understandings known
to such counsel between the Company and any person granting such
person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company
owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant
to any other registration statement filed by the Company under the Act
which have not been fully satisfied or waived;
17
<PAGE>
(v) The Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940, as amended;
(vi) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required to be
obtained or made by the Company for the consummation of the
transactions contemplated by this Agreement in connection with the
issuance or sale of the Offered Securities by the Company, except such
as have been obtained and made under the Act and the rules and
regulations of the NASD and such as may be required under state
securities laws;
(vii) The execution, delivery and performance of this Agreement
and the issuance and sale of the Offered Securities will not result in
a breach or violation of any of the terms and provisions of, or
constitute a default under, (a) any statute, any rule, regulation or
order of any governmental agency or body or any court having
jurisdiction over the Company or any of its properties, or any
agreement or instrument known to such counsel to which the Company is
a party or by which the Company is bound or to which any of the
properties of the Company is subject, or (b) the charter or by-laws of
the Company; and the Company has full power and authority to
authorize, issue and sell the Offered Securities as contemplated by
this Agreement;
(viii) The Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Additional Registration Statement (if any) was filed and became
effective under the Act as of the date and time (if determinable)
specified in such opinion, the Prospectus either was filed with the
Commission pursuant to the subparagraph of Rule 424(b) specified in
such opinion on the date specified therein or was included in the
Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the knowledge of such counsel
after due inquiry, no stop order suspending the effectiveness of a
Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and each Registration Statement and the
Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all
material respects with the requirements of the Act and the Rules and
Regulations; such counsel have no reason to believe that any part of a
Registration Statement or any amendment thereto, as of its effective
date or as of such Closing Date, contained any untrue statement of a
material fact or omitted
18
<PAGE>
to state any material fact required to be stated therein or necessary
to make the statements therein not misleading, or that the Prospectus,
or any amendment or supplement thereto, as of its issue date or as of
such Closing Date, contained any untrue statement of a material fact
or omitted to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; the descriptions in the Registration
Statements and Prospectus of United States and Massachusetts statutes,
and legal and governmental proceedings, and contracts and other
documents are accurate in all material respects and fairly present the
information required to be shown; and such counsel do not know of any
legal or governmental proceedings required to be described in a
Registration Statement or the Prospectus which are not described as
required or of any statutes, regulations, contracts or documents of a
character required to be described in a Registration Statement or the
Prospectus or to be filed as exhibits to a Registration Statement
which are not described and filed as required; it being understood
that such counsel need express no opinion as to the financial
statements or other financial data contained in the Registration
Statements or the Prospectus;
(ix) This Agreement has been duly authorized, executed and
delivered by the Company; and
(x) All of the Offered Securities have been duly authorized and
accepted for quotation on the Nasdaq National Market, subject to
official notice of issuance.
(e) The Representatives shall have received from Foley, Hoag & Eliot
LLP, counsel for the Underwriters, such opinion or opinions, dated such
Closing Date, with respect to the incorporation of the Company, the
validity of the Offered Securities delivered on such Closing Date, the
Registration Statements, the Prospectus and other related matters as the
Representatives may require, and the Company shall have furnished to such
counsel such documents as they request for the purpose of enabling them to
pass upon such matters. In rendering such opinion, Foley, Hoag & Eliot LLP
may rely as to the incorporation of the Company upon the opinion of Mirick,
O'Connell, DeMallie & Lougee, LLP referred to above.
(f) The Representatives shall have received a certificate, dated such
Closing Date, of the Chairman, the President and Chief Executive Officer,
and the Chief Financial Officer of the Company in which such officers, to
the best of their knowledge after reasonable investigation, shall state
that: the representations and warranties of the Company in this Agreement
are true and correct; the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder
at or prior to such Closing Date; no stop order suspending the
effectiveness of any Registration Statement has been issued and no
proceedings for that purpose have been instituted or are contemplated by
the Commission; the Additional Registration Statement (if any) satisfying
the requirements of subparagraphs (1) and (3) of Rule 462(b) was filed
pursuant to Rule 462(b), including payment of the applicable filing fee in
accordance with Rule 111(a) or (b) under the Act, prior to the time the
Prospectus was printed and distributed to any Underwriter; and, subsequent
to the date of the most recent financial statements in the Prospectus,
there has been no material adverse change, nor any
19
<PAGE>
development or event involving a prospective material adverse change, in
the condition (financial or other), business, properties or results of
operations of the Company except as set forth in or contemplated by the
Prospectus or as described in such certificate.
(g) The Representatives shall have received a letter, dated such
Closing Date, of PricewaterhouseCoopers LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred to
in such subsection will be a date not more than three days prior to such
Closing Date for the purposes of this subsection.
(h) The Representatives shall have received from each director,
officer, key employee named in the Registration Statement and
securityholder of the Company named in Schedule B hereto an agreement
("LOCK-UP AGREEMENT") dated on or before the date of this Agreement to the
effect that, for a period of 180 days after the initial public offering of
the Securities pursuant to this Agreement, such person will not offer,
sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any shares of Securities or securities convertible into or
exchangeable or exercisable for any shares of Securities, or publicly
disclose the intention to make any such offer, sale, contract, pledge or
disposal without the prior written consent of CSFBC, and to the further
effect that the Company and its transfer agent and registrar may decline to
make any transfer of shares of Securities if such transfer would constitute
a violation or breach of such Lock-up Agreement.
If any of the conditions set forth in this Section 6 shall not have been
fulfilled when and as required by this Agreement to be fulfilled, the
obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company of such termination at or prior to the
First Closing Date or any Optional Closing Date, as the case may be.
The Company will furnish the Representatives with such conformed copies of
such opinions, certificates, letters and documents as the Representatives
reasonably request. CSFBC may in its sole discretion waive on behalf of the
Underwriters compliance with any conditions to the obligations of the
Underwriters hereunder, whether in respect of an Optional Closing Date or
otherwise.
7. Indemnification and Contribution.
(a) The Company will indemnify and hold harmless each Underwriter, its
partners, directors and officers and each person, if any, who controls such
Underwriter within the meaning of Section 15 of the Act, against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any Registration Statement, the
Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required
20
<PAGE>
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that the Company
will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission
from any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and
agreed that the only such information furnished by any Underwriter consists
of the information described as such in subsection (b) below.
The Company agrees to indemnify and hold harmless the Designated
Underwriter and each person, if any, who controls the Designated
Underwriter within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act (the "DESIGNATED ENTITIES"), from and
against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) (i)
caused by any untrue statement or alleged untrue statement of a material
fact contained in any material prepared by or with the consent of the
Company for distribution to Participants in connection with the Directed
Share Program or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; (ii) caused by the failure of any
Participant to pay for and accept delivery of Directed Shares that the
Participant agreed to purchase; or (iii) related to, arising out of, or in
connection with the Directed Share Program, other than losses, claims,
damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted from the bad faith or gross
negligence of the Designated Entities.
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company, its directors and officers and each person, if any
who controls the Company within the meaning of Section 15 of the Act,
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement, the Prospectus, or any
amendment or supplement thereto, or any related preliminary prospectus, or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement
or omission or alleged omission was made in reliance upon and in conformity
with written information furnished to the Company by such Underwriter
through the Representatives specifically for use therein, and will
reimburse any legal or other expenses reasonably incurred by the Company in
connection with investigating or defending any
21
<PAGE>
such loss, claim, damage, liability or action as such expenses are
incurred, it being understood and agreed that the only such information
furnished by any Underwriter consists of the following information in the
Prospectus furnished on behalf of each Underwriter: the concession and
reallowance figures appearing in the fourth paragraph under the caption
"Underwriting", the information contained in the sixth paragraph under the
caption "Underwriting" and the information under the caption "Notice to
Canadian Residents".
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under subsection (a) or (b) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under subsection (a) or (b) above. In case any such
action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to
the indemnifying party), and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof,
the indemnifying party will not be liable to such indemnified party under
this Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation. Notwithstanding anything contained
herein to the contrary, if indemnity may be sought pursuant to the last
paragraph in Section 7(a) hereof in respect of such action or proceeding,
then in addition to such separate firm for the indemnified parties, the
indemnifying party shall be liable for the reasonable fees and expenses of
not more than one separate firm (in addition to any local counsel) for the
Designated Underwriter for the defense of any losses, claims, damages and
liabilities arising out of the Directed Share Program, and all persons, if
any, who control the Designated Underwriter within the meaning of either
Section 15 of the Act of Section 20 of the Exchange Act. No indemnifying
party shall, without the prior written consent of the indemnified party,
effect any settlement of any pending or threatened action in respect of
which any indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party unless such
settlement (i) includes an unconditional release of such indemnified party
from all liability on any claims that are the subject matter of such action
and (ii) does not include a statement as to, or an admission of, fault,
culpability or a failure to act by or on behalf of an indemnified party.
(d) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a)
or (b) above, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above
(i) in such proportion as is appropriate to reflect the relative
22
<PAGE>
benefits received by the Company on the one hand and the Underwriters on
the other from the offering of the Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company
on the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses)
received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid by an indemnified party as a result
of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of
this subsection (d). Notwithstanding the provisions of this subsection (d),
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount
of any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this subsection (d) to contribute are several
in proportion to their respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations
of the Underwriters under this Section shall be in addition to any
liability which the respective Underwriters may otherwise have and shall
extend, upon the same terms and conditions, to each director of the
Company, to each officer of the Company who has signed a Registration
Statement and to each person, if any, who controls the Company within the
meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default in
their obligations to purchase Offered Securities hereunder on either the First
or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date,
23
<PAGE>
CSFBC may make arrangements satisfactory to the Company for the purchase of such
Offered Securities by other persons, including any of the Underwriters, but if
no such arrangements are made by such Closing Date, the non-defaulting
Underwriters shall be obligated severally, in proportion to their respective
commitments hereunder, to purchase the Offered Securities that such defaulting
Underwriters agreed but failed to purchase on such Closing Date. If any
Underwriter or Underwriters so default and the aggregate number of shares of
Offered Securities with respect to which such default or defaults occur exceeds
10% of the total number of shares of Offered Securities that the Underwriters
are obligated to purchase on such Closing Date and arrangements satisfactory to
CSFBC and the Company for the purchase of such Offered Securities by other
persons are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company, except as provided in Section 9 (provided that if such default occurs
with respect to Optional Securities after the First Closing Date, this Agreement
will not terminate as to the Firm Securities or any Optional Securities
purchased prior to such termination). As used in this Agreement, the term
"UNDERWRITER" includes any person substituted for an Underwriter under this
Section. Nothing herein will relieve a defaulting Underwriter from liability for
its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated
pursuant to Section 8 or if for any reason the purchase of the Offered
Securities by the Underwriters is not consummated, the Company shall remain
responsible for the expenses to be paid or reimbursed by it pursuant to Section
5 and the respective obligations of the Company and the Underwriters pursuant to
Section 7 shall remain in effect, and if any Offered Securities have been
purchased hereunder the representations and warranties in Section 2 and all
obligations under Section 5 shall also remain in effect. If the purchase of the
Offered Securities by the Underwriters is not consummated for any reason other
than solely because of the termination of this Agreement pursuant to Section 8
or the occurrence of any event specified in clause (iii), (iv) or (v) of Section
6(c), the Company will reimburse the Underwriters for all out-of-pocket expenses
(including fees and disbursements of counsel) reasonably incurred by them in
connection with the offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed, delivered or telegraphed and confirmed to
the Representatives c/o Credit Suisse First Boston Corporation, Eleven Madison
Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking
Department--Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at Telaxis Communications
Corporation, 20 Industrial Drive East, South Deerfield, Massachusetts 01373-
0109, Attention: President; provided, however, that any notice to an Underwriter
pursuant to Section 7 will be mailed, delivered or telegraphed and confirmed to
such Underwriter.
24
<PAGE>
11. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
12. Representation of Underwriters. The Representatives will act for the
several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws.
The Company hereby submits to the non-exclusive jurisdiction of the Federal
and state courts in the Borough of Manhattan in The City of New York in any suit
or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
25
<PAGE>
If the foregoing is in accordance with the Representatives' understanding
of our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement between the Company and the
several Underwriters in accordance with its terms.
Very truly yours,
Telaxis Communications Corporation
By
----------------------------------------
John L. Youngblood
President and Chief Executive Officer
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first above written.
Credit Suisse First Boston Corporation
Banc of America Securities LLC
CIBC World Markets Corp.
Acting on behalf of themselves and as the
Representatives of the several Underwriters
By Credit Suisse First Boston Corporation
By
---------------------------
Joseph D. Fashano
Director
26
<PAGE>
SCHEDULE A
----------
<TABLE>
<CAPTION>
Number of
Underwriter FIRM SECURITIES
- --------------------------------------------------------- --------------------
<S> <C>
Credit Suisse First Boston Corporation...................
Banc of America Securities LLC...........................
CIBC World Markets Corp..................................
--------------------
Total............................................... 4,000,000
====================
</TABLE>
27
<PAGE>
SCHEDULE B
----------
List of Parties Required to Deliver Lock-up Agreements
------------------------------------------------------
28
<PAGE>
EXHIBIT 5.1
-----------
[LETTERHEAD OF MIRICK, O'CONNELL, DEMALLIE & LOUGEE, LLP]
January 11, 2000
Telaxis Communications Corporation
20 Industrial Drive East
South Deerfield, MA 01373
Re: Telaxis Communications Corporation
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to Telaxis Communications Corporation, a
Massachusetts corporation (the "Company"), in connection with the preparation
and filing of a registration statement (including the preliminary prospectus
contained therein, the "Registration Statement") on Form S-1 (File No. 333-
87885) with the Securities and Exchange Commission relating to the registration
of 4,600,000 shares of Common Stock of the Company, par value $.01 per share
(the "Common Stock"), under the Securities Act of 1933, as amended. At your
request, this opinion is being furnished to you.
In rendering this opinion, we have examined and relied upon executed
originals or copies of executed originals of the following:
1. The Registration Statement;
2. The Amended and Restated Articles of Organization of the Company, as
amended to date;
3. The Amended and Restated By-laws of the Company, as amended to date; and
4. Such other certificates, documents, resolutions and instruments we have
deemed necessary or advisable for the purpose of this opinion.
In our examination of the above documents, instruments and agreements, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. For purposes of
<PAGE>
Telaxis Communications Corporation
January 11, 1999
Page 2
this opinion we have relied upon records of public officials and upon certain
statements of the Company contained in the documents set forth or referred to
above, which we have not independently verified, and nothing has come to our
attention leading us to question the accuracy of such information. We have not
made any independent review or investigation of any other agreements,
instruments, governmental rules or regulations, orders, writs, judgments or
decrees by which the Company or any of its properties may be bound, nor have we
made any independent investigation as to the existence of actions, suits,
investigations or proceedings, if any, pending or threatened against the Company
or any of its properties.
We have made such examination of Massachusetts and federal laws as we have
deemed relevant for purposes of this opinion, and we have not made any review of
the laws of any other state or jurisdiction. Accordingly, we express no opinion
on the laws of any state or jurisdiction other than the United States and the
Commonwealth of Massachusetts.
Based upon and subject to the foregoing, we are of the opinion that the
Common Stock has been duly authorized and, when issued and delivered as
described in the Registration Statement against payment described therein, will
be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" therein. This opinion may not be relied upon or used for any other
purpose or by any other person without our prior written consent.
Very truly yours,
/s/ Mirick, O'Connell, DeMallie & Lougee, LLP
MIRICK, O'CONNELL, DEMALLIE & LOUGEE, LLP
<PAGE>
EXHIBIT 10.8
RESELLER AGREEMENT
THIS RESELLER AGREEMENT made this 7th day of August, 1998
BETWEEN:
NEWBRIDGE NETWORKS CORPORATION, a Canadian corporation, having its main
office at 600 March Road, P.O. Box 13600, Kanata, Ontario, Canada K2K 2E6
("Newbridge")
AND:
MILLITECH CORPORATION, a Massachusetts corporation, having its main office
at 20 Industrial Drive East,, South Deerfield, Massachusetts, U.S.A. 01373
("Vendor")
WHEREAS Vendor is a manufacturer of Radio Frequency, Microwave and
Millimeterwave Electronic components and systems;
WHEREAS Newbridge wishes to distribute certain Vendor products as an integral
part of Newbridge's broadband wireless product line on a world-wide basis;
AND WHEREAS Vendor wishes to provide such Vendor products to Newbridge, in
accordance with the terms and conditions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained herein, and
for other good and valuable consideration (the receipt and sufficiency of which
are hereby acknowledged) the parties agree as follows:
1. DEFINITIONS
In this Agreement, unless the context otherwise requires:
(a) "Agreement" shall mean this agreement and all attached schedules and
exhibits, as may be amended in accordance with the provisions herein.
(b) "Authorized Areas" shall mean the entire world, which Newbridge divides
for its own purposes into the regions set forth in Schedule "B" hereto.
(c) "Documentation" shall mean all sales, marketing and technical
literature (excluding design drawings and documentation) prepared by Vendor or
on its behalf relating to the Vendor Products, and any updates, modifications
and enhancements made to them.
(d) "Effective Date" shall be the date first written above.
<PAGE>
(e) "End User" shall mean a person or entity that acquires a Vendor Product
for its own use rather than resale or distribution.
(f) "Transfer Price" shall mean the price specified in Schedule A.
(g) "Vendor Products" shall mean the products listed in Schedule "A"
hereto, including all upgrades and enhancements thereto accepted (as provided in
Section 8.1) by Newbridge.
2. APPOINTMENT
2.1 Appointment. Subject to the terms and conditions of this Agreement,
--- -----------
Vendor hereby appoints Newbridge as an independent, non-exclusive, authorized
reseller for the Vendor Products, in the Authorized Areas. Newbridge may
exercise any of its rights hereunder either directly or through its
subsidiaries, affiliates and/or distributors.
2.2 Newbridge Private Label.
--- -----------------------
(a) Notwithstanding anything herein contained to the contrary,
Newbridge may at its option and at its cost, "private label" the Vendor
Products, including marketing, licensing and distributing the Vendor Products:
(i) without Vendor trademarks, tradenames and/or service marks; and (ii) under
different trademarks, trademames and/or service marks, including without
limitation, Newbridge trademarks, tradenames and/or service marks (collectively
the "Marks").
(b) Newbridge shall be responsible for specification of the product
and packaging labels for such private-labeled Vendor Products (collectively the
"Labels"). Vendor shall be responsible for manufacturing of the Labels. Vendor
shall promptly return or destroy any excess or unused Labels.
(c) Other than the limited right to manufacture the Labels for the
benefit of Newbridge in section 2.3(b), Vendor shall have no right, title, or
interest in the Marks. Vendor shall make no other use of the Labels or Marks.
Any Vendor Products with the Labels will be for the sole use of Newbridge, and
shall not be provided to any other person or entity.
2.3 Confidentially.
--- --------------
(a) Each party acknowledges that, during the term of this Agreement,
it may be exposed to certain confidential and/or proprietary information and
materials regarding the other party's business, including but not limited to
information concerning a party's technology, customers and suppliers, which is
identified as confidential or proprietary at the time of disclosure
("Confidential Information").
2
<PAGE>
(b) However, Confidential Information shall not include any
information or material which: (i) is in (or comes into) the public domain,
provided it came into the public domain through no fault of the receiving party;
(ii) can be demonstrated to have been independently developed by the receiving
party without reference to the Confidential Information; (iii) is rightfully
received by the receiving party from a third party not under an obligation of
confidence to the disclosing party with respect thereto; or (iv) is required by
law or regulation to be disclosed, but then only to the extent of such required
disclosure and under confidentiality to the extent reasonably possible.
(c) Each party will: (i) use a reasonable standard of care to protect
Confidential Information, (ii) not use Confidential Information except as
permitted by the party disclosing such Confidential Information, (iii) not
disclose Confidential Information except to its employees or representatives to
whom disclosure is necessary to effect the purposes of this Agreement, and who
are similarly bound to hold the Confidential Information in confidence; and (iv)
not reproduce Confidential Information without the disclosing party's prior
written consent.
3. NEWBRIDGE'S OBLIGATIONS
3.1 Marketing. Newbridge shall use reasonable commercial efforts to market
--- --------- ---
the Vendor Products in the Authorized Areas.
3.2 Technical Support. Newbridge shall provide the support services for
--- ------------------
the Vendor Products to its End Users in the Authorized Areas, as provided in
Schedule D.
3.3 Trade-marks. As applicable, Newbridge shall use Vendor's trade-marks
--- -----------
and logos in accordance with Vendor's reasonable written guidelines, as provided
to Newbridge from time to time. End User services for the Vendor Products may be
marketed and sold under any applicable Newbridge service marks or trademarks
without restriction.
3.4 Account Manager. As applicable, Newbridge and Vendor shall assign
--- ---------------
individuals who will act as account co-ordination manager for Vendor and the
Vendor Products.
3.5 Forecast. Newbridge shall provide Vendor upon execution of this
--- --------
Agreement a good faith, non-binding forecast of its estimated requirements for
each of the Vendor Products (the "Forecast"), for an initial twelve (12) month
--------
period. Upon request of Vendor, Newbridge shall provide Vendor with an updated
Forecast for Vendor Products for the following twelve (12) months. Vendor
understands and agrees that such Forecasts shall not create any obligations on
the part of Newbridge.
3
<PAGE>
4. VENDOR'S OBLIGATIONS
4.1 Supply. Vendor agrees to sell to Newbridge the Vendor Products and
--- ------
spare parts ordered by Newbridge in accordance with the terms of this Agreement.
4.2 Documentation. Vendor shall provide Newbridge with a master copy and a
--- -------------
reasonable number of copies of all Documentation for each Vendor Product. Vendor
shall supply Documentation in both hard copy format and electronic format
suitable for dissemination by Newbridge via the Internet and/or CD ROM. Vendor
grants Newbridge a non-exclusive, royalty-free right and license to copy, use,
modify, translate and otherwise prepare derivative works of the Documentation
and distribute the Documentation and derivative works thereof to its End Users
in the Authorized Areas. All material changes to the Documentation shall be
approved by Vendor where such approval shall not be unreasonably withheld.
Should Vendor fail to respond, within two working days, to a written request for
approval, such approval shall be deemed accepted on the third working day after
the written request for approval. Notwithstanding any provision to the contrary
hereunder, in no event shall Vendor have any liability whatsoever from or in
connection with any such changes to the Documentation which are not approved by
Vendor.
4.3 Technical Support. Vendor shall provide the support services to
--- -----------------
Newbridge, and Newbridge shall provide support services to its distributors and
End Users, as provided in Schedule D.
4.3.1 Remote Diagnostic Tools. In order for Newbridge to perform on-
----- -----------------------
line trouble shooting of the Vendor Product hardware and software, Vendor shall
supply Newbridge with any remote diagnostic tools and routines that may be
developed for the Vendor Products at no charge.
4.4 Technical Information Service. Vendor shall provide to Newbridge a
--- -----------------------------
range of post sales technical information at regular intervals to ensure that
Newbridge has all current and relevant information regarding the Vendor
Products. These shall include, but not be limited to, (as applicable) the latest
software and hardware release notes, product release descriptions, technical
tips and bulletins, problem report bug list, white papers, reports, product
change notices, technical alerts, urgent problem notification and any other
applicable Documentation. Vendor shall supply information in hard copy format
and in electronic format suitable for dissemination by Newbridge via the
Internet and/or CD ROM.
4.5 Software Maintenance. If the Vendor Products are, or contain,
--- --------------------
software, the following shall apply: Vendor shall provide to Newbridge at no
cost all defect correction code (dot releases, patches, and software problem
workarounds) for the Vendor Product software, and all associated Documentation
and technical information. Vendor grants to Newbridge a royalty-free right and
license to distribute such software and Documentation to Newbridge End Users
4
<PAGE>
who have current valid service agreements with Newbridge. Such software will be
provided to End Users, at Newbridge's option, under either Newbridge's or
Vendor's End User license terms. Vendor shall supply software maintenance
release code in electronic format suitable for dissemination by Newbridge via
the Internet and CD ROM.
4.6 Training. Vendor shall, at no cost, provide the following training
--- --------
services to Newbridge:
(a) Initial Training. Vendor shall provide up to three (3) training
----------------
sessions for up to 15 Newbridge personnel on Vendor Products at Vendor's
premises. Each party shall bear their own costs associated with such training.
If Vendor does not have a suitable facility, training will be provided at
Newbridge's facility and Vendors shall bear all its expenses, including
salaries, travel and out-of-pocket expense associated with the training. Should
Newbridge request that the training be held on its premises, Newbridge shall
bear Vendors travel and out-of-pocket expenses associated with such training.
The courses will train Newbridge personnel on the functionality of the Vendor
Products as well as problem resolution procedures for the Vendor Products with
the objective of developing a customized, multi-day, multi-product training and
support program.
(b) Subsequent Training. As new functionality is added to the Vendor
-------------------
Products or new products are added to Schedule A, the Parties shall establish
mutually acceptable levels of training to be provided at Vendor's facility. Each
Party shall bear its travel and out of pocket expenses associated with the
subsequent training. If Vendor does not have a suitable training facility,
training will be provided at Newbridge's facility at Vendors expense.
(c) Training Materials. Vendor grants to Newbridge a non-exclusive,
------------------
royalty-free right and license to copy, modify, use, and distribute training
materials provided by Vendor.
(d) Additional Training. Any further training requested by Newbridge,
-------------------
over and above the obligations stated herein, shall be made available to
Newbridge at Vendor's standard rates for like or similar training.
4.7 Quality Metrics. Vendor shall provide to Newbridge copies of its
--- ---------------
quality assurance manuals and procedures applicable to the Vendor Products.
Vendor shall further grant Newbridge the right to witness Vendor's use of these
procedures.
4.8 Approvals. Vendor is responsible for obtaining all applicable
--- ---------
approvals required to permit Newbridge to resell the Vendor Products in the
Authorized Areas including, but not limited to, UL, CSA and FCC approvals.
Vendor shall bear all costs associated with such approvals. Where permitted by
law, Vendor shall assist Newbridge in registering second approvals in
Newbridge's name. Any costs associated with second approvals shall be borne by
Newbridge. Notwithstanding the foregoing, in the event that Newbridge requires
approvals other than those sought in Vendor's normal course of business, the
parties shall reasonably share the costs incurred by the approval process, based
on good faith negotiations.
5
<PAGE>
4.9 Development of Custom Vendor Products. Upon request from Newbridge,
--- -------------------------------------
Vendor will work with Newbridge on the modification, development and/or
production of Vendor Products for specific market requirements of Newbridge.
Such Vendor Products will be modified, developed and/or produced pursuant to the
terms of a separate development agreement, to be negotiated in good faith by the
parties.
5. PRICE TERMS
5.1 Purchase Price. Except as provided below, Newbridge shall pay the
--- --------------
Transfer Price for the Vendor Products.
5.2 Price Increase. The Transfer Prices will remain unchanged for the
--- --------------
first year of this Agreement. Thereafter, Vendor may change the Transfer Price
for the Vendor Products not more than once a year, and by no more than the
greater of: (a) five percent (5%) per annum or (b) the annual increase for the
preceding year in the U.S. Bureau of Labour Statistics Data index PCU3663#133
("Radio and Television Broadcast and Communications Equipment, Point to Point
Transmitters, Receivers, and power amplifiers (except satellite and amateur))".
If Vendor desires a greater change in the Transfer Price per annum, it may do so
only with the consent of Newbridge, which consent shall not be unreasonably
withheld. Vendor shall give Newbridge no less than ninety (90) days advance
written notice of any price changes. Price increases will not apply to any
orders already placed with Vendor, or to any Vendor Products to be ordered by
Newbridge following a quotation provided to an End User before the effective
date of the increase, provided such order is made within six (6) months of the
effective date of the increase. This time period may be extended, on a case-by-
case basis, upon mutual consent of the parties.
5.3 Delivery Costs. All Vendor Products are FCA (Incoterms, 1990) Vendor's
--- --------------
shipping point, provided, however, that Vendor shall not be obligated to obtain
any export license not permitted by applicable law or which it has been unable
to obtain after reasonable efforts. Vendor shall use the carrier specified by
Newbridge (if any), and shall charge all delivery costs against the Newbridge
account number authorized by Newbridge on a case-by-case basis.
5.4 Taxes. The prices for the Vendor Products do not include shipping,
--- -----
insurance, sales taxes or duties. Newbridge will pay (or reimburse Vendor) all
such shipping, insurance, taxes or duties designated, levied or based upon this
Agreement, except those based on Vendor's income. Newbridge may deduct from
payments to Vendor (if a nonresident of Canada) any amounts required to be
withheld by Canadian law. For greater certainty, as of the Effective Date,
amounts to be withheld are currently described in Section 212 and Regulation 105
of the Income Tax Act, Canada, as amended, all of which are subject to change.
6
<PAGE>
6. ORDERING PROCEDURE, DELIVERY AND PAYMENT TERMS
6.1 Purchase Orders. Newbridge shall order the Vendor Products by issuance
--- ---------------
of a written purchase order ("Purchase Order"). Each Purchase Order shall
include the desired quantity of Vendor Products, a requested ship date (the
"Ship Date"), the method of shipment and the location to which the Vendor
Products should be shipped. Vendor will use all reasonable efforts to meet the
requested ship date in Newbridge's Purchase Order.
6.2 Acceptance. Vendor shall promptly process Purchase Orders issued by
--- ----------
Newbridge and shall accept all Purchase Orders made in accordance with this
Agreement whose Ship Date is not less than eight (8) weeks from the date of the
Purchase Order, unless there are material amounts owed to Vendor by Newbridge
which are overdue. Purchase Orders will be deemed to be accepted, unless written
notice of rejection of a Purchase Order (or part thereof) is made within five
(5) business days of Vendor's receipt of the Purchase Order. Where Vendor
rejects any Purchase Order (or part thereof), it shall provide Newbridge the
reasons for rejection.
6.3 Re-Scheduling. Newbridge may re-schedule an order or any part thereof
--- -------------
to a cumulative (for all re-schedules pertaining to that order) maximum of
forty-five (45) days from the original Ship Date. If Newbridge desires to
reschedule an order or any part thereof, Newbridge shall pay the fee shown below
as compensation for Vendor's additional costs involved (which both parties agree
constitutes a reasonable estimate of such costs):
<TABLE>
<CAPTION>
Reschedule Request Received This Number of Fee (as a Percentage of Transfer Price of
Days Prior to Original Ship Date Rescheduled Vendor Products)
- -----------------------------------------------------------------------------------------------
<S> <C>
Over 90 [***]
- -----------------------------------------------------------------------------------------------
Over 60 but less than or equal to 90 [***]
- -----------------------------------------------------------------------------------------------
Over 30 but less than or equal to 60 [***]
- -----------------------------------------------------------------------------------------------
Less than or equal to 30 [***]
- -----------------------------------------------------------------------------------------------
</TABLE>
6.4 Cancellation. Newbridge may cancel a Purchase Order for Vendor Products
--- ------------
(or part thereof) up to [***] prior to the original Ship Date (i.e.
the Ship Date before any re-scheduling occurred). If such cancellation occurs as
a result of the cancellation by Newbridge's End User of the corresponding order,
Newbridge shall pay [***] in accordance with generally accepted accounting
principles (provided however, that in no event shall such amounts in aggregate
exceed the fees specified in the table below). If such cancellation occurs for
any other reason, Newbridge shall pay Vendor the fee shown below as compensation
for Vendor's additional costs involved (which both parties agree constitutes a
reasonable estimate of such costs):
[***] Confidential Treatment Requested.
7
<PAGE>
<TABLE>
<CAPTION>
Cancellation Request Received This Number of Fee (as a Percentage of Transfer Price of
Days Prior to Original Ship Date Vendor Products Sought to be Canceled)
- -----------------------------------------------------------------------------------------------
<S> <C>
Over 90 [***]
- -----------------------------------------------------------------------------------------------
Over 60 but less than or equal to 90 [***]
- -----------------------------------------------------------------------------------------------
Over 30 but less than or equal to 60 [***]
- -----------------------------------------------------------------------------------------------
</TABLE>
However, if such cancellation is for Vendor Products specifically designed for
and used by Newbridge alone ("Custom Vendor Products"), Newbridge shall pay
Vendor [***]. However, in no event shall such fees and expenses exceed [***] of
the Transfer Price of the order being canceled. Upon request, Vendor shall
provide Newbridge with copies of documentation in support of [***] that are
reasonably acceptable to Newbridge.
6.5 Invoicing and Payment. Vendor shall issue an invoice on shipment of
--- ---------------------
the Vendor Product(s). Newbridge shall pay all amounts due to Vendor by wire
transfer within forty five (45) days of receipt of an invoice from Vendor. In
the event of a dispute on an invoice, all undisputed amounts shall be paid in
accordance with the foregoing. Upon resolution of any disputed amounts, such
agreed-upon amounts shall be paid within thirty (30) days of the resolution.
6.6 Stock Adjustment and Update for non-Custom Vendor Products. Except for
--- ----------------------------------------------------------
Custom Vendor Products (which are dealt with in section 6.7 below), Newbridge
shall have the right to make stock adjustments and/or updates, subject to a
payment by Newbridge of a restocking charge equal to [***] of the price
originally paid by Newbridge for Vendor Products being returned. Returned Vendor
Products must be unused. Vendor will, at Newbridge's option, either (i) credit
Newbridge's account, or (ii) provide Newbridge with a revision level change for
Vendor Products returned.
6.7 Stock Adjustment and Update for Custom Vendor Products. Upon Vendor's
--- ------------------------------------------------------
prior written consent (which shall not be unreasonably withheld or delayed),
Newbridge may make stock adjustments and/or updates for Customer Vendor
Products, subject to a -payment by Newbridge of a restocking charge equal to
[***] of the price originally paid by Newbridge for Custom Vendor
Products being returned. Returned Custom Vendor Products must be unused. Updates
to Custom Vendor Products will be done by Vendor on a time and materials basis,
plus [***].
6.8 Product Returns. In addition to other rights and remedies available to
--- ---------------
Newbridge, Newbridge shall have the right to return to Vendor for a fall refund
within twelve (12) months of shipment to an End User, any Vendor Product which
fails to comply in all material respects to the quality, form, fit or function
as described in such Vendor Product's Documentation as ordered by Newbridge.
[***] Confidential Treatment Requested.
8
<PAGE>
7. TITLE AND SHIPPING
7.1 Title. Title. without encumbrance, and with risk of loss or damage, to
--- -----
the Vendor Products shall pass to Newbridge upon delivery to the carrier
designated by Newbridge. Newbridge shall provide Vendor with the details of its
shipping arrangements such that Vendor may prepare each shipment and make timely
delivery to the carrier.
7.2 Shipping Terms. For Purchase Orders placed pursuant to this Agreement,
--- --------------
Vendor shall ship to Newbridge (unless there are amounts of over [***] owed to
Vendor by Newbridge which are overdue) freight collect except that Vendor shall
pay any additional freight costs necessary to meet the original ship date
provided to Newbridge if the shipment would otherwise arrive late by the use of
normal shipping priority because of Vendor's fault or delay. The appropriate
shipping location will be based on Newbridge's specified delivery location and
the availability of Vendor Products.
7.3 Shipping Packaging. All product shipped to Newbridge shall be bulk
--- ------------------
packaged in a master carton of appropriate design and size to provide security
from physical damage.
8. PRODUCT CHANGES
8.1 Product Changes. Vendor must provide ninety (90) days' prior written
--- ---------------
notification to Newbridge if it intends to make any changes to any of the Vendor
Products which affect the Vendor Product's form, fit, function or the approvals
required for such Vendor Product(s). For any other changes to the Vendor
Products, Vendor must provide prior written notification to Newbridge. In
addition, in no event may changes adversely affect the Vendor Products, their
performance, features, functionality or required approvals without prior written
consent of Newbridge.
8.2 Software Release Support. If the Vendor Products are, or contain,
--- ------------------------
software, the following shall apply: Vendor shall support the current and the
two prior major releases of software for the Vendor Products in accordance with
Schedule D. However, Newbridge may, at no charge, require Vendor to continue to
produce and support older versions of the Vendor Products for specific Newbridge
customers, for a reasonable period of time.
8.3 Manufacturing. In no event shall Vendor change its manufacturing and
--- -------------
testing facility, and/or any outsourcing of same, for the Vendor Products
without prior written consent of Newbridge, where such consent not to be
reasonably withheld or delayed.
[***] Confidential Treatment Requested.
9
<PAGE>
The Vendor may only discontinue the manufacture of a Vendor Product if:
(i) the total purchases of such Vendor Product by Newbridge to
Vendor over the last three (3) quarters does not exceed [***]; and
(ii) Vendor shall provide at least six (6) months written notice
to Newbridge; and
(iii) Vendor shall give Newbridge, at a price to be mutually
negotiated in good faith, the opportunity to purchase a last time buy of the
millimeter-wave circuits on carriers for incorporation into such discontinued
Vendor Products and a license to use Vendor's intellectual property and other
confidential information necessary to manufacture and test such discontinued
Vendor Products (except for millimeter-wave circuits on carriers) and to
incorporate millimeter-wave circuits on carriers into Vendor Products.
In furtherance of the foregoing and subsequent to Vendor's notification to
Newbridge of the discontinuance of manufacturing of any Vendor Products, Vendor
and Newbridge shall negotiate in good faith, if requested by Newbridge, a
mutually acceptable escrow agreement with a mutually acceptable escrow agent
pursuant to which Vendor shall deliver to such escrow agent a copy of Vendor's
intellectual property and other confidential information necessary to
manufacture and test such discontinued Vendor Products (except for millimeter-
wave circuits on carriers) and to incorporate millimeter-wave circuits on
carriers into Vendor Products and such escrow agent shall be authorized and
directed to release such materials to Newbridge upon Newbridge's purchase of the
last time buy of millimeter-wave circuits on carriers and license referred to
above. The confidentiality provisions of Section 2.3 shall apply to the
Confidential Information to be provided under this Section 8.3.
8.4 Repairs: Spares. Vendor shall provide at its then-standard prices,
--- ---------------
spare parts for and the capability for repairing, the Vendor Products for a
period of not less than five (5) years from the date of the last shipment of
Vendor Products to Newbridge. If, within the five (5) year period Vendor fails
to maintain such capability, Vendor shall provide functionally equivalent
products at a cost not to exceed the cost of the spare parts that would have
been required to repair the Vendor Products. Vendor's prices will be no greater
than Vendor's lowest price to any other customer in comparable circumstances.
Vendor may subcontract its obligations under this section 8.4 (at no cost to
Newbridge) with the prior, written consent of Newbridge, which shall not be
unreasonably withheld. In lieu of the foregoing obligations (whether or not
Newbridge exercises the following opportunity), Vendor may offer Newbridge, at a
price to be mutually negotiated in good faith, the opportunity to purchase a
last time buy of spares of millimeter-wave circuits on carriers for
incorporation into such Vendor Products and a five (5) year license to use
Vendor's intellectual property and other confidential information necessary to
manufacture and test Vendor Products (except for millimeter-wave circuits on
carriers) and to incorporate millimeter-wave circuits on carriers into Vendor
Products.
[***] Confidential Treatment Requested.
10
<PAGE>
In furtherance of the foregoing and subsequent to the date of the last shipment
of Vendor Products to Newbridge, Vendor and Newbridge shall negotiate in good
faith, if requested by Newbridge, a mutually acceptable escrow agreement with a
mutually acceptable escrow agent pursuant to which Vendor shall deliver to such
escrow agent a copy of Vendor's intellectual property and other confidential
information necessary to manufacture and test Vendor Products (except for
millimeter-wave circuits on carriers) and to incorporate millimeter-wave
circuits on carriers into Vendor Products and such escrow agent shall be
authorized and directed to release such materials to Newbridge upon Newbridge's
purchase of the spares and license referred to above. The confidentiality
provisions of Section 2.3 shall apply to the Confidential Information to be
provided under this Section 8.4.
8.5 Continuing Technical Support. Vendor shall continue to provide
--- ----------------------------
technical support services to Newbridge for Vendor Products which have been
manufacturer discontinued, for a period of not less than [***] from the date of
the last shipment of Vendor Products to Newbridge. Vendor may subcontract its
obligations under this section 8.4 (at no cost to Newbridge) with the prior,
written consent of Newbridge, which shall not be unreasonably withheld.
9. REPRESENTATIONS AND WARRANTIES
9.1 Vendor represents and warrants that:
--- -----------------------------------
(a) it has the power and authority, and all rights, licenses and
permits required, to execute this Agreement and to satisfy and perform its
obligations and responsibilities set forth herein;
(b) it will comply with all laws, regulations, reasonable practices
and standards applicable to the obligations assumed by Vendor under this
Agreement;
(c) the Vendor Products conform to all applicable regulatory and/or
type approvals, as provided in Schedule E attached hereto which may be amended
form time-to-time with consent of the Parties.
(d) Vendor will upon notice from Newbridge use reasonable efforts to
enforce any third party warranty (express or implied) on behalf of Newbridge.
Upon reasonable request, Vendor will permit Newbridge to participate in such
enforcement.
(e) except as expressly disclosed in the Documentation, no Vendor
Product which includes software contains "product keys", "expiry codes" or other
codes or devices that may prevent Newbridge or its End Users from using the
software at any time, except as disclosed in writing to Newbridge;
[***] Confidential Treatment Requested.
11
<PAGE>
(f) it will have title to the Vendor Products immediately prior to the
passing of title to Newbridge; and
(g) the Vendor Products, and their use or distribution do not infringe
any copyright, patent, trade secret, or other proprietary or contractual right
or obligation. This warranty does not extend to: (i) the use of any Vendor
Product in manner for which is was not designed; (ii) the unauthorized
modification of the Vendor Products by Newbridge; or (iii) the use of any Vendor
Product in combination with any other equipment, products or other materials,
unless such equipment, products or other materials are provided by Vendor, or
referred to or recommended as appropriate for use in combination with such
Vendor Product in any written material which has been: (1) made generally
available by Vendor (subject to any limitations or restrictions contained in
such materials), and/or (2) provided to Newbridge by Vendor.
9.2 Newbridge represents and warrants that:
(a) it has the power and authority, and all rights, licenses and
permits required, to execute this Agreement and to satisfy and perform its
obligations and responsibilities set forth herein; and
(b) it will comply with all laws applicable to the obligations assumed
by Newbridge under this Agreement;
9.3 Year 2000 Compliance Warranty. Vendor represents and warrants that all
--- -----------------------------
Vendor Products are designed to be used prior to, during and after the calendar
year 2000 A.D. and will operate without any error arising from or relating to
date data which represents or references: a leap year; different centuries; more
than one century; or dates from January 1, 2000 onwards.
9.4 Vendor Warranty Obligations. If requested to do so by Newbridge,
--- ---------------------------
Vendor will promptly provide Newbridge with test results (using Newbridge's test
specification (document GFS-032)) which clearly show that the Vendor Products
comply with this Year 2000 compliance warranty in all respects. Vendor shall,
without charge to Newbridge, promptly repair or replace any Vendor Products
which are not compliant with the terms of this warranty, in addition to other
remedies available to Newbridge.
10. PRODUCT WARRANTY AND REPAIR PROCEDURE
10.1 Product Warranty. Vendor further warrants to Newbridge that the
--- -----------------
Vendor Products (excluding software which can be loaded into such hardware by a
Customer) will be free from defects in material and workmanship and will
function in accordance with the Documentation for a period of the lesser of:
twelve (12) months from date of delivery to Newbridge's End Users or eighteen
(18) months from date of delivery to Newbridge. Vendor further warrants that the
Vendor Product software will function in accordance with the
12
<PAGE>
published specifications for a period ninety (90) days after delivery to a
Newbridge End User of the Vendor Products. The above warranties shall be
collectively referred to as the "Warranty Period". During the Warranty Period,
Vendor will, at no cost, make all necessary repairs and replacements to maintain
the Vendor Products in the condition warranted. Unilateral extension of the
Warranty Periods by Newbridge shall not be binding upon Vendor.
10.2 Repair or Replacement Option. If Vendor is not able to rectify
---- ----------------------------
(repair or replace) a defect in a Vendor Product within the time periods
specified in Schedule C it shall, at Newbridge's option, accept return of the
defective Vendor Products, and refund to Newbridge all amounts paid in respect
thereof.
10.3 Support Warranty. Vendor also warrants that the support services
---- ----------------
shall be provided by appropriately trained personnel, in a competent and
professional manner. Vendor will exercise a professional standard of care in
performing its obligations under the Agreements and monitoring its contractors
in the performance of the obligations delegated to them.
10.4 Repair Procedure. Newbridge agrees to comply with Vendor's standard
---- ----------------
repair procedure, as set out in Schedule C attached hereto.
11. DISCLAIMER OF OTHER WARRANTIES
EXCEPT FOR THE WARRANTIES CONTAINED IN THIS AGREEMENT, VENDOR DISCLAIMS ALL
OTHER WARRANTIES ON THE VENDOR PRODUCTS, EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
12. INFRINGEMENT
12.1 Defense and Indemnity. Vendor will defend Newbridge and End Users
---- ---------------------
against any claim, legal proceeding or demand alleging a Vendor Product, its
distribution or use, infringes any copyright, patent, trade secret, or any other
contractual or proprietary right (a "Claim"); provided Vendor is promptly
notified of the Claim and is given authority to defend and settle it. Vendor
will indemnify and hold Newbridge and End Users harmless from and against all
costs, expenses, legal fees, damages, settlement amounts and other liabilities
arising out of or in respect of a Claim. Notwithstanding the foregoing, Vendor
shall have no obligation to indemnify or hold Newbridge harmless under this
Section 12.1 to the extent that any Claim arises from: (i) the use of any Vendor
Products in manner for which it was not designed; or (ii) the unauthorized
modification of the Vendor Products by Newbridge; or (iii) the use of any Vendor
Product in combination with any other equipment products or other materials,
unless such equipment, products or other materials are provided by Vendor, or
referred to or recommended as appropriate for use in combination with such
Vendor Product in any written
13
<PAGE>
material which has been: (1) made generally available by Vendor (subject to any
limitations or restrictions contained in such materials), and/or (2) provided to
Newbridge by Vendor.
12.2 Remedies. In the event Newbridge, its distributors or End Users are
---- --------
enjoined from their use of any of the Vendor Products due to a Claim that is
subject to an obligation to indemnify by Vendor under Section 12.1 above, Vendor
will (at no charge) promptly either:
(a) procure for Newbridge and its distributors End Users the right to
continue distributing and using the Vendor Product;
(b) render the Vendor Product non-infringing without materially
diminishing the Vendor Product's performance, functionality or features;
(c) replace the Vendor Product with equivalent non-infringing goods;
or
(d) if Vendor determines in its reasonable opinion that the provisions
of Sections 12.2(a) through 12.2(c) are not reasonably possible, having made
reasonable efforts, Vendor will remove the Vendor Products and refund the
Transfer Price paid for such Vendor Products.
12.3 Not Applicable. Section 13 ("Limitation of Liability") shall not
---- --------------
apply in any respect to this Section 12.
13. LIMITATION OF LIABILITY
13.1 Limitation. EXCEPT FOR SECTION 12 ABOVE, NEITHER PARTY, THEIR
---- ----------
EMPLOYEES, AGENTS, OFFICERS OR DIRECTORS SHALL BE LIABLE IN ANY WAY WHATSOEVER,
FOR ANY INDIRECT, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT
LIMITED TO, LOST PROFITS OR BUSINESS REVENUE, LOST BUSINESS, FAILURE TO REALIZE
EXPECTED SAVINGS, OR OTHER COMMERCIAL OR ECONOMIC LOSS OF -ANY KIND WHATSOEVER,
WHETHER OR NOT SUCH DAMAGES ARE FORESEEABLE OR EITHER PARTY, THEIR EMPLOYEES,
AGENTS, OFFICERS OR DIRECTORS HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. EXCEPT FOR SECTIONS 2.3 AND 12 ABOVE AND FOR ANY CLAIMS RELATING TO
WILLFUL INFRINGEMENT OF A PARTY'S INTELLECTUAL PROPERTY PROVIDED BY ONE OF THE
PARTIES HEREUNDER, THE TOTAL CUMULATIVE LIABILITY OF VENDOR AND NEWBRIDGE, (AS
WELL AS THEIR EMPLOYEES, AGENTS, OFFICERS AND DIRECTORS) FOR ALL CLAIMS FOR
COSTS, LOSSES OR DAMAGES ARISING OUT OF OR RELATED TO THIS AGREEMENT SHALL NOT
EXCEED THE TOTAL AMOUNTS PAID TO VENDOR BY NEWBRIDGE UNDER TIES AGREEMENT.
14
<PAGE>
13.2 Trust. The foregoing provisions limiting the liability of Newbridge's
---- -----
and Vendor's employees, agents, officers and directors shall be deemed to be
trust provisions for the benefit of such employees, officers, directors and
agents and shall be enforceable by such as trust beneficiaries.
14. TERM; RENEWAL
Unless otherwise terminated in accordance with the provisions herein, this
Agreement shall remain in effect for a period of three (3) years from the
Effective Date (the "Initial Term"). Upon expiration of the Initial Term and
each Renewal Term thereafter, this Agreement will be automatically renewed for
an additional one (1) year term ("Renewal Term") unless terminated by either
party upon sixty (60) days' notice prior to the expiration of the Initial Term
or any Renewal Term.
15. TERMINATION
15.1 Either party may terminate this Agreement if:
---- --------------------------------------------
(a) the other party breaches any material term of this Agreement, and
fails to remedy such breach within thirty (30) days of receiving notice to do so
by the non-defaulting party;
(b) any proceeding in bankruptcy, receivership, liquidation or
insolvency is commenced against the other party or its property, and the same is
not dismissed within thirty (30) days; or
(c) the other party makes any assignment for the benefit of its
creditors, becomes insolvent, commits any act of bankruptcy, ceases to do
business as a going concern, or seeks any arrangement or compromise with its
creditors under any statute or otherwise.
16. EFFECT OF TERMINATION OR EXPIRY
In the event that this Agreement is terminated or expires:
(a) Vendor shall process all Purchase Orders received from Newbridge
prior to the effective date of termination or expiry, and shall accept all such
Purchase Orders made in accordance with this Agreement, unless termination is
due to non- payment of amounts owed hereunder. Newbridge shall, subject to the
terms of this Agreement, accept delivery of Vendor Products ordered through
Purchase Orders submitted by Newbridge;
15
<PAGE>
(b) Newbridge and its distributors shall be entitled to continue to
distribute any Vendor Products contained in their inventory on the effective
date of termination, or Vendor Products subsequently received from Vendor.
However, notwithstanding the foregoing, if Vendor has terminated this Agreement
because of a breach by Newbridge, Vendor may, at its option, require Newbridge
to return any Vendor Products contained in its inventory on the effective date
of termination, for a full refund of all amounts paid by Newbridge for such
Vendor Products;
(c) Neither party shall, by reason of the termination or expiry of
this Agreement, be liable to the other for compensation, reimbursement or
damages on account of the loss of prospective profits on anticipated sales, or
on account of expenditures, investments, leases or commitments entered into or
made in connection with the business or goodwill of the other;
(d) Notwithstanding any other provision of this Agreement, no
termination or expiry of this Agreement shall:
(1) affect the rights of End Users to continue to use any Vendor
Products;
(2) affect the rights of End Users to continue to receive
technical support services from Newbridge as may be contracted for prior to the
effective date of termination of the Agreement, or
(3) affect the rights of Newbridge to receive technical support
services from Vendor as described herein, for the duration of the then-current
term of any Customer contracts as in effect on the date of termination (as
specified in writing by Newbridge to the Vendor within ten (10) business days of
termination).
17. FORCE MAJEURE
Neither party shall be deemed to be in default of any provision of this
Agreement for any failure in performance resulting from acts or events beyond
its reasonable control, including acts of God. Each party will use its best
efforts to anticipate such failures and to devise means to eliminate or minimize
them. But if a failure continues for more than sixty (60) days, either party
may terminate the Agreement immediately upon notice.
16
<PAGE>
18. MISCELLANEOUS
18.1 Assignment. Except for Section 15.2, either party may assign or
---- ----------
transfer (by operation of law or otherwise) this Agreement only by written
notice to the other party. In no event may Vendor assign or transfer (by
operation of law or otherwise) Section 15.2. In the event that a party wishes to
assign or transfer this Agreement (the "Assignor/Transferor") in accordance with
this Section 18. 1:
(i) The Assignor/Transferor must give the other party (the "Other
Party") at least thirty (30) days prior notice;
(ii) the assignee/transferee must accept the foregoing
assignment/transfer and agree that, from and after the date of such
assignment/transfer, it shall be bound by and perform all of the provisions of
this Agreement to the same extent as if the assignee/transferee had been an
original party to this Agreement instead of the Assignor/Transferor; and
(iii) in addition to its other rights under this Agreement, the
Other Party may, in its discretion, terminate the Agreement for convenience upon
ninety (90) days written notice; provided, however, that Vendor shall not have
the option to terminate this Agreement if Newbridge assigns or transfers this
Agreement to any person or entity of which Newbridge (directly or indirectly)
owns at least twenty five percent (25%) of the issued and outstanding shares.
18.2 Governing Law. This Agreement shall be governed by the laws of the
---- -------------
State of Virginia (except for its conflict of laws provisions), and the parties
hereby irrevocably submit to the non-exclusive jurisdiction of the courts
located in the State of Virginia. The parties expressly exclude from this
Agreement all the provisions of the Vienna Convention, 1980 (The United Nations
Convention on Contracts for the International Sale of Goods). The remedies
specified in the Agreement will not be considered the sole remedies of the
parties.
18.3 Severability. The provisions of this Agreement shah be deemed
---- ------------
severable. If any provision of this Agreement shall be held unenforceable by any
court of competent jurisdiction, it shall be severed from this Agreement and the
remaining provisions shall remain in full force and effect.
18.4 Amendments. This Agreement shall not be amended or modified except in
---- ----------
writing signed by the parties hereto. No course of dealing or usage of trade by
or between the parties shall be deemed to effect any such amendment or
modification.
17
<PAGE>
18.5 Headings. All headings and captions contained herein are for
---- --------
convenience and ease of reference only and are not to be considered in the
construction or interpretation of any provision of this Agreement.
18.6 Sections. Numbered or lettered paragraphs, subparagraphs and
---- --------
schedules contained in this Agreement refer to sections, subsections and
schedules of this Agreement.
18.7 Survival. Sections 2.3, 3.3, 4.3 (but not 4.3.1), 5, 6.3, 6.4, 6.5,
---- --------
6.8, 8.4, 8.5, 9, 10, 11, 12, 13, 16, 17, and 18 shall survive termination or
expiry of this Agreement.
18.8 Notices. Any notice required shall be sent by certified or registered
---- -------
mail, return receipt requested, addressed as follows:
To Vendor: Millitech Corporation
20 Industrial Drive East
South Deerfield, MA 01373
Attention: John L. Youngblood, President and CEO
Tel. No. (413) 665-8551
Fax No. (413) 665-0089
To Newbridge: Newbridge Networks Corporation
P.O. Box 13600
600 March Road
Kanata, Ontario K2K 2E6
CANADA
Attention: President
Tel. No. (613) 591-3600
Fax No. (613) 591-3680
with a copy to the Legal Department, at the above address,
Fax No. (613) 599-3672.
18.9 Waivers. Any consent by any party to, or waiver of, a breach by the
---- -------
other, whether express or implied, shall not constitute a consent to, or a
waiver of any other, different or subsequent breach.
18.10 Relationship. Neither Newbridge nor Vendor shall represent that its
----- ------------
relationship with respect to the other party is other than as an independent
contractor. Nothing in this Agreement shall create in either party any right or
authority to incur any obligations on behalf of, or to bind in any respect, the
other party and nothing in this Agreement shall be construed to create any
agency, joint venture or partnership.
18.11 Public Announcements. Neither party may use the name of the other
----- --------------------
party, disclose any of the terms of this Agreement, or disclose the existence of
this Agreement, (including without limitation by way of an announcement or press
release) without the prior, written consent of the other party.
18
<PAGE>
18.12 Attorney's Fees. If litigation or other judicial or administrative
----- ---------------
action is commenced between the parties concerning any dispute arising out of or
relating to this Agreement, the prevailing party in any contested ancillary
proceeding relating to the action (e.g. motions to transfer, to compel
discovery, etc.) and the prevailing party in the action itself will be entitled,
in addition to any other award that may be made, to recover all court costs or
other official costs and all reasonable expenses associated with the ancillary
proceeding or action, including without limitation reasonable attorney's fees
and expenses.
18.13 Entire Agreement; Governing Terms. This Agreement constitutes the
----- ---------------------------------
entire agreement between the parties hereto with respect to the subject matter
hereof, and cancels and supersedes any prior understanding and agreements
between the parties relating thereto. There are no representations, warranties,
terms, conditions, undertakings or collateral agreements, express, implied,
statutory or otherwise between the parties, except as expressly set forth in
this Agreement. All additional or different terms or conditions contained in
either party's purchase orders, acknowledgments, invoices or other business
forms shall be void and of no effect.
18.14 U.S. Dollars. All dollar amounts in this Agreement are in U.S.
----- ------------
Dollars.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement.
NEWBRIDGE NETWORKS CORPORATION MILLITECH CORPORATION
Conrad Lewis John L. Youngblood
- ------------------------------ ------------------------------
(Print) (Print)
/s/ Conrad Lewis /s/ John L. Youngblood
- ------------------------------ ------------------------------
(Signature) (Signature)
Executive Vice President President
- ------------------------------ ------------------------------
(Title) (Title)
19
<PAGE>
SCHEDULE A
VENDOR PRODUCTS
<TABLE>
<CAPTION>
NEWBRIDGE VENDOR TRANSFER
PART PART PRODUCT ANNUAL PRICE
NUMBER NUMBER/3/ DESCRIPTION QUANTITY/4/ (US$)
- ----------------- ------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
90312378901 OTO [***] [***]
- -------------------------------------------------------------------------------------------------
[***] [***]
- -------------------------------------------------------------------------------------------------
[***] [***]
- -------------------------------------------------------------------------------------------------
[***] [***]
- -------------------------------------------------------------------------------------------------
9031238101 ORU [***] [***]
- -------------------------------------------------------------------------------------------------
[***] [***]
- -------------------------------------------------------------------------------------------------
[***] [***]
- -------------------------------------------------------------------------------------------------
[***] [***]
- -------------------------------------------------------------------------------------------------
9031238401 OTRU1 [***] [***]
- -------------------------------------------------------------------------------------------------
[***] [***]
- -------------------------------------------------------------------------------------------------
[***] [***]
- -------------------------------------------------------------------------------------------------
[***] [***]
- -------------------------------------------------------------------------------------------------
[***] [***]
- -------------------------------------------------------------------------------------------------
[***] [***]
- -------------------------------------------------------------------------------------------------
TBD OTRU2 [***] [***]
- -------------------------------------------------------------------------------------------------
[***] [***]
- -------------------------------------------------------------------------------------------------
[***] [***]
- -------------------------------------------------------------------------------------------------
[***] [***]
- -------------------------------------------------------------------------------------------------
[***] [***]
- -------------------------------------------------------------------------------------------------
[***] [***]
- -------------------------------------------------------------------------------------------------
</TABLE>
Note: 1 US Block A, US Block B, Canada
2 Korea
3 Vendor Part Numbers are only for Canada. Part Numbers for US and Korea
have not been defined.
4 On a quarterly basis (or with such other frequency as the parties may
agree), the parties will meet to discuss and agree upon the Annual
Quantity to assign for each Vendor Product, based on the forecasts
provided by Newbridge. On our about thirty (30) days after each
anniversary of the Effective Date of this Agreement, the parties will
meet to negotiate, in good faith and on a mutually satisfactory basis,
the possible adjustment (as mutually agreed to) of the prices paid by
Newbridge for the Vendor Products in the preceding year. Such adjustment
(if any) would be based upon: (i) the total amount of each Vendor Product
purchased by Newbridge, its subsidiaries, affiliates and business
partners (whether or not such purchases were made under this Agreement,
or another agreement) during the preceding year, and (ii) the aggregate
[***] Confidential Treatment Requested.
20
<PAGE>
price paid by Newbridge for such Vendor Products, so that the adjusted
prices would reasonably reflect the amounts purchased by Newbridge.
21
<PAGE>
SCHEDULE B
AUTHORIZED AREAS
The Authorized Areas are the following regions of the world, as defined by
Newbridge:
. NORTH AND SOUTH AMERICA (NSA)
. EUROPE, MIDDLE EAST AND AFRICA (EMA)
. ASIA PACIFIC REGION, INCLUDING THE FORMER SOVIET UNION (APR)
as such may be amended by Newbridge from time to time.
22
<PAGE>
SCHEDULE C
REPAIR AND RETURN PROCEDURE
1. REPAIR PROCEDURE AND RETURN AUTHORIZATION
1.1 Vendor has a centralized repair facility for servicing of all Vendor
Products. All requests for return of Vendor Products shall be made to Vendor.
Vendor representatives will obtain all necessary information for processing the
return and shall issue Newbridge a return authorization number within one (1)
working days of receipt of Newbridge's request. No Vendor Product shall be
returned by Newbridge without prior verbal, electronic or written authorization.
1.2 Unless Vendor is authorized by its third-party suppliers to repair
third-party equipment itself, Vendor will escalate all requests for service of
the third-party equipment to the applicable third-party supplier and repairs of
the third-party equipment will be completed by that third-party supplier.
1.3 Defective Vendor Products will be returned by Newbridge with the return
authorization number written clearly on the outside of the package, and shipped
prepaid to:
Millitech Corporation
20 Industrial Drive East
South Deerfield, MA 01373
Attention: Service Department
Phone: (413) 665-8551
2. WARRANTY REPAIRS
2.1 At its discretion, Vendor will either repair or replace defective
Vendor Products covered under warranty within ten (10) working days of its
receipt. The warranty period for repaired or replaced Vendor Products shall be
the remainder of the original warranty or ninety (90) days, whichever is
greater.
2.2 Vendor Products found to be without defect after testing by Vendor, may
be subject to Vendor's then-current handling charges.
23
<PAGE>
3. OUT-OF-WARRANTY REPAIRS
3.1 Vendor will either repair or replace, at Newbridge's cost, defective
Vendor Products not covered under warranty, within ten (10) working days of its
receipt. Repair charges are available from Vendor's repair facility upon
request. The warranty on serviced Vendor Products is ninety days measured from
date of service. Out-of-warranty repair charges are based upon the prices in
effect at the time of return.
4. REPORTS
Vendor shall provide a written report for any root cause analysis and its final
determination regarding specific unit returns or in-warranty repair. The
reporting shall
include:
a) RMA number
b) description of problem
c) root cause of problem
d) corrective actions
e) target dates for implementing corrective action
5. ADVANCE REPLACEMENT SERVICE
Vendor agrees to hold a full set of spares for the Vendor Products at the
Vendor's facility in South Deerfield, MA in order to provide 24 hour advance
replacement services to Newbridge: [***]
[***] Confidential Treatment Requested.
24
<PAGE>
SCHEDULE D
SUPPORT SERVICES
1. SUPPORT LEVELS AND INTERFACE DEFINITIONS
These provisions are to be used by Newbridge and Vendor personnel for the
support level that must be provided for any problem or issue before it can be
escalated to the next defined level.
The activities identified are the minimum required, and may be supplemented by
further actions during the course of the problem investigation in order to
expedite a resolution. First and Second-Level Support will be provided by
Newbridge for Newbridge End Users who have purchased the products from Newbridge
or its business partners. Third-Level Support will be provided by Vendor to
Newbridge and directly to Newbridge End Users as deemed necessary by Newbridge.
1.1 First-Level NTAC (Front Office) Support. Newbridge will provide front
---- ---------------------------------------
office TAC support and basic help desk functions to the End User. Typically this
will include initial call handling, call logging, assignment of call priority
(Emergency, High, Medium and Low) and queue placement . This will be performed
by either the Newbridge Technical Assistance Centre (NTAC) or the Newbridge
Distributor/Service Agent. The NTAC is the focal point for all operational
support activities and is the contact point between the Customer and Newbridge.
NTAC is staffed and operational seven days a week, twenty-four hours a day,
365 days per year for first-level front office support.
1.2 First-Level NTAC (Back Office) Support. Newbridge will provide initial
---- --------------------------------------
product problem diagnostic services for identifying problems and generic
application faults, analysis, and where possible, problem resolution.
1.3 Second-Level Support. Newbridge will provide detailed product problem
---- --------------------
analysis, as well as any problem duplication in the NTAC laboratory. Second-
Level Support will provide more detailed problem diagnostic services for
identifying complex problems and application faults that cannot be resolved by
First-Level Back Office Support. Second-Level Support will be responsible for
the application of any maintenance releases or End User-specific fixes that
Vendor Support will provide. Second-Level Support will also provide interface
and escalation to Vendor Third-Level Support as required.
1.4 Third-Level Support. Vendor will provide Newbridge with 24 hours by
---- -------------------
365 days per year access to a senior consultant, based in Vendor's facility, for
product design problem analysis, and to formally escalate the problem as
described in section 2.0 of this Schedule. Typical duties include, providing
reasonable levels of technical assistance to the First-and Second-Level Support
organizations and timely delivery of defect correction code and associated
documentation.
25
<PAGE>
1.5 On-Site Support. Vendor will also provide Newbridge with on-site
---- ---------------
support if a problem is determined by mutual consent of Vendor and Newbridge to
be a valid design problem and travel is necessary. Vendor will provide for
travel and per them for Vendor personnel at no charge to Newbridge. However,
Newbridge may also require Vendor to perform such on-site support for which
Newbridge will pay in accordance with the current published Vendor Time,
Materials and Expense rates.
1.6 Installation. Newbridge will arrange for installation services at the
---- ------------
End User site. Newbridge may require Vendor to perform such installation, for
which Newbridge will pay in accordance with the Vendor's current published Time,
Materials and Expense rates.
1.7 Vendor Contacts for Services. The parties will notify each other of
---- ----------------------------
their points of contact, for any of the Vendor support services. As well, the
parties will complete and keep up to date Newbridge's "OEM Product Matrix". The
Vendor centre in South Deerfield, Massachusetts currently serves as the focal
point for all Vendor service activities. The Vendor centre will be staffed and
operational as described in section 2.0 of this Schedule.
2. PROBLEM ESCALATION
2.1 Escalation Process.
--- ------------------
(a) Following identification by Newbridge of a problem that cannot be
resolved by the regional First and Second Line support as described above,
Newbridge will record details of the problem (including diagnostic information)
and forward this information to Vendor.
(b) Newbridge will be given a problem report number and will be provided
with regular status and progress updates of Newbridge-escalated problems
2.2 Problem Priority Definitions. Four classifications of requests for
---- ----------------------------
information or assistance are defined. In order to classify a request, Newbridge
technical support personnel will confirm with Vendor the impact of the problem
to determine an appropriate classification. Where parties disagree on the
classification of a particular problem, the Vendor and Newbridge primary
technical contacts will undertake to discuss the problem with a view to reaching
a mutually acceptable classification.
2.2.1 Emergency Priority. Problems that have been verified through
------ ------------------
formal maintenance channels as problems affecting service, which cause major
functionality to be inoperative and therefore affect the normal business
operations during the normal working day. There is no acceptable work around. To
ensure the fastest possible response, problems classified as Emergency will be
reported via telephone.
26
<PAGE>
2.2.2 High Priority: Problems that have been verified through the
----- -------------
formal maintenance charmers as problems affecting service which cause major
functionality to be inoperative and therefore affect the normal business
operations during the normal working day. There is an acceptable work around.
2.2.3 Medium Priority: Problems that have been verified through the
----- ---------------
formal maintenance channels as causing particular features or functionality to
be inoperative, but do not affect the normal business operations during the
normal working day. There is no acceptable work around.
2.2.4 Low Priority: Problems that have been verified through the
----- ------------
formal maintenance channels as causing particular features or functionality to
be inoperative, but do not affect the normal business operations during the
normal business operations during the working day. There is an acceptable work
around.
2.3 Time-scale Objectives. In order for Newbridge to offer support
--- ---------------------
services to its distributors and End Users, Vendor will use best endeavors to
meet the following response, progress and restore time objectives. If these
time-scales cannot be met, Vendor will immediately notify Newbridge and Vendor
and Newbridge Primary technical contacts will undertake to discuss the problem
with a view to reaching- a mutually acceptable solution.
2.3.1 Response Time. The time from when Newbridge makes a request for
----- -------------
a problem to be escalated and Vendor responds to the request. The response times
are classified as:
<TABLE>
<S> <C>
. Emergency - One hour, 24 hours a day, 7 days a week
. High - Two hours, during normal business hours
. Medium - One business day
. Low - Two business days
</TABLE>
2.3.2 Progress Time. Newbridge may contact Vendor at any interval for
----- -------------
any problem to solicit update information. The time between Vendor making the
initial response to Newbridge and providing unsolicited updates, by telephone or
fax to the request for information or assistance are as follows:
<TABLE>
<S> <C>
. Emergency - One call every business day
. High - One call every two business days
. Medium - One call every working week
. Low - One call every working month
</TABLE>
27
<PAGE>
2.3.3 Restore Time. The time between Vendor receiving and accepting
----- ------------
the problem from Newbridge and the delivery of an acceptable work-around (or
fix) for the problem:
<TABLE>
<S> <C>
. Emergency - Vendor will use all best efforts and resources at its
disposal to ensure that an End User's network is
restored to operation status, as soon as possible, but
not to exceed twenty four (24) hours from receiving the
problem from Newbridge. Vendor will also use all best
efforts and resources at its disposal to deliver an
acceptable work-around (or fix) for the problem as soon
as possible, but not to exceed one month following
diagnosis.
. High - within the next maintenance release, which will be
issued no later than eight weeks after diagnosis.
. Medium - less than 6 months
. Low - less than 6 months
</TABLE>
2.3.4 Defect Fix Time. The time between Vendor receiving and accepting
----- ---------------
the problem from Newbridge and the delivery of an acceptable, final fix for the
problem:
<TABLE>
<S> <C>
. Emergency - less than 1 month
. High - less than 3 months or within next maintenance release
whichever is shorter
. Medium - less than 6 months
. Low - less than 12 months
</TABLE>
3. SUPPORT FOR THIRD-PARTY EQUIPMENT
3.1 Products Supported. Newbridge will provide support services, as
--- ------------------
described in this Schedule, for the Vendor Products, with the exception of
products not manufactured or created by Vendor ("Third Party Equipment').
3.2 Support for Third Party Equipment. Support services for Third Party
--- ---------------------------------
Equipment will be provided directly by the appropriate third party supplier.
3.3 Third Party Equipment Problem Escalation. Problems with Third Party
--- ----------------------------------------
Equipment will be escalated by Vendor to the appropriate third party supplier.
Upon completion of the problem fix, the third party supplier will provide Vendor
with a written report detailing the problem fix and time. Vendor will be
responsible for updating and closing the PTS after a Third Party Equipment fix.
28
<PAGE>
SCHEDULE E
STANDARDS COMPLIANCE
AND
PRODUCT CHANGES
1. STANDARDS COMPLIANCE
1.1 Vendor Responsibilities. Vendor shall be responsible for:
--- -----------------------
1.1.1 Verifying and maintaining compliance of the Vendor Product to
the Standards listed in the Technical Specifications listed in Schedule F and
attached hereto (hereinafter referred to as "Standards"). In the event of any
conflict or inconsistency between the terms of this Schedule E and the terms of
the Technical Specifications, the terms of the Technical Specifications shall
prevail.
1.1.2 Implementing any design changes required to the Vendor Product
for compliance of the Vendor Product to the Standards.
1.1.3 All applicable regulatory approvals for the Vendor Product
sought in Vendor's normal course of business and in accordance with Section 1.5
of this Schedule E. For such approvals required by Newbridge and not sought in
Vendor's normal course of business, the parties shall reasonably share the costs
incurred by the approval processes based on good faith negotiations.
1.1.4 Providing Newbridge with information, including but not limited
to soft copies of bills of materials and reliability information, as required
for Newbridge to complete evaluation of the Vendor Product to Standards.
1.1.5 Compiling the database of all the polymers used in the Vendor
Product and ensuring they meet Bellcore NEBS flammability requirements per
Standards. This database shall be submitted to Newbridge. (This paragraph shall
not apply to the use of Rogers 4003 millimeter-wave circuit board which is
enclosed within an 0-ring sealed metal housing.)
1.1.7 Providing Newbridge with copies of test reports, as applicable,
for product safety, Electromagnetic Compatibility (EMC), network interface, etc.
demonstrating compliance to the Standards.
1.1.8 Notifying Newbridge of systematic failures, defined as failures
exceeding predicted failure rates specified in the Technical Specifications
listed in Schedule F.
1.1.9 Submitting to Newbridge qualification test results for vital
components such as power supplies, fans, optical interfaces, batteries and
ASICs.
29
<PAGE>
1.1.10 Providing (under suitable non-disclosure provisions where
appropriate) documents such as PCB and mechanical drawings, schematics, Bills of
Materials, to Newbridge and Newbridge customers, on request.
1.2 Newbridge Responsibilities. Newbridge shall be responsible for:
--- --------------------------
1.2.1 Verifying and maintaining compliance of the Vendor Product
integrated with Newbridge cards and modules to the applicable Standards.
1.2.2 Advising Vendor of any design changes to the Vendor Product as
required for compliance of the Vendor Product to the applicable Standards.
1.2.3 Pursuing regulatory approvals as required on the Vendor Product
integrated with Newbridge cards and modules and in accordance with Section 1.5
of this Schedule E.
1.3 Ownership of Approvals. Ownership of the approvals shall reside with
--- ----------------------
the party responsible for obtaining and maintaining the regulatory approvals.
1.4 Transfer of Approvals. As applicable and upon request, Vendor shall
--- ---------------------
assist Newbridge in registering second approvals in Newbridge's name where
permitted by law. Any costs associated with second approvals shall be borne by
Newbridge.
1.5 Regulatory Approvals. The Vendor Product shall have the following
--- --------------------
regulatory approvals markings, as applicable:
1.5.1 Canadian Standards Association (CSA) logo or equivalent.
1.5.2 Underwriters Laboratories, Inc. (UL) logo or equivalent.
1.5.3 Federal Communications Commission (FCC) Part 15 and Part 68
markings.
1.5.4 Industry Canada (IC) ICES-003 and CS-03 markings.
1.5.5 Food and Drug Administration (FDA) markings.
1.5.6 European Community CE marking to the Low Voltage Directive
(LVD), EMC directive and Telecommunications Terminal Equipment (TTE) directive.
1.5.7 The Vendor Product documentation shall include all required
statements and markings for the Standards. Newbridge document GENO050 [15],
titled Regulatory Approvals Statement, can be used for guidance.
30
<PAGE>
2. PRODUCT CHANGES
2.1 After Newbridge approval of Pre-production Prototypes and immediately
after Vendor internal approval of an Engineering Change Order ("ECO") that
effects the Form, Fit or Function of a Product (as defined herein) and that may
affect the approvals for the Vendor Products, Vendor shall notify Newbridge in
writing, detailing the anticipated changes to such Product. Prior to
implementing the changes to the Product, Vendor must receive written approval
from Newbridge for the changes, such approval not to be unreasonably withheld.
2.1.1 "Form": Includes weight, density, chemical, or material
composition, size, shape, structure, appearance, protocol, pattern, composition,
configuration and marking/identification;
2.1.2 "Fit": Refers to suitability or readiness for a particular
application, including extremes or environment and marginal parameters, or
interfacing systems and physical, or signal compatibility with interfacing
systems or surroundings. This includes the Vendor Product level of performance,
safety margin, reliability, maintainability and installability; and
2.1.3 "Function": The set tasks or purposes for which the Vendor
Product are used by the customer including all the tasks generally accepted for
the Vendor Product and those specifically designated by the customer.
2.2 Vendor shall send copies of ECOs not affecting Form, Fit or Function of
the Vendor Product to Newbridge. These ECOs do not require Newbridge review
prior to implementation.
2.3 Newbridge and Vendor shall assign ECO primes who shall be responsible
for implementing the inter-company ECO obligations outlined herein.
2.4 Newbridge reserves the right to have Vendor continue to build older
versions of the Vendor Product for specific Newbridge customers for a period of
time, and at a price to be mutually agreed by the parties and subject to the
provisions of Section 8.3 of this Agreement.
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SCHEDULE F
TECHNICAL SPECIFICATIONS
[To be determined by the parties]
32
<PAGE>
EXHIBIT 10.9
This PROFESSIONAL SERVICES AGREEMENT is made and entered into on August 7, 1998
(the "Effective Date").
BETWEEN:
NEWBRIDGE NETWORKS CORPORATION, a. corporation incorporated under the laws
of Canada, and having its offices at 600 March Road, P.O. Box 13600,
Kanata, Ontario, Canada K2K 2E6
("Newbridge")
AND:
MILLITECH CORPORATION, a Massachusetts corporation having its offices at 20
Industrial Drive, P.O. Box 109, South Deerfield, MA 01373
("Millitech")
WHEREAS:
A. Newbridge is engaged in a millimeter-wave wireless initiative for
which additional consulting, development or engineering services are required;
B. Millitech has agreed to provide such additional consulting or
engineering services in accordance with the terms of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained herein, and
for other good and valuable consideration (the receipt and sufficiency of which
are hereby acknowledged)the parties hereto agree as follows:
1. DEFINITIONS
In this Agreement, unless the context otherwise requires:
(a) "Agreement" shall mean this Professional Services Agreement and
all attached Statements of Work, schedules and exhibits, as may be amended in
accordance with the provisions herein.
(b) "Deliverables" shall mean all information, materials, hardware,
software and/or other items to be provided in connection with, or as a result
of, the Services specified in a Statement of Work.
(c) "Services" shall mean the services to be performed by Millitech
in accordance with a Statement(s) of Work, which shall include any Deliverables.
<PAGE>
(d) "Statement of Work" shall mean the description of Millitech's
Services and Deliverables in the form set forth in Schedule A hereto, which
shall from time to time, be executed by the parties and thereby incorporated
into, and made part of this Agreement. In the event of any conflict or
inconsistency between the terms of this Professional Services Agreement and any
Statement of Work the terms of the Statement of Work shall prevail.
2. DUTIES
2.1. Statements of Work. Millitech shall perform the Services in
------------------
accordance with this Agreement. Each Statement of Work shall become effective on
the date specified in the Statement of Work, and shall continue until completion
of the Services described in such Statement of Work, unless earlier terminated
in accordance with this Agreement.
2.2. Millitech Personnel. Millitech warrants that they have and will
-------------------
maintain on staff a sufficient number of individuals who possess the skills and
level of competency necessary to satisfactorily perform their obligations under
this Agreement in a timely manner, and will apply them to this Agreement and any
Statements of Work.
2.3. Independent Contractors. Before beginning any work, any independent
-----------------------
contractor must first sign: (i) a non-disclosure agreement with Millitech, and
(ii) an agreement assigning all rights, title and interest (including all
intellectual property and moral rights) in and to the Deliverables to Millitech.
2.4. Project Management.
------------------
(a) Each party shall appoint a project manager who shall be
responsible for all matters concerning the technical aspects, quality and
acceptance of the work performed under this Agreement.
(b) Each party shall supply information to the other, as reasonably
required to complete a Statement of Work.
(c) Millitech shall deliver monthly activity reports, in form and
content satisfactory to Newbridge, detailing the Services performed by Millitech
in the preceding month. Activity reports shall be delivered no more than fifteen
(15) days following the end of the calendar month to which they relate. Any such
reports shall be subject to verification and review.
(d) Any change to this Agreement, whether by modification or
addition, must be accomplished by a formal contract amendment signed by the
authorized representatives of Newbridge and Millitech. Millitech will quote to
Newbridge the cost associated with the change in the Statement of Work and the
effect on the deliverable schedule.
2
<PAGE>
2.5. Timeliness of Performance. Millitech acknowledges that timely
-------------------------
performance is critical to enable Newbridge to meet its schedules and
commitments, and Millitech shall use reasonable best efforts to meet the
delivery dates set forth in a Statement of Work.
2.6. Escalation. If the Services cannot be completed as scheduled,
----------
Millitech is late in meeting more than one delivery date, or Millitech fails to
meet any specific delivery date which may jeopardize the project, Millitech
agrees to escalate such matter to an employee of Vice-President level or higher.
Such employees shall seek to correct such delays as soon as possible.
2.7. Place for the Services. If the Services are performed at Newbridge's
----------------------
premises, Millitech may have access to Newbridge's premises only during
Newbridge's normal business hours. Millitech must observe Newbridge's
procedures for security and obey Newbridge's reasonable instructions while on
Newbridge's premises.
2.8. Third Party Intellectual Property. Before it accepts a Statement of
---------------------------------
Work or a change to a Statement of Work, Millitech may, at its option, review
and investigate such proposed Statement of Work to determine if it requires or
infringes any third party intellectual property. If after investigation,
Millitech believes in good faith that such Statement of Work requires or
infringes third party intellectual property, it shall promptly notify Newbridge
in detail of the reasons why it has come to such conclusions. Upon receipt of
such notice, Newbridge will, at its sole discretion either:
(a) procure at its own expense the necessary rights to such third
party intellectual property;
(b) request Millitech to procure itself the necessary rights to
such third party intellectual property at Millitech's expense, and the parties
agree to re-negotiate in good faith any changes this may require to the pricing
of the Statement of Work, so that Newbridge will reimburse the incremental
expenses incurred by Millitech for such procurement;
(c) alter the proposed Statement of Work so that it no longer
requires or infringes such third party intellectual property; or
(d) withdraw the proposed Statement of Work.
This section shall not apply to any Statement of Work or change to
Statement of Work which has been executed by Millitech. Except as expressly
provided in this Section 2.8, Millitech shall be responsible for obtaining, at
its expense, all rights to third party intellectual property, necessary to
comply with its obligations under this Agreement.
3. PAYMENT AND TAXES
3.1. Fees. The fees for the Services (the "Fee") is as follows:
----
3
<PAGE>
(a) FIXED PRICE
-----------
If the Statement of Work specifies a fixed price for the Services,
Newbridge will pay the fixed price stated in the Statement of Work.
Millitech may invoice Newbridge for the fixed price on the date(s) stated
in the Statement of Work.
(b) TIME AND MATERIALS
------------------
(i) If the Statement of Work specifies time and materials charges
for the Services, Newbridge will pay charges based on the time
Millitech takes to perform the Services (exclusive of time for
travel, meals, and other personal time). The charges will be
calculated using the rates stated in than Statement of Work.
Millitech may invoice Newbridge monthly (or as otherwise specified
in the Statement of Work) for charges for work performed in
accordance with this Agreement during the previous month. These
invoices must be accompanied by time sheets approved by Newbridge;
and
(ii) Millitech will perform the Services for not more than the
Maximum Charge specified in the Statement of Work.
3.2. Travel and Out-of-Pocket Expenses. If specified in a Statement of
---------------------------------
Work, Newbridge will reimburse Millitech for all reasonable and pre-approved
travel and out-of-pocket expenses that are documented by receipts and incurred
by Millitech's employees when traveling outside the metropolitan area of their
usual place of employment to perform the Services ("Expenses").
3.3. Taxes and Employee Benefits. Newbridge agrees to pay any applicable
---------------------------
sales taxes payable in respect of the performance of the Services (the "Taxes").
Newbridge may deduct from payments to non-residents of Canada any amounts
required to be withheld under Canadian legislation. For greater certainty, as of
the Effective Date,. amounts to be withheld are currently described in Section
212 and Regulation 105 of the Income Tax Act, Canada, as amended, all of which
are subject to change. Millitech shall be solely responsible for the payment of
its personnel's salaries, unemployment insurance, worker's compensation,
employee benefits and other employment related charges and deductions.
3.4. Payment. Millitech's invoices will conform to the reasonable
-------
requirements communicated from time to time to Millitech by Newbridge. Invoices
issued in accordance with this Agreement, are payable by wire transfer within
forty-five (45) days of receipt. Millitech will keep proper records of services
performed and amounts invoiced to Newbridge. Newbridge or its agents may audit
these records upon reasonable notice to Millitech, for expenses and time and
materials charged to Newbridge.
3.5. No Other Charges. Except as may be specifically agreed to in a
----------------
Statement of Work, there shall be no other charges or fees payable by Newbridge
to Supplier except for the Fees, Expenses and Taxes.
4
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4. TRAINING
4.1. The parties agree that Millitech's personnel may require specialized
training ("Training") in order to perform the Services. If such Training is
required, it shall be specified in the Statement of Work. The parties agree
that Newbridge shall not be responsible for any of Millitech's Fees and Expenses
during the Training period.
5. ACCEPTANCE
5.1. Newbridge may review or test any Deliverable for up to the period
specified in the Statement of Work, or thirty (`)O) days should no period be
specified (the "Testing Period"). Newbridge shall give reasonable advance
notice to Millitech of such test and Millitech shall have the right to witness
such tests, at its own expense. Promptly after or during the Testing Period,
Newbridge will notify Millitech of any errors or deficiencies in the
Deliverable, or failure of the Deliverable to conform to its specifications or
documentation (collectively "Deficiencies"). Millitech will then have up to
thirty (30) days to correct the Deficiencies, whereupon Newbridge will have an
additional Testing Period to verify that the Deficiencies have been corrected.
However, if after thirty (30) days from the end of the first Testing Period, the
Deliverables still contain Deficiencies, Newbridge may: (a) terminate the
Statement of Work and/or the Agreement, or (b) let Millitech continue its
attempts to correct the Deficiencies for a time specified by Newbridge. If at
the end of that specified time Millitech has not corrected the Deficiencies,
Newbridge may terminate the Agreement.
6. WARRANTY
6.1. Millitech hereby represents and war-rants to Newbridge that:
(a) Millitech has the right to enter into the Agreement, and
provide the Services;
(b) the Services shall be performed in a competent, professional,
workman-like manner, in accordance with current industry standards;
(c) Millitech's personnel performing the Services hereunder shall
be qualified to perform the tasks and functions which they are assigned;
(d) The Services and Deliverables shall not in any way be based
upon any confidential or proprietary information or materials derived from, or
owned by, any third-party source, unless Millitech is specifically authorized in
writing by such source;
(e) if software is developed by Millitech as part of the Services,
the software will not contain "product keys", "expiry codes" or other codes or
devices that may prevent Newbridge from using the software at any time, except
as specified in the software documentation. At the time of delivery to
Newbridge, the software, and the media on which the software is delivered, will
not contain any "computer viruses" or any other programs that may affect the
normal use of the software or any other software or data;
5
<PAGE>
(f) the Services, Deliverables, and their use and copying, will not
infringe any copyright, patent, trade secret, or other proprietary or
contractual right or obligation. This warranty does not extend to: (i) the use
of any Deliverable in manner for which is was not designed; (ii) the
unauthorized modification of the Deliverables by Newbridge; or (iii) the use of
any Deliverable in combination with any other equipment, products or other
materials, unless such equipment, products or other materials are provided by
Millitech, or referred to or recommended as appropriate for use in combination
with such Deliverable in any written material which has been: (1) made generally
available by Millitech (subject to any limitations or restrictions contained in
such materials), and/or (2) provided to Newbridge by Millitech; and
(g) any software provided to Newbridge is be designed to be used
prior to, during, and after the calendar year 2000 A.D., and shall operate
without any error relating to or arising from date data which represents or
references a leap year, different centuries, more than one century, and/or dates
from January 1, 2000. If requested to do so by Newbridge, Millitech will
promptly provide Newbridge with test results (using Newbridge's test
specification (document GFS-032)) which clearly show that the Deliverables
comply with this Year 2000 compliance warranty in all respects. Millitech shall,
without charge to Newbridge, promptly repair or replace any Deliverables which
are not compliant with the terms of this warranty, in addition to other remedies
available to Newbridge.
6.2. In the event of a breach of any of the foregoing representations and
warranties, in addition to any other remedies which may exist herein, in law or
in equity, Newbridge may require, at Millitech's expense the re-performance of
the Services sufficient to cure the breach.
7. INTELLECTUAL AND INDUSTRIAL PROPERTY
7.1. Except as may be expressly provided in a Statement of Work, all
rights, title and interest in and to the Deliverables, in any form, and
including any patents, copyrights, trade secrets, mask works and other
intellectual and industrial property rights therein, shall vest in Millitech.
7.2. Except as may be expressly provided in a Statement of Work, (a) all
rights, title and interest, including any intellectual or industrial property
rights, in and to any new or preexisting Newbridge information, materials and/or
technology shall remain vested in Newbridge or its suppliers, (b) except for the
limited right to use as necessary for the performance of the Services, Millitech
and Millitech's personnel obtain no rights, title or interest in or to any
Newbridge information, materials and/or technology, and (c) all rights, title
and interest, including any intellectual or industrial property rights, in and
to any new or pre-existing Millitech information, materials and/or technology
shall remain vested in Millitech or its suppliers.
6
<PAGE>
8. COVENANT OF CONFIDENTIALITY
8.1. Confidential Information. Each party acknowledges that, during the
------------------------
term of this Agreement, it may be exposed to certain confidential and/or
proprietary information and materials regarding the other party's business,
including but not limited to information concerning a party's technology,
customers and suppliers, which is identified as confidential or proprietary at
the time of disclosure ("Confidential Information").
8.2. Exclusions. However, Confidential Information shall not include any
----------
information or material which: (i) is in (or comes into) the public domain,
provided it came into the public domain through no fault of the receiving party;
(ii) can be demonstrated to have been independently developed by the receiving
party without reference to the Confidential Information; (iii) is rightfully
received by the receiving party from a third party not under an obligation of
confidence to the disclosing party with respect thereto; or (iv) is required by
law or regulation to be disclosed, but then only to the extent of such required
disclosure and under confidentiality to the extent reasonably possible.
8.3. Restrictions. Each party will: (i) use a reasonable standard of
------------
care to protect Confidential Information, (ii) not use Confidential Information
except as permitted by the party disclosing such Confidential Information, (iii)
not disclose Confidential Information except to its employees or representatives
to whom disclosure is necessary to effect the purposes of this Agreement, and
who are similarly bound to hold the Confidential Information in confidence; and
(iv) not reproduce Confidential Information without the disclosing party's prior
written consent.
8.4. Computer and Related Access. If it is necessary for Millitech to have
---------------------------
access to (either remotely or on-site) and/or use any Newbridge computer system
or network in performing the Services, Millitech shall limit such use and access
solely to that required for the performance of the Services, and shall not
access or attempt to access any other computer systems, networks, files,
software or services without the express prior written consent of Newbridge.
Upon request by Newbridge, Millitech shall provide the names of all Millitech
personnel having access to any Newbridge computer system or network. Millitech
shall, and shall ensure that its personnel shall, strictly follow any and all
security rules and procedures relating to the use of Newbridge computer systems.
In the event of actual or suspected misuse by Millitech or its personnel,
Newbridge reserves the right to restrict access to any of its computer systems
on such terms as it sees fit. All user identification numbers, codes and
passwords disclosed to Millitech and any information obtained by Millitech as a
result of Millitech's access to and/or use of Newbridge's computer systems shall
be deemed to be, and treated as, Confidential Information.
9. INFRINGEMENT
9.1. Defense and Indemnity. Millitech will defend Newbridge against any
---------------------
claim, legal proceeding or demand alleging the Services, any Deliverables, or
part thereof, infringe any copyright, patent, trade secret, or other contractual
or proprietary right (a "Claim"); provided Millitech is promptly notified of the
Claim and is given authority to defend and settle
------
7
<PAGE>
it. Millitech will indemnify and hold Newbridge harmless from and against all
costs, expenses, legal fees, damages, settlement amounts and other liabilities
arising out of or in respect of a Claim. Notwithstanding the foregoing,
Millitech shall have no obligation to indemnify or hold Newbridge harmless under
this Section 9.1 to the extent that any Claim arises from: (i) the use of any
Deliverable in manner for which is was not designed; (ii) the unauthorized
modification of the Deliverables by Newbridge; or (iii) the use of any
Deliverable in combination with any other equipment, products or other
materials, unless such equipment, products or other materials are provided by
Millitech, or referred to or recommended as appropriate for use in combination
with such Deliverable in any written material which has been: (1) made generally
available by Millitech (subject to any limitations or restrictions contained in
such materials), and/or (2) provided to Newbridge by Millitech.
9.2. Injunctions. In the event Newbridge, its distributors or End Users
-----------
are enjoined from their use of any of the Vendor Products due to a Claim that is
subject to an obligation to indemnify by Millitech under Section 9.1 above,
Millitech will (at no charge) promptly either:
(a) procure for Newbridge the right to continue using the
Deliverables;
(b) render the Deliverables non-infringing without materially
diminishing the Deliverables' performance, functionality or features;
(c) replace the Deliverables with equivalent non-infringing goods; or
(d) if Millitech determines in its reasonable opinion that the
provisions of Sections 9.2(a) through 9.2(c) are not reasonably possible, having
made reasonable efforts, remove the Deliverables and refund Newbridge all
amounts paid in respect thereof.
9.3. Not Applicable. Section 10 ("Limitation of Liability") shall not
--------------
apply in respect to this Section 9.
10. LIMITATION OF LIABILITY
10.1. GENERAL LIMITATION. EXCEPT FOR SECTIONS 8 AND 9, AND FOR ANY CLAIMS
------------------
RELATING TO WILLFUL INFRINGEMENT OF A PARTY'S INTELLECTUAL PROPERTY PROVIDED BY
ONE OF THP- PARTIES HEREUNDER, IN NO EVENT SHALL THE TOTAL CUMULATIVE LIABILITY
OF NEWBRIDGE AND MILLITECH (INCLUDING THEIR EMPLOYEES, DIRECTORS, OFFICERS OR
AGENTS), FOR ALL CLAIMS ARISING OUT OF OR RELATING TO THIS AGREEMENT, EXCEED
ACTUAL DIRECT, PROVABLE DAMAGES, UP TO THE TOTAL AIMOUNTS PAID BY NEWBRIDGE TO
MILLITECH HEREUNDER. THE FOREGOING PROVISION LIMITING THE LIABILITY OF
NEWBRIDGE AND MILLITECH (INCLUDING THEIR EMPLOYEES, DIRECTORS, OFFICERS OR
AGENTS) SHAI L APPLY REGARDLESS OF THE FORM OR CAUSE OF ACTION, WHETHER IN
CONTRACT OR TORT, OR A BREACH OF A FUNDAMENTAL TERM CONDITION.
8
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10.2. ECONOMIC LOSSES. EXCEPT FOR SECTION 9, NEWBRIDGE AND MILLITECH
---------------
(INCLUDING THEIR EMPLOYEES, DIREC RORS, OFFICERS OR AGENTS) SHALL NOT BE LIABLE
IN ANY WAY WHATSOEVER, FOR ANY INDIRECT, PUNITIVE, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO, LOSS OF REVENUE OR PROFIT.
THIS LIMITATION SHALL APPLY WHETHER OR NOT SUCH DAMAGES ARE FORESEEABLE, OR
NEWBRIDGE, OR MILLITECH (OR THEIR EMPLOYEES, AGENTS, OFFICERS OR DIRECTORS) HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
10.3. Trust. The foregoing provisions limiting the liability of
-----
Newbridge's and Millitech's employees, agents, officers and directors shall be
deemed to be trust provisions for the benefit of such employees, officers,
directors and agents and shall be enforceable by such as trust beneficiaries.
11. TERM & TERMINATION OF THE AGREEMENT
11.1. Term. This Agreement shall begin on the Effective Date, and shall
----
continue for the longer of five (5) years from the Effective Date or until
completion of all Statements of Work entered into hereunder, unless terminated
earlier as provided herein.
11.2. Termination for Cause. Either party may terminate this Agreement
---------------------
and/or Statement of Work(s) if: (a) if the other party breaches any material
term of this Agreement, and fails to remedy such breach within thirty (30) days
of receiving notice to do so by the nondefaulting party, or (b) in the event
that the other party becomes insolvent, makes a general assignment to creditors,
has a receiver appointed or files a petition in bankruptcy.
11.3. Termination Without Cause. Millitech hereby agrees that Newbridge
-------------------------
may terminate this Agreement and/or any Statement of Work at any time without
cause upon thirty (30) days written notice to Millitech. However, after
notification of its intent to terminate under this Section 1 1.3, Newbridge
agrees, at Millitech request, to discuss (without obligation to negotiate) at an
Executive Vice-President level or higher, the reasons for termination.
11.4. Termination for Non-Payment. In addition to its rights under
---------------------------
Section 1 1.2, Millitech may terminate this Agreement if Newbridge fails to pay
any undisputed amount which is in excess of ten thousand US dollars ($10,000),
either individually or in the aggregate with all other amounts past due, and
Newbridge fails to remedy such undisputed non-payment within five (5) business
days of receiving notice to do so by Millitech.
11.5. Effect of Termination.
---------------------
(a) Upon termination without cause, Millitech will deliver to
Newbridge all Deliverables (complete or incomplete) then in its possession or
control and Newbridge shall pay all the Fees, Expenses and Taxes due and payable
to Millitech for such Deliverables and Services completed or partially completed
up to the date of termination of the Agreement and/or any Statement of Work.
9
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(b) Upon termination with cause, and if any Deliverables are
incomplete as of the effective date of termination, Newbridge may, at its sole
option, return such incomplete Deliverable for a full refund of all amounts paid
to Millitech for such incomplete Deliverable.
(c) Upon termination of this Agreement with or without cause:
(i) Upon the termination of this Agreement, each parties
shall promptly destroy or return to the other all
Confidential Information, including all copies thereof,
and, upon request, shall certify in writing that all such
materials have been destroyed or returned;
(ii) Millitech shall promptly refund Newbridge all Fees or
other amounts paid in advance for Services not yet
provided; and
(iii) Sections 3, 6, 7, 8, 9, 10, 11.5 and 13 shall survive
any termination or expiry of this Agreement.
12. STANDARDS COMPLIANCE & PRODUCT CHANGES
Newbridge and Millitech shall comply with the standards compliance and
product change requirements, as set forth in Schedule B hereto.
13. GENERAL
13.1. Independent Contractors. Millitech and Newbridge are independent
-----------------------
contractors and neither party will act as the legal agent of the other or
otherwise case the other to incur liability in any manner whatsoever. Neither
party shall issue a news release, public announcement or advertisement
concerning the existence of this Agreement or its efforts in connection with
this Agreement without the prior written approval of the other party.
13.2. Assignment. Either party may assign or transfer (by operation of
----------
law or otherwise) this Agreement only by written notice to the other party. In
the event that a party wishes to assign or transfer this Agreement (the
"Assignor/Transferor") in accordance with this Section 13.2:
(i) The Assignor/Transferor must give the other party (the "Other
Party") at least thirty (30) days prior notice;
(ii) the assignee/transferee must accept the foregoing assignment/
transfer and agree that, from and after the date of such
assignment/transfer, it shall be bound by and perform all of
the provisions of this Agreement to the same extent as if the
assignee/transferee had been an original party to this
Agreement instead of the Assignor/Transferor; and
10
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(iii) in addition to its other rights under this Agreement, the
Other Party may, in its discretion, terminate the Agreement for
convenience upon ninety (90) days written notice.
13.3. Waiver. No waiver by either party of any delay, default or
------
omission by the other party shall affect or impair the rights of the non-
defaulting party in respect of any subsequent delay, default or omission of the
same or different kind.
13.4. Force Majeure. Neither party shall be deemed to failure to
-------------
perform its obligations resulting from ("Force Majeure"). Each party will use
its best efforts to anticipate such delays and failures, and to devise means to
eliminate or minimize them.
13.5. Notice. All notices, demands or requests required or permitted
------
hereunder shall be deemed property given when sent in writing to the designated
representative of the other party at the addresses set out above, or such other
address as a party may from time to time advise, by way of:
(a) registered first class mail;
(b) commercial courier, return receipt requested;
(c) personal delivery; or
(d) facsimile transmission, receipt of which ha been acknowledged by
recipient.
Notices shall be deemed received when physically received by the recipient.
Notice to Newbridge shall be sent to: VP Business Development (with a copy to
Newbridge's Legal Department)
Notices to Millitech shall be sent to: President
13.6. Severability. The provisions of this Agreement shall be deemed
------------
severable. If any provision of this Agreement shall be held unenforceable by
any court of competent jurisdiction, it shall be severed from this Agreement and
the remaining provisions shall remain in full force and effect.
13.7. Applicable Law. This Agreement shall be governed by the laws in
--------------
force in the State of Virginia (except for its conflict of laws provisions), and
the parties hereby irrevocably submit to the non-exclusive jurisdiction of the
courts located in the State of Virginia. The parties expressly exclude from this
Agreement all the provisions of the Vienna Convention, 1980 (The United Nations
Convention on Contracts for the International Sale of Goods). The remedies
specified in the Agreement will not be considered the sole remedies of the
parties.
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13.8. Attorney's Fees. If litigation or other judicial or administrative
---------------
action is commenced between the parties concerning, any dispute arising out of
or relating to this Agreement, the prevailing party in any contested ancillary
proceeding relating to the action (e.g. motions to transfer, to compel
discovery, etc.) and the prevailing party in the action itself will be entitled,
in addition to any other award that nay be made, to recover all court costs or
other official costs and all reasonable expenses associated with the ancillary
proceeding or action, including without limitation reasonable attorney's fees
and expenses.
13.9. Entire Agreement. This Agreement sets forth the entire agreement
----------------
between the parties pertaining to the services to be provided by Millitech to
Newbridge, and no modification, variation or amendment of it shall be binding
upon the parties unless it is in writing and signed by both parties. The parties
acknowledge that there are no collateral agreements, representations,
warranties, arrangements, understandings or otherwise, written or oral,
pertaining to the subject matter of this Agreement. All additional or
inconsistent terms or conditions contained in either party's purchase orders,
acknowledgments, invoices or other business forms shall be void and of no
effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives.
Newbridge Networks Corporation Millitech Corporation
By: /s/ Conrad Lewis By: /s/ John L. Youngblood
------------------------------ ----------------------------
Name: Conrad Lewis Name: John L. Youngblood
---------------------------- ---------------------------
Title: Executive Vice President Title: President and CEO
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SCHEDULE A-1
Newbridge/Millitech
OTU (P/N 9031237801)
STATEMENT OF WORK #1
This is a Statement of Work entered into and pursuant to the Professional
Services Agreement between Newbridge Networks Corporation ("Newbridge") and
Millitech Corporation ("Millitech"), dated the 7th day of August, 1998.
SERVICES TO BE PERFORMED:
Millitech shall perform engineering services for Newbridge to implement the
Outdoor Transmitter Unit (referred to as the "Product") pursuant to the mutually
agreed technical specification attached hereto as Exhibit A-1 (the "Technical
Specification").
MILLITECH DELIVERABLES:
. Project Plan
. Critical Design Review Documentation Package
. Five (5) OTU Engineering Prototype units
. Design Verification Report for Engineering Prototypes
. Five (5) OTU Pre-production Units
. Design Verification Report for Pre-production Units
For the purposes of this Statement of Work:
. "Engineering Prototype" shall mean an OTU which must be functional with
all electrical and mechanical interfaces pursuant to the Technical
Specification. The units are intended for Research and Development use
primarily for integration, functional testing and limited characterization.
Although there may be non-conformance with the Technical Specification, the
Engineering Prototypes must be usable and Millitech must disclose known
problems to Newbridge in the design verification report.
. "Pre-Production Prototype" shall mean an OTU which is compliant to the
form, fit and function of the Technical Specification of the OTU. The units
are intended for Field Trial use to enable system testing and
characterization. Although there may be minor parametric non-conformance
with the Technical Specification, the Pre-Production Prototypes must be
usable with the final Product quality OTU and all non-conformance must be
disclosed to Newbridge in the design verification report. Newbridge would
have an option to purchase Pre-Production units until full production units
become available.
The parties shall provide technical information, to each other, which they
believe will be necessary to allow completion of the development activity.
DELIVERY DATE/PERFORMANCE SCHEDULE
Milestones Delivery Date Owner
---------- ------------- -----
1.0 Project Plan 26 March 98 Millitech
2.0 Critical Design Review 17 June 98 Both
<PAGE>
Page 13
3.0 Delivery of Two (2) Engineering Prototypes 31 July 98 Millitech
3.1 Delivery of Three (3) Engineering Prototypes 21 Aug 98 Millitech
4.0 Design Verification Report for Eng. Proto. 7 Aug 98 Millitech
5.0 Delivery of two (2) Pre-Production Proto.s 30 Sep 98 Millitech
5.1 Delivery of Three (3) Pre-Production Proto.s 21 Oct 98 Millitech
6.0 Design Verification Report for Pre-pro. Proto. 9 Oct 98 Millitech
7.0 Approval of Pre-production Prototypes 30 Oct 98 Newbridge
Millitech shall assume prime project management responsibility for the project.
The Project Managers will create a project plan which shall include milestones
for the deliverables as mutually agreed to by the parties. Millitech shall
provide the necessary bi-weekly update information to allow Newbridge to track
the project.
SPECIFICATIONS FOR SERVICES:
Millitech shall represents and warrants that its deliverables for the Products
and any other items developed pursuant to this Statement of Work shall comply
with and operate in accordance with a mutually agreed-to Technical Specification
and the Standards Compliance of Schedule B to the Agreement.
The parties shall address all technical issues through their respective
technical coordinators. Initially the technical coordinators will be Colin Soul
of Newbridge and Ken Wood of Millitech. Any change of the technical coordinators
would be mutually agreed to by the parties.
AMOUNT PAYABLE FOR SERVICES:
Newbridge shall fund Millitech for the development of the deliverables to a
maximum as provided below:
[***]
[***]
Amount shall be payable on the [***] as outlined below.
PAYMENT SCHEDULE:
Deliverables Payment (USD)
------------ -------------
Execution of this Agreement 20%
Delivery of Engineering Prototype 20%
Delivery of Pre-production Units 20%
Pre-Production Prototype Approval 40%
Payment terms shall be net 30 days after receipt of invoice. Invoices shall be
submitted in accordance with the Payment Schedule above.
ACCEPTANCE TEST CRITERIA
The acceptance test of the Engineering and Pre-Production Prototypes will use
the most current revision of the Compliance Matrix as the pass/fail criteria for
such Prototypes and shall be in
[***] Confidential Treatment Requested.
<PAGE>
Page 14
accordance with the definition of "Engineering Prototype" and "Pre-Production
Prototype" as stated herein. Newbridge may, in its sole discretion, waive in
whole or in part any non-compliance of such Prototypes.
DISTRIBUTION/RESALE OF THE DELIVERABLES:
Millitech may commercially distribute and resell the Deliverables, provided that
in so doing, it does not disclose any Newbridge Confidential Information [***].
Subject to the foregoing Millitech may disclose the other specifications of the
Deliverables only for the distribution and resale of the Deliverables.
IN WITNESS WHEREOF, the parties have caused this Statement of Work to be
executed by their duly authorized representatives.
Newbridge Networks Corporation Millitech Systems Corporation
By: /s/ Conrad Lewis By: /s/ John L. Youngblood
----------------- -----------------------
Name: Conrad Lewis Name: John L. Youngblood
--------------- ---------------------
Title: Executive Vice President Title: Pres & CEO
------------------------- --------------------
[***] Confidential Treatment Requested.
<PAGE>
Page 15
EXHIBIT A-1
STATEMENT OF WORK #1
TECHNICAL SPECIFICATION
[To be attached]
<PAGE>
SCHEDULE B
STANDARDS COMPLIANCE
1. STANDARDS COMPLIANCE
1.1 Millitech Responsibilities. Millitech shall be responsible for:
--------------------------
1.1.1 Verifying and maintaining compliance of the Vendor Product to the
Standards listed herein (hereinafter referred to as "Standards"),
except as specifically and to the extent modified by a Technical
Specification attached to a Statement of Work.
1.1.2 Implementing any design changes required to the Vendor Product
for compliance of the Vendor Product to the Standards.
1.1.3 All applicable regulatory approvals for the Vendor Product sought
in Millitech's normal course of business and in accordance with
Section 1.5 of this Schedule B. For such approvals required by
Newbridge and not sought in Millitech's normal course of
business, the parties shall reasonably share the costs incurred
by the approval process, based on good faith negotiations.
1.1.4 Providing Newbridge with information, including but not limited
to soft copies of bills of materials and reliability information,
as required for Newbridge to complete evaluation of the Vendor
Product to Standards.
1.1.5 Compiling the database of all the polymers used in the Vendor
Product and ensuring they meet Bellcore NEBS flammability
requirements per Standards. This database shall be submitted to
Newbridge. (This paragraph shall not apply to the use of Rogers
4003 millimeter-wave circuit board which is enclosed within an O-
ring sealed metal housing.)
1.1.6 Providing Newbridge with copies of test reports, as applicable,
for product safety, Electromagnetic Compatibility (EMC), network
interface, etc. demonstrating compliance to the Standards.
1.1.7 Notifying Newbridge of systematic failures, defined as failures
exceeding predicted failure rates as required under the
applicable Statement of Work.
1.1.8 Submitting to Newbridge qualification test results for vital
components such as power supplies, fans, optical interfaces,
batteries and ASICs.
1.1.9 Providing (under suitable non-disclosure provisions where
appropriate) documents such as PCB and mechanical drawings,
schematics, Bills of Materials, to Newbridge and Newbridge
customers, on request.
1.2 Newbridge Responsibilities: Newbridge shall be responsible for:
--------------------------
1.2.1 Verifying and maintaining compliance of the Vendor Product
integrated with Newbridge cards and modules to the applicable
Standards.
1.2.2 Advising Millitech of any design changes to the Vendor Product as
required for compliance of the Vendor Product to the applicable
Standards.
<PAGE>
Page 17
1.2.3 Pursuing regulatory approvals as required on the Vendor
Product integrated with Newbridge cards and modules and in
accordance with Section 1.5 of this Schedule B.
1.3 Ownership of Approvals. Ownership of the approvals shall reside with
----------------------
the party responsible for obtaining and maintaining the regulatory
approvals.
1.4 Transfer of Approvals. As applicable and upon request, Millitech shall
---------------------
assist Newbridge in registering second approvals in Newbridge's name
where permitted by law. Any costs associated with second approvals
shall be borne by Newbridge.
1.5 Regulatory Approvals. The Vendor Product shall have the following
--------------------
regulatory approvals markings, as applicable:
1.5.1 Canadian Standards Association (CSA) logo or equivalent.
1.5.2 Underwriters Laboratories Inc. (UL) logo or equivalent.
1.5.3 Federal Communications Commission (FCC) Part 15 and Part 68
markings.
1.5.4 Industry Canada (IC) ICES-003 and CS-03 markings.
1.5.5 Food and Drug Administration (FDA) markings.
1.5.6 European Community CE marking to the Low Voltage Directive
(LVD), EMC directive and Telecommunications Terminal
Equipment (TTE) directive.
1.5.7 The Vendor Product documentation shall include all required
statements and markings for the Standards. Newbridge
document GEN0050 [15], titled Regulatory Approvals
Statement, can be used for guidance.
<PAGE>
SCHEDULE A-2
Newbridge/Millitech
ORU (P/N 9031238101)
STATEMENT OF WORK #2
This is a Statement of Work entered into and pursuant to the Professional
Services Agreement between Newbridge Networks Corporation ("Newbridge") and
Millitech Corporation ("Millitech"), dated the 7 day of August 1998.
SERVICES TO BE PERFORMED:
Millitech shall perform engineering services for Newbridge to implement the
Outdoor Receiver Unit (referred to as the "Product") pursuant to the mutually
agreed technical specification attached hereto as Exhibit A-2 (the "Technical
Specification").
MILLITECH DELIVERABLES:
. Project Plan
. Critical Design Review Documentation Package
. Five (5) ORU Engineering Prototype units
. Design Verification Report for Engineering Prototypes
. Five (5) ORU Pre-production Units
. Design Verification Report for Pre-production Units
For the purposes of this Statement of Work:
. "Engineering Prototype" shall mean an ORU which must be functional
with all electrical and mechanical interfaces pursuant to the Technical
Specification. The units are intended for Research and Development use
primarily for integration, functional testing and limited characterization.
Although there may be non-conformance with the Technical Specification, the
Engineering Prototypes must be usable and Millitech must disclose known
problems to Newbridge in the design verification report.
. "Pre-Production Prototype" shall mean an ORU which is compliant to the
form, fit and function of the Technical Specification of the ORU. The units
are intended for Field Trial use to enable system testing and
characterization. Although there may be minor parametric non-conformance
with the Technical Specification, the Pre-Production Prototypes must be
usable with the final Product quality ORU and all non-conformance must be
disclosed to Newbridge in the design verification report. Newbridge would
have an option to purchase Pre-Production units until full production units
become available.
<PAGE>
Page 2
The parties shall provide technical information, to each other, which they
believe will be necessary to allow completion of the development activity.
DELIVERY DATE/PERFORMANCE SCHEDULE
<TABLE>
<CAPTION>
Milestones
----------
Delivery Date Owner
------------- -----
<S> <C> <C>
1.0 Project Plan 26 March 98 Millitech
3.0 Critical Design Review 17 June 98 Both
4.0 Delivery of Two (2) Engineering Prototypes 31 July 98 Millitech
4.1 Delivery of Three (3) Engineering Prototypes 21 Aug 98 Millitech
5.0 Design Verification Report for Eng. Proto. 7 Aug 98 Millitech
6.0 Delivery of Two (2) Pre-Prod Protos 30 Sep 98 Millitech
6.1 Delivery of Three (3) Pre-Prod Protos 21 Oct 98 Millitech
7.0 Design Verification Report for Pre-pro. Proto. 9 Oct 98 Millitech
8.0 Approval of Pre-production Prototypes 31 Oct 98 Newbridge
</TABLE>
Millitech shall assume prime project management responsibility for the project.
The Project Managers will create a project plan which shall include milestones
for the deliverables as mutually agreed to by the parties. Millitech shall
provide the necessary bi-weekly update information to allow Newbridge to track
the project.
SPECIFICATIONS FOR SERVICES:
Millitech shall represents and warrants that its deliverables for the Products
and any other items developed pursuant to this Statement of Work shall comply
with and operate in accordance with a mutually agreed-to Technical
Specification.
The parties shall address all technical issues through their respective
technical coordinators. The technical coordinators will be Colin Soul of
Newbridge and Ken Wood of Millitech. Any change of the technical coordinators
would be mutually agreed to by the parties.
AMOUNT PAYABLE FOR SERVICES:
Newbridge shall fund Millitech for the development of the deliverables to a
maximum as provided below:
[***]
[***] Confidential Treatment Requested.
<PAGE>
Page 3
[***]
Amounts shall be payable on the [***], as outlined below.
PAYMENT SCHEDULE:
Deliverables Payment(USD)
------------ ------------
Execution of this Agreement 20%
Delivery of Engineering Proto Units 20%
Delivery of Pre-production Units 20%
Pre-Production Prototype Approval 40%
Payment terms shall be net 30 days after receipt of invoice. Invoices shall be
submitted in accordance with the Payment Schedule above.
ACCEPTANCE TEST CRITERIA
The acceptance test of the Engineering and Pre-Production Prototypes will use
the most current revision of the Compliance Matrix as the pass/fail criteria for
such Prototypes and shall be in accordance with the definition of "Engineering
Prototype" and "Pre-Production Prototype" as stated herein. Newbridge may, in
its sole discretion, waive in whole or in part any non-compliance of such
Prototypes.
DISTRIBUTION/RESALE OF DELIVERABLES
Millitech may commercially distribute and resell the Deliverables, provided that
in so doing, it does not disclose any Newbridge Confidential Information [***].
Subject to the foregoing Millitech may disclose the other specifications of the
Deliverables only for the distribution and resale of the Deliverables.
[***] Confidential Treatment Requested.
<PAGE>
Page 4
IN WITNESS WHEREOF, the parties have caused this Statement of Work to be
executed by their duly authorized representatives.
Newbridge Networks Corporation Millitech Corporation
By: /s/ Conrad Lewis By: /s/ John L. Youngblood
------------------------------ ---------------------------
Name: Conrad Lewis Name: John L. Youngblood
---------------------------- -------------------------
Title: Executive Vice President Title: PRES & CEO
--------------------------- ------------------------
Title:___________________________ Title:________________________
<PAGE>
Page 5
EXHIBIT A-2
STATEMENT OF WORK #2
TECHNICAL SPECIFICATION
[To be attached]
<PAGE>
SCHEDULE A-3
Newbridge/Millitech
OTRU (P/N 9031238401)
STATEMENT OF WORK #3
This is a Statement of Work entered into and pursuant to the Professional
Services Agreement between Newbridge Networks Corporation ("Newbridge") and
Millitech Corporation ("Millitech"), dated the 7 day of August, 1998.
SERVICES TO BE PERFORMED:
Millitech shall perform engineering services for Newbridge to implement the
Outdoor Transmitter Receiver Unit (referred to as the "Product") pursuant to the
mutually agreed technical specification attached hereto as Exhibit A-3 (the
"Technical Specification").
MILLITECH DELIVERABLES:
. Project Plan
. Critical Design Review Documentation Package
. Four (4) OTRU Engineering Prototype units
. Design Verification Report for Engineering Prototypes
. Ten (10) OTRU Pre-production Units
. Design Verification Report for Pre-production Units
For the purposes of this Statement of Work:
. "Engineering Prototype" shall mean an OTRU which must be functional with
all electrical and mechanical interfaces pursuant to the Technical
Specification. The units are intended for Research and Development use
primarily for integration, functional testing and limited characterization.
Although there may be non-conformance with the Technical Specification, the
Engineering Prototypes must be usable and Millitech must disclose known
problems to Newbridge in the design verification report.
. "Pre-Production Prototype" shall mean an OTRU which is compliant to the
form, fit and function of the Technical Specification of the OTRU. The units
are intended for Field Trial use to enable system testing and
characterization. Although there may be minor parametric non-conformance with
the Technical Specification, the Pre-Production Prototypes must be usable
with the final Product quality OTRU and all non-conformance must be disclosed
to Newbridge in the design verification report. Newbridge would have an
option to purchase Pre-Production units until full production units become
available.
<PAGE>
Page 2
The parties shall provide technical information, to each other, which they
believe will be necessary to allow completion of the development activity.
DELIVERY DATE/PERFORMANCE SCHEDULE
<TABLE>
<CAPTION>
Milestones
----------
Delivery Date Owner
------------- -----
<S> <C> <C>
1.0 Project Plan 26 March 98 Millitech
3.0 Critical Design Review 17 June 98 Both
4.0 Delivery of Four (4) Engineering Prototypes 31 Aug 98 Millitech
5.0 Design Verification Report for Eng. Proto. 8 Sep 98 Millitech
6.0 Delivery of ten (10) Pre-Prod. Protos 31 Oct 98 Millitech
7.0 Design Verification Report for Pre-Prod. Proto. 6 Nov 98 Millitech
8.0 Approval of Pre-production Prototypes 31 Oct 98 Newbridge
</TABLE>
Millitech shall assume prime project management responsibility for the project.
The Project Managers will create a project plan which shall include milestones
for the deliverables as mutually agreed to by the parties. Millitech shall
provide the necessary bi-weekly update information to allow Newbridge to track
the project.
SPECIFICATIONS FOR SERVICES:
Millitech shall represents and warrants that its deliverables for the Products
and any other items developed pursuant to this Statement of Work shall comply
with and operate in accordance with a mutually agreed- to detailed Technical
Specification.
The parties shall address all technical issues through their respective
technical coordinators. The technical coordinators will be Colin Soul of
Newbridge and Ken Wood of Millitech. Any change of the technical coordinators
would be mutually agreed to by the parties.
AMOUNT PAYABLE FOR SERVICES:
Newbridge shall fund Millitech for the development of the deliverables to a
maximum as provided below:
[***]
[***]
[***] Confidential Treatment Requested.
<PAGE>
Page 3
Amounts shall be payable on the [***], as outlined below.
PAYMENT SCHEDULE:
Deliverables Payment (USD)
------------ -------------
Execution of this Agreement 20%
Delivery of Engineering Proto Units 20%
Delivery of Pre-production Units 20%
Pre-Production Prototype Approval 40%
Payment terms shall be net 30 days after receipt of invoice. Invoices shall be
submitted in accordance with the Payment Schedule above.
ACCEPTANCE TEST CRITERIA
The acceptance test of the Engineering and Pre-Production Prototypes will use
the most current revision of the Compliance Matrix as the pass/fail criteria for
such Prototypes and shall be in accordance with the definition of "Engineering
Prototype" and "Pre-Production Prototype" as stated herein. Newbridge may, in
its sole discretion, waive in whole or in part any non-compliance of such
Prototypes.
DISTRIBUTION/RESALE OF DELIVERABLES
Millitech may commercially distribute and resell the Deliverables, provided that
in so doing, it does not disclose any Newbridge Confidential Information [***].
Subject to the foregoing Millitech may disclose the other specifications of the
Deliverables only for the distribution and resale of the Deliverables.
IN WITNESS WHEREOF, the parties have caused this Statement of Work to be
executed by their duly authorized representatives.
Newbridge Networks Corporation Millitech Corporation
By: /s/ Conrad Lewis By: /s/ John L. Youngblood
---------------------------------- ---------------------------
Name: Conrad Lewis Name: John L. Youngblood
-------------------------------- -------------------------
Title: Executive Vice President Title: PRES & CEO
------------------------------- ------------------------
[***] Confidential Treatment Requested.
<PAGE>
Page 4
EXHIBIT A-3
STATEMENT OF WORK #3
TECHNICAL SPECIFICATION
[To be attached]
<PAGE>
EXHIBIT 10.10
[MOTOROLA LOGO APPEARS HERE] PURCHASE ORDER
SUPPLIER: MILLITECH CORPORATION PURCHASE ORDER NO. REVISION
PO BOX 109 527874 2
S. DEERFIELD RESEARCH PK, M-30
SOUTH DEERFIELD, MA 01373 PAGE
1 of 8
TELEPHONE: (413) 6658551 MOTOROLA PURCHASE ORDER
NUMBER MUST APPEAR ON ALL
FAX: SHIPPING LABELS, PACKAGING
SLIPS AND INVOICES OR THIS
ATTN: TONY HART MATERIAL MAY BE RETURNED.
SHIP TO:
MOTOROLA
8220 EAST ROOSEVELT STREET DATE OF ORDER BUYER
SCOTTSDALE, AZ 85257 11-AUG-1999 M ROBERTSON
BILL TO: DATE OF REVISION BUYER
20-SEP-99 M ROBERTSON
PO BOX 9B
SCOTTSDALE, AZ 85252
- --------------------------------------------------------------------------------
SUPPLIER NUMBER PAYMENT TERMS FREIGHT TERMS F.O.B.
5555 NET 15 CONSIGNEE BILLING COLLECT ORIGIN
- --------------------------------------------------------------------------------
SHIP VIA TAX EXEMPT LICENSE ORDER CONFIRMED WITH/DATE
UPS-Ground 07-041256-P P.O. FAXED TO TONY HART
- --------------------------------------------------------------------------------
BY: MOTOROLA INC. TELEPHONE FAX MAILDROP TOTAL P.O. VALUE
M ROBERTSON 480-441-5015 480-441-6543 R7114 $10,900,000.00
LINE PART #/REVISION/DESCRIPTION NOT REQ'D COMMITTED DOCK QUANTITY
/LINE TYPE DATE DATE
NOTICES:
1. EXPORT/IMPORT-TECHNICAL INFORMATION SUBMITTED WITH THIS PURCHASE ORDER IS
SUBJECT TO U.S. EXPORT LAWS. ANY IMPORTS RESULTING FROM THIS PURCHASE ORDER
ARE SUBJECT TO U.S. IMPORT LAWS. (SEE NOTE A BELOW)
2. YEAR 2000 WARRANTY-THIS PURCHASE ORDER IS SUBJECT TO A SPECIAL YEAR 2000
WARRANTY PROVISION. (SEE NOTE BELOW)
1 9031310100 [***] [***] [***]
CPE ASSY, BLOCK B, UPSTREA
STANDARD PO
2 9031318101 [***] [***] [***]
HUB ASSY US BLOCK B, UPST
STANDARD PO
3 9031291001 [***] [***] [***]
HUB STACK US BLOCK A E-P
STANDARD PO
- --------------------------------------------------------------------------------
UOM UNIT PRICE EXTENSION TAX PRIORITY RATING
CONTRACT REQUESTOR
/ACCOUNT
[***] [***] [***] N
CLARK, JEANNE L
14104-01100
[***] [***] [***] N
CLARK, JEANNE L
14104-01100
[***] [***] [***] N
CLARK, JEANNE L
14104-03200
- --------------------------------------------------------------------------------
The Purchase Order Terms and Conditions incorporated herein and made part of
this order are contained in either the following identified Motorola Terms and
Conditions Form, or Memorandum of Understanding:
THIS ORDER IS AN OFFER BY MOTOROLA TO SELLER IN ACCORDANCE WITH THE TERMS AND
CONDITIONS SET FORTH OR REFERENCED HEREIN AND ATTACHED HERETO. THIS OFFER
EXPRESSLY LIMITS ACCEPTANCE TO THE WRITTEN TERMS HEREOF. ADDITIONAL OR DIFFERENT
TERMS PROPOSED BY SELLER SHALL NOT BECOME PART OF THE CONTRACT UNLESS MOTOROLA
EXPRESSLY ASSENTS IN WRITING TO ANY SUCH ADDITIONAL OR DIFFERENT TERMS. THIS
OFFER BECOMES A FIRM CONTRACT UNDER MOTOROLA'S TERMS AND CONDITIONS BY
ACCEPTANCE OF SELLER OR SELLER'S STARTING PERFORMANCE HEREOF. SAID CONTRACT
SHALL CONSTITUTE THE ENTIRE AGREEMENT OF THE PARTIES HERETO AND SHALL SUPERSEDE
ALL PRIOR OFFERS. NEGOTIATONS, AND AGREEMENTS ON THE SUBJECT MATTERS COVERED BY
THIS ORDER.
[***] Confidential Treatment Requested.
<PAGE>
[MOTOROLA LOGO APPEARS HERE] PURCHASE ORDER
SUPPLIER: MILLITECH CORPORATION PURCHASE ORDER NO. REVISION
PO BOX 109 527874 2
S. DEERFIELD RESEARCH PK M-30
SOUTH DEERFIELD, MA 01373 PAGE
2 of 8
TELEPHONE: (413) 6658551 MOTOROLA PURCHASE ORDER
NUMBER MUST APPEAR ON ALL
FAX: SHIPPING LABELS, PACKAGING
SLIPS AND INVOICES OR THIS
SHIP TO: MATERIAL MAY BE RETURNED.
MOTOROLA
8220 EAST ROOSEVELT STREET DATE OF ORDER BUYER
SCOTTSDALE, AZ 85257 11-AUG-1999 M ROBERTSON
BILL TO: DATE OF REVISION BUYER
20-SEP-99 M ROBERTSON
PO BOX 9B
SCOTTSDALE, AZ 85252
- --------------------------------------------------------------------------------
SUPPLIER NUMBER PAYMENT TERMS FREIGHT TERMS F.O.B.
5555 NET 15 CONSIGNEE BILLING COLLECT ORIGIN
- --------------------------------------------------------------------------------
SHIP VIA TAX EXEMPT LICENSE ORDER CONFIRMED WITH/DATE
UPS-Ground 07-041256-P P.O. FAXED TO TONY HART
- --------------------------------------------------------------------------------
BY: MOTOROLA INC. TELEPHONE FAX MAILDROP TOTAL P.O. VALUE
M ROBERTSON 480-441-5015 480-441-6543 R7114 $10,900,000.00
LINE PART #/REVISION/DESCRIPTION NOT REQ'D COMMITTED DOCK QUANTITY
/LINE TYPE DATE DATE
4 9031291002 [***] [***] [***]
HUB STACK US BLOCK A, H-P
STANDARD PO
5 9031295600 [***] [***] [***]
CPE A-BAND
STANDARD PO
6 9031318101 [***] [***] [***]
HUB ASSY US BLOCK B, UPST
STANDARD PO
7 9031318102 [***] [***] [***]
HUB ASSY, US BLOCK B, UPST
STANDARD PO
- --------------------------------------------------------------------------------
UOM UNIT PRICE EXTENSION TAX PRIORITY RATING
CONTRACT REQUESTOR
/ACCOUNT
[***] [***] [***] N
CLARK, JEANNE L
14104-03200
[***] [***] [***] N
CLARK, JEANNE L
14104-03200
[***] [***] [***] N
CLARK, JEANNE L
14104-03200
[***] [***] [***] N
CLARK, JEANNE L
14104-03200
- --------------------------------------------------------------------------------
The Purchase Order Terms and Conditions incorporated herein and made part of
this order are contained in either the following identified Motorola Terms and
Conditions Form, or Memorandum of Understanding:
THIS ORDER IS AN OFFER BY MOTOROLA TO SELLER IN ACCORDANCE WITH THE TERMS AND
CONDITIONS SET FORTH OR REFERENCED HEREIN AND ATTACHED HERETO. THIS OFFER
EXPRESSLY LIMITS ACCEPTANCE TO THE WRITTEN TERMS HEREOF. ADDITIONAL OR DIFFERENT
TERMS PROPOSED BY SELLER SHALL NOT BECOME PART OF THE CONTRACT UNLESS MOTOROLA
EXPRESSLY ASSENTS IN WRITING TO ANY SUCH ADDITIONAL OR DIFFERENT TERMS. THIS
OFFER BECOMES A FIRM CONTRACT UNDER MOTOROLA'S TERMS AND CONDITIONS BY
ACCEPTANCE OF SELLER OR SELLER'S STARTING PERFORMANCE HEREOF. SAID CONTRACT
SHALL CONSTITUTE THE ENTIRE AGREEMENT OF THE PARTIES HERETO AND SHALL SUPERSEDE
ALL PRIOR OFFERS. NEGOTIATONS, AND AGREEMENTS ON THE SUBJECT MATTERS COVERED BY
THIS ORDER.
[***] Confidential Treatment Requested.
<PAGE>
[MOTOROLA LOGO APPEARS HERE] PURCHASE ORDER
SUPPLIER: MILLITECH CORPORATION PURCHASE ORDER NO. REVISION
PO BOX 109 527874 2
S. DEERFIELD RESEARCH PK, M-30
SOUTH DEERFIELD, MA 01373 PAGE
3 of 8
TELEPHONE: (413) 6658551 MOTOROLA PURCHASE ORDER
NUMBER MUST APPEAR ON ALL
FAX: SHIPPING LABELS, PACKAGING
SLIPS AND INVOICES OR THIS
SHIP TO: MATERIAL MAY BE RETURNED.
MOTOROLA
8220 EAST ROOSEVELT STREET DATE OF ORDER BUYER
SCOTTSDALE, AZ 85257 11-AUG-1999 M ROBERTSON
BILL TO: DATE OF REVISION BUYER
20-SEP-99 M ROBERTSON
PO BOX 9B
SCOTTSDALE, AZ 85252
- --------------------------------------------------------------------------------
SUPPLIER NUMBER PAYMENT TERMS FREIGHT TERMS F.O.B.
5555 NET 15 CONSIGNEE BILLING COLLECT ORIGIN
- --------------------------------------------------------------------------------
SHIP VIA TAX EXEMPT LICENSE ORDER CONFIRMED WITH/DATE
UPS-Ground 07-041256-P P.O. FAXED TO TONY HART
- --------------------------------------------------------------------------------
BY: MOTOROLA INC. TELEPHONE FAX MAILDROP TOTAL P.O. VALUE
M ROBERTSON 480-441-5015 480-441-6543 R7114 $10,900,000.00
LINE PART #/REVISION/DESCRIPTION NOT REQ'D COMMITTED DOCK QUANTITY
/LINE TYPE DATE DATE
8 9031310100 [***] [***] [***]
CPE ASSY, BLOCK B, UPSTREA
STANDARD PO
9 9031291001 [***] [***] [***]
HUB STACK US BLOCK A E-P
STANDARD PO
10 9031291002 [***] [***] [***]
HUB STACK US BLOCK A H-P
STANDARD PO
11 9031295600 [***] [***] [***]
CPE A-BAND
STANDARD PO
- --------------------------------------------------------------------------------
UOM UNIT PRICE EXTENSION TAX PRIORITY RATING
CONTRACT REQUESTOR
/ACCOUNT
[***] [***] [***] N
CLARK, JEANNE L
14104-03200
[***] [***] [***] N
CLARK, JEANNE L
14104-03200
[***] [***] [***] N
CLARK, JEANNE L
14104-03200
[***] [***] [***] N
CLARK, JEANNE L
14104-03200
- --------------------------------------------------------------------------------
The Purchase Order Terms and Conditions incorporated herein and made part of
this order are contained in either the following identified Motorola Terms and
Conditions Form, or Memorandum of Understanding:
THIS ORDER IS AN OFFER BY MOTOROLA TO SELLER IN ACCORDANCE WITH THE TERMS AND
CONDITIONS SET FORTH OR REFERENCED HEREIN AND ATTACHED HERETO. THIS OFFER
EXPRESSLY LIMITS ACCEPTANCE TO THE WRITTEN TERMS HEREOF. ADDITIONAL OR DIFFERENT
TERMS PROPOSED BY SELLER SHALL NOT BECOME PART OF THE CONTRACT UNLESS MOTOROLA
EXPRESSLY ASSENTS IN WRITING TO ANY SUCH ADDITIONAL OR DIFFERENT TERMS. THIS
OFFER BECOMES A FIRM CONTRACT UNDER MOTOROLA'S TERMS AND CONDITIONS BY
ACCEPTANCE OF SELLER OR SELLER'S STARTING PERFORMANCE HEREOF. SAID CONTRACT
SHALL CONSTITUTE THE ENTIRE AGREEMENT OF THE PARTIES HERETO AND SHALL SUPERSEDE
ALL PRIOR OFFERS. NEGOTIATONS, AND AGREEMENTS ON THE SUBJECT MATTERS COVERED BY
THIS ORDER.
[***] Confidential Treatment Requested.
<PAGE>
[MOTOROLA LOGO APPEARS HERE] PURCHASE ORDER
SUPPLIER: MILLITECH CORPORATION PURCHASE ORDER NO. REVISION
PO BOX 109 527874 2
S. DEERFIELD RESEARCH PK, M-30
SOUTH DEERFIELD, MA 01373 PAGE
4 of 8
TELEPHONE: (413) 6658551 MOTOROLA PURCHASE ORDER
NUMBER MUST APPEAR ON ALL
FAX: SHIPPING LABELS, PACKAGING
SLIPS AND INVOICES OR THIS
SHIP TO: MATERIAL MAY BE RETURNED.
MOTOROLA
8220 EAST ROOSEVELT STREET DATE OF ORDER BUYER
SCOTTSDALE, AZ 85257 11-AUG-1999 M ROBERTSON
BILL TO: DATE OF REVISION BUYER
20-SEP-99 M ROBERTSON
PO BOX 9B
SCOTTSDALE, AZ 85252
- --------------------------------------------------------------------------------
SUPPLIER NUMBER PAYMENT TERMS FREIGHT TERMS F.O.B.
5555 NET 15 CONSIGNEE BILLING COLLECT ORIGIN
- --------------------------------------------------------------------------------
SHIP VIA TAX EXEMPT LICENSE ORDER CONFIRMED WITH/DATE
UPS-Ground 07-041256-P P.O. FAXED TO TONY HART
- --------------------------------------------------------------------------------
BY: MOTOROLA INC. TELEPHONE FAX MAILDROP TOTAL P.O. VALUE
M ROBERTSON 480-441-5015 480-441-6543 R7114 $10,900,000.00
LINE PART #/REVISION/DESCRIPTION NOT REQ'D COMMITTED DOCK QUANTITY
/LINE TYPE DATE DATE
12 9031318101 [***] [***] [***]
HUB ASSY, US BLOCK B, UPST
STANDARD PO
13 9031318102 [***] [***] [***]
HUB ASSY, US BLOCK B, UPST
STANDARD PO
14 9031310100 [***] [***] [***]
CPE ASSY, BLOCK B, UPSTREA
STANDARD PO
15 9031291001 [***] [***] [***]
HUB STACK US BLOCK A E-P
STANDARD PO
- --------------------------------------------------------------------------------
UOM UNIT PRICE EXTENSION TAX PRIORITY RATING
CONTRACT REQUESTOR
/ACCOUNT
[***] [***] [***] N
CLARK, JEANNE L
14104-03200
[***] [***] [***] N
CLARK, JEANNE L
14104-03200
[***] [***] [***] N
CLARK, JEANNE L
14104-03200
[***] [***] [***] N
CLARK, JEANNE L
14104-03200
- --------------------------------------------------------------------------------
The Purchase Order Terms and Conditions incorporated herein and made part of
this order are contained in either the following identified Motorola Terms and
Conditions Form, or Memorandum of Understanding:
THIS ORDER IS AN OFFER BY MOTOROLA TO SELLER IN ACCORDANCE WITH THE TERMS AND
CONDITIONS SET FORTH OR REFERENCED HEREIN AND ATTACHED HERETO. THIS OFFER
EXPRESSLY LIMITS ACCEPTANCE TO THE WRITTEN TERMS HEREOF. ADDITIONAL OR DIFFERENT
TERMS PROPOSED BY SELLER SHALL NOT BECOME PART OF THE CONTRACT UNLESS MOTOROLA
EXPRESSLY ASSENTS IN WRITING TO ANY SUCH ADDITIONAL OR DIFFERENT TERMS. THIS
OFFER BECOMES A FIRM CONTRACT UNDER MOTOROLA'S TERMS AND CONDITIONS BY
ACCEPTANCE OF SELLER OR SELLER'S STARTING PERFORMANCE HEREOF. SAID CONTRACT
SHALL CONSTITUTE THE ENTIRE AGREEMENT OF THE PARTIES HERETO AND SHALL SUPERSEDE
ALL PRIOR OFFERS. NEGOTIATONS, AND AGREEMENTS ON THE SUBJECT MATTERS COVERED BY
THIS ORDER.
[***] Confidential Treatment Requested.
<PAGE>
[MOTOROLA LOGO APPEARS HERE] PURCHASE ORDER
SUPPLIER: MILLITECH CORPORATION PURCHASE ORDER NO. REVISION
PO BOX 109 527874 2
S. DEERFIELD RESEARCH PK, M-30
SOUTH DEERFIELD, MA 01373 PAGE
5 of 8
TELEPHONE: (413) 6658551 MOTOROLA PURCHASE ORDER
NUMBER MUST APPEAR ON ALL
FAX: SHIPPING LABELS, PACKAGING
SLIPS AND INVOICES OR THIS
SHIP TO: MATERIAL MAY BE RETURNED.
MOTOROLA
8220 EAST ROOSEVELT STREET DATE OF ORDER BUYER
SCOTTSDALE, AZ 85257 11-AUG-1999 M ROBERTSON
BILL TO: DATE OF REVISION BUYER
20-SEP-99 M ROBERTSON
PO BOX 9B
SCOTTSDALE, AZ 85252
- --------------------------------------------------------------------------------
SUPPLIER NUMBER PAYMENT TERMS FREIGHT TERMS F.O.B.
5555 NET 15 CONSIGNEE BILLING COLLECT ORIGIN
- --------------------------------------------------------------------------------
SHIP VIA TAX EXEMPT LICENSE ORDER CONFIRMED WITH/DATE
UPS-Ground 07-041256-P P.O. FAXED TO TONY HART
- --------------------------------------------------------------------------------
BY: MOTOROLA INC. TELEPHONE FAX MAILDROP TOTAL P.O. VALUE
M ROBERTSON 480-441-5015 480-441-6543 R7114 $10,900,000.00
LINE PART #/REVISION/DESCRIPTION NOT REQ'D COMMITTED DOCK QUANTITY
/LINE TYPE DATE DATE
16 9031295600 [***] [***] [***]
CPE A-BAND
STANDARD PO
17 9031318101 [***] [***] [***]
HUB ASSY, US BLOCK B, UPST
STANDARD PO
18 9031318102 [***] [***] [***]
HUB ASSY, US BLOCK B, UPST
STANDARD PO
19 9031310100 [***] [***] [***]
CPE ASSY,BLOCK B, UPSTREA
STANDARD PO
- --------------------------------------------------------------------------------
UOM UNIT PRICE EXTENSION TAX PRIORITY RATING
CONTRACT REQUESTOR
/ACCOUNT
[***] [***] [***] N
CLARK, JEANNE L
14104-03200
[***] [***] [***] N
CLARK, JEANNE L
14104-03200
[***] [***] [***] N
CLARK, JEANNE L
14104-03200
[***] [***] [***] N
CLARK, JEANNE L
14104-03200
The following notes apply to the entire Purchase Order unless otherwise noted:
NOTE A: EXPORT/IMPORT-U.S. EXPORT LAW AS CONTAINED IN THE INTERNATIONAL TRAFFIC
IN ARMS REGULATIONS (ITAR) AND THE EXPORT ADMINISTRATION
- --------------------------------------------------------------------------------
The Purchase Order Terms and Conditions incorporated herein and made part of
this order are contained in either the following identified Motorola Terms and
Conditions Form, or Memorandum of Understanding:
THIS ORDER IS AN OFFER BY MOTOROLA TO SELLER IN ACCORDANCE WITH THE TERMS AND
CONDITIONS SET FORTH OR REFERENCED HEREIN AND ATTACHED HERETO. THIS OFFER
EXPRESSLY LIMITS ACCEPTANCE TO THE WRITTEN TERMS HEREOF. ADDITIONAL OR DIFFERENT
TERMS PROPOSED BY SELLER SHALL NOT BECOME PART OF THE CONTRACT UNLESS MOTOROLA
EXPRESSLY ASSENTS IN WRITING TO ANY SUCH ADDITIONAL OR DIFFERENT TERMS. THIS
OFFER BECOMES A FIRM CONTRACT UNDER MOTOROLA'S TERMS AND CONDITIONS BY
ACCEPTANCE OF SELLER OR SELLER'S STARTING PERFORMANCE HEREOF. SAID CONTRACT
SHALL CONSTITUTE THE ENTIRE AGREEMENT OF THE PARTIES HERETO AND SHALL SUPERSEDE
ALL PRIOR OFFERS. NEGOTIATONS, AND AGREEMENTS ON THE SUBJECT MATTERS COVERED BY
THIS ORDER.
[***] Confidential Treatment Requested.
<PAGE>
[MOTOROLA LOGO APPEARS HERE] PURCHASE ORDER
SUPPLIER: MILLITECH CORPORATION PURCHASE ORDER NO. REVISION
PO BOX 109 527874 2
S. DEERFIELD RESEARCH PK, M-30
SOUTH DEERFIELD, MA 01373 PAGE
6 of 8
TELEPHONE: (413) 6658551 MOTOROLA PURCHASE ORDER
NUMBER MUST APPEAR ON ALL
FAX: SHIPPING LABELS, PACKAGING
SLIPS AND INVOICES OR THIS
SHIP TO: MATERIAL MAY BE RETURNED.
MOTOROLA
8220 EAST ROOSEVELT STREET DATE OF ORDER BUYER
SCOTTSDALE, AZ 85257 11-AUG-1999 M ROBERTSON
BILL TO: DATE OF REVISION BUYER
20-SEP-99 M ROBERTSON
PO BOX 9B
SCOTTSDALE, AZ 85252
- --------------------------------------------------------------------------------
SUPPLIER NUMBER PAYMENT TERMS FREIGHT TERMS F.O.B.
5555 NET 15 CONSIGNEE BILLING COLLECT ORIGIN
- --------------------------------------------------------------------------------
SHIP VIA TAX EXEMPT LICENSE ORDER CONFIRMED WITH/DATE
UPS-Ground 07-041256-P P.O. FAXED TO TONY HART
- --------------------------------------------------------------------------------
BY: MOTOROLA INC. TELEPHONE FAX MAILDROP TOTAL P.O. VALUE
M ROBERTSON 480-441-5015 480-441-6543 R7114 $10,900,000.00
LINE PART #/REVISION/DESCRIPTION NOT REQ'D COMMITTED DOCK QUANTITY
/LINE TYPE DATE DATE
- --------------------------------------------------------------------------------
UOM UNIT PRICE EXTENSION TAX PRIORITY RATING
CONTRACT REQUESTOR
/ACCOUNT
REGULATIONS (EAR) IS APPLICABLE TO THE TECHNICAL INFORMATION SUBMITTED WITH
THIS P.O. THIS TECHNICAL INFORMATION IS NOT TO BE PLACED IN THE PUBLIC
DOMAIN, EXPORTED FROM THE U.S., OR GIVEN TO ANY FOREIGN PERSON IN THE U.S.,
WITHOUT THE PRIOR, SPECIFIC WRITTEN AUTHORIZATION OF MOTOROLA SSTG AND THE
U.S. DEPARTMENT OF STATE OR THE U.S. DEPARTMENT OF COMMERCE AS APPLICABLE.
IF THIS PURCHASE ORDER WILL RESULT IN AN IMPORT SHIPMENT FOR WHICH MOTOROLA
WILL BE THE IMPORTER OF RECORD, APPROVAL FOR SUCH FOREIGN PROCUREMENT MUST BE
OBTAINED FROM THE BUYER PRIOR TO SHIPMENT.
NOTE B: SPECIAL YEAR 2000 WARRANTY-IN ADDITION TO ALL OTHER REPRESENTATIONS
AND WARRANTIES CONTAINED IN THE APPLICABLE TERMS AND CONDITIONS, THE
FOLLOWING "SPECIAL YEAR 2000 WARRANTY" PROVISION GOVERNS PERFORMANCE UNDER
THIS PURCHASE ORDER.
TO THE EXTENT THIS PURCHASE ORDER INCLUDES SOME FORM OF INFORMATION
TECHNOLOGY, INCLUDING ANYTHING THAT PROCESSES, PROVIDES, AND/OR RECEIVES DATE
DATA, SUPPLIER REPRESENTS AND WARRANTS, IN ADDITION TO ALL OTHER
REPRESENTATIONS AND WARRANTIES, THAT UNTIL JULY 31, 2001 THE PRODUCTS
SUPPLIED WILL: 1) BE FREE FROM ANY ERROR(S) RELATING TO THE DATE DATA
(INCLUDING LEAP YEAR CALCULATIONS), 2) WILL NOT GENERATE ANY INVALID AND/OR
INCORRECT DATE-RELATED RESULTS AND 3) SUCH DATE DATA WILL NOT IMPAIR THE
PERFORMANCE OUTPUT OR ACCURACY OF MOTOROLA'S SYSTEMS OR PRODUCTS.
SHIPPING NOTICE: DO NOT DECLARE VALUE-DO NOT INSURE. ALL FOB ORIGIN/SOURCE
MUST SHIP COLLECT/CONSIGNEE BILLING. COLLECT SHIPMENTS REQUIRE PO NUMBER ON
BILL OF LADING/AIRBILL.
ACCOUNTS PAYABLE NOTICE: ITEMS DELIVERED BEFORE THE SCHEDULED DOCK DATE AND
MOTOROLA'S REQUIRED DATE ARE SUBJECT TO RETURN AT THE SUPPLIERS EXPENSE. IF
MOTOROLA ELECTS TO RETAIN THESE MATERIALS, PAYMENTS WILL BE MADE USING THE
DOCK DATE OR MOTOROLA'S REQUIRED DATE TO COMPUTE THE PAYMENT TERMS. PAYMENTS
MAY BE WITHHELD WITHOUT THE LOSS OF DISCOUNT, PENDING RECEIPT OF A COMPLETE
AND ACCURATE INVOICE.
NOTE 1: -CPE prices include the following accessories; CPE Mast Mount, Bias-T
Assy and Power Supply.
-The quantities and prices on this Purchase Order (items 1 & 2) apply
to any radio that Motorola procures, may it be Block A, Block B,
Korea or any other major radio opportunities which may develop as
long as Motorola pays for any new NRE (NRE will not exceed
[***]. If the right business opportunity comes to Motorola for
a new radio, Motorola has the rights to negotiate with Millitech and
pay 100% of the NRE cost (as opposed to sharing these cost with
Millitech on a
- --------------------------------------------------------------------------------
The Purchase Order Terms and Conditions incorporated herein and made part of
this order are contained in either the following identified Motorola Terms and
Conditions Form, or Memorandum of Understanding:
THIS ORDER IS AN OFFER BY MOTOROLA TO SELLER IN ACCORDANCE WITH THE TERMS AND
CONDITIONS SET FORTH OR REFERENCED HEREIN AND ATTACHED HERETO. THIS OFFER
EXPRESSLY LIMITS ACCEPTANCE TO THE WRITTEN TERMS HEREOF. ADDITIONAL OR DIFFERENT
TERMS PROPOSED BY SELLER SHALL NOT BECOME PART OF THE CONTRACT UNLESS MOTOROLA
EXPRESSLY ASSENTS IN WRITING TO ANY SUCH ADDITIONAL OR DIFFERENT TERMS. THIS
OFFER BECOMES A FIRM CONTRACT UNDER MOTOROLA'S TERMS AND CONDITIONS BY
ACCEPTANCE OF SELLER OR SELLER'S STARTING PERFORMANCE HEREOF. SAID CONTRACT
SHALL CONSTITUTE THE ENTIRE AGREEMENT OF THE PARTIES HERETO AND SHALL SUPERSEDE
ALL PRIOR OFFERS. NEGOTIATONS, AND AGREEMENTS ON THE SUBJECT MATTERS COVERED BY
THIS ORDER.
[***] Confidential Treatment Requested.
<PAGE>
[MOTOROLA LOGO APPEARS HERE] PURCHASE ORDER
SUPPLIER: MILLITECH CORPORATION PURCHASE ORDER NO. REVISION
PO BOX 109 527874 2
S. DEERFIELD RESEARCH PK, M-30
SOUTH DEERFIELD, MA 01373 PAGE
7 of 8
TELEPHONE: (413) 6658551 MOTOROLA PURCHASE ORDER
NUMBER MUST APPEAR ON ALL
FAX: SHIPPING LABELS, PACKAGING
SLIPS AND INVOICES OR THIS
SHIP TO: MATERIAL MAY BE RETURNED.
MOTOROLA
8220 EAST ROOSEVELT STREET DATE OF ORDER BUYER
SCOTTSDALE, AZ 85257 11-AUG-1999 M ROBERTSON
BILL TO: DATE OF REVISION BUYER
20-SEP-99 M ROBERTSON
PO BOX 9B
SCOTTSDALE, AZ 85252
- --------------------------------------------------------------------------------
SUPPLIER NUMBER PAYMENT TERMS FREIGHT TERMS F.O.B.
5555 NET 15 CONSIGNEE BILLING COLLECT ORIGIN
- --------------------------------------------------------------------------------
SHIP VIA TAX EXEMPT LICENSE ORDER CONFIRMED WITH/DATE
UPS-Ground 07-041256-P P.O. FAXED TO TONY HART
- --------------------------------------------------------------------------------
BY: MOTOROLA INC. TELEPHONE FAX MAILDROP TOTAL P.O. VALUE
M ROBERTSON 480-441-5015 480-441-6543 R7114 $10,900,000.00
LINE PART #/REVISION/DESCRIPTION NOT REQ'D COMMITTED DOCK QUANTITY
/LINE TYPE DATE DATE
- --------------------------------------------------------------------------------
UOM UNIT PRICE EXTENSION TAX PRIORITY RATING
CONTRACT REQUESTOR
/ACCOUNT
- --------------------------------------------------------------------------------
50/50 basis) to obtain sole source for a limited amount of time.
- -- Hubs will be configured in Motorola's desired polarization configuration, the
polarization will be identified when Motorola "issues releases" to Millitech.
- -- When "releases are issued" to Millitech new line items will be added to this
Purchase Order and the quantities will be reduced on line item 1 and 2.
- -- Warranty is 18 months from the date of shipment from Millitech for all items
shipped against this Purchase Order.
- -- Motorola will provide Millitech with a delivery forecast (forecast will be
for [***] Hubs and [***] CPE's spread out by month until 12-31-01) with the
release of this Purchase Order and it will be updated on a monthly basis.
- -- Motorola will finalize hand delivery requirements 16 weeks prior to delivery.
This firm release will identify the quantities and delivery dates as well as
the part numbers and/or technical requirements for the hardware. Once a
month, Motorola will "issue revised releases" to reflect the new forecast
(hard deliveries).
NOTE 2: -- Millitech will execute advance procurement and planning to meet our
delivery forecast. With this, Millitech may commit to procure up to
20 weeks of material (per our schedule). In the event that Motorola's
sales do not develop as planned for the LMDS Program, Motorola will
be liable to Millitech for material procured by Millitech within the
20-week window. If hardware has not been assembled, Motorola's
maximum liability will not exceed [***] per CPE and [***] per Hub.
Motorola will be 100% responsible for all hard commits within the 16-
week delivery window and has the option to change the quantities in
weeks 12-16 by 33% with no charge.
-- In the event that Motorola's LMDS sales do not develop as planned,
Motorola will be liable to Millitech for 20-weeks of production as
stated above only. The unit prices as shown on this P.O. will remain
the same (Hubs [***] each and [***] each for the CPE's) in the event
that sales are not as high as projected.
-- Program reviews will be held monthly between Millitech and Motorola,
we will rotate facilities.
-- Millitech has the rights to convert the (Release 2 CPE's) to the
(Release 3 CPE's) any time after written acceptance by Motorola.
NOTE 3: -- Revision I changes the wording of NOTE 1 as requested by Millitech in
their 8/19/99 fax. The wording that was changed is bracketed by
"quote marks". This is an
- --------------------------------------------------------------------------------
The Purchase Order Terms and Conditions incorporated herein and made part of
this order are contained in either the following identified Motorola Terms and
Conditions Form, or Memorandum of Understanding:
THIS ORDER IS AN OFFER BY MOTOROLA TO SELLER IN ACCORDANCE WITH THE TERMS AND
CONDITIONS SET FORTH OR REFERENCED HEREIN AND ATTACHED HERETO. THIS OFFER
EXPRESSLY LIMITS ACCEPTANCE TO THE WRITTEN TERMS HEREOF. ADDITIONAL OR DIFFERENT
TERMS PROPOSED BY SELLER SHALL NOT BECOME PART OF THE CONTRACT UNLESS MOTOROLA
EXPRESSLY ASSENTS IN WRITING TO ANY SUCH ADDITIONAL OR DIFFERENT TERMS. THIS
OFFER BECOMES A FIRM CONTRACT UNDER MOTOROLA'S TERMS AND CONDITIONS BY
ACCEPTANCE OF SELLER OR SELLER'S STARTING PERFORMANCE HEREOF. SAID CONTRACT
SHALL CONSTITUTE THE ENTIRE AGREEMENT OF THE PARTIES HERETO AND SHALL SUPERSEDE
ALL PRIOR OFFERS. NEGOTIATONS, AND AGREEMENTS ON THE SUBJECT MATTERS COVERED BY
THIS ORDER.
[***] Confidential Treatment Requested.
<PAGE>
[MOTOROLA LOGO APPEARS HERE] PURCHASE ORDER
SUPPLIER: MILLITECH CORPORATION PURCHASE ORDER NO. REVISION
PO BOX 109 527874 2
S. DEERFIELD RESEARCH PK, M-30
SOUTH DEERFIELD, MA 01373 PAGE
8 of 8
TELEPHONE: (413) 6658551 MOTOROLA PURCHASE ORDER
NUMBER MUST APPEAR ON ALL
FAX: SHIPPING LABELS, PACKAGING
SLIPS AND INVOICES OR THIS
SHIP TO: MATERIAL MAY BE RETURNED.
MOTOROLA
8220 EAST ROOSEVELT STREET DATE OF ORDER BUYER
SCOTTSDALE, AZ 85257 11-AUG-1999 M ROBERTSON
BILL TO: DATE OF REVISION BUYER
20-SEP-99 M ROBERTSON
PO BOX 9B
SCOTTSDALE, AZ 85252
- --------------------------------------------------------------------------------
SUPPLIER NUMBER PAYMENT TERMS FREIGHT TERMS F.O.B.
5555 NET 15 CONSIGNEE BILLING COLLECT ORIGIN
- --------------------------------------------------------------------------------
SHIP VIA TAX EXEMPT LICENSE ORDER CONFIRMED WITH/DATE
UPS-Ground 07-041256-P P.O. FAXED TO TONY HART
- --------------------------------------------------------------------------------
BY: MOTOROLA INC. TELEPHONE FAX MAILDROP TOTAL P.O. VALUE
M ROBERTSON 480-441-5015 480-441-6543 R7114 $10,900,000.00
LINE PART #/REVISION/DESCRIPTION NOT REQ'D COMMITTED DOCK QUANTITY
/LINE TYPE DATE DATE
- --------------------------------------------------------------------------------
UOM UNIT PRICE EXTENSION TAX PRIORITY RATING
CONTRACT REQUESTOR
/ACCOUNT
- --------------------------------------------------------------------------------
administrative change that does not affect purchase order pricing.
NOTE 4: Rev 02 issued to change the quantities on line items 1 & 2 and to add
line items 3-19.
- --------------------------------------------------------------------------------
The Purchase Order Terms and Conditions incorporated herein and made part of
this order are contained in either the following identified Motorola Terms and
Conditions Form, or Memorandum of Understanding:
THIS ORDER IS AN OFFER BY MOTOROLA TO SELLER IN ACCORDANCE WITH THE TERMS AND
CONDITIONS SET FORTH OR REFERENCED HEREIN AND ATTACHED HERETO. THIS OFFER
EXPRESSLY LIMITS ACCEPTANCE TO THE WRITTEN TERMS HEREOF. ADDITIONAL OR DIFFERENT
TERMS PROPOSED BY SELLER SHALL NOT BECOME PART OF THE CONTRACT UNLESS MOTOROLA
EXPRESSLY ASSENTS IN WRITING TO ANY SUCH ADDITIONAL OR DIFFERENT TERMS. THIS
OFFER BECOMES A FIRM CONTRACT UNDER MOTOROLA'S TERMS AND CONDITIONS BY
ACCEPTANCE OF SELLER OR SELLER'S STARTING PERFORMANCE HEREOF. SAID CONTRACT
SHALL CONSTITUTE THE ENTIRE AGREEMENT OF THE PARTIES HERETO AND SHALL SUPERSEDE
ALL PRIOR OFFERS. NEGOTIATONS, AND AGREEMENTS ON THE SUBJECT MATTERS COVERED BY
THIS ORDER.
[***] Confidential Treatment Requested.
<PAGE>
MOTOROLA TERMS AND CONDITIONS, PART D
FIXED PRICE CONTRACT (COMMERCIAL)
THIS CONTRACT EXPRESSLY LIMITS ACCEPTANCE TO THE WRITTEN TERMS HEREOF.
ADDITIONAL OR DIFFERENT TERMS PROPOSED BY SELLER SHALL NOT BECOME A PART OF THE
CONTRACT UNLESS MOTOROLA EXPRESSLY ASSENTS IN WRITING TO ANY SUCH ADDITIONAL OR
DIFFERENT TERMS. NONE OF THE PROVISIONS CONTAINED HEREIN EXPRESSLY OR IMPLIED
ARE INTENDED TO CREATE PRIVITY OF CONTRACT BETWEEN SELLER AND MOTOROLA
CUSTOMERS, IF ANY.
TABLE OF CONTENTS
1. Definitions
2. Order of Precedent
3. Changes
4. Notices
5. Insurance and Indemnification
6. Inspection
7. Title and Risk of Loss
8. Payments
9. Assignment
10. Rights and Use of Technical Information
11. Indemnity
12. Patent Indemnity
13. Commercial Acquisition for Government Contracts
14. Taxes
15. Default
16. Disputes
17. Stop Work Order
18. Warranty
19. Property and Tooling
20. Packing and Shipping
21. Waiver
22. Plant Visits
23. Advertising and Publicity
24. Material Safety Data Sheets
25. Ozone Depleting Substances
26. Radiological Health
27. Motorola Access
28. Export Control
29. Termination
30. Entire Agreement
31. Governing Law
32. Socio-Economic Compliance Clauses
33. Year 2000 Compliance
34. Discontinuance of Product
35. Subcontracts for Commercial Items and Commercial Components
36. New Materials
37. Assignment
<PAGE>
1. DEFINITIONS. As used throughout this contract, including, if any,
provisions incorporated by reference the following terms shall have the meaning
set forth below:
(a) The term "Seller" means the person, firm or corporation executing this
contract with Motorola and who will furnish the work or services provided
for herein.
(b) The term "Motorola" unless otherwise defined shall mean the Space and
Systems Technology Group of Motorola, Inc.
(c) The term "prime contract" means the contract with the customer.
(d) The word "contract" unless otherwise modified shall mean the agreement.
(e) Except as otherwise provided in this contract, the term "subcontract"
includes purchase orders placed by the Seller under this contract and all
references to "supplies" shall include "services", if the contract wholly
or in party provides for the furnishing of services.
2. ORDER OF PRECEDENCE. The rights and obligations of the parties to this
contract shall be subject to and governed by the Statement of Work, these Terms
and Conditions, and any proposals, specifications or other documents or
provisions which are made a part of this contract by reference or otherwise. To
the extent of any inconsistency between (i) the Statement of Work and these
Terms and Conditions and (ii) proposals, specifications or other documents or
provisions which are made a part of this contract by reference or otherwise, the
Statement of Work and these Terms and Conditions shall control. To the extent of
any inconsistency between (i) the Statement of Work and (ii) these Terms and
Conditions, the Statement of Work shall control.
3. CHANGES.
(a) Motorola may at any time, without notice to the sureties of any, through
written directions, require reduction or addition or work, issue additional
restrictions, or extend the performance of the work all within the general
scope of this contract.
(b) If any such direction causes an increase or decrease in the cost of, or the
time required or the performance of, this contract, or otherwise affects
any other provision of this contract, whether changes or not changed by any
such direction, an equitable adjustment shall be made (1) in the contract
price or time of performance or both, and (2) in such other provisions of
the contract as may be so affected, and the contract shall be modified in
writing accordingly.
(c) Any claim by the Seller for adjustment under this article must be asserted
in writing within 30 days from the date of receipt by the Seller of the
notification of change provided, however, that Motorola, if it decides that
the facts justify such action, may receive and act upon any such claim
asserted at any time prior to final payment
<PAGE>
under this contract. Nothing in this article shall excuse the Seller from
proceeding with the contract as changed. Failure to agree to any adjustment
shall be a dispute concerning a question of fact within the meaning of the
article of this contract entitled "Disputes".
(d) Where the full cost, or substantially the full cost, of property made
obsolete or excess as a result of a change is included in the Seller's
claim for adjustment, Motorola shall have the right to prescribe the manner
of disposition of such property.
(e) Motorola engineering and technical personnel may from time to time render
assistance or give technical advice to, or discuss or effect and exchange
of information with the Seller's personnel concerning the work hereunder.
Such actions shall not be deemed to be a change under this article and
shall not vest Seller with authority to change the work hereunder. In the
event Seller receives an instruction, order or advice that he deems to be a
change from anyone other than Motorola's Supply Management Department, he
shall immediately advise Motorola's Purchasing Department of that
instruction, order or advice, Seller shall not be entitled to any
adjustment of the contract price, delivery schedule or other contract
provisions because of actions taken by the Seller pursuant to said
instruction, order or advice unless and until and only to the extent such
instruction, order or advice shall be included in a Purchase Order Revision
or Change Order or Supplemental Agreement to this contract issued by
Motorola's Supply Management Department, in writing, whenever any change
received from any representative of Motorola affects specifications,
quantities, delivery, prices or other conditions of this contract.
(f) The Seller shall not make any changes in the work or end items (including
assemblies, subassemblies, parts and components thereof) which do not
conform to the requirements of this contract without the prior written
consent of Motorola. Motorola may present as a procedure for the reporting
and approval of changes initiated by the Seller.
4. NOTICES. All notices required or permitted to be sent by either party
hereto shall be deemed sufficiently given if sent by prepaid certified mail to
the address shown on the first page of this contract for each party and to the
attention of the individual who executes this contract on behalf of the party to
whom the notice is sent. All notices shall be deemed given when they are sent
by certified mail and deposited in the mail addressed in the aforesaid manner.
Either party may designate, in writing, a different manner of address for
notices under this contract.
5. INSURANCE AND INDEMNIFICATION. In the event the Seller, its employees,
agent, subcontractors, or lower-tier subcontractors enter premises occupied by
or under the control of Motorola in the performance of this contract, the Seller
agrees that it will be responsible to Motorola for, and indemnify and hold
harmless Motorola, its officers and employees, from any loss, cost, damage,
expense or liability by reason of property damage or personal injury of
whatsoever kind or character arising out of, as a result of, or in connection
with such performance occasioned by the negligence or other fault, act or
<PAGE>
omission, of the Seller, its employees, agents, subcontractors, or lower-tier
subcontractors and the Seller agrees that it and its subcontractors will
maintain public liability and property damage insurance in reasonable limits
covering the obligations set forth above and will maintain Worker's Compensation
Insurance covering all employees performing this contract on premises occupied
or under the control of Motorola provided, however, that the Seller may maintain
a self-insurance program in lieu of Worker's Compensation Insurance if
authorized and qualified to do so pursuant to statutory authority. Seller shall
provide certificates of such insurance upon request.
6. INSPECTION.
(a) All services and supplies (which term throughout this article includes the
Seller without limitation raw material, components, intermediate assemblies
and end products) may be subject to inspection and test by Motorola, to the
extent practicable at all reasonable times and places including the period
of manufacture and, in any event, prior to final acceptance.
(b) In case any supplies or lots of supplies are defective in material or
workmanship or otherwise not in conformity with the requirements of this
contract, Motorola shall have the right either to reject them (with or
without instructions as to their disposition) or to require their
correction. Supplies or lots of supplies which have been rejected or
required to be corrected shall be removed or, if permitted or required by
Motorola, corrected in place by and at the expense of the Seller promptly
after notice, and shall not thereafter be tendered for acceptance unless
the former rejection or requirement for correction is disclosed. If the
Seller fails to promptly remove such supplies or lots of supplies which are
required to be removed or promptly to replace or correct such supplies or
lots of supplies, Motorola (i) may, by contract or otherwise, replace or
correct such supplies and charge to the Seller the cost occasioned to
Motorola, or (ii) may terminate this contract for default as provide din
the article of this contract entitled "Default". Unless the Seller
corrects or replaces such supplies within the delivery schedule, Motorola
may require the delivery of such supplies at a reduction in price which is
equitable under the circumstances. Failure to agree to such reduction in
price shall be a dispute concerning a question of fact within the meaning
of the article of this contract entitled "Disputes."
(c) If any inspection or test is made by Motorola on the premises of the Seller
without additional charge shall provide all reasonable facilities and
assistance for the safety and convenience of inspectors in the performance
of their duties. If the Motorola inspection or test is made at a point
other than the premises of the Seller, it shall be at the expense of
Motorola except as otherwise provided in this contract, provided that, in
case of rejection, Motorola shall not be liable for any reduction in value
of samples used in such inspection or test. All inspections and tests
shall be performed in such a manner as not to unduly delay the work.
Motorola reserves the right to charge to the Seller any additional cost of
inspection or test when supplies are not ready at the time such inspection
or test is requested by the Seller or when reinspection or retest is
necessitated
<PAGE>
by a prior rejection. Acceptance or rejection of the supplies shall be made
as promptly as practicable after delivery except as otherwise provided in
this contract, but failure to inspect and accept or reject supplies shall
neither relieve the Seller from responsibility for such supplies as are not
in accordance with the contract requirements nor impose liability to
Motorola therefore.
(d) The inspection and test by Motorola of any supplies or lots thereof does
not relieve the Seller from any responsibility regarding defects or other
failures to meet the contract requirements which may be discovered prior to
acceptance. Unless otherwise provided in this contract, acceptance shall
be conclusive except with respect to latent defects, fraud, such gross
mistakes amounting to fraud, and the Seller's warranty obligations.
(e) The Seller shall provide and maintain a quality and inspection system
acceptable to Motorola covering the supplies hereunder. Records of all
inspection work by the Seller shall be kept complete and available to
Motorola during the performance of this contract and for such longer
periods as may be specified in this contract.
(f) Seller hereby certifies that all supplies in the quantities so called for
on the face of this contract will conform with all requirements, drawings,
and related documents referenced by or in this contract. The required test
and inspection reports resulting from compliance with this contract will be
maintained on file and be made available for review by Motorola's
representative, at any reasonable time.
7. TITLE AND RISK OF LOSS.
(a) Unless this contract specifically provides for earlier passage of title,
title to supplies covered by this contract shall pass to Motorola upon
final acceptance by Motorola or the Government, regardless of when Motorola
takes physical possession.
(b) Unless this contract specifically provides otherwise, the transportation of
supplies to be delivered by Seller to Motorola shall be F.O.B. destination
and all risk of loss of or damage to the supplies covered by this contract
shall remain with the Seller until final acceptance by Motorola or receipt
of the supplies by Motorola at the destination specified in this contract,
whichever is later.
(c) If the contract specifies the transportation of supplies to be delivered by
Seller to Motorola as F.O.B. origin (i.e. Seller's facility), all risk or
loss of or damage to the supplies covered by this contract shall remain
with the Seller until Seller delivers the supplies to an authorized carrier
for shipment to Motorola.
(d) Notwithstanding (b) and (c) above, risk of loss of or damage to supplies
which fail to conform to the requirements of this contract as to give a
right or rejection shall remain with Seller until cure by Seller or final
acceptance by Motorola, whichever is later, at which time (b) or (c) above
shall apply.
<PAGE>
8. PAYMENTS.
(a) Payment of the contract price or any portion thereof for supplies delivered
or services rendered shall not constitute acceptance. The Seller shall be
paid, upon admission of property certified invoices or vouchers, the prices
stipulated herein for supplies delivered or services rendered less
deductions, if any, as herein provided.
(b) If more than one article of this contract authorizes the temporary
withholding of amounts otherwise payable to the Seller for supplies
delivered or services performed, the total of the amounts so withheld at
any one time shall not exceed the greatest amount which may be withheld
under any one such article at that time, provided that this limitation
shall not apply to (i) withholdings pursuant to any article relating to
wages or hours of employees; (ii) withholdings not specifically provided
for by this contract, and (iii) the recovery of overpayments.
(c) It is understood that the efficient use by Motorola of the supplies called
for hereunder require that the data called for by this contract be
delivered not later than the time or respective times herein specified. If
such data is not delivered at said time or times, Motorola may at its
election, so long as such data remains undelivered, unless the delay in
delivery thereof arises out of causes beyond the control and without the
fault or negligence of the Seller within the meaning of the article hereof
entitled "Default," withhold payment to the Seller for any of the amounts
then due, refuse approval of the Seller's vouchers and refuse to accept
further delivers hereunder form the Seller or may take any other action
authorized by law or regulation now or hereafter in effect including
termination or this contract for default to the extent and in the manner
authorized by the "Default" article of this contract and may take any or
all of the foregoing actions separately or in combination.
(d) The supplies shipped or work performed against this contract must not be
invoiced at a higher price than that shown on this contract without
Motorola's written consent. No charges will be allowed or paid by Motorola
for packing, crating, freight, cartage service charges or interest unless
shown on the order. If the price is omitted on the order, the price shall
be the current market price but shall not exceed the price currently
charged Seller's most favored customer.
9. ASSIGNMENT.
(a) No assignment or other transfer in whole or in part of this contract or of
any monies due or to become due hereunder shall be binding upon Motorola
without written consent thereto by Motorola. Any claim, demand or request
for payment under this contract shall be subject to setoff or recoupment
for any present or future claims which Motorola or any of its affiliated
companies may have against Seller of any of its affiliated companies.
<PAGE>
(b) No contract shall be made by Seller with any other party for furnishing any
of the completed or substantially completed supplies or services herein
contracted or without the prior written approval of Motorola.
10. RIGHTS AND USE OF TECHNICAL INFORMATION
(a) Any specifications, drawings, reports, technical information or data
furnished by Motorola to Seller hereunder shall remain Motorola's property
shall be kept confidential and shall be returned at Motorola's request.
Such documents shall be used in performing this contract and shall not be
used for other purposes unless agreed to by Motorola in writing.
Furthermore, patents embodied in designs, tools, patterns, drawings,
information or equipment supplied by Motorola under this contract and all
rights for the use and reproduction thereof are reserved by Motorola.
(b) Unless otherwise agreed to in writing by Motorola, any information
disclosed, in whatever form and regardless of any markings, to Motorola by
the Seller in connection with this contract shall not be deemed to be
confidential or proprietary information and shall be disclosed without any
restrictions (other than a claim for patent infringement) as part of the
consideration for this contract.
(c) Motorola shall have the right to reproduce and use any and all information
and technical data delivered hereunder.
(d) In the event the Seller, prior to completion of the work hereunder develops
(i) any improvement in the design of the supplies called for by this
contract which is not incorporated in the supplies to be delivered
hereunder, or (ii) any alternative or improved method of accomplishing the
objectives of this contract which is not employed in the performance
thereof, the Seller shall promptly give full information with respect
thereto to Motorola.
11. INDEMNITY. Seller shall indemnify and hold harmless Motorola against and
from any liability, claims, obligations, losses, cost and expenses, including
attorney's fees (hereafter collectively refereed to in this provision as
"damages" resulting from any failure or alleged failure of Seller, or Seller's
lower-tier subcontractors to comply with any federal or state law, statute,
regulation, ruling, order or directive.
12. PATENT INDEMNITY. By acceptance of this contract, Seller agrees to
indemnify Motorola and its customers against all claims, judgments, decrees,
costs and expenses and attorney's fees incident to any infringement or to any
claimed infringement of any patent arising out of the use of sale by Motorola
and its customers of supplies covered by this contract, or the use thereof by
Motorola in the manufacture and sale of supplies, unless the supplies are solely
to Motorola design or formula. Seller agrees that it will, upon request of
Motorola, and at Seller's own expense, defend or assist in the defense of any
action which may be brought against Motorola or its customers for such
infringement or claimed infringement. Motorola agrees to notify Seller promptly
upon receipt of notice or information of such a suit.
<PAGE>
13. COMMERCIAL ACQUISITION FOR GOVERNMENT CONTRACTS. If this agreement is for
the procurement of commercial computer software for a U.S. Government contract,
then the licensor's standard license agreement may be used, except that for non-
Department of Defense Agency procurements FAR 52.227-19. Commercial Computer
Software Restricted Rights (JUNE 1987) shall take precedence over any
inconsistent terms with the standard license agreement.
14. TAXES. Except as otherwise provided in this contract, the Seller
represents that the prices stated shall include any and all applicable
federal, state and local taxes which cannot be excluded by action of the Seller
or operation of law. The Seller represents that the price stated excludes all
such taxes which can be excluded by action of the Seller or by action of law.
Any tax not so excluded shall be entered on invoices as a separate line item.
15. DEFAULT.
(a) Motorola may, subject to the previsions of paragraph (c) below, by written
Notice of Default to the Seller terminate the whole or any part of this
contract (i) if the Seller fails to make delivery of supplies or to perform
the services within the time specified herein or any extension thereof; or
(ii) if the Seller fails to perform any of the other provisions of this
contract or so fails to make progress as to endanger performance of this
contract in accordance with its terms, and if either of these two later
circumstances does not cure such a failure within a period of 10 days, or
such longer period as Motorola may authorize in writing, after receipt, of
notice from Motorola specifying such failure.
(b) In the event Motorola terminates this contract in whole or in part as
provided in paragraph (a) of this article, Motorola may procure, upon such
terms and such manner as Motorola may deem appropriate, supplies or
services similar to those so terminated and the Seller shall be liable to
Motorola for any excess cost for such similar supplies or services and or
other damages. The Seller shall continue the performance of this contract
to the extent not terminated under the provisions of this article.
(c) Except with respect to defaults of subcontractors, the Seller shall not be
liable for any excess costs or other damages if any failure to perform
arises out of causes beyond the control and without the fault or negligence
of the Seller. Such causes may include, but are not restricted to, acts of
God or of the public enemy, acts of the Government in either its sovereign
or contractual capacity, fires, flood, epidemics, quarantine, restrictions,
strikes, freight embargoes, unusually severe weather, but in every case the
failure to perform must be beyond the control and without the fault or
negligence of the Seller. If the failure to perform is caused by the
default of a subcontractor and if such default arises out of causes beyond
the control of both the Seller and subcontractor and without the fault or
negligence of either of them, the Seller shall not be liable for any
<PAGE>
excess costs or other damages for failure to perform unless the supplier or
services to be furnished by the subcontractor were obtained from other
sources in sufficient time to permit the Seller to meet the required
delivery schedule. The term "subcontractor" as used in this clause means a
subcontractor at any tier.
(d) If this contract is terminated as provided in paragraph(a) of this article,
Motorola, in addition to any other rights provided in this article, may
require the Seller to transfer title and deliver to Motorola in the manner
and to the extent directed by Motorola free and clear of all liens and
claims, (i) any completed supplies and (ii) such partially completes
supplies and materials, parts, tools, designs, fixtures, plans, drawings,
information and contract rights (hereinafter call "manufacturing
materials") as the Seller has specifically produced or specifically
acquired for the performance of any part of this contract which has been
terminated. Seller shall protect and preserve property in possession of
the Seller in which Motorola has an interest. Payment for completed
supplies delivered to and accepted by Motorola shall be at the contract
price. Payment for manufacturing materials delivered to and accepted by
Motorola and for its protection and preservation of property shall be an
amount agreed upon by the parties. Failure to agree shall be a dispute
concerning a question of fact within the meaning of the article of this
contract entitled "Disputes."
(e) If, after notice of termination of this contract under the provisions of
paragraph (a) of this article, it is determined that the failure to perform
is due to causes beyond the control and without the fault or negligence of
the Seller or subcontractor pursuant to the provisions of paragraph(c) of
this article, such Notice of Default shall be deemed to have been issued
pursuant to the articles of this contract entitled "Termination" and the
rights and obligations of the parties hereto shall in such an event be
governed by that article.
(f) The rights and remedies of Motorola provided in this article shall not be
exclusive and are in addition to any other rights and remedies provided by
law or under this contract.
(g) Seller shall give written notice and explanation to Motorola within
ten (10) days after the commencement thereof of any delay encountered
in the performance of this contract.
16. DISPUTES. Except as otherwise specifically provided in this contract, all
disputes concerning questions of fact under this contract which are not promptly
disposed of by mutual agreement may be decided by recourse to any available,
legal or equitable remedy. Pending decision of any disputes hereof, the Seller
shall diligently proceed with performance of this contract as directed by
Motorola.
<PAGE>
17. STOP WORK ORDER.
(a) Motorola may, at any time, by written order to the Seller, require the
Seller to stop all, or any part, of the work called for by this contract
for a period of up to 90 days after the order is delivered to the Seller,
and for any further period to which the parties may agree. Any such order
shall be specifically identified as a Stop Work Order issued pursuant to
this article. Upon receipt of such an order, the Seller shall forthwith
comply with its terms and take all reasonable steps to minimize the
incurrence of costs allocable to the work covered by the order during the
period of work stoppage. Within a period of 30 days after a Stop Work
Order is delivered to the Seller, or within any extension of that period to
which the parties shall have agreed, Motorola shall either (i) cancel the
Stop Work Order, or (ii) terminate the work covered by such order as
provided in the "Default" or the "Termination" article of the contract.
Only written notice by Motorola shall constitute cancellation of a Stop
Work Order issued under this article.
(b) If a Stop Work Order issued under this article is canceled or the period of
the order or any extension thereof expires, the Seller shall resume work.
An equitable adjustment shall be made in the delivery schedule or contract
price, or both, and the contract shall be modified in writing accordingly,
if (i) the Stop Work Order results in an increase in the time required for,
or in the Seller's cost property allocable to, the performance of any part
of the contract, and (ii) the Seller asserts a claim at any time prior to
final payment under this contract. Failure to agree to any adjustment
shall be a dispute within the meaning of the "Disputes" article of this
contract.
(c) If a Stop Work Order is not canceled and the work covered by such order is
terminated for reasons other than default, reasonable costs resulting from
the Stop Work Order shall be allowed in arriving at the termination
settlement.
(d) If a Stop Work Order is not canceled and the work covered by such order is
terminated for default, the reasonable costs resulting from the Stop Work
Order shall be allowed by equitable adjustment or otherwise.
18. WARRANTY. Seller warrants that for a period of twelve (12) months after
final acceptance by Motorola, each article delivered hereunder, including all
components and materials included therein, will be free from defects in material
and workmanship, and will meet and comply with all requirements of samples,
drawings and specifications referred to or incorporated by reference herein. If
Seller is responsible for the design of the supplies, Seller further warrants
that the supplies will be free from defects in design. It is recognized and
understood by Seller that the supplies purchased hereunder are to be used with,
installed or incorporated into equipment or other supplies to be made by
Motorola and subsequently resold and that defects in the supplies purchased
hereunder may cause special damage to Motorola. Seller further warrants that any
services ordered hereunder will be done by careful, efficient and qualified
workers in the best and most workmanlike manner and that the services will
conform to the requirements hereof and to the highest standards applicable in
the field. The foregoing provisions shall survive acceptance, shall be construed
as conditions as well as warranties and shall extend equally to Motorola and its
customers.
<PAGE>
19. PROPERTY AND TOOLING.
(a) All materials, tooling, equipment or facilities (i) provided to Seller by
Motorola on other than a charge basis; or (ii) furnished by Seller but
specified in this contract to be retained for use and later delivered to
Motorola, are hereby identified as "furnished property". Title to
furnished property provided to Seller shall at all times remain in
Motorola. Title to furnished property specified to be delivered to
Motorola shall pass to Motorola upon its deliver to or completion of
fabrication by Seller, as appropriate. Seller assumes the risk of and
shall be responsible for any and all loss and/or damage to furnished
property except for reasonable wear and tear and except to the extent that
such property is consumed in the performance of this contract or
incorporated into supplies delivered hereunder.
(b) In the manufacture of the supplies to be delivered under the contract,
Seller agrees to use jigs, fixtures, dies, molds, patters and other devices
and manufacturing aids (herein called "tooling") in all processes and
otherwise to perform the work in a manner that will accomplish the maximum
degree of interchangeability and uniformity of the end items to be
delivered hereunder and their subassemblies or components. Seller further
agrees to establish, as part of its inspection procedure, a system for
inspection of all tooling and end items, subassemblies, or components.
Whenever any of the tooling becomes incorrect, worn, damaged, or defective
to such an extent that interchangeability or uniformity of and items,
subassemblies or components are adversely affected, as determined by
Seller's inspectors or any Motorola inspectors at Seller's plant, the
tooling will be removed from service and will no longer be used in the
manufacture of end items, subassemblies or components for delivery under
this contract.
(c) Seller shall give Motorola written notice within ten (10) days after
accomplishment of any changes in tooling or performance made because of
this article.
20. PACKING AND SHIPPING.
(a) All delivered supplies shall be preserved, packaged, packed and marked in
accordance with instructions or specifications referred to or incorporated
by reference in this contract. In the absence of such instructions or
specifications, best commercial practice for domestic shipments shall
apply, adequate (i) to assure safe arrival at destination; (ii) for storage
and for protection against the elements and transportation; (iii) to comply
with carrier regulations appropriate to the method of shipment used and
(iv) to secure lowest transportation cost.
(b) All shipments against this contract to be forwarded on one day via the same
route must be consolidated. A packing list, showing Motorola's contract
number, contract item number and description of contents must be included
in each package and a separate copy mailed to the address shown in (d)
below on the date of shipment.
<PAGE>
(c) Motorola's contract number must appear on all packages, boxes, bills of
lading, invoices, correspondence and other documents pertaining to this
contract.
(d) At the time of delivery of any shipment of supplies to a carrier for
transportation, the Seller shall give prepaid notice of shipment to
Motorola at the address shown on the first page of this contract,
Attention: Purchasing, and to such persons or installations as may be
designated by Motorola.
(e) If Seller's deliveries fail to meet schedule, Seller at its expense will
use that expedited method of shipment requested and specified by Motorola
until all deficiencies are corrected and deliveries are on schedule.
21. WAIVER.
(a) Any failure or delay on the part of Motorola to exercise any right, power
or privilege hereunder or to insist upon observance of performance by
Seller of the provisions of this contract shall not be deemed a waiver
thereof. Payments of any sum by Motorola to Seller or receipt by Motorola
of any products or work with knowledge of any default by Seller shall not
be deemed a waiver of such default or any other or subsequent default.
(b) No waiver shall be binding on Motorola unless it is in writing and designed
by an authorized representative of Motorola. Any such written waiver shall
apply only to the specific default or to the instance specified.
(c) The rights and remedies of Motorola hereunder shall be cumulative and are
not exclusive of each other and my be exercised separately or concurrently
as Motorola determines.
22. PLANT VISITS. During performance of this contract, authorized
representatives of Motorola shall have the right to visit Seller's facilities
involved in the performance hereunder at any time during normal business hours
to review, monitor, coordinate or expedite performance and to secure necessary
information for such purposes. Such visits will be coordinated with Seller's
cognizant personnel to minimize any effect on Seller's normal operations.
23. ADVERTISING AND PUBLICITY. Seller shall not issue any advertising, news
releases, publicity or otherwise disclose any information about this contract
without Motorola's written consent, except as is required directly in connection
with performance of the work hereunder.
<PAGE>
24. MATERIAL SAFETY DATE SHEETS. All chemicals purchased under the terms and
conditions of this contract shall be accompanied with a Material Safety Data
Sheet, provided by the chemical contractor. All chemical contractors certify by
acceptance of this contract that chemicals purchased are on the Toxic Substances
Control Act, 15 U.S.C. Section 2601, et seq. Chemical inventory, or are subject
to an exemption and that such exemption is specified in the Material Safety Data
Sheet.
25. OZONE DEPLETING SUBSTANCES. The Seller of any material purchased under
this contract is certifying by acceptance of this contract that either the
material is not manufactured with any substance that harms public health and
environment by destroying ozone in the upper atmosphere or, if the material was
manufactured with ozone destroying substances, the manufacturer/supplier
certifies that the material is labeled according to the Clean Air Act Amendments
of 1990 Public Law 101-549 Section 611(d)(2) or any alternative labeling that
the Environmental Protection Agency has determined acceptable.
26. RADIOLOGICAL HEALTH. In accordance with Title 21, Code of Federal
Regulations (CFR), Chapter 1, Subchapter J, RADIOLOGICAL HEALTH, all suppliers
of electronic products are required to certify that such electronic products
conform to all applicable radiation safety certification requirements specified
therein. Unless Seller obtains an exception therefrom and furnishes a written
confirmation of such exemption to Motorola, Seller agrees to comply with such
applicable certification requirements on all electronic products furnished to
Motorola under this contract and require similar certification compliance from
any of its subcontractors of electronic products where such products will be
delivered to Motorola, or its customers, as an end item or component thereof
under this contract. Seller agrees to provide evidence of certification, upon
request, for itself and its subcontractors. Seller further agrees to indemnify
and hold Motorola and its customers harmless from any claim, suit, loss,
cost, damage, expense including attorneys' fees, or liability arising out of, as
a result of, or in connection with Seller's (or its subcontractor's) failure to
so certify or comply with the applicable requirements as specified above.
27. MOTOROLA ACCESS. For the purpose of observing the status and quality of
Seller's performance of work, Seller shall afford a limited number of employees
of Motorola and employees of any customer of Motorola, and their designees as
approved by Seller, subject to the Article herein entitled "EXPORT CONTROL",
access to all contract activities including design reviews, systems and
subsystems testing, program management reviews, test reviews and failure reviews
at the Seller's facilities on a noninterference basis. Seller's approval of any
designee requested by Motorola or Motorola's customer shall not be unreasonably
withheld; provided, however, that such approval may be withheld and Seller has
reasonable concerns as to the protection of its proprietary information or
potential injury to its competitive market position(s).
28. EXPORT CONTROL. Seller shall not export, directly or indirectly, any
information or technical data disclosed under this contract to any individual or
country for which the
<PAGE>
U.S. Government, at the time of export, requires an export license or other
governmental approval, without first obtaining such license or approval. Seller
shall indemnify and hold Motorola harmless for all claims, demands, damages,
costs, fines, penalties, attorney's fees and other expenses arising from
Seller's failure to comply with this clause.
29. TERMINATION. Motorola may terminate all or any part of this contract at
any time by written or telegraphic notice to Seller, specifying the extent to
which the contract is terminated and the date upon which such termination
becomes effective. Motorola will pay Seller's cost, property allocable to the
termination together with reasonable profit on any work performed prior to
the effective date of termination. IN NO EVENT SHALL MOTOROLA BE LIABLE FOR
LOST OR ANTICPATED PROFIT, OR UNABSORBED INDIRECT COSTS OR OVERHEAD, NOR SHALL
MOTOROLA'S TOTAL LIABILITY FOR SUCH TERMINATION EXCEED THE UNNPAID BALANCE OF
THE CONTRACT PRICE.
30. ENTIRE AGREEMENT. This contract document manifests integration of the
entire agreement of the parties hereto and shall supersede all correspondence,
offers, negotiations, and agreements pertaining to the subject matter whether
prior to or contemporaneous with this contract. Any work done under any
previous Letter Contract, Purchase Order or Notice of Award relating to the
subject matter of this contract shall be considered work done under this
contract.
31. GOVERNING LAW. It is mutually understood and agreed that this contract
shall be governed by the laws of the State of Arizona, except for its conflict
of law rules, both as to interpretation and performance. Venue for any
dispute arising hereunder shall be in Arizona.
32. SOCIO-ECONOMIC COMPLIANCE CLAUSES. The Seller shall comply with the
following:
(a) Equal Employment Opportunity and Affirmative Action. This order
incorporated by reference: (a) all provisions of 41 C.F.R. 60-1.4 and 60-
2, as implemented by Federal Acquisition Regulation (FAR) 52.222-26(b)(1)-
(11), pertaining to the Equal Opportunity clause; (b) all provisions of 41
C.F.R. 60-250, as implemented by FAR 52.222-35 and FAR 52.222-37,
pertaining to employment reports and affirmative action for disabled
veterans and veterans of the Vietnam Era; and (c) all provisions of 41
C.F.R. 60-741, as implemented by FAR 52.222-36, pertaining to affirmative
action for handicapped/disabled workers.
(b) EEO-1 Representation. Seller represents that it has submitted Standard
Form 100 (EEO-1) compliance reports as required by 41 C.F.R. 60-1.7, as
implemented by FAR 52.222-22.
(c) Certification of Nonsegregated Facilities. Seller certifies that, in
compliance with 41 C.F.R. 60-1.8, as implemented by FAR 52.222.-21, it does
not and
<PAGE>
will not maintain or provide for its employees any segregated facilities at
any of its establishments, and that it does not and will not permit its
employees to perform their services at any location under its control where
segregated facilities are maintained. Seller agrees that breach of this
certification is in violation of the Equal Opportunity clause incorporated
herein. Seller further agrees that it will either: (a) obtain
certifications of nonsegregated facilities from proposes subcontractors for
specific time periods; or (b) obtain certifications of nonsegregated
facilities from proposed subcontractors before the award of any
subcontracts subject to the Equal Opportunity clause, will retain such
certifications in its files and will forward the Notice set forth in FAR
52.222-21 to proposed subcontractors.
33. YEAR 2000 COMPLIANCE. The Seller expressly guarantees and warrants that
the software and/or hardware it is providing under this contract/subcontract is
Year 2000 Complaint. Year 2000 Compliant means that the software and/or
hardware accurately processes date/time data (including, but not limited to,
calculating, comparing, and sequencing) from, into and between the twentieth
and twenty-first centuries and the years 1999 and 2000 and leap year
calculations. Furthermore, Year 2000 compliant technology, when used in
combination with other information technology shall accurately process date/time
date if the other information technology properly exchanges date/time data with
it. The software design to ensure Year 2000 compatibility shall include, but
not be limited to, date, date century recognition, and calculations that
accommodate same century and multi-century formulas and date values and
date data interface values that reflect the century.
34. DISCONTINUANCE OF PRODUCT. Should Seller decide to discontinue manufacture
of the product(s) purchased by Motorola under the purchase order, Seller (1)
shall provide written notice to Motorola of the intended product discontinuance;
and (2) shall provide Motorola a minimum of twelve (12) months from the written
notification date to allow Motorola to place the "lifetime buy" purchase orders
for the product(s) at a unit price to be negotiated, but in no event higher than
the unit price provided in this purchase order. IN the event one or multiple
"lifetime buy" purchase orders are made during such twelve (12) month period,
Seller shall deliver the purchased product(s) to Motorola no later than six (6)
months after the end of the "lifetime buy" period. Seller's obligation under
this clause shall extend for five (5) years beyond the date of issue of this
purchase order, irrespective of whether their purchase order is closed within
the five (5) year period.
35. SUBCONTRACTS FOR COMMERCIAL ITEMS AND COMMERCIAL COMPONENTS
(a) Commercial Item, as used in this clause, has the meaning contained in the
clause at FAR 62.202-1, Definitions. Subcontract, as used in this clause
includes a transfer of commercial items between divisions, subsidiaries or
affiliates of the Contractor or subcontractor (Seller) at any tier.
<PAGE>
(b) To the maximum extent practicable, the Seller shall incorporate and require
its subcontractors at all tiers to incorporate, commercial items or
nondevelopmental items as components of items to be supplied under this
purchase order.
(c) Notwithstanding any other clause of this purchase order, the Seller is not
required to include any FAR provision or clause, other than those listed
below to the extent they are applicable and as may be required to establish
the reasonableness of prices under FAR Part 13, in a purchase order at any
tier for commercial items or commercial components. (1) 52.222-24 Equal
Opportunity (E.O. 11246); (2) 52.222-36 Affirmative Action for Special
Disabled and Vietnam Era Veterans (38 U.S.C. 4212(e)); (3) 52.222-3C
Affirmative Action for Handicapped Workers (29 U.S.C. 793).
(d) The Seller shall include the terms of this clause, including this paragraph
(d), in purchase orders awarded under this purchase order.
36. NEW MATERIAL. Unless the Purchase Order specifies otherwise, Seller
represents that the materials (including, but not limited to raw materials,
parts, items, components, supplies and end products) delivered to Motorola under
this Purchase Order are new. New, as used in this clause, means previously
unused and composed of previously unused materials. If the Seller believes that
furnishing other than new materials will be in Motorola's interest, Seller shall
notify Motorola in writing and request authorization to use such materials.
37. ASSIGNMENT.
(a) No assignment or other transfer in whole or in part of this contract or of
any monies due or to become due hereunder shall be binding upon Motorola
without written consent thereto by Motorola. Any claim, demand or request
for payment under this contract shall be subject to setoff or recoupment
for any present or future claims which Motorola or any of its affiliated
companies may have against Seller or any of its affiliated companies.
(b) No contract shall be made by Seller with any other party for furnishing any
of the completed or partially completed supplies or services herein
contracted for without the prior written approval of Motorola.
<PAGE>
EXHIBIT 10.11
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT is made this 14th day of October 1999 BY AND BETWEEN:-
(1) Telaxis Communications Corporation whose registered office is situated at
20 Industrial Drive East Deerfield, MA 01373-0109 ("Telaxis")
AND
(2) California Amplifier, Inc. whose registered office is situated at 460 Calle
San Pablo, Camarillo, California 93012, USA ("Supplier")
IT IS AGREED AS FOLLOWS:
1. DEFINITIONS
This Agreement incorporates certain phrases which are defined as follows:
"Design Verification Tests" means the tests conducted by Supplier after
design of Products to ensure that the design meets the Product
Specifications. Design Verification Tests shall be defined by Supplier, and
approved by Telaxis in accordance with Supplier's normal guidelines and
procedure for developing such tests.
"Delivery" means the shipment of Product by Supplier from its facility to
Telaxis.
"Release to Manufacturing" means Supplier's normal procedure to release
products into its manufacturing floor, after Product passes its Design
Verification Tests.
"Acceptance Tests" means the tests conducted by Supplier, and approved by
Telaxis while producing Products to ensure that the Product Specifications
are met. The Acceptance Tests are detailed in Schedule 3 to this Agreement
and may be modified from time to time by the parties, in order to
facilitate cost reduction and design changes to Products.
"Confidential Information" derives its meaning from the non-disclosure
agreement dated June 1, 1998 , executed by the parties.
"Force Majeure" means delay in performing obligations under the Agreement,
which is caused by (i) Acts of God (ii) outbreak of hostilities, riot,
civil disturbance, acts of terrorism (iii) act of any government or
authority (iv) fire, explosion, flood, fog or bad weather (v) power failure
(vi) wordwide shortage of materials and (vii) any cause or circumstance
beyond either party's reasonable control.
"Intellectual Property Rights" means patents, registered and unregistered
designs, copyright and all other intellectual property protection wherever
in the world enforceable.
"Translator PWB", "Phase 0 Product", "Phase 2 Product", "Product" and
"Products" means those products to be delivered under this Agreement by the
Supplier to Telaxis as listed in Schedule 4.
"Product Units" means the aggregate quantity of Phase 0 Products, Phase 2
Products and Translator PWBs purchase by Telaxis from Supplier.
Page 1 of 15
<PAGE>
"Product Specifications" are those specifications to which Products must
conform. Product Specifications are listed in Schedule 4, and may from time
to time be revised by mutual agreement by the parties.
"Production Delivery Schedule" means a schedule such as will be finalized
for each Product at the time of Release to Manufacturing of that product
and subsequently modified by mutual agreement or clause 8 as applicable.
"Purchase Order" means Telaxis's standard purchase order, provided however,
to the extent that such purchase order contains standard terms or
conditions in conflict with terms and conditions of this Agreement, this
Agreement shall prevail, unless the variance is agreed to by both parties
in writing.
"Product Availability" means the availability for prototype and production
quantities of Products, as specified in Schedule 2, and which from time to
time will be modified by the parties, to reflect changes in development
schedule.
2. SCOPE OF WORK
2.1 The Supplier shall have the personnel capacity necessary to build,
integrate and test Products to be supplied to Telaxis. Telaxis agrees to
supply all required test equipment and fixtures to test Phase 0 Product and
Phase 2 Product. Supplier shall provide assembly and test equipment to
build and test Translator PWBs and facilities to assemble Phase 0 Product
and Phase 2 Product. As additional capacity is required from time to time,
the parties will determine which party shall supply additional capital
equipment and facilities through mutual agreement. The list of capital
equipment necessary to integrate and test Products is listed in Schedule 3.
2.2 The Supplier shall develop Phase 2 Products to meet Product Specification
for supply to Telaxis.
2.3 Telaxis shall supply antenna assemblies and millimeter wave modules that
are incorporated into Phase 0 Products and Phase 2 Products on consignment
to Supplier. Telaxis shall supply all material, except any that may be
listed on Schedule 5, to Supplier to allow Supplier to produce Phase 0
Products.
2.4 The Supplier shall manufacture and sell Products in accordance with
Schedule 1. Telaxis shall purchase Products in accordance with Schedule 1.
If Telaxis does not purchase in accordance with Schedule 1 then Telaxis
shall pay to the Supplier cancellation charges as set forth herein.
2.5 Both parties submit exclusively to the terms and conditions of this
Agreement for the supply of Product by the Supplier and purchase by
Telaxis. No other terms shall have any force and effect and no course of
dealing, usage of trade or course of performance shall be relevant to
explain or modify any terms expressed in this Agreement unless such
amendments or modifications are executed in writing and agreed by both
parties.
3. TERM & TERMINATION OF AGREEMENT
3.1 This Agreement shall remain in place until both parties have fulfilled all
the requirements placed on them hereunder, or December 30, 2002, whichever
is earlier, or unless terminated for the reasons specified in clause 3.2
and 3.3.
3.2 The Agreement may be terminated by either party if the other party commits
a material breach of any of the terms and conditions of this Agreement and
fails to remedy such breach within 30 days after receipt of a written
notice specifying the breach or default. Notwithstanding the foregoing,
Supplier may terminate this Agreement if Telaxis fails to pay an undisputed
amount hereunder and fails to remedy such breach within 15 days after
receipt of a written notice specifying the breach.
Page 2 of 15
<PAGE>
3.3 3.3.1 This Agreement shall terminate immediately upon written notice from
either party in the following events:
i) Upon assignment of all the assets of either party creditors. for the
benefits of its
ii) Upon either party becoming insolvent.
iii) Upon either party becoming bankrupt or being entry into receivership.
placed in liquidation or upon
3.3.2 Telaxis may terminate this Agreement by written notice to the
Supplier if the prices for the Phase 2 Products are not equal to or less than
the numbers set forth below by the dates set forth below:
- --------------------------------------------------------------------------------
Date Price
- --------------------------------------------------------------------------------
[***] [***]
- --------------------------------------------------------------------------------
[***] [***]
- --------------------------------------------------------------------------------
[***] [***]
- --------------------------------------------------------------------------------
3.3.3 Telaxis may terminate this Agreement by written notice to the
Supplier if the prices for the Phase 2 Products are not equal to or less than
the numbers set forth below by the dates set forth below. Prices in the table
below shall be modified to reflect any change in specifications based on cost
increases (including consistent markups).
- --------------------------------------------------------------------------------
Date Price
- --------------------------------------------------------------------------------
[***] [***]
- --------------------------------------------------------------------------------
[***] [***]
- --------------------------------------------------------------------------------
[***] [***]
- --------------------------------------------------------------------------------
3.4 Upon termination of this Agreement both parties shall return to the other
party all documents and materials (and all copies) containing the other
party's Confidential Information and certify in writing to the other party
that it has complied with the requirements of this clause.
3.5 Upon termination of the Agreement, Supplier shall return to Telaxis all
material, capital equipment and tooling which has been paid for by Telaxis
except as set forth in the following sentence, unless otherwise agreed upon
by the parties. If termination is due to Telaxis's material breach with
regard to payment of Supplier invoices, Supplier may dispose of material
and capital equipment and deduct amounts owed from proceeds.
3.6 Termination of this Agreement shall be without prejudice to the rights of
either party which may have accrued prior to the date of such termination.
3.7 Termination of this Agreement for reasons other than 3.2 or 3.3, shall not
relieve the Supplier of the obligation of fulfilling orders already placed
by Telaxis with the Supplier, and shall not relieve Telaxis of the
obligation of purchasing Products already ordered from Supplier under the
Agreement prior to its termination, unless agreed otherwise by both
parties.
3.8 Upon termination of this Agreement by Telaxis pursuant to Section 3.3.2 or
3.3.3 above, Telaxis shall pay Supplier a sum equal to the cost of work in
process material and any other material committed to by Supplier that is
not usable in other product, limited to the scheduled deliveries within
[***] days (or [***] days for any material that has a longer lead time than
[***] days) of termination plus the lesser of (a) non-recurring capital,
development and tooling costs incurred by Supplier to the date of
termination multiplied by a fraction, the numerator of
[***] Confidential Treatment Requested.
Page 3 of 15
<PAGE>
which shall be the number of Products purchased by Telaxis under this
Agreement and the denominator of which shall be [***] and (b) the amount
that would have been paid by Telaxis pursuant to the first two sentences of
the last paragraph of Schedule 1.
4. ORDERING, DELIVERY & INVOICING
4.1 Telaxis shall order the Products under this Agreement by placing a Purchase
Order. The Purchase Order shall not be in conflict with the terms of this
Agreement. The Purchase Order shall be either in writing or by facsimile.
Each Purchase Order will state:
4.1.1 the type and quantity of Products required
4.1.2 the shipping address
4.1.3 the purchase price of Products
4.1.4 a reference to this Agreement
Telaxis shall place an initial Purchase Order under this Agreement in
accordance with Schedule 1 within 30 days of execution of this Agreement.
Delivery dates for Products will be determined in accordance with
Article 8.
4.2 The Supplier shall accept and acknowledge in writing within 5 business days
each Purchase Order placed in accordance with Section 4.1.
4.3 The terms of all purchases and Deliveries shall be FCA in accordance with
Incoterms 1990.
5. FORCE MAJEURE
Not withstanding anything contained herein or in any Schedule to the
contrary, neither party will be liable for any delay or non performance of
its obligations under this Agreement as a result of circumstances caused by
a Force Majeure event. In these circumstances the party affected by a Force
Majeure event must promptly notify the other party in writing of the reason
for its delay and its likely duration. The delaying party's obligations
shall be suspended during the period of delay. Force Majeure shall not
apply to payment due for Products ordered by Telaxis and shipped by
Supplier and shall not apply to payment of cancellation charge identified
in Schedule 1.
6. ACCEPTANCE TEST
6.1 Prior to Delivery of Products by Supplier to Telaxis, Supplier shall
conduct Acceptance Tests to ensure that Products meet their specifications.
6.2 Both the Supplier and Telaxis shall each appoint a representative who shall
liaise and co-operate with each other in all matters pertaining to
Acceptance Testing.
6.3 The Supplier shall allow Telaxis to attend and witness Acceptance Tests at
the Supplier's premises or any of the Supplier's subcontractors premises if
it so wishes. Telaxis shall give Supplier 5 working days written notice of
its intention to witness Acceptance Tests.
6.4 Product acceptance shall occur or be deemed to occur upon Delivery of
Product.
7. QUALITY REQUIREMENTS
The Supplier shall comply with ISO 9001 requirements when performing its
obligations under this Agreement.
8. PRODUCTION DELIVERY SCHEDULE
8.1 The parties will finalize a Production Delivery Schedule for each Product
upon issuance of each Purchase Order or Release to Manufacturing of that
Product, whichever comes later.
[***] Confidential Treatment Requested.
Page 4 of 15
<PAGE>
8.2 Telaxis shall have the right to modify the Production Delivery Schedule in
accordance with the following parameters:
8.2.1 Deliveries scheduled within 1 month of date of modification shall
not be permitted to change.
8.2.2 Deliveries scheduled between 1 month and 2 months of date of
modification may increase or decrease once by 25% from the previous
schedule for said time period.
8.2.3 Deliveries scheduled between 2 months and 3 months of date of
modification may increase or decrease once by 50% from the previous
schedule for said time period.
8.2.4 Deliveries scheduled between 3 months and 4 months of date of
modification may increase or decrease once by 75% from the previous
schedule for said time period.
Deliveries in excess of 4 months of date of modification will have no
restrictions on change.
8.3 Telaxis may have to issue a stop work order under the following conditions:
1. Customer driven engineering change notice
2. Telaxis driven engineering change notice
3. Customer order cancellation
If Telaxis issues a stop work order due to a customer cancellation, Telaxis
will purchase all work in process material and any other material committed
to by Supplier that is not usable in other product, limited to the
scheduled deliveries within [***] days (or [***] days for any material that
has a longer lead time than [***] days) of the issuance of the stop work
order. Telaxis will pay the actual costs incurred up to the date of the
stop work order, plus normal overhead, G&A and profit. Product paid for
under these conditions will be considered part of the Schedule 1 quantity
commitment.
9. WARRANTY
9.1 The Supplier warrants that the Products Delivered under this Agreement will
be free from defects in material and workmanship and conform to Product
Specifications, provided Product is used for its intended purpose and has
not been abused or subjected to conditions outside of its specified
parameters.
9.2 The Supplier warrants that the Product is free from any encumbrance,
charge, lien or similar right.
9.3 If within 18 months of Delivery of the Products, Telaxis gives notice in
writing to the Supplier of any defect in the Products then the Supplier
shall free of charge either repair or at its option replace the defective
Products returned to Supplier within 10 working days from Supplier's
receipt of Products. Freight and insurance charges for shipment of
defective Products to Supplier shall be borne by Telaxis and for shipment
of repaired or replacement Products back to Telaxis or Telaxis's customer
shall be borne by Supplier. Telaxis may purchase a limited number of
Products at cost to permit faster replacements of Products.
9.4 Products shall be returned to the Supplier under the Suppliers RMA number.
Said number shall not be withheld provided that Telaxis supplies the serial
number of the defective Products.
9.5 The provisions of Section 9.3 shall be the exclusive remedy for any
liability of Supplier under Sections 9.1 and 9.2 above. THE WARRANTIES SET
FORTH IN SECTION 9.1 AND 9.2 ABOVE ARE IN LIEU OF ALL OTHER WARRANTIES AS
TO PERFORMANCE OF THE PRODUCTS, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
[***] Confidential Treatment Requested.
Page 5 of 15
<PAGE>
10. PRODUCT CHANGE/DISCONTINUED PRODUCT
10.1 At any time during the performance of this Agreement if the Supplier
proposes to modify any of the specifications to any of the Products then
the Supplier must provide to Telaxis in writing the proposed change and
associated price changes. Telaxis will then have 60 days to review and
obtain approval from their customer of the proposed change. If the
change is approved then an implementation plan must be developed so that
there is no negative financial impact to Telaxis or its customers.
10.2 Telaxis shall have the right to incorporate engineering changes into a
Product under the following guideline.
10.2.1 Telaxis will normally provide a minimum of 30 days notice to incorporate
a change to a Product in production. However, it is recognised by both
parties that a customer driven change may cause a production stop order
to be issued and that the change may have to be incorporated
immediately.
10.2.2 Upon receiving the engineering change notice and as soon as possible
but, in no case more than 10 working days from receiving the notice, the
Supplier will provide a detailed quote of the price of the change based
on cost (including obsoleted material at Supplier and in its supply
chain) and consistent mark-up and a timetable to incorporate the change.
10.2.3 The engineering change will be implemented in accordance with the
agreed-to timetable and price.
10.3 If the Supplier wishes to discontinue the manufacture of any Product
then the Supplier must give Telaxis notice of such discontinuance and
continue to accept Purchase Orders for Product received up to 6 months
from the notice and for scheduled delivery within 18 months from such
notice. Supplier shall fulfill all such Purchase Orders.
10.4 If Supplier wishes to discontinue to manufacture all Products, Telaxis
may purchase from Suppliertooling and capital equipment used to
manufacture the Products, at a price to be agreed upon by the parties.
11. REGULATORY APPROVALS
11.1 Telaxis is responsible for obtaining all regulatory approvals for
Products. Supplier shall supply Telaxis and Telaxis shall purchase
protoypes and production units of Products as reasonably necessary to
facilitate testing requirements.
12. PACKAGING
Except as otherwise specified by Telaxis, Supplier will be responsible
for packaging the Product and such packaging shall be approved by
Telaxis.
13. PRICE AND PAYMENT
The price and payment terms are specified in Schedule 1. Telaxis will
make payment for amounts due in accordance with Schedule 1 within [***]
days of receipt of an invoice quoting the Purchase Order.
14. IPR INDEMNITY
14.1 The Supplier shall indemnify Telaxis against any claim for infringement
of Intellectual Property Rights from Telaxis's use or sale of the
Products provided by the Supplier provided that:
[***] Confidential Treatment Requested.
Page 6 of 15
<PAGE>
i) the infringement or alleged infringement is due to design changes made
by Supplier to Telaxis's design of Product; and
ii) Telaxis notifies the Supplier promptly if it is aware of any alleged
infringement; and
iii) Telaxis makes no admission without the Supplier's written consent;
and
iv) Telaxis assists the Supplier to conduct all negotiations and
litigation where so requested.
14.2 If at any time any allegations of infringement of IPR is made in respect
of the Product or any part thereof or in the Supplier's opinion is likely
to be made, the Supplier may at its own expense modify or replace the
infringing Product with other Product with same fit, functionality and
performance in order to avoid the infringement and Telaxis will ensure
that the Supplier is provided with all reasonable assistance required to
exercise such rights.
14.3 Telaxis reciprocally indemnifies the Supplier in relation to infringement
or alleged infringement due to designs or specifications which Telaxis
supplies and in relation to any design or processes which the Supplier
uses at the request or with the consent of Telaxis.
14.4 The indemnity under sub-clause 14.1 above shall not apply to infringement
by use of the Products or any part thereof with any other product not
supplied by the Supplier where there would be no infringement without such
combination, nor to infringement by use of the Product or any part thereof
in a manner which could not be reasonably foreseen by the Supplier at the
effective date of this Agreement unless, in either case, such use is
consented to by the Supplier in writing in response to a request for a
consent from Telaxis making reference to IPR infringement.
16. LIMITATION OF LIABILITY
In no circumstances shall either party be liable for any loss of profit,
business contracts, revenues or any special indirect or consequential
damage of any nature. This section shall not limit or restrict any
recourse or remedies pursuant to the non-disclosure agreement discussed in
Section 19 below.
19. CONFIDENTIALITY
The parties have executed a non-disclosure agreement dated June 1, 1998.
This agreement is incorporated herein by reference and shall govern
disclosure of Confidential Information by either party.
20. NOTICES
20.1 Any notice, which expression includes any other communication whatsoever
shall be sufficiently served if it is sent by a recognised courier service
to the other party at such address appearing below or by facsimile to the
numbers shown below with confirmation of proper transmission. Every notice
shall be deemed to have been received and given within three (3) business
days if sent by a recognised courier service, or in the case of fax, such
notice shall be deemed to have been received and given at the time of
transmission.
Telaxis Communications Corporation California Amplifier, Inc.
Attn: Chief Executive Officer Attn: Chief Executive Officer
20 Industrial Drive East 460 Calle San Pablo
Deerfield, MA Camarillo, California
01373 93012
Fax: (413) 665-0089 Fax: (805) 482-5842
Page 7 of 15
<PAGE>
21. SEVERABILITY
21.1 If any part, term or provision of this Agreement not being of a
fundamental nature should be held illegal or unenforceable the validity or
enforceability of the remainder of this Agreement shall not be affected.
22. WAIVER
22.1 No failure to exercise and no delay in exercising on the part of either
party of any right, power or privilege preclude the enforcement of any
other right, power or privilege. Nor shall the waiver of any breach of any
such provision herein be taken or held to be a waiver of any subsequent
breach of any such provision or be a waiver of the provision itself. Any
waiver to be effective must be in writing.
27. ARBITRATION
This Agreement shall be construed in accordance with and governed by the
Laws of the State of Delaware. Any dispute, controversy or claim arising
out of or relating to this Agreement, or the breach, termination or
invalidity thereof, shall be settled by final and binding arbitration
conducted pursuant to the Rules of Conciliation and Arbitration of the
American Arbitration Association (AAA); provided, however, that nothing
herein shall be deemed to prohibit any party from seeking from relevant
courts of law immediate injunctive relief to prevent or restrain
infringement of valid intellectual property rights. Such arbitration shall
be conducted in Boston, Massachusetts if commenced by the Supplier and in
Los Angeles, California if commenced by Telaxis. The number of arbitrators
shall be three (3) with each party appointing one arbitrator and those two
arbitrators choosing the third arbitrator. If a party hereto fails to
appoint an arbitrator, such arbitrator shall be appointed by the AAA. If
the arbitrators chosen by the parties (or by the AAA as the case may be)
are unable to agree upon a third arbitrator, such third arbitrator shall
be appointed by the AAA. A judgement upon any award rendered in such
arbitration may be entered in any court having jurisdiction over the party
against whom the award is made.
28. OWNERSHIP OF INVENTIONS
28.1 Any patents, know-how, trade secrets or other technical information made
available to Supplier by Telaxis in connection with the development and
manufacture of the Products shall remain the property of Telaxis;
provided, however, Telaxis hereby grants Supplier a royalty-free license
to use such information in connection with the manufacture of Products for
sale to Telaxis. Any patents, know-how, trade secrets or other technical
information made available to Telaxis by Supplier in connection with the
development and manufacture of the Products shall remain the property of
Supplier; provided, however, Supplier hereby grants Telaxis a royalty-free
license to use such information in connection with the resale and use of
Products. Any and all patents, know-how, trade secrets, or other technical
information discovered, developed or designed in connection with the
transactions contemplated by this Agreement shall be the property of the
Supplier; provided, however, (a) the Supplier hereby grants Telaxis a
royalty-free license to use such information in connection with the resale
and use of the Products and (b) the Supplier hereby grants Telaxis a
royalty-free license to use such information in connection with the
manufacture, resale and use of the Products effective only if Telaxis
terminates this Agreement pursuant to Section 3.3.3 above.
28.2 Supplier agrees to keep confidential technical specifications for
Products, whether such specifications were provided to Supplier by Telaxis
or were established by Supplier in connection with development of the
Products.
28.3 Supplier agrees that it will not include Products among its standard
product offerings and that it will not offer, sell or otherwise give or
deliver any Products, or any other products or components of products
using or incorporating any of Telaxis's intellectual property (as
described in Section 28.1 above), to any other person or entity. Further,
Supplier agrees that it will not use any patents, know-how, trade secrets,
or other technical information discovered,
Page 8 of 15
<PAGE>
developed or designed in connection with the transactions contemplated by
this Agreement to, directly or indirectly, compete with the Telaxis's
millimeter wave broadband communications products.
28.4 Except as set forth in this Agreement, no licence, express or implied,
under any patents, copyrights, trademarks or trade secrets are granted by
Telaxis or Supplier to the other hereunder.
IN WITNESS WHEREOF duly authorised executives on behalf of Telaxis and the
Supplier have executed this Agreement as of the date first written above.
SIGNED BY: [UNREADABLE] SIGNED BY:[UNREADABLE]
---------------------------- -------------------------
on behalf of California Amplifier, Inc. on behalf of TELAXIS COMMUNICATIONS
CORPORATION
NAME: Kris Kelkar NAME: Mervyn N. FitzGerald
TITLE: Vice President TITLE: Senior Vice President
Page 9 of 15
<PAGE>
SCHEDULE 1
PRODUCTS, PRELIMINARY PRICES AND PAYMENT SCHEDULE
Pricing is set out below. All prices are FCA Camarillo, California and do not
include sales, use or any other taxes, duties or freight charges.
- --------------------------------------------------------------------------------
PRODUCT PRICE
- --------------------------------------------------------------------------------
Phase 0 Product [***]
Translator PWA PN# [***]
Transceiver PN# [***]
- --------------------------------------------------------------------------------
Cost Reduced Translator PWA PN# [***]
- --------------------------------------------------------------------------------
Phase 2 Product [***]
Transceiver PN#
- --------------------------------------------------------------------------------
The parties acknowledge that if there are specification changes, the price may
change.
Should Telaxis fail to purchase [***] Product Units prior to April 1, 2002 (or
two years after availability of Phase 2 Products), Telaxis shall pay to the
Supplier a cancellation charge to reimburse Supplier for non-recurring
development costs, plus amounts necessary to cover any material and equipment
purchased by Supplier to produce Products, per the Production Delivery Schedule.
This cancellation charge shall be equal to [***] per unit for the difference
between Product Units purchased by Telaxis during this period and [***].
Product for which a fee is paid pursuant to Section 8.3 shall be included in the
[***] Product Unit minimum. This cancellation fee shall not apply (a) unless
the Supplier has offered for sale and has demonstrated its capability and
capacity to offer for sale at least [***] Product Units meeting the
requirements of this Agreement during this period in accordance with the
Production Delivery Schedule or (b) if Telaxis terminates this Agreement
pursuant to Section 3.3.2 or 3.3.3.
[***] Confidential Treatment Requested.
Page 10 of 15
<PAGE>
SCHEDULE 2
PROJECT MILESTONE SCHEDULE
The parties shall use their best efforts to meet the Target Dates set out in the
following schedule.
- ------------------------------------------------------------------------------
PHASE 0 PROJECT SCHEDULE
- ------------------------------------------------------------------------------
NUMBER ITEM DESCRIPTION TARGET DATE
- ------------------------------------------------------------------------------
001 Telaxis to provide to Supplier [***]
missing information
- Phase 0 Product specifications
- Phase 0 Product qualification plan
- Phase 0 PWB function test procedure
- ------------------------------------------------------------------------------
002 Telaxis pre-orders test equipment for [***]
delivery to Supplier on 10/4/99
- ------------------------------------------------------------------------------
003 Agreement execution [***]
- ------------------------------------------------------------------------------
003A Supplier staff to visit Telaxis to [***]
better understand test equipment setup
- ------------------------------------------------------------------------------
004 Prototype run for Phase 0 PWB [***]
- Supplier to ship 10 units to
Telaxis
- Supplier to retain 10 units
- Cal Amp technician to Telaxis [***]
- ------------------------------------------------------------------------------
005 Telaxis to assemble 10 complete [***]
transceivers using Supplier produced
PWBs and ship to Supplier
- ------------------------------------------------------------------------------
006 Test Equipment available at Supplier [***]
facility [***]
- ------------------------------------------------------------------------------
007 Supplier and Telaxis to commission [***]
test equipment at Supplier facility
- ------------------------------------------------------------------------------
008 Supplier to produce 10 transceivers [***]
using Supplier produced PWB ship to
Telaxis for evaluation
- ------------------------------------------------------------------------------
009 Start pilot run 50 unit target [***]
- 25 units into Supplier design
verification testing
- 25 units to Telaxis for evaluation
- ------------------------------------------------------------------------------
010 Production start [***]
- ------------------------------------------------------------------------------
011 Ramp to 100 units / week [***]
- ------------------------------------------------------------------------------
012 Ramp to 200 units / week [***]
- ------------------------------------------------------------------------------
[***] Confidential Treatment Requested.
Page 11 of 15
<PAGE>
SCHEDULE 2 (CONTINUED)
PROJECT MILESTONE SCHEDULE
- ------------------------------------------------------------------------------
PHASE 2 PRODUCT DEVELOPMENT SCHEDULE
- ------------------------------------------------------------------------------
NUMBER ITEM DESCRIPTION TARGET DATE
- ------------------------------------------------------------------------------
001 Supplier to provide schedule in [***]
greater detail
- ------------------------------------------------------------------------------
002 Partition design into sub-system [***]
blocks
- ------------------------------------------------------------------------------
003 Telaxis and Supplier to finalize [***]
frequency plan
- ------------------------------------------------------------------------------
003 Complete design of sub-system blocks [***]
- ------------------------------------------------------------------------------
004 Test sub-system blocks [***]
- ------------------------------------------------------------------------------
005 Integrate sub-system blocks and [***]
develop prototype 1
- ------------------------------------------------------------------------------
006 Develop prototype 2 [***]
- ------------------------------------------------------------------------------
007 Tooling first article [***]
- ------------------------------------------------------------------------------
008 Pilot run [***]
- ------------------------------------------------------------------------------
009 Design verification testing and [***]
process optimization
- ------------------------------------------------------------------------------
009 Production start [***]
- ------------------------------------------------------------------------------
012 Ramp to 200 units / week [***]
- ------------------------------------------------------------------------------
[***] Confidential Treatment Requested.
Page 12 of 15
<PAGE>
SCHEDULE 3
ACCEPTANCE TEST PLAN
Production verification testing of Products shall be performed by the Supplier
in accordance with a mutually-agreed production test protocol to verify that the
product has been manufactured and assembled in a manner consistent with the
approved design. The basis for the test protocol shall be the test matrix to be
finalized by the parties prior to Release to Manufacturing.
[***]
Commercial terms and conditions in this Agreement are based on the following
information provided by Milliech to Supplier:
[***]
[***] Confidential Treatment Requested.
Page 13 of 15
<PAGE>
SCHEDULE 4
PRODUCT SPECIFICATIONS
Phase 0 Product is the current design of BWA Transceivers which Telaxis
manufactures.
Phase 2 Product is Supplier's cost reduced PWB design, new design for housing
and cover to accommodate revised floor plan of cost reduced PWB, revised
design of millimeter wave board from Telaxis integrated to form a cost
reduced BWA Transceiver with substantially the same specifications as
Phase 0 product
Translator PWB is the microwave circuit PWB used in Phase 2 Product
Product and Products means any and all of the above products.
The parties acknowledge that Phase 2 and Translator PWB are development efforts
with a goal of cost reduction to Phase 0 Product. The parties acknowledge that
specifications for these products may change based on decisions made by mutual
agreement during the development process.
[***]
[***] Confidential Treatment Requested.
Page 14 of 15
<PAGE>
SCHEDULE 5
MATERIAL SUPPLIED BY SUPPLIER
None currently. May be amended from time to time upon mutual agreement by
Supplier and Telaxis.
Page 15 of 15
<PAGE>
Exhibit 10.23
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding is being signed on December 20th, 1999
between Telaxis Communications Corporation, 20 Industrial Drive East, South
Deerfield, MA 01373 ("Telaxis") and C-MAC Industries Inc., 1010 Sherbrooke
Street West, Suite 1610, Montreal, Quebec H3A 2R7, CANADA ("C-MAC").
Telaxis and C-MAC have decided to explore the possibility of C-MAC
manufacturing BWA CPE transceivers, hub transmitters and receivers, and other
products ("Products") for Telaxis. The parties will negotiate a definitive
agreement in good faith with terms and conditions substantially similar to the
following on or before February 15, 2000. The parties acknowledge that the
definitive agreement will contain other terms and conditions as are customarily
found in similar agreements between companies. Section 2 of the MOU also serves
as a binding interim agreement between Telaxis and C-MAC to permit C-MAC to
manufacture Products shortly after the definitive agreement is signed.
1. The basic terms for the proposed joint activity follow:
A. C-MAC would manufacture Products in accordance with Telaxis'
specifications
B. Telaxis would provide C-MAC with the equipment needed for the
manufacture
C. Telaxis would provide C-MAC with rolling weekly forecasts for the next
6 month period
D. Deliveries for first month would be binding commitment
E. Deliveries for second month would be binding commitment subject to 25%
increase or decrease in quantity
F. Deliveries for third month would be binding commitment subject to 50%
increase or decrease in quantity
G. Deliveries for fourth, fifth, and sixth months would not be fixed
commitments
H. Telaxis would be responsible to C-MAC for the unused portion of its
material commitments not usable in another product which are scheduled
for delivery during and in quantity consistent with binding portion of
forecast or (for longer lead items) the full forecast - C-MAC to use
good faith efforts to minimize liability of Telaxis
I. Parties to work together to reduce cost of Products - if cost
reduction results from Telaxis idea, cost reduction passed on to
Telaxis - if cost reduction results from C-MAC idea, cost reduction
shared 50-50
J. Telaxis retains all ownership and proprietary rights to Products
K. 18 month Product warranty
L. Warranty service to be discussed
M. C-MAC would be given right of first refusal on any additional
manufacture outsourcing by Telaxis
N. C-MAC would not manufacture LMDS products for anyone else
<PAGE>
O. Mutual confidentiality obligation
2. To begin the familiarization process while the definitive agreement is
being negotiated and to permit C-MAC to manufacture Products shortly after
the definitive agreement is signed, Telaxis and C-MAC agree to the
following binding terms:
A. Telaxis will start buying the equipment necessary for C-MAC to
manufacture Products.
B. While the equipment is being built, C-MAC will send technicians to
Telaxis' facility for training concerning the building of the
equipment
C. Beginning in early January 2000, C-MAC will send 8-10 employees to
Telaxis' facility for an approximate three week training period
concerning manufacturing.
D. Telaxis will reimburse C-MAC for the reasonable expenses incurred by
its employees for travel, room and board while those employees are at
Telaxis' facilities. In addition, Telaxis will pay C-MAC an hourly
rate for those employees based on direct salary and benefits without a
profit or overhead component.
TELAXIS COMMUNICATIONS C-MAC INDUSTRIES INC.
CORPORATION
By: /s/ Mervyn FitzGerald By: /s/ Paul Campbell
---------------------- ------------------
Name: Mervyn FitzGerald Name: Paul Campbell
Title: SVP Operations Title: Plant Manager
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated March 5, 1999, except for Note 2 as to which the date is
August 24, 1999, Note 19 as to which the date is October 18, 1999, and Note 20
as to which the date is December 16, 1999, relating to the financial statements
of Telaxis Communications Corporation (formerly known as Millitech
Corporation), which appears in such Registration Statement. We also consent to
the references to us under the headings "Experts" and "Selected Financial Data"
in such Registration Statement.
PricewaterhouseCoopers LLP
Hartford, Connecticut
January 10, 2000
