<PAGE> 1
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1999
REGISTRATION NO. 333-76385
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PARADYNE NETWORKS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 3670 75-2658219
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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8545 126TH AVENUE NORTH
LARGO, FLORIDA 33773
(727) 530-2000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------------
JAMES L. SLATTERY
SENIOR VICE PRESIDENT, CHIEF LEGAL AND INTELLECTUAL PROPERTY OFFICER AND
CORPORATE SECRETARY
PARADYNE CORPORATION
8545 126TH AVENUE NORTH
LARGO, FLORIDA 33773
(727) 530-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
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KENNETH L. GUERNSEY BRYAN E. DAVIS
SUZANNE SAWOCHKA HOOPER ADAM V. BATTANI
LAURA A. BEREZIN ASHLEY E. HUFFT
PAUL D. HUIE ALSTON & BIRD LLP
COOLEY GODWARD LLP ONE ATLANTIC CENTER
FIVE PALO ALTO SQUARE 1201 WEST PEACHTREE STREET
3000 EL CAMINO REAL ATLANTA, GA 30309-3424
PALO ALTO, CA 94306 (404) 881-7000
(650) 843-5000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement
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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, as amended (the "Securities Act") check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) of the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier 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. [ ]
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY U.S. FEDERAL SECURITIES LAW TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
SUBJECT TO COMPLETION -- JUNE , 1999
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PROSPECTUS
, 1999
[LOGO]
6,000,000 SHARES OF COMMON STOCK
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PARADYNE NETWORKS, INC.:
- - We make products and provide services to facilitate high speed transmission of
information over conventional telephone lines.
- - Paradyne Networks, Inc.
8545 126th Avenue North
Largo, Florida 33773
(727) 530-2000
PROPOSED TRADING SYMBOL & MARKET:
- - PDYN/Nasdaq
THE OFFERING:
- - We are offering 4,000,000 shares of our common stock.
- - A group of stockholders is offering an additional 2,000,000 shares.
- - The underwriters have an option to purchase an additional 900,000 shares from
these stockholders to cover over-allotments.
- - This is our initial public offering, and no public market currently exists for
our shares. We anticipate that the initial public offering price will be
between $12.00 and $14.00 per share.
- - Closing: , 1999.
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Per Share Total
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Public offering price: $ $
Underwriting fees:
Proceeds to Paradyne:
Proceeds to the selling stockholders:
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</TABLE>
This investment involves risk. See "Risk Factors" beginning on page 4.
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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.
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DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN
RAUSCHER INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
The undersigned is facilitating Internet distribution.
DLJDIRECT INC.
<PAGE> 3
INSIDE COVER GRAPHICS:
- Diagram depicting customers using Paradyne broadband access solutions to
connect to the Internet and corporate intranets.
The graphic is entitled "Paradyne Broadband Access Solutions" with a
statement at the bottom "High-Speed Access and Service Level Management.
Changing the Way the World Communicates."
Diagram includes the following description of these solutions:
- Frame Relay Service Level Management. Our FrameSaver solution enables
Frame Relay service providers to offer high-speed service, managed
end-to-end. It also enables customers to graphically view real-time and
historical network performance statistics, and trouble-shoot failures
across the Frame Relay network from our Open Lane network management
system.
- High-Speed DSL for Voice and Data. Our Hotwire solution delivers
broadband DSL access across the existing phone line. Hotwire products
enable network service providers to offer broadband access to business
customers and teleworkers at lower rates than conventional services.
- Network Service Providers. The final mile ends at the local central
office, where access lines converge into a high-speed fiber-optic network
called a "backbone" network.
- Business Voice and Data. Our NextEdge products are used by network
service providers and businesses to offer integrated voice and data
services, plus managed Frame Relay services. NextEdge access
consolidation reduces high-speed access costs, and may increase
performance when consolidating narrowband lines into broadband
facilities.
- Small Business and Residential Voice and Data. The SuperLine System
integrates voice and broadband data services for the residential and
small office/home office markets. SuperLine provides up to three phone
lines and high-speed internet access over a single telephone line.
- Diagram and photographs depicting Paradyne Hotwire DSL solutions
connecting customers' voice and data to the public switched telephone
network and to the Internet over the copper local loop.
The graphic is entitled "Paradyne Hotwire DSL Systems, Broadband for the
Last Mile." The graphic includes the following description:
- High-Speed Access for Business and Residential Users. Our Hotwire
solution delivers broadband DSL access across the copper wire last mile.
Hotwire products enable network service providers to provide broadband
access to business customers, teleworkers and residential customers at
reduced rates compared to conventional service offerings. In addition,
our Hotwire solution allows network service providers the ability to
deploy a broad array to serve a wider array of customers, and also allows
for a more efficient utilization of expensive control office equipment
space.
- Diagram and photographs depicting Paradyne FrameSaver customer premise
equipment and service level management network management screens.
The graphic is entitled "Paradyne FrameSaver System, Broadband Service
Level Management." The graphic includes the following description:
- Optimizing End-to-End Network Performance. The FrameSaver solution
enables network service providers to offer managed high-speed service
from end-to-end across their networks and across multicarrier networks.
With an SLM solution, the network service provider and the business
customer can proactively manage and guarantee the level of service across
the network. The FrameSaver solution allows customers to graphically view
real-time and historical network performance statistics and troubleshoot
failures end-to-end across the Frame Relay network from our OpenLane
network management system.
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Prospectus Summary...................... 1
Risk Factors............................ 4
Special Note Regarding Forward-Looking
Statements............................ 15
Use of Proceeds......................... 16
Dividend Policy......................... 16
Company Information..................... 16
Capitalization.......................... 17
Dilution................................ 18
Selected Consolidated Financial Data.... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 20
</TABLE>
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PAGE
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Business................................ 32
Management.............................. 52
Certain Transactions.................... 61
Principal and Selling Stockholders...... 70
Description of Capital Stock............ 72
Shares Eligible for Future Sale......... 73
Underwriting............................ 75
Legal Matters........................... 78
Experts................................. 78
How to Get Additional Information About
Paradyne.............................. 78
Index to Financial Statements........... F-1
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<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary is not complete and does not contain all of the
information that you should consider before buying shares in this offering. We
urge you to read the entire prospectus carefully. Unless stated otherwise, the
information contained in this prospectus assumes that the Underwriters'
over-allotment option to purchase 900,000 shares from the selling stockholders
is not exercised and assumes a one-for-two reverse split of our common stock to
be effected prior to the closing of this offering.
OUR BUSINESS
We are a leading developer, manufacturer and distributor of broadband, or
high-speed digital, and narrowband, or conventional analog, communications
products for network service providers and business customers. We offer
cost-effective hardware and software products that enable business class,
service level managed, high-speed connectivity over the existing telephone
network infrastructure. We believe that demand for high-speed, broadband
transmission will continue to increase as more business and residential users
find narrowband access technologies inadequate to meet their high-speed
requirements. Our objective is to maintain and build upon our position as one of
the leaders in the broadband access market by focusing on next generation
digital subscriber line, more commonly known as DSL, service level management,
more commonly known as SLM, and other broadband access products. We have a long
history of technological innovation, and we hold over 155 U.S. patents and have
over 100 U.S. patent applications pending. We have sold our products to over 50%
of the Fortune 500 companies and to businesses and network service providers in
over 125 countries.
Since 1996, various DSL products and technologies have been introduced into
the market to increase the speed and reduce the complexity of deploying high
speed data and voice services over the traditional copper telephone
infrastructure. DSL products are installed on each end of a telephone line and
simultaneously permit high-speed data transmission and voice services. The
advantages of DSL include the ability to be deployed on the existing copper
infrastructure worldwide, to operate at higher speeds for less cost, and to
allow network service providers to offer services that are "always-on" and don't
require the user to initiate a new connection each time the service is used.
Since 1996, various SLM products and technologies have been developed to
allow network managers to obtain critical information regarding the performance
of their networks. Frame Relay is a technology that puts data into packets, or
envelopes, and transports the data across a network that is shared by many
customers. In many cases, SLM technology allows network managers who purchase
shared data services, such as Frame Relay, to obtain information about their
portion of the shared service. Before SLM, this information was unavailable and
network managers were not able to confidently evaluate the performance of
critical applications over shared services.
Over the past several years, data traffic generated by computer users
accessing the Internet or business networks has increased significantly and is
expected to continue in the future. As a result of changes in the
telecommunications industry and the increased demand for high-speed
transmission, network service providers are requiring flexible solutions that
meet their current needs and permit easy, cost-effective enhancements in the
future.
Our current hardware and software products include the following:
- Broadband DSL. Our Hotwire hardware products deliver broadband DSL
access across the existing copper wire infrastructure, more commonly
known as the local loop. Our Hotwire products enable network service
providers to provide broadband access services to business customers,
teleworkers and residential customers at substantially reduced rates
compared to conventional service offerings. The recently introduced
SuperLine system was jointly developed by Paradyne and AG Communications
Systems. Superline incorporates Paradyne's Tripleplay technology that
allows network service providers to offer cost effective, multiple line
voice and high speed data services over a single traditional telephone
line to residential customers, small offices and home offices.
1
<PAGE> 6
- Broadband Service Level Management. The FrameSaver solution consists of
a suite of software and hardware products that enable customers to view
performance statistics and troubleshoot failures across the Frame Relay
network.
- Broadband Conventional Access. Our Acculink and NextEdge products enable
network service providers and business customers to offer cost-effective,
service level managed, high-speed access to public and private networks.
- Narrowband Products. Introduced in the early 1990s, our Comsphere modems
enable network service providers and business customers to build
low-cost, centrally managed networks over dial up or dedicated analog
circuits.
The end-users of our equipment are primarily network service providers and
business customers. Network service providers use our broadband products to
enable high speed managed connections between the network service providers'
central office and the customer premise. Moreover, our broadband products enable
network service providers to more efficiently provide network access services by
allowing a high level of management, monitoring and control over network access
equipment and circuits. Business customers use our broadband products for
high-speed connections of voice and data communications to connect their
employees to corporate networks and to the Internet using both public services
and private leased line services provided by network service providers. We sell
our products worldwide through a multi-tier distribution system that includes
direct sales, strategic partner sales, network service provider sales and
traditional distributor or value added reseller sales. Our network service
providers and business customers include AT&T, Ameritech, Bank of America, First
Union, Lucent, NTT, Rhythms, SITA, Sprint and Unisys.
Paradyne Corporation was originally incorporated in Delaware in 1969,
acquired by AT&T in 1989 and spun out of AT&T as part of Lucent Technologies in
1996. In July 1996, a limited partnership controlled by the Texas Pacific Group
acquired Paradyne Corporation and formed Paradyne Acquisition Corp. as a holding
company to hold the shares of common stock of Paradyne Corporation. In June
1999, Paradyne Acquisition Corp. changed its name to Paradyne Networks, Inc.
Throughout this prospectus, unless otherwise specifically indicated references
to "Paradyne," "we," and "us" refer to Paradyne Networks, Inc., Paradyne
Corporation, our operating company subsidiary, and all other consolidated
subsidiaries. Our corporate headquarters are located at 8545 126th Avenue North,
Largo, Florida 33773. Our telephone number is (727) 530-2000.
THE OFFERING
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Common stock offered by Paradyne............. 4,000,000 shares
Common stock offered by the selling
stockholders............................... 2,000,000 shares
Over-allotment option........................ 900,000 shares
Common stock to be outstanding after the
offering................................... 30,312,508 shares (1)
Use of proceeds.............................. We intend to use the net proceeds to Paradyne
from the offering to repay indebtedness and
for general corporate purposes, including
working capital and capital expenditures. We
will not receive any proceeds from the shares
sold by the selling stockholders. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol....... PDYN
</TABLE>
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(1) Based on the number of shares outstanding as of May 15, 1999. Assumes no
exercise of stock options after that date. Options to purchase 3,621,948
shares of common stock with a weighted average exercise price of $3.45 per
share were outstanding as of May 15, 1999.
2
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
You should read the following summary consolidated financial data for
Paradyne together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and notes thereto included elsewhere in this prospectus. The as adjusted balance
sheet data assumes the sale by us of 4,000,000 shares of our common stock in
this offering at an assumed offering price of $13.00 per share after deducting
the underwriting discounts and commissions and estimated offering expenses and
the application of the net proceeds therefrom. See "Capitalization" and "Use of
Proceeds."
<TABLE>
<CAPTION>
YEARS ENDED QUARTERS ENDED
DECEMBER 31, ---------------------------------------------------------------
------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1997 1998 1998 1998 1998 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENTS OF
OPERATIONS DATA:
Total revenues........ $181,303 $198,801 $ 43,039 $ 46,218 $ 51,384 $ 58,160 $54,062
Gross margin.......... 89,815 90,260 20,992 22,214 22,471 24,583 24,096
Operating income
(loss).............. (15,580) (1,825) (972) (1,226) (174) 547 1,465
Net income
(loss)(1)........... 21,342 (3,645) (1,151) (1,397) (339) (758) 2,368
Income (loss) per
common share:
Basic............... $ 0.84 $ (0.14) $ (0.04) $ (0.05) $ (0.01) $ (0.03) $ 0.09
Diluted............. 0.81 (0.14) (0.04) (0.05) (0.01) (0.03) 0.09
Shares used in
computing
income (loss) per
share:
Basic............... 25,552 25,623 25,602 25,610 25,627 25,663 25,893
Diluted............. 26,291 25,623 25,602 25,610 25,627 25,663 27,227
</TABLE>
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AS OF MARCH 31, 1999
----------------------
ACTUAL AS ADJUSTED
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,634 $ 39,555
Working capital............................................. 12,489 59,849
Total assets................................................ 76,497 113,418
Total debt.................................................. 11,228 789
Total stockholders' equity.................................. 30,307 77,667
</TABLE>
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(1) Net income for 1997 includes a $51.2 million non-recurring gain in
connection with the renegotiation of a contract with Lucent.
3
<PAGE> 8
RISK FACTORS
This offering and an investment in our common stock involve a high degree
of risk. Please carefully consider the following risk factors and the other
information in this prospectus before deciding to purchase shares of our common
stock. Any of the following risks could seriously harm our business and results
of operations. As a result, the trading price of our common stock could decline,
and you could lose part or all of your investment.
RAPID TECHNOLOGICAL CHANGE COULD RENDER OUR PRODUCTS OBSOLETE
The telecommunications and data communications markets are characterized by
rapid technological change. Our success will depend on our ability to adapt and
to respond to technological changes. If we fail to keep pace with technological
change, our product sales could suffer.
Our existing products could become obsolete or unmarketable as a result of
the emergence of new industry standards or customer demands. For example, our
customers could determine that they no longer require service level management,
or SLM, with network access products. Furthermore, our products could become
obsolete or unmarketable as a result of any new technology or products which are
superior to ours. We may be unable to compete effectively if we are unable to
adapt to changes in industry standards, meet customer demands or develop new
products or enhancements to existing products.
Our products compete with numerous high-speed access technologies,
including cable modems, satellite technology and other wireless technologies.
These competing technologies may ultimately prove to be superior to our
products. Our products may become uncompetitive or obsolete as a result of the
development of competing technologies that are more reliable, faster and less
expensive than our technology. For example, substantially all of our products
are deployed in networks that use standard copper telephone wires. The physical
properties of copper wire limit the speed and distance over which data can be
transmitted. Service levels degrade as distance from the central switching
station increases. Other competing technologies, such as wireless and cable are
not subject to such limitations.
OUR SUCCESS WILL DEPEND ON THE ACCEPTANCE OF NEW TELECOMMUNICATIONS SERVICES
BASED ON DSL
Our future success is substantially dependent upon whether DSL technology
gains widespread market acceptance by network service providers, or NSPs, and
end users of their services. If DSL technology fails to gain widespread
acceptance, our revenues and results of operations may be adversely affected.
Historically, we focused on providing innovative solutions to the narrowband
access market. We, however, are increasingly focusing on the broadband access
market. We have invested substantial resources in the development of DSL
technology, and many of our products are based on DSL technology. Many NSPs
continue to evaluate DSL technology and other alternative high-speed data access
technologies, but they may not continue to pursue the deployment of DSL
technology. Even if NSPs adopt policies favoring full-scale deployment of DSL
technology, they may not choose to purchase our DSL product offerings. In
addition, we have limited ability to influence or control decisions made by
NSPs. NSPs are continuously evaluating alternate high-speed data access
technologies and may, at any time, adopt technologies other than the DSL
technologies offered by us.
WE ARE SUBSTANTIALLY DEPENDENT ON NETWORK SERVICE PROVIDERS, WHO MAY REDUCE OR
DISCONTINUE THEIR PURCHASE OF PRODUCTS OR SERVICES AT ANY TIME
We estimate that sales to NSPs accounted for approximately 40% of our total
revenues in 1998. If our NSP customers are forced to defer or curtail their
capital spending programs, we could lose, or experience delays or reductions in
significant sales to such customers. Given the capital requirements, complex
regulatory framework and other barriers to entry in the market, there are a
limited number of NSPs. The market for many of the services provided by NSPs has
only begun to emerge since the passage of the Telecommunications Act of 1996 and
many NSPs are still building their infrastructure and rolling out their
services. Many of these NSPs still need to develop, construct and expand their
networks. The inability of our emerging NSP customers to complete development of
their networks, attract or retain customers, respond to trends, such as price
reductions for their services or diminished demand for telecommunications
services generally, could cause them to reduce their capital spending programs.
4
<PAGE> 9
Generally, our NSP customers do not have an obligation to purchase
additional products or services from us. Termination of purchase arrangements
with these NSP customers or a significant reduction or delay in the amount of
our products they order could materially and adversely affect our revenues. In
addition, the telecommunications industry has recently experienced
consolidation, which may cause us to lose NSP customers. The loss of one or more
of our NSP customers could also materially and adversely affect our revenues.
OUR SUCCESS DEPENDS ON NETWORK SERVICE PROVIDERS INCORPORATING OUR PRODUCTS INTO
THEIR INFRASTRUCTURE
We anticipate that a significant portion of our future revenues will be
attributable to sales to NSPs of our DSL, SLM and other broadband products. Our
future performance will therefore be substantially dependent on incorporation of
our products by NSPs into their service offerings to subscribers. The failure of
our products to become an accepted part of NSPs' service offerings or a slower
than expected increase in the volume of sales by us of SLM products could
materially and adversely affect our revenues. Our success in the NSP market will
depend on numerous factors, many of which are outside our control. Some of these
factors include:
- NSP and subscriber acceptance of and satisfaction with our products;
- the realization of operating cost efficiencies for NSPs when SLM products
are deployed and our ability to demonstrate these operational benefits;
- subscriber demand for our products and support for our products within
the NSPs' sales force;
- our successful development of systems and products that address the
requirements for products deployed as part of an NSP's infrastructure;
- the timing and successful completion of integration development work by
NSPs to incorporate our SLM functionality into their operational support
system; and
- the absence of new technologies that make our products and systems
obsolete before they can achieve broad acceptance.
VARIOUS FACTORS COULD CAUSE OUR RESULTS TO FLUCTUATE
Paradyne's quarterly and annual results of operations have fluctuated in
the past and are likely to fluctuate significantly in the future due to a
variety of factors, many of which are outside of our control. Fluctuations in
our results could cause our stock price to decline substantially. Some of these
factors that might affect our results of operations include:
- - The timing and amount of, or cancellation or rescheduling of, orders for our
products and services to existing and new customers. This may adversely affect
our operating results in any particular quarter if we were unable to recognize
revenue for a particular sale in the quarter in which such sale was expected.
- - Our ability to develop, introduce, ship and support new products and product
enhancements and manage product transitions on a timely basis. Our failure to
accomplish these tasks could render our products obsolete or non-competitive,
particularly since technology in our industry changes often. As a result,
customers may decide to purchase competitive products, which could cause our
revenues to suffer.
- - Announcements, new product introductions and reductions in price of products
offered by our competitors. These events could also cause our customers to
decide to purchase the products of our competitors which would adversely
affect our revenues and, therefore, our results of operations. Also, we may
feel it necessary to reduce prices of our products, which could impact
operating margins and net income.
- - Our ability to achieve cost reductions. As with all companies, we constantly
strive to improve our margins through reductions in our cost of sales. Failure
to reduce our costs could reduce our margins which in turn could adversely
affect our ability to operate profitably.
5
<PAGE> 10
- - Our ability to obtain sufficient supplies of sole or limited source components
for our products. If we cannot obtain components for our products, we may be
unable to produce sufficient quantities of our products to meet demand. As a
result, our revenues could be adversely affected. This is particularly true
with respect to obtaining sole or limited source components because
replacements sources, if any, will take time to identify.
- - The timing and rate of deployment of our products by NSPs. The timing and rate
of deployment by NSPs can affect sales of products to these NSPs and, in turn,
our operating results.
- - Preferential pricing arrangements. We have preferential pricing arrangements
with some of our customers. In our effort to win new business we may negotiate
preferential pricing arrangements in the future with other customers. While
these arrangements are intended to provide greater revenue, they will have a
negative impact on our margins. Furthermore, because our strategy relies on
entering into these arrangements in the future, if we fail to do so, our
results could be below expectations.
- - Our ability to attain and maintain production volumes and quality levels for
our products. Many factors could affect our ability to maintain production
volumes and quality levels. They include an inability to obtain raw materials
or components, labor shortages, and the maintenance of adequate facilities for
production. If we fail to maintain production volumes or quality level we may
be unable to produce sufficient quantities of our products to meet demand,
which would adversely affect our revenues.
- - The mix of products sold and the mix of distribution channels through which
they are sold. The mix of products sold can adversely affect our results
because we have some products with higher margins than others. If we fail to
successfully sell our higher margin products, our gross margins may be lower
than expected. In addition, some distribution channels have higher costs
associated with sales. As a result, the mix of distribution channels may
adversely affect operating income.
- - Fluctuations in demand for our products and services, especially by our major
customers. Because we are highly dependent on sales to a relatively small
numbers of customers, changes in demand from those customers can have a
disproportionately large effect on our revenues and results of operations. For
example, direct product sales to, and services performed for, Lucent
constituted 35% of our total revenues in 1998. If Lucent's demand for our
products in 1999 or in future years were to decline, our revenues would
suffer.
- - Expiration of favorable supply or purchase contracts. For example, we
currently have a supply agreement with Lucent under which we are the exclusive
supplier through June 2001 of Lucent's requirements for stand alone network
access products for resale. As a result, Lucent must purchase these products
from us. After the expiration of that agreement, we may be unable to negotiate
a new supply agreement. If we are unable to negotiate a new supply agreement,
Lucent could enter into a supply agreement with another party or purchase
these products from multiple providers. In either case, our sales of these
products would decline substantially.
- - Costs relating to possible acquisitions and integration of technologies or
businesses. The costs to acquire technologies and businesses is substantial.
In addition to the direct costs, there are significant indirect costs related
to integration of personnel and technologies and potential product redesign.
These costs may decrease operating income or increase operating loss if they
are not offset by comparable increases in revenue.
In addition conditions in the telecommunications market, including
consolidation in the industry, and economic conditions generally could adversely
affect both our revenues and costs. Due to these and other factors,
period-to-period comparisons should not be relied upon as indications of future
performance. It is possible that in some future periods, our operating results
and/or our growth rate will be below what public market analysts and investors
expect.
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WE MAY NOT ACHIEVE REVENUE GROWTH OR PROFITABILITY
We cannot be certain that we will continue to achieve revenue growth or
realize sufficient revenues to achieve profitability. Excluding a one-time gain
in connection with a contract renegotiation with Lucent in 1997 and the related
tax effect, we had an accumulated net deficit of approximately $37.2 million
during the period from August 1, 1996 through December 31, 1998. We have not
been profitable in any fiscal year of operations except in 1997 when we were
profitable as a result of the non-recurring gain in connection with the
renegotiation of a contract with Lucent. We anticipate that we will continue to
incur significant product development and selling, general and administrative
expenses and, as a result, we will need to generate higher revenues to achieve
and sustain profitability on an annual basis.
OUR DEPENDENCE ON ONLY A FEW MAJOR CUSTOMERS FOR A SUBSTANTIAL PORTION OF OUR
REVENUES EXPOSES US TO FINANCIAL RISKS
We depend on a small number of customers for a substantial portion of our
revenues. As a result, a loss or a significant reduction or delay in sales to
any of our major customers could materially and adversely affect our revenues.
Direct product sales to Lucent and services performed for Lucent in 1998
accounted for approximately 35% of our total revenues. Sales to Tech Data
Corporation, a distributor, in 1998 accounted for approximately 15% of our total
revenues. We estimate that approximately 70% of our sales to Tech Data
represented products that were resold to Lucent. Collectively, we estimate that
direct and indirect sales to Lucent accounted for approximately 47% of our total
revenues in 1998 and 30% in the first quarter of 1999. Sales to SITA, an NSP, in
1998 accounted for approximately 9% of our total revenues in 1998 and 8% in the
first quarter of 1999, and sales to Rhythms, also an NSP, accounted for
approximately 6% of our total revenues in 1998 and 24% in the first quarter of
1999. Unless and until we diversify and expand our customer base, our future
success will significantly depend upon certain factors which are not within our
control, including:
- the timing and size of future purchase orders, if any, from our larger
customers;
- the product requirements of our customers;
- the financial and operational success of our customers; and
- the success of our customers' services deployed using our products.
Diversification and expansion of our customer base is particularly critical
because of the highly competitive nature of our business. Our contracts are
generally subject to annual renewal with the exception of our contracts with
Lucent and several other customers, which have two to five year terms, and our
customers generally do not have any obligation to purchase products solely from
Paradyne. Under a supply agreement between Lucent and Paradyne, Paradyne is the
exclusive supplier of Lucent's requirements for stand alone network access
products, such as our FrameSaver products, for resale through June 2001.
WE COMPETE IN HIGHLY COMPETITIVE MARKETS AND COMPETITION COULD HARM OUR ABILITY
TO SELL PRODUCTS AND SERVICES
The telecommunications market is highly competitive. We compete directly
with other providers of broadband and narrowband access equipment. If we are
unable to compete effectively in the market for our products or services, our
revenue and future profitability could be materially and adversely affected. We
believe that competition may increase substantially as the introduction of new
technologies, deployment of broadband networks and potential regulatory changes
create new opportunities for established and emerging companies in the industry.
We expect that competition for products that address the broadband access market
will grow as more established and new companies focus on this market.
Many of our current and potential competitors are larger than we are and
have significantly greater financial, sales and marketing, technical,
manufacturing and other resources and more established channels of distribution.
As a result, these competitors may be able to respond more rapidly to new or
emerging technologies and changes in customer requirements, or to devote greater
resources to the development,
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promotion and sale of their products. Our competitors may enter our existing or
future markets with solutions that may be less costly, provide higher
performance or additional features or be introduced earlier than our solutions.
Our markets are characterized by increasing consolidation both within the
data communications sector and by companies combining or acquiring data
communications products and technology for delivering voice-related services, as
exemplified by the recently announced acquisitions of Ascend by Lucent, Diamond
Lane by Nokia and Xylan by Alcatel. We cannot be sure of the impact of any of
these acquisitions on the competitive environment for our products. Increased
competition and consolidation could result in price reductions and a decrease in
our market share.
OUR DEPENDENCE ON DEVELOPMENT RELATIONSHIPS COULD THREATEN OUR ABILITY TO SELL
PRODUCTS
Our success is dependent upon our continued relationship with certain
companies, including AG Communications Systems, Ascend, GlobeSpan, NetScout and
Xylan. If any of these companies breaches or terminates its agreement or fails
to perform its obligations under its agreement, we might not be able to sustain
or grow our business. In particular, if any of these companies, other current
corporate partners or future corporate partners discontinue their support of
products that we have developed in cooperation with them, fail to continue to
develop product enhancements required to meet customer demand, fail to
appropriately address performance issues related to products that we have
developed in cooperation with them, face claims of infringement of third party
intellectual property rights with respect to the technology included in products
that we have developed in cooperation with them or fail to continue to support
joint marketing programs, our ability to sell products that we have developed in
cooperation with them would be hampered. Additionally, in the event that any of
our significant relationships are terminated, we may not be able to replace them
in a timely manner, if at all.
For a further discussion of our corporate development relationships with AG
Communications Systems, Ascend, GlobeSpan, NetScout and Xylan please refer to
"Business -- Corporate Development Relationships."
OUR ABILITY TO SUSTAIN OR GROW OUR BUSINESS MIGHT BE HARMED IF WE LOSE SALES OF
ACCESS PRODUCTS TO LUCENT
We have a relationship with Premisys Communications through which we have
exclusive distribution rights through April 2005 for Premisys' IMACS system,
which we market to Lucent and AT&T under the name Acculink Access Controller. We
have also entered into a supply and exclusivity agreement with Lucent under
which we are the exclusive supplier of Lucent's requirements for various access
products, such as the Acculink Access Controller, for resale through June 2001.
Sales of Acculink Access Controller accounted for greater than 10% of our total
revenues during each of 1997 and 1998. Our revenues would be adversely affected
if Premisys fails to meet its obligations under the agreement or if Lucent or
AT&T were to substantially reduce or discontinue their orders of Acculink Access
Controller.
For a further discussion of our marketing and distribution relationship
with Premisys please refer to "Business -- Sales, Marketing and Distribution."
WE DEPEND ON SOLE AND SINGLE SOURCE SUPPLIERS WHICH EXPOSES US TO POTENTIAL
SUPPLY INTERRUPTION
We currently purchase a number of important parts, such as framers,
semiconductors and embedded communications processors, from sole source vendors
for which alternative sources are not currently available. Delays or
interruptions in the supply of these components result in delays or reductions
in product shipments. The purchase of these components from outside suppliers on
a sole source basis subjects us to risks, including the continued availability
of supplies, price increases and potential quality assurance problems. We
currently purchase key components for which there are currently no immediate
substitutes available from approximately 45 vendors. All of these components are
critical to the production of our products. While alternative suppliers may be
available to us, we must first identify these suppliers and qualify them. We
cannot be certain that any such suppliers will meet our required qualifications
or that we will be able to identify alternative suppliers in a timely fashion,
if at all. We may not be able to obtain sufficient
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quantities of these components on the same or substantially the same terms.
Consolidations involving suppliers could further reduce the number of
alternatives for us and affect the cost of such supplies. An increase in the
cost of such supplies could make our products less competitive with products
which do not incorporate such components. Lower margins or less competitive
product pricing could materially and adversely affect our business, financial
condition and results of operation.
OUR SALES CYCLE IS TYPICALLY LONG AND UNPREDICTABLE
Our business is subject to lengthy sales cycles. As a result, we may not
recognize revenues from the sale of our products for long periods of time.
Delays in product testing or approval, or cancellations of orders by customers,
especially our NSP customers, could materially and adversely affect our
revenues. On average, our sales cycle ranges from six to nine months. Sales of
our products require a substantial commitment of capital and time from our
customers, many of whom have lengthy internal procedures for approving large
capital expenditures and lengthy testing and decision-making processes. Before
our NSP customers purchase products from us, they must first make a decision to
standardize their service on a particular product, which involves extensive
testing. Our sales cycle may be slowed further, or affected by, budgetary
constraints and purchasing requirements of our customers, all of which are
beyond our control. Moreover, sales of our products often require significant
training of both our customers and end users before the decision to purchase. As
a result, we may expend significant resources pursuing potential sales
opportunities that will not be consummated.
BECAUSE OF OUR LONG PRODUCT DEVELOPMENT PROCESS, WE INCUR SUBSTANTIAL EXPENSES
BEFORE WE EARN ASSOCIATED REVENUES
In order to remain competitive, we invest significant resources toward
research and development of our current and potential products. Development
costs and expenses are incurred before we generate any revenues from sales of
products resulting from these efforts. Our current or future customer base may
not purchase any products resulting from our current or future development
efforts.
A FAILURE BY US TO PROTECT OUR TECHNOLOGY MAY ADVERSELY AFFECT OUR ABILITY TO
COMPETE
Our success and ability to compete is substantially dependent upon our
technology. A failure to protect our technology could result in competitors
offering similar products potentially resulting in a loss of competitive
advantage and decreased revenues. We rely on a combination of patent, copyright
and trade secret laws and non-disclosure agreements to protect such technology.
Currently, we hold over 155 United States patents and have over 100 United
States patent applications pending. In addition, we hold certain corresponding
foreign patents and have certain corresponding foreign patent applications
pending. However, we cannot be certain that patents will be issued with respect
to any of our pending or future patent applications. In addition, we do not know
whether any of our issued patents will be upheld as valid or that they will
prevent the development of competitive products.
We seek to protect our intellectual property rights by limiting access to
the distribution of our software, documentation and other proprietary
information. If any third parties infringe our proprietary rights, such
infringement could materially and adversely affect our competitive positions. As
with our issued patents, we cannot be certain that the steps we have taken to
protect our intellectual property will adequately prevent the misappropriation
of any of our technology. Our competitors may independently develop technologies
that are substantially equivalent or superior to our technologies. In addition,
the laws of certain foreign countries do not protect our proprietary rights to
the same extent as do the laws of the United States. Third parties may attempt
to copy or reverse engineer aspects of our products or to obtain and use
information that we regard as proprietary. Accordingly, we may not be able to
protect our proprietary rights against unauthorized third-party copying or use.
We are also subject to the risk of adverse claims and litigation alleging
infringement of the intellectual property rights of others. These claims may
require us to enter into license arrangements or may result in protracted and
costly litigation, regardless of the merits of such claims. We may not be able
to obtain necessary licenses on commercially reasonable terms, if at all. From
time to time, we receive and have
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received letters from others requesting licenses or indicating that our products
may require a license. These letters are not uncommon in the industry, and these
letters are dealt with according to normal business practices. In 1999, we
received a letter from a third party patent owner alleging infringement by us of
patents. The patents referenced in this letter are also the basis for several
infringement lawsuits commenced by the patent owner to which we are not a party.
No claim has been asserted beyond this letter, but we cannot assure you that the
third party will not commence an infringement action against us. We are in the
process of investigating the allegations. If an infringement claim is brought
against us, we cannot assure you that we would prevail and any adverse outcome
could have a material adverse effect on our business, financial condition and
results of operations.
IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL AND A SKILLED WORKFORCE, WE
MAY NOT BE ABLE TO SUSTAIN OR GROW OUR BUSINESS
Our success depends to a significant degree upon the continued
contributions of the principal members of our sales, engineering and management
personnel, many of whom would be difficult to replace. The loss of such
personnel could materially and adversely affect our business, financial
condition and results of operations. Specifically, we believe that our future
success is highly dependent on our senior management, and in particular on
Andrew May, President and Chief Executive Officer. Except for agreements with
Messrs. May, Murphy and Slattery, we do not have employment contracts with our
executive officers. In any event, employment contracts would not prevent key
personnel from terminating their employment with us.
We believe that our future success will also depend highly upon our ability
to attract and retain highly-skilled customer support and product development
personnel. The market for qualified personnel in the telecommunications industry
is highly competitive, and we frequently experience difficulty in recruiting
qualified personnel. Recruiting qualified personnel is an intensely competitive
and time-consuming process.
OUR RELIANCE ON INTERNATIONAL SALES MAY MAKE US SUSCEPTIBLE TO GLOBAL ECONOMIC
FACTORS, FOREIGN TAX LAW ISSUES AND CURRENCY FLUCTUATIONS
We currently have 11 sales offices and subsidiaries in North America,
Europe and Asia through which we market and sell our products. International
sales accounted for approximately 20% of our total revenues in 1998. Our
international operations subject us to risks to which we would not otherwise be
exposed. These risks may cause our results of operations to fluctuate. For
example, sales to customers outside of the United States accounted for
approximately 30% of revenues in 1997 and 20% of revenues in 1998, respectively.
This decrease was primarily due to the decline in sales of our older narrowband
products and economic instability in Asia. Our international operations subject
us to risks to which we would not otherwise be exposed, such as:
- impact of recessions in economies outside of the United States;
- currency exchange rate fluctuations;
- political and economic instability;
- policy, legal, regulatory or other changes affecting the
telecommunications and data communications markets;
- uncertain intellectual property rights protection;
- potential adverse tax consequences;
- change in tariffs; and
- difficulties in accounts receivable collection.
OUR FAILURE TO COMPLY WITH REGULATIONS COULD AFFECT OUR PRODUCT OFFERINGS
We are subject to a significant number of communications regulations and
standards, some of which are evolving as new technologies are deployed and due
to ongoing judicial and administrative proceedings. New
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regulations or new interpretations of existing laws or regulations, or
compliance with additional existing regulations due to changes in the nature of
our products could result in significant additional cost to Paradyne. Moreover,
failure of our products to comply, or delays in compliance, with the various
existing and evolving industry regulations and standards could delay the
introduction of our products. Our products may be required to comply with
various regulations, including those promulgated by the Federal Communications
Commission ("FCC"), state public utilities commissions and various foreign
governments. Our products must comply with the Communications Act of 1934 and
the Telecommunication Act of 1996. In the United States, in addition to
complying with FCC regulations, our products are required to meet certain safety
requirements. For example, NSPs may require that our products that are located
in their facilities be network equipment building standard certified before they
purchase the products from us. Outside of the United States, our products are
subject to the regulatory requirements of each country in which the products are
manufactured or sold. These requirements vary widely, and we may be unable to
obtain on a timely basis, or if at all, necessary approvals for the manufacture,
marketing and sale of our products.
Enactment by federal, state or foreign governments of new laws or
regulations, changes in the interpretation of existing laws or regulations or a
reversal of the trend toward deregulation in the telecommunication industry
could materially and adversely affect our customers, and thereby materially and
adversely affect our business, financial condition and results of operations.
For a further discussion of the impact of governmental regulations on the
telecommunications industry, please refer to "Business -- Government
Regulations."
CHANGES TO REGULATIONS AFFECTING THE TELECOMMUNICATIONS INDUSTRY COULD REDUCE
DEMAND FOR OUR PRODUCTS
If our NSP customers are required to comply with new laws, new regulations
or new interpretations of existing laws or regulations, or if they are required
to comply with additional existing regulations due to changes in the nature of
their services, those changes could materially and adversely affect the market
for our products. A large percentage of our customers are NSPs whose voice
services, and many of their other network services, must comply with the
Communications Act of 1934, the Telecommunications Act of 1996 and regulations
prescribed by the FCC. Furthermore, most of our NSP customers' voice services
are subject to regulation by state public utilities commissions. Some of our NSP
customers are subject to foreign government regulation. Many of these federal,
state and foreign regulations continue to evolve due to ongoing judicial and
administrative proceedings, particularly those federal regulations designed to
define rights and obligations under the Telecommunications Act of 1996. For
example, the FCC is considering changes to its regulations, including those
relating to the access to copper telephone lines, the ability of customers to
install equipment at an NSP's central location and the compatibility
requirements placed upon equipment which may be run on copper telephone lines.
Furthermore, the United States Congress is considering a variety of amendments
to the Communications Act of 1934 and the Telecommunications Act of 1996.
COMPLIANCE WITH EVOLVING INDUSTRY STANDARDS COULD ADVERSELY AFFECT OUR PRODUCT
OFFERINGS
Many of our products must comply with equipment standards adopted by
national and international standards bodies. If we are required, or deem it
otherwise necessary or advisable, to comply with new standards or with
additional existing standards due to changes in standards, we may have to modify
our current or future products. The costs of any modification could materially
and adversely affect our business, financial condition and results of
operations. Compliance with these standards is important because it often
enhances the marketability of our products. Many of those standards are
influenced by industry committees that develop draft standards and technical
reports. These industry committees often include us, our customers, and our
competitors and their customers.
WE RELY HEAVILY ON DISTRIBUTORS AND RESELLERS
We estimate that in 1998 over 70% of our sales were made through
distributors and resellers. We often rely on distributors and resellers to
provide installation, training and customer support to the ultimate end users of
our products. As a result, our success depends on the continued sales and
customer support efforts of
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our network of distributors and resellers. Any reduction, delay or loss of
orders from our significant distributors or resellers could materially and
adversely affect our revenues.
OUR ABILITY TO SUSTAIN OR GROW OUR BUSINESS MAY BE HARMED IF WE ARE UNABLE TO
PROVIDE ADEQUATE CUSTOMER SUPPORT
Our ability to continue to grow our company and to retain current and
future customers depends in part upon the quality of our customer support
operations. A failure to offer adequate customer support could materially and
adversely affect our reputation or cause demand for our products to decline. Our
customers generally require significant support and training prior to the
installation and deployment of our products. Providing adequate levels of
support to our customers, requires significant expenditures of resources and
capital. As the market for high speed access devices grows and as the technology
for these devices continues to evolve, we will need to augment and improve upon
our customer support operations.
WE MAY NOT BE ABLE TO FINANCE OUR GROWTH AND CAPITAL REQUIREMENTS
Substantial working capital is required in order to fund and continue to
build our business. If we fail to do so, we will not be able to remain
competitive or continue to meet the increasing demands for our products. We
expect to use the net proceeds of this offering to repay indebtedness and for
general corporate purposes, including working capital and capital expenditures.
We may also need to spend significant amounts of cash to fund operating losses
and increases in expenses, take advantage of opportunities or respond to
developments or competitive pressures. We believe that the proceeds of this
offering, together with our existing capital resources and our revolving line of
credit facility with BankAmerica NT&SA, will allow us to meet our capital
requirements for at least the next 18 months. However, our capital requirements
depend on several factors, including the rate of market acceptance of our
products, the ability to expand our client base, the growth of our sales and
marketing efforts and other factors. If capital requirements vary materially
from those currently planned, we may require additional financing sooner than
anticipated. We cannot be certain that additional financing will be available to
us when needed or that such financing can be obtained on terms favorable to us.
If adequate funds are not available or are not available on acceptable terms, we
may be unable to develop or enhance our services, take advantage of future
opportunities or respond to competitive pressures.
THE YEAR 2000 PROBLEM MAY SEVERELY DISRUPT OUR BUSINESS, FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As is true for most companies, the Year 2000 problem creates a risk for us.
Some computers, software and other equipment include programming code in which
calendar year data is abbreviated to only two digits (e.g., 99) rather than four
digits (e.g., 1999). As a result, these systems automatically assume that the
first two digits of a calendar year are "1" and "9." Therefore, time-sensitive
functions of these systems may misinterpret dates after January 1, 2000, to
refer to the twentieth century rather than the twenty-first century (i.e., "02"
could be interpreted as "1902" rather than "2002"). The problems associated with
this design decision are commonly referred to as the "Millennium Bug," "Year
2000 problem" or "Y2K problem." If systems do not correctly recognize date
information when the year changes to 2000, there could be an adverse impact on
our operations. The risk exists primarily in three areas:
- systems we use to run our business;
- systems used by our service providers, distributors and suppliers; and
- the potential for failures of our products, particularly our central
office-based systems, due to Year 2000 problems associated with products
manufactured by other equipment vendors used in conjunction with our
products.
A disruption in the operations of parties with whom we interact could
materially and adversely affect our business, financial condition and results of
operations.
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Substantial uncertainty remains in the software industry concerning the
potential effects associated with the Year 2000 problem. We have developed a
comprehensive multi-year plan to ensure that our internal computer software and
hardware systems will be Year 2000 compliant. While we believe that we have
implemented a comprehensive plan for addressing the Year 2000 problem and
anticipate completing our compliance activities in a timely manner, we cannot be
certain that these Year 2000 compliance efforts will be successful. Furthermore,
the financial impact of making the required systems changes cannot be known
precisely at this time.
We are currently developing contingency plans to be implemented as part of
our efforts to identify and correct Year 2000 problems affecting our internal
systems. We expect to complete these contingency plans by the end of the third
quarter of 1999. Depending on the systems affected, these plans could include
accelerated replacement of affected equipment or software, increased work hours
for our personnel or use of contract personnel to correct on an accelerated
schedule any Year 2000 problems which may arise, the provision of manual
workarounds for information systems, and other similar approaches. If we are
required to implement any of these contingency plans, such plans may materially
and adversely affect our business, financial condition and results of
operations. Additionally, we may not complete these contingency plans in a
timely manner, and failure to do so could materially and adversely affect our
business, financial condition and results of operations.
IF OUR PRODUCTS CONTAIN DEFECTS, WE MAY BE SUBJECT TO SIGNIFICANT LIABILITY
CLAIMS FROM OUR CUSTOMERS AND THE END-USERS OF OUR PRODUCTS AND INCUR
SIGNIFICANT UNEXPECTED EXPENSES AND LOST SALES
Our products are complex and, despite extensive testing, may therefore
contain undetected errors or failures. If this happens, we may experience delay
in or loss of market acceptance and sales, product returns, diversion of
research and development resources, injury to our reputation or increased
service and warranty costs. We also have exposure to significant liability
claims with respect to our customers because our products are designed to
provide critical communications services. Although we attempt to limit such
exposure through product liability insurance and through contractual limitations
in our customer agreements, such precautions may not cover all potential claims
resulting from a defect in one of our products.
MANAGEMENT AND OUR SINGLE LARGEST STOCKHOLDER MAY LIMIT YOUR ABILITY TO
INFLUENCE THE OUTCOME OF DIRECTOR ELECTIONS AND OTHER STOCKHOLDER MATTERS
Our executive officers, directors and principal stockholders and their
affiliates will beneficially own 24,961,062 shares or approximately 79.68% of
our outstanding shares of common stock (76.80% if the underwriters'
over-allotment option is exercised in full) after the offering. As a result,
these stockholders, if acting together, would be able effectively to control
substantially all matters requiring approval by our stockholders.
Entities associated with Texas Pacific Group will own approximately 57.23%
of Paradyne after the offering and will be able to exercise control over
Paradyne, subject to the fiduciary duties of its representatives on the board of
directors under Delaware law. The interests of Texas Pacific Group may not
always coincide with the interests of other stockholders. Texas Pacific Group,
through its representatives on the board of directors, could cause us to enter
into transactions or agreements which we would not otherwise consider absent
Texas Pacific Group influence. Texas Pacific Group also is currently the
majority owner of GlobeSpan. See "Certain Transactions."
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OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL SHARES AT OR
ABOVE THE OFFERING PRICE
There has not been a public market for our common stock prior to this
offering, and a liquid trading market for our shares may not develop following
this offering. The initial price for the shares of our common stock to be sold
in the offering will be determined by negotiations between us and the
representatives of the underwriters and may not be indicative of prices that
will prevail in the trading market. The trading price of our common stock could
be subject to wide fluctuations in response to various factors, some of which
are beyond our control, such as:
- actual or anticipated variations in quarterly results of operations;
- changes in intellectual property rights of Paradyne or our competitors;
- announcements of technological innovations;
- the introduction of new products or changes in product pricing by
Paradyne or our competitors;
- changes in financial estimates by securities analysts;
- announcements of significant acquisitions, strategic partnerships, joint
ventures or capital commitments by us or our competitors; and
- additions or departures of key personnel.
A FAILURE TO MANAGE OUR GROWTH COULD ADVERSELY AFFECT OUR BUSINESS
We have experienced expansions and contractions of our operations in the
past. If we are unable to manage our growth effectively, our future
profitability. We anticipate that expansion of our operations will be required
to address the potential growth in our client base and the opportunities in the
broadband access market. Our current expansion is placing a significant strain
on our managerial, operational and financial resources. We may not have adequate
resources to support our future operations.
WE MAY ENGAGE IN ACQUISITIONS, AND WE MAY BE UNABLE TO SUCCESSFULLY INTEGRATE
ANY NEW OPERATIONS, TECHNOLOGIES, PRODUCTS OR PERSONNEL
Recently, the telecommunications industry has experienced substantial
mergers and acquisitions activity. We have engaged in discussions in the past
with third parties concerning potential acquisitions of product lines,
technologies and businesses. However, we currently have no commitments or
agreements with respect to any such acquisition. In the event that such an
acquisition does occur, because of the small size of our management team, we may
be particularly susceptible to risks associated with the assimilation of
operations, technologies, products and personnel and the diversion of
management's attention from other business concerns.
SHOULD WE SELL A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK IN THE PUBLIC
MARKET, THE PRICE OF OUR COMMON STOCK COULD FALL
Sales of a substantial number of shares of our common stock in the public
market after this offering could cause the market price of our common stock to
decline and could impair our ability to raise additional capital through the
sale of equity securities. Upon completion of this offering, we will have
approximately 30,312,508 shares of common stock outstanding, of which
approximately 6,000,000 shares offered hereby (approximately 6,900,000 shares if
the underwriters' over-allotment option is exercised in full) will be freely
transferable without restriction or registration under the Securities Act,
unless such shares are held by our affiliates, as that term is defined in Rule
144 under the Securities Act. The remaining 24,312,508 shares of common stock
held by existing stockholders as of May 15, 1999 will be "restricted securities"
as that term is defined in Rule 144 (the "Restricted Securities"). Shares
totaling 24,230,906 will be subject to "lock-up" agreements on the effective
date of this offering. Upon expiration of the lock-up agreements 180 days after
the effective date of this offering, all of these shares will become eligible
for sale, subject in most cases to the limitations of Rule 144 and Rule 701.
Restricted shares held by non-affiliates will be eligible for sale under Rule
144(k) without volume and manner of sale restrictions. In addition, we intend to
file a registration
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statement on Form S-8 with the Securities and Exchange Commission covering the
7,250,000 shares of common stock reserved for issuance under our 1996 Equity
Incentive Plan, 1999 Employee Stock Purchase Plan and 1999 Non-Employee
Directors' Stock Option Plan. On the date 180 days after the effective date of
this offering, at least 2,157,445 shares will be subject to immediately
exercisable options (based on options outstanding on May 15, 1999). Sales of a
large number of any of these shares could have an adverse effect on the market
price for our common stock.
OUR CORPORATE CHARTER AND BYLAWS MAY DISCOURAGE TAKE-OVER ATTEMPTS AND DEPRESS
THE MARKET PRICE OF OUR STOCK
Provisions in our restated certificate of incorporation and bylaws may have
the effect of delaying or preventing a change of control or changes in our
management. These provisions include:
- the right of the board of directors to elect a director to fill a vacancy
created by the expansion of the board of directors;
- the ability of the board of directors to alter our bylaws without
obtaining stockholder approval;
- the requirement that at least 50% of the outstanding shares of common
stock are needed to call a special meeting of stockholders;
- the division of the board of directors into three classes, with each
class serving staggered three-year terms; and
- the requirement that all actions by stockholders must be effected at a
duly called meeting of the stockholders and may not be effected by a
consent in writing.
These provisions could discourage take-over attempts and could adversely
affect the market price of our common stock. In addition, these provisions may
limit the ability of stockholders to remove our current management. See
"Description of Capital Stock" for a further discussion of these provisions.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. All statements
regarding future events, our future financial performance and operating results,
our business strategy and our financing plans are forward-looking statements. In
some cases, you can identify forward-looking statements by terminology, such as
"may," "will," "should," "expect," "intend," "plan," "anticipate," "believe,"
"estimate," "predict," "potential" or "continue," the negative of such terms or
other comparable terminology. These statements are only predictions. Known and
unknown risks, uncertainties and other factors could cause actual results to
differ materially from those contemplated by the statements. In evaluating these
statements, you should specifically consider various factors, including the
risks outlined under "Risk Factors." These factors may cause our actual results
to differ materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform such
statements to actual results or to changes in our expectations.
15
<PAGE> 20
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $47,360,000
from the sale of 4,000,000 shares of our common stock in this offering, assuming
an initial public offering price of $13.00 and after deducting estimated
underwriting discounts and commissions and offering expenses. We will not
receive any proceeds from the shares sold by the selling stockholder in this
offering.
We intend to use the net proceeds of this offering to repay all outstanding
indebtedness under our $35,000,000 revolving line of credit facility with Bank
of America NT&SA. Our credit facility expires on January 31, 2000 and carries a
variable interest rate which was 7.75% as of March 31, 1999. As of March 31,
1999, the outstanding balance under the credit facility was approximately $10.4
million. We intend to use the remainder of the net proceeds for general
corporate purposes, including working capital and capital expenditures. The
amounts actually expended for working capital purposes may vary significantly
and will depend on a number of factors, including the amount of our future
revenues and the other factors described under "Risk Factors." Accordingly, we
will retain broad discretion in the allocation of the net proceeds of this
offering. Additionally, we may use a portion of the net proceeds to pursue
possible acquisitions of businesses, technologies or products complementary to
our business. We are not currently evaluating any acquisition opportunities and
we cannot assure you that we will identify suitable acquisition candidates or
that we will consummate any acquisitions. Pending our use of the net proceeds,
we intend to invest the funds in short term, interest-bearing, investment-grade
securities. Another primary purpose of this offering is to create a public
market for our common stock and facilitate our future access to public capital
markets.
DIVIDEND POLICY
We currently anticipate that we will retain all of our future earnings for
use in the operation and expansion of our business and do not anticipate paying
cash dividends in the foreseeable future. Our current financing arrangements
place certain restrictions on the payment of dividends.
COMPANY INFORMATION
We are a Delaware corporation. Our principal executive offices are located
at 8545 126th Avenue North, Largo, Florida 33773, and our telephone number is
(727) 530-2000. Our fiscal year ends on December 31. We maintain a worldwide web
site at http://www.paradyne.com. The reference to our worldwide web address does
not constitute incorporation by reference into this prospectus of the
information contained at that site. Our logo and certain titles and logos of our
publications and products mentioned in this prospectus are our service marks and
trademarks. All other brand names or trademarks appearing in this prospectus are
the property of their respective holders.
16
<PAGE> 21
CAPITALIZATION
The following table sets forth our total capitalization as of March 31,
1999:
- On an actual basis; and
- On an as adjusted basis to reflect the sale of 4,000,000 shares of common
stock by Paradyne in this offering at an assumed initial public offering
price of $13.00 per share and the application of the net proceeds in the
manner described in "Use of Proceeds."
Please read the following information in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and the notes thereto beginning on page
F-1 of this prospectus. The following information regarding shares outstanding
is as of March 31, 1999. It excludes 7,250,000 shares of common stock reserved
for issuance under our stock plans, of which 3,469,608 shares were subject to
outstanding options as of March 31, 1999. Options to purchase 3,621,948 shares
of common stock were outstanding as of May 15, 1999. See "Management -- 1996
Equity Incentive Plan."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
----------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Current portion of debt..................................... $10,850 $ 411
======= =======
Long-term debt.............................................. $ 378 $ 378
Stockholders' equity:
Preferred stock, par value $0.001; no shares authorized,
actual; 5,000,000 shares authorized, as adjusted; no
shares outstanding, actual or as adjusted.............. -- --
Common stock, par value $0.001; 60,000,000 shares
authorized;
26,258,232 shares issued and outstanding, actual;
30,258,232 shares outstanding, as adjusted............. 26 30
Additional paid-in capital................................ 22,533 69,889
Retained earnings......................................... 9,007 9,007
Notes receivable for common stock......................... (1,089) (1,089)
Cumulative translation adjustment......................... (170) (170)
------- -------
Total stockholders' equity........................ 30,307 77,667
------- -------
Total capitalization.............................. $30,685 $78,045
======= =======
</TABLE>
17
<PAGE> 22
DILUTION
Our net tangible book value as of March 31, 1999 was approximately $29.7
million, or approximately $1.13 per share. This is calculated as our total
tangible assets less total liabilities, divided by the number of shares
outstanding as of March 31, 1999. "Adjusted net tangible book value" per share
represents our net tangible book value after adjusting for the net proceeds from
the sale of 4,000,000 shares of common stock offered hereby at an assumed
initial public offering price of $13.00 per share. The sale of shares of common
stock in this offering and the application of the net proceeds therefrom will
result in an immediate increase in net tangible book value of $47.4 million or
$1.42 per share to existing stockholders and an immediate dilution of $10.45 per
share to investors purchasing shares of common stock in this offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $13.00
Net tangible book value per share as of March 31, 1999.... $ 1.13
Increase attributable to new investors.................... 1.42
------
Adjusted net tangible book value as of March 31, 1999....... 2.55
------
Dilution to new investors................................... $10.45
======
</TABLE>
The following table summarizes, on an as adjusted basis for the offering,
as of March 31, 1999, the number of shares of common stock purchased from
Paradyne, the total consideration paid to Paradyne and the average price per
share paid to Paradyne by existing stockholders and by the investors purchasing
shares of common stock in this offering, before deducting underwriting discounts
and commissions and estimated offering expense payable by Paradyne:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders................. 26,258,232 87% $22,559,000 30% $0.86
New stockholders...................... 4,000,000 13 52,000,000 70 13.00
---------- --- ----------- ---
Total....................... 30,258,232 100% $74,559,000 100% 2.46
========== === =========== ===
</TABLE>
In the event that we issue additional shares of common stock in the future,
purchasers of common stock in this offering may experience further dilution.
The foregoing discussion and tables assume no exercise of any stock options
at a weighted average exercise price of $3.35 per share as of March 31, 1999. To
the extent these options are exercised, new investors will experience further
dilution. See "Management -- 1996 Equity Incentive Plan."
18
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is derived from the
consolidated financial statements of Paradyne and from the books and records of
its predecessor business. This data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere in this prospectus. The consolidated statement
of operations for the seven months ended July 31, 1996, the five months ending
December 31, 1996 and for the years ended December 31, 1997 and 1998 and the
consolidated balance sheet as of December 31, 1996, 1997 and 1998 are derived
from audited consolidated financial statements. The consolidated statements of
operations data for the three months ended March 31, 1998 and 1999 are derived
from the unaudited consolidated financial statements of Paradyne, which are
included elsewhere herein. The unaudited consolidated financial information
reflects all adjustments (consisting only of normal recurring adjustments) that
the Company considers necessary for a fair statement of the financial data for
such period. The results of operations of the three months ended March 31, 1999
are not necessarily indicative of results to be expected in any future period.
The selected consolidated financial data for the years ended December 31, 1994
and 1995 have not been audited. The predecessor business consists of certain
operating activities of AT&T Paradyne Corporation, a wholly-owned subsidiary of
Lucent Technologies Inc., on a carve-out basis, which were acquired by Paradyne
effective July 31, 1996. In the opinion of our management, the predecessor
business operated in a substantially different organizational structure and
manner than we do and, accordingly, we believe that a comparison of its
operating activities and results to ours is not meaningful. See Note 2 of the
Notes to the Consolidated Financial Statements of Paradyne for an explanation of
the method used to calculate earnings per share. Earnings per share data is not
presented for the predecessor business since the predecessor business did not
have its own capital structure. As a result, this information would not be
meaningful.
<TABLE>
<CAPTION>
PREDECESSOR BUSINESS PARADYNE
------------------------------------ ------------------------------------------------------------
THREE MONTHS
YEARS ENDED YEARS ENDED ENDED
DECEMBER 31, SEVEN MONTHS FIVE MONTHS DECEMBER 31, MARCH 31,
------------------- ENDED ENDED ------------------- ------------------
1994 1995 JULY 31, 1996 DECEMBER 31, 1996 1997 1998 1998 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues:
Sales...................... $277,935 $259,654 $128,099 $112,293 $177,850 $195,153 $ 42,655 $50,969
Service.................... 5,334 3,910 1,975 1,413 3,040 2,256 384 475
Royalties.................. 120 1,425 464 325 413 1,392 -- 2,618
-------- -------- -------- -------- -------- -------- -------- -------
Total revenues........ 283,389 264,989 130,538 114,031 181,303 198,801 43,039 54,062
Cost of sales:
Equipment.................. 148,711 137,459 73,208 59,634 90,334 107,921 21,922 29,810
Service.................... 4,862 3,980 1,803 744 1,154 620 125 156
-------- -------- -------- -------- -------- -------- -------- -------
Total cost of sales... 153,573 141,439 75,011 60,378 91,488 108,541 22,047 29,966
-------- -------- -------- -------- -------- -------- -------- -------
Gross margin............... 129,816 123,550 55,527 53,653 89,815 90,260 20,992 24,096
Operating expenses:
Research & development
(1)...................... 30,510 30,100 28,019 31,174 37,339 35,132 8,554 8,768
Selling, general &
administrative........... 119,761 115,155 42,928 29,409 66,278 55,969 13,410 13,863
Restructuring charges...... -- -- -- -- 1,778 984 -- --
-------- -------- -------- -------- -------- -------- -------- -------
Total operating
expenses............ 150,271 145,255 70,947 60,583 105,395 92,085 21,964 22,631
-------- -------- -------- -------- -------- -------- -------- -------
Operating loss.............. (20,455) (21,705) (15,420) (6,930) (15,580) (1,825) (972) 1,465
Other (income) expenses:
Interest................... 1,279 1,437 200 3,502 7,712 1,711 554 434
Lucent settlement gain..... -- -- -- -- (51,183) -- -- --
Other, net................. (1,439) (3,708) (2,074) 382 (1,753) 1,191 (33) (2,852)
-------- -------- -------- -------- -------- -------- -------- -------
Income (loss) before
provision for income tax... (20,295) (19,434) (13,546) (10,814) 29,644 (4,727) (1,493) 3,883
Provision (benefit) for
income tax............... 1,565 948 184 -- 8,302 (1,082) (342) 1,515
-------- -------- -------- -------- -------- -------- -------- -------
Net income (loss)........... $(21,860) $(20,382) $(13,730) $(10,814) $ 21,342 $ (3,645) $ (1,151) $ 2,368
======== ======== ======== ======== ======== ======== ======== =======
Income (loss) per common
share:
Basic...................... $ (0.42) $ 0.84 $ (0.14) $ (0.04) $ 0.09
Diluted.................... (0.42) 0.81 (0.14) (0.04) 0.09
Shares used in computing
income (loss) per share:
Basic...................... 25,500 25,552 25,623 25,602 25,893
Diluted.................... 25,500 26,291 25,623 25,602 27,227
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED AS OF AS OF
DECEMBER 31, SEVEN MONTHS FIVE MONTHS DECEMBER 31, MARCH 31,
------------------- ENDED ENDED ------------------- ------------------
1994 1995 JULY 31, 1996 DECEMBER 31, 1996 1997 1998 1998 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents... $ 5,715 $ 3,094 $ 5,717 $ 1,354 $ 3,240 $ 2,356 $ 169 $ 2,634
Working capital............. 61,318 26,991 20,265 9,365 9,606 8,382 14,306 12,489
Total assets................ 162,941 126,428 103,050 144,142 83,200 75,063 84,093 76,497
Total debt.................. 946 302 52 182 18,184 16,836 20,154 11,228
Total divisional equity
(2)........................ 118,585 80,332 73,327 -- -- -- -- --
Total stockholders'
equity..................... -- -- -- 5,979 31,402 27,339 30,308 30,307
</TABLE>
- ---------------
(1) Includes $13,114 of purchased research and development for the five months
ended December 31, 1996.
(2) Since the predecessor business was not a legal entity, there was no
stockholders' equity. "Divisional equity" represents the net assets of the
predecessor business.
19
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and the related notes contained elsewhere in
this prospectus. The following discussion contains forward-looking statements
that involve risks and uncertainties. All statements regarding future events,
our future financial performance and operating results, our business strategy
and our financing plans are forward-looking statements. In many cases, you can
identify forward-looking statements by terminology, such as "may," "will,"
"should," "expects," "intends," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue," or the negative of such terms and other
comparable terminology. These statements are only predictions. Known and unknown
risks, uncertainties and other factors could cause our actual results to differ
materially from those projected in the forward-looking statements. In evaluating
these statements, you should specifically consider various factors, including,
but not limited to, those set forth under "Risk Factors" and elsewhere in this
prospectus.
OVERVIEW
We are a leading developer, manufacturer and distributor of broadband and
narrowband network access products for network service providers ("NSPs") and
business customers. We offer solutions that enable business class, service level
managed, high-speed connectivity over the existing telephone network
infrastructure and provide for cost-effective access speeds of up to 45 Mbps.
Our equipment has been sold to over 50% of the Fortune 500 companies and in
businesses in over 125 countries. We estimate that sales to NSPs represented
approximately 40% of our total revenues in 1998. With our reputation and history
as a supplier of access solutions to a large customer base, we believe that we
are well-positioned to provide broadband access solutions to NSPs and business
customers as they upgrade their networks.
In July 1996, as part of a divestiture by Lucent, Paradyne Acquisition
Corp., a wholly-owned subsidiary of Communication Partners, L.P., a limited
partnership controlled by the Texas Pacific Group, acquired all of the
outstanding shares of common stock of Paradyne Corporation. In June 1999
Paradyne Acquisition Corp. changed its name to Paradyne Networks, Inc. Our
business was created when operations of Paradyne Corporation were either
retained by Lucent or assigned to newly created entities in connection with the
divestiture. The business that remained with Paradyne Corporation is referred to
as the predecessor business. The predecessor business derived most of its
revenues through July 1996 from the sale of narrowband products. The predecessor
business purchased products and services from preferred suppliers of AT&T and
Lucent and incurred intercompany charges for services provided by other AT&T
operations. Following the 1996 acquisition, we introduced a series of new
products, including many new broadband products, and discontinued sales of the
Tellabs 74X family of products which were transitioned to Lucent. In addition,
we lowered our expenses and restructured our operations. The cost of the
restructuring was accounted for as part of the purchase accounting associated
with the 1996 acquisition. We believe the revenues and expenses of the
predecessor business are not representative of our current business, financial
condition or results of operations. Accordingly, we believe that a
period-to-period comparison of operating results prior to 1997 is not
meaningful.
In 1997, Paradyne recorded a restructuring charge of approximately $1.8
million. Most of this charge related to staff reductions in our U.S. operations
in November 1997. Staff reductions were appropriate as a result of improved
operating efficiencies resulting from an investment in new systems and processes
as well as changing the composition of our workforce to update the availability
of strategic skills. During 1998, we also incurred expenses of $1.0 million,
related to a restructuring of our international operations.
Through 1997, our revenues were derived principally from the sale and
service of narrowband network access products and, to a much lesser extent,
technology licensing. In 1998, our broadband products, including our Hotwire and
FrameSaver products, which were introduced in 1997, comprised the majority of
our revenue, and we expect broadband products to represent an increasing portion
of future revenues. Royalty revenues consist principally of licensing of
technology, and service revenues are derived from repair of
20
<PAGE> 25
out-of-warranty products. We do not expect that either royalty or service
revenues will constitute a substantial portion of our revenues in future
periods.
We market and sell our products worldwide to NSPs and business customers
through a multi-tier distribution system that includes direct sales, strategic
partner sales, NSP sales and traditional distributor or value added reseller
sales. Direct sales to Lucent in 1998 accounted for approximately 35% of our
total revenues. Sales to Tech Data accounted for approximately 15% of our total
revenues. We estimate that approximately 70% of our sales to Tech Data
represented products that were resold to Lucent. Collectively, we estimate that
direct and indirect sales to Lucent accounted for approximately 47% of our total
revenues in 1998 and 30% in the first quarter of 1999. This percentage reduction
principally results from lower Lucent equipment sales of some of our older
products in the first quarter of 1999. A majority of our sales to Lucent
represented sales to Lucent as a reseller of our products. Sales to SITA in 1998
accounted for approximately 9% of our total revenues in 1998 and 8% in the first
quarter of 1999, and sales to Rhythms accounted for approximately 6% of our
total revenues in 1998 and 24% in the first quarter of 1999. The percentage
increase of our total revenues to Rhythms in the first quarter of 1999 is
primarily due to an increase in the deployment of their infrastructure using our
products. A loss or a significant reduction or delay in sales to any of our
major customers could materially and adversely affect our business, financial
condition and results of operations. See "Risk Factors -- We Depend on Major
Customers for a Substantial Portion of Our Revenues."
We generally recognize revenue from product sales upon shipment. No revenue
is recognized on products shipped on a trial basis. Estimated sales returns
based on historical experience by product are recorded at the time the product
revenue is recognized. Charges for warranty work are included in cost of
equipment sales. We believe that our accrued warranty reserve is sufficient to
meet our responsibilities for potential future warranty work on products sold.
Revenue from services, which consists mainly of repair of out-of-warranty
products, is recognized when the services are performed and all substantial
contractual obligations have been satisfied. License and royalty revenues are
recognized when we have completed delivery of technical specifications and
performed substantially all required services under the related agreement.
We expect our gross margin to be affected by many factors, including
competitive pricing pressures, fluctuations in manufacturing volumes, costs of
components and sub-assemblies, and the mix of products or system configurations
sold and timing of sales of follow-on line cards and endpoints for central
office systems. Follow-on line cards and endpoints are components that are sold
separately from central office systems and margins vary on these products.
Central office systems are often sold as stand-alone chassis with limited number
line cards. Customers purchase follow-on line cards and endpoints in order to
increase the capacity of their central office system. Additionally, our gross
margin may fluctuate due to changes in our mix of distribution channels. Sales
prices of some of our products have decreased recently as a result of increased
competition. Further price reductions may be necessary to remain competitive.
Although we have been able to offset most price declines with reductions in our
manufacturing costs, there can be no assurance that we will be able to offset
further price declines with cost reductions.
Research and development expenses primarily consist of: personnel costs
related to engineering and technical support; consultant and outside testing
services fees; research and development facilities expenses; equipment and
supplies expenses associated with enhancing existing products and the
development of new products; an allocation of information systems charges; and
software and software maintenance expenses. We expense all research and
development expenses as incurred. We believe that continued investment in
research and development is critical to attaining our strategic product and
cost-reduction objectives. We will, however, attempt to control and optimize our
research and development expenditures in order to meet our strategic goals while
at the same time allowing us to meet our profitability goals. Over time, as
revenues increase, research and development expenditures are expected to
increase as well.
We had twelve in-process research and development projects, consisting of
nine broadband and three narrowband projects that were acquired in connection
with the 1996 acquisition. These projects included three Acculink projects, one
Comsphere project, three Frame Relay projects, three Hotwire projects and two
digital
21
<PAGE> 26
service unit projects. We acquired the in-process research and development
projects in order to gain additional product enhancements, technologies and
skills, through which we would enter into new markets and distribution channels
and grow our market share for high speed access products. At the time of the
divestiture, we estimated the value of each in-process project to range from
$0.1 million to $3.2 million, and the aggregate value to be approximately $13.1
million and anticipated that each project would require between five and nine
months to complete. Based on our technological expertise and experience in
completing and commercializing access products, we did not believe there were
any material risks that would affect the timely completion of the projects. The
total cost to complete the development of these projects at the time of the
acquisition was estimated to be approximately $15.2 million. Subsequent
developments have demonstrated that most of the projects have met or exceeded
the initial valuation placed on such projects. Three projects have proven to be
less successful than originally forecast primarily due to unforeseen changes in
the marketplace.
Selling, general and administrative expenses primarily consist of:
salaries, commissions and related expenses for personnel engaged in marketing,
sales and field service support functions, finance, human resource and
administrative activities; advertising, promotional and trade show expenses,
including the related travel expenses; consultant fees; equipment and facilities
expenses, including intangibles amortization; supplies, software and software
maintenance; and consignments. We intend to continue to invest in selling,
marketing and promotional programs. In addition, we expect to expand our field
sales operations and customer support organizations. We expect general and
administrative expenses to increase moderately as our business grows and we
begin operations as a public company. General and administrative expenses have
been significantly reduced since the 1996 acquisition by improving systems and
processes and eliminating unnecessary expenses, and we expect to continue our
focus on controlling expenses in the future.
Sales to customers outside of the United States accounted for approximately
30% and 20% of revenues in 1997 and 1998, respectively. This decrease was
primarily due to the decline in sales of our older narrowband products and
economic instability in Asia. In 1998, approximately 94% of our sales were
denominated in U.S. dollars. While Paradyne is subject to fluctuations in
foreign currency exchange rates with respect to income derived from
international sales not denominated in U.S. dollars, the costs associated with a
majority of these sales are in the same currency, which partially mitigates the
effect of such fluctuations. Historically, currency exchange movements have not
had a material effect on our business, financial condition or results of
operations. If our non-U.S. operations expand, the effect of currency
fluctuations may have a more significant impact on our revenues and costs. At
December 31, 1998, we had no material monetary assets, liabilities or
commitments denominated in currencies other than U.S. dollars. We do not hedge
foreign currency transactions. Our strategy for managing currency risk is to
minimize our foreign currency exposure.
Despite growing revenues, excluding a non-recurring gain recognized in 1997
in connection with a contract renegotiation, we have not been profitable on an
annual basis, and we may continue to incur net losses. In addition to the
customer concentration we have experienced, we also have lengthy development and
sales cycles for our products, and there is often a significant delay between
the time we incur expenses and the time we realize the related revenue. To the
extent that future revenues do not increase significantly in the same periods in
which operating expenses increase, our operating results will be adversely
affected. See "Risk Factors -- Various Factors Could Cause Our Results to
Fluctuate" and "-- We May Not Achieve Revenue Growth and Profitability."
Paradyne's quarterly and annual operating results have fluctuated in the
past and are likely to fluctuate in the future due to a variety of factors, many
of which are outside of our control. Some of these factors include:
- the timing and amount of, or cancellation or rescheduling of, orders for
our products and services to existing and new customers;
- our ability to develop, introduce, ship and support new products and
product enhancements and manage product transitions on a timely basis;
22
<PAGE> 27
- announcements, new product introductions and reductions in price of
products offered by our competitors;
- our ability to achieve cost reductions;
- our ability to obtain sufficient supplies of sole or limited source
components for our products;
- the ability of our NSP customers to raise financing to purchase our
products;
- the timing and rate of deployment of our products by NSPs;
- preferential pricing arrangements;
- our ability to attain and maintain production volumes and quality levels
for our products;
- the mix of products sold and the mix of distribution channels through
which they are sold;
- fluctuations in demand for our products and services, especially by our
major customers;
- expiration of favorable supply or purchase contracts;
- costs relating to possible acquisitions and integration of technologies
or businesses; and
- conditions in the telecommunications market, including consolidation in
the industry, and economic conditions generally.
Due to these and other factors, quarterly and annual revenues, expenses and
results of operations could vary significantly in the future, and
period-to-period comparisons should not be relied upon as indications of future
performance. Additionally, due to all of the foregoing factors, it is possible
that in some future periods, our operating results and/or our growth rate will
be below what public market analysts and investors expect. If that happens, the
market price of our common stock could decline materially.
RESULTS OF OPERATIONS
The following table summarizes Paradyne's operating results as a percentage
of revenues for each of the periods shown.
<TABLE>
<CAPTION>
PARADYNE
PREDECESSOR BUSINESS ------------------------------------------------
-------------------------------------------- THREE MONTHS
FIVE MONTHS YEAR ENDED ENDED
YEAR ENDED DECEMBER 31, SEVEN MONTHS ENDED DECEMBER 31, MARCH 31,
--------------------------- ENDED JULY 31, DECEMBER 31, -------------- --------------
1994 1995 1996 1996 1997 1998 1998 1999
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Sales................. 98.1% 98.0% 98.1% 98.5% 98.1% 98.2% 99.1% 94.3%
Service............... 1.9 1.5 1.5 1.2 1.7 1.1 0.9 0.9
Royalties............. -- 0.5 0.4 0.3 0.2 0.7 -- 4.8
----- ----- ----- ----- ----- ----- ----- -----
Total
revenues...... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of sales:
Equipment............. 52.5 51.9 56.1 52.3 49.8 54.3 50.9 55.1
Service............... 1.7 1.5 1.4 0.7 0.6 0.3 0.3 0.3
----- ----- ----- ----- ----- ----- ----- -----
Total cost of
sales......... 54.2 53.4 57.5 52.9 50.5 54.6 51.2 55.4
----- ----- ----- ----- ----- ----- ----- -----
Gross margin............ 45.8 46.6 42.5 47.1 49.5 45.4 48.8 44.6
</TABLE>
<TABLE>
Operating expenses:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Research &
development......... 10.8 11.4 21.5 27.3 20.6 17.7 19.9 16.2
Selling, general &
administrative...... 42.3 43.5 32.9 25.8 36.6 28.2 31.2 25.6
Restructuring
charges............. -- -- -- -- 1.0 0.5 -- --
----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses...... 53.0 54.8 54.3 53.1 58.1 46.3 51.0 41.9
----- ----- ----- ----- ----- ----- ----- -----
Operating income
(loss)................ (7.2) (8.2) (11.8) (6.1) (8.6) (0.9) (2.3) 2.7
Other (income) expenses:
Interest.............. 0.5 0.5 0.2 3.1 4.3 0.9 1.3 0.8
Lucent settlement
gain................ -- -- -- -- (28.2) -- -- --
</TABLE>
23
<PAGE> 28
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other, net.............. (0.5) (1.4) (1.6) 0.3 (1.0) 0.6 (0.1) (5.3)
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before
provision for income
tax................. (7.2) (7.3) (10.4) (9.5) 16.4 (2.4) (3.5) 7.2
Provision (benefit) for
income tax............ 0.6 0.4 0.1 -- 4.6 (0.5) (0.8) 2.8
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)....... (7.7)% (7.7)% (10.5)% (9.5)% 11.8% (1.8)% (2.7) 4.4
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Revenues. Total revenues increased $11.0 million, or 25.6%, to $54.1
million for the first three months of 1999 from $43.0 million for the first
three months of 1998. This increase was primarily due to an increase in the
volume of sales of our broadband access products. As a percentage of total
revenues, equipment sales were 94.3% of total revenues for the first three
months of 1999 compared to 99.1% for the first three months of 1998. The
percentage decrease is mostly due to a $2.6 million increase in royalty income
which includes $1.1 million from a one-time royalty fee from GlobeSpan related
to termination of an existing agreement, and $1.5 million from a one-time
license fee from a third party for intellectual property relating to narrowband
technology.
Gross Margin. Gross margin increased $3.1 million, or 14.8%, to $24.1
million for the first three months of 1999 from $21.0 million for the first
three months of 1998. A substantial portion of the increase was due to the
recognition of $2.6 million of royalty revenues. Gross margin as a percentage of
total revenues decreased to 44.6% in 1999 from 48.8% in 1998 primarily because
our newer, competitively priced products comprised a greater portion of our
total revenues. Gross margin for equipment sales increased $0.4 million
reflecting increased sales at lower margins resulting from the competitive
pricing of recently introduced products.
Research and Development Expenses. Research and development expenses
increased $0.2 million, or 2.5%, to $8.8 million for the first three months of
1999 from $8.6 million in the first three months of 1998. As a percentage of
total revenues, research and development expenses decreased to 16.2% in the
first three months of 1999 from 19.9% in the first three months of 1998. This
decrease is primarily attributable to the increase in revenues during the
period.
Selling, General and Administrative ("SG&A") Expenses. SG&A expenses
increased $0.5 million, or $3.4%, to $13.9 million in the first three months of
1999 from $13.4 million in the first three months of 1998. The increase is
primarily due to increases in incentive based expenses of $0.3 million (due to
the increase in revenues), consignment of equipment to customers of $0.3 million
and higher information systems expense of $0.3 million, offset in part by a
reduction in advertising of $0.3 million and fees of $0.2 million. SG&A expense
as a percentage of total revenues decreased to 25.6% in the first quarter of
1999 from 31.2% in the first quarter of 1998 primarily due to the 25.6% increase
in revenues during the period.
Interest and Other (Income) Expense, Net. Interest and other (income)
expense, net, increased by $2.9 million to income of $2.4 million for the first
three months of 1999, from expense of $0.5 million for the first three months of
1998. Interest and other (income) expense, net, is related to interest on notes
payable and borrowings under lines of credit, gains and losses on equity
investments and foreign exchange gains and losses. This increase was primarily
attributable to the receipt by Paradyne of approximately $3.0 million in net
proceeds from the sale of patents. Interest expense also decreased by $0.1
million in 1999 due to a reduction in the debt related to Lucent and
Communications Partners, L.P.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues. Total revenues increased $17.5 million, or 9.7%, to $198.8
million in 1998 from $181.3 million in 1997. This increase was primarily due to
an increase in the sales of our broadband access products. The increase in sales
was primarily a result of higher average selling price due to product mix and to
volume increases in broadband products. As a percentage of total revenues,
equipment sales were 98.2% in 1998
24
<PAGE> 29
compared to 98.1% in 1997. In 1998 and 1997, we also earned relatively small
amounts of service revenues through the repair of out of warranty equipment and
royalty revenues from the licensing of technology.
Gross Margin. Gross margin increased $0.4 million, or 0.5%, to $90.3
million in 1998 from $89.8 million in 1997. Gross margin as a percentage of
total revenues decreased to 45.4% in 1998 from 49.5% in 1997 for the following
reasons:
- some of our older products faced competitive price pressures, which
resulted in lower average sales prices and accounted for a decline in
gross margin of approximately 3 percentage points out of the 4.1
percentage point decline in gross margin; and
- In 1997 we had a large one-time customer purchase of an out-of-production
product for which we were able to obtain a substantially higher than
average sales price. No similar purchase occurred in 1998, resulting in a
decrease in gross margin of 1 percentage point out of the 4.1 percentage
point decline in gross margin.
Research and Development Expenses. Research and development expenses
decreased $2.2 million, or 5.9%, to $35.1 million in 1998 from $37.3 million in
1997. This decrease was primarily due to a reduction in the number of
contractors and a decrease in employees, as a result of the restructuring in
November 1997. Research and development expenses declined to 17.7% of total
revenues in 1998 from 20.6% in 1997 primarily due to the increase in total
revenues in 1998 along with the expense reductions.
Selling, General and Administrative Expenses. SG&A expenses decreased
$10.3 million, or 15.6%, to $56.0 million in 1998 from $66.3 million in 1997.
The decrease was primarily attributable to a $6.4 million reduction in
amortization expense related to the Lucent settlement, a $3.3 million reduction
in consultant fees and a $2.4 million decrease in advertising costs, offset by a
$0.9 million increase in personnel costs and a $0.9 million increase in rental
expenses. SG&A expenses as a percentage of total revenues decrease to 28.2% in
1998 from 36.6% in 1997 primarily due to the increase in total revenues in 1998
along with expense reductions.
Restructuring Charges. During 1998, we incurred expenses of $1.0 million,
or 0.5% of total revenues, related to restructuring our international
operations.
Interest and Other (Income) Expense, Net. Interest and other (income)
expense, net, decreased $3.1 million, or 51.3%, to $2.9 million in 1998 from
$6.0 million in 1997. Interest and other (income) expense, net, is related to
interest on notes payable and borrowings under lines of credit, gains and losses
on equity investments and foreign exchange gains and losses. The decrease in
1998 was primarily attributable to a reduction in interest expense associated
with the $63.0 million forgiveness of debt by Lucent in 1997.
Income Taxes. Our 1998 income tax benefit was $1.1 million, or 22.9% of
the loss before income tax of $4.7 million. The tax benefit was less than the
statutory federal and state income tax rates principally due to losses incurred
in foreign jurisdictions for which no income tax benefit was available.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE SEVEN MONTH PERIOD ENDED JULY 31,
1996 (PREDECESSOR BUSINESS) AND THE FIVE MONTH PERIOD ENDED DECEMBER 31, 1996
References to the seven month period ended July 31, 1996 and the five month
period ended December 31, 1996 (the "1996 Periods") reflect the combination of
the predecessor business for seven months of 1996 with the operations of
Paradyne for five months of 1996, and do not include any adjustments related to
the purchase.
Revenues. Total revenues decreased $63.2 million, or 25.9%, to $181.3
million in 1997 from $244.5 million in 1996. This decrease was primarily due to
the following factors:
- sales of our older narrowband products, overall, declined at a rapid
rate;
- in an attempt to meet their 1996 contractual targets, Lucent purchased
products from us at the end of 1996, which resulted in lower Lucent
purchases in 1997 as it sold off its inventory (See "Certain
Transactions"); and
25
<PAGE> 30
- we discontinued selling Premisys products through channels other than
Lucent and AT&T and discontinued selling other network access products
which were transitioned to Lucent after the sale of Paradyne.
As a percentage of total revenues, equipment sales were 98.1% in 1997 and
98.3% in the 1996 Periods. We also earned relatively small amounts of service
revenues through the repair of out of warranty equipment and royalty revenues
from the licensing of technology.
Gross Margins. Gross margin decreased $19.4 million, or 17.7%, to $89.8
million in 1997 from $109.2 million in the 1996 Periods. Gross margin as a
percentage of total revenues increased to 49.5% in 1997 from 44.6% in the 1996
Periods for the following reasons:
- we were able to reduce the material costs of some of our products by
obtaining more competitive pricing from our existing and new suppliers,
which resulted in savings in the form of lower product costs in 1997, and
we were able to obtain a higher average sales price for some of our older
products due to increased sales of products with higher margin
configurations, which translated into higher margins. Together these
changes accounted for an increase of approximately 7 percentage points
out of the 4.9 percentage point increase in gross margin.
- one of our major customers making a large one-time purchase of an
out-of-production product in 1997 for which we were able to obtain a
substantially higher than average sales price (resulting in an increase
to gross margin of approximately 1 percentage point out of the 4.9
percentage point increase in gross margin.)
- we introduced new, competitively priced access products, which resulted
in a decrease in gross margin of approximately 4 percentage points out of
the 4.9 percentage point increase in gross margin.
Research and Development Expenses. Research and development expenses
decreased $21.9 million, or 36.9%, to $37.3 million in 1997 from $59.2 million
in the 1996 Periods. Research and development expenses declined to 20.6% of
total revenues in 1997 from 24.2% in the 1996 Periods. This decrease was
primarily attributable to recognition of purchased research and development of
$13.1 million at the time of the 1996 acquisition and a $7.7 million reduction
associated with a reduction in the number of support personnel and contractors
as a result of the restructuring in November 1997.
Selling, General and Administrative Expenses. SG&A expenses decreased $6.1
million or 8.4%, to $66.3 million in 1997 from $72.3 million in the 1996
Periods. This decrease was primarily due to a reduction in personnel following
the 1996 acquisition and $10.3 million associated with a reduction of SG&A
related personnel and contractors in the fourth quarter of 1997 as a result of
the November 1997 restructuring, which more than offset the $4.1 million
increase in amortization primarily due to the Lucent supply contract. SG&A
expenses as a percentage of total revenues increased to 36.6% in 1997 from 29.6%
in the 1996 Periods. This increase was primarily attributable to the reduction
of revenues in 1997.
Restructuring Charges. In the fourth quarter of 1997, we incurred a
restructuring charge of $1.8 million, or 1.0% of total revenues. This
restructuring was necessary to reduce redundant headcount and bring operating
expenses in line with revenues.
Interest and Other (Income) Expense, Net. Interest and other (income)
expense, net, increased $3.9 million, or 196.5%, to $6.0 million in 1997 from
$2.0 million in the 1996 Periods. Interest and other (income) expense, net, is
related to interest on notes payable and borrowings under lines of credit, gains
and losses on equity investments and foreign exchange gains and losses. The
increase in 1997 was primarily attributable to interest expense associated with
the Lucent debt.
Lucent Settlement Gain. As a condition to the closing of the 1996
acquisition, Paradyne entered into a volume purchase letter agreement, whereby
Lucent agreed to purchase minimum levels of network access products from us. At
December 31, 1997, Lucent had not satisfied its obligations and, therefore, was
subject to take or pay provisions contained in the volume purchase letter
agreement. However, in August 1998, Lucent and Paradyne entered into an
arrangement under which we terminated the volume purchase letter agreement,
received an exclusivity agreement with Lucent extending through June 2001 and
received $8.2
26
<PAGE> 31
million of cash and the forgiveness of debt in the amount of $63.0 million owed
to Lucent by Paradyne. This resulted in the recording of a $51.2 million
non-recurring gain in 1997, which is net of the $16.4 million unamortized cost
of the agreement. See "Certain Transactions."
Income taxes. In 1997, as a result of the Lucent settlement gain of $51.2
million, we were able to utilize our net operating loss carryforwards reducing
our federal and state income tax provision to $8.3 million or 28.0% of pretax
income.
LIQUIDITY AND CAPITAL RESOURCES
From our inception through December 31, 1998, we financed our operations
through a combination of debt financing and cash generated from operations. In
connection with the 1996 acquisition, Communication Partners, L.P. acquired the
predecessor business through an equity investment of $17.1 million. In addition,
we incurred acquisition debt totaling $76.8 million and acquisition costs of
$8.4 million. Additionally, in July 1996 we entered into a $45.0 million
revolving line of credit facility with Bank of America NT&SA. This facility was
voluntarily reduced to $35.0 million in March 1999. Following the closing of
this offering, we will retain our revolving line of credit but expect to pay any
outstanding balance under the revolving line of credit in full.
Availability under this facility is the lesser of $35.0 million or the sum
of 85% of eligible trade accounts receivable and the lesser of: $6.0 million,
40% of the value of eligible inventory, or the amount of the machinery and
equipment appraisal. Availability is further reduced by a $3.0 million borrowing
base reserve, in lieu of any financial covenants. The line of credit facility is
secured by substantially all of our assets and contains non-financial covenants
and restrictions as to various matters, including our ability to pay dividends
or to effect mergers or acquisitions, incur other indebtedness or to make
investments without the bank's prior approval. As of March 31, 1999, we were not
in breach of any of these restrictive covenants.
This facility, which terminates on January 31, 2000, bears an annual
interest rate of Bank of America NT&SA's reference rate plus 0 - 100 basis
points, depending on our quarterly fixed charge coverage ratio. The facility
also provides for an unused line fee of 0.375% to 0.50%. The principal amount
outstanding at December 31, 1998 was $16.1 million. The weighted average
interest rate was 9.2% for the year ended December 31, 1998.
In August 1997, Communication Partners, L.P. agreed to provide a revolving
line of credit facility in the maximum amount of $5.0 million. This agreement
was amended in October 1998 to increase the maximum amount of the facility to
$10.0 million. Amounts outstanding may be repaid and reborrowed at any time
during the term of the note that matures on August 25, 2002. Borrowings under
this agreement are subordinated to debt under the Bank of America NT&SA line of
credit facility and bear interest at 8% per annum. The agreement does not impose
specific financial covenants upon Paradyne. It is our intention to terminate
this facility upon completion of this offering.
We are a holding company with no business operations of our own. In the
event we incur obligations, we would be dependent on payments, loans, dividends
and distributions from our subsidiaries for funds to pay our obligations. The
ability of our subsidiaries to pay dividends or distributions or make loans to
us is subject to restrictions.
Three Months Ended March 31, 1999
Cash provided by operations for the quarter ended March 31, 1999 totaled
$6.2 million and resulted primarily from $4.3 million in net proceeds from a
license of intellectual property related to modem technology and sale of
patents. Additionally, reductions in trade receivables due to revenues in the
first quarter of 1999 being 7% below fourth quarter 1998 revenues, increases in
accounts payable attributable to timing of vendor payments, offset by an
increase in inventory to meet expected April deliveries, also contributed
significantly to cash provided by operations. Total revenues decreased 7% in the
first quarter of 1999 compared to the fourth quarter of 1998 due to lower sales
of both narrowband and broadband products. This decrease principally resulted
from lower equipment sales to one of our largest customers. Cash provided
27
<PAGE> 32
by operations was offset in part by reductions in payroll related benefits which
reflect payments of 1998 commissions and management bonuses net of accruals for
similar payments in 1999 and an increase in accounts receivables from affiliates
driven primarily by the $1.1 million one-time royalty fee from GlobeSpan related
to the termination of an existing agreement.
Net cash used in investing activities for the quarter ended March 31, 1999
totaled $0.9 million and reflects capital expenditures made in support of
operations. The Company anticipates that capital requirements for the remainder
of the year will be in the range of $1.5 million to $2.0 million per quarter.
Net cash used in financing activities for the quarter ended March 31, 1999
totaled $5.1 million primarily reflecting debt repayments on our Bank of America
NT&SA revolving credit facility. Net borrowings were not required to fund
operations and capital expenditures in the quarter. We expect to use the
proceeds from the initial public offering to pay down this debt.
Paradyne had $2.6 million of cash and cash equivalents at March 31, 1999
that was an increase of $0.2 million from $2.4 million at December 31, 1998.
Working capital increased by $4.1 million from $8.4 million at December 31, 1998
to $12.5 million at March 31, 1999. We believe that the proceeds from this
offering, together with the cash flows from operations and borrowings under the
Bank of America NT&SA line of credit facility, will be sufficient to meet our
working capital needs for at least the next 18 months.
Year Ended December 31, 1998
Net cash used in operating activities was $4.6 million for the five months
ended December 31, 1996 as compared to $1.1 million for 1997. Net cash provided
by operating activities was $6.2 million for 1998. The reduction in net cash
used in operating activities for the five month period ending December 31, 1996
to 1997 was primarily driven by a reduction in accounts receivable and
inventory, net of a decrease in accounts payable, as a result of lower sales
volume as well as a reduction in the annual run rate of operating expenses after
normalizing for the 1996 non cash related write off of purchased research and
development. Net cash provided by operating activities increased $7.3 million
from 1997 to 1998 primarily as a result of a reduction in receivables reflecting
the collection of the other receivables totaling $8.2 million at December 31,
1997 in connection with the termination of the Lucent volume purchase letter
agreement offset in part by an increase in trade receivables. Trade receivables
increased due to increased sales volume offset in part by a reduction in the
time it takes to collect from customers. Other activities impacting net cash
provided by operations included reductions in operating expense, increased
accounts payable, reflecting timing of incurrence of obligations and payments to
vendors, offset by increased inventory, due to increased sales volume, as well
as an increase in income tax receivable, reflecting overpayment of income taxes
in 1998.
Net cash (used in) provided by investing activities was ($29.0 million),
$11.6 million and ($5.1 million) for the five months ended December 31, 1996 and
the years ended December 31, 1997 and 1998, respectively. Effective July 31,
1996, Communication Partners, L.P. acquired Paradyne's net assets for $24.6
million in cash and $69.3 million in debt to seller. Net proceeds from the sale
of the Largo, Florida facility in June 1997 totaled $20.8 million. Net capital
expenditures relating primarily to the support of operations totaled $4.4
million, $9.2 million, and $5.4 million for the five month period ending
December 31, 1996, 1997 and 1998, respectively.
Net cash provided by financing activities totaled $30.1 million for the
five months ended December 31, 1996. Net cash used in financing activities in
1997 totaled $8.7 million, as compared to $1.7 million for 1998. Communication
Partners, L.P.'s 1996 investment in Paradyne totaled $102.3 million, consisting
of a $17.1 million equity investment, $69.3 million in seller notes to Lucent,
debt to Communication Partners of $7.5 million and $8.4 million of other
acquisition costs. Borrowings under other debt obligations totalling $2.5
million and $6.0 million for the five months ended December 31, 1996 and the
year ending December 31, 1997 consisted primarily of deferred interest
associated with seller debt. Proceeds from the 1997 sale of the Largo, Florida
facility were used to retire debt of $20.8 million under various notes and the
Bank of America NT&SA revolving credit facility. Additionally, debt was further
reduced by $63.0 million as part of the Lucent settlement discussed above. Net
borrowings under our bank line of credit to fund operations, capital
expenditures and payment of other acquisition costs totaled $10.6 million and
$4.4 million
28
<PAGE> 33
for the five month period ending December 31, 1996 and the year ended December
31, 1997. Net borrowings against our bank line of credit were not required to
fund operations, capital expenditures and payment of other acquisition costs in
1998. The net borrowings against this line in 1998 reflected the payoff of $2.7
million in seller debt. Additionally, in 1998 we borrowed and repaid $5.0
million from Communication Partners to cover working capital needs.
We believe that the proceeds from this offering, together with the cash
flows from operations and borrowings under the Bank of America NT&SA line of
credit facility, will be sufficient to meet our working capital needs for at
least the next 18 months.
QUARTERLY RESULTS
The following table sets forth unaudited quarterly operating information
for each of the nine quarters ending with the quarter ended March 31, 1999. This
data has been prepared on the same basis as the audited financial statements
contained elsewhere in this prospectus and in the opinion of management,
includes all adjustments necessary for the fair presentation of the information
for the periods presented. This information should be read in conjunction with
the financial statements and notes thereto. The operating results in any quarter
are not necessarily indicative of the results that may be expected for any
future period.
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Sales...................... $43,633 $42,469 $45,739 $46,009 $42,655 $45,224 $49,966 $57,308 $50,969
Service.................... 846 490 947 757 384 644 573 655 475
Royalties.................. 7 155 251 -- -- 350 845 197 2,618
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues....... 44,486 43,114 46,937 46,766 43,039 46,218 51,384 58,160 54,062
Total cost of
sales.............. 21,304 22,710 23,221 24,253 22,047 24,004 28,913 33,577 29,966
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross margin............... 23,182 20,404 23,716 22,513 20,992 22,214 22,471 24,583 24,096
Operating expenses:
Research and development... 9,605 9,049 9,477 9,208 8,554 8,728 8,866 8,984 8,768
Selling, general &
administrative........... 16,623 17,187 17,353 15,115 13,410 14,653 13,612 14,294 13,863
Restructuring charges...... -- -- 1,778 -- 59 167 758 --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses........... 26,228 26,236 26,830 26,101 21,964 23,440 22,645 24,036 22,631
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss)...... (3,046) (5,832) (3,114) (3,588) (972) (1,226) (174) 547 1,465
Lucent settlement gain..... -- -- -- (51,183) -- -- -- -- --
Interest and other (income)
expenses, net.............. 2,643 1,269 1,876 171 521 586 265 1,530 (2,418)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
provision for income tax... (5,689) (7,101) (4,990) 47,424 (1,493) (1,812) (439) (983) 3,883
Provision (benefit) for
income tax................. -- -- -- 8,302 (342) (415) (100) (225) 1,515
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)............ $(5,689) $(7,101) $(4,990) $39,122 $(1,151) $(1,397) $ (339) $ (758) $ 2,368
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Our revenues, historically, have tended to be strongest in the fourth
quarter and lowest in the first quarter of the following year. We believe this
is primarily due to the calendar year budgeting of many of our customers and to
compensation policies tending to compensate sales personnel in our distribution
channels for achieving annual quotas. Consequently, if revenue levels are below
expectations for a given quarter, operating results are likely to be
disproportionately affected when viewed by quarter since only a relatively small
portion of our operating expenses vary materially with revenues.
Our quarterly results are likely to vary due to a number of factors, such
as demand for our products, the size and timing of significant orders and their
fulfillment, the length of sales cycles for some of our newer products to our
larger customers, changes in our level of operating expenses, improvements in
operating efficiencies resulting from changes in systems and processes,
customers' budgeting cycles, changes in our sales incentive plans, changes in
the mix of products sold and conditions in foreign markets.
29
<PAGE> 34
YEAR 2000 ISSUES
Background: Some computers, software and other equipment include
programming code in which calendar year data is abbreviated to only two digits
(e.g., 99) rather than four digits (e.g., 1999). As a result, these systems
automatically assume that the first two digits of a calendar year are "1" and
"9." Therefore, time-sensitive functions of these systems may misinterpret dates
after January 1, 2000, to refer to the twentieth century rather than the
twenty-first century (i.e., "02" could be interpreted as "1902" rather than
"2002"). The problems associated with this design decision are commonly referred
to as the "Millennium Bug," "Year 2000 problem" or "Y2K problem."
Assessment: In 1996 we identified the Year 2000 problem as a potential
risk to our operations. As a result, we developed a comprehensive multi-year
plan to make our internal computer software and hardware systems Year 2000
compliant. Our Year 2000 compliance plan is comprised of 3 phases: an assessment
phase; an implementation phase; and a testing phase. This plan, initiated in the
first quarter of fiscal 1997, is in the final stages of implementation. While we
believe that we have implemented a comprehensive plan for addressing the Year
2000 problem and anticipate completing our compliance activities in a timely
manner, we cannot be certain that these Year 2000 compliance efforts will be
successful. The financial impact of making the required systems changes cannot
be known precisely at this time, but we currently expect these expenses to be
less than approximately $4.0 million. The financial impact, could, however,
exceed this estimate. Nonetheless, these costs are not expected to be material
to our business, financial condition, or results of operation. To date, we have
incurred expenses of approximately $3.5 million.
Internal Infrastructure: We believe that we have identified all of the
major computer hardware, software applications and other calendar year dependent
equipment used in connection with our internal operations. Our Year 2000
compliance plan addresses items that must be modified, upgraded, or replaced in
order to minimize the possibility of a material disruption of our business. We
have replaced our accounting, sales, distribution and manufacturing systems with
what we believe to be a Year 2000 compliant enterprise resource planning system.
We have replaced our human resource and payroll systems application software
with what we believe to be Year 2000 compliant software, and we have replaced
our internal phone system and associated equipment with what we believe to be a
Year 2000 compliant system. Currently, we are in the process of modifying,
upgrading and replacing, as appropriate, other computer software applications,
hardware, and equipment that could potentially be adversely affected by the Year
2000 problem. We expect to complete this implementation phase by the end of the
third quarter of 1999. The fourth quarter of 1999 has been reserved for final
testing of all of our systems for compliance.
Network Service Providers: Our ongoing operations are dependent on the
uninterrupted service provided to us by our voice (landline and wireless), data
and Internet service vendors. We have initiated communications with our various
service providers and have received assurance that they have or will address
Year 2000 compliance issues associated with their ability to provide
uninterrupted service. Any failure of these vendors to resolve any outstanding
Year 2000 issues in a timely manner could materially and adversely affect our
business, financial condition and results of operation.
Distributors and Suppliers: We have initiated communications with our key
distributors, service support providers and suppliers to establish the status of
their Year 2000 compliance. We have communicated with our major suppliers of
minicomputers, servers, computers, software and other equipment used, operated
or maintained by us to identify and, to the extent possible, resolve issues
associated with the Year 2000 problem. We are also gathering Year 2000
compliance information from web sites and other public sources for our second
and third-tier distributors and suppliers. We believe that we have identified
all of the potential Year 2000 problems with respect to these distributors,
service support providers and suppliers and have received their commitment to
resolve any outstanding issues in a timely manner. However, any failure on our
part to identify potential third party Year 2000 problems or any failure of
these parties to resolve any outstanding issues with their systems in a timely
manner could materially and adversely affect our business, financial condition
and results of operations.
As we must rely to a large extent on representations made by our suppliers
and distributors from surveys and questionnaires, a failure by these parties to
adequately address and resolve Year 2000 problems poses the
30
<PAGE> 35
most likely unresolved Year 2000 risk to us. In the event our suppliers are
unable to adequately address Year 2000 problems, such inability could disrupt
their supply of critical components to us for the manufacture of our products.
Contingency Plans: We are currently developing contingency plans to be
implemented as part of our efforts to identify and correct Year 2000 problems
affecting our internal systems. We expect to complete these contingency plans by
the end of the third quarter of 1999. Depending on the systems affected, these
plans could include (i) accelerated replacement of effected equipment or
software, (ii) increased work hours for our personnel or use of contract
personnel to correct on an accelerated schedule any Year 2000 problems which may
arise, (iii) the provision of manual workarounds for information systems and
(iv) other similar approaches. If we are required to implement any of these
contingency plans, such plans may have a material adverse effect on our
business, financial condition or results of operations. Additionally, we may not
complete these contingency plans in a timely manner, and failure to do so could
have a material adverse effect on our business, financial condition or results
and operations.
The discussion of our efforts and expectations relating to Year 2000
compliance are forward-looking statements. Our ability to achieve Year 2000
compliance and the level of incremental costs associated with achieving this
compliance could be adversely impacted by, among other things, the availability
and cost of programming and testing resources, the ability of parties with whom
we interact to resolve Year 2000 issues and unanticipated problems identified in
our ongoing compliance review.
MARKET RISK
We are exposed to changes in interest rates primarily from our revolving
line of credit facility with Bank of America NT&SA and, secondarily, from
investments in some held-to-maturity securities. Under our current policies, we
do not use interest rate derivative instruments to manage exposure to interest
rate changes. Additionally, we do not currently engage in foreign currency
hedging transactions to manage exposure for transactions denominated in
currencies other than U.S. dollars.
INFLATION
Because of the relatively low levels of inflation experienced in 1996, 1997
and 1998, inflation did not have a significant effect on our results in such
years.
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BUSINESS
OVERVIEW
We are a leading developer, manufacturer and distributor of broadband and
narrowband network access products for network service providers, commonly
referred to as NSPs, and business customers. Paradyne operates in a single
business segment. We offer solutions that enable business class, service level
managed, high-speed connectivity over the existing telephone network
infrastructure and provide for cost-effective access speeds of up to 45 megabits
per second, or Mbps. We believe that demand for high-speed, broadband
transmission will continue to increase as more business and residential users
find narrowband access technologies inadequate to meet their high-bandwidth
requirements. Our objective is to maintain and build upon our position as one of
the leaders in the broadband access market by focusing on next generation
digital subscriber line, more commonly known as DSL, service level management,
more commonly known as SLM, and other broadband access solutions.
We have a long history of technological innovation, and we hold over 155
U.S. patents and have over 100 U.S. patent applications pending. Our equipment
has been sold to over 50% of the Fortune 500 companies and in businesses in over
125 countries. We estimate that sales to NSPs represented approximately 40% of
our total revenues in 1998. With our reputation and history as a supplier of
access solutions to a large customer base, we believe that we are
well-positioned to provide broadband access solutions to NSPs and business
customers as they upgrade their networks.
INDUSTRY BACKGROUND
Over the past several years, data traffic generated by computer users
accessing the Internet or business networks has increased significantly.
Industry analysts believe that the volume of this data traffic, referred to as
wide area network traffic, will continue to expand rapidly due to four key
trends:
- the dramatic growth in the use of the Internet;
- the proliferation of distributed computing applications, such as
electronic mail, electronic transaction processing, enterprise resource
planning and inter-enterprise information transfer based on Web-
technologies;
- the deregulation of the telecommunications services industry which has
increased the number of service providers and intensified competition;
and
- the continued deployment of high capacity fiber optic networks and the
emergence of high-volume bandwidth network access technologies that
increase the ability to transfer large volumes of information.
In order to accommodate increasingly high volumes of data, NSPs have
invested significant resources to upgrade central office switching centers and
the interconnecting infrastructure, known as the network backbone. While
capacity constraints in the network backbone continue to be addressed through
the use of high speed digital and fiber-optic equipment, the network that
connects end users to NSPs central offices, typically known as the "last mile,"
remains a bottleneck that limits high-speed data transmission. The last mile was
originally constructed with copper twisted-pair wiring designed to support
analog voice traffic. There is an installed base of over 170 million copper
lines in the United States, and over 780 million worldwide. End users have been
frustrated by the limitations on the ability of NSPs to cost effectively deliver
high-speed services, such as telecommuting, branch office internetworking and
Internet access, over the last mile using standard, narrowband dial-up
connections, which are typically limited to data transmission rates of 28.8
kilobits per second, or Kbps, to 56.0 Kbps. We believe that most business and
residential users are finding these types of narrowband access technologies
inadequate to meet their high bandwidth requirements.
Global regulatory changes are increasing the number of competitors in the
access portion of the network and are further accelerating the need for NSPs to
upgrade their networks and increase their service offerings. Internationally, a
number of developed and developing nations have privatized their state-owned
telecommuni-
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<PAGE> 37
cations monopolies and opened their markets to new NSPs. Competitors that have
emerged and potentially could take customers from incumbent carriers include
competitive local exchange carriers, often called CLECs, Internet service
providers, satellite operators, cable operators and electric utilities. For
example, cable operators are already beginning to provide data transmission
services to customers by leveraging the high bandwidth capabilities of their
coaxial cable based infrastructure. This increase in competition for the access
portion of the network is also helping to facilitate the transition from analog
to digital and narrowband to broadband access over the last mile.
New digital technologies have been introduced to increase the speed and
quality of digital transmission over the copper wire infrastructure, or local
loop, in the last mile and provide alternative means of accessing the network
backbone. The increased speed, lower transmission cost, higher reliability and
quality of digital networks are better suited for transmitting the increased
level of enhanced voice and high-speed data traffic that now must pass over the
last mile. Recently, NSPs have begun to install higher-speed, digital broadband
transmission technologies, such as DSL, in the last mile. Dataquest forecasts
that the market for DSL equipment will grow from approximately $286 million in
1998 to over $1.6 billion by 2002.
NSPs have deployed various narrowband and broadband technologies across
customers' wide area networks in order to provide cost-effective access
solutions for their customers. Demand for high-speed access services has
increased and more protocols have emerged to facilitate the connections of
business customers to NSPs' network backbones. Protocols are computer languages
that allow two or more communications devices, such as modems, to communicate
with one another. These protocols include Frame Relay, asynchronous transfer
mode, commonly referred to as ATM, integrated services digital network, commonly
referred to as ISDN, DSL and others. When networks must support multiple
protocols, network management is more difficult because many protocols are being
used simultaneously and the network management devices must decipher each
protocol. The proliferation of protocols makes the provisioning and management
of high-speed access technologies and services increasingly difficult. As a
result, NSPs are required to operate and maintain hybrid networks comprised of
recently adopted new technologies and existing installed equipment.
The performance, quality and maintainability of network services are highly
dependent on the volume and type of traffic running over these hybrid networks.
As a result, NSPs and business customers need sophisticated diagnostic and
management capabilities to monitor business customer application traffic. The
required tools should analyze the physical transmission characteristics as well
as enable NSPs and business customers to evaluate compliance with service level
agreement parameters such as, how much data gets through the network, the time
it takes data to get through the network and availability of the network.
Business customers also need management solutions that can be scaled to meet
growing demand for services, improve network quality, reduce the number of
support personnel managing their networks and lower the overall costs for
bandwidth and maintenance tools.
As demand for high-speed transmission continues to increase, we believe
that the telecommunications industry will continue to develop and deploy new
broadband access technologies, which will become increasingly cost competitive
with traditional technologies. As a result of changes in the telecommunications
industry, NSPs are requiring flexible solutions that can be scaled to meet
growing demand for services, and also permit easy, cost-effective enhancements
in the future. With the increasing number of access protocols and equipment
options, customers are placing a higher level of importance on the ability of
equipment providers to deliver integrated system solutions.
THE PARADYNE SOLUTION
Paradyne is a leading developer, manufacturer and distributor of network
access products for NSPs and business customers. We offer solutions that enable
business class, service level managed, high-speed connectivity over the existing
telephone network infrastructure and provide for cost-effective access speeds of
up to 45 Mbps. NSPs use our broadband products to enable high-speed managed
connections from the central office to the customer premise. Moreover, our
broadband products enable NSPs to more efficiently provide network access
services by allowing a high level of management, monitoring and control over
network access equipment and circuits. Business customers use our broadband
products for high-speed connection of voice
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<PAGE> 38
and data communications to connect their employees to corporate wide area
networks and to the Internet using both public and private services provided by
NSPs. Our products are designed for easy installation by NSPs and end users,
significantly reducing the need for installation by an onsite service
technician, thereby reducing costs for network access. Additionally, our
narrowband products are used by NSPs and business customers to provide
connectivity between an NSP's analog or digital circuit and a customer's digital
equipment.
[GRAPHIC DEPICTING PARADYNE HOTWIRE DSL, SUPERLINE, FRAMESAVER SLM AND
CONVENTIONAL ACCESS SOLUTIONS CONNECTING TO MULTIPLE NETWORK BACKBONE
FACILITIES. -- GRAPHIC ENTITLED "PARADYNE BROADBAND ACCESS SOLUTIONS."]
BROADBAND SOLUTIONS
- Broadband DSL Access. Our Hotwire solution delivers broadband DSL access
across the existing copper wire infrastructure. The Hotwire products
enable competitive local exchange carriers, incumbent carriers and other
NSPs to provide broadband access to business customers, teleworkers and
residential customers at substantially reduced rates compared to
conventional service offerings. We believe our Hotwire solution allows
NSPs the ability to deploy the broadest array of DSL technologies of any
commercially available product in a single platform. This enables NSPs to
match the appropriate DSL technology to the customer's application
requirements and thereby serve a wider array of customers. This also
allows for a more efficient utilization of expensive central office
equipment space and minimizes operational support requirements, such as
training and inventory, by using a single vendor. The recently introduced
SuperLine system incorporates our Tripleplay technology, a technology
developed by Paradyne that enables multi-line voice and data service over
a single telephone line, and allows NSPs to offer cost effective,
multiple line voice and high speed data services over a single
traditional telephone line to residential customers, small offices and
home offices. The SuperLine system incorporates products and technology
manufactured and developed by AG Communication Systems and Paradyne.
Contractually, both AG and Paradyne have the rights to sell the entire
system. The SuperLine product can be easily installed by customers to
meet their broadband access needs.
- Broadband SLM. The FrameSaver solution enables competitive local
exchange carriers, incumbent carriers and other Frame Relay service
providers to offer managed high-speed service from end-to-end across
their networks and across multi-carrier networks. Using packet
technology, Frame Relay and asynchronous transfer mode networks allow for
the economical use of the broadband network backbone. Packet technology
allows many customers data to share the same network. Each customer's
data is put into packets, or envelopes, that contain only their data and
have an identification stamp that designates the customer. These packets,
or envelopes, are then sent over a broadband network along with other
customer's packets. These packets are able to simultaneously share the
broadband network. However, without the use of an SLM solution, the NSP
and the business customer are unable to proactively manage and guarantee
the level of service across the network. The FrameSaver solution allows
customers the ability to graphically view real time and historical
network performance statistics and troubleshoot failures end-to-end
across the Frame Relay network from our OpenLane network management
system.
- Broadband Conventional Access. Our Acculink and NextEdge solutions
deliver broadband access across the existing NSP infrastructure utilizing
T1/E1 links. A T1/E1 link is a connection between two locations that
carries data at the rate of 1.544 megabits per second (T1) or 2.048
megabits per second (E1). The T1/E1 infrastructure is the most commonly
deployed broadband network system today and is widely available in the
United States. Customers often have both voice and data networks that
were installed using multiple broadband and/or narrowband access lines. A
single conventional broadband facility can typically accommodate up to 24
narrowband lines. Acculink and NextEdge act as the required
communications interface to these broadband networks and enable the
elimination of narrowband access lines by consolidating voice and data
over the same broadband circuit. Access
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<PAGE> 39
consolidation reduces the cost of high speed access and may also increase
performance, particularly when customers consolidate multiple narrowband
access lines onto broadband facilities. Additionally, NextEdge
incorporates FrameSaver SLM functions to deliver access consolidation and
SLM in the same platform. Acculink and NextEdge solutions are used by
competitive local exchange carriers, incumbent carriers and other NSPs to
offer service level managed, high speed access to public and private
networks. Business customers choosing to manage their own networks also
deploy our Acculink and NextEdge solutions.
NARROWBAND SOLUTIONS
- Subrate Digital Access and Analog Modems. Our Comsphere digital access
products provide an interface between a customer's digital equipment and
an NSP's digital circuit operating at speeds of up to 64 Kbps. Our
Comsphere modems enable analog communications over dial-up or dedicated
circuits. These products enable NSPs and business customers to build
low-cost, centrally managed networks. Introduced in the early 1990s,
these products are widely deployed in NSP networks and business networks
around the world.
STRATEGY
Our objective is to maintain and build upon our position as one of the
leaders in the broadband access market utilizing next generation DSL solutions,
conventional copper broadband solutions and SLM solutions. Key elements of our
strategy include:
CONTINUE TO DEVELOP INNOVATIVE BROADBAND TECHNOLOGY AND SYSTEM SOLUTIONS
We will continue to focus on providing innovative, cost-effective broadband
access solutions that improve communications over the traditional copper
telephone wire infrastructure for NSPs and business customers. We believe that
our internally developed technologies play a key role in differentiating our
products from those of our competitors. We have over 155 U.S. patents issued and
over 100 U.S. patent applications pending, and we expect many of these patents
and patent applications will contribute to the development of new technologies
and systems. In addition, we will continue to collaborate with technology
partners to facilitate the development of competitive products, as we have
previously done with NetScout, AGCS and others. Our DSL technological
innovations include our MVL and Tripleplay technologies, which have been
implemented in our Hotwire and SuperLine products. Our SLM technology
innovations have been implemented in our FrameSaver, NextEdge and OpenLane
products. We intend to enhance our Hotwire DSL solutions with higher port
densities, additional customer premises equipment capabilities and additional
features for our DSL access multiplexer, commonly referred to DSLAM. Higher port
densities will allow more modems to be deployed in one DSLAM which lowers the
cost of deploying a modem. The cost is lowered because more modems can share the
common cost of the DSLAM chassis and power supplies and because customers can
put more modems in the same amount of shelf space. In order to increase customer
premises equipment capabilities, we intend to build products that allow
customers to perform many functions over their DSL network. These products could
allow voice and data to share the DSL network, SLM to be deployed over a DSL
network, streaming audio and video over a DSL network or special protocols to be
transmitted over a DSL network. In order to create additional features for our
DSLAM we plan to continue to develop new versions of both hardware and software
to support new requirements from our customers. We also intend to enhance our
Tripleplay technology to support additional voice channels and faster data
speeds. Further, we intend to integrate our FrameSaver SLM technology into
additional platforms, including those that support DSL and asynchronous transfer
mode. As our customers continue to expand their DSL networks into the
application space of conventional broadband networks, we believe our
technological leadership and products provide Paradyne a competitive advantage.
CONTINUE TO CAPITALIZE ON BUILDOUT OF DSL INFRASTRUCTURE
Revenues from worldwide sales of DSL equipment are projected by industry
sources to increase by approximately 275% from 1998 to 2002. To capitalize on
this projected growth, we intend to continue to
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pursue "design wins" from NSPs that are offering or plan to offer DSL services.
A "design win" is achieved when an NSP adopts Paradyne products as one of a
limited number of DSL platforms for its central office. A typical NSP buildout
includes DSLAMs in an NSP's central office, resulting in an installed base into
which Paradyne will be well positioned to sell DSL line-cards for the DSLAMs and
DSL customer premises equipment for the end user. Since the third quarter of
1997, Paradyne had shipped over 2,000 DSLAMs. Some of our current DSL customers
include CFW Communications, Guangdong PTA, HarvardNet, NAS CuNet, Rhythms, TDS
Telecom and Tunisia Telecom. We will continue to focus on increasing our number
of design wins with new NSPs as well as maintain our existing relationships with
NSPs who have awarded us design wins in the past. We also intend to continue to
produce a variety of DSL line-cards and DSL customer premises equipment to
handle the diverse needs of our NSP customers. We intend to install DSL
interfaces on our FrameSaver and NextEdge products which will allow customers to
deploy those solutions into DSL networks. We further plan to enhance our DSLAMs
so that they may be interoperable with other companies' technologies and DSL
customer premises equipment in order to provide a more comprehensive DSL
solution.
INCREASE WORLDWIDE DEPLOYMENT OF FRAMESAVER AS PART OF NSP/SLM SOLUTIONS
NSPs are enhancing their service offerings by providing service level
agreements for their Frame Relay and asynchronous transfer mode business
customers. Service level agreements are put in place between an NSP and the
NSP's customer to document how the NSP and the customer expect the service to
operate. If the service does not operate as specified, then there is typically
some type of remedy. An example might be that the service is supposed to be
available 24 hours a day, 365 days a year. If the service is not available for
one of those days, then the NSP might be required to reimburse the customer for
one day's worth of charges. We believe that as service level agreements become
more widely adopted, NSPs and end user customers will increasingly require SLM
solutions and, therefore, that NSPs will be required to incorporate these
solutions in their networks. We intend to focus on further integrating
FrameSaver as part of our existing NSP customers' service level agreement
solutions and obtaining additional FrameSaver design wins from new NSPs.
Currently, Ameritech, Intermedia, IXC and MCI WorldCom offer FrameSaver
solutions to their customers. In addition, we intend to work with other Frame
Relay and ATM equipment vendors to leverage our FrameSaver products.
FOCUS ON PRODUCT SALES TO AND THROUGH NSPS
We intend to continue focusing on NSPs that provide managed network access
services to capitalize on the increased demand for such services. Over the past
three years, our sales to NSPs have increased as a result of the efforts of our
worldwide NSP direct sales force. We estimate that over 40% of our revenues in
1998 were generated from sales to NSPs. We intend to focus the efforts of our
direct sales force on maintaining and increasing sales within our current NSP
customer base as well as attracting new NSPs. We plan on focusing primarily on
NSPs deploying DSL, Frame Relay and second and third line voice and data
services.
LEVERAGE FORTUNE 500 CUSTOMER BASE AS THEY UPGRADE THEIR NETWORKS TO BROADBAND
We intend to leverage our installed base of Fortune 500 companies and other
businesses that have purchased our narrowband products and conventional
broadband products. Many of these customers have deployed networks including a
combination of our narrowband and broadband solutions, and we expect that over
the next few years many of these companies will upgrade their networks with
additional broadband solutions. We believe that our existing customers prefer to
buy broadband products from Paradyne as a result of the ability to integrate
Paradyne products into their existing networks more efficiently than the
products of our competitors. In order to capitalize on this potential equipment
upgrade within Fortune 500 companies, we intend to continue to provide
cost-effective solutions for our current customers while increasing our sales
effort with our Fortune 500 customer base.
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PRODUCTS AND TECHNOLOGIES
We develop, manufacture and distribute an extensive line of broadband and
narrowband network access products and technologies. Sales of broadband products
represented approximately 38% of our total product sales in 1997 and 53% of our
total product sales in 1998. In addition, we provide advanced network management
systems that allow business customers and NSPs to have a high level of
management, monitoring and control over their network access equipment and
circuits. Although advanced network management systems are an important aspect
of our products and technology, they have not been a material aspect of our
sales revenue generation. The table below includes a summary of our principal
products. A further description of such products follows the table.
PARADYNE PRODUCT PORTFOLIO
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION APPLICATION
<S> <C> <C>
BROADBAND SOLUTIONS
Hotwire DSLAM A standalone or stackable Typically resides inside a
chassis that houses different network service provider's
line cards supporting a central office and terminates
variety of DSL technologies. many DSL lines and aggregates
them into a high speed
connection to a network
backbone.
Hotwire RADSL Consists of: The card in the DSLAM and the
- A line card that fits inside endpoint create a high speed
the digital subscriber line packet connection operating at
access multiplexer, or transmission rates up to 7
DSLAM, and supports megabits per second over a two
asymmetric digital wire telephone line. Also
subscriber line, or ADSL, allows voice to be transmitted
and symmetric digital at the same time data is being
subscriber line, or SDSL, transmitted.
technologies that operate at
the highest possible speed
based on the quality of the
telephone line; and
- A standalone endpoint that
connects the user to the
telephone line.
Hotwire MSDSL Consists of: The card in the DSLAM and the
- A line card that fits inside endpoint create a high speed
the DSLAM and supports SDSL connection operating at
technology that operates at transmission rates up to 2
the highest possible speed megabits per second over a two
based on the quality of the wire telephone line. Also
telephone line; and allows voice to be transmitted
- A standalone endpoint that at the same time data is being
connects the user to the transmitted.
telephone line.
</TABLE>
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<PAGE> 42
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION APPLICATION
<S> <C> <C>
Hotwire MHDSL Consists of: The card in the DSLAM and the
- A line card that fits inside endpoint create a high speed
the DSLAM and supports high connection operating at
bit rate digital subscriber transmission rates up to 2
line, or HDSL; megabits per second over a
- Technology that operates at four wire telephone line. Also
the highest possible speed allows voice to be transmitted
based on the quality of the at the same time data is being
telephone line; and transmitted.
- A standalone endpoint that
connects the user to the
telephone line.
Hotwire MVL (Multiple Virtual Consists of: The card in the DSLAM and the
Lines) - A line card that fits inside endpoint create a high speed
the DSLAM and supports MVL packet connection operating at
technology that operates at transmission rates up to 768
the highest possible speed kilobits per second over a two
based on the quality of the wire telephone line. Also
telephone line; and allows voice to be transmitted
- A standalone endpoint that at the same time data is being
connects the user to the transmitted.
telephone line.
SuperLine A standalone endpoint that The endpoint allows up to
allows three telephone lines three distinct telephones,
and one ethernet port to share each with a different phone
a single telephone line. number, to share the single
telephone line into a business
or residence. In addition,
there is an ethernet port that
also allows up to 640 kilobits
per second of data to share
the telephone line.
FrameSaver Consists of: Many locations are connected
- A standalone endpoint that to a Frame Relay network and
connects remote offices to a the service level management
frame relay network. Also software is used to make sure
available as a line card; each location is operating
and efficiently per the
- Service level management configuration of the Frame
software for monitoring and Relay service.
managing a Frame Relay
network.
FrameSaver Network to Network A standalone endpoint that Allows two different Frame
Interface connects two Frame Relay Relay networks to be connected
networks together. together and support the
service level management
software applications.
FrameSaver/ATM A standalone endpoint that Allows one high speed
connects large locations to a connection to a Frame Relay
Frame Relay network through a network that is more efficient
45 megabits per second than many lower speed
connection to an asynchronous connections.
transfer mode network.
</TABLE>
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<PAGE> 43
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION APPLICATION
<S> <C> <C>
Acculink Broadband Digital Standalone endpoints that Allows voice and data traffic
Access transmit data and voice over to share a single, high-speed
high-speed circuits. Also circuit to a variety of
available as a line card. backbone networks.
NextEdge A standalone endpoint that Allows many different data and
supports many data and voice voice services at a remote
connections over several high- office to share one or two
speed circuits. Also supports high speed circuits to a
the FrameSaver service level variety of backbone networks.
management system. In addition, it can be
integrated into a FrameSaver
service level management
system.
NARROWBAND SOLUTIONS
Comsphere Subrate Digital Standalone and line card Allows data services to be
Access products that support data connected over digital leased
transmission over digital lines at narrowband speeds.
network facilities.
Comsphere Modems Standalone and line card Dial-up and leased line modems
products that support data that allow narrowband
transmission over analog connectivity over analog
network facilities. lines.
NETWORK MANAGEMENT SOLUTIONS
OpenLane Network Management Software for managing networks Used as a standalone system or
System built with Paradyne products. part of a larger system to
manage all the Paradyne
products deployed in a
network.
</TABLE>
BROADBAND SOLUTIONS
Broadband DSL
Hotwire. The Hotwire multiservices system includes DSLAM termination
equipment, which provides aggregation of services in the central office, and an
array of customer premises equipment, which extend various broadband access
services over the local loop to the customer premise. The system supports a
range of broadband multimedia access services, such as business and residential
Internet access, remote local area networks access and virtual private network
access at symmetric rates (similar transmission rate for sending and receiving
data over the same line) of up to 1 Mbps and asymmetric rates (varying
transmission rates for sending and receiving data over the same line) of up to 7
Mbps. Hotwire also supports Frame Relay, asynchronous transfer mode T1/E1
channelized access to the wide area networks. With channelized access, customers
can send and receive voice or data traffic on different channels. For example,
channels 1-12 could be used to send data while channels 13-24 could be used to
send voice. In addition to supporting high density configurations for central
office applications, the efficient packaging for lower density market entry
applications allows Hotwire products to be deployed in a variety of private
copper networks, including multi-dwelling-units for both business and
residential access services, universities, hotels, and government campus private
networks.
Our primary customers for Hotwire products are competitive local exchange
carriers, incumbent carriers and other NSPs. Their services are typically
focused on meeting the broadband networking requirements of business customers,
teleworkers and the small office/home office market -- often with an emphasis on
broadband Internet access. Competitive local exchange carriers customers, such
as Rhythms, are deploying a nationwide network using our Hotwire systems.
Incumbent carriers such as North Pittsburgh Telephone are deploying Hotwire in
their local service areas. NSPs outside the United States, such as the Guangdong
PTA in China, are using Hotwire products to deliver broadband access to the
provinces they serve. The principal focus of these customers, particularly in
the early stages, is to build out central office installations. Our
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<PAGE> 44
Hotwire products are easily installed, scaleable and operate over long loops,
which enhance an NSP's ability to deploy them quickly and service new customers.
We believe that the ability to support multiple access services, with a
choice of symmetric or asymmetric DSL technologies, multiple backbone
capabilities and the ability to scale to over 1,000 DSL lines per system makes
Hotwire one of the most flexible and scalable DSL systems available. We believe
this is important because our NSP customers may want to supply symmetric
services to their business customers and asymmetric services to their consumer
customers. In addition, our NSP customers may want to use asynchronous transfer
mode on some backbone connections and Frame Relay on other backbone connections.
The Hotwire system can be configured, monitored and controlled through our
OpenLane network management system that provides complete end-to-end management
and reporting coverage of the entire broadband DSL access solution.
Hotwire products consist of two major product family categories, DSLAMs and
customer premises equipment.
[DIAGRAM DEPICTING PARADYNE HOTWIRE DSL CPE SUPPORTING RADSL, MSDSL, MHDSL AND
MVL CONNECTING TO THE SUPPORTING DSLAM LINE CARDS OVER THE COPPER LOCAL LOOP
DEMONSTRATING DSLAM AGGREGATION TO MULTIPLE NETWORK BACKBONE
FACILITIES. -- GRAPHIC ENTITLED "HOTWIRE MULTISERVICES DSL SYSTEM."
GRAPHIC INDICATES THAT "THE PARADYNE HOTWIRE DSLAM SUPPORTS MULTIPLE TYPES OF
VOICE AND DATA TRANSPORT"]
- Hotwire Multiservices DSLAMs: A DSLAM is a DSL access multiplexer
installed in NSPs' central offices and private copper networks that provides
termination and aggregation of multiple DSL lines and associated services
protocol translation. The Hotwire Multiservices DSLAM systems consist of network
equipment building standard certified chassis and associated DSL line cards, and
an aggregation system with a variety of wide area network options and a
standards based network management system. Network equipment building standard
certification is generally necessary in order for a product to be installed in
the central office of an NSP. Key features of a Hotwire DSLAM system include:
- the ability to support line cards that support between four and 24
ports per card;
- multiple DSLAM configurations, which include our highly-compact,
stackable DSLAM supporting as few as 4-8 DSL lines which is scalable
to 68 lines and our high-density DSLAM supporting as many as 432 lines
per shelf;
- the ability to support a range of voice and data applications that
operate over packet technologies and channelized access technologies;
- a broad set of available interfaces to consolidate traffic onto a
backbone network. These interfaces operate from between 1.544 Mbps up
to 45 Mbps and can be configured to support Ethernet, Frame Relay or
asynchronous transfer mode. These interfaces include: 10base-T,
100base-T, Channelized T1 and E1, Frame Relay T1 and E1 and
asynchronous transfer mode; and
- a simple network management protocol compliant distributed network
management architecture that supports efficient network management
required for large NSP network deployments.
- Hotwire DSL customer premises equipment: Hotwire customer premises
equipment terminates DSL access services at the customer premise for
connectivity to local area networks, personal computers, plan systems, routers
and other voice and data equipment. Hotwire customer premises equipment operates
at a variety of transmission speeds and loop lengths to meet the needs of our
customers. Hotwire customer premises equipment and associated DSLAM line cards
support multiple DSL technologies.
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<PAGE> 45
We expect to continue to implement these multiple DSL technologies in our
Hotwire products, and, consistent with market requirements, to implement
additional DSL technologies, such as G.lite. Additionally, Hotwire customer
premises equipment will be enhanced to include new features required by our
customers and the general market. While we purchase some of the DSL technologies
implemented in the Hotwire DSLAM and customer premises equipment, our MVL
product represents a new DSL technology developed and implemented by Paradyne
that does not require a telephone line splitter and works over very long loops.
The primary advantages of MVL technology are:
- simultaneous voice and data capability over copper loops up to 24,000
feet and is not affected by multiple terminations of copper loop,
commonly known as bridged taps, which provides for ease of customer
installation and eliminate rewiring at the customer premise; and
- operates using low power, which allows higher density DSLAMs which
lowers the cost for our NSP customers.
In March 1999, we received approval from the FCC to register Hotwire MVL
under Part 68 of the FCC's Rules for the Registration of Telephone Equipment
code. The FCC requires that all customer installed equipment that resides on the
telephone infrastructure be registered under Part 68. This approval is based on
the FCC's decision that Hotwire MVL benefits the public's interest by providing
enhanced customer choice and improved service quality for data transmission over
the public switched telephone network and does not pose a risk of harm to the
public switched telephone network. We believe that MVL is the only DSL
technology to receive such approval to date, and that the approval should allow
more customers to deploy MVL while meeting the network requirements of incumbent
carriers.
SuperLine. SuperLine is an integrated access system that provides
integrated voice and data broadband access services to the residential and small
office/home office markets.
[DIAGRAM DEPICTING THE SUPERLINE INTEGRATED ACCESS SYSTEM CONNECTING A
RESIDENTIAL CUSTOMER'S DATA AND MULTI-LINE VOICE APPLICATIONS OVER A SINGLE
COPPER PAIR TO THE CENTRAL OFFICE. -- GRAPHIC ENTITLED "SUPERLINE INTEGRATED
ACCESS SOLUTION."
GRAPHIC INDICATES THAT "SUPERLINE REDUCES THE COST OF ADDING MULTI-LINE VOICE
AND INTERNET ACCESS." GRAPHIC ALSO LISTS THE MAIN FEATURES OF SUPERLINE
INTEGRATED ACCESS SOLUTION AS HAVING THE FOLLOWING:
- REGULAR PHONE LINE AND UP TO TWO ADDITIONAL PHONE LINES
- 56 KBPS MODEM SUPPORT ON ADDITIONAL LINES
- CONSUMER INSTALLATION -- NO TRUCK ROLL
- TOLL QUALITY VOICE AND CALLING FEATURES SUPPORTED
- HIGH-SPEED DATA (UP TO 640 KBPS)
- AUTOMATIC QUALITY OF SERVICE FOR VOICE
- OPTIMIZED DYNAMIC BANDWIDTH FOR DATA
- USES A SINGLE COPPER PAIR]
SuperLine offers several advantages over other currently available
solutions through its support of as many as three telephone lines and a
high-speed Internet access connection over a single existing phone line. We
believe SuperLine is currently the only product to offer such a solution.
SuperLine provides access at rates up to 10 times faster than current narrowband
products. SuperLine can be installed by the end user simply by plugging it into
a standard telephone jack. SuperLine allows carriers to increase service
offerings without installing additional copper lines. The primary customers for
our SuperLine integrated access system are incumbent carriers, many of which are
facing a shortage of available copper wire lines and are seeking alternatives to
physically installing new lines or deriving lines with existing technologies.
The SuperLine system is also compatible with all major switching systems
currently sold in North America. Developed through a partnership with AG
Communications Systems, SuperLine integrates Tripleplay, a technology developed
by Paradyne that enables multi-line voice and data service over a single
telephone line. We also
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<PAGE> 46
designed and manufacture the associated SuperLine integrated access device that
is distributed as part of the SuperLine system. The NSP central office equipment
included in the SuperLine system was developed and is manufactured by AG
Communications Systems. See "Corporate Development Relationships." The SuperLine
system was introduced in January 1999 and is distributed by Lucent and AG
Communications Systems.
Broadband Service Level Management
[DIAGRAM DEPICTING THE FRAMESAVER SLM PRODUCTS INTERCONNECTING OVER A FRAME
RELAY NETWORK AND AN NSP'S OPENLANE NETWORK MANAGEMENT SYSTEM CONNECTING TO
MONITOR AND ANALYZE THE PERFORMANCE OF THE NETWORK BY COLLECTING THE DATA FROM
THE FRAMESAVER CUSTOMER PREMISES EQUIPMENT. -- GRAPHIC ENTITLED "PARADYNE
FRAMESAVER -- WAN SERVICE LEVEL MANAGEMENT SOLUTION."]
FrameSaver. Our FrameSaver system is an innovative SLM system for Frame
Relay and Frame Relay/asynchronous transfer mode networks. The FrameSaver system
consists of customer premises equipment, NSP equipment and network management
software to monitor and measure network performance across public Frame Relay
systems. The FrameSaver system measures performance and stores the results for
retrieval by our OpenLane network management system. The storage and data
retrieval mechanisms have been implemented according to recognized industry
standards, which makes the FrameSaver system compatible and interoperable with
many other systems that business customers or NSPs may have installed. The
FrameSaver network access units also provide extensive non-disruptive diagnostic
and testing capabilities along with standard access functionality, to give
enterprise customers or service providers a complete managed solution. The
remote monitoring technology included in the FrameSaver System, called RMON-2,
was developed by NetScout and is included in the FrameSaver system pursuant to a
collaboration between Paradyne and NetScout. The significance of utilizing
RMON-2 is that it is a communications language that has been standardized.
Therefore, many different companies build products that utilize RMON-2 which
enables communication with the FrameSaver system. See "Corporate Development
Relationships."
Key features of our FrameSaver system include:
- extensive performance management with diagnostic and control capabilities
that are used to identify and resolve problems quickly without disrupting
the network;
- standards based measurements that allow customers to measure data
throughput both within and above their committed information rates;
- available in a range of network access speeds, from 64 Kbps up to T3;
- non disruptive management that can be accessed over the Frame Relay
network or through an integrated dial modem;
- the ability to install and diagnose without the presence of a router;
- dial backup through integrated service digital network to protect against
network failures;
- network to network interface for SLM across multiple Frame Relay
networks;
- auto configuration of customer premises equipment for ease of
installation; and
- the ability to scale from small single customer networks to very large
service provider networks.
FrameSaver allows companies to build and manage data networks based on
public network services, while maintaining the same operational efficiency and
confidence used in the management of private networks. By deploying FrameSaver,
business customers can move applications from costly leased lines to shared
public networks and benefit from reduced network services costs, while
maintaining a high degree of control of the network. The FrameSaver system
enables NSPs and business customers to accurately monitor the performance of
individual customer connections across a public or private Frame Relay or Frame
Relay/asynchronous transfer mode network and to report details of that
performance at varying time intervals.
While competing products may offer some of the features of the FrameSaver
product, we believe that no other product on the market today offers such a wide
variety of features. With our FrameSaver solution's
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<PAGE> 47
ability to operate completely independent of a router, NSPs are able to manage
the network end-to-end without relying on the customer's router. Router
independence is a key differentiating feature because during installation of the
circuit, the router might not be installed and when diagnosing an operational
circuit, it may be the router that is actually causing the problem. FrameSaver
offers NSPs the ability to perform non-disruptive circuit loopback testing from
their network operations center. This FrameSaver feature allows an NSP to
respond to a trouble call within a few minutes instead of hours, saving time and
personnel expense while increasing customer satisfaction. For these reasons,
management believes that due to its comprehensive feature set, FrameSaver offers
NSPs and business customers cost savings not found in competing solutions.
Broadband Conventional Access
[DIAGRAM DEPICTING THE PARADYNE NEXTEDGE SOLUTION AGGREGATING MULTIPLE VOICE AND
DATA APPLICATIONS OVER A SINGLE BROADBAND ACCESS FACILITY CONNECTING TO THE
PUBLIC SWITCHED TELEPHONE NETWORK AND A FRAME RELAY NETWORK AND PROVIDING
SLM. -- GRAPHIC ENTITLED "PARADYNE NEXTEDGE CONSOLIDATED ACCESS SOLUTION."
GRAPHIC INDICATES THAT "MULTI-SERVICES T1 ACCESS REDUCES OVERALL NETWORK ACCESS
CHARGES" AND THAT "FRAMESAVER INSIDE NEXTEDGE UNIT PROVIDES SERVICE LEVEL
MANAGEMENT."]
Acculink and NextEdge T1/E1 digital access products consist of a range of
products that provide an interface between a T1 circuit, which carries data at
1.544 Mbps or E1 circuit, which carries data at 2.048 Mbps, and a customer's
high-speed digital equipment, such as a computer, router, multiplexer, wide area
network switch or telephone system. The Acculink and NextEdge products are
managed by our OpenLane network management system, which provides centralized
management of large, geographically disbursed networks for NSPs and businesses.
Businesses, service providers, government entities and other organizations use
these products to build low-cost, centrally managed networks for high-speed,
digital applications. Our T1/E1 digital access products provide a broad range of
features, including centralized, standards-based network management multiple
voice and data interface ports and multiplexing.
Acculink. Acculink products provide integrated voice and data network
access to business customers who want to take full advantage of their T1/E1
bandwidth capacity. The products are used primarily in applications where voice
and data integration over a T1 or E1 line is required. The Acculink T1/E1
products were introduced as a standard part of AT&T's High-Speed Accunet digital
services in the early 1990s, and have been deployed widely in large business
networks ever since.
NextEdge. The NextEdge products add the SLM capabilities of FrameSaver to
the functionality provided by the Acculink products. NextEdge products are used
by NSPs and business customers to deploy integrated voice and data services plus
managed Frame Relay services over a common T1 infrastructure. Business customers
are seeking to maintain the SLM capabilities they have come to view as essential
for their public Frame Relay services as they integrate other network services
onto available bandwidth in their T1 access lines.
NARROWBAND SOLUTIONS
Our Comsphere digital access products consist of a family of managed
digital service units that provide a network interface for a digital circuit
operating at up to 64 Kbps and a customer's digital equipment, such as a
computer, terminal controller, router or other narrowband digital communications
equipment. We introduced the Comsphere digital service unit in the early 1990s,
when they were offered as a standard part of AT&T's digital data services. Our
Comsphere analog modems enable communications over dial-up or dedicated analog
circuits. These analog modems are approved for use around the world and are
widely deployed in business and NSP networks. These highly managed modems
operate on both dial circuits and analog private line circuits where network
applications demand an extremely high degree of network uptime and
manageability. All of the Comsphere products are managed by our OpenLane network
management
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<PAGE> 48
system, which provides centralized management of large, geographically disbursed
networks for NSPs and businesses.
Businesses, service providers, government entities and other organizations
use these products to build low-cost, centrally managed networks for their
digital applications. Many of these customers have also begun installing our
Acculink, NextEdge and FrameSaver products for their broadband network access
applications. We estimate that we have shipped more than 775,000 narrowband
access products over the past five years.
NETWORK MANAGEMENT SOLUTIONS
OpenLane. The OpenLane network management system, a centralized management
platform, integrates OpenLane into all of our product families and provides NSPs
and business customers with the ability to manage their network access products
located at the edge of the wide area network. The OpenLane software is purchased
separately with each of our products in order to utilize OpenLane's management
capabilities. OpenLane consists of a suite of network management tools that
provide SLM and visibility into network circuits and network access unit
performance. The management tools work together to provide business customers
and NSPs with detailed, accurate performance metrics needed to understand
precisely how their network is performing and where performance problems or
potential problems may reside. The OpenLane network management system offers a
user-friendly graphical user interface and graphical reporting. OpenLane is
designed to work with Hewlett-Packard's OpenView network management platform and
is based extensively on standards, such as simple network management protocol,
which enable it to interface with many third-party network management
applications that our business and NSP customers may be using. OpenLane can
provide reports and access to screens either directly or by using the Internet
for web-based delivery. Recent releases of our OpenLane software modules are
based on Java programming to permit a platform independent system. Our NSP and
business customers depend on the OpenLane network management system as the
central management system they use to monitor and control the network access
products that they have deployed in their networks.
CORPORATE DEVELOPMENT RELATIONSHIPS
Our success is dependent upon our continued development relationships with
a number of companies with whom we have development arrangements. We expect to
continue to collaborate with technology partners to facilitate the development
of competitive products. Currently, our development relationships include the
following:
AG Communication Systems. In June 1998, we entered into a joint
development and distribution agreement with AGCS. Paradyne granted a
non-exclusive license to AGCS to incorporate Paradyne's Tripleplay technology
into AGCS's central office switch, digital loop carrier and/or DSLAM equipment
and distribute to sellers of telecommunications systems the products that
incorporate the Tripleplay technology. AGCS agreed to pay a license fee to
Paradyne for the Tripleplay technology. Paradyne granted AGCS a non-exclusive
right to purchase Tripleplay hardware and software for distribution, and AGCS
granted Paradyne a non-exclusive right to purchase switch products for
distribution. The agreement will expire in June 2003, unless renewed.
NetScout. In January 1998, we entered into a marketing and license
agreement with NetScout under which Paradyne agreed to utilize exclusively
NetScout's RMON-2 network management software with our FrameSaver Frame Relay
access unit products, to market and sell NetScout Manager Plus software with our
FrameSaver system and not to compete against NetScout with respect to RMON-2
based technology. NetScout agreed to reference Paradyne as a strategic partner
for digital service units, DSLs and multiplexers and agreed to give preference
to Paradyne when sourcing or integrating digital service units. NetScout granted
a non-exclusive license to promote, market, sell, license and distribute any
NetScout software or product embedded into Paradyne's FrameSaver products in
exchange for royalty fees to NetScout. The agreement will expire in January
2003, unless renewed.
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<PAGE> 49
Xylan. Effective March 1999, we entered into a joint development and
supply arrangement with Xylan under which Xylan granted us a non-exclusive,
worldwide right to market, distribute and sell its OmniSwitch product and
related products with our DSL products. The agreement further provides that
through at least March 2001, we are Xylan's primary reseller of these products
for connections to our DSLAMs. Paradyne and Xylan have agreed upon feature
enhancements to these products to meet specific customer requirements. The
agreement continues for two years, after which it may be automatically renewed
for successive one-year periods.
Ascend Communications. In November 1998, we entered into a joint
development and marketing agreement with Ascend in connection with our OpenLane
SLM software and Ascend's Navis, a network management system. Under the
agreement, we agreed to develop interface software which integrates OpenLane
with Navis, creating a single integrated solution for competitive local exchange
carriers, incumbent carriers and other NSPs. Ascend and Paradyne jointly market
Navis, together with OpenLane SLM software, to NSPs. The agreement will continue
unless terminated upon 60 days written notice.
GlobeSpan. Effective March 1999, we entered into a supply agreement with
GlobeSpan which provides for preferential pricing to Paradyne and other terms in
connection with the purchase of GlobeSpan products by Paradyne. Under the terms
of this agreement, GlobeSpan is required to honor Paradyne's orders for
GlobeSpan products in quantities at least consistent with Paradyne's past
ordering practices and agreed to afford Paradyne at least the same priority for
its orders as GlobeSpan affords other similarly situated customers. Paradyne was
also granted immunity under GlobeSpan's intellectual property rights for all
Paradyne customers that purchase Paradyne products that incorporate GlobeSpan
products. GlobeSpan has been selling products to Paradyne pursuant to these
terms since July 1998. The agreement will expire in March 2003, unless
terminated upon one year's notice. In addition to the supply agreement, Paradyne
and GlobeSpan work very closely together to develop capabilities that are
jointly defined by the two companies. Our marketing and research and development
organizations meet on a regular basis to review the status of projects.
SALES, MARKETING AND DISTRIBUTION
We sell our products worldwide through a multi-tier distribution system
that includes direct sales, strategic partner sales, NSP sales and traditional
distributor or value added reseller sales. Our sales teams are supported with
marketing programs, educational programs, field technical support and telephone
technical support. Our Internet and intranet sites are used extensively to
communicate with our sales teams, our customers and our resellers.
Our direct sales teams are organized to sell directly to NSP, value added
reseller and distributor customers. Our NSP and value added reseller customers
purchase our products and then sell them or provide them in a service offering
to business customers. We support our resellers' sales activity with a demand
generation sales force. This team markets to business customers in support of
our value added reseller and NSP partners. Our resellers add value by providing
order processing, credit and significant sales and technical support. Our field
sales teams are comprised of sales and systems engineering personnel that are
experienced and knowledgeable about the products and technologies we provide and
support. Our field sales teams are further supported by Paradyne's telesales
team. This inside sales team answers all incoming emails and telephone calls,
makes outbound telephone calls, follows up on leads generated through
advertising and provides telephone support to our resellers.
Our resellers are responsible for identifying potential business customers,
selling our products as part of complete solutions and, in some cases,
customizing and integrating our products at end users' sites. We establish
relationships with resellers through written agreements that provide prices,
discounts and other material terms and conditions under which the distributor is
eligible to purchase our products for resale. Such agreements generally do not
grant exclusivity to the resellers, prevent the resellers from carrying
competing product lines or require the resellers to sell any particular dollar
amount of our products, although the contracts may be terminated at our election
if specified sales targets and end user satisfaction goals are not attained. We
nurture these relationships with resellers with incentive and training programs.
This multi-
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channel sales strategy encourages broad market coverage by allowing our sales
personnel to create demand for our products while giving customers the
flexibility to choose the most appropriate delivery channels.
We participate in trade shows and seminars and make extensive use of the
Internet and our web presence at www.paradyne.com to promote and generate demand
for our products. (The reference to our worldwide web address does not
constitute incorporation by reference into this prospectus of the information
contained at this web site.) Since most of our customers utilize the Internet,
we believe that our Internet presence is a low cost and highly effective method
for educating our customers about our products and creating demand for our
products. As a result, we place Internet advertising and conduct targeted email
marketing. Our web site includes product information, multimedia presentations
and customer testimonials. We also host Internet based interactive seminars for
promotional seminars, training events and press conferences.
Channel marketing programs allow us to attract and support our resellers,
including NSPs. Our "Connect to Success" reseller program markets and sells
products directly to large resellers and through national distributors, such as
Ingram Micro and Tech Data, to hundreds of value added resellers and NSPs. Our
relationships with these distributors provide significant value to our reseller
partners by giving them immediate availability to product without the cost of
stocking. These well known distributors also extend credit to resellers,
increasing their buying power, and providing them with direct shipments to end
customers further reducing costs. Our reseller programs provide advertising
support, volume incentive rebates, exclusive access to technical support via 800
numbers and through our web site. Special programs encourage value added
reseller loyalty, focus on strategic products, and focus on winning new
accounts. Specialized product training programs are provided to our resellers at
our headquarters, in the field and over the web.
In addition to the marketing and sale of our products, we resell the
Acculink Access Controller, our private label for the IMACS system of Premisys
Corporation, through a small, focused sales team. Paradyne and Premisys entered
into a distribution agreement in 1992, which has been amended and extended,
under which we have exclusive distribution rights through April 2005 for
Premisys' IMACS system, which we market to Lucent and AT&T. In 1995 and 1996, we
sold the Acculink Access Controller to Lucent, AT&T and many other companies. In
1997, we discontinued selling the product to customers other than Lucent and
AT&T for various pricing and distribution reasons. Currently, we sell the
Acculink Access Controller to Lucent and AT&T for a variety of wireless and
wireline applications. We have also developed and sell a limited number of
hardware and software enhancements for the Acculink Access Controller.
CUSTOMERS
The end-users of our equipment are primarily businesses and NSPs.
BUSINESS CUSTOMERS
Business customers include businesses around the world that purchase
equipment for their company's wide area network from Paradyne's resellers or,
for some international customers, directly from Paradyne. Set forth below is a
representative list of businesses who purchased over $100,000 of our products in
1998:
<TABLE>
<S> <C> <C>
Aon Fifth Third Bank Norwest
Bank of America First Union Paine Webber
Bank One Freddie MAC Progressive
Boise Cascade General Electric Prudential
Chase Manhattan Hartford Roadway Express
Cigna Hertz The Associates
Citigroup JC Penney Toyota
CSX Liberty Mutual Unisys
Delta Airlines Litton Utilicorp
Everen Securities Lucent VISA
Farmers Insurance Merrill Lynch Xerox
</TABLE>
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<PAGE> 51
NETWORK SERVICE PROVIDERS
NSPs purchase equipment for their network or for resale into their
customers' networks. Set forth below is a representative list of NSPs who
purchased over $100,000 of our products in 1998:
<TABLE>
<S> <C> <C>
AT&T Guangdong PTA RAM Mobile Data
Ameritech HarvardNet Rhythms
Bell Canada Henan PTA Saudi Telecom
Bell South IBM Global Network Shandong PTA
Cable & Wireless Panama Metronet Shenzhen PTT
Cadvision MGC Communications SITA
CFW Communications MT&T Sprint
Egypt Telecom North Pittsburgh Telephone TDS Telecom
Fonorola NTT Telus Communications
Guangzhou PTT PLDT Tunisia Telecom
</TABLE>
In the year ended December 31, 1998, two of our customers accounted for
greater than 10% of revenues. Direct sales to Lucent in 1998 accounted for
approximately 35% of our total revenues. Sales to Tech Data accounted for
approximately 15% of our total revenues. We estimate that approximately 70% of
our sales to Tech Data represented products that were resold to Lucent.
Collectively, we estimate that direct and indirect sales to Lucent accounted for
approximately 47% of our total revenues in 1998. Lucent purchases products to
include in their data networking solutions products, which it sells to
businesses worldwide. Lucent also purchases our products to package with their
various telephone systems. Tech Data purchases products from us as a
distributor.
CUSTOMER SUPPORT
We maintain a strong focus on customer service and support for our
resellers and end user customers. We accomplish this at our customers' sites
through systems engineers who work with customers in a pre-sales role, and
through the support teams of our resellers. The Paradyne Technical Support
Center provides telephone based pre- and post-sales support to resellers and
customers on a seven day, 24 hour basis and also provides proposal support to
the sales organization. Our training organization provides technical training to
end users, maintenance service providers, NSPs and sales channels. Training is
included as a part of our channel programs or is provided on a fee basis.
We provide maintenance support offerings that utilize a variety of service
organizations based on geography and skills required. Our authorized service
providers include Lucent, NCR, Myriad and TechForce. These service providers
provide service offerings that include various maintenance packages,
installation, remote management, project management and other professional
service options.
Warranties on most of our hardware products extend for 24 months. A number
of products carry a 12 month warranty and others carry a 60 month warranty.
Software products carry a 90 day warranty. Factory repair or replacement is
provided by us.
COMPETITION
The telecommunications market is highly competitive. If we fail to compete
effectively our business will be adversely affected. We believe that competition
may increase substantially as the introduction of new technologies, deployment
of broadband networks and potential regulatory changes create new opportunities
for established and emerging companies in the industry. We compete directly with
other providers of broadband and narrowband access equipment, including ADC
Telecommunications, Adtran, Alcatel, Ascend, Cisco, Copper Mountain, Digital
Link, Larscom, Motorola, Nokia, Nortel Networks, Orckit, PairGain, Sync
Research, 3Com, Tut Systems and Visual Networks. We expect that competition for
products that address the broadband access market will grow as more companies
and an increasing number of new companies focus on this market to develop
solutions for higher speed access to public networks. We expect that competition
for
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products that address the narrowband market will not dramatically change over
the course of the next few years.
Many of our current and potential competitors are larger than we are and
have significantly greater financial, sales and marketing, technical,
manufacturing and other resources and more established channels of distribution.
As a result, these competitors may be able to respond more rapidly to new or
emerging technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products. Our
competitors may enter our existing or future markets with solutions that may be
less costly, provide higher performance or additional features or be introduced
earlier than our solutions. Some of our competitors currently offer financing
alternatives to their customers at levels at which we cannot compete.
Our markets are characterized by increasing consolidation both within the
data communications sector and by companies combining or acquiring data
communications products and technology for delivering voice-related services, as
exemplified by the recently announced acquisitions of Ascend by Lucent, Diamond
Lane by Nokia and Xylan by Alcatel. Increased competition and consolidation
could result in price reductions and loss of market share by Paradyne. We cannot
be sure of the impact of any of these acquisitions on the competitive
environment for our products. Increased competition and consolidation could
result in price reductions and a decrease in our market share. Our future
success will depend on our ability to compete successfully against our
competitors based on the following factors:
- key product features;
- system reliability and performance;
- technological innovation;
- price;
- time to market;
- breadth of product lines;
- conformity to industry standards;
- ease of installation and use;
- brand recognition;
- ability to help customers finance purchases;
- technical support and customer service; and
- size and stability of operations.
RESEARCH AND DEVELOPMENT
Since 1969, we have been developing technologies and solutions for the
communications market. We believe that our future success is dependent on our
ability to continue to rapidly deliver innovative broadband access solutions.
Time to market is critical in order to meet the requirements of our extensive
customer base and to be able to quickly adapt to the constantly emerging needs
in the market. Innovation is critical in order to provide the capabilities that
differentiate the products and solutions that we offer from those of our
competitors. We intend to maintain an ongoing investment in research and
development that will support technological innovation.
Our research and development efforts are focused on sustaining and
enhancing our existing products and developing innovative new solutions in the
emerging broadband market. We emphasize early and frequent interaction between
our research and development systems engineers, key technologists and customers
to arrive at unique solutions to meet specific product requirements. Customer
feedback is also obtained from resellers and through participation in industry
events, organizations, and standards bodies.
We have developed core competencies in SLM, broadband systems
internetworking, network management, and broadband access technologies. We will
continue to rely on the use of industry and technology partnerships to further
enhance the capability to quickly introduce new solutions into the
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broadband market, and we expect to continue to employ a strategy that uses a
combination of internally developed solutions and external partnering.
We maintain research and development sites in Largo, Florida and Red Bank,
New Jersey. In addition, engineering work is completed in Mexico and India
through technology partnering arrangements. In order to maintain our rapid pace
of product introduction, we will need to continue to attract talented engineers
and invest in state-of-the-art research and development tools and processes. We
will continue to invest resources in key skill areas, such as Java programming,
system software, digital signal processing, internetworking, data communication
protocols, test automation, central office solutions, RISC processing,
transmission technologies, and telephony.
Currently, we are developing enhancements for all of our broadband and SLM
product families. We expect this work to result in feature improvements to these
products, reduce our costs associated with their manufacture or reduce the cost
to deploy them. We are focused on increasing the density of our DSL systems and
expect to introduce 12 and 24 line cards for our Hotwire DSLAM. We are also
adding SLM to products that did not previously include SLM capability, enhancing
the SLM features for those products that already support SLM and adding DSL
function to products that currently have only conventional broadband
capabilities.
INTELLECTUAL PROPERTY
Our success and ability to compete is dependent in part upon our
proprietary technology. We rely on a combination of patent, copyright, trademark
and trade secret laws and non-disclosure agreements to protect our proprietary
technology. We currently hold over 155 U.S. patents and have over 100 U.S.
patent applications pending. In addition, we hold corresponding foreign patents
and have corresponding foreign patent applications pending. There can be no
assurance that patents will be issued with respect to pending or future patent
applications or that our patents will be upheld as valid or will prevent the
development of competitive products. We seek to protect our intellectual
property rights by limiting access to the distribution of our software,
documentation and other proprietary information. In addition, our employees
execute proprietary information agreements and we enter into nondisclosure
agreements with some of our strategic partners. There can be no assurance that
the steps taken by us in this regard will be adequate to prevent
misappropriation of our technology or that our competitors will not
independently develop technologies that are substantially equivalent or
independently developed technologies that are substantially equivalent or
superior to our technologies. We also are subject to the risk of adverse claims
and litigation alleging infringement of the intellectual property rights of
others. In this regard, there can be no assurance that third parties will not
assert infringement claims in the future with respect to our current or future
products or that any such claims will not require the us to enter into license
arrangements or result in protracted and costly litigation, regardless of the
merits of such claims. Furthermore, from time to time, we receive and have
received letters from others requesting licenses or indicating that our products
may require a license. These letters are not uncommon in the industry, and these
letters are dealt with according to normal business practices. No assurance can
be given that any necessary licenses will be available or that, if available,
such licenses can be obtained on commercially reasonable terms. In 1999, we
received a letter from a third party patent owner alleging infringement by us of
patents. The patents referenced in this letter are also the basis for several
infringement lawsuits commenced by the patent owner to which we are not a party.
No claim has been asserted beyond this letter, but we cannot assure you that the
third party will not commence an infringement action against us. We are in the
process of investigating the allegations, but we currently believe that defenses
asserted by others may be applicable to us and that indemnities we have from
third party vendors may insulate us from at least some damages. If an
infringement claim is brought against us, we cannot assure you that we would
prevail and any adverse outcome could have a material adverse effect on our
business, financial condition and results of operations.
Most of Paradyne's existing patent portfolio, will be enforceable in the
United States for at least the next ten years, provided that periodic
maintenance fees are paid to the U.S. Patent & Trademark Office and unless
determined to be invalid or unenforceable by an appropriate court or the U.S.
Patent & Trademark Office. Most of Paradyne's inventions that are directed to
DSL and Service Level Management technologies are
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covered in pending applications that have yet to issue as patents and that have
been filed in the last several years. If and once issued, these patents will be
enforceable for 20 years from the date the application was originally filed,
pursuant to applicable laws, provided that periodic maintenance fees are paid to
the U.S. Patent & Trademark Office and unless determined to be invalid or
unenforceable by an appropriate court or the U.S. Patent & Trademark Office.
MANUFACTURING AND FACILITIES
Our principal administrative, engineering and manufacturing facilities are
located in two leased buildings totaling approximately 333,000 square feet in
Largo, Florida. In addition, we maintain a research and development facility of
approximately 29,000 square feet in Red Bank, New Jersey. The leases for the
Largo, Florida facility and the Red Bank, New Jersey facility expire in 2007 and
2003, respectively, and there are two five-year renewal options on the Largo,
Florida facility. Additionally, there is an automatic extension of the lease
term of the Largo, Florida lease if the current landlord sells this property
within the first three years of the lease. The Red Bank lease is not renewable
but we retain the right to renegotiate with the landlord. We also lease offices
for branch sales and administration in Virginia, as well as in Canada, France,
Egypt, Japan, Hong Kong, Singapore and the People's Republic of China.
Collectively, these offices occupy approximately 27,000 square feet. Leases for
these facilities expire at various times during 1999 and 2002. We believe that
the current facilities will be able to accommodate anticipated expansion of
operations in these locations over the next 24 months.
We manufacture substantially all of our products. All of our major
operations are ISO-9001 registered. Many of our parts are procured from a
variety of qualified suppliers per our specification. Some of our strategic
suppliers are electronically linked, and given 26 week visibility of demand. We
believe that this is critical in maintaining high delivery volumes and
minimizing inventory. We use a combination of standard parts and components,
which are generally available from more than one vendor and some parts that are
obtained from a single source. We have generally been able to obtain adequate
supplies in a timely manner from our current vendors or, when necessary, to meet
production needs from alternative vendors. We believe that, in most cases,
alternate vendors can be identified if current vendors are unable to fulfill our
needs. However, if we are unable to obtain sufficient quantities of necessary
supplies, or if there is a significant increase in the price of key components
or materials, delays or reductions in manufacturing or product shipments could
occur, which would have a material adverse effect on our business, financial
condition and results of operations.
We believe that we have sufficient production capacity to meet current
demand for our product offerings and anticipate meeting future demand through a
combination of the use of additional employees and increased outsourcing of
products or components. In addition, we have the right of first refusal on the
construction of any building on some lands adjacent to our Largo, Florida
facilities if more space is needed to expand our manufacturing operations.
EMPLOYEES
As of March 31, 1999, we employed approximately 855 full time employees.
None of our employees is covered by collective bargaining agreements, and we
believe that our relations with our employees are good.
GOVERNMENT REGULATION
In the U.S., the Telecommunications Act of 1996 changed the regulatory
environment for all NSPs, including the competitive local exchange carriers and
incumbent carriers among our customer base. The Telecommunications Act of 1996
removed federal, state and local barriers to entry into the local telephone
market by CLECs. The Telecommunications Act of 1996 also imposed significant
obligations on incumbent carriers, including obligations to interconnect their
networks with competitors' networks and to unbundle their networks and provide
competitors with access to unbundled network elements. Competitive local
exchange carriers and incumbent carriers are a significant part of our customer
base. The Telecommunications Act of 1996 also directs the Federal Communications
Commission to adopt local loop access rules to enable
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competitive providers of advanced services, such as high-speed Internet access,
to deploy new technologies on a faster, more cost-effective basis to consumers.
The United States Congress is considering a variety of amendments to the
Telecommunications Act of 1996. The FCC currently is considering changes to its
regulations, including those relating to network equipment registration and the
deployment of broadband services. We cannot predict whether any amendments to
the Telecommunications Act of 1996 or any future FCC Regulations will have a
negative impact on our business or the businesses of our customers or suppliers.
Companies selling terminal equipment to be connected to the public switched
telephone network must register some of their products with the FCC and conform
them to technical standards promulgated by the FCC in its regulations. These
regulations are designed to protect the public switched telephone network from
harm, including interference and service degradation.
LEGAL PROCEEDINGS
We are not a party to any pending material litigation.
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<PAGE> 56
MANAGEMENT
OFFICERS AND DIRECTORS
Our officers and directors, the positions held by them, and their ages as
of March 31, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Andrew S. May............................. 38 President, Chief Executive Officer and Director
Sean E. Belanger.......................... 43 Senior Vice President, Worldwide Sales
Patrick M. Murphy......................... 42 Senior Vice President, Chief Financial Officer and
Treasurer
James L. Slattery......................... 59 Senior Vice President, Chief Legal and Intellectual
Property Officer and Corporate Secretary
J. Scott Eudy............................. 41 Vice President, Network Access Products
Paul H. Floyd............................. 41 Vice President, Research and Development
John M. Guest............................. 54 Vice President, Chief Information Officer
Mark Housman.............................. 46 Vice President, Marketing
Sherril A. Claus Melio.................... 47 Vice President, Human Resources and Administration
H. Edward Thompson........................ 52 Vice President, Manufacturing
Frank J. Wiener........................... 38 Vice President, DSL Products
Thomas E. Epley........................... 58 Chairman, Board of Directors
David Bonderman........................... 56 Director
Keith B. Geeslin.......................... 46 Director
David M. Stanton.......................... 36 Director
William R. Stensrud....................... 48 Director
Peter F. Van Camp......................... 43 Director
</TABLE>
Andrew S. May has served as President since December 1996, Director since
January 1997, and Chief Executive Officer since May 1997. From October 1995 to
November 1996, he served as Vice President and General Manager of 3Com
Corporation's Network Service Provider division. From April 1992 to October
1995, Mr. May served as Vice President of Marketing for Primary Access
Corporation, which was acquired by 3Com in 1995. Mr. May holds a B.A. in
economics from the University of New Hampshire.
Sean E. Belanger has served as Senior Vice President of Worldwide Sales
since June 1997. From November 1996 to May 1997, he served as Vice President and
General Manager of 3Com Corporation's Network Service Provider division. From
September 1992 to November 1996, he was Vice President of Sales for Primary
Access Corporation. Mr. Belanger holds a B.S. in business management from
Virginia Polytechnic Institute and State University.
Patrick M. Murphy has served as Senior Vice President, Chief Financial
Officer and Treasurer since August 1996. He also has served as a director and
Vice President, Chief Financial Officer, and Treasurer of Paradyne Credit Corp.,
an affiliated entity, since August 1996. From August 1996 to July 1998 he served
as Vice-President, Treasurer, Chief Financial Officer of GlobeSpan, an
affiliated entity. From January 1987 to August 1996, he served as Chief
Financial Officer of Continental Broadcasting, Ltd., a television and radio
broadcast company. Mr. Murphy holds a B.S./B.A. in finance from John Carroll
University and is a certified public accountant.
James L. Slattery has served as Senior Vice President, Chief Legal and
Intellectual Property Officer and Corporate Secretary since August 1996 and held
various executive positions at Paradyne since April 1985. He has also served as
a director and Vice President and Corporate Secretary for Paradyne Credit Corp.,
an affiliated entity, since August 1996. From August 1996 to March 1999 he
served as Vice President and Secretary of GlobeSpan, an affiliated entity. Mr.
Slattery holds a B.S. from New York University in international relations and
commerce and a J.D. from Washington & Lee School of Law.
J. Scott Eudy has served as Vice President of Network Access products since
December 1997. From February 1981 to September 1996, he held various sales,
engineering and marketing positions with AT&T. Mr. Eudy holds a B.S. in
mechanical engineering and an M.B.A. from Texas Tech University.
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<PAGE> 57
Paul H. Floyd has served as Vice President of Research and Development
since July 1996. From October 1992 to June 1996, he was Director of Research and
Development for AT&T Paradyne's digital products development group. Mr. Floyd
holds a B.S. and M.S. in electrical engineering from Stevens Institute of
Technology and an M.B.A. from the University of South Florida.
John M. Guest has served as Vice President and Chief Information Officer
since October 1996. From April 1990 to October 1996 he served in numerous
management capacities with Paradyne. Prior to joining Paradyne in 1990, he was a
senior manager at AT&T responsible for its data communications product line. Mr.
Guest attended Rutgers University.
Mark Housman has served as Vice President of Marketing since May 1997.
Previously, Mr. Housman was a Vice President of Sales from October 1994 to May
1997. Mr. Housman holds a B.S. in mechanical engineering from the New York
Institute of Technology and an M.B.A. in marketing from New York University.
Sherril A. Claus Melio has served as Vice President of Human Resources and
Administration since May 1997. From July 1993 to May 1997, she was Vice
President of Human Resources. Ms. Melio holds a B.S. in behavioral science from
San Jose State University.
H. Edward Thompson has served as Vice President of Manufacturing since
August 1993. Mr. Thompson holds a B.S. in mechanical engineering from Georgia
Institute of Technology and a Masters of Engineering Administration from the
University of South Florida.
Frank J. Wiener has served as Vice President of Paradyne's DSL Products
since August 1996. From February 1989 to August 1996, he served as a director
and manager of various marketing, sales and business development departments at
Paradyne. Mr. Wiener holds a B.S. in electrical engineering from the University
of South Florida.
Thomas E. Epley has served as the Chairman of the board of directors since
August 1996. He also served as President from August 1996 to December 1996 and
Chief Executive Officer from August 1996 to May 1997. From August 1996 to April
1997, Mr. Epley was Chief Executive Officer and President of GlobeSpan, an
affiliated entity. He has served as a director of GlobeSpan since August 1996
and was Chairman of the board of directors from August 1996 to March 1999. He
has served as a director and President and Chief Executive Officer of Paradyne
Credit Corp., an affiliated entity, since August 1996. From 1993 to 1996, he was
a director of Carlton Communications. From 1991 to 1996, he served as Chairman
and Chief Executive Officer of Technicolor, a provider of services and products
to the entertainment industry. He is also a limited partner in Communication
Partners, L.P. Mr. Epley holds a B.S. degree in mechanical engineering from the
University of Cincinnati and an M.B.A. from the Kellogg School of Northwestern
University.
David Bonderman has served as a director of Paradyne since June 1999. Mr.
Bonderman has been a managing partner in Texas Pacific Group, a limited partner
in Communication Partners, L.P., since its formation in 1992. Prior to forming
Texas Pacific Group, Mr. Bonderman had served as the Chief Operating Officer of
the Robert M. Bass Group, Inc. since 1983. He is a director of several public
and privately held companies including Continental Airlines, Inc., Bell & Howell
Company, Ducati Motorcycles, S.p.A., Realty Information Group, Berringer Wine
Estates, Denbury Resources, Inc., Washington Mutual, Inc., Oxford Health Plans,
Inc., UroGenesys, Inc., J. Crew Group, Inc., Landis & Gyr Communications, and
Virgin Entertainment Group, Ltd. Mr. Bonderman holds a B.A. degree from the
University of Washington and a J.D. from Harvard Law School.
Keith B. Geeslin has served as a director of Paradyne since June 1999. Mr.
Geeslin is a general partner of The Sprout Group, a venture capital firm, where
he has been employed since July 1984. In addition, he is a general or limited
partner in a series of investment funds associated with The Sprout Group, a
division of DLJ Capital Corporation, which is a subsidiary of Donaldson, Lufkin
& Jenrette. The Sprout Group are direct and indirect equity owners in
Communication Partners, L.P. Mr. Geeslin is also a director of SDL, Inc.,
Rhythms NetConnections Inc., GlobeSpan, and several privately held companies.
Mr. Geeslin received a B.S. degree in electrical engineering from Stanford
University, an M.A. degree in philosophy, politics and
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economics from Oxford University and an M.S. degree in engineering and economic
systems from Stanford University.
David M. Stanton has served as a director of Paradyne since August 1996.
Mr. Stanton is a partner of Texas Pacific Group, a limited partner in
Communication Partners, L.P., where he has been employed since 1994. He also
serves as Vice President of TPG Advisors, Inc. and is President of Communication
Genpar, Inc., entities affiliated with Communication Partners, L.P. Prior to
joining Texas Pacific Group, Mr. Stanton was a venture capitalist with Trinity
Ventures, where he specialized in information technology, software and
telecommunications investing. Mr. Stanton currently serves as a director of
Denbury Resources, Inc., and GlobeSpan, Inc. and several private companies,
including Paradyne Credit Corp., an affiliated entity of Paradyne. Mr. Stanton
holds a B.S. in chemical engineering from Stanford University and an M.B.A. from
the Stanford Graduate School of Business.
William R. Stensrud has served as a director of Paradyne since January
1997. Mr. Stensrud has been a general partner at the venture capital investment
firm of Enterprise Partners since January 1997. From February 1997 to June 1997,
he served as President and Chief Executive Officer of Rhythms NetCommunications,
Inc., a network service provider. Previously, from January 1992 to July 1995,
Mr. Stensrud served as President and Chief Executive Officer of Primary Access
Corporation which was acquired by 3Com Corporation, and where Mr. Stensrud
remained as an executive at Primary Access Corporation through March 1996. Mr.
Stensrud is a director of several public and privately held companies, including
Rhythms NetCommunications, Inc. and Juniper Networks. Mr. Stensrud holds a B.S.
in electrical engineering and computer science from the Massachusetts Institute
of Technology.
Peter F. Van Camp has served as a director of Paradyne since June 1999. Mr.
Van Camp serves as President of Internet Markets for UUNET, the Internet
division of MCI WorldCom. Prior to joining MCI WorldCom, he served as an
executive at CompuServe, Inc. and President of CompuServe Network Services. Mr.
Van Camp holds a B.S. degree in accounting and computer science from Boston
College.
Following this offering, the board of directors will be divided into three
classes, with each class serving staggered three-year terms. After the offering,
Class I will consist of Messrs. Epley and Bonderman, with a term expiring in
2000, Class II will consist of Messrs. Geeslin and Van Camp, with a term
expiring in 2001 and Class III will consist of Messrs. May, Stanton and
Stensrud, with a term expiring in 2002.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has established an Audit Committee and a
Compensation Committee. The Audit Committee consists of Messrs. Geeslin and Van
Camp. The Audit Committee makes recommendations to the board of directors
regarding the selection of independent auditors, reviews the results and scope
of the audit and other services provided by our independent auditors and reviews
and evaluates our audit and control functions.
The Compensation Committee consists of Messrs. Stanton and Stensrud. The
Compensation Committee makes recommendations regarding our Amended and Restated
1996 Equity Incentive Plan and concerning salaries and incentive compensation
for our employees and consultants.
DIRECTOR COMPENSATION
During 1998, our outside directors were not compensated for serving as
members of the board of directors. Following the closing of this offering,
outside directors will receive $1,500 for participation in meetings of the board
of directors and $750 for participation in committee meetings held on days other
than those on which meetings of the board of directors are held. In addition,
outside directors will receive automatic option grants under our 1999
Non-Employee Directors' Stock Option Plan as described below.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of June 3, 1999, the Compensation Committee of the board of directors
consisted of Messrs. Stanton and Stensrud.
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Mr. Stanton has a pecuniary interest in the Paradyne shares formerly held
by Communication Partners, L.P., which held approximately 97.1% of our common
stock and 83.2% of the common stock of GlobeSpan. In May 1999, Communication
Partners, L.P. distributed an aggregate of 19,348,618 shares of Paradyne common
stock to TPG Partners, L.P. and TPG Parallel I, L.P., limited partners of
Communication Partners, L.P. and to Communication GenPar, Inc., the general
partner of Communication Partners, L.P.. Mr. Stanton is the sole director and
president of Communication GenPar, Inc. and is a partner of Texas Pacific Group,
which organized TPG Partners, L.P. and TPG Parallel I, L.P.
Mr. Stensrud has a pecuniary interest in the Paradyne shares formerly held
by Communication Partners, L.P.. In May 1999, Communication Partners, L.P.
distributed its Paradyne shares to its limited partners and general partner. Mr.
Stensrud and the Stensrud Family Trust are limited partners of Communication
Partners, L.P. and received an aggregate of 533,476 Paradyne shares in the
distribution.
For a further description of interlocking transactions, see "Certain
Transactions."
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation for
services rendered during the fiscal year ended December 31, 1998 by our Chief
Executive Officer and our four other most highly compensated executive officers
whose salary and bonus for the last fiscal year exceeded $100,000, collectively
referred to as the Named Executive Officers. There were no options granted to
the Named Executive Officers during fiscal 1998.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
------------------------ ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
<S> <C> <C> <C>
Thomas E. Epley.......................................... $586,541 -- $18,102(2)
Chairman, Board of Directors
Andrew S. May............................................ 323,094(3) $ 97,425 536(4)
President, Chief Executive Officer and Director
Patrick M. Murphy........................................ 223,628(5) 51,335 479(6)
Senior Vice President and Chief Financial Officer
Sean E. Belanger......................................... 200,018(7) 114,000 492(8)
Senior Vice President, Worldwide Sales
James L. Slattery........................................ 197,002 71,569 2,155(9)
Senior Vice President, Chief Legal and Intellectual
Property Officer and Corporate Secretary
</TABLE>
- ------------------------------
(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), the compensation described in this table does not include
medical, group life insurance or other benefits which are available
generally to all salaried employees of Paradyne and other perquisites and
personal benefits received which do not exceed the lesser of $50,000 or 10%
of any officer's salary and bonus disclosed in this table.
(2) Mr. Epley received life insurance benefits and payments for living expenses
during 1998.
(3) Includes $139,522 contributed to the Key Employee Stock Option Plan.
(4) Mr. May received life insurance benefits during 1998.
(5) Includes $60,000 contributed to the Key Employee Stock Option Plan.
(6) Mr. Murphy received life insurance benefits during 1998.
(7) Includes $47,344 contributed to the Key Employee Stock Option Plan.
(8) Mr. Belanger received life insurance benefits during 1998.
(9) Mr. Slattery received life insurance benefits during 1998.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth information regarding options exercised
during fiscal 1998 by the Named Executive Officers and the number and value of
securities underlying unexercised options held on December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
NUMBER OF UNEXERCISED OPTIONS AT MONEY OPTIONS AT
SHARES DECEMBER 31, 1998 DECEMBER 31, 1998 (1)
ACQUIRED ON VALUE -------------------------------- ------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Thomas E. Epley...... -- -- -- -- -- --
Andrew S. May........ -- -- 637,500 637,500 $5,512,500 $5,512,500
Patrick M. Murphy.... -- -- 84,375 65,625 928,125 721,875
Sean E. Belanger..... -- -- 112,500 187,500 1,237,500 2,062,500
James L. Slattery.... -- -- -- 45,000 -- 495,000
</TABLE>
- ------------------------------
(1) The calculations of the value realized and of the unexercised in-the-money
options are based on the assumed initial public offering price of $13.00 per
share less the exercise price payable for such shares.
EMPLOYMENT AGREEMENTS
Paradyne has a Key Employee Agreement with Thomas E. Epley dated as of
April 1, 1999 and continuing until July 31, 1999. During the term of the
agreement, Mr. Epley is entitled to an annualized base salary of $600,000. Mr.
Epley is neither eligible to participate in our 1996 Equity Incentive Plan nor
is he eligible for a discretionary or incentive bonus. During the term of the
agreement, Mr. Epley is serving as President and Chairman of the board of
directors of Paradyne Credit Corporation. Either Paradyne or Mr. Epley has the
right to terminate Mr. Epley's employment at any time for any reason. If we
terminate Mr. Epley's employment without cause or he resigns for a material
breach by us of his employment agreement, he will continue to receive his base
salary through July 31, 1999.
Paradyne has an Employment Agreement with Andrew S. May dated as of October
31, 1996 and continuing indefinitely. Under the agreement, Mr. May is entitled
to receive an annualized base salary of not less than $300,000. He received a
commencement bonus in the amount of $35,000 and is eligible to receive an annual
cash bonus of up to 50% of his base salary. He is also eligible to participate
in the Amended and Restated 1996 Equity Incentive Plan. During the term of the
agreement, Mr. May is serving as President and Chief Executive Officer. Either
Paradyne or Mr. May has the right to terminate Mr. May's employment at any time
for any reason. If we terminate Mr. May's employment without cause or he resigns
for a material breach by us of his employment agreement, he will receive a
severance payment equal to one year's salary.
Paradyne has a Key Employee Agreement with Patrick M. Murphy dated as of
August 1, 1996 and continuing indefinitely. Under the agreement, Mr. Murphy is
entitled to receive an annualized base salary of not less than $215,000. He is
eligible for a discretionary bonus in an annualized amount of up to $70,000. He
is also eligible to participate in the 1996 Equity Incentive Plan. During the
term of the agreement, Mr. Murphy is serving as Senior Vice President, Chief
Financial Officer and Treasurer. Either Paradyne or Mr. Murphy has the right to
terminate Mr. Murphy's employment at any time for any reason. If we terminate
Mr. Murphy's employment without cause, he will receive a severance payment equal
to one year's salary.
Paradyne has a Key Employee Agreement with James L. Slattery dated as of
August 1, 1996 and continuing indefinitely. Under the agreement, Mr. Slattery is
entitled to receive an annualized base salary of not less than $189,410. He is
eligible for a discretionary bonus in an annualized amount of up to $85,000. He
is also eligible to participate in the 1996 Equity Incentive Plan. During the
term of the agreement, Mr. Slattery is serving as Senior Vice President, Chief
Legal and Intellectual Property Officer and Corporate Secretary. Either Paradyne
or Mr. Slattery has the right to terminate Mr. Slattery's employment at any time
for any reason. If we terminate Mr. Slattery's employment without cause, he will
receive a severance payment equal to one year's salary.
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CHANGE OF CONTROL PROVISIONS
We have an arrangement with Andrew S. May governing the vesting of stock
options upon a change in control. The agreement provides that all of Mr. May's
options shall become exercisable upon a change in control. We have arrangements
with Patrick M. Murphy and James L. Slattery governing the vesting of stock
options upon a change of control. Each agreement provides that in the event of a
change in control, 50% of the unvested options held by the officer shall become
immediately exercisable and the remaining unvested shares shall become
exercisable if the officer does not receive comparable employment following the
change of control. Furthermore, if the officer receives comparable employment,
the remaining unvested shares shall become exercisable upon the earlier of the
one year anniversary of the change in control or the officer's termination
without cause. The Company has agreed to guarantee the value of the unvested
shares equal to the value on the date of the change in control. We have an
arrangement with Sean E. Belanger governing the vesting of stock options upon a
change in control. The arrangement provides that all of Mr. Belanger's options
shall become exercisable in the event Mr. Belanger is not offered comparable
employment following a change of control, and his stock options are not either
assumed or replaced with similar stock options. Our employment agreement with
Thomas E. Epley provides that upon a change of control, Mr. Epley shall have the
right to terminate his employment and to receive an amount equal to the balance
of his base salary payable for the remaining term of this agreement.
1996 EQUITY INCENTIVE PLAN
The Amended and Restated 1996 Equity Incentive Plan (the "1996 Plan") was
adopted by Paradyne Acquisition Corp.'s board of directors in January 1997 and
approved by its stockholders in April 1997. An amendment and restatement of the
1996 Plan was adopted by our board of directors and our stockholders in June
1999 which added the provision described below that increases the share reserve
under the 1996 Plan automatically each year and made other minor amendments to
the 1996 Plan in preparation for this offering.
A total of 6,000,000 shares have been reserved for issuance under the 1996
Plan. Each year, the number of shares reserved for issuance under the 1996 Plan
will automatically be increased by the lesser of 4,500,000 shares or 5.0% of the
total number of shares of common stock then outstanding. The 1996 Plan provides
for grants of incentive stock options that qualify under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), to our employees
(including officers and employee directors) or the employees of any of our
affiliates. Nonstatutory stock options, rights to acquire restricted stock, and
stock bonuses may be granted to employees (including officers), directors of and
consultants to Paradyne or any of our affiliates. The 1996 Plan may be
administered by the board of directors or a committee appointed by the Board of
Directors; references herein to the board of directors shall include any such
committee. After this offering, it is intended that the 1996 Plan will be
administered by a Compensation Committee consisting of "non-employee directors"
under applicable securities laws and "outside directors," as defined under the
Code. The board of directors has the authority to determine to whom awards are
granted, the terms of such awards, including the type of awards to be granted,
the exercise price, the number of shares subject to the awards and the vesting
and exercisability of the awards.
The term of a stock option granted under the 1996 Plan generally may not
exceed 10 years. The exercise price of options granted under the 1996 Plan is
determined by the Board of Directors, but, in the case of an incentive stock
option, cannot be less than the fair market value of the common stock on the
date of grant. Options granted under the 1996 Plan vest at the rate specified in
the option agreement. Except as expressly provided by the terms of a
nonstatutory stock option agreement, no option may be transferred by the
optionee other than by will or the laws of descent or distribution or, in
limited instances, pursuant to a qualified domestic relations order, provided
that an optionee may designate a beneficiary who may exercise the option
following the optionee's death. An optionee whose relationship with Paradyne or
any of our affiliates ceases for any reason (other than due to death or
permanent and total disability) may generally exercise vested options in the
three month period following such cessation (unless such options terminate or
expire sooner by their terms) or in such longer or shorter period as may be
determined by the board and set forth in the option agreement. Vested options
may generally be exercised during the twelve month period after an optionee's
relationship with Paradyne or any of our affiliates ceases due to death or
disability.
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No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of Paradyne or any of our affiliates, unless the
option exercise price is at least 110% of the fair market value of the stock
subject to the option on the date of grant and the term of the option does not
exceed five years from the date of grant. In addition, the aggregate fair market
value, determined at the time of grant, of the shares of common stock with
respect to incentive stock options granted under any plan, which become
exercisable by an optionee during any calendar year, may not exceed $100,000.
Any incentive stock options, or portions thereof, which exceed this limit are
treated as nonstatutory options.
If we become subject to Section 162(m) of the Code, which denies a
deduction to publicly held corporations for specific compensation paid to
specific employees in a taxable year to the extent that the compensation exceeds
$1,000,000, no person may be granted options under the 1996 Plan covering more
than 2,500,000 shares of common stock in any calendar year. Shares subject to
stock awards that have lapsed or terminated, without having been exercised in
full, and any shares repurchased by Paradyne pursuant to a repurchase option
provided under the 1996 Plan may again become available for the grant of awards
under the 1996 Plan.
Rights to acquire restricted stock granted under the 1996 Plan may be
granted subject to a repurchase option in favor of Paradyne that will expire
pursuant to a vesting schedule. The purchase price of such awards will be at
least 85% of the fair market value of the common stock on the date of grant.
Stock bonuses may be awarded in consideration for past services without the
payment of a purchase price. Rights under a stock bonus or restricted stock
bonus agreement may not be transferred other than by will, the laws of descent
and distribution or a qualified domestic relations order while the stock awarded
pursuant to such an agreement remains subject to the agreement, provided that a
holder of such rights may designate a beneficiary who may exercise the right
following the holder's death.
Upon particular types of changes in control of Paradyne, all outstanding
stock awards under the 1996 Plan may be assumed by the surviving entity or
replaced with similar stock awards granted by the surviving entity. If the
surviving entity does not assume such awards or provide substitute awards, then
with respect to persons whose service with Paradyne or an affiliate has not
terminated prior to such change in control, the awards shall become fully vested
and will terminate if not exercised prior to such change in control.
As of May 15, 1999, there were options to acquire 3,621,948 shares of
common stock outstanding under the 1996 Plan. The 1996 Plan will terminate in
May 2009, unless terminated sooner by the board of directors.
1999 EMPLOYEE STOCK PURCHASE PLAN
In May 1999, our board of directors adopted and the stockholders approved
the 1999 Employee Stock Purchase Plan (the "Purchase Plan"). A total of
1,000,000 shares of common stock have been reserved for issuance under the
Purchase Plan. Each year, the number of shares reserved for issuance under the
Purchase Plan will automatically be increased by 2.0% of the total number of
shares of common stock then outstanding or, if less, by 1,000,000 shares. The
Purchase Plan is intended to qualify as an employee stock purchase plan within
the meaning of Section 423 of the Code. Under the Purchase Plan, the board of
directors or a committee comprised of at least two members of the board of
directors may authorize participation by eligible employees, including officers,
in periodic offerings following the commencement of the Purchase Plan. The
initial offering under the Purchase Plan will commence on the effective date of
this offering and terminate on April 30, 2001.
Unless otherwise determined by the board of directors, employees are
eligible to participate in the Purchase Plan only if they are customarily
employed by us or one of our subsidiaries designated by the board of directors
for at least 20 hours per week and five months per calendar year. Employees who
participate in an offering may have up to 15% of their earnings withheld
pursuant to the Purchase Plan. The amount withheld is then used to purchase
shares of the common stock on specified dates determined by the board of
directors. The price of common stock purchased under the Purchase Plan will be
equal to 85% of the lower of the fair market value of the common stock at the
commencement date of each offering period or the relevant purchase date.
Employees may end their participation in an offering at any time during such
offering,
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and their participation will end automatically on termination of their
employment with us or one of our subsidiaries.
In the event of a merger, reorganization, consolidation or liquidation
involving Paradyne, the board of directors has discretion to provide that each
right to purchase common stock will be assumed or an equivalent right
substituted by the successor corporation or the board of directors may provide
for all sums collected by payroll deductions to be applied to purchase stock
immediately prior to such merger or other transaction. The board of directors
has the authority to amend or terminate the Purchase Plan, provided, however,
that no such action may adversely affect any outstanding rights to purchase
common stock.
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In May 1999, the board of directors adopted and the stockholders approved
the 1999 Non-Employee Directors' Stock Option Plan (the "Directors' Plan") to
provide for the automatic grant of options to purchase shares of common stock to
non-employee directors of Paradyne. The Directors' Plan is administered by the
board of directors.
The aggregate number of shares of common stock that may be issued pursuant
to options granted under the Directors' Plan is 250,000. Pursuant to the terms
of the Directors' Plan, each of our directors who is not an employee of Paradyne
(a "Non-Employee Director") will automatically be granted an option to purchase
10,000 shares of common stock upon the closing of this offering (an "Initial
Grant"). Each person who is elected or appointed to be a Non-Employee Director
after the closing of this offering will be granted an Initial Grant upon such
election or appointment. In addition, each Non-Employee Director who continues
to serve as a Non-Employee Director of Paradyne and who attends at least
seventy-five percent (75%) of the regularly scheduled meetings of the board and
the committees of the board of which he or she is a member during the year
preceding each annual meeting of our stockholders will automatically be granted
an option to purchase 5,000 shares of common stock on the day following each
such annual meeting (an "Annual Grant"). The number of shares subject to the
Annual Grant will be reduced pro rata for each full quarter prior to the date of
the grant during which such person did not serve as a Non-Employee Director any
Non-Employee Director who has not continuously served as a director for the
entire 12-month period prior to the date of grant. Each Annual Grant shall be
fully vested on the date it is granted. Initial Grants may, at the discretion of
the board of directors, be fully vested on the day they are granted or be vested
as to 50% of the shares subject to such Initial Grants on the date they are
granted and as to the remaining 50% of the shares subject to the Initial Grant
on the first anniversary of the date they are granted. No option granted under
the Directors' Plan may have a term in excess of ten years from the date on
which it was granted. The exercise price of options under the Directors' Plan
will equal the fair market value of the common stock on the date of grant. A
Non-Employee Director whose service as a Non-Employee Director or employee of or
consultant to Paradyne or any of our affiliates ceases for any reason other than
death or permanent and total disability may generally exercise vested options in
the three-month period following such cessation (unless such options terminate
or expire sooner by their terms). Vested options may be exercised during the
12-month period after a Non-Employee Director's service ceases due to disability
and during the 18-month period after such service ceases due to death. The
Directors' Plan will terminate in May 2009, unless earlier terminated by the
board of directors.
As of May 15, 1999, no options to purchase common stock had been granted
pursuant to the Directors' Plan.
KEY EMPLOYEE STOCK OPTION PLAN
The Key Employee Stock Option Plan (the "Key Employee Plan") was adopted by
our board of directors on December 29, 1997. The Key Employee Plan is
administered by the Plan Committee (the "Benefits Committee"), which committee
consists of John M. Guest, Patrick M. Murphy and H. Edward Thompson. Employees
of Paradyne holding the position of Vice President or above are eligible to
participate in the Key Employee Plan. As of May 15, 1999, fifteen employees are
eligible to participate in the plan. Participants may elect to defer up to fifty
percent (50%) of their total annual compensation in exchange for
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options to purchase shares of common or preferred stock of any publicly-traded
corporation, shares of our common stock or shares in investment funds.
Currently, participants in the Key Employee Plan may only receive options to
purchase shares of investment funds administered by Fidelity Investments. The
Key Employee Plan allows the Benefits Committee, after consultation with an
employee holding an option under the Key Employee Plan, to change the shares
subject to purchase by the optionee upon exercise of such option. The options
granted under the Key Employee Plan are not intended to qualify as "incentive
stock options" under Section 422 of the Code.
Upon the grant of an option under the Key Employee Plan, Paradyne is
required to acquire shares of the stock or investment fund subject to the option
in a number equal to 75% of the shares subject to such option. These shares will
be held by Paradyne under a trust arrangement.
The exercise price of an option granted under the Key Employee Plan will be
equal to the greater of 25% of the fair market value of the shares subject to
the option on the date of issuance of the option or 25% of the fair market value
of the shares subject to the option on the date of exercise of the option. The
cost to the employee is the exercise price. Options granted under the Key
Employee Plan are fully vested upon grant and may be exercised at any time after
the date that is six months after the date they are granted. The term of an
option granted under the Key Employee Plan may not exceed ten years. An optionee
whose service with Paradyne terminates may exercise options granted under the
Key Employee Plan within twelve months following such termination.
Unless the terms of an option granted under the Key Employee Plan provide
otherwise, such options may be transferred to an optionee's spouse or lineal
descendants or the trustee of a trust established for the optionee's spouse or
lineal descendants.
As of May 15, 1999, Andrew May, Patrick Murphy, Sean Belanger, Paul Floyd
and John Guest were the only participants in the Key Employee Plan.
401(K) PLAN
We have established the Paradyne Corporation Retirement Savings Plan
effective August 1, 1996 (the "401(k) Plan"). The 401(k) Plan is intended to
qualify under Section 401 of the Code so that contributions by employees or by
Paradyne, and income earned thereon, are not taxable until withdrawn and so that
contributions by Paradyne will be deductible by Paradyne when made. The 401(k)
Plan provides that each participant may reduce his or her pre-tax gross
compensation by up to 16% (up to a statutorily prescribed annual limit of
$10,000 in 1999) and have that amount contributed to the 401(k) Plan. Employees
become eligible to participate in the 401(k) Plan upon commencement of their
employment with Paradyne. Participants are fully vested in all amounts they
contribute under the 401(k) Plan and in the earnings on such amounts.
In addition to the employee salary deferrals described above, the 401(k)
Plan requires Paradyne to make contributions under the 401(k) Plan on behalf of
the participants. These contributions include a matching contribution of 66 2/3%
of the first 6% of salary deferral contributions made by each participant. The
401(k) Plan also permits Paradyne to make an employer contribution in an amount
to be determined by the board of directors or, if no such amount is determined,
in an amount of between 1% and 4.5% of the annual compensation of each
participant. The amount of such employer contributions to be received by each
participant will be determined based on the age of the participant. Participants
become vested in matching contributions and employer contributions according to
a graded vesting schedule under which they become fully vested after four years
of service with Paradyne.
Employee participants may elect to invest their accounts under the 401(k)
Plan in various established funds.
LIMITATIONS ON DIRECTORS' AND EXECUTIVE OFFICERS' LIABILITY AND INDEMNIFICATION
Our bylaws provide that Paradyne shall indemnify its directors and
executive officers to the fullest extent permitted by Delaware law, except with
respect to some specific proceedings initiated by such persons.
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Paradyne is also empowered under its bylaws to enter into indemnification
contracts with its directors and executive officers and to purchase insurance on
behalf of any person it is required or permitted to indemnify.
In addition, our restated certificate provides that a director of Paradyne
will not be personally liable to Paradyne or its stockholders for monetary
damages for any breach of fiduciary duty as a director, except for:
- any breach of the director's duty of loyalty to Paradyne or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; and
- any transaction from which the director derives an improper personal
benefit.
The restated certificate also provides that if the Delaware General
Corporation Law is amended after the approval by our stockholders of the
restated certificate to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of Paradyne's
directors shall be eliminated or limited to the fullest extent permitted by the
Delaware General Corporation Law, as so amended. The provision does not affect a
director's responsibilities under any other law, such as the federal securities
laws or state or federal environmental laws.
We entered into an indemnification agreement with William Stensrud, one of
our directors, on November 6, 1996. Under the agreement, we agreed to reimburse
and indemnify Mr. Stensrud for civil or criminal proceedings or governmental
investigations relating to Mr. Stensrud's actions as a director, except if such
conduct was committed in bad faith or was a breach of Mr. Stensrud's duty of
loyalty to us.
CERTAIN TRANSACTIONS
The following is a description of transactions since January 1, 1996, to
which Paradyne has been a party, in which the amount involved in the transaction
exceeds $60,000, and in which any of our directors, executive officers or
holders of more than 5% of the capital stock had or will have a direct or
indirect material interest other than compensation arrangements which are
otherwise required to be described under "Management."
DIVESTITURE BY LUCENT
Initial Formation
Prior to the divestiture, the predecessor business operated several
businesses, which were either acquired by Communication Partners, L.P. or
retained by Lucent. Shares of common stock of the predecessor business were
traded on the New York Stock Exchange from 1978 to 1989 at which point the
predecessor business was acquired by AT&T. Communication Partners, L.P. was
originally formed under the name Paradyne Partners, L.P. in connection with the
divestiture for the primary purpose of holding investments in Paradyne and
GlobeSpan. In the divestiture, Communication Partners, L.P. formed:
- Lease Acquisition Corp., as a subsidiary
- Paradyne Credit Corp. which was formerly called Rental Acquisition Corp.,
as a subsidiary
- GlobeSpan, Inc., which was formerly called CAP Acquisition Group, as a
subsidiary
- Paradyne Acquisition Corp., as a wholly-owned subsidiary to hold the
common stock of Paradyne Corporation and Lease Acquisition Corp.
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The following chart illustrates the ownership structure of Communication
Partners, LP and its subsidiaries.
COMMUNICATION PARTNERS, L.P.
(formerly, Paradyne Partners, L.P.)
|
|
- --------------------------------------------------------------------------------
| | |
| | |
PARADYNE NETWORKS, INC. PARADYNE CREDIT CORP. GLOBESPAN, INC.
(formerly, (formerly, (formerly,
Paradyne Acquisition Corp.) Rental Acquisition Corp.) CAP Acquisition
| Group)
|
|
- ----------------------------
| |
| |
Paradyne Lease
Corporation Acquisition Corp.
The predecessor business operated a services business and personal end user
business, which Lucent retained. The predecessor business also operated a
development, manufacturing and distribution business for broadband and
narrowband access products, which was retained by Paradyne Corporation, a
high-speed access integrated circuit business, which was acquired by GlobeSpan,
a short-term equipment leasing business, which was acquired by Paradyne Credit
Corp. and a long-term equipment leasing business, which was acquired by Lease
Acquisition Corp. In connection with these acquisitions, the predecessor
business assigned appropriate assets and resources to the subsidiaries. Lease
Acquisition Corp. sold its assets to Paradyne Credit Corp. and was subsequently
merged with and into Paradyne Networks. See "-- Subsequent
Transactions -- Transactions with Paradyne Credit Corporation."
The following table illustrates the corporate structure of Paradyne and
GlobeSpan both before and after the divestiture by Lucent.
<TABLE>
<CAPTION>
PERCENTAGE
INTEREST IN PERCENTAGE PERCENTAGE
GLOBESPAN INTEREST IN INTEREST IN
AND PARADYNE PARADYNE GLOBESPAN
PRIOR TO FOLLOWING FOLLOWING
FORMATION FORMATION FORMATION
------------ ------------ ------------
<S> <C> <C> <C>
Lucent Technologies.................................... 100% -- 10.3%(1)
General and Limited Partners of Communication Partners,
L.P.
Entities Associated with Texas Pacific Group......... -- 75.9% 68.1%
Entities Associated with Sprout Group(2)............. -- 13.4% 12.1%
Entities Associated with Thomas Epley................ -- 8.8% 7.9%
Entities Associated with William Stensrud............ -- 1.9% 1.7%
</TABLE>
- ------------------------------
(1) Represents a warrant held by Lucent to purchase 1,312,500 shares of
GlobeSpan's common stock and assumes a cash exercise of the warrant.
(2) Consists of indirect ownership interests through limited partnership
interests in Communication Partners L.P. and limited partnership interests
in some Texas Pacific Group entities.
In addition to their common ownership, Lucent, GlobeSpan and Paradyne have
continuing business relationships with each other.
Our current board of directors consists of Messrs. Epley, May, Stensrud and
Stanton, Bonderman, Geeslin and Van Camp. Of the current members of the board of
directors, Messrs. Epley, Geeslin and Stanton
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are directors of both GlobeSpan and Paradyne. Mr. Stensrud was a member of the
board of directors of both GlobeSpan and Paradyne until his resignation from
GlobeSpan's board of directors in March 1999. Mr. Stensrud will continue as a
board member of Paradyne.
As of May 1999, Communication Partners, L.P. owned approximately 97.1% of
our outstanding common stock and approximately 83.2% of the outstanding capital
stock of GlobeSpan. In May 1999, Communication Partners, L.P. distributed its
GlobeSpan shares and its Paradyne shares to its general and limited partners.
See "Principal Stockholders."
Mr. Stanton is the sole director and president of Communication GenPar,
Inc., the general partner of Communication Partners, L.P., and is a partner of
TPG Partners, L.P. and TPG Parallel I, L.P., each a limited partner of
Communication Partners, L.P. and the shareholders of Communication GenPar, Inc.
Messrs. Epley and Stensrud, either directly or through various investment
partnerships and corporations, are limited partners of Communication Partners,
L.P.
Interim Promissory Note. In connection with the divestiture, we issued an
interim promissory note payable to Lucent in the amount of $7.5 million. This
note matured on December 31, 1997 and carried an interest rate of 8.5% per annum
for the period July 31, 1996 through December 31, 1996 and 11.5% per annum
thereafter. This note was secured by the land and buildings in Largo, Florida
owned by us at the time of the divestiture. On June 27, 1997, the land and
buildings in Largo, Florida were sold, and this indebtedness was repaid. We
recognized interest expense of approximately $267,000 and $421,000 for the five
months ended October 31, 1996 and the year ended December 31, 1997,
respectively.
Promissory Note. In connection with the divestiture, we issued a
promissory note payable to Lucent in the amount of $61.8 million. This note
carried an interest rate of 8.5% per annum for the period July 31, 1996 through
December 31, 1997, 11.5% per annum for the period January 1, 1998 through
December 31, 1998 and 14.5% per annum thereafter. Under the terms of this note,
interest payments totalling $7.6 million were deferred for the period August 1,
1996 through December 31, 1997. Interest was payable quarterly subsequent to
December 31, 1997. The principal balance, along with any deferred interest, was
due and payable on June 30, 2000. Additionally, the terms of this note called
for a mandatory prepayment of principal and related interest under certain
circumstances. One such circumstance was the sale of the land and buildings in
Largo, Florida, and as such, we paid Lucent $3.7 million in principal and
deferred interest in June 1997. Of the remainder of the principal and deferred
interest, $63.0 million was forgiven in 1997 and $2.7 million was paid in 1998
in connection with a settlement with Lucent as described under "Subsequent
Transactions -- Transactions with Lucent -- Lucent Settlement" below.
TRANSACTIONS WITH LUCENT
Intellectual Property Agreement. As part of the divestiture, we entered
into an intellectual property agreement with Lucent and GlobeSpan. Under this
agreement, Lucent irrevocably assigned to us and our successors all rights in
particular patents related to our proprietary technology. In exchange, we
granted to Lucent a non-exclusive license to develop, manufacture, test or
repair products using the assigned patents.
Non-Competition Agreement. As part of the divestiture, Lucent entered into
a non-competition agreement with GlobeSpan and us. Under this agreement, Lucent
agreed not to compete with us (with a separate agreement not to compete with
GlobeSpan) with respect to the manufacture and sale of products, which either
compete with the principal products of Paradyne or compete with technologies
under development by Paradyne at the time of the divestiture. The cross-license
and non-competition agreements do not prevent GlobeSpan and AT&T from competing
with Paradyne.
AT&T Trademark and Patent Agreement. As part of the divestiture, AT&T
(Lucent's principal stockholder at the time) entered into a trademark and patent
agreement with us and GlobeSpan. Under this agreement, AT&T granted us a
non-exclusive, non-transferable, irrevocable, worldwide, royalty-free license
under particular listed AT&T patents to develop, manufacture, test or repair our
products existing at the time of the divestiture.
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Supply Agreement. As part of the divestiture, we entered into a supply
agreement with Lucent and GlobeSpan. Under the terms of this agreement, we
agreed to sell a variety of listed products to Lucent at prices at least as low
as those prices offered to other customers and Lucent agreed to purchase minimum
amounts of products from Paradyne. We also entered into a volume purchase letter
agreement, whereby Lucent agreed to purchase minimum levels of products from us
for a period of four years. The volume purchase letter agreement was
subsequently terminated with an effective date in 1997 in connection with a
settlement with Lucent. In 1997, we amended the supply agreement in connection
with a settlement with Lucent and became the exclusive supplier to Lucent of
Lucent's requirements for network access products for resale through June 2001,
provided that these products possess satisfactory design, function, and
performance characteristics. See "Subsequent Transactions -- Transactions with
Lucent -- Lucent Settlement" below.
TRANSACTIONS WITH GLOBESPAN
Cross-License. As part of the divestiture, we entered into a cross-license
agreement with GlobeSpan. Under this agreement, each party granted to the other
party a non-exclusive, non-transferable, irrevocable, world-wide, royalty-free
license to the patents Lucent assigned to the granting party in the divestiture,
for use in the other party's products that existed as of the date of the
divestiture, and subsequent modifications to those products. Each party also
granted to the other party a non-exclusive, non-transferable, irrevocable,
world-wide, royalty-free license to the granting party's other technical
information and intellectual property existing at the time of the divestiture.
These licenses give us the right to make, have made, use, sell and import our
products within the scope of the license grants as well as the tools used to
develop, manufacture, test or repair such products. We were also given the right
to convey to any of our customers the right to use and resell such products.
Each party also granted to the other party a non-exclusive, non-transferable,
irrevocable, world wide, royalty-free license to use particular listed
trademarks. All of these licenses have an indefinite duration, subject to the
expiration of patent and copyright terms.
Royalty Payments to GlobeSpan. In conjunction with the license to
reproduce GlobeSpan software, we paid GlobeSpan a total of $235,000 in royalty
payments in 1996. This payment reflected the cost of a chip set reference design
guide and a right-to-use fee. The rates were determined in accordance with a
September 1995 license agreement. Effective July 1998, the Company revised its
pricing arrangement with GlobeSpan such that GlobeSpan sold products to the
Company at preferential prices. In exchange, GlobeSpan agreed to pay a 1.25%
royalty based on net revenues up to an aggregate amount of $1.5 million. The
Company recorded $381,000 of royalty revenue related to the agreement during the
year ended December 31, 1998.
Services Agreement. As part of the divestiture, we entered into an
intercompany services agreement under which we agreed, for a period of time, to
provide GlobeSpan with the following services due to their limited
infrastructure.
- human resources, staffing and legal services;
- administrative services, including risk management, patent management,
tax management and accounting support; and
- operational services, including office communications and
telecommunications systems management, facilities management, rent and
other services.
GlobeSpan now provides all of the above-mentioned services directly, except
for insurance and 401(k) administration, which we still provide. This agreement
can be terminated by GlobeSpan on 60 days notice and by us on 180 days notice.
GlobeSpan paid us a total of $155,000 and $231,000 for the years ended December
31, 1997 and 1998 under the services agreement. In 1998, we subleased additional
office space to GlobeSpan. In connection with the relocation of our offices,
GlobeSpan reimbursed us approximately $392,000 of our moving expenses.
Various Insurance Policies. The directors and officers of Communication
Partners, Communication GenPar, Inc., Paradyne, Paradyne Acquisition Corp.,
Paradyne Credit Corp. and GlobeSpan are covered under one umbrella insurance
policy providing up to $10.0 million of liability coverage. Additionally,
Paradyne, Paradyne Credit Corp. and GlobeSpan are jointly covered under various
general liability, property, casualty
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and workers' compensation policies. The term of these policies is from August
31, 1998 to August 31, 1999. We jointly entered into these policies to obtain
the cost benefit of common control entity premiums. We expect that we will not
share insurance policies with GlobeSpan after this offering. We expect to have
our own directors and officers' insurance policy in effect prior to the closing
of this offering.
401(k) Plan. We maintain a 401(k) plan, which substantially all of
GlobeSpan's employees currently participate in due to the administrative
economic benefits of a single employer plan. Effective May 1, 1999, GlobeSpan
expects to adopt its own 401(k) plan for its employees. Contributions for the
five months ended December 31, 1996 and for the years 1997 and 1998, including
discretionary matches, paid by Paradyne on behalf of GlobeSpan amounted to
approximately $65,000, $321,000 and $379,000. All payments made on behalf of
GlobeSpan have been or will be reimbursed.
TRANSACTIONS WITH LEASE ACQUISITION CORP.
Services Agreement. As part of the divestiture, we entered into an
intercompany services agreement with Lease Acquisition Corp. under which we
agreed to provide:
- general management consulting and services administration, including
lease contract servicing and remarketing services;
- administrative services, including risk management, financial and cash
management, tax management and accounting services;
- human resources, staffing and legal services; and
- operational services, including facilities management, office
communications, telecommunication systems, systems management and other
services.
In exchange for these services, Lease Acquisition Corp. agreed to pay us a
monthly service fee of $5,000 per month. This agreement was terminated by mutual
consent in August 1997. Payments received for these services were $25,000 for
the five months ended December 31, 1996 and $35,000 for the period January 1,
1997 through August 1, 1997.
TRANSACTIONS WITH PARADYNE CREDIT CORP.
Services Agreement. As part of the divestiture, we entered into an
intercompany services agreement with Paradyne Credit Corp. under which we agreed
to provide:
- general management consulting and services administration, including
rental contract servicing administration and remarketing services;
- administrative services, including risk management, financial and cash
management, tax management and accounting services;
- human resources, staffing and legal services; and
- operational services, including facilities management, office
communications, telecommunication systems, systems management and other
services.
In exchange for these services, Paradyne Credit Corp. agreed to pay us a
monthly service fee equal to 5% of their net revenue. This agreement may be
terminated by Paradyne Credit Corp. upon 60 days notice and by us upon 180 days
notice. Payments received for these services were $407,000 and $521,000 for the
five months ending December 31, 1996 and the seven month period ending July 31,
1997, respectively. See "Subsequent Transactions -- Transactions with Paradyne
Credit Corp." below.
In addition, Paradyne Credit Corp. received an option to purchase our used
equipment that had been returned from expired or terminated leases, sales to
customers or consignment activities. Payments received for the purchase of the
equipment totaled $115,000 and $81,000 for the five months ended December 31,
1996 and the year ended December 31, 1997. This option terminated in August 1997
as described under
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"Subsequent Transactions -- Transactions with Paradyne Credit Corp. -- Sale of
Lease Receivables and Related Equipment" below.
TRANSACTIONS WITH COMMUNICATION PARTNERS
Interim Promissory Note. In connection with the divestiture, we issued a
promissory note payable to Communication Partners in the amount of $7.5 million.
This note matured on December 31, 1997 and carried an interest rate of 8.5% per
annum for the period July 31, 1996 through December 31, 1996 and 11.5% per annum
thereafter. This note was secured by the land and buildings in Largo, Florida
owned by us at the time of the divestiture. On June 27, 1997, the land and
buildings in Largo, Florida were sold, and this indebtedness was repaid. We
recognized interest expense of approximately $267,000 and $421,000 for the five
months ended December 31, 1996 and the year ended December 31, 1997,
respectively.
SUBSEQUENT TRANSACTIONS
TRANSACTIONS WITH LUCENT
Lucent Settlement. As at December 31, 1997, Lucent had not satisfied its
obligations under the volume purchase letter agreement and, therefore, was
subject to take or pay provisions. We entered into a settlement with Lucent,
effective in 1997 whereby we agreed to terminate the volume purchase letter
agreement, amended our supply agreement with Lucent to become the exclusive
supplier to Lucent of Lucent's requirements for network access products for
resale through June 2001 and received $8.2 million of cash and the cancellation
of the promissory note to Lucent in the amount of $63.0 million. In addition,
GlobeSpan amended a warrant that it originally granted to Lucent at the time of
the 1996 acquisition. The amendment extended the warrant terms by three years.
Because both GlobeSpan and Paradyne are subsidiaries of Communication Partners,
we recognized a contribution of capital by Communication Partners of $3.6
million, reflecting the estimated fair market value of the extension of the
GlobeSpan warrant.
TRANSACTIONS WITH GLOBESPAN
Reimbursement for Chip Set Purchases. Due to GlobeSpan's limited
infrastructure at the beginning of its existence in 1996, GlobeSpan purchased
chip sets from Lucent through us for sale to GlobeSpan customers. We paid Lucent
for these chip sets on GlobeSpan's behalf, and GlobeSpan reimbursed us for their
cost. These reimbursements totaled $194,000.
Cooperative Development Agreement/Termination Agreement/Supply
Agreement. In November 1996, we entered into a cooperative development
agreement and a related rider agreement with GlobeSpan. Under the terms of these
agreements and in consideration for a contribution of $6.0 million by
Communication Partners to GlobeSpan, we were provided with a broad,
royalty-free, unrestricted license to use GlobeSpan's technical information and
patents for any purpose related to our products. We were also granted the right
to acquire GlobeSpan's chip sets at prices not to exceed cost plus 15%. The term
of the cooperative development agreement was 5 years. The term of rider
agreement was 10 years and we had the right to extend it for an additional
10-year term. In addition, we leased assets and equipment to GlobeSpan for an
annual lease fee of $1.00. Effective December 1998, GlobeSpan and we terminated
these agreements pursuant to a termination agreement. The termination agreement
provided that GlobeSpan agreed, effective July 1998, to pay us a total of $1.5
million in royalties. GlobeSpan and we agreed that approximately $400,000 of
these royalties had been paid as of the effective date of the termination
agreement and that GlobeSpan would pay to us the approximately $1.1 million
balance of royalties the sooner of December 31, 1999 or within 30 days of the
effective date of GlobeSpan's initial public offering.
In conjunction with the signing of the termination agreement, we entered
into a four-year supply agreement with GlobeSpan, which gives us preferential
pricing and other terms in connection with the purchase of GlobeSpan products.
Under the terms of this agreement, GlobeSpan is required to honor our orders for
GlobeSpan products in quantities at least consistent with our past ordering
practices and must afford us at least the same priority for its orders as
GlobeSpan affords other similarly situated highly preferred customers. We were
also granted immunity under GlobeSpan's intellectual property rights for all
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our customers that purchase our products that incorporate GlobeSpan products.
GlobeSpan has been selling products to us pursuant to these terms since July
1998. In 1997 and 1998, we paid to GlobeSpan a total of $373,000 and $962,000,
respectively, for products purchased under the cooperative development
agreement, the related rider agreement and the termination agreement.
Inventory Repurchases by GlobeSpan. In December 1997 and September 1998,
GlobeSpan repurchased some of its chip sets for their own inventory needs, which
we held in more than adequate supply in our inventory in the amounts of $98,000
and $29,000, respectively.
Purchase of Fixed Assets. In 1997 and in 1998, GlobeSpan purchased fixed
assets in a non-arm's-length transaction for approximately $350,000 and
$400,000, respectively, which were owned by us but which they used in their
business. Prior to the sale of the equipment to GlobeSpan, the related
depreciation expense of $106,000 in 1996 and $244,000 in 1997 was transferred to
GlobeSpan for its use, which was reflected as a distribution of equity to a
related party in the statement of changes in stockholder equity. In 1998,
GlobeSpan purchased fixed assets from us related to a subleased facility that
they needed for their operations for $1.0 million, which included costs to
remodel offices previously used by us.
Real Property Agreements. Under a sublease dated August 1997, and
subsequently amended in August 1998, between GlobeSpan and us, GlobeSpan
subleases property at 100 Schulz Drive, Red Bank, New Jersey. The sublease
reimburses us for 100% of all costs we incur under the primary lease. GlobeSpan
currently pays us approximately $68,000 a month for approximately 50,000
rentable square feet, plus approximately $10,000 per month for rent operating
costs. After October 2001, the rent will increase to approximately $79,000 a
month for a period of six months. The sublease expires in April 2002.
TRANSACTIONS WITH LEASE ACQUISITION CORP.
Merger of Lease Acquisition Corp. into Paradyne Acquisition Corp. In
August 1997, Lease Acquisition Corp. sold its net assets to Paradyne Credit
Corp. in exchange for a promissory note totalling approximately $4.8 million and
merged with and into Paradyne Acquisition Corp. As a result of this merger,
Paradyne Acquisition Corp. acquired Paradyne Credit Corp.'s promissory note.
TRANSACTIONS WITH PARADYNE CREDIT CORP.
Sale of Lease Receivables and Related Equipment. In August 1997, we sold
all equipment under lease, as well as the related future lease payments, to
Paradyne Credit Corp., our equipment leasing affiliate, for approximately $3.5
million, the approximate book value of the equipment and related future lease
payments. We, however, are allowed to purchase from Paradyne Credit Corp.
equipment that has been returned to Paradyne Credit Corp. after the termination
of the lease. These purchases are on terms no more favorable to us than would be
obtained in a comparable arm's length transaction and totaled $0 and $141,000
for the year ended December 31, 1997 and 1998, respectively. Paradyne Credit
Corp. may purchase equipment manufactured or sold by us at prices substantially
equal to those received by us through normal selling channels. Payments received
from the sales of such equipment totaled $181,000 and $317,000 for the year
ended December 31, 1997 and 1998, respectively.
In connection with this sale, the Paradyne Credit Corp. services agreement
was amended to change the monthly service fee to equal the sum of: (i) all
direct costs incurred by us to provide services to Paradyne Credit Corp. and
(ii) up to five percent (5%) of the net revenues of Paradyne Credit Corp. for
any indirect costs. Payments received for these services were $344,000 and
approximately $1.2 million for the five months ended December 31, 1997 and for
the year ended December 31, 1998, respectively.
In April 1999, this agreement was again modified to adjust the monthly
service fee to equal to the sum of: (i) all direct costs incurred by us to
provide services to Paradyne Credit Corp., (ii) all indirect costs incurred by
us to provide services to Paradyne Credit Corp. and (iii) a 5% mark up on all
charges.
In connection with a sale of lease receivables to AT&T Capital Corp., we
guaranteed collection of selected receivables to AT&T Capital Corp. As of
December 31, 1998, lease receivables for which we were
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contingently liable, but for which we have recourse, were outstanding in the
amount of $886,000. The ultimate responsibility for the collection of these
receivables is with Paradyne Credit Corp.
TRANSACTIONS WITH COMMUNICATION PARTNERS
Subordinated Revolving Promissory Note. In August 1997, Communication
Partners agreed to provide to us a revolving line of credit facility in the
maximum amount of $5.0 million. This agreement was amended in October 1998 to
increase the maximum principal amount of the facility to $10.0 million. Interest
paid under this note totaled $0 and $305,000 for the year ended December 31,
1997 and 1998, respectively. As of March 31, 1999, there is no outstanding
balance on the credit facility. Borrowings under this agreement are subordinated
to debt under our Bank of America NT&SA revolving credit facility.
Continuing Limited Guaranty. In October 1998, Communication Partners
entered into a continuing guaranty for the benefit of Bank of America NT&SA in
connection with our revolving credit facility. The maximum liability under this
guaranty was $10.0 million, reduced by any principal amount outstanding under
the subordinated revolving promissory note discussed above. This guaranty was
canceled in March 1999.
PROMISSORY NOTES FROM OFFICERS
On May 5, 1997, James L. Slattery, Senior Vice President, Chief Legal and
Intellectual Property Officer and Corporate Secretary, issued to us a promissory
note in the amount of $149,850 in connection with his purchase of 75,000 shares
of our common stock. The full recourse note accrues interest at a rate of 6.65%
per annum. The principal balance of this note and accrued interest are payable
at the earlier of termination of employment or five years from the date of the
note. The note is secured by the shares of common stock acquired with the note,
which shares are held in escrow by us. As of May 15, 1999, the balance
outstanding was $149,850, plus accrued interest.
On March 29, 1999, Sean E. Belanger, Senior Vice President of Worldwide
Sales, issued to us a promissory note in the amount of $199,800 in connection
with his purchase of 100,000 shares of our common stock. The full recourse note
accrues interest at a rate of 4.72% per annum. The principal balance of this
note and accrued interest are payable at the earlier of termination of
employment or five years from the date of the note. The note is secured by the
shares of common stock acquired with the note, which shares are held in escrow
by us. The balance outstanding as of May 15, 1999 was $199,800, plus accrued
interest.
On March 26, 1999, Paul H. Floyd, Vice President Research and Development,
issued to us a promissory note in the amount of $74,925 in connection with his
purchase of 37,500 shares of our common stock. The full recourse note accrues
interest at a rate of 4.72% per annum. The principal balance of this note and
the accrued interest are payable at either the earlier of termination of
employment or five years from the date of the note. The note is secured by the
shares of common stock acquired with the note, which shares are held in escrow
by us. All unvested shares purchased with the note are subject to repurchase by
us if Mr. Floyd terminates his employment prior to becoming fully vested in
these shares. The shares vest on a quarterly basis and will be fully vested
after August 1, 2000. The balance outstanding as of March 31, 1999 was $74,925,
plus accrued interest. On March 26, 1999, Mr. Floyd issued to us a promissory
note in the amount of $62,475 in connection with his purchase of 12,500 shares
of our common stock. The full recourse note accrues interest at a rate of 4.72%
per annum. The principal balance of this note and accrued interest are payable
at the earlier of termination of employment or five years from the date of the
note. The note is secured by the shares of common stock acquired with the note,
which shares are held in escrow by us. All unvested shares purchased with the
note are subject to repurchase by us if Mr. Floyd terminates his employment
prior to becoming fully vested in those shares. A quarter of the shares vest on
the first anniversary of the note and the remainder vest in equal quarterly
installments thereafter. The balance outstanding as of May 15, 1999 was $62,475,
plus accrued interest.
On March 26, 1999, Frank J. Wiener, Vice President, DSL Products, issued to
us a promissory note in the amount of $159,915 in connection with his purchase
of 42,500 shares of our common stock. The full recourse note accrues interest at
a rate of 4.72% per annum. The principal balance of this note and the accrued
interest are payable at either the earlier of termination of employment or five
years from the date of
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the note. The note is secured by the shares of common stock acquired with the
note, which shares are held in escrow by us. All unvested shares purchased with
the note are subject to repurchase by us if Mr. Wiener terminates his employment
prior to becoming fully vested in these shares. The shares vest on a quarterly
basis and will be fully vested after January 1, 2001. The balance outstanding as
of March 31, 1999 was $159,915, plus accrued interest. On April 2, 1999, Mr.
Wiener issued to us a promissory note in the amount of $24,990 in connection
with his purchase of 5,000 shares of our common stock. The full recourse note
accrues interest at a rate of 5.15% per annum. The principal balance of this
note and accrued interest are payable at the earlier of termination of
employment or five years from the date of the note. The note is secured by the
shares of common stock acquired with the note, which shares are held in escrow
by us. All shares purchased with the note are subject to repurchase by us if Mr.
Wiener terminates his employment prior to becoming fully vested in those shares.
A quarter of the shares vest on the first anniversary of the loan and the
remainder vest in equal quarterly installments thereafter. The balance
outstanding as of May 15, 1999 was $24,990.
On March 27, 1999, Mark Housman, Vice President of Marketing, issued a
promissory note to us in the amount of $64,935 in connection with his purchase
of 32,500 shares of our common stock. The full recourse note accrues interest at
a rate of 4.72% per annum. The principal balance of this note and the accrued
interest are payable at either the earlier of termination of employment or five
years from the date of the note. The note is secured by the shares of common
stock acquired with the note, which shares are held in escrow by us. All
unvested shares purchased with the note are subject to repurchase by us if Mr.
Housman terminates his employment prior to becoming fully vested in these
shares. The shares vest on a quarterly basis and will be fully vested after
February 2000. The balance outstanding as of May 15, 1999 was $64,935, plus
accrued interest.
On March 31, 1999, Andrew S. May, President, Chief Executive Officer, and
Director, issued to us a promissory note in the amount of $99,900 in connection
with his purchase of 50,000 shares of our common stock. The full recourse note
accrues interest at a rate of 4.72% per annum. The principal balance of this
note and the accrued interest are payable at either the earlier of termination
of employment or five years from the date of the note. The note is secured by
the shares of common stock acquired with the note, and those shares are held in
escrow by us. The balance as of May 15, 1999 was $99,900, plus accrued interest.
On March 31, 1999, Patrick M. Murphy, Senior Vice President and Chief
Financial Officer, issued to us a promissory note in the amount of $74,925 in
connection with his purchase of 37,500 shares of our common stock. The full
recourse note accrues interest at a rate of 4.72% per annum. The principal
balance of this note and the accrued interest are payable at either the earlier
of termination of employment or five years from the date of the note. The note
is secured by the shares of common stock acquired with the note, and those
shares are held in escrow by us. The balance outstanding as of March 31, 1999
was $74,925 plus accrued interest. On April 2, 1999, Mr. Murphy issued to us a
promissory note in the amount of $37,485 in connection with his purchase of
7,500 shares of our common stock. The full recourse note accrues interest at a
rate of 5.15% per annum. The principal balance of this note and accrued interest
are payable at the earlier of termination of employment or five years from the
date of the note. The note is secured by the shares of common stock acquired
with the note, which shares are held in escrow by us. All shares purchased with
the note are subject to repurchase by us if Mr. Murphy terminates his employment
prior to becoming fully vested in those shares. A quarter of the shares vest on
the first anniversary of the loan and the remainder vest in equal quarterly
installments thereafter. The balance outstanding as of May 15, 1999 was $37,485.
Except where noted, each of the transactions disclosed in this Section are
on terms no less favorable to Paradyne than it could obtain from non-affiliated
third parties.
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PRINCIPAL AND SELLING STOCKHOLDERS
This table sets forth certain information regarding the beneficial
ownership of our outstanding common stock as of May 15, 1999, by the following:
- each person known by us to own beneficially more than five percent of the
outstanding common stock;
- each director of Paradyne;
- each Named Executive Officer;
- each stockholder of Paradyne who is selling shares of common stock in
this offering; and
- all directors and executive officers of Paradyne as a group.
The following calculations of the percentage of outstanding shares are
based on 26,312,508 shares of our common stock outstanding as of May 15, 1999
and 30,312,508 shares outstanding immediately following the completion of this
offering and assumes no exercise of the underwriters' over-allotment option,
under which the underwriters have an option to purchase an additional 900,000
shares from the selling stockholders. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities,
subject to community property laws, where applicable. Shares of our common stock
subject to options that are presently exercisable or exercisable within 60 days
of May 15, 1999 are deemed to be outstanding and beneficially owned by the
person holding such options for the purpose of computing the percentage of
ownership of such person but are not treated as outstanding for the purpose of
computing the percentage of any other person.
The numbers shown in the table below assume no exercise by the underwriters
of their over-allotment option.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING AFTER THE OFFERING
------------------------ NUMBER OF ------------------------
NUMBER OF SHARES BEING NUMBER OF
SHARES PERCENT OFFERED SHARES PERCENT
<S> <C> <C> <C> <C> <C>
FIVE PERCENT STOCKHOLDERS:
Entities Associated with Texas
Pacific Group
Communication GenPar, Inc.(1)..... 254,641 * 26,322 228,319 *
TPG Partners, L.P.(1) ............ 17,362,964 65.99% 1,794,750 15,568,214 51.36%
TPG Parallel I, L.P.(1) .......... 1,731,013 6.58 178,928 1,552,085 5.12
Entities Associated with Sprout
Group (2)......................... 3,423,372 13.01 -- 3,423,372 11.29
DIRECTORS AND OFFICERS:
Andrew S. May (3)................... 796,875 2.94% -- 796,875 2.57%
Sean E. Belanger (4)................ 150,000 * -- 150,000 *
Patrick M. Murphy (5)............... 103,125 * 103,125 *
James L. Slattery (6)............... 82,500 * -- 82,500 *
David Bonderman (7)................. 19,348,618 73.53 -- 17,348,618 57.23
Thomas E. Epley (8)................. 2,239,534 8.51 -- 2,239,534 7.39
Keith B. Geeslin (9)................ 3,423,372 13.01 -- 3,423,372 11.29
David M. Stanton (10)............... 19,348,618 73.53 -- 17,348,618 57.23
William R. Stensrud (11)............ 533,476 2.03 -- 533,476 1.76
Peter F. Van Camp................... 0 * -- 0 *
All directors and executive officers
as a group (17 persons) (12)...... 26,961,062 98.66% -- 24,961,062 79.68%
</TABLE>
- ------------------------------
* Represents beneficial ownership of less than 1.0%.
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(1) TPG Partners, L.P. and TPG Parallel I, L.P., affiliates of Texas Pacific
Group, are sole shareholders in Communication GenPar, Inc. TPG Advisors,
Inc. is the general partner of TPG Genpar, L.P., which is the general
partner of both TPG Partners, L.P. and TPG Parallel I, L.P. If the
underwriters over-allotment option is exercised in full, Communication
GenPar, Inc. will sell an additional 11,845 shares, TPG Parallel I, L.P.
will sell an additional 80,518 shares, and TPG Partners, L.P. will sell an
additional 807,637 shares. David Stanton, a director of Paradyne, is the
sole director and President of Communication GenPar, Inc. and a Partner in
Texas Pacific Group. The address of Texas Pacific Group is 345 California
Street, Suite 3300, San Francisco, CA 94104.
(2) Includes 1,646,993 shares beneficially owned by Sprout Capital VII, L.P.,
1,346,461 shares beneficially owned by Sprout Growth II, L.P., 342,326
shares beneficially owned by DLJ First ESC L.L.C., 19,132 shares
beneficially owned by The Sprout CEO Fund, L.P. and 68,460 shares
beneficially owned by DLJ Capital Corporation. The address for each of
these entities is 3000 Sand Hill Road, Bldg. 3, Suite 170, Menlo Park, CA
94025. A portion of these shares are expected to become subject to a voting
trust agreement prior to the completion of the offering and are expected to
by held and voted by an independent third party, Norwest Bank Indiana,
N.A., as voting trustee.
(3) Includes 746,875 shares subject to options which are exercisable within 60
days of May 15, 1999.
(4) Includes 50,000 shares subject to options which are exercisable within 60
days of May 15, 1999.
(5) Includes 58,125 shares subject to options which are exercisable within 60
days of May 15, 1999.
(6) Includes 7,500 shares subject to options which are exercisable within 60
days of May 15, 1999.
(7) Includes 254,640 shares held by Communication GenPar, Inc., 17,362,964
shares held by TPG Partners L.P. and 1,731,013 shares held by TPG Parallel
I, L.P. TPG Partners, L.P. and TPG Parallel I, L.P. are shareholders in
Communication GenPar, Inc. Mr. Bonderman, a director of Paradyne, through
various investment partnerships and corporations, has a pecuniary interest
in the shares held by TPG Partners L.P. and TPG Parallel I, L.P.
(8) Consists of 1,711,753 shares held by Epley Investors, L.L.C. and 527,781
shares held by Mr. Epley individually.
(9) Includes 3,423,372 shares held by entities associated with The Sprout
Group. Mr. Geeslin is a general partner of Sprout Growth II, L.P., Sprout
Capital VII, L.P. and the Sprout CEO Fund, L.P. Mr. Geeslin is also a
Senior Vice President of DLJ Capital Corporation, the managing general
partner of Sprout Growth II, L.P., Sprout Capital VII, L.P. and the Sprout
CEO Fund, L.P. Mr. Geeslin is also one of several individual general
partners of DLJ Associates VII, L.P., which is a general partner of Sprout
Growth II, L.P. and Sprout Capital VII, L.P. DLJ First ESC L.L.C. is an
affiliate of DLJ Capital Corporation. As such, he may be deemed to have
voting and dispositive power over the shares held by entities associated
with the Sprout Group. However, Mr. Geeslin disclaims beneficial ownership
of these shares except to the extent of his pecuniary interest therein.
(10) Includes 254,641 shares held by Communication GenPar, Inc., 17,362,964
shares held by TPG Partners L.P. and 1,731,013 shares held by TPG Parallel
I, L.P. Mr. Stanton, a director of Paradyne, is the sole director and
President of Communication GenPar, Inc. and through various investment
partnerships and corporations, has a pecuniary interest in the shares held
by TPG Partners, L.P. and TPG Parallel I L.P.
(11) Includes 342,326 shares held by the Stensrud Family Trust and 191,150
shares held by Mr. Stensrud individually.
(12) Includes 1,016,064 shares subject to options which are exercisable within
60 days of May 15, 1999.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Paradyne Networks consists of 60,000,000
shares of common stock, $.001 par value and 5,000,000 shares of preferred stock
$.001 par value. There were 26,312,508 shares of Paradyne common stock
outstanding as of May 15, 1999, held of record by 133 stockholders, and there
are no outstanding shares of preferred stock.
COMMON STOCK
The holders of common stock of Paradyne Networks are entitled to one vote
per share on all matters to be voted on by the stockholders. Subject to
preferences that may be applicable to any outstanding shares of preferred stock,
holders of common stock are entitled to receive ratably such dividends as may be
declared by the board of directors out of funds legally available therefor. In
the event we liquidate, dissolve or wind up, holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preferences of any outstanding shares of preferred stock.
Holders of common stock have no preemptive, conversion, or subscription rights.
There are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are, and all shares of common
stock to be outstanding upon completion of this offering will be, fully paid and
nonassessable.
PREFERRED STOCK
Under the amended and restated certificate of Paradyne Networks, the board
has the authority, without further action by stockholders, to issue up to
5,000,000 shares of preferred stock in one or more series and to fix the rights,
preferences, privileges, qualifications and restrictions granted to or imposed
upon such preferred stock, including dividend rights, conversion rights, voting
rights, rights and terms of redemption, liquidation preference and sinking fund
terms, any or all of which may be greater than the rights of the common stock.
The issuance of preferred stock could adversely affect the voting power of
holders of common stock and reduce the likelihood that such holders will receive
dividend payments and payments upon liquidation. Such issuance could have the
effect of decreasing the market price of the common stock. The issuance of
preferred stock could also have the effect of delaying, deterring or preventing
a change in control of Paradyne. We have no present plans to issue any shares of
preferred stock.
WARRANTS
There are no outstanding warrants for the purchase or acquisition of stock
of Paradyne.
REGISTRATION RIGHTS
Paradyne intends to enter into an agreement that grants registration rights
related to the stock of Paradyne held by entities affiliated with Texas Pacific
Group. Under the terms of this proposed agreement, if we propose to register
shares not held by the affiliates of Texas Pacific Group, these affiliates would
be entitled to notice of such registration and would be allowed to include their
shares in such registration, subject to various conditions and limitations which
have yet to be finalized. In addition, we might be required to prepare and file
a registration statement under the Securities Act of 1933 if requested to do so
by entities affiliated with Texas Pacific Group owning at least 5% of our
outstanding common stock. We would be required to use our best efforts to effect
such registration, subject to various conditions and limitations which have yet
to be finalized. We would be required to bear substantially all costs in
connection with any such registrations.
DELAWARE ANTI-TAKEOVER LAW
Paradyne is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, Section 203 prohibits a publicly held
Delaware corporation 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 became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sale or other transactions resulting in a
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financial benefit to the stockholder. An "interested stockholder" is a person
who, together with affiliates and associates, owns (or within three years, did
own) 15% or more of the corporation's voting stock. The statute could have the
effect of delaying, deferring or preventing a change in control of Paradyne.
Our amended and restated certificate provides that any action required or
permitted to be taken by our stockholders must be effected at a duly called
annual or special meeting of stockholders and may not be effected by any consent
in writing. In addition, our amended and restated bylaws provide that special
meetings of our stockholders may be called only by the Chairman of the board of
directors, the Chief Executive Officer or the board of directors pursuant to a
resolution adopted by a majority of the total number of authorized directors, or
by the holders of 50% of the outstanding voting stock of Paradyne. Our amended
and restated certificate also specifies that our board of directors will be
classified into three classes of directors. Under Delaware law, directors of a
corporation with a classified board may be removed only for cause unless the
corporation's certificate of incorporation provides otherwise. The amended and
restated certificate does not provide otherwise. In addition, the amended and
restated certificate specifies that the authorized number of directors may be
changed only by resolution of the board of directors and does not include a
provision for cumulative voting for directors. Under cumulative voting, a
minority stockholder holding a sufficient percentage of a class of shares may be
able to ensure the election of one or more directors. Our amended and restated
certificate may only be amended with the approval of 66 2/3% of our outstanding
voting stock and our amended and restated bylaws may be amended either by the
board or by the approval of 66 2/3% of our outstanding voting stock.
Furthermore, our amended and restated certificate requires the advance notice of
stockholders' nominations for the election of directors and business brought
before a meeting of stockholders. Lastly, the amended and restated certificate
provides that a majority of the directors in office, even if less than a quorum,
are entitled to fill vacancies created by resignation, death, disqualification,
removal or by an increase in the size of the board. These provisions contained
in the amended and restated certificate and our amended and restated bylaws
could delay or discourage certain types of transactions involving an actual or
potential change in control of Paradyne or its management, which includes
transactions in which stockholders might otherwise receive a premium for their
shares over then current prices, and may limit the ability of stockholders to
remove our current management or approve transactions that stockholders may deem
to be in their best interests and, therefore, could adversely affect the price
of our common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Norwest Bank
Minnesota, N.A.
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of common stock in the public
market could adversely affect the market price of the common stock.
Upon completion of this offering, we will have outstanding 30,312,508
shares of common stock, assuming the issuance by Paradyne of 4,000,000 shares of
common stock offered hereby and no exercise of options after May 15, 1999. Of
these shares, the 6,000,000 shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, unless
such shares are purchased by "affiliates" as that term is defined in Rule 144
under the Securities Act (whose sales would be subject to certain limitations
and restrictions described below).
The remaining 24,312,508 shares of common stock held by existing
stockholders as of May 15, 1999 will be "restricted securities" as that term is
defined in Rule 144 (the "Restricted Securities"). Shares totalling 24,230,906
will be subject to "lock-up" agreements described below on the effective date of
this offering. Upon expiration of the lock-up agreements 180 days after the
effective date of this offering, all of these shares will become eligible for
sale, subject in most cases to the limitations of Rule 144 and Rule 701.
Restricted Securities held by non-affiliates will be eligible for sale pursuant
to Rule 144(k), as described
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below. In addition, holders of stock options could exercise such options and
sell certain of the shares issued upon exercise as described below.
As of May 15, 1999, there were a total of 3,621,948 shares of common stock
subject to outstanding options under our 1996 Equity Incentive Plan, 1,606,973
of which were vested. However, all of these shares are subject to lock-up
agreements. Immediately after the completion of this offering, we intend to file
registration statements on Form S-8 under the Securities Act to register all of
the shares of common stock issued or reserved for future issuance under our 1996
Equity Incentive Plan. On the date 180 days after the effective date of this
offering, at least 2,157,445 shares of common stock will be subject to
immediately exercisable options. After the effective date of the registration
statement on Form S-8, shares purchased upon exercise of options granted
pursuant to the 1996 Equity Incentive Plan generally would be available for
resale in the public market.
Our officers, directors and certain stockholders have agreed not to sell or
otherwise dispose of any of their shares for a period of 180 days after the date
of this offering. Donaldson, Lufkin & Jenrette, however, may in its sole
discretion, at any time without notice, release all or any portion of the shares
subject to lock-up agreements.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year, including any affiliates of ours, would be
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which
will equal approximately 303,125 shares immediately after this
offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of
a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain other requirements
regarding the manner of sale, notice filing and the availability of current
public information about Paradyne.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of
Paradyne's "affiliates," as defined in Rule 144, at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least two years, including the holding period of any prior owner other
than an "affiliate," is entitled to sell such shares without complying with the
manner of sale, notice filing, volume limitation or notice provisions of Rule
144. Therefore, unless otherwise restricted, "144(k) shares" may be sold
immediately upon the completion of this offering.
RULE 701
In general, under Rule 701, any Paradyne employee, director, officer,
consultant or advisor who purchases shares from Paradyne in connection with a
compensatory stock or option plan or other written agreement before the
effective date of the offering is entitled to resell such shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with certain restrictions, including the holding period, contained in
Rule 144.
The SEC has indicated that Rule 701 will apply to stock options granted by
an issuer before it becomes subject to the reporting requirements of the
Securities Exchange Act of 1934, along with the shares acquired upon exercise of
such options, including exercises after the date of this prospectus. Securities
issued in reliance on Rule 701 are restricted securities and, subject to the
contractual restrictions described above, beginning 90 days after the date of
this prospectus, may be sold by persons other than "affiliates," as defined in
Rule 144, subject only to the manner of sale provisions of Rule 144 and by
"affiliates" under Rule 144 without compliance with its one-year minimum holding
period requirement.
74
<PAGE> 79
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement,
dated , 1999, the underwriters named below, who are
represented by Donaldson, Lufkin & Jenrette Securities Corporation, BancBoston
Robertson Stephens Inc., Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated, and Raymond James & Associates, Inc., have severally agreed to
purchase from Paradyne and the selling stockholders the respective number of
shares of common stock set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
BancBoston Robertson Stephens Inc...........................
Dain Rauscher Wessels.......................................
Raymond James & Associates, Inc.............................
---------
Total............................................. 6,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The underwriters are obligated to purchase and
accept delivery of all the shares of common stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The underwriters initially propose to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to certain dealers (including the
underwriters) at such price less a concession not in excess of $ per
share. The underwriters may allow, and such dealers may re-allow, to certain
other dealers a concession not in excess of $ per share. After the
initial offering of the common stock, the public offering price and other
selling terms may be changed by the representatives of the underwriters at any
time without notice.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
The following table shows the underwriting fees to be paid to the
underwriters by Paradyne and the selling stockholders in connection with this
offering. These amounts are shown assuming both no exercise and full exercise of
the underwriters' option to purchase additional shares of Paradyne common stock.
<TABLE>
<CAPTION>
PAID BY SELLING
PAID BY PARADYNE STOCKHOLDERS
--------------------------- ---------------------------
NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Per share........................................ $ $ $ $
Total............................................
</TABLE>
Paradyne will pay the offering expenses, estimated to be $1.0 million.
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation and a member of the selling group, is facilitating the distribution
of the shares sold in the offering over the Internet. The underwriters have
agreed to allocate a limited number of shares to DLJdirect Inc. for sale to
brokerage account holders. DLJdirect Inc. will receive the same selling
concession that other dealers will receive in connection with sales of shares
over the Internet.
75
<PAGE> 80
The selling stockholders have granted to the underwriters an option,
exercisable within 30 days after the date of this prospectus, to purchase, from
time to time, in whole or in part, up to an aggregate of 900,000 additional
shares of common stock at the initial public offering price less underwriting
discounts and commissions. The underwriters may exercise such option solely to
cover overallotments, if any, made in connection with the offering. To the
extent that the underwriters exercise such option, each underwriter will become
obligated, subject to certain conditions, to purchase its pro rata portion of
such additional shares based on such underwriter's initial purchase commitment.
Paradyne and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments that the
underwriters may be required to make in respect thereof.
Each of Paradyne, its executive officers and directors and certain
stockholders and optionholders of Paradyne, including the selling stockholders,
have agreed, subject to certain exceptions, not to
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock, or
- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock
for a period of 180 days after the date of this prospectus without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation. During
such 180-day period, Paradyne may issue shares of common stock in connection
with acquisitions of other businesses, products or technologies, so long as the
recipients of common stock in such acquisitions agree in writing to be bound by
the same restrictions applicable to Paradyne and the selling stockholders. In
addition, during such 180-day period, Paradyne has also agreed not to file any
registration statement with respect to, and each of its executive officers,
directors and certain stockholders of Paradyne, including the selling
stockholders, has agreed not to make any demand for, or exercise any right with
respect to, the registration of any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation.
At the request of Paradyne, the underwriters have reserved up to five
percent of the shares of common stock to be issued by Paradyne and offered
hereby for sale, at the initial public offering price, to directors, officers,
employees, some stockholders and their employees and affiliates, consultants,
customers, distributors and other persons. The number of shares of common stock
available for sale to the general public will be reduced to the extent such
individuals purchase such reserved shares. Any reserved shares which are not so
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered hereby.
Prior to the offering, there has been no established trading market for
Paradyne's common stock. The initial public offering price for the shares of
Paradyne's common stock offered hereby will be determined by negotiation among
Paradyne, representatives of the selling stockholders and the representatives of
the underwriters. The factors to be considered in determining the initial public
offering price include the history of and the prospects for the industry in
which Paradyne competes, the past and present operations of Paradyne, the
historical results of operations of Paradyne, the prospects for future earnings
of Paradyne, the recent market prices of securities of generally comparable
companies and the general condition of the securities markets at the time of the
offering.
Application has been made to have the common stock approved for quotation
on the Nasdaq National Market under the symbol "PDYN."
Other than in the United States and as described below with respect to the
United Kingdom, no action has been taken by Paradyne, the selling stockholders,
or the underwriters that would permit a public offering of the shares of common
stock offered hereby in any jurisdiction where action for that purpose is
required.
76
<PAGE> 81
The shares of common stock offered hereby may not be offered or sold, directly
or indirectly, nor may this prospectus or any other offering material or
advertisements in connection with the offer and sale of any such shares of
common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about and observe any restrictions
relating to the offering and the distribution of this prospectus. This
prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any shares of common stock offered hereby in any jurisdiction in which such
an offer or a solicitation is unlawful.
Sprout Capital VII, L.P., Sprout Growth II, L.P., DLJ First ESC L.L.C., The
Sprout CEO Fund, L.P. and DLJ Capital Corporation (collectively, the "Sprout
Entities") are affiliates of Donaldson, Lufkin & Jenrette Securities
Corporation, one of the underwriters. As described under "Principal and Selling
Stockholders," the Sprout Entities beneficially own an aggregate of 3,423,372
shares of the outstanding common stock, which represent more than 10% of the
outstanding common stock. Of these shares, approximately 2.1 million shares are
expected to become subject to a voting trust agreement prior to the completion
of the offering and are expected to be held and voted by an independent third
party, Norwest Bank Indiana, N.A., as voting trustee.
Because the Sprout Entities affiliated with Donaldson, Lufkin & Jenrette
Securities Corporation beneficially own more than 10% of the outstanding common
stock, this offering is being conducted in accordance with Rule 2720 of the
Conduct Rules of the National Association of Securities Dealers, Inc., which
provides that the public offering price of an equity security be no higher than
that recommended by a "qualified independent underwriter" ("QIU") meeting
certain standards. In accordance with this requirement, BancBoston Robertson
Stephens has assumed the responsibilities of acting as QIU and will recommend a
price in compliance with the requirements of Rule 2720. In connection with this
offering, BancBoston Robertson Stephens is performing due diligence
investigations and reviewing and participating in the preparation of this
prospectus and the registration statement of which this prospectus forms a part.
Paradyne will pay BancBoston Robertson Stephens a fee of $5,000.00 in connection
with its services as QIU and will reimburse the QIU for its fees and expenses.
Paradyne has agreed to indemnify BancBoston Robertson Stephens, in its capacity
as the qualified independent underwriter, against certain liabilities, including
liabilities under the Securities Act.
In connection with the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of
Paradyne's common stock. Specifically, the underwriters may overallot the
offering, creating a syndicate short position. The underwriters may bid for and
purchase shares of common stock in the open market to cover such syndicate short
position or to stabilize the price of the common stock. In addition, the
underwriting syndicate may reclaim selling concessions from syndicate members
and selected dealers if they repurchase previously distributed common stock in
syndicate covering transactions, in stabilizing transactions or otherwise. These
activities may stabilize or maintain the market price of the common stock above
independent market levels. The underwriters are not required to engage in these
activities, and may end any of these activities at any time.
There are restrictions on the offer and sale of the common stock in the
United Kingdom. All applicable provisions of the Financial Services Act 1986 and
the Public Offers of Securities Regulations 1995 with respect to anything done
by any person in relation to the common stock in, from or otherwise involving
the United Kingdom must be complied with.
Each underwriter has also agreed that it has:
- not offered or sold and prior to the date six months after the date of
issue of the shares of common stock will not offer or sell any shares of
common stock to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purpose of their
businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995;
77
<PAGE> 82
- complied, and will comply with, all applicable provisions of the
Financial Services Act 1986 of Great Britain with respect to anything
done by it in relation to the shares of common stock in, from or
otherwise involving the United Kingdom; and
- only issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the issuance of
the shares of common stock to a person who is of a kind described in
Article 11(3) of the Financial services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 (as amended) of Great Britain or
is a person to whom the document may otherwise lawfully be issued or
passed on.
LEGAL MATTERS
The legality of the shares of common stock offered hereby will be passed
upon for us by Cooley Godward LLP, Palo Alto, California. Certain legal matters
will be passed upon for the underwriters by Alston & Bird LLP, Atlanta, Georgia.
EXPERTS
The financial statements of Paradyne Networks, Inc. (formerly "Paradyne
Acquisition Corp.") as of December 31, 1998 and 1997 and for each of the two
years in the period ended December 31, 1998 and for the five months ended
December 31, 1996 and the financial statements of AT&T Paradyne for the seven
months ended July 31, 1996, included in this Prospectus, have been so included
in reliance on the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in giving said
reports.
HOW TO GET ADDITIONAL INFORMATION ABOUT PARADYNE
We have filed with the Commission a Registration Statement on Form S-1
under the Securities Act, with respect to the common stock offered hereby. As
permitted by the rules and regulations of the Commission, this prospectus, which
is a part of the Registration Statement, omits certain information, exhibits,
schedules and undertakings set forth in the Registration Statement. For further
information pertaining to Paradyne and the common stock offered hereby,
reference is made to such Registration Statement and the exhibits and schedules
thereto. Statements contained in this prospectus as to the contents or
provisions of any contract or other document referred to herein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. A copy of
the Registration Statement may be inspected without charge at the office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices located at the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of all or any part of the
Registration Statement may be obtained from such offices upon the payment of the
fees prescribed by the Commission. In addition, registration statements and
certain other filings made with the Commission through its Electronic Data
Gathering, Analysis and Retrieval ("EDGAR") system are publicly available
through the Commission's web site on the Internet's World Wide Web, located at
http://www.sec.gov. The Registration Statement, including all exhibits thereto
and amendments thereof, was filed with the Commission through EDGAR.
78
<PAGE> 83
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PARADYNE NETWORKS, INC.
Report of Independent Certified Public Accountants........ F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998 and March 31, 1999 (unaudited).................... F-3
Consolidated Statements of Operations for the Period from
Inception through December 31, 1996 and for each of the
two years ended December 31, 1998 and the Three Months
Ended March 31, 1998 and 1999 (unaudited).............. F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Period from Inception through December 31, 1996
and for each of the two years ended December 31, 1998
and the three months ended March 31, 1999
(unaudited)............................................ F-5
Consolidated Statements of Cash Flows for the Period from
Inception through December 31, 1996 and for each of the
two years ended December 31, 1998 and the Three Months
Ended March 31, 1998 and 1999 (unaudited).............. F-6
Notes to Consolidated Financial Statements................ F-7
PARADYNE PREDECESSOR BUSINESS (A CARVE-OUT BUSINESS OF AT&T
PARADYNE CORPORATION)
Report of Independent Certified Public Accountants........ F-22
Consolidated Statements of Operations for the Seven Months
ended July 31, 1996.................................... F-23
Consolidated Statement of Cash Flows for the Seven Months
ended July 31, 1996.................................... F-24
Notes to Financial Statements............................. F-25
</TABLE>
F-1
<PAGE> 84
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Paradyne Networks, Inc.
"In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Paradyne
Networks, Inc. (formerly "Paradyne Acquisition Corp.") and its subsidiaries at
December 31, 1997 and 1998, and the results of their operations and their cash
flows for each of the two years in the period ended December 31, 1998 and for
the period from inception (August 1, 1996) through December 31, 1996 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
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."
PricewaterhouseCoopers LLP
Tampa, Florida
June 8, 1999
F-2
<PAGE> 85
PARADYNE NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------- -----------
1997 1998 1999
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,240 $ 2,356 $ 2,634
Accounts receivable, less allowance for doubtful accounts
of $2,966, $3,007...................................... 28,852 29,641 28,301
Accounts receivable from affiliates....................... 1,519 721 2,158
Other receivables (Note 4)................................ 8,214 -- --
Income tax receivable..................................... 536 4,230 4,044
Inventories............................................... 14,821 16,997 19,548
Prepaid expenses and other current assets................. 3,820 1,808 1,616
------- ------- -------
Total current assets.............................. 61,002 55,753 58,301
Property, plant and equipment, net.......................... 15,552 16,103 15,752
Deferred tax assets......................................... 2,783 1,143 1,143
Other assets................................................ 3,863 2,064 1,301
------- ------- -------
Total assets...................................... $83,200 $75,063 $76,497
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $10,201 $17,205 $21,751
Current portion of debt................................... 17,782 16,483 10,850
Deferred tax liability.................................... 11,975 2,357 2,357
Payroll and benefit related liabilities................... 5,131 6,263 4,804
Other current liabilities................................. 6,307 5,063 6,050
------- ------- -------
Total current liabilities......................... 51,396 47,371 45,812
Long-term debt.............................................. 402 353 378
------- ------- -------
Total liabilities................................. 51,798 47,724 46,190
------- ------- -------
Commitments and contingencies (Note 12)
Stockholders' equity:
Common stock, par value $0.001; 60,000,000 shares
authorized, 25,592,182 and 25,668,723 shares issued and
outstanding as of December 31, 1997 and 1998,
respectively........................................... 26 26 26
Additional paid-in capital................................ 20,817 21,058 22,533
Retained earnings......................................... 10,284 6,639 9,007
Note receivable for common stock (Note 14)................ (150) (150) (1,089)
Unrealized gain on available-for-sale securities.......... 409 -- --
Cumulative translation adjustment......................... 16 (234) (170)
------- ------- -------
Total stockholders' equity........................ 31,402 27,339 30,307
------- ------- -------
Total liabilities and stockholders' equity........ $83,200 $75,063 $76,497
======= ======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-3
<PAGE> 86
PARADYNE NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIVE MONTHS YEARS ENDED THREE MONTHS ENDED
ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------- -------------------------
1996 1997 1998 1998 (1999)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Sales.................................. $112,293 $177,850 $195,153 $42,655 $50,969
Service................................ 1,413 3,040 2,256 384 475
Royalty................................ 325 413 1,392 -- 2,618
-------- -------- -------- ------- -------
Total revenues................. 114,031 181,303 198,801 43,039 54,062
-------- -------- -------- ------- -------
Cost of sales:
Equipment.............................. 59,634 90,334 107,921 21,922 29,810
Service................................ 744 1,154 620 125 156
-------- -------- -------- ------- -------
Total cost of sales............ 60,378 91,488 108,541 22,047 29,966
-------- -------- -------- ------- -------
Gross margin............................. 53,653 89,815 90,260 20,992 24,096
Operating expenses:
Research and development (includes
$13,114 of purchased R&D in 1996)... 31,174 37,339 35,132 8,554 8,768
Selling, general and administrative
expenses............................ 29,409 66,278 55,969 13,410 13,863
Restructuring charges.................. -- 1,778 984 -- --
-------- -------- -------- ------- -------
Total operating expenses....... 60,583 105,395 92,085 21,964 22,631
-------- -------- -------- ------- -------
Operating income (loss).................. (6,930) (15,580) (1,825) (972) 1,465
Other (income) expenses:
Interest............................... 3,502 7,712 1,711 554 434
Lucent settlement gain................. -- (51,183) -- -- --
Other, net............................. 382 (1,753) 1,191 (33) (2,852)
-------- -------- -------- ------- -------
Income (loss) before provision for income
taxes.................................. (10,814) 29,644 (4,727) (1,493) 3,883
Provision (benefit) for income tax..... -- 8,302 (1,082) (342) 1,515
-------- -------- -------- ------- -------
Net income (loss)........................ $(10,814) $ 21,342 $ (3,645) $(1,151) $ 2,368
======== ======== ======== ======= =======
Basic income (loss) per common share..... $ (0.42) $ 0.84 $ (0.14) $ (0.04) $ 0.09
======== ======== ======== ======= =======
Weighted average number of common shares
outstanding............................ 25,500 25,552 25,623 25,602 25,893
======== ======== ======== ======= =======
Diluted income (loss) per common share... $ (0.42) $ 0.81 $ (0.14) $ (0.04) $ 0.09
======== ======== ======== ======= =======
Weighted average number of common shares
outstanding............................ 25,500 26,291 25,623 25,602 27,227
======== ======== ======== ======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-4
<PAGE> 87
PARADYNE NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMPREHENSIVE COMMON STOCK ADDITIONAL RETAINED TOTAL
INCOME -------------------- PAID-IN EARNINGS STOCKHOLDERS'
(LOSS) SHARES AMOUNT CAPITAL (DEFICIT) OTHER EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
August 1, 1996........................ $ -- -- $-- $ -- $ -- $ -- $ --
Equity investment in the Company.... 25,500,000 26 17,036 17,062
Net loss............................ (10,814) (10,814) (10,814)
Cumulative translation adjustment... (163) (163) (163)
Asset allocation to related party
(Note 14)......................... (106) (106)
-------- ---------- --- ------- -------- ------- --------
Balance, December 31, 1996............ $(10,977) 25,500,000 26 16,930 (10,814) (163) 5,979
========
Contribution from Paradyne Partners
(Note 4).......................... 3,600 3,600
Proceeds from exercise of stock
options and related tax benefit... 92,182 287 (150) 137
Net income.......................... $ 21,342 21,342 21,342
Cumulative translation adjustment... 179 179 179
Unrealized investment gain.......... 409 409 409
Asset allocation to related party
(Note 14)......................... (244) (244)
-------- ---------- --- ------- -------- ------- --------
Balance, December 31, 1997............ $ 21,930 25,592,182 26 20,817 10,284 275 31,402
========
Proceeds from exercise of stock
options and related tax benefit... 76,541 241 241
Net loss............................ $ (3,645) (3,645) (3,645)
Cumulative translation adjustment... (250) (250) (250)
Unrealized investment loss.......... (409) (409) (409)
-------- ---------- --- ------- -------- ------- --------
Balance, December 31, 1998............ $ (4,304) 25,668,723 26 21,058 6,639 (384) 27,339
========
Proceeds from exercise of stock
options and related tax benefit... 589,509 1,475 (939) 536
Net income.......................... $ 2,368 2,368 2,368
Cumulative translation adjustment... 64 64 64
-------- ---------- --- ------- -------- ------- --------
Balance, March 31, 1999 (unaudited)... $ 2,432 26,258,232 $26 $22,533 $ 9,007 $(1,259) $ 30,307
======== ========== === ======= ======== ======= ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-5
<PAGE> 88
PARADYNE NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
FIVE MONTHS YEARS ENDED ENDED
ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------- -----------------
1996 1997 1998 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss)......................................... $(10,814) $ 21,342 $ (3,645) $(1,151) $ 2,368
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Lucent settlement gain.................................. -- (51,183) -- -- --
Investment income (loss) ABI............................ (1,668) 1,353
Loss on sale of assets.................................. -- 22 232 (27) --
Increase in allowance for bad debts..................... -- 181 41 749 398
Depreciation and amortization........................... 5,571 10,558 5,243 1,362 1,448
Purchased in-process research and development........... 13,114 -- -- -- --
Deferred income taxes................................... (625) 9,817 (7,978) (727) --
(Increase) decrease in assets:
Receivables............................................. (16,313) 15,061 7,384 (3,472) 942
Accounts receivable from affiliates..................... (2,230) 711 798 (1,280) (1,437)
Income tax receivable................................... -- (536) (3,694) -- 186
Inventories............................................. (79) 5,266 (2,176) (496) (2,551)
Prepaid expenses and other current assets............... (180) (543) (97) 94 192
Other long term assets.................................. -- 2,564 1,186 543 610
Increase (decrease) in liabilities:
Accounts payable........................................ 5,643 (7,484) 7,629 2,562 4,546
Payroll and related liabilities......................... -- (258) 1,132 (1,085) (1,459)
Other current liabilities............................... 1,358 (4,987) (1,244) (664) 987
-------- -------- -------- ------- -------
Net cash provided by (used in) operating
activities........................................ (4,555) (1,137) 6,164 (3,592) 6,230
-------- -------- -------- ------- -------
Cash flows provided by (used in) investing activities:
Cash used to acquire net assets........................... (24,562) -- -- -- --
Capital expenditures...................................... (4,497) (9,636) (6,945) (1,848) (944)
Proceeds from sale of property, plant and equipment....... 51 21,218 1,532 411 --
Proceeds from sale of investment.......................... -- -- 347 -- --
-------- -------- -------- ------- -------
Net cash provided by (used in) investing
activities........................................ (29,008) 11,582 (5,066) (1,437) (944)
-------- -------- -------- ------- -------
Cash flows provided by (used in) financing activities:
Proceeds from debt issued to parent....................... 7,500 -- 5,000 5,000 --
Repayment of debt issued to parent........................ -- (7,500) (5,000) -- --
Capital contribution from parent.......................... 17,062 -- -- -- --
Payment of acquisition costs.............................. (7,314) (377) (625) (69) --
Proceeds from stock options exercised..................... -- 137 241 29 536
Borrowings under (repayment of) bank line of credit,
net..................................................... 10,553 4,390 1,139 (3,333) (5,642)
Borrowings under other debt obligations................... 2,464 6,038 623 357 168
Repayment of other debt obligations....................... (185) (11,426) (3,110) (54) (134)
-------- -------- -------- ------- -------
Net cash provided by (used in) financing
activities........................................ 30,080 (8,738) (1,732) 1,930 (5,072)
-------- -------- -------- ------- -------
Effect of foreign exchange rate changes on cash............. (163) 179 (250) 28 64
-------- -------- -------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (3,646) 1,886 (884) (3,071) 278
Cash and cash equivalents at beginning of period............ 5,000 1,354 3,240 3,240 2,356
-------- -------- -------- ------- -------
Cash and cash equivalents at end of period.................. $ 1,354 $ 3,240 $ 2,356 $ 169 $ 2,634
======== ======== ======== ======= =======
Supplemental disclosures of cash flow information:
Cash paid for:
Interest................................................ $ 798 $ 2,658 $ 1,711
======== ======== ========
Income taxes............................................ $ 471 $ 10,041
======== ========
Non-cash transaction:
Note issued to seller to acquire net assets............... $ 69,350
========
Investment acquired (written down) in exchange for
intellectual property................................... $ 1,668 $ (1,353)
======== ========
Acquisition of installment and affiliate receivables in
consideration for related party note (Note 14).......... $ 13,735 $(13,735)
======== ========
Debt forgiveness (Note 4)................................. $ 63,000
========
Contribution from Paradyne Partners (Note 4).............. $ 3,600
========
Asset allocation to related party (Note 14)............... $ 106 $ 244
======== ========
Stock issued for note..................................... $ 150 $ 939
======== =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-6
<PAGE> 89
PARADYNE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
1. BASIS OF PRESENTATION:
Pursuant to a Purchase Agreement dated June 18, 1996 (the "Purchase
Agreement"), Paradyne Partners, L.P. ("Paradyne Partners") acquired certain
assets and operations of AT&T Paradyne Corporation from Lucent Technologies Inc.
("Lucent") for cash and seller notes totaling $146.0 million. This transaction
was consummated through five direct and indirect subsidiaries of Paradyne
Partners which included Paradyne Acquisition Corp. ("PAC") and its wholly-owned
subsidiary, Paradyne Corporation and its subsidiaries (the "Company"). The
acquisition was accounted for as a purchase. The purchase price was allocated to
the assets acquired and liabilities assumed based on fair values including
long-lived tangible and intangible assets. Property, plant and equipment,
purchased research and development and the Lucent supply agreement values were
based on independent appraised values.
The following reflects a summary of the net assets acquired by the Company
at July 31, 1996:
<TABLE>
<S> <C>
Current assets $ 52,957
Property, plant and equipment............................... 30,366
Purchased research and development.......................... 13,114
Premisys contract........................................... 2,251
Lucent contract............................................. 25,441
Other non-current assets.................................... 4,963
Current liabilities......................................... (22,113)
Restructuring liability..................................... (4,629)
--------
Total............................................. $102,350
========
</TABLE>
The restructuring liability related principally to involuntary employee
termination costs ($2.9 million) and costs of exiting surplus facilities ($1.5
million). Approximately $3.1 million of this liability was paid during 1996,
with the remaining $1.5 million paid during 1997.
That portion of the acquired assets and operations of AT&T Paradyne
Corporation that remained with the Company were purchased for $102.3 million,
consisting of a $17.1 million equity investment, $69.3 million in seller notes
to Lucent, debt to the Paradyne Partners of $7.5 million and $8.4 million of
other acquisition costs.
As further discussed in Note 15, subsequent to December 31, 1998, the legal
name of PAC was changed to Paradyne Networks, Inc. The accompanying financial
statements reflect the consolidated historical financial position, results of
operations and cash flows of Paradyne Networks, Inc., Paradyne and its
wholly-owned subsidiaries from inception. Also, see Note 14 for discussion of
related party transactions.
The Company is a leading developer, manufacturer and distributor of
broadband and narrowband network access products for network service providers
and business customers. The Company offers solutions that enable business class,
service level managed, high-speed connectivity over the existing telephone
network infrastructure.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The significant accounting principles and practices used in the preparation
of the accompanying consolidated financial statements are summarized below:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the results of
the Company and its wholly-owned subsidiaries: Paradyne Corporation; Paradyne
Canada Ltd.; Paradyne Japan Corporation; Paradyne International Ltd.; Paradyne
Worldwide Corp. (formerly Paradyne Far East Corporation); Ark Electronic
Products Inc.; Paradyne GmbH; and Paradyne International Sales Ltd. Intercompany
accounts and transactions have been eliminated in consolidation.
F-7
<PAGE> 90
PARADYNE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
REVENUE RECOGNITION
Revenue from equipment sales is generally recognized at the date of
shipment. Revenue from services, which consists mainly of repair of
out-of-warranty products, is recognized when the services are performed and all
substantial contractual obligations have been satisfied. Provision is made
currently for estimated product returns. Royalty revenue is recognized when the
Company has completed delivery of technical specifications and performed
substantially all required services under the related agreement. See discussion
of product warranty below.
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 periods presented. Actual results could differ from those estimates.
The markets for the Company's products are characterized by intense competition,
rapid technological development and frequent new product introductions, all of
which could impact the future value of the Company's inventory and certain other
assets.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
INVESTMENTS
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," the Company
has classified its equity securities as available-for-sale. These securities, of
which $2.1 million and $0 are included in prepaid expenses and other current
assets and $180 and $0 are included in other assets at December 31, 1997 and
1998, respectively, are stated at fair value, with the unrealized gain or loss,
net of taxes, reported in stockholders' equity until realized.
CONCENTRATION OF CREDIT RISK
The Company sells products to value added distributors and other customers
and extends credit based on an evaluation of the customer's financial condition,
generally without requiring collateral. Exposure to losses on receivables is
principally dependent on each customer's financial condition. The Company
monitors its exposure for credit losses and maintains allowances for anticipated
losses. Sales to one customer were approximately 42% of total revenues for the
five months ended December 31, 1996. Sales to two customers were approximately
34% and 12% of total revenues for the year ended December 31, 1997 and 35% and
15% of total revenues for the year ended December 31, 1998.
Purchases from one vendor were approximately 37% of total purchases for the
five months ended December 31, 1996. Purchases from two vendors were
approximately 23% and 18% of total purchases for the year ended December 31,
1997 and purchases from one vendor were approximately 15% of total purchases for
the year ended December 31, 1998.
F-8
<PAGE> 91
PARADYNE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
International sales accounted for 24% of total revenue during the five
months ended December 31, 1996, and 30% and 20% of total revenue during the
years ended 1997 and 1998, respectively, summarized as follows:
<TABLE>
<CAPTION>
REVENUES (A)
--------------------------------------------
5 MONTHS ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
GEOGRAPHIC INFORMATION -------------- ------------ ------------
<S> <C> <C> <C>
United States................................... $ 86,871 $126,802 $158,593
Canada.......................................... 11,439 29,082 26,224
Japan........................................... 6,920 9,790 3,279
Other foreign countries......................... 9,063 15,629 10,705
-------- -------- --------
Total................................. $114,293 $181,303 $198,801
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
LONG-LIVED ASSETS
--------------------------------------------
DECEMBER 31,
1996 1997 1998
GEOGRAPHIC INFORMATION -------------- ------------ ------------
<S> <C> <C> <C>
United States................................... $56,074 $20,105 $17,867
Canada.......................................... 2,660 887 511
Japan........................................... 1,056 922 798
Other foreign countries......................... 328 284 134
------- ------- -------
Total................................. $60,118 $22,198 $19,310
======= ======= =======
</TABLE>
- ---------------
(a) Revenues are attributed to countries based on location of customer.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, which includes
cash, receivables and variable-rate debt, approximates fair value due to the
short maturities of those instruments.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost includes
material, labor and manufacturing overhead. Cost is determined on a first in,
first out basis.
INTANGIBLE ASSET
Intangible asset, which consists of a contract with Premisys Communications
for exclusive distribution rights, is included in other assets (see Note 7).
This contract is amortized on a straight-line basis over the term of the
agreement of approximately four years. See Note 4 related to favorable supply
contract with Lucent, which was renegotiated. The original contract value was
based on estimated cash flows.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Leasehold improvements
are amortized on a straight-line method over the period of the lease or the
estimated service lives of the improvements, whichever is shorter. Depreciation
expense includes the amortization of capital lease assets.
Expenditures for renewals and improvements that significantly add to
productive capacity or extend the useful life of an asset are capitalized.
Expenditures for maintenance and repairs are charged to operations
F-9
<PAGE> 92
PARADYNE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
when incurred. When assets are sold or retired, the cost of the asset and the
related accumulated depreciation are eliminated from the accounts and any gain
or loss is recognized at such time.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the recoverability of its long-lived assets whenever
adverse events or changes in business climate indicate that the expected
undiscounted future cash flows from the related asset may be less than
previously anticipated. If the net book value of the related asset exceeds the
undiscounted future cash flows of the asset, the carrying amount would be
reduced to the present value of its expected future cash flows and an impairment
loss would be recognized in accordance with Financial Accounting Standards
No. 121. As of December 31, 1997 and 1998, management does not believe that an
impairment reserve is required.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. The Company
purchased in process research and development valued at $13.1 million which was
expensed during the period ended December 31, 1996. The purchased R&D was valued
based on projected discounted cash flows, on a project-by-project basis for 12
projects, using a risk adjusted discount rate of 22%. These projects were
scheduled for completion in late 1996 and 1997. There were no expected
significant variances from historical pricing, margins or expense levels in the
projections other than the normal decline in prices and margins as products age.
PRODUCT WARRANTY
The Company generally provides a return to factory warranty for a period of
two years from the date of sale. A current charge to income is recorded at the
time of sale to reflect the amount the Company estimates will be needed to cover
future warranty obligations for products sold during the year. The accrued
liability for warranty costs is included in the caption "other current
liabilities" in the accompanying consolidated balance sheet.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires use of the asset and liability method of accounting for deferred income
taxes.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
during the year. Diluted earnings per share assume the exercise of stock options
for which market price exceeds exercise price, less shares assumed purchased by
the Company with related proceeds.
Options are not included in the 1998 calculation of diluted loss per share
due to their antidilutive effect.
F-10
<PAGE> 93
PARADYNE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
(Loss) income available to common stockholders.............. $21,342 25,552 $0.84
EFFECT OF DILUTIVE SECURITIES
Incremental shares for employee options..................... -- 743
DILUTED EPS
(Loss) income available to stockholders & assumed
conversions............................................... $21,342 26,295 $0.81
</TABLE>
FOREIGN CURRENCY
The local currency is the functional currency of each of the foreign
subsidiaries. Assets and liabilities of the Company's foreign subsidiaries are
translated using fiscal year-end exchange rates, and revenue and expenses are
translated using average exchange rates prevailing during the year. The effects
of translating foreign subsidiaries' financial statements are recorded as a
separate component of stockholders' equity.
In addition, included in other (income) expense are realized foreign
currency exchange losses of $323 for the five months ended December 31, 1996 and
$596 for the year ended December 31, 1997. A foreign currency gain of $181 is
included for the year ended December 31, 1998.
INTERIM FINANCIAL DATA
The accompanying financial statements as of March 31, 1999 and for the
three months then ended are unaudited. In the opinion of management, these
interim statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the results of the interim
periods. The financial and other data disclosed in these notes to the financial
statements for these periods are also unaudited. The results of the operations
for the interim periods are not necessarily indicative of the results to be
expected for any future periods.
3. RESTRUCTURING CHARGES:
The Company recorded a restructuring charge of $1.8 million related to
staff reductions in the U.S. operations in November 1997. Termination charges
related to approximately 93 employees spread throughout all major functions
within the Company. Staff reductions were necessary because the Company had
significantly improved operating efficiencies with its investment in new systems
and processes, as well as changing the composition of our workforce to update
the availability of strategic skills.
In 1998, the Company recorded a restructuring charge of $984. This charge
related to the change in the Company's model for operating within certain
international operations. The Company now operates through a system of
distributors with branch operation support in most foreign locations. In this
restructuring approximately 25 employees were terminated from employment. In
addition, charges were incurred to exit from leased facilities in international
locations.
During 1997 and 1998, the Company paid approximately $957 and $1.4 million
related to restructurings. The remaining $388 accrued as of year end, which is
expected to be paid during 1999, related to the international restructuring.
F-11
<PAGE> 94
PARADYNE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
4. AMENDMENT TO LUCENT SUPPLY AGREEMENT:
At July 31, 1996, Lucent delivered, as a condition to the closing specified
in Note 1, a four year Volume Purchase Letter ("VPL") whereby Lucent agreed to
purchase a baseline level of certain products or pay a penalty. At December 31,
1997 Lucent had not achieved the baseline commitment under the VPL and,
therefore, was subject to certain take-or-pay provisions. In August, 1998 the
Company, GlobeSpan Semiconductor Inc., a subsidiary of Paradyne Partners
("GlobeSpan"), and Lucent terminated the VPL including the elimination of all
existing and future minimum purchase requirements under a revised Exclusivity
and Amendment Agreement.
As a result of the Exclusivity and Amendment Agreement, the Company
received $8.2 million in cash and $63.0 million of the outstanding note payable
to Lucent was forgiven. The Company also paid Lucent the remaining $2.7 million
outstanding under the existing terms of the note payable. In addition, GlobeSpan
agreed to amend the warrant originally granted to Lucent at the time of Paradyne
Partners' acquisition of GlobeSpan to acquire 1,500,000 shares of GlobeSpan by
extending the warrant term by three years, which would have expired upon
repayment of the seller notes. Additionally, Lucent and the Company agreed that
the Company will be Lucent's exclusive provider for certain access products for
resale through June 30, 2001.
The contract renegotiation and resolution has been reflected in the
accompanying consolidated financial statements at December 31, 1997 and resulted
in a pretax gain of approximately $51.2 million and a contribution of capital by
Paradyne Partners of $3.6 million reflecting the estimated fair value of the
extension of the GlobeSpan warrant.
5. INVENTORIES:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------- -----------
1997 1998 1999
(UNAUDITED)
<S> <C> <C> <C>
Raw materials........................................... $12,691 $11,064 $ 9,448
Work-in-process......................................... 569 1,970 1,954
Finished goods.......................................... 1,561 3,963 8,146
------- ------- -------
$14,821 $16,997 $19,548
======= ======= =======
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
<S> <C> <C>
Leasehold improvements...................................... $ 2,252 $ 1,375
Office furniture and fixtures............................... 1,733 2,556
Machinery and equipment..................................... 18,166 22,922
------- --------
22,151 26,853
Less accumulated depreciation............................... (6,599) (10,750)
------- --------
$15,552 $ 16,103
======= ========
</TABLE>
Depreciation expense amounted to $2.7 million, $3.6 million and $4.6
million for the five months ended December 31, 1996 and the years ending
December 31, 1997 and 1998, respectively.
F-12
<PAGE> 95
PARADYNE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
7. OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1998
<S> <C> <C>
Intangible asset, net of accumulated amortization of $872
and $1.5 million, respectively............................ $1,379 $ 766
Notes receivable, interest ranging from 8% to 9.25%......... 1,250 429
Security deposits........................................... 905 831
Other....................................................... 329 38
------ ------
$3,863 $2,064
====== ======
</TABLE>
8. OTHER CURRENT LIABILITIES:
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1998
<S> <C> <C>
Accrued professional fees................................... $2,548 $1,013
Accrued product warranty.................................... 1,319 1,682
Accrued taxes............................................... 637 611
Accounts payable to affiliates.............................. 354 7
Other....................................................... 1,449 1,750
------ ------
$6,307 $5,063
====== ======
</TABLE>
9. INDEBTEDNESS:
Indebtedness consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
<S> <C> <C>
Revolving credit facility interest at the bank's stated
reference rate plus 0% to 1% (9.50% and 7.75%,
respectively at December 31, 1997 and 1998) collateralized
by certain assets of the Company, payable monthly,
maturing January 2000..................................... $14,943 $16,082
Note payable, interest ranging from 8.5% to 14.5%
collateralized by the capital stock of the Company,
interest payable quarterly from March 31, 1998 through
June 30, 2000, principal payment due August 28, 1998 (Note
4)........................................................ 2,712 --
Capitalized lease obligations, interest ranging from 8.8% to
9.5%, maturing various dates through July 2000............ 529 754
------- -------
18,184 16,836
Less current portion........................................ (17,782) (16,483)
------- -------
$ 402 $ 353
======= =======
</TABLE>
Scheduled principal repayments on debt for the next five years are as
follows: 1999 -- $16.5 million, 2000 -- $306; 2001 -- $47; 2002 and
thereafter -- $0.
F-13
<PAGE> 96
PARADYNE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
REVOLVING CREDIT FACILITIES
On July 31, 1996, the Company entered into an agreement (the "Agreement")
with a commercial lending institution to provide a revolving credit facility in
the amount of $45.0 million with availability subject to a borrowing base
formula. The facility provides for a sub-limit of $5.0 million for letters of
credit, of which none were outstanding at December 31, 1997 or 1998. The
Agreement includes a fee ranging from .375% to .50% of the unused line. Certain
assets of the Company, including accounts receivable, inventories, equipment and
intellectual property rights, are pledged as collateral. The Company is subject
to various non-financial covenants under the terms of the Agreement. Effective
December 31, 1997 and 1998, the Company was in compliance with or had obtained
waivers to the Agreement for such covenants.
Additionally, the Agreement restricts the Company with respect to making
dividends.
On August 25, 1997, the Company entered into a subordinated revolving
credit agreement (the "Credit Agreement") with Paradyne Partners. The Credit
Agreement made available $5.0 million through August 25, 2002. This agreement
was amended in October 1998 to make available $10.0 million. In connection
therewith, Paradyne Partners provided a limited continuing guarantee of the
Agreement. Borrowings under the Credit Agreement are subordinated to debt under
the Agreement and bears interest at 8% per annum. There were no borrowings under
this Credit Agreement as of December 31, 1998.
CAPITAL LEASES
The Company executed several long-term lease agreements for computer and
other equipment. For financial reporting purposes, the leases have been
classified as capital leases; accordingly, assets of approximately $1.2 million
(included in machinery and equipment) and accumulated depreciation of $283 have
been recorded at December 31, 1998.
Future minimum lease payments for assets under capital leases at December
31, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 480
2000........................................................ 294
2001........................................................ 48
-----
Total minimum lease payments................................ 822
Less amount representing interest........................... (68)
-----
Present value of net minimum lease payments................. 754
Less current portion........................................ (401)
-----
Long-term capital lease obligations......................... $ 353
=====
</TABLE>
F-14
<PAGE> 97
PARADYNE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
10. INCOME TAXES:
The Company files a consolidated federal income tax return. The provision
(benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
1996 1997 1998
------------ ------- -------
<S> <C> <C> <C>
Current:
Foreign............................................ $ -- $ 37 $ 38
Federal............................................ 545 (1,429) 6,316
State.............................................. 80 (123) 542
----- ------- -------
625 (1,515) 6,896
----- ------- -------
Deferred:
Foreign............................................ -- -- --
Federal............................................ (545) 9,041 (7,348)
State.............................................. (80) 776 (630)
----- ------- -------
(625) 9,817 (7,978)
----- ------- -------
Income tax provision................................. $ -- $ 8,302 $(1,082)
===== ======= =======
</TABLE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
<S> <C> <C>
Payable for cancellation of indebtedness.................... $(18,658) $ --
US net operating loss carryforward.......................... 6,683 --
Property, plant and equipment............................... (2,573) (1,951)
Intangibles................................................. 5,644 117
Foreign net operating loss carryforwards.................... 3,352 1,350
Other....................................................... (288) 620
-------- -------
(5,840) 136
Valuation allowance......................................... (3,352) (1,350)
-------- -------
Net deferred tax liability.................................. $ (9,192) $(1,214)
======== =======
</TABLE>
The Company recorded a valuation allowance at December 31, 1997 and 1998
with respect to the foreign net operating losses due to the uncertainty of their
ultimate realization.
At December 31, 1998, Paradyne Canada had net operating loss carryforwards
of approximately $3.0 million expiring 2003. In the U.K. and Japan, management
has decided that operations will no longer be conducted through Paradyne
International Ltd. and Paradyne Japan Corporation, and thus, there will be no
future benefit related to the NOL carryforwards of Paradyne International Ltd.
and Paradyne Japan Corporation. The foreign net operating losses as of December
31, 1998 have been adjusted to reflect the elimination of loss carryforwards
related to the exit of these foreign subsidiaries.
F-15
<PAGE> 98
PARADYNE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
The provision for income taxes differed from the statutory rate as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Statutory Rate.............. $(3,676) -34.0% $10,375 35.0% $(1,654) -35.0%
Foreign loss..................... -- 0.0 -- 0.0 523 11.0
State taxes...................... (540) -5.0 746 2.5 (95) -2.0
Basis adjustments................ -- 0.0 1,561 5.3 -- 0.0
Other............................ 113 1.4 (277) -1.0 144 3.1
Valuation allowance.............. 4,103 37.6 (4,103) -13.8 -- 0.0
------- ----- ------- ----- ------- -----
Provision for income taxes....... $ -- 0.0% $ 8,302 28.0% $(1,082) -22.9%
======= ===== ======= ===== ======= =====
</TABLE>
11. STOCK OPTION PLAN:
The Company has a stock option plan (the "1996 Plan") whereby the Board of
Directors may discretionarily reserve common shares for the purpose of granting
to employees (including officers and employee directors) or the employees of the
Company's affiliates, options to purchase common stock. Nonstatutory stock
options, rights to acquire restricted stock and stock bonuses may be granted to
employees (including officers), directors of and consultants to the Company or
its affiliates. Under the plan, 6,000,000 shares have been reserved related to
options available for grant to employees, directors and consultants through
December 31, 1998. The options are generally fully vested in four years, and
they have a maximum contractual life of 10 years. The exercise price of options
granted under the 1996 Plan are determined by the Board of Directors. The
Company has granted 4,731,025 options to the Company's employees, directors and
consultants of which 4,028,047 options are outstanding as of December 31, 1998.
During 1998, the Company granted 47,950 fixed options to purchase shares of
common stock with exercise prices below fair market value. As a result, $96 of
compensation expense will be recognized ratably over the vesting period of the
related options, of which $6 was recognized in 1998.
Information on stock options is summarized as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year......................... -- -- $ -- 3,883,716 $2.87
Granted........................ -- 4,259,125 2.80 471,900 5.00
Exercised...................... -- (92,182) 2.00 (76,541) 2.03
Canceled....................... -- (283,227) 2.08 (251,028) 2.30
--------- ---------
Outstanding at end of year..... -- 3,883,716 2.87 4,028,047 3.17
--------- ---------
Exercisable at end of year..... -- 949,589 2.81 1,898,226 2.86
========= =========
</TABLE>
<TABLE>
<CAPTION>
OPTIONS WEIGHTED AVERAGE NUMBER OF OPTIONS
WEIGHTED AVERAGE OUTSTANDING AT REMAINING CONTRACTUAL EXERCISABLE AT
EXERCISE PRICES DECEMBER 31, 1998 LIFE OF OPTIONS (YEARS) DECEMBER 31, 1998
<S> <C> <C> <C>
$ 2.00........................... 3,079,678 7.79 1,667,652
5.00........................... 573,369 9.10 43,074
10.00........................... 375,000 8.25 187,500
--------- ---------
4,028,047 1,898,226
========= =========
</TABLE>
F-16
<PAGE> 99
PARADYNE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
The Company applies APB Opinion No. 25 and related interpretations for
accounting for stock options. Accordingly, no compensation costs at the grant
dates are recorded for options granted at fair market value. Had compensation
cost for the Company's option plans been determined based on the fair value at
the grant dates as prescribed by Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation" ("FAS 123"), the Company's net
income and net income per share on a pro forma basis would have been (in
thousands, except per share data):
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Net income (loss):
As reported............................................... $21,342 $(3,645)
======= =======
Pro forma................................................. $20,971 $(4,035)
======= =======
Net income (loss) per share:
As reported............................................... $ 0.84 $ (0.14)
======= =======
Pro forma basic........................................... $ 0.82 $ (0.16)
======= =======
Pro forma diluted......................................... $ 0.80 $ (0.16)
======= =======
</TABLE>
The preceding pro forma results were calculated with the use of the Black
Scholes option pricing model. The following assumptions were used for the years
ended December 31, 1997 and 1998: (1) risk-free interest rate of 6.60%; (2)
dividend yield of 0.0%; (3) expected life of 5.0 years; and (4) volatility of
0.0001%.
At December 31, 1998 the Company has 73,800 options issued to employees at
a weighted average price of $2.13 which vest only in the event of an initial
public offering of the Company's common stock. Accordingly, in the event of an
initial public offering compensation expense will be recorded to the extent fair
value exceeds the option price.
During the first quarter of 1999, the Company issued options to acquire
52,200 shares of the Company's common stock at a weighted average price of $5.00
per share, which was less than fair value by $271, and which is being amortized
ratably over the vesting period. During the three months ended March 31, 1999,
$17 of compensation expense has been included in selling, general and
administrative expenses for all stock options issued at less than fair market
value.
During March 1999, various executives of the Company issued full recourse
promissory notes, totaling $939 to the Company in connection with the purchase
of 394,938 shares of common stock. Additionally, in May 1997, an executive
issued a full recourse promissory note in the amount of $150 in connection with
the purchase of 75,000 shares of common stock. The principal balance of the
notes and the related accrued interest (4.72% and 6.65% per annum) are payable
at the earlier of the termination of employment or five years from the date of
the note. The notes are secured by the shares of common stock acquired with the
notes, and those shares are held in escrow by the Company. All unvested shares
purchased with the notes are subject to repurchase by the Company if the
respective executive terminates their employment before becoming fully vested.
The balance as of March 31, 1999 was $1.1 million plus accrued interest.
F-17
<PAGE> 100
PARADYNE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
12. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company is obligated under noncancelable operating leases for office
and warehouse equipment and facilities. The leases expire at various dates
through 2007. Rent expense for the years ended December 31, 1997 and 1998
approximated $3.0 million and $3.9 million, respectively. Minimum required
future lease payments under noncancelable operating leases are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 4,182
2000........................................................ 3,921
2001........................................................ 3,817
2002........................................................ 3,968
2003 and thereafter......................................... 16,130
</TABLE>
The Company leases facilities in Red Bank, NJ and subleases this space to
GlobeSpan under a non-cancelable operating lease. Future minimum lease payment
receivables under the leasing agreement as of December 31, 1999 are as follows:
1999 -- $934; 2000 -- $934; 2001 -- $955; 2002 -- $352; 2003 and $0 thereafter
(see Note 14).
SALE/LEASEBACK
In June 1997, the Company sold all of its land and the improvements thereon
at its Largo, Florida facility at approximately net book value, and at the same
time leased back two of the buildings. The primary term of the lease is for 10
years with annual rents approximating $1.8 million for the first five years and
$2.1 million for the remaining five years. If the buildings are sold within
three years of acquisition, the primary lease term will be 12 years. The Company
has the option to renew the lease for two additional five year terms on the same
conditions as the current lease. The Company is responsible for paying for any
necessary improvements to the property and is responsible for its proportionate
share of most operating costs and taxes on the property.
SALE OF INSTALLMENT RECEIVABLES
At December 31, 1998, sales-type lease receivables sold to AT&T Capital
Corporation with recourse were $886. The ultimate responsibility for the
collection of these receivables is with Paradyne Credit Corp., a related party.
13. EMPLOYEE BENEFITS:
401(k) Plan
The Company has a 401(k) plan covering substantially all employees of the
Company. Benefits vest based on number of years of service. The Company's policy
is to match two-thirds of an employee's contributions, up to six percent of an
employee's annual salary. Additionally, the Board of Directors may grant
discretionary contributions. Contributions to the plan were approximately $1.1
million, $2.4 million and $2.4 million for the five months ended December 31,
1996 and the years ended December 31, 1997 and 1998, respectively.
Key Employee Stock Option Plan
The Key Employee Stock Option Plan (the "Key Employee Plan") was adopted in
December 1997, and covers employees holding the position of Vice President or
above. Key Employee Plan participants may elect to defer a portion of their
annual compensation in exchange for options to purchase shares of common or
preferred stock of any publicly-traded corporation, shares of the Company's
common stock or shares in
F-18
<PAGE> 101
PARADYNE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
certain investment funds. Upon the grant of an option under the Key Employee
Plan, the Company is required to acquire and hold under a trust arrangement,
shares of the stock or investment subject to the option in a number equal to 75%
of the shares subject to option.
14. RELATED PARTY TRANSACTIONS:
On December 30, 1996, the Company purchased certain installment and
affiliate receivables in the amount of $14.0 million from Paradyne Credit Corp.
("PCC"), a subsidiary of Paradyne Partners, in exchange for a note payable of
$13.7 million. A deferred gain of $291 is included in other current liabilities
at December 31, 1997. The note bore an interest rate of 9.25% and matured
December 30, 1997. The Accounts Receivable Purchase and Servicing Agreement
allowed the Company to require PCC to repurchase the receivables prior to the
due date of the note. On January 3, 1997, the Company sold the receivables back
to PCC in exchange for cancellation of the note payable.
Notes payable to affiliate were owed to Paradyne Partners. As further
discussed in Note 9, the Company executed a revolving subordinated credit
agreement with Paradyne Partners in fiscal 1997. The Company recorded interest
expense of approximately $267, $421 and $305 related to these notes during the
five months ended December 31, 1996 and the years ended December 31, 1997 and
1998, respectively.
The Company provides operating, management and other administrative
services for certain subsidiaries of Paradyne Partners. Total charges to these
entities were approximately $432 for the five months ended December 31, 1996 and
$1.1 million and $1.4 million for the years ended December 31, 1997 and 1998,
respectively. This amount is recorded as a reduction of general and
administrative expenses.
PCC had an option to acquire all used equipment owned by the Company and
its subsidiaries for which the original lease had expired or terminated.
Additionally, the option allowed PCC to purchase all used equipment which had
been returned from sales to customers or consignment activities. The exercise
price of the option was equivalent to one month's rental revenue from the
related equipment. Purchases of such equipment totaled $115, $81 and $0 for the
five months ended December 31, 1996 and the years ended December 31, 1997 and
1998, respectively. In 1997, the Company sold all equipment under leases, as
well as the related lease streams, to PCC in exchange for approximately $3.5
million. As a result of this sale, the option is no longer valid.
In connection with this sale of equipment and related lease streams to PCC
in 1997, the Company entered into an agreement to allow PCC to purchase
equipment manufactured or sold by the Company at prices substantially equal to
those received by the Company through normal selling channels. Purchases under
this agreement totaled $181 and $317 for the years ended December 31, 1997 and
1998, respectively. Additionally, this agreement provides for the Company to
purchase from PCC equipment that has been returned to PCC at the end of the
lease. These purchases are on terms no more favorable to the Company than would
be obtained in a comparable arm's length transaction. Purchases for such
equipment totaled $0 and $141 for the years ended December 31, 1997 and 1998,
respectively.
The Company entered into a license agreement with GlobeSpan for the use of
certain technologies. Total royalty expense related to the use of these
technologies was approximately $235 for the five months ended December 31, 1996
and $0 for each of the years ended December 31, 1997 and 1998. This amount has
been included in equipment cost of sales. In November 1996, the Company entered
into a Cooperative Development Agreement with GlobeSpan. Under this agreement,
the Company was granted an unrestricted license to use GlobeSpan's technical
information and patents. Additionally, the agreement provided for the Company to
purchase GlobeSpan chip sets at prices not to exceed cost plus 15%. The Company
purchased goods approximating $0, $373 and $962 during the period ended December
31, 1996 and the years ended December 31 1997 and 1998, respectively, under this
agreement. Effective July 1998, the Company revised its pricing arrangement with
GlobeSpan such that GlobeSpan sold products to the Company at preferential
F-19
<PAGE> 102
PARADYNE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
prices. In exchange, GlobeSpan agreed to pay a 1.25% royalty based on net
revenues up to an aggregate amount of $1.5 million. The Company recorded $381 of
royalty revenue related to the agreement during the year ended December 31, 1998
(see Note 15).
Beginning in August 1996, GlobeSpan participates in a 401K plan which is
maintained by the Company. Contributions paid by the Company on behalf of
GlobeSpan approximated $65, $321 and $379 for the five months ended December 31,
1996 and the years ended December 31, 1997 and 1998, respectively. GlobeSpan has
reimbursed the Company for all payments made on their behalf.
In 1996 and 1997, the Company provided the use of certain assets to
GlobeSpan related to their research activities without material fee.
Depreciation of $106 in 1996 and $244 in 1997 related to those assets has been
excluded from the results of operations and reflected as a distribution of
equity to a related party. Those assets were subsequently sold to GlobeSpan. The
Company sold fixed assets to GlobeSpan for approximately $350 in fiscal year
1997 and $1.4 million in fiscal 1998. These assets were transferred at their
approximate net book values since the transaction involved entities under common
control.
In 1997, the Company received $194 from GlobeSpan as reimbursement for
purchases of product from a supplier on behalf of GlobeSpan. In December 1997
and September 1998, the Company sold to GlobeSpan certain chip sets which it
held in its inventory in the amounts of $98 and $29, respectively. GlobeSpan
purchased these chip sets for resale to other customers.
In May 1997, an executive of the Company issued a promissory note in the
amount of $150 in connection with the purchase of 75,000 shares of common stock.
The full recourse note accrues interest of a rate of 6.65% per annum. The
principal balance and accrued interest are payable at the earlier of the
termination of employment or five years from the date of the note. The note is
secured by the shares of common stock acquired with the note.
In December 1998, the Company subleased additional office space to
GlobeSpan (see Note 12). Also see Note 4 regarding GlobeSpan warrant extension
and Note 9 regarding parent company debt guaranty. In connection therewith,
GlobeSpan reimbursed approximately $392 of the Company's moving expenses.
15. SUBSEQUENT EVENTS:
In March 1999, the Company and GlobeSpan agreed to terminate the
Cooperative Development Agreement ("Termination Agreement") effective December
31, 1998 (see Note 14). In connection with such termination agreement, GlobeSpan
agreed to pay the Company an aggregate of $1.5 million. Of this amount,
approximately $400 was recorded in 1998 and included in royalty revenue. The
remaining $1.1 million is expected to be received in 1999 and is included in
royalty revenue and receivable from affiliates as of March 31, 1999. In
addition, GlobeSpan and the Company as part of the Termination Agreement
affirmed that the earlier technology license provisions of the Cooperative
Development Agreement were never implemented. In conjunction with the signing of
the Termination Agreement, GlobeSpan and the Company also entered into a
four-year Supply Agreement which gave the Company favorable pricing and other
terms in connection with the sale by GlobeSpan of products to the Company. In
addition, under the terms of the Supply Agreement, GlobeSpan is required to
honor the Company's orders for GlobeSpan's products in quantities at least
consistent with the Company's past ordering practices and must afford the
Company at least the same priority for the Company's orders as GlobeSpan affords
its other similarly situated customers. GlobeSpan also granted the Company a
standard customer immunity under GlobeSpan's intellectual property rights with
respect to any of the Company's products which incorporate GlobeSpan's products.
Paradyne Partners' continuing guaranty under the Credit Agreement was
canceled in March 1999 (see Note 9). Effective February 25, 1999, Paradyne
Partners was renamed Communication Partners, L.P.
F-20
<PAGE> 103
PARADYNE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA OR AS OTHERWISE NOTED)
During April 1999, the Company issued options to acquire 213,250 shares of
the Company's common stock at $5.00 per share, which is less than fair value by
$1.4 million, and which is being amortized ratably over the vesting period.
Effective April 1, 1999, the intercompany services agreement between the
Company and Paradyne Credit Corporation ("PCC") was amended to provide that
Paradyne will charge PCC for all direct and indirect costs incurred on behalf of
PCC by Paradyne plus a 5% service charge on all charges.
In March 1999 the Company recorded $1.5 million from the License and
Assignment Agreement ("Telogy Agreement") entered into with Telogy Networks,
Inc. which is included in royalty revenue for the three months ended March 31,
1999. Finder's fees in connection with the Telogy Agreement in the amount of
$225 or 15% of revenue were paid to a third party and are included in selling,
general and administrative expenses. The Telogy Agreement further provided for
the sale of intellectual property in the amount of $3.5 million which is
included in other income net of $525 or 15% in finder's fees. In March 1999, the
Company voluntarily reduced the amount available for borrowing under its
revolving credit facility to $35.0 million and Communication Partners'
continuing limited guaranty under the facility was canceled.
In March and April of 1999, 10 employees of the Company issued promissory
notes to the Company in the amount of $1.0 million in connection with the
purchase of 411,187 shares of common stock. The full recourse notes accrue
interest at rates ranging from 4.72% to 5.15% per annum. The principal balance
and accrued interest are payable at the earlier of the termination of employment
or five years from the date of the note. The notes are secured by the shares of
common stock acquired with the note.
In June 1999, the Board of Directors adopted the 1999 Employee Stock
Purchase Plan (the "Purchase Plan"). Under the Purchase Plan, the Company is
authorized to issue up to 1,000,000 shares of common stock to eligible
employees. Employees may elect to have up to 15% of their earnings withheld. The
amounts withheld are used to purchase shares of common stock, on specified dates
determined by the Board of Directors, at 85% of the lower of the fair market
value of the common stock at the commencement date of each offering period or
the relevant purchase date.
Also in June 1999, the Board of Directors adopted the 1999 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan") and reserved 250,000 shares
under the plan to provide for the automatic grant of options to purchase shares
of common stock to non-employee directors of the Company. Each non-employee
director will be granted an initial grant upon appointment. Annual grants of an
additional 5,000 shares will be made to any of the non-employee directors,
subject to attendance of regularly scheduled meetings of the Board as described
in the plan.
On June 8, 1999, the Company changed its legal name from Paradyne
Acquisition Corp. to Paradyne Networks, Inc., which change has been reflected in
the accompanying consolidated financial statements. At the same time, the
Company's Board of Directors authorized a 1-for-2 reverse split of its common
stock, with no change in par value. All share and per-share amounts in the
accompanying consolidated financial statements have been restated to give effect
to the stock split.
Also in June 1999, the Board of Directors authorized 5,000,000 shares of
preferred stock, with a par value of $0.001 per share.
F-21
<PAGE> 104
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Paradyne Corporation
In our opinion, the accompanying consolidated statements of operations and of
cash flows present fairly, in all material respects, the results of its
operations and its cash flows for the period from January 1, 1996 through July
31, 1996 of Paradyne Predecessor Business and its subsidiaries (a carve-out
business of AT&T Paradyne Corporation which was a wholly-owned subsidiary of
Lucent Technologies Inc. and predecessor entity to Paradyne Acquisition Corp.),
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of AT&T Paradyne's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit 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. Our 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 audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Tampa, Florida
November 23, 1998
F-22
<PAGE> 105
PARADYNE PREDECESSOR BUSINESS
(A CARVE-OUT BUSINESS OF AT&T PARADYNE CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN
MONTHS
ENDED
JULY 31,
1996
<S> <C>
Revenues:
Equipment sales........................................... $128,099
Service revenues.......................................... 1,975
Royalty revenues.......................................... 464
--------
Total revenues.................................... 130,538
Cost of sales:
Equipment costs........................................... 73,208
Service costs............................................. 1,803
--------
Gross margin................................................ 55,527
--------
Operating expenses:
Research and development expenses......................... 28,019
Selling, general and administrative expenses.............. 42,928
--------
Total operating expenses.......................... 70,947
--------
Operating loss.............................................. (15,420)
Other (income) expenses:
Interest.................................................. 200
Other, net................................................ (2,074)
--------
Loss before interest and income taxes....................... (13,546)
Income tax provision........................................ 184
--------
Net loss.................................................... $(13,730)
========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
F-23
<PAGE> 106
PARADYNE PREDECESSOR BUSINESS
(A CARVE-OUT BUSINESS OF AT&T PARADYNE CORPORATION)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN
MONTHS
ENDED
JULY 31,
1996
------------
<S> <C>
Cash flows provided by (used in) operating activities:
Net loss.................................................. $(13,730)
Adjustments to reconcile net loss to cash used in
operating activities:
Amortization and depreciation.......................... 6,108
Decrease in assets:
Accounts receivable.................................... 24,735
Inventories............................................ 202
Prepaid expenses and other............................. 495
Other long-term assets................................. 1,057
Increase (decrease) in liabilities:
Accounts payable....................................... 6,641
Accrued expenses....................................... (13,922)
Other current liabilities.............................. (11,069)
Income taxes........................................... 2,267
Other long-term liabilities............................ (250)
--------
Net cash provided by operating activities......... 2,534
--------
Cash flows used in investing activities:
Capital expenditures...................................... (6,596)
--------
Cash flows provided by financing activities:
Advances from parent...................................... 6,454
--------
Effect of foreign exchange rate changes on cash............. 231
--------
Net increase in cash and cash equivalents................... 2,623
Cash and cash equivalents at beginning period............... 3,094
--------
Cash and cash equivalents at end of period.................. $ 5,717
========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
F-24
<PAGE> 107
PARADYNE PREDECESSOR BUSINESS
(A CARVE-OUT BUSINESS OF AT&T PARADYNE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. BASIS OF PRESENTATION:
Pursuant to a Purchase Agreement dated June 18, 1996 (the "Purchase
Agreement"), Paradyne Partners, L.P. ("Paradyne Partners") acquired certain
assets and operations of AT&T Paradyne Corporation from Lucent Technologies Inc.
("Lucent") for cash and seller notes totaling $146 million. This transaction was
consummated through five direct and indirect subsidiaries of Paradyne Partners
which included Paradyne Acquisition Corp. ("PAC") and its wholly-owned
subsidiary, Paradyne Corporation and its subsidiaries (the "Company"). The
Company acquired certain net assets of AT&T Paradyne Corporation relating to the
manufacturing, marketing and research activities for data communications and
networking products for commercial end users and network service providers and
also entered into a product distribution agreement with Lucent.
The accompanying financial statements include the accounts of Paradyne
Predecessor Business (a carve-out business of AT&T Paradyne Corporation), which
were acquired by the Company, on a carved-out basis as if it had been an
independent reporting entity for the period presented. See discussion of related
party transactions in Note 4.
The Company designs, manufactures and markets data communications and
networking products for commercial end users and network service providers. The
Company's products enable commercial end users to efficiently access wide area
network services and allow network service providers to provide customers with
high-speed services for data, voice, video and multimedia applications.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The significant accounting principles and practices used in the preparation
of the accompanying financial statements are summarized below:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the net assets
and the results of operations acquired from AT&T Paradyne Corporation and its
wholly-owned subsidiaries: Paradyne Canada Ltd.; Paradyne Japan Corporation;
Paradyne International Ltd.; Paradyne Worldwide Corp. (formerly Paradyne Far
East Corporation); Ark Electronic Products Inc.; and Paradyne GmbH. Intercompany
accounts and transactions have been eliminated in consolidation.
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 periods presented. Actual results could differ from those estimates.
The markets for Paradyne Predecessor Business' products are characterized by
intense competition, rapid technological development and frequent new product
introductions, all of which could impact the future value of Paradyne
Predecessor Business' inventory and certain other assets.
REVENUE RECOGNITION
Revenue from equipment sales is generally recognized at the date of
shipment and revenue from services is recognized when the services are performed
and all substantial contractual obligations have been satisfied. See discussion
of product warranty below.
F-25
<PAGE> 108
PARADYNE PREDECESSOR BUSINESS
(A CARVE-OUT BUSINESS OF AT&T PARADYNE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
CASH AND CASH EQUIVALENTS
Paradyne Predecessor Business considers all highly liquid instruments
purchased with an original maturity of three months or less to be cash
equivalents.
Expenditures for renewals and improvements that significantly add to
productive capacity or extend the useful life of an asset are capitalized.
Expenditures for maintenance and repairs are charged to operations when
incurred. When assets are sold or retired, the cost of the asset and the related
accumulated depreciation are eliminated from the accounts and any gain or loss
is recognized at such time.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
PRODUCT WARRANTY
Paradyne Predecessor Business generally provided a return to factory
warranty for a period of two years from the date of sale. A current charge to
income is recorded at the time of sale to reflect the amount it estimates will
be needed to cover future warranty obligations for products sold during the
year.
INCOME TAXES
Paradyne Predecessor Business joined with AT&T Paradyne Corporation in
filing state income tax returns (and with Lucent in cases where consolidated
state income tax returns were filed), and with Lucent, AT&T Paradyne
Corporation's parent, in filing consolidated Federal income tax returns.
The tax provision of $184 reflected in the accompanying statement of
operations relates to the foreign tax obligations of AT&T Paradyne's foreign
subsidiaries.
CONCENTRATION OF CREDIT RISK
Paradyne Predecessor Business sells products to value added distributors
and other customers and extends credit based on an evaluation of the customer's
financial condition, generally without requiring collateral. Exposure to losses
on receivables is principally dependent on each customer's financial condition.
Paradyne Predecessor Business monitors its exposure for credit losses and
maintains allowances for anticipated losses. Accounts receivable from one
customer was approximately $3,842 (15%) of total accounts receivable at July 31,
1996. Sales to two customers were approximately $35,290 (25%) and $16,580 (12%)
of total revenues for the seven months ended July 31, 1996.
Purchases from two vendors were approximately $15,009 (25%) and $7,836
(13%) of total inventory purchases for the seven months ended July 31, 1996.
FOREIGN CURRENCY
The local currency is the functional currency of each of the foreign
subsidiaries. Assets and liabilities of Paradyne Predecessor Business' foreign
subsidiaries are translated using fiscal year-end exchange rates, and revenue
and expenses are translated using average exchange rate prevailing during the
year. Included in other income are realized foreign currency exchange losses of
$656 for the seven months ended July 31, 1996.
F-26
<PAGE> 109
PARADYNE PREDECESSOR BUSINESS
(A CARVE-OUT BUSINESS OF AT&T PARADYNE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
3. COMMITMENTS AND CONTINGENCIES:
Paradyne Predecessor Business is obligated under non-cancelable operating
leases for office and warehouse equipment and facilities. The leases expire at
various dates through 2002. Rent expense for the seven months ended July 31,
1996 approximated $1,519. Minimum required future lease payments under non-
cancelable operating leases are as follows:
<TABLE>
<S> <C>
1997........................................................ $908
1998........................................................ 763
1999........................................................ 768
2000........................................................ 760
2001 and thereafter......................................... 987
</TABLE>
4. RELATED PARTY TRANSACTIONS:
Sales to Lucent Technologies and AT&T Paradyne Corporation were $16,580 and
$35,290, respectively. Inventory purchases from Lucent Technologies totaled
$5,547.
Paradyne Predecessor Business made payments to Lucent to participate in
Lucent's pension, 401(k), and other post employment benefit (mainly health) and
retirement plans in the amounts of $2,933, $1,146, and $910, respectively.
Contract services for various administrative and sales support functions
were provided by Lucent to Paradyne Predecessor Business. The total contract
expenses charged to AT&T Paradyne for the period were $2,696, which was included
in operating expenses. Management believes that such amounts are reasonable and
include all significant costs incurred to support this company.
During the seven months ended July 31, 1996, AT&T Paradyne recorded
approximately $146 in interest expense related to outstanding intercompany
advances from Lucent Technologies.
F-27
<PAGE> 110
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
[LOGO]
6,000,000 SHARES OF COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
-------------------------
DLJDIRECT INC.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
maters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made pursuant to this prospectus after the date of this prospectus shall
create an implication that the information contained in this prospectus or the
affairs of Paradyne have not changed since the date of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 1999 (25 days after the date of this prospectus), all
dealers that effect transactions in these shares of common stock 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 their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE> 111
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the common stock being registered. All of the
amounts shown are estimates, except for the SEC registration fee, the NASD
filing fee and the Nasdaq National Market application fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE
PAID
<S> <C>
Registration fee............................................ 26,880
NASD filing fee............................................. 10,660
Nasdaq Stock Market Listing Application fee................. 17,500
Blue sky qualification fees and expenses.................... 15,000
Printing and engraving expenses............................. 200,000
Legal fees and expenses..................................... 425,000
Accounting fees and expenses................................ 250,000
Transfer agent and registrar fees........................... 10,000
Miscellaneous............................................... 44,960
Total............................................. 1,000,000
</TABLE>
- ---------------
* This information shall be provided by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its Directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act.
The Registrant's Certificate of Incorporation and Bylaws include provisions
to (i) eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by
Section 102(b)(7) of the General Corporation Law of Delaware (the "Delaware
Law") and (ii) require the Registrant to indemnify its Directors and officers to
the fullest extent permitted by Section 145 of the Delaware Law, including
circumstances in which indemnification is otherwise discretionary. Pursuant to
Section 145 of the Delaware Law, a corporation generally has the power to
indemnify its present and former directors, officers, employees and agents
against expenses incurred by them in connection with any suit to which they are,
or are threatened to be made, a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in or not opposed to, the best interests of the corporation and
with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful. The Registrant believes that these provisions are
necessary to attract and retain qualified persons as Directors and officers.
These provisions do not eliminate the Directors' duty of care, and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware Law. In addition,
each Director will continue to be subject to liability for breach of the
Director's duty of loyalty to the Registrant, for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
acts or omissions that the Director believes to be contrary to the best
interests of the Registrant or its stockholders, for any transaction from which
the Director derived an improper personal benefit, for acts or omissions
involving a reckless disregard for the Director's duty to the Registrant or its
stockholders when the Director was aware or should have been aware of a risk of
serious injury to the Registrant or its stockholders, for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the Director's duty to the Registrant or its stockholders, for improper
transactions between the Director and the Registrant and for improper
distributions to stockholders
II-1
<PAGE> 112
and loans to Directors and officers. The provision also does not affect a
Director's responsibilities under any other law, such as the federal securities
law or state or federal environmental laws.
At present, there is no pending litigation or proceeding involving a
Director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or Director.
The Registrant has an insurance policy covering the officers and Directors
of the Registrant with respect to certain liabilities, including liabilities
arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since June 14, 1996, Registrant has issued and sold the following
securities, which numbers do not reflect the 1-for-2 reverse split Registrant's
common stock to be effected prior to this offering:
(1) On June 14, 1996, Registrant issued 1,000 shares (not accounting
for the 17,000 for 1 split effected on January 7, 1997 or the 3 for 1 split
effected on April 24, 1997) in a private placement of its common stock at a
purchase price of $1.00 per share, for cash in the aggregate amount of
$1,000, to Communication Partners, L.P. pursuant to the divestiture of
Paradyne.
(2) As of May 15, 1999, Registrant has sold and issued 812,508 shares
of its common stock to employees, officers and directors pursuant to direct
issuances and exercises of options under its 1996 Equity Incentive Plan.
The sale of the above securities was deemed to be exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act or
Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by
an issuer not involving any public offering or transactions pursuant to
compensation benefit plans and contracts relating to compensation as provided
under such Rule 701. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates issued in such
transactions. All recipients had adequate access, through their relationships
with the Registrant, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <C> <S>
1.1 -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Certificate of Incorporation.
3.2 -- Amended and Restated Bylaws.
4.1 -- Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2* -- Specimen Stock Certificate.
5.1 -- Opinion of Cooley Godward LLP.
10.1 -- Amended and Restated 1996 Equity Incentive Plan.
10.2 -- Form of Stock Option Agreement pursuant to the 1996 Equity
Incentive Plan.
10.3** -- Form of Early Exercise Stock Purchase Agreement.
10.4 -- 1999 Employee Stock Purchase Plan and related offering
documents.
10.5 -- 1999 Non-Employee Director's Stock Option Plan.
10.6** -- Key Employee Stock Option Plan
10.7** -- Loan and Security Agreement between Paradyne and Bank of
America NT&SA, dated July 31, 1996.
10.8** -- Amended and Restated Subordinated Revolving Promissory Note
between Paradyne and Paradyne Partners, L.P., dated October
16, 1998.
10.9** -- Lease Agreement between Paradyne and Shav Associates, dated
October 8, 1996.
</TABLE>
II-2
<PAGE> 113
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <C> <S>
10.10** -- Sublease Agreement between Paradyne and GlobeSpan
Semiconductor, Inc. dated December 10, 1997.
10.11** -- Amendment to Sublease Agreement between Paradyne and
GlobeSpan Semiconductor, Inc. dated January 1, 1999.
10.12** -- Lease Agreement between Paradyne and Townsend Property Trust
Lease, dated June 27, 1997.
10.13** -- Key Employee Agreement between Paradyne and Thomas Epley,
dated April 1, 1999.
10.14** -- Employment Agreement between Paradyne and Andrew May, dated
December 3, 1996.
10.15** -- Key Employee Agreement between Paradyne and Patrick Murphy,
dated August 1, 1996.
10.16** -- Key Employee Agreement between Paradyne and James Slattery,
dated August 1, 1996.
10.17** -- Change in Control Agreement between Paradyne and Sean
Belanger.
10.18** -- Promissory Note, dated May 5, 1997, by James L. Slattery.
10.19** -- Promissory Note, dated March 29, 1999, Sean E. Belanger.
10.20** -- Promissory Note, dated March 26, 1999, Paul H. Floyd.
10.21** -- Promissory Note, dated March 26, 1999, Paul H. Floyd.
10.22** -- Promissory Note, dated March 26, 1999, Frank J. Weiner.
10.23** -- Promissory Note, dated March 26, 1999, by Frank J. Weiner.
10.24** -- Promissory Note, dated April 2, 1999, Frank J. Weiner.
10.25** -- Promissory Note, dated March 27, 1999, Mark Housman.
10.26** -- Promissory Note, dated March 31, 1999, Andrew S. May.
10.27** -- Promissory Note, dated March 31, 1999, Patrick M. Murphy.
10.28** -- Promissory Note, dated April 2, 1999, Patrick M. Murphy.
10.29** -- Indemnification Agreement between Paradyne and William
Stensrud, dated November 6, 1996.
10.30+ -- Supply Agreement between Paradyne and Lucent Technologies,
Inc., dated July 31, 1996.
10.31+ -- Exclusivity and Amendment Agreement between Paradyne, Lucent
Technologies, Inc., and GlobeSpan Semiconductor, Inc. dated
August 6, 1998.
10.32+** -- Noncompetition Agreement between Paradyne, Communication
Partners, L.P., Lucent Technologies, Inc., and GlobeSpan
Semiconductor, Inc. dated July 31, 1996.
10.33** -- Trademark and Patent Agreement between Paradyne, Lucent
Technologies, Inc., and GlobeSpan Semiconductor, Inc. dated
July 31, 1996.
10.34** -- Tax Matters Agreement between Paradyne, Lucent Technologies,
Inc., and GlobeSpan Semiconductor, Inc. dated July 31, 1996.
10.35** -- Intellectual Property Agreement between Paradyne, Lucent
Technologies, Inc., and GlobeSpan Semiconductor, Inc. dated
July 31, 1996.
10.36+** -- OEM Agreement between Paradyne and Xylan Corporation, dated
March 16, 1999.
10.37+ -- Distribution Agreement between Paradyne and Tech Data
Corporation, dated September 21, 1993.
10.38+ -- OEM Agreement between Paradyne and Premisys Communications,
Inc., dated December 4, 1992.
10.39 -- Network Management Partners Agreement between Paradyne and
Ascend Communications, Inc., dated November 3, 1998.
10.40+ -- Joint Development and Distribution Agreement between
Paradyne and AG Communication Systems Corporation, dated
June 10, 1998.
</TABLE>
II-3
<PAGE> 114
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <C> <S>
10.41+ -- Marketing & License Agreement between Paradyne and NetScout
Systems, Inc., dated January 26, 1998.
10.42 -- Amendment No. 2 to Loan and Security Agreement.
10.43* -- Amendment to Supply Agreement between Paradyne and Lucent
Technologies, Inc., dated as of November 13, 1998.
23.1 -- Consent of Independent Accountants.
23.2 -- Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 -- Power of Attorney (see page II-5).
27.1** -- Financial Data Schedule for EDGAR Filing.
</TABLE>
- ------------------------------
* To be filed by amendment.
** Previously filed
+Confidential treatment has been requested for certain portions which have been
blanked out in the copy of the exhibit filed with the Securities and Exchange
Commission. The omitted information has been filed separately with the
Securities and Exchange Commission pursuant to the application for confidential
treatment.
(B) INDEX TO FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is included in this Registration
Statement:
Report of Independent Certified Public Accountants on Financial Statement
Schedule
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
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.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 or otherwise, the registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the 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 Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) That, for purposes of determining any liability under the Act each
post-effective amendment that contains a form prospectus shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE> 115
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Atlanta, County of Fulton, State of Georgia, on June 8, 1999.
By: /s/ ANDREW S. MAY
------------------------------------
Andrew S. May
President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Andrew S. May, Patrick M. Murphy and
James L. Slattery and each of them, as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place, and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments, exhibits thereto and other
documents in connection therewith) to this Registration Statement and any
subsequent registration statement filed by the registrant pursuant to Rule
462(b) of the Securities Act of 1933, as amended, which relates to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
/s/ ANDREW S. MAY President, Chief June 8, 1999
- ----------------------------------------------------- Executive Officer, and
Andrew S. May Director (Principal
Executive Officer)
/s/ PATRICK M. MURPHY Senior Vice President, June 8, 1999
- ----------------------------------------------------- Chief Financial
Patrick M. Murphy Officer, and Treasurer
(Principal Financial
and Accounting
Officer)
/s/ THOMAS E. EPLEY Chairman of the Board June 8, 1999
- -----------------------------------------------------
Thomas E. Epley
/s/ DAVID BONDERMAN Director June 8, 1999
- -----------------------------------------------------
David Bonderman
/s/ KEITH B. GEESLIN Director June 8, 1999
- -----------------------------------------------------
Keith B. Geeslin
/s/ DAVID M. STANTON Director June 8, 1999
- -----------------------------------------------------
David M. Stanton
</TABLE>
II-5
<PAGE> 116
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
/s/ WILLIAM R. STENSRUD Director June 8, 1999
- -----------------------------------------------------
William R. Stensrud
/s/ PETER F. VAN CAMP Director June 8, 1999
- -----------------------------------------------------
Peter F. Van Camp
</TABLE>
II-6
<PAGE> 117
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
Balance at Charged to Charged to
beginning of costs and other Balance at end
Description period expenses accounts(1) Deductions of period
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
5 months ended December 31, 1996 4,340 52 1,520 (3,127) 2,785
Year ended December 31, 1997 2,785 267 5,800 (5,886) 2,966
Year ended December 31, 1998 2,966 125 12,382 (12,466) 3,007
</TABLE>
(1) - Represents amounts charged to contra revenue accounts for discounts,
rebates and billing adjustments.
<PAGE> 118
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <C> <S>
1.1 -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Certificate of Incorporation.
3.2 -- Amended and Restated Bylaws.
4.1 -- Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2* -- Specimen Stock Certificate.
5.1 -- Opinion of Cooley Godward LLP.
10.1 -- 1996 Equity Incentive Plan.
10.2 -- Form of Stock Option Agreement pursuant to the 1996 Equity
Incentive Plan.
10.3** -- Form of Early Exercise Stock Purchase Agreement.
10.4 -- 1999 Employee Stock Purchase Plan and related offering
documents.
10.5 -- 1999 Non-Employee Director's Stock Option Plan.
10.6** -- Key Employee Stock Option Plan
10.7** -- Loan and Security Agreement between Paradyne and Bank of
America NT&SA, dated July 31, 1996.
10.8** -- Amended and Restated Subordinated Revolving Promissory Note
between Paradyne and Paradyne Partners, L.P., dated October
16, 1998.
10.9** -- Lease Agreement between Paradyne and Shav Associates, dated
October 8, 1996.
10.10** -- Sublease Agreement between Paradyne and GlobeSpan
Semiconductor, Inc. dated December 10, 1997.
10.11** -- Amendment to Sublease Agreement between Paradyne and
GlobeSpan Semiconductor, Inc. dated January 1, 1999.
10.12** -- Lease Agreement between Paradyne and Townsend Property Trust
Lease, dated June 27, 1997.
10.13** -- Key Employee Agreement between Paradyne and Thomas Epley,
dated April 1, 1999.
10.14** -- Employment Agreement between Paradyne and Andrew May, dated
December 3, 1996.
10.15** -- Key Employee Agreement between Paradyne and Patrick Murphy,
dated August 1, 1996.
10.16** -- Key Employee Agreement between Paradyne and James Slattery,
dated August 1, 1996.
10.17** -- Change in Control Agreement between Paradyne and Sean
Belanger.
10.18** -- Promissory Note, dated May 5, 1997, by James L. Slattery.
10.19** -- Promissory Note, dated March 29, 1999, Sean E. Belanger.
10.20** -- Promissory Note, dated March 26, 1999, Paul H. Floyd.
10.21** -- Promissory Note, dated March 26, 1999, Paul H. Floyd.
10.22** -- Promissory Note, dated March 26, 1999, Frank J. Weiner.
10.23** -- Promissory Note, dated March 26, 1999, by Frank J. Weiner.
10.24** -- Promissory Note, dated April 2, 1999, Frank J. Weiner.
10.25** -- Promissory Note, dated March 27, 1999, Mark Housman.
10.26** -- Promissory Note, dated March 31, 1999, Andrew S. May.
10.27** -- Promissory Note, dated March 31, 1999, Patrick M. Murphy.
10.28** -- Promissory Note, dated April 2, 1999, Patrick M. Murphy.
10.29** -- Indemnification Agreement between Paradyne and William
Stensrud, dated November 6, 1996.
10.30+ -- Supply Agreement between Paradyne and Lucent Technologies,
Inc., dated July 31, 1996.
10.31+ -- Exclusivity and Amendment Agreement between Paradyne, Lucent
Technologies, Inc., and GlobeSpan Semiconductor, Inc. dated
August 6, 1998.
10.32+** -- Noncompetition Agreement between Paradyne, Communication
Partners, L.P., Lucent Technologies, Inc., and GlobeSpan
Semiconductor, Inc. dated July 31, 1996.
10.33** -- Trademark and Patent Agreement between Paradyne, Lucent
Technologies, Inc., and GlobeSpan Semiconductor, Inc. dated
July 31, 1996.
10.34** -- Tax Matters Agreement between Paradyne, Lucent Technologies,
Inc., and GlobeSpan Semiconductor, Inc. dated July 31, 1996.
</TABLE>
II-7
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <C> <S>
10.35** -- Intellectual Property Agreement between Paradyne, Lucent
Technologies, Inc., and GlobeSpan Semiconductor, Inc. dated
July 31, 1996.
10.36+** -- OEM Agreement between Paradyne and Xylan Corporation, dated
March 16, 1999.
10.37+ -- Distribution Agreement between Paradyne and Tech Data
Corporation, dated September 21, 1993.
10.38+ -- OEM Agreement between Paradyne and Premisys Communications,
Inc., dated December 4, 1992.
10.39 -- Network Management Partners Agreement between Paradyne and
Ascend Communications, Inc., dated November 3, 1998
10.40+ -- Joint Development and Distribution Agreement between
Paradyne and AG Communication Systems Corporation, dated
June 10, 1998
10.41+ -- Marketing & License Agreement between Paradyne and NetScout
Systems, Inc., dated November 4, 1998
10.42 -- Amendment No. 2 to Loan and Security Agreement.
10.43* -- Amendment to Supply Agreement between Paradyne and Lucent
Technologies, Inc., dated as of November 13, 1998.
23.1 -- Consent of Independent Accountants.
23.2 -- Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 -- Power of Attorney (see page II-5).
27.1** -- Financial Data Schedule for EDGAR Filing.
</TABLE>
- ------------------------------
* To be filed by amendment.
** Previously filed
+Confidential treatment has been requested for certain portions which have been
blanked out in the copy of the exhibit filed with the Securities and Exchange
Commission. The omitted information has been filed separately with the
Securities and Exchange Commission pursuant to the application for confidential
treatment.
II-8
<PAGE> 1
EXHIBIT 1.1
6,000,000 Shares
PARADYNE NETWORKS, INC.
Common Stock
UNDERWRITING AGREEMENT
_____________ , 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BancBoston Robertson Stephens, Inc.
Dain RauScher INCORPORATED
Raymond James & Associates, Inc.
As representatives of the
several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
Paradyne Networks, Inc., a Delaware corporation (the "COMPANY"),
proposes to issue and sell to the several underwriters named in Schedule I
hereto (the "UNDERWRITERS"), and certain stockholders of the Company named in
Schedule II hereto (the "SELLING STOCKHOLDERS") severally propose to sell to the
several Underwriters, an aggregate of 6,000,000 shares of the common stock, par
value $.001 per share, of the Company (the "FIRM Shares"), of which 4,000,000
shares are to be issued and sold by the Company and 2,000,000 shares are to be
sold by the Selling Stockholders, each Selling Stockholder selling the amount
set forth opposite such Selling Stockholder's name in Schedule II hereto. The
Selling Stockholders also propose to sell to the several Underwriters not more
than an additional 900,000 shares of the Company's common stock, par value $.001
per share (the "ADDITIONAL SHARES"), if requested by the Underwriters as
provided in Section 2. The Firm Shares and the Additional Shares are hereinafter
referred to collectively as the "SHARES". The shares of common stock of the
Company to be outstanding after giving effect to the sales contemplated hereby
are
<PAGE> 2
hereinafter referred to as the "COMMON STOCK". The Company and the Selling
Stockholders are hereinafter sometimes referred to collectively as the
"SELLERS".
SECTION 1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"COMMISSION") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "ACT"), a registration statement on Form S-1, including a
prospectus, relating to the Shares. The registration statement, as amended at
the time it became effective, including the information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to Rule
430A under the Act, is hereinafter referred to as the "REGISTRATION STATEMENT";
and the prospectus in the form first used to confirm sales of Shares is
hereinafter referred to as the "PROSPECTUS". If the Company has filed or is
required pursuant to the terms hereof to file a registration statement pursuant
to Rule 462(b) under the Act registering additional shares of Common Stock (a
"RULE 462(B) REGISTRATION STATEMENT"), then, unless otherwise specified, any
reference herein to the term "Registration Statement" shall be deemed to include
such Rule 462(b) Registration Statement.
SECTION 2. Agreements to Sell and Purchase and Lock-Up Agreements. On
the basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, (i) the Company agrees to issue and sell
4,000,000 Firm Shares, (ii) each Selling Stockholder agrees, severally and not
jointly, to sell the number of Firm Shares set forth opposite such Selling
Stockholder's name in Schedule II hereto and (iii) each Underwriter agrees,
severally and not jointly, to purchase from each Seller at a price per Share of
$________ (the "PURCHASE PRICE") the number of Firm Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Firm Shares to be sold by such Seller as
the number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I hereto bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, each Selling Stockholder
agrees, severally and not jointly, to sell to the Underwriters at the Purchase
Price the number of Additional Shares (subject to such adjustments to eliminate
fractional shares as you may determine) equal to (i) the total number of
Additional Shares purchased by the Underwriters multiplied by (ii) a fraction,
the numerator of which is the number of Firm Shares set forth opposite such
Selling Stockholder's name in Schedule II hereto and the denominator of which is
the total number of Firm Shares. Additional Shares may be purchased solely for
the purpose of covering over-allotments made in connection with the offering of
the Firm Shares. The Underwriters may exercise their right to purchase
Additional Shares in whole or in part from time to time by giving written notice
thereof to the Attorneys (as defined herein) within 30 days after the date of
this Agreement. You shall give any such notice on behalf of the Underwriters and
such notice shall specify the aggregate number of Additional Shares to be
purchased pursuant to such exercise and the date for payment and delivery
thereof, which date shall be a business day (i) no earlier than two business
days after such notice has been given (and, in any event, no earlier than the
Closing Date (as
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hereinafter defined)) and (ii) no later than ten business days after such notice
has been given. If any Additional Shares are to be purchased, each Underwriter,
severally and not jointly, agrees to purchase from the Selling Stockholders the
number of Additional Shares (subject to such adjustments to eliminate fractional
shares as you may determine) which bears the same proportion to the total number
of Additional Shares to be purchased from such Stockholder as the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I bears to
the total number of Firm Shares.
Each Seller hereby agrees not to (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
(ii) enter into any swap or other arrangement that transfers all or a portion of
the economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise), except to the Underwriters pursuant to this Agreement, for a
period of 180 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding
the foregoing, during such period (i) the Company may grant stock options
pursuant to the Company's existing stock option plan, (ii) the Company may issue
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof and (iii) the Company
may issue shares of Common Stock in connection with acquisitions of other
businesses, products or technologies; provided, that, the recipient of the
Common Stock in any such acquisition shall agree in writing to be bound by all
of the restrictions and other provisions applicable to the Sellers under the
preceding sentence for a period of 180 days after the date of the Prospectus.
The Company also agrees not to file any registration statement with
respect to any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock for a period of 180 days after the
date of the Prospectus without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation other than a registration statement on Form S-8
under the Act with respect to up to (i) 6,000,000 shares of Common Stock to be
issued pursuant to the Company's Amended and Restated 1996 Equity Incentive
Plan, (ii) 1,000,000 shares of Common Stock to be issued pursuant to the
Company's 1999 Employee Stock Purchase Plan and (iii) 250,000 shares of Common
Stock to be issued pursuant to the Company's 1999 Non-Employee Directors' Stock
Plan. In addition, each Selling Stockholder agrees that, for a period of 180
days after the date of the Prospectus without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation, it will not make any demand
for, or exercise any right with respect to, the registration of any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock which would cause the Company to file a registration statement
with the Commission prior to the expiration of such 180-day period.
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<PAGE> 4
The Company shall, prior to or concurrently with the execution of this
Agreement, deliver an agreement (each, a "LOCK-UP AGREEMENT") executed by (i)
each Selling Stockholder, (ii) each of the directors and officers of the Company
who is not a Selling Stockholder and (iii) each stockholder listed on Annex I
hereto to the effect that such person will not, during the period commencing on
the date such person signs such agreement and ending 180 days after the date of
the Prospectus, without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation, (A)(1) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, except shares
of Common Stock registered under the Act (other than on Form S-8 under the Act)
that are purchased in the open market subsequent to the Closing Date or (2)
enter into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (1) or (2) is
to be settled by the delivery of Common Stock, or such other securities, in cash
or otherwise), except to the Underwriters pursuant to this Agreement, or (B)
make any demand for, or exercise any right with respect to, the registration of
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock. Notwithstanding the foregoing, each Lock-Up
Agreement executed by an individual, corporation or partnership that is not a
Selling Stockholder (each, an "EXECUTING STOCKHOLDER") may provide that (i) if
such Executing Stockholder is an individual, he or she may transfer any shares
either during his or her lifetime or upon death by gift, will, or intestacy to
any person or trust, or (ii) if such Executing Stockholder is a corporation or
partnership, it may transfer any or all shares of Common Stock it holds as a
distribution to its stockholders or partners, as the case may be; provided,
however, that in either such case it shall be a condition precedent to the
transfer of such shares that the transferee agrees in writing (in a form
acceptable to Donaldson, Lufkin & Jenrette Securities Corporation and its
counsel) to be bound by the terms of such Executing Stockholder's Lock-Up
Agreement.
The Company hereby confirms its engagement of BancBoston Robertson
Stephens, Inc. as, and BancBoston Robertson Stephens, Inc. hereby confirms its
agreement with the Company to render services as, a "qualified independent
underwriter," within the meaning of Section (b)(15) of Rule 2720 of the National
Association of Securities Dealers, Inc. (the "NASD") with respect to the
offering and sale of the Shares. BancBoston Robertson Stephens, Inc., solely in
its capacity as the qualified independent underwriter and not otherwise, is
referred to herein as the "QIU." As compensation for the services of the QIU
hereunder, the Company agrees to pay the QIU $5,000 on the Closing Date. The
price at which the Shares will be sold to the public shall not be higher than
the maximum price recommended by the QIU.
SECTION 3. Terms of Public Offering. The Sellers are advised by you
that the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
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<PAGE> 5
SECTION 4. Delivery and Payment. The Shares shall be represented by
definitive certificates, if requested by the Underwriters, and shall be issued
in such authorized denominations and registered in such names as Donaldson,
Lufkin & Jenrette Securities Corporation shall request no later than two
business days prior to the Closing Date or the applicable Option Closing Date
(as defined below), as the case may be. The Shares shall be delivered by or on
behalf of the Sellers, with any transfer taxes thereon duly paid by the
respective Sellers, to Donaldson, Lufkin & Jenrette Securities Corporation
through the facilities of The Depository Trust Company ("DTC"), for the
respective accounts of the several Underwriters, against payment to the Sellers
of the Purchase Price therefor by wire transfer of Federal or other funds
immediately available in New York City. The certificates representing the Shares
shall be made available for inspection not later than 9:30 A.M., New York City
time, on the business day prior to the Closing Date or the applicable Option
Closing Date, as the case may be, at the office of DTC or its designated
custodian (the "DESIGNATED OFFICE"). The time and date of delivery and payment
for the Firm Shares shall be 9:00 A.M., New York City time, on ________, 1999 or
such other time on the same or such other date as Donaldson, Lufkin & Jenrette
Securities Corporation and the Company shall agree in writing. The time and date
of delivery and payment for the Firm Shares are hereinafter referred to as the
"CLOSING DATE". The time and date of delivery and payment for any Additional
Shares to be purchased by the Underwriters shall be 9:00 A.M., New York City
time, on the date specified in the applicable exercise notice given by you
pursuant to Section 2 or such other time on the same or such other date as
Donaldson, Lufkin & Jenrette Securities Corporation and the Attorneys shall
agree in writing. The time and date of delivery and payment for any Additional
Shares are hereinafter referred to as the "OPTION CLOSING DATE".
The documents to be delivered on the Closing Date or any Option Closing
Date on behalf of the parties hereto pursuant to Section 10 of this Agreement
shall be delivered at the offices of Alston & Bird LLP, 1201 West Peachtree
Street, Atlanta, Georgia 30309-3424 and the Shares shall be delivered at the
Designated Office, all on the Closing Date or such Option Closing Date, as the
case may be.
SECTION 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, (iii) when any amendment to the
Registration Statement becomes effective, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, when the Rule 462(b) Registration Statement has become effective and
(v) of the happening of any event during the period referred to in Section 5(d)
below which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires any additions to or changes
in the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will use
its best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
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<PAGE> 6
(b) To furnish to you five (5) signed copies of the Registration
Statement as first filed with the Commission and of each amendment to it,
including all exhibits, and to furnish to you and each Underwriter designated by
you such number of conformed copies of the Registration Statement as so filed
and of each amendment to it, without exhibits, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which shall be
satisfactory to you, and to file the Prospectus in such form with the Commission
within the applicable period specified in Rule 424(b) under the Act; during the
period specified in Section 5(d) below, not to file any further amendment to the
Registration Statement and not to make any amendment or supplement to the
Prospectus of which you shall not previously have been advised or to which you
shall reasonably object after being so advised; and, during such period, to
prepare and file with the Commission, promptly upon your reasonable request, any
amendment to the Registration Statement or amendment or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its best efforts to cause any such
amendment to the Registration Statement to become promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first business day
after the date of this Agreement and from time to time thereafter for such
period as in the opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish in New York City to each Underwriter and any dealer as many
copies of the Prospectus (and of any amendment or supplement to the Prospectus)
as such Underwriter or dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event shall
occur or condition shall exist as a result of which, in the opinion of counsel
for the Underwriters, it becomes necessary to amend or supplement the Prospectus
in order to make the statements therein, in the light of the circumstances when
the Prospectus is delivered to a purchaser, not misleading, or if, in the
opinion of counsel for the Underwriters, it is necessary to amend or supplement
the Prospectus to comply with applicable law, forthwith to prepare and file with
the Commission an appropriate amendment or supplement to the Prospectus so that
the statements in the Prospectus, as so amended or supplemented, will not in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with applicable law, and to furnish to each
Underwriter and to any dealer as many copies thereof as such Underwriter or
dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state
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<PAGE> 7
securities or Blue Sky laws of such jurisdictions as you may request, to
continue such registration or qualification in effect so long as required for
distribution of the Shares and to file such consents to service of process or
other documents as may be necessary in order to effect such registration or
qualification; provided, however, that the Company shall not be required in
connection therewith to qualify as a foreign corporation in any jurisdiction in
which it is not now so qualified or to take any action that would subject it to
general consent to service of process or taxation other than as to matters and
transactions relating to the Prospectus, the Registration Statement, any
preliminary prospectus or the offering or sale of the Shares, in any
jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders as soon as
practicable an earnings statement covering the twelve-month period ending [June
30], 2000 that shall satisfy the provisions of Section 11(a) of the Act, and to
advise you in writing when such statement has been so made available.
(h) During the period of three years after the date of this Agreement,
to furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of Common Stock or furnished to
or filed with the Commission or any national securities exchange on which any
class of securities of the Company is listed and such other publicly available
information concerning the Company and its subsidiaries as you may reasonably
request.
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the Seller's obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the Company's
counsel and the Company's accountants in connection with the registration and
delivery of the Shares under the Act and all other fees and expenses in
connection with the preparation, printing, filing and distribution of the
Registration Statement (including financial statements and exhibits), any
preliminary prospectus, the Prospectus and all amendments and supplements to any
of the foregoing, including the mailing and delivering of copies thereof to the
Underwriters and dealers in the quantities specified herein, (ii) all costs and
expenses related to the transfer and delivery of the Shares to the Underwriters,
including any transfer or other taxes payable thereon, (iii) all costs of
printing or producing this Agreement and any other agreements or documents in
connection with the offering, purchase, sale or delivery of the Shares, (iv) all
expenses in connection with the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of the several states and
all costs of printing or producing any Preliminary and Supplemental Blue Sky
Memoranda in connection therewith (including the filing fees and fees and
disbursements of counsel for the Underwriters in connection with such
registration or qualification and memoranda relating thereto), (v) the filing
fees and disbursements of counsel for the Underwriters in connection with the
review and clearance of the offering of the Shares by the National Association
of Securities Dealers, Inc., (vi) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A relating to the
Common Stock and all costs and
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<PAGE> 8
expenses incident to the listing of the Shares on the Nasdaq National Market,
(vii) the cost of printing certificates representing the Shares, (viii) the
costs and charges of any transfer agent, registrar and/or depositary, (ix) the
fees and expenses of the QIU (including, without limitation, the fees and
disbursements of counsel to the QIU) and (x) all other costs and expenses
incident to the performance of the obligations of the Company and the Selling
Stockholders hereunder for which provision is not otherwise made in this
Section. The provisions of this Section shall not supersede or otherwise affect
any agreement that the Company and the Selling Stockholders may otherwise have
for allocation of such expenses among themselves.
(j) To use its best efforts to list for quotation the Shares on the
Nasdaq National Market and to maintain the listing of the Shares on the Nasdaq
National Market for a period of three years after the date of this Agreement.
(k) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior to
the Closing Date or any Option Closing Date, as the case may be, and to satisfy
all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the effectiveness of
this Agreement does not cover all of the Shares, to file a Rule 462(b)
Registration Statement with the Commission registering the Shares not so covered
in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the date of
this Agreement and to pay to the Commission the filing fee for such Rule 462(b)
Registration Statement at the time of the filing thereof or to give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
(m) The Company will, for so long as any of the Common Stock is
outstanding and if, in the reasonable judgment of any Underwriter, such
Underwriter or any of its affiliates (as defined in the Act) is required to
deliver a prospectus in connection with sales of Common Stock (i) periodically
amend the Registration Statement so that the information contained in the
Registration Statement complies with the requirements of Section 10(a) of the
Act, (ii) amend the Registration Statement or amend or supplement the Prospectus
when necessary to reflect any material changes in the information provided
therein and promptly file such amendment or supplement with the Commission,
(iii) provide such Underwriter with copies of each amendment or supplement so
filed and such other documents, including opinions of counsel and "comfort"
letters, as such Underwriter may reasonably request and (iv) indemnify such
Underwriter and if applicable, contribute to any amount paid or payable by such
Underwriter in a manner substantially identical to that specified in Section 8
(with appropriate modifications).
SECTION 6. Representations and Warranties of the Company. The Company
and Paradyne Corporation, a Delaware corporation (the "OPERATING SUBSIDIARY"),
jointly and severally represent and warrant to each Underwriter that:
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(a) The Registration Statement has become effective (other than any
Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement); any Rule 462(b) Registration Statement filed
after the effectiveness of this Agreement will become effective no later than
10:00 P.M., New York City time, on the date of this Agreement; and no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or threatened by the Commission.
(b) (i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement), when it became effective, did not contain and, as amended, if
applicable, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement (other than
any Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement) and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the Act,
(iii) if the Company is required to file a Rule 462(b) Registration Statement
after the effectiveness of this Agreement, such Rule 462(b) Registration
Statement and any amendments thereto, when they become effective (A) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (B) will comply in all material respects with the Act and (iv)
the Prospectus does not contain and, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in the Registration Statement or the Prospectus based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(c) The Company has no operations or assets and no contingent or other
liabilities, except (i) the capital stock of the Operating Subsidiary and (ii)
as otherwise disclosed in the financial statements of the Company. The Operating
Subsidiary is a direct, wholly-owned subsidiary of the Company, and the Company
has no other direct subsidiaries. The Company's only other subsidiaries are
Paradyne Canada Ltd., a corporation organized under the laws of the Province of
Ontario, Canada ("PARADYNE CANADA"), Paradyne Worldwide Corp., a Delaware
corporation ("PARADYNE WORLDWIDE"), Paradyne Japan Corporation, a corporation
organized under the laws of Japan ("PARADYNE JAPAN"), Paradyne International
Ltd., a company incorporated under the Companies Act (United Kingdom) ("PARADYNE
U.K."), Ark Electronics Products, Inc., a Florida corporation ("ARK"), Paradyne
GmbH, a corporation organized under the laws of Germany ("PARADYNE GERMANY"),
Communications Equipment Corporation, a Delaware corporation ("COMMUNICATIONS"),
Paradyne International, Inc., a Florida corporation ("PARADYNE INTERNATIONAL"),
Paradyne Russia Limited, a company incorporated under the Companies Act (United
Kingdom) ("PARADYNE RUSSIA"), and Paradyne International Sales Ltd., a
corporation organized under the laws of Barbados,
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<PAGE> 10
and each such subsidiary is a direct, wholly-owned subsidiary of the Operating
Subsidiary. The Company has no significant subsidiaries (as defined in Rule 1-02
of the Commission's Regulation S-X), other than the Operating Subsidiary,
Paradyne Canada and Paradyne Worldwide. None of Paradyne Japan, Paradyne U.K.,
Ark, Paradyne Germany, Communications, Paradyne International or Paradyne Russia
is engaged in any active trade or business or has any operations or significant
assets, and the Company has established reserves in the consolidated financial
statements referred to in Section 6(q) for any contingent or other liabilities
of each such subsidiary in accordance with generally accepted accounting
principles applied on a basis consistent with the generally accepted accounting
principles otherwise used in the preparation of such consolidated financial
statements.
(d) No subsidiary of the Company is currently prohibited, directly or
indirectly, from (i) paying any dividends to the Company or, if such subsidiary
is an indirect subsidiary of the Company, to its parent, (ii) making any other
distribution on such subsidiary's capital stock, (iii) repaying any loans or
advances made to such subsidiary by the Company or another subsidiary of the
Company, or (iv) transferring any of such subsidiary's property or assets to the
Company or any other subsidiary of the Company, in each case except as disclosed
in the Registration Statement and the Prospectus.
(e) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has the corporate power and
authority to carry on its business as described in the Prospectus and to own,
lease and operate its properties, and each is duly qualified and is in good
standing as a foreign corporation authorized to do business in each jurisdiction
in which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified would
not, singly or in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(f) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens granted or issued by
the Company or any of its subsidiaries relating to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of the Company
or any of its subsidiaries, except as disclosed in the Registration Statement
and the Prospectus.
(g) All the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders) have been duly
authorized and validly issued and are fully paid, non-assessable and not subject
to any preemptive or similar rights; and the Shares to be issued and sold by the
Company have been duly authorized and, when issued and delivered to the
Underwriters against payment therefor as provided by this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights.
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(h) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature.
(i) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(j) Neither the Company nor any of its subsidiaries is (i) in violation
of its respective charter or by-laws or (ii) in default in the performance of
any obligation, agreement, covenant or condition contained in any indenture,
loan agreement, mortgage, lease or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or their respective property is bound, except, in the case of
clause (ii), for any default which, singly or in the aggregate, would not have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole.
(k) The execution, delivery and performance of this Agreement by the
Company and the Operating Subsidiary, the compliance by the Company and the
Operating Subsidiary with all the provisions hereof and the consummation of the
transactions contemplated hereby will not (i) require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the securities
or Blue Sky laws of the various states), (ii) conflict with or constitute a
breach of any of the terms or provisions of, or a default under, the charter or
by-laws of the Company or any of its subsidiaries or any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is material to
the Company and its subsidiaries, taken as a whole, to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or their respective property is bound, (iii) violate or conflict
with any applicable law or any rule, regulation, judgment, order or decree of
any court or any governmental body or agency having jurisdiction over the
Company, any of its subsidiaries or their respective property or (iv) result in
the suspension, termination or revocation of any Authorization (as defined
below) of the Company or any of its subsidiaries or any other impairment of the
rights of the holder of any such Authorization.
(l) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is or could be a
party or to which any of their respective property is or could be subject that
are required to be described in the Registration Statement or the Prospectus and
are not so described; nor are there any 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.
(m) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law, regulation or order (including, without
limitation, any such
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<PAGE> 12
law, regulation or order relating to the protection of human health and safety,
the environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), any provisions of the Employee Retirement
Income Security Act of 1974, as amended, or any provisions of the Foreign
Corrupt Practices Act, or the rules and regulations promulgated thereunder),
except for such violations which, singly or in the aggregate, would not have a
material adverse effect on the business, prospects, financial condition or
results of operation of the Company and its subsidiaries, taken as a whole.
(n) Each of the Company and its subsidiaries 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, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective 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,
singly or in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole. Each such Authorization is valid and in full
force and effect and each of the Company and its subsidiaries 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) which allows or, after notice or
lapse of time or both, would allow, revocation, suspension or termination of any
such Authorization or results or, after notice or lapse of time or both, would
result in any other impairment of the rights of the holder of any such
Authorization; 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 on the business, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole.
(o) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any Authorization, any related constraints on operating activities and
any potential liabilities to third parties) which would, singly or in the
aggregate, have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole.
(p) This Agreement has been duly authorized, executed and delivered by
the Company and the Operating Subsidiary.
(q) PricewaterhouseCoopers LLP are independent public accountants with
respect to the Company and its subsidiaries as required by the Act.
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(r) The consolidated financial statements included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), together
with related schedules and notes, present fairly the consolidated financial
position, results of operations and changes in financial position of the Company
and its subsidiaries on the basis stated therein at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; the supporting schedules, if any, included in the
Registration Statement present fairly in accordance with generally accepted
accounting principles the information required to be stated therein; and the
other financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are, in all material respects, accurately presented and, in the case of
financial information, prepared on a basis consistent with such financial
statements and the books and records of the Company.
(s) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be, an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended.
(t) Except as disclosed in the Registration Statement and the
Prospectus, 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 or to require the Company to include such securities with the Shares
registered pursuant to the Registration Statement.
(u) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there has not occurred any material adverse change or any development involving
a prospective material adverse change in the condition, financial or otherwise,
or the earnings, business, management or operations of the Company and its
subsidiaries, taken as a whole, (ii) there has not been any material adverse
change or any development involving a prospective material adverse change in the
capital stock or in the long-term debt of the Company or any of its subsidiaries
and (iii) neither the Company nor any of its subsidiaries has incurred any
material liability or obligation, direct or contingent.
(v) The Company and its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in the Prospectus or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its subsidiaries; and
any real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed
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<PAGE> 14
to be made of such property and buildings by the Company and its subsidiaries,
in each case except as disclosed in the Registration Statement and the
Prospectus.
(w) The Company and its subsidiaries own or possess, or can acquire on
reasonable terms, all patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trademarks,
service marks and trade names ("INTELLECTUAL PROPERTY") currently employed by
them in connection with the business now operated by them except where the
failure to own or possess or otherwise be able to acquire such Intellectual
Property would not, singly or in the aggregate, have a material adverse effect
on the business, prospects, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole. Except as disclosed in the
Registration Statement, neither the Company nor any of its subsidiaries (A) has
received any notice of infringement of or conflict with asserted rights of
others with respect to any Intellectual Property, except notice of any such
infringement or conflict which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would not have a material adverse
effect on the business, prospects, financial condition or results of operations
of the Company and its subsidiaries, taken as a whole, or (B) is infringing or
otherwise violating any Intellectual Property of others. There are no legal or
governmental proceedings pending or threatened relating to any Intellectual
Property which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a material adverse effect on the
business, prospects, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole. There are no contracts or other
documents relating to any Intellectual Property required to be filed as an
exhibit to the Registration Statement or required to be described in the
Registration Statement or the Prospectus that are not so filed or described as
required.
(x) The Company and each of its subsidiaries are 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 they are engaged;
and neither the Company nor any of its subsidiaries (i) has 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 or (ii) has any 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 on the business, prospects, financial conditions or results of
operations of the Company and its subsidiaries, taken as a whole.
(y) No relationship, direct or indirect, exists between or among the
Company or any of its subsidiaries on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company or any of its subsidiaries
on the other hand, which is required by the Act to be described in the
Registration Statement or the Prospectus which is not so described.
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<PAGE> 15
(z) There is no (i) significant unfair labor practice complaint,
grievance or arbitration proceeding pending or threatened against the Company or
any of its subsidiaries before the National Labor Relations Board or any state
or local labor relations board, (ii) strike, labor dispute, slowdown or stoppage
pending or threatened against the Company or any of its subsidiaries or (iii)
union representation question existing with respect to the employees of the
Company and its subsidiaries, except for such actions specified in clause (i),
(ii) or (iii) above, which, singly or in the aggregate, would not have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole. To
the best of the Company's knowledge, no collective bargaining organizing
activities are taking place with respect to the Company or any of its
subsidiaries.
(aa) The Company and each of its subsidiaries 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
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(bb) All material tax returns required to be filed by the Company and
each of its subsidiaries in any jurisdiction have been filed, other than those
filings being contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other charges
due pursuant to such returns or pursuant to any assessment received by the
Company or any of its subsidiaries have been paid, other than those being
contested in good faith and for which adequate reserves have been provided.
(cc) The Company and its subsidiaries have complied and are in
compliance with all foreign, federal, state and local statutes, executive
orders, proclamations, regulations, rules, directives, decrees, ordinances and
similar provisions having the force or effect of law and all judicial and
administrative orders, rulings, determinations and common law concerning the
importation of merchandise, the export or reexport of products, services and
technology, and the terms and conduct of international transactions applicable
to the Company and its subsidiaries in connection with the conduct of the
business of the Company and its subsidiaries (including, without limitation, as
the same relates to record keeping requirements) ("INTERNATIONAL TRADE LAWS AND
REGULATIONS"), except where failure to comply therewith would not, singly or in
the aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operation of the Company and its subsidiaries,
taken as a whole; neither the Company nor any of its subsidiaries has made or
provided any material false statement or material omission to any agency of any
federal, state or local government, purchasers of products, or foreign
government or foreign agency, in connection with the exportation of merchandise
(including, without limitation, with respect to export licenses, exceptions and
other export authorizations and any filings required for or related to
exportation of
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<PAGE> 16
any item), the importation of merchandise or other approvals required by a
foreign government or agency or any other requirement relating to any
International Trade Laws and Regulations.
(dd) The Company has reviewed its operations and the operations of its
subsidiaries and any third parties with which the Company or any of its
subsidiaries has a material relationship to evaluate the extent to which the
business or operations of the Company or any of its subsidiaries will be
affected by the Year 2000 Problem (as defined below). As a result of such
review, the Company has no reason to believe, and does not believe, that the
Year 2000 Problem will have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole. The "YEAR 2000 PROBLEM" as used herein means any
risk that the computer hardware or software used in the receipt, transmission,
storage, retrieval, retransmission or other utilization of data or in the
operation of mechanical or electrical systems of any kind will not, in the case
of dates or time periods occurring after December 31, 1999, function at least as
effectively as in the case of dates or time periods occurring prior to January
1, 2000.
(ee) The Company and its subsidiaries have obtained all Authorizations
from the Federal Communications Commission ("FCC") and from state public utility
commissions ("PUCS"), and otherwise under the Telecommunications Act of 1996
(the "1996 ACT"), the Communications Act of 1934, as amended (the
"COMMUNICATIONS ACT"), and the rules and regulations under the 1996 Act and the
Communications Act (the "RULES AND REGULATIONS"), in each case necessary for the
conduct of the business of the Company and its subsidiaries as described in the
Registration Statement and the Prospectus. All such Authorizations have been
duly and validly issued and are in full force and effect and neither the Company
nor any of its subsidiaries is in violation of any of the terms and conditions
of any such Authorizations, except for any violation which, singly or in the
aggregate, would not have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(ff) There is no outstanding adverse judgment, decree or order that has
been issued by the FCC or any state PUC against the Company or any of its
subsidiaries or any action, proceeding or investigation pending or threatened by
the FCC or any state PUC against the Company or any of its subsidiaries which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(gg) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be deemed to
be a representation and warranty by the Company to the Underwriters as to the
matters covered thereby.
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<PAGE> 17
SECTION 7. Representations and Warranties of the Selling Stockholders.
Each Selling Stockholder severally and not jointly represents and warrants to
each Underwriter that:
(a) Such Selling Stockholder has been duly incorporated or formed and
is validly existing as a corporation or partnership in good standing under the
laws of its jurisdiction of incorporation or formation. Such Selling Stockholder
is the lawful owner of the Shares to be sold by such Selling Stockholder
pursuant to this Agreement. Immediately prior to the delivery of the Firm Shares
to be sold by such Selling Stockholder on the Closing Date, such Selling
Stockholder will have good and valid title to such Firm Shares, free of all
restrictions on transfer, liens, encumbrances, security interests and claims
whatsoever. Immediately prior to the delivery of any Additional Shares to be
sold by such Selline Stockholder on the Option Closing Date, such Selling
Stockholder will have good and valid title to such Additional Shares, free of
all restrictions on transfer, liens, encumbrances, security interests and claims
whatsoever.
(b) Such Selling Stockholder has, and on the Closing Date will have,
full legal right, power and authority, and all authorization and approval
required by law, to enter into this Agreement, the Custody Agreement signed by
such Selling Stockholder and _________, as Custodian, relating to the deposit of
the Shares to be sold by such Selling Stockholder (the "CUSTODY AGREEMENT") and
the Power of Attorney of such Selling Stockholder appointing certain individuals
as such Selling Stockholder's attorneys-in-fact (the "ATTORNEYS") to the extent
set forth therein, relating to the transactions contemplated hereby and by the
Registration Statement and the Custody Agreement (the "POWER OF ATTORNEY") and
to sell, assign, transfer and deliver the Shares to be sold by such Selling
Stockholder in the manner provided herein and therein.
(c) This Agreement has been duly authorized, executed and delivered by
or on behalf of such Selling Stockholder.
(d) The Custody Agreement of such Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a valid
and binding agreement of such Selling Stockholder, enforceable in accordance
with its terms.
(e) The Power of Attorney of such Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a valid
and binding instrument of such Selling Stockholder, enforceable in accordance
with its terms, and, pursuant to such Power of Attorney, such Selling
Stockholder has, among other things, authorized the Attorneys, or any one of
them, to execute and deliver on such Selling Stockholder's behalf this Agreement
and any other document that they, or any one of them, may deem necessary or
desirable in connection with the transactions contemplated hereby and thereby
and to deliver the Shares to be sold by such Selling Stockholder pursuant to
this Agreement.
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<PAGE> 18
(f) Upon delivery of and payment for the Shares to be sold by such
Selling Stockholder pursuant to this Agreement, good and valid title to such
Shares will pass to the Underwriters, free of all restrictions on transfer,
liens, encumbrances, security interests and claims whatsoever.
(g) The execution, delivery and performance of this Agreement and the
Custody Agreement and Power of Attorney of such Selling Stockholder by or on
behalf of such Selling Stockholder, the compliance by such Selling Stockholder
with all the provisions hereof and thereof and the consummation of the
transactions contemplated hereby and thereby will not (i) require any consent,
approval, authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the securities
or Blue Sky laws of the various states), (ii) conflict with or constitute a
breach of any of the terms or provisions of, or a default under, (A) the
organizational documents of such Selling Stockholder, or (B) any indenture, loan
agreement, mortgage, lease or other agreement or instrument to which such
Selling Stockholder is a party or by which such Selling Stockholder or any
property of such Selling Stockholder is bound, except, in the case of clause
(B), for any conflict, breach or default which, singly or in the aggregate, is
not material to such Selling Stockholder and its subsidiaries, taken as a whole,
or (iii) violate or conflict with any applicable law or any rule, regulation,
judgment, order or decree of any court or any governmental body or agency having
jurisdiction over such Selling Stockholder or any property of such Selling
Stockholder.
(h) The information in the Registration Statement under the captions
"Principal and Selling Stockholders" and "Certain Transactions - Divestiture by
Lucent" which specifically relates to such Selling Stockholder does not, and
will not on the Closing Date, contain 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, in the light of the circumstances under which they
were made, not misleading.
(i) At any time during the period described in Section 5(d), if there
is any change in the information referred to in Section 7(h), such Selling
Stockholder will immediately notify you of such change.
(j) Each certificate signed by or on behalf of such Selling Stockholder
and delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Stockholder to the
Underwriters as to the matters covered thereby.
SECTION 8. Indemnification. (a) The Company and the Operating
Subsidiary jointly and severally agree to indemnify and hold harmless each
Underwriter, its directors, its officers and each person, if any, who controls
any Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Securities Exchange Act of 1934,
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<PAGE> 19
as amended (the "EXCHANGE ACT"), from and against any and all losses, claims,
damages, liabilities and judgments (including, without limitation, any legal or
other expenses incurred in connection with investigating or defending any
matter, including any action, that could give rise to any such losses, claims,
damages, liabilities or judgments) caused by any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement (or
any amendment thereto), the Prospectus (or any amendment or supplement thereto)
or any preliminary prospectus, 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, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriter furnished in writing to the Company by such Underwriter
through you expressly for use therein; provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter who failed to deliver a Prospectus, as then
amended or supplemented (so long as the Prospectus and any amendments or
supplements thereto was provided by the Company to the several Underwriters in
the requisite quantity and on a timely basis to permit proper delivery on or
prior to the Closing Date) to the person asserting any losses, claims, damages,
liabilities or judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in such preliminary prospectus, 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, if
such material misstatement or omission or alleged material misstatement or
omission was cured in the Prospectus, as so amended or supplemented, and such
Prospectus was required by law to be delivered at or prior to the written
confirmation of sale to such person.
(b) Each Selling Stockholder agrees, severally and not jointly, to
indemnify and hold harmless each Underwriter, its directors, its officers and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages, liabilities and judgments (including, without
limitation, any legal or other expenses incurred in connection with
investigating or defending any matter, including any action, that could give
rise to any such losses, claims, damages, liabilities or judgments) caused by
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), the Prospectus (or any
amendment of supplement thereto) or any preliminary prospectus, 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, but
only with reference to information relating to such Selling Stockholder
furnished in writing by or on behalf of such Selling Stockholder expressly for
use in the Registration Statement (or any amendment thereto), the Prospectus (or
any amendment or supplement thereto) or any preliminary prospectus.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless (i) the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the
same extent as the foregoing indemnity
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<PAGE> 20
from the Company to such Underwriter and (ii) each Selling Stockholder and each
person, if any, who controls such Selling Stockholder within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from such Selling Stockholder to such Underwriter, but
in the case of Sections 8(c)(i) and 8(c)(ii) only with reference to information
relating to such Underwriter furnished in writing to the Company by such
Underwriter through you expressly for use in the Registration Statement (or any
amendment thereto), the Prospectus (or any amendment or supplement thereto) or
any preliminary prospectus.
(d) The Company and the Operating Subsidiary, jointly and severally,
agree to indemnify and hold harmless each Selling Stockholder, its directors,
its officers and each person, if any, who controls any Selling Stockholder
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
from and against any and all losses, claims, damages, liabilities and judgments
(including, without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), the Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus, 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, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Selling Stockholder furnished in writing to the Company by such Selling
Stockholder expressly for use therein.
(e) Each Selling Stockholder agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
to the same extent as the foregoing indemnity from the Company to such Selling
Stockholder, but only with reference to information relating to such Selling
Stockholder furnished in writing to the Company by such Selling Stockholder
expressly for use in the Registration Statement (or any amendment thereto), the
Prospectus (or any amendment or supplement thereto) or any preliminary
prospectus.
(f) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a), 8(b), 8(c),
8(d) or 8(e) (the "INDEMNIFIED PARTY"), the indemnified party shall promptly
notify the person against whom such indemnity may be sought (the "INDEMNIFYING
PARTY") in writing and the indemnifying party shall assume the defense of such
action, including the employment of counsel reasonably satisfactory to the
indemnified party and the payment of all fees and expenses of such counsel, as
incurred (except that in the case of any action in respect of which indemnity
may be sought pursuant to both Section 8(a) or 8(b) on the one hand and Section
8(c) on the other hand, the Underwriter shall not be required to assume the
defense of such action pursuant to this Section 8(f), but may employ separate
counsel and
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<PAGE> 21
participate in the defense thereof, but the fees and expenses of such counsel,
except as provided below, shall be at the expense of such Underwriter). Any
indemnified party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the indemnifying party, (ii) the indemnifying party shall have failed to assume
the defense of such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for (i) the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all Underwriters, their officers and directors and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act, (ii) the fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) for the Company,
its directors, its officers who sign the Registration Statement and all persons,
if any, who control the Company within the meaning of either such Section and
(iii) the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all Selling Stockholders and all persons, if
any, who control any Selling Stockholder within the meaning of either such
Section, and all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters, their
officers and directors and such control persons of any Underwriters, such firm
shall be designated in writing by Donaldson, Lufkin & Jenrette Securities
Corporation. In the case of any such separate firm for the Company and such
directors, officers and control persons of the Company, such firm shall be
designated in writing by the Company. In the case of any such separate firm for
the Selling Stockholders and such control persons of any Selling Stockholders,
such firm shall be designated in writing by the Selling Stockholders holding a
majority of the outstanding shares of Common Stock held by the Selling
Stockholders as a group. The indemnifying party shall indemnify and hold
harmless the indemnified party from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written consent
if the settlement is entered into more than 60 days after the indemnifying party
shall have received a request from the indemnified party for reimbursement for
the fees and expenses of counsel (in any case where such fees and expenses are
at the expense of the indemnifying party) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could
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<PAGE> 22
have been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability on claims that are or could have been 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 the indemnified party.
(g) To the extent the indemnification provided for in this Section 8 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Sellers and the Operating Subsidiary on the one hand and the Underwriters on the
other hand from the offering of the Shares or (ii) if the allocation provided by
clause 8(g)(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
8(g)(i) above but also the relative fault of the Sellers and the Operating
Subsidiary on the one hand and the Underwriters on the other hand in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the Sellers and the Operating
Subsidiary on the one hand and the Underwriters on the other hand shall be
deemed to be in the same proportion as the total net proceeds from the offering
(after deducting underwriting discounts and commissions, but before deducting
expenses) received by the Sellers, and the total underwriting discounts and
commissions received by the Underwriters, bear to the total price to the public
of the Shares, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Sellers and the Operating Subsidiary on
the one hand and the Underwriters on the other hand 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, the Operating Subsidiary, or the
Selling Stockholders on the one hand or the Underwriters on the other hand and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Sellers, the Operating Subsidiary and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 8(g)
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses incurred by such
indemnified party in connection with investigating or defending any matter,
including any action, that could have given rise to such losses, claims,
damages, liabilities or judgments. Notwithstanding the provisions of this
Section 8, (i) no Underwriter shall be
-22-
<PAGE> 23
required to contribute any amount in excess of the amount by which the total
price at which the Shares 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 and (ii) the aggregate liability of
any Selling Stockholder pursuant to this Section 8 shall be limited to the net
proceeds from the offering of the Shares (before deducting expenses) received by
such Selling Stockholder. 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 to contribute pursuant to this
Section 8(g) are several in proportion to the respective number of Shares
purchased by each of the Underwriters hereunder and not joint.
(h) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(i) Each Selling Stockholder hereby designates Paradyne Networks, Inc.,
8545 126th Avenue North, Largo, Florida 33773, as its authorized agent, upon
which process may be served in any action which may be instituted in any state
or federal court in the State of New York by any Underwriter, any director or
officer of any Underwriter or any person controlling any Underwriter asserting a
claim for indemnification or contribution under or pursuant to this Section 8 or
Section 9, and each Selling Stockholder will accept the jurisdiction of such
court in such action, and waives, to the fullest extent permitted by applicable
law, any defense based upon lack of personal jurisdiction or venue. A copy of
any such process shall be sent or given to such Selling Stockholder, at the
address for notices specified in Section 13.
SECTION 9. Indemnification of QIU. (a) The Company and the Operating
Subsidiary, jointly and severally, agree to indemnify and hold harmless the QIU,
its directors, its officers and each person, if any, who controls the QIU within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and judgments
(including, without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) related to, based upon or arising out of (i) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), the Prospectus (or any amendment or
supplement thereto) or any preliminary prospectus, or 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 or (ii) the QIU's
activities as QIU under its engagement pursuant to Section 2, except in the case
of this clause (ii) insofar as any such losses, claims, damages, liabilities or
judgments are found in a final judgment by a court of competent jurisdiction,
not subject to further appeal, to have resulted solely from the willful
misconduct or gross negligence of the QIU.
-23-
<PAGE> 24
(b) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 9(a) or Section
9(b) (the "QIU INDEMNIFIED PARTY"), the QIU Indemnified Party shall promptly
notify the person against whom such indemnity may be sought (the "QIU
INDEMNIFYING PARTY") in writing and the QIU Indemnifying Party shall assume the
defense of such action, including the employment of counsel reasonably
satisfactory to the QIU Indemnified Party and the payment of all fees and
expenses of such counsel, as incurred. Any QIU Indemnified Party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of the QIU Indemnified Party unless (i) the employment of such counsel
shall have been specifically authorized in writing by the QIU Indemnifying
Party, (ii) the QIU Indemnifying Party shall have failed to assume the defense
of such action or employ counsel reasonably satisfactory to the QIU Indemnified
Party or (iii) the named parties to any such action (including any impleaded
parties) include both the QIU Indemnified Party and the QIU Indemnifying Party,
and the QIU Indemnified Party shall have been advised by such counsel that there
may be one or more legal defenses available to it which are different from or
additional to those available to the QIU Indemnifying Party (in which case the
QIU Indemnifying Party shall not have the right to assume the defense of such
action on behalf of the QIU Indemnified Party). In any such case, the QIU
Indemnifying Party shall not, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all QIU Indemnified Parties, which firm shall be designated by the
QIU, and all such fees and expenses shall be reimbursed as they are incurred.
The QIU Indemnifying Party shall indemnify and hold harmless the QIU Indemnified
Party from and against any and all losses, claims, damages, liabilities and
judgments by reason of any settlement of any action (i) effected with its
written consent or (ii) effected without its written consent if the settlement
is entered into more than twenty business days after the QIU Indemnifying Party
shall have received a request from the QIU Indemnified Party for reimbursement
for the fees and expenses of counsel (in any case where such fees and expenses
are at the expense of the QIU Indemnifying Party) and, prior to the date of such
settlement, the QIU Indemnifying Party shall have failed to comply with such
reimbursement request. The QIU Indemnifying Party shall not, without the prior
written consent of the QIU Indemnified Party, effect any settlement or
compromise of, or consent to the entry of judgment with respect to, any pending
or threatened action in respect of which the QIU Indemnified Party is or could
have been a party and indemnity or contribution may be or could have been sought
hereunder by the QIU Indemnified Party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the QIU Indemnified Party from
all liability on claims that are or could have been 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 the QIU Indemnified Party.
(c) To the extent the indemnification provided for in this Section 9 is
unavailable to a QIU Indemnified Party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each QIU
Indemnifying Party,
-24-
<PAGE> 25
in lieu of indemnifying such QIU Indemnified Party, shall contribute to the
amount paid or payable by such QIU Indemnified Party as a result of such losses,
claims, damages, liabilities and judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Operating Subsidiary on the one hand and the QIU on the other hand from the
offering of the Shares or (ii) if the allocation provided by clause 9(d)(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 9(d)(i) above
but also the relative fault of the Company and the Operating Subsidiary on the
one hand and the QIU on the other hand in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Operating Subsidiary on the one hand
and the QIU on the other hand shall be deemed to be in the same proportion as
the total net proceeds from the offering (after deducting underwriting discounts
and commissions, but before deducting expenses) received by the Company as set
forth in the table on the cover page of the Prospectus, and the fee received by
the QIU pursuant to Section 2, bear to the sum of such total net proceeds and
such fee. The relative fault of the Company and the Operating Subsidiary on the
one hand and the QIU on the other hand 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 Operating Subsidiary on the one hand
or the QIU on the other hand and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission
and whether the QIU's activities as QIU under its engagement pursuant to Section
2 involved any willful misconduct or gross negligence on the part of the QIU.
The Company, the Operating Subsidiary and the QIU agree that it would
not be just and equitable if contribution pursuant to this Section 9(d) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by a QIU Indemnified
Party as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses incurred
by such QIU Indemnified Party in connection with investigating or defending any
matter, including any action, that could have given rise to such losses, claims,
damages, liabilities or judgments. 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.
(d) The remedies provided for in this Section 9 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
QIU Indemnified Party at law or in equity.
SECTION 10. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
-25-
<PAGE> 26
(a) All the representations and warranties of the Company and the
Operating Subsidiary contained in this Agreement shall be true and correct on
the Closing Date with the same force and effect as if made on and as of the
Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York City
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate dated the
Closing Date, signed by Andrew May, in his capacity as the President and Chief
Executive Officer of the Company and the Operating Subsidiary, and Patrick
Murphy, in his capacity as the Chief Financial Officer of the Company and the
Operating Subsidiary, confirming the matters set forth in Sections 6(t), 10(a)
and 10(b) and that each of the Company and the Operating Subsidiary has complied
with all of the agreements and satisfied all of the conditions herein contained
and required to be complied with or satisfied by the Company and the Operating
Subsidiary, respectively, on or prior to the Closing Date.
(d) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole, (ii) there shall not have been any change or any development involving
a prospective change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 10(d)(i),
10(d)(ii) or 10(d)(iii), in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(e) All the representations and warranties of each Selling Stockholder
contained in this Agreement shall be true and correct on the Closing Date with
the same force and effect as if made on and as of the Closing Date and you shall
have received on the Closing Date a certificate dated the Closing Date from each
Selling Stockholder to such effect and to the effect that such Selling
Stockholder has complied with all of the agreements and satisfied all of the
conditions herein contained and required to be complied with or satisfied by
such Selling Stockholder on or prior to the Closing Date.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Cooley Godward LLP,
-26-
<PAGE> 27
counsel for the Company and the Operating Subsidiary, to the effect set forth in
Annex II hereto.
(g) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Cleary, Gottlieb, Steen & Hamilton, counsel for the Selling Stockholders, to
the effect set forth in Annex III hereto.
(h) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Thomas, Kayden, Horstemeyer & Risley, L.L.P., special intellectual property
counsel for the Company, to the effect set forth in Annex IV hereto.
(i) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Harris, Wiltshire & Grannis LLP, special FCC counsel for the Company and the
Operating Subsidiary, to the effect set forth in Annex V hereto.
(j) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Fraser & Milner, special Canadian counsel for Paradyne Canada, to the effect
set forth in Annex VI hereto.
(k) You shall have received on the Closing Date an opinion, dated the
Closing Date, of James L. Slattery, Esq., Senior Vice President and Chief Legal
and Intellectual Property Officer of the Company, to the effect set forth in
Annex VII hereto.
(l) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Alston & Bird LLP, counsel for the Underwriters, as to the
matters referred to in paragraphs (iv), (vi), (ix) (but only with respect to the
statements under the captions "Description of Capital Stock" and "Underwriting,"
other than the final two paragraphs under the caption "Underwriting") and (xvi)
of Annex II hereto and the penultimate paragraph of Annex II hereto.
In giving its opinion with respect to the matters covered by the
penultimate paragraph of Annex II hereto, counsel for the Underwriters may state
that its opinion and belief are based upon its participation in the preparation
of the Registration Statement and Prospectus and any amendments or supplements
thereto and review and discussion of the contents thereof, but are without
independent check or verification except as specified.
(m) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from PricewaterhouseCoopers, LLP,
independent public accountants, containing the information and statements of the
type ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
-27-
<PAGE> 28
(n) The Company shall have delivered to you the agreements specified in
Section 2, which agreements shall be in full force and effect on the Closing
Date.
(o) The Shares shall have been duly listed for quotation on the Nasdaq
National Market.
(p) The Company, the Operating Subsidiary and the Selling Stockholders
shall not have failed on or prior to the Closing Date to perform or comply with
any of the agreements herein contained and required to be performed or complied
with by the Company, the Operating Subsidiary or the Selling Stockholders on or
prior to the Closing Date.
(q) You shall have received on the Closing Date, a certificate of each
Selling Stockholder who is not a U.S. Person (as defined under applicable U.S.
federal tax legislation) to the effect that such Selling Stockholder is not a
U.S. Person, which certificate may be in the form of a properly completed and
executed United States Treasury Department Form W-8 (or other applicable form or
statement specified by Treasury Department regulations in lieu thereof).
(r) You shall have received on the Closing Date such additional
documents (including, without limitation, opinions of counsel, certificates and
agreements) as you may reasonably request.
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents (including, without limitation, opinions of
counsel, certificates and agreements) as you may reasonably request with respect
to the good standing of the Company and the Operating Subsidiary, the due
authorization and issuance of such Additional Shares and other matters related
to the issuance of such Additional Shares.
SECTION 11. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Sellers if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities
-28-
<PAGE> 29
of the Company on any exchange or in the over-the-counter market, (iv) the
enactment, publication, decree or other promulgation of any federal or state
statute, regulation, rule or order of any court or other governmental authority
which in your opinion materially and adversely affects, or will materially and
adversely affect, the business, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole, (v) the
declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in your
opinion has a material adverse effect on the financial markets in the United
States.
If on the Closing Date or on an Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase the
Firm Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each
non-defaulting Underwriter shall be obligated severally, in the proportion which
the number of Firm Shares set forth opposite its name in Schedule I bears to the
total number of Firm Shares which all the non-defaulting Underwriters have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the number of Firm Shares or Additional
Shares, as the case may be, which any Underwriter has agreed to purchase
pursuant to Section 2 be increased pursuant to this Section 11 by an amount in
excess of one-ninth of such number of Firm Shares or Additional Shares, as the
case may be, without the written consent of such Underwriter. If on the Closing
Date any Underwriter or Underwriters shall fail or refuse to purchase Firm
Shares and the aggregate number of Firm Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Firm Shares to
be purchased by all Underwriters and arrangements satisfactory to you, the
Company and the Selling Stockholders for purchase of such Firm Shares are not
made within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter, the Company, the
Operating Subsidiary or the Selling Stockholders. In any such case which does
not result in termination of this Agreement, either you or the Sellers shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. If, on an Option Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Additional Shares to be purchased on such
date, the non-defaulting Underwriters shall have the option to (i) terminate
their obligation hereunder to purchase such Additional Shares or (ii) purchase
not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase on such date in the absence
of such default. Any action taken
-29-
<PAGE> 30
under this paragraph shall not relieve any defaulting Underwriter from liability
in respect of any default of any such Underwriter under this Agreement.
SECTION 12. Agreements of the Selling Stockholders. Each Selling
Stockholder agrees with you and the Company:
(a) to pay or to cause to be paid (i) all transfer taxes payable in
connection with the transfer of the Shares to be sold by such Selling
Stockholder to the Underwriters and (ii) the fees, disbursements and expenses of
counsel to the Selling Stockholders incurred or made in connection herewith and
in connection with the transactions contemplated by the Registration Statement
and the Prospectus; and
(b) to do and perform all things to be done and performed by such
Selling Stockholder under this Agreement prior to the Closing Date and to
satisfy all conditions precedent to the delivery of the Shares to be sold by
such Selling Stockholder pursuant to this Agreement.
SECTION 13. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company or the
Operating Subsidiary, to Paradyne Networks, Inc., 8545 126th Avenue North,
Largo, Florida 33773, Attention: General Counsel, (ii) if to the Selling
Stockholders, to [NAME OF ATTORNEY-IN-FACT], [ADDRESS OF ATTORNEY-IN-FACT] and
(iii) if to any Underwriter or to you, to you c/o Donaldson, Lufkin & Jenrette
Securities Corporation, 277 Park Avenue, New York, New York 10172, Attention:
Syndicate Department, or in any case to such other address as the person to be
notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Selling Stockholders and the
several Underwriters set forth in or made pursuant to this Agreement shall
remain operative and in full force and effect, and will survive delivery of and
payment for the Shares, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of any Underwriter, the officers or
directors of any Underwriter, any person controlling any Underwriter, any QIU
Indemnified Party, the Company, the officers or directors of the Company, any
person controlling the Company, any Selling Stockholder or any person
controlling such Selling Stockholder, (ii) acceptance of the Shares and payment
for them hereunder and (iii) termination of this Agreement.
If for any reason the Shares are not delivered by or on behalf of any
Seller as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 11), the Sellers agree, jointly and severally, to
reimburse the several Underwriters for all out-of-pocket expenses (including,
without limitation, the fees and disbursements of counsel) incurred by them.
Notwithstanding any termination of this Agreement, the Company shall be liable
for all expenses which it has agreed to pay pursuant to Section 5(i). The
Sellers also agree, jointly and severally, to reimburse the several
Underwriters, their directors and officers, any persons controlling any of the
Underwriters and the QIU Indemnified Parties for any and all fees and expenses
(including, without limitation, the
-30-
<PAGE> 31
fees disbursements of counsel) incurred by them in connection with enforcing
their rights hereunder (including, without limitation, pursuant to Sections 8
and 9).
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the Selling
Stockholders, the Underwriters, the Underwriters' directors and officers, any
controlling persons referred to herein, the QIU Indemnified Parties, the
Company's directors and officers who sign the Registration Statement and their
respective successors and assigns, all as and to the extent provided in this
Agreement, and no other person shall acquire or have any right under or by
virtue of this Agreement. The term "successors and assigns" shall not include a
purchaser of any of the Shares from any of the several Underwriters merely
because of such purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
-31-
<PAGE> 32
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
PARADYNE NETWORKS, INC.
By:
-------------------------------------------
Name:
Title:
PARADYNE CORPORATION
By:
-------------------------------------------
Name:
Title:
THE SELLING STOCKHOLDERS
NAMED IN SCHEDULE II HERETO,
ACTING SEVERALLY
By:
-------------------------------------------
Name:
Title: Attorney-in-Fact
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BANCBOSTON ROBERTSON STEPHENS, INC.
DAIN RAUSCHER INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
-32-
<PAGE> 33
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
----------------------------------------
Name:
Title:
By: BANCBOSTON ROBERTSON STEPHENS, INC.
Acting in its capacity as a Qualified
Independent Underwriter
By:
-----------------------------------------
Name:
Title:
-33-
<PAGE> 34
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriters To be Purchased
------------ ---------------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities
Corporation..................................................
BancBoston Robertson Stephens, Inc...........................
Dain Rauscher Incorporated...................................
Raymond James & Associates, Inc..............................
Total
</TABLE>
<PAGE> 35
SCHEDULE II
Selling Stockholders
<TABLE>
<CAPTION>
Number of Firm Shares
Name Being Sold
---- ---------------------
<S> <C>
TPG Partners, L.P............................................ 1,794,750
TPG Parallel I, L.P.......................................... 178,929
Communications GenPar Inc.................................... 26,321
</TABLE>
<PAGE> 36
Annex I
[ NAMES OF STOCKHOLDERS OF THE COMPANY WHO WILL BE REQUIRED TO SIGN LOCK UPS]
<PAGE> 37
Annex II
You shall have received on the Closing Date an opinion (satisfactory to
you and counsel for the Underwriters), dated the Closing Date, of Cooley Godward
LLP, counsel for the Company and the Operating Subsidiary, to the effect that:
II-1
<PAGE> 38
Annex III
You shall have received on the Closing Date an opinion (satisfactory to
you and counsel for the Underwriters), dated the Closing Date, of Cleary,
Gottlieb, Steen & Hamilton, counsel for the Selling Stockholders, to the effect
that:
III-1
<PAGE> 39
Annex IV
You shall have received on the Closing Date an opinion (satisfactory to
you and counsel for the Underwriters), dated the Closing Date, of Thomas,
Kayden, Horstemeyer & Risley, L.L.P., special intellectual property counsel for
the Company, to the effect that (1) such counsel is familiar with the
Intellectual Property used by the Company and its subsidiaries in their business
and the manner of such use and has read the Registration Statement and the
Prospectus, including particularly the portions of the Registration Statement
and the Prospectus referring to any Intellectual Property, and (2) such counsel
is of the opinion that:
IV-1
<PAGE> 40
Annex V
You shall have received on the Closing Date an opinion (satisfactory to
you and counsel for the Underwriters), dated the Closing Date, of Harris,
Wiltshire & Grannis LLP, special FCC counsel for the Company, to the effect that
(1) such counsel has read the Registration Statement and the Prospectus,
including particularly the portions of the Registration Statement and the
Prospectus referring to the 1996 Act, the Communications Act and the Rules and
Regulations, and (2) such counsel is of the opinion that:
V-1
<PAGE> 41
Annex VI
You shall have received on the Closing Date an opinion, dated the
Closing Date, of Fraser & Milner, special Canadian counsel for the Company, the
Operating Subsidiary and Paradyne Canada, to the effect that:
VI-1
<PAGE> 42
Annex VII
You shall have received on the Closing Date an opinion (satisfactory to
you and counsel for the Underwriters), dated the Closing Date, of James L.
Slattery, Esq., Senior Vice President and Chief Legal and Intellectual Property
Officer of the Company, to the effect that:
VII-1
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
PARADYNE ACQUISITION CORP.
The undersigned does hereby certify that the following Amended and
Restated Certificate of Incorporation has been duly approved pursuant to
Sections 242 and 245 of the Delaware General Corporation Law. The original
Certificate of Incorporation was filed with the State of Delaware on June 7,
1996 under the name, "PD Acquisition Corp.", and was amended on June 13, 1996,
changing the corporation's name to "Paradyne Acquisition Corp."
The Certificate of Incorporation of this corporation is hereby amended
and restated as follows:
I.
The name of this corporation is Paradyne Networks, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is Corporation Trust Center, City of Wilmington, County of New Castle,
and the name of the registered agent of the corporation in the State of Delaware
at such address is the CT Corporation System.
III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock
to be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is Sixty-Five
Million (65,000,000) shares. Sixty Million (60,000,000) shares shall be Common
Stock, each having a par value of one-tenth of one cent ($.001). Five Million
(5,000,000) shares shall be Preferred Stock, each having a par value of
one-tenth of one cent ($.001). Upon the filing of this Amended and Restated
Certificate of Incorporation, every two (2) outstanding shares of Common Stock
of this corporation shall be combined into one (1) share of Common Stock.
B. The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby authorized, by filing a
certificate (a "Preferred Stock Designation") pursuant to the Delaware General
Corporation Law ("DGCL"), to fix or alter from time to time the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions of any wholly unissued series of
Preferred Stock, and to establish from time to time the number of shares
constituting any such series or any of them; and to increase or decrease the
number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status
1.
<PAGE> 2
that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
V.
For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. NUMBER AND CLASSIFICATION OF DIRECTORS
1. The management of the business and the conduct of the
affairs of the corporation shall be vested in its Board of Directors. The number
of directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1933
Act"), covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the closing of the
Initial Public Offering, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class III directors shall expire and
Class III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.
Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
3. VACANCIES
A. Subject to the rights of the holders of any
series of Preferred Stock, any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal or other causes and any newly
created directorships resulting from any increase in the number of directors,
shall, unless the Board of Directors determines by resolution that any such
vacancies or newly created directorships shall be filled by the stockholders,
except as otherwise provided by law, be filled only by the affirmative vote of a
majority of the directors then in office, even though less than a quorum of the
Board of Directors, and not by the stockholders. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified.
2.
<PAGE> 3
B. If at the time of filling any vacancy or any
newly created directorship, the directors then in office shall constitute less
than a majority of the whole board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%) of the total
number of the shares at the time outstanding having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the directors
then in offices as aforesaid, which election shall be governed by Section 211 of
the DGCL.
4. REMOVAL
A. Neither the Board of Directors nor any
individual director may be removed without cause.
B. Subject to any limitation imposed by law,
any individual director or directors may be removed with cause by the holders of
a majority of the voting power of the corporation entitled to vote at an
election of directors
B. BYLAWS AND STOCKHOLDER ACTIONS
1. Subject to paragraph (h) of Section 42 of the Bylaws,
the Bylaws may be altered or amended or new Bylaws adopted by the affirmative
vote of at least sixty-six and two-thirds percent (66-2/3%) of the voting power
of all of the then-outstanding shares of the voting stock of the corporation
entitled to vote. The Board of Directors shall also have the power to adopt,
amend, or repeal Bylaws.
2. The directors of the corporation need not be elected
by written ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the
corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws, and following the closing of the Initial Public
Offering, no action shall be taken by stockholders by written consent.
4. Advance notice of stockholder nominations for the
election of directors and of business to be brought by stockholders before any
meeting of the stockholders of the corporation shall be given in the manner
provided in the Bylaws of the corporation.
VI.
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
3.
<PAGE> 4
B. Any repeal or modification of this Article VI shall be
prospective and shall not affect the rights under this Article VI in effect at
the time of the alleged occurrence of any act or omission to act giving rise to
liability or indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, except as provided in paragraph
B. of this Article VII, and all rights conferred upon the stockholders herein
are granted subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the voting stock of the corporation required by
law, this Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent (66
2/3%) of the voting power of all of the then-outstanding shares of the voting
stock of the corporation, voting together as a single class, shall be required
to alter, amend or repeal Articles.
4.
<PAGE> 5
IN WITNESS WHEREOF, this Amended and Restated Certificate has been
subscribed this 7th day of June, 1999 by the undersigned who affirms that the
statements made herein are true and correct.
/s/ ANDREW S. MAY
-----------------------------------------
ANDREW S. MAY
President and Chief Executive Officer
ATTEST:
/s/ JAMES L. SLATTERY
- ----------------------------------
JAMES L. SLATTERY
Corporate Secretary
5.
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
PARADYNE ACQUISITION CORP.
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I OFFICES.................................................................................................1
Section 1 Registered Office..............................................................................1
Section 2 Other Offices..................................................................................1
ARTICLE II STOCKHOLDERS' MEETINGS.................................................................................1
Section 3 Place of Meetings..............................................................................1
Section 4 Annual Meetings................................................................................1
Section 5 Special Meetings...............................................................................3
Section 6 Notice of Meetings.............................................................................4
Section 7 Quorum.........................................................................................5
Section 8 Adjournment and Notice of Adjourned Meetings...................................................5
Section 9 Voting Rights..................................................................................5
Section 10 Joint Owners of Stock.........................................................................6
Section 11 List of Stockholders..........................................................................6
Section 12 Action without Meeting........................................................................6
Section 13 Organization..................................................................................7
ARTICLE III DIRECTORS.............................................................................................8
Section 14 Number and Term of Office.....................................................................8
Section 15 Powers........................................................................................8
Section 16 Classes of Directors..........................................................................8
Section 17 Vacancies.....................................................................................8
Section 18 Resignation...................................................................................9
Section 19 Removal.......................................................................................9
Section 20 Meetings......................................................................................9
Section 21 Quorum and Voting............................................................................10
Section 22 Action without Meeting.......................................................................11
Section 23 Fees and Compensation........................................................................11
Section 24 Committees...................................................................................11
Section 25 Organization.................................................................................12
ARTICLE IV OFFICERS..............................................................................................12
Section 26 Officers Designated..........................................................................12
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 27 Tenure and Duties of Officers................................................................13
Section 28 Delegation of Authority......................................................................14
Section 29 Resignations.................................................................................14
Section 30 Removal......................................................................................14
ARTICLE V EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
OWNED BY THE CORPORATION................................................................................15
Section 31 Execution of Corporate Instruments...........................................................15
Section 32 Voting of Securities Owned by the Corporation................................................15
ARTICLE VI SHARES OF STOCK.......................................................................................15
Section 33 Form and Execution of Certificates...........................................................15
Section 34 Lost Certificates............................................................................16
Section 35 Transfers....................................................................................16
Section 36 Fixing Record Dates..........................................................................16
Section 37 Registered Stockholders......................................................................17
ARTICLE VII OTHER SECURITIES OF THE CORPORATION..................................................................18
Section 38 Execution of Other Securities................................................................18
ARTICLE VIII DIVIDENDS...........................................................................................18
Section 39 Declaration of Dividends.....................................................................18
Section 40 Dividend Reserve.............................................................................18
ARTICLE IX FISCAL YEAR...........................................................................................19
Section 41 Fiscal Year..................................................................................19
ARTICLE X INDEMNIFICATION........................................................................................19
Section 42 Indemnification of Directors, Executive Officers,
Other Officers, Employees and Other Agents..............................................................19
ARTICLE XI NOTICES...............................................................................................22
Section 43 Notices......................................................................................22
ARTICLE XII AMENDMENTS...........................................................................................24
Section 44 Amendments...................................................................................24
ARTICLE XIII LOANS TO OFFICERS...................................................................................24
Section 45 Loans to Officers............................................................................24
</TABLE>
ii.
<PAGE> 4
BYLAWS
OF
PARADYNE ACQUISITION CORP.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
corporation in the State of Delaware shall be in the City of Wilmington County
of New Castle.
SECTION 2. OTHER OFFICES. The corporation shall also have and
maintain an office or principal place of business at such place as may be fixed
by the Board of Directors, and may also have offices at such other places, both
within and without the State of Delaware as the Board of Directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
STOCKHOLDERS' MEETINGS
SECTION 3. PLACE OF MEETINGS. Meetings of the stockholders of
the corporation shall be held at such place, either within or without the State
of Delaware, as may be designated from time to time by the Board of Directors,
or, if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 4. ANNUAL MEETINGS.
(A) The annual meeting of the stockholders of the
corporation, for the purpose of election of directors and for such other
business as may lawfully come before it, shall be held on such date and at such
time as may be designated from time to time by the Board of Directors.
Nominations of persons for election to the Board of Directors of the corporation
and the proposal of business to be considered by the stockholders may be made at
an annual meeting of stockholders: (i) pursuant to the corporation's notice of
meeting of stockholders; (ii) by or at the direction of the Board of Directors;
or (iii) by any stockholder of the corporation who was a stockholder of record
at the time of giving of notice provided for in the following paragraph, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in Section 4.
(B) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (iii) of Section 4(a) of
these Bylaws, (i) the stockholder must have given timely notice thereof in
1.
<PAGE> 5
writing to the Secretary of the corporation, (ii) such other business must be a
proper matter for stockholder action under the Delaware General Corporation Law
("DGCL"), (iii) if the stockholder, or the beneficial owner on whose behalf any
such proposal or nomination is made, has provided the corporation with a
Solicitation Notice (as defined in this Section 4(b)), such stockholder or
beneficial owner must, in the case of a proposal, have delivered a proxy
statement and form of proxy to holders of at least the percentage of the
corporation's voting shares required under applicable law to carry any such
proposal, or, in the case of a nomination or nominations, have delivered a proxy
statement and form of proxy to holders of a percentage of the corporation's
voting shares reasonably believed by such stockholder or beneficial owner to be
sufficient to elect the nominee or nominees proposed to be nominated by such
stockholder, and must, in either case, have included in such materials the
Solicitation Notice, and (iv) if no Solicitation Notice relating thereto has
been timely provided pursuant to this section, the stockholder or beneficial
owner proposing such business or nomination must not have solicited a number of
proxies sufficient to have required the delivery of such a Solicitation Notice
under this Section 4. To be timely, a stockholder's notice shall be delivered to
the Secretary at the principal executive offices of the Corporation not later
than the close of business on the ninetieth (90th) day nor earlier than the
close of business on the one hundred twentieth (120th) day prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced more than thirty (30)
days prior to or delayed by more than thirty (30) days after the anniversary of
the preceding year's annual meeting, notice by the stockholder to be timely must
be so delivered not earlier than the close of business on the one hundred
twentieth (120th) day prior to such annual meeting and not later than the close
of business on the later of the ninetieth (90th) day prior to such annual
meeting or the tenth (10th) day following the day on which public announcement
of the date of such meeting is first made. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth: (A) as to each person whom the stockholder proposed to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "1934 Act") and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (B) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (C) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the corporation's books, and of
such beneficial owner, (ii) the class and number of shares of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner, and (iii) whether either such stockholder or beneficial owner
intends to deliver a proxy statement and form of proxy to holders of, in the
case of the proposal, at least the percentage of the corporation's voting shares
required under applicable law to carry the proposal or, in the case of a
nomination or nominations, a sufficient number of holders of the corporation's
voting shares to elect such nominee or nominees (an affirmative statement of
such intent, a "Solicitation Notice").
2.
<PAGE> 6
(C) Notwithstanding anything in the second sentence of
Section 4(b) of these Bylaws to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
corporation at least one hundred (100) days prior to the first anniversary of
the preceding year's annual meeting, a stockholder's notice required by this
Section 4 shall also be considered timely, but only with respect to nominees for
any new positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the corporation not later than
the close of business on the tenth (10th) day following the day on which such
public announcement is first made by the corporation.
(D) Only such persons who are nominated in accordance
with the procedures set forth in this Section 4 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 4. Except as otherwise provided by law, the Chairman
of the meeting shall have the power and duty to determine whether a nomination
or any business proposed to be brought before the meeting was made, or proposed,
as the case may be, in accordance with the procedures set forth in these Bylaws
and, if any proposed nomination or business is not in compliance with these
Bylaws, to declare that such defective proposal or nomination shall not be
presented for stockholder action at the meeting and shall be disregarded.
(E) Notwithstanding the foregoing provisions of this
Section 4, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholder's meeting,
stockholders must provide notice as required by the regulations promulgated
under the 1934 Act. Nothing in these Bylaws shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the corporation proxy
statement pursuant to Rule 14a-8 under the 1934 Act.
(F) For purposes of this Section 4, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.
SECTION 5. SPECIAL MEETINGS.
(A) Special meetings of the stockholders of the
corporation may be called, for any purpose or purposes, by (i) the Chairman of
the Board of Directors, (ii) the Chief Executive Officer, (iii) the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption) or (iv) holders of the shares entitled to cast
not less than fifty percent (50%) of the votes at the meeting.
(B) If a special meeting is properly called by any person
or persons other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or
3.
<PAGE> 7
by telegraphic or other facsimile transmission to the Chairman of the Board of
Directors, the Chief Executive Officer, or the Secretary of the corporation. No
business may be transacted at such special meeting otherwise than specified in
such notice. The Board of Directors shall determine the time and place of such
special meeting, which shall be held not less than thirty-five (35) nor more
than one hundred twenty (120) days after the date of the receipt of the request.
Upon determination of the time and place of the meeting, the officer receiving
the request shall cause notice to be given to the stockholders entitled to vote,
in accordance with the provisions of Section 6 of these Bylaws. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
(C) Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the corporation's notice of meeting (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided
for in these Bylaws who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 5(c). In the event
the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 4(b) of these Bylaws shall be delivered
to the Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
SECTION 6. NOTICE OF MEETINGS. Except as otherwise provided by
law or the Certificate of Incorporation, written notice of each meeting of
stockholders shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting to each stockholder entitled to vote at such
meeting, such notice to specify the place, date and hour and purpose or purposes
of the meeting. Notice of the time, place and purpose of any meeting of
stockholders may be waived in writing, signed by the person entitled to notice
thereof, either before or after such meeting, and will be waived by any
stockholder by his attendance thereat in person or by proxy, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Any stockholder so waiving notice of such
meeting shall be bound by the proceedings of any such meeting in all respects as
if due notice thereof had been given.
SECTION 7. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock
4.
<PAGE> 8
entitled to vote shall constitute a quorum for the transaction of business. In
the absence of a quorum, any meeting of stockholders may be adjourned, from time
to time, either by the chairman of the meeting or by vote of the holders of a
majority of the shares represented thereat, but no other business shall be
transacted at such meeting. The stockholders present at a duly called or
convened meeting, at which a quorum is present, may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. Except as otherwise provided by
statute, the Certificate of Incorporation or these Bylaws, in all matters other
than the election of directors, the affirmative vote of the majority of shares
present in person or represented by proxy at the meeting and entitled to vote on
the subject matter shall be the act of the stockholders. Except as otherwise
provided by statute, the Certificate of Incorporation or these Bylaws, directors
shall be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. Where a separate vote by a class or classes or series is required,
except where otherwise provided by the statute or by the Certificate of
Incorporation or these Bylaws, a majority of the outstanding shares of such
class or classes or series, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter and, except where otherwise provided by the statute or by the Certificate
of Incorporation or these Bylaws, the affirmative vote of the majority
(plurality, in the case of the election of directors) of the votes cast by the
holders of shares of such class or classes or series shall be the act of such
class or classes or series.
SECTION 8. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any
meeting of stockholders, whether annual or special, may be adjourned from time
to time either by the chairman of the meeting or by the vote of a majority of
the shares casting votes. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 9. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 11 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
SECTION 10. JOINT OWNERS OF STOCK. If shares or other securities
having voting power stand of record in the names of two (2) or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety, or otherwise, or if two (2) or more persons have the
same fiduciary relationship respecting the same shares, unless the Secretary is
given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it is
so provided, their acts with respect
5.
<PAGE> 9
to voting shall have the following effect: (a) if only one (1) votes, his act
binds all; (b) if more than one (1) votes, the act of the majority so voting
binds all; (c) if more than one (1) votes, but the vote is evenly split on any
particular matter, each faction may vote the securities in question
proportionally, or may apply to the Delaware Court of Chancery for relief as
provided in the DGCL, Section 217(b). If the instrument filed with the Secretary
shows that any such tenancy is held in unequal interests, a majority or
even-split for the purpose of subsection (c) shall be a majority or even-split
in interest.
SECTION 11. LIST OF STOCKHOLDERS. The Secretary shall prepare and
make, at least ten (10) days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
SECTION 12. ACTION WITHOUT MEETING.
(A) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
(B) Every written consent shall bear the date of
signature of each stockholder who signs the consent, and no written consent
shall be effective to take the corporate action referred to therein unless,
within sixty (60) days of the earliest dated consent delivered to the
corporation in the manner herein required, written consents signed by a
sufficient number of stockholders to take action are delivered to the
corporation by delivery to its registered office in the State of Delaware, its
principal place of business or an officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to a corporation's registered office shall be by hand or
by certified or registered mail, return receipt requested.
(C) Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the DGCL if such action had been voted on by stockholders at a meeting
thereof, then the certificate filed under such section shall state, in lieu of
any statement required by such section concerning any vote of stockholders, that
written consent has been given in accordance with Section 228 of the DGCL.
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(D) Notwithstanding the foregoing, no such action by
written consent may be taken following the closing of the initial public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended (the "1933 Act"), covering the offer and sale of Common
Stock of the corporation (the "Initial Public Offering").
SECTION 13. ORGANIZATION.
(A) At every meeting of stockholders, the Chairman of the
Board of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(B) The Board of Directors of the corporation shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject to
such rules and regulations of the Board of Directors, if any, the chairman of
the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are necessary, appropriate or convenient for the proper conduct of the
meeting, including, without limitation, establishing an agenda or order of
business for the meeting, rules and procedures for maintaining order at the
meeting and the safety of those present, limitations on participation in such
meeting to stockholders of record of the corporation and their duly authorized
and constituted proxies and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE III
DIRECTORS
SECTION 14. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 15. POWERS. The powers of the corporation shall be
exercised, its business conducted and its property controlled by the Board of
Directors, except as may be otherwise provided by statute or by the Certificate
of Incorporation.
SECTION 16. CLASSES OF DIRECTORS. Subject to the rights of the
holders of any series of Preferred Stock to elect additional directors under
specified circumstances, following the closing
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of the Initial Public Offering, the directors shall be divided into three
classes designated as Class I, Class II and Class III, respectively. Directors
shall be assigned to each class in accordance with a resolution or resolutions
adopted by the Board of Directors. At the first annual meeting of stockholders
following the closing of the Initial Public Offering, the term of office of the
Class I directors shall expire and Class I directors shall be elected for a full
term of three years. At the second annual meeting of stockholders following the
closing of the Initial Public Offering, the term of office of the Class II
directors shall expire and Class II directors shall be elected for a full term
of three years. At the third annual meeting of stockholders following the
closing of the Initial Public Offering, the term of office of the Class III
directors shall expire and Class III directors shall be elected for a full term
of three years. At each succeeding annual meeting of stockholders, directors
shall be elected for a full term of three years to succeed the directors of the
class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
SECTION 17. VACANCIES.
(A) Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Section 17 in the
case of the death, removal or resignation of any director.
(B) If at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%) of the total
number of the shares at the time outstanding having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the directors
then in offices as aforesaid, which election shall be governed by Section 211 of
the DGCL.
SECTION 18. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a
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majority of the directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
Director so chosen shall hold office for the unexpired portion of the term of
the Director whose place shall be vacated and until his successor shall have
been duly elected and qualified.
SECTION 19. REMOVAL.
(A) Neither the Board of Directors nor any individual
director may be removed without cause.
(B) Subject to any limitation imposed by law, any
individual director or directors may be removed with cause by the affirmative
vote of a majority of the voting power of the corporation entitled to vote at an
election of directors.
SECTION 20. MEETINGS.
(A) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an annual
meeting of the Board of Directors shall be necessary and such meeting shall be
held for the purpose of electing officers and transacting such other business as
may lawfully come before it.
(B) REGULAR MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, regular meetings of the Board of Directors may be
held at any time or date and at any place within or without the State of
Delaware which has been designated by the Board of Directors and publicized
among all directors. No formal notice shall be required for regular meetings of
the Board of Directors.
(C) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(D) TELEPHONE MEETINGS. Any member of the Board of
Directors, or of any committee thereof, may participate in a meeting by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.
(E) NOTICE OF MEETINGS. Notice of the time and place of
all special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will
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be waived by any director by attendance thereat, except when the director
attends the meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
(F) WAIVER OF NOTICE. The transaction of all business at
any meeting of the Board of Directors, or any committee thereof, however called
or noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
SECTION 21. QUORUM AND VOTING.
(A) Unless the Certificate of Incorporation requires a
greater number and except with respect to indemnification questions arising
under Section 42 hereof, for which a quorum shall be one-third of the exact
number of directors fixed from time to time in accordance with the Certificate
of Incorporation, a quorum of the Board of Directors shall consist of a majority
of the exact number of directors fixed from time to time by the Board of
Directors in accordance with the Certificate of Incorporation; provided,
however, at any meeting whether a quorum be present or otherwise, a majority of
the directors present may adjourn from time to time until the time fixed for the
next regular meeting of the Board of Directors, without notice other than by
announcement at the meeting.
(B) At each meeting of the Board of Directors at which a
quorum is present, all questions and business shall be determined by the
affirmative vote of a majority of the directors present, unless a different vote
be required by law, the Certificate of Incorporation or these Bylaws.
SECTION 22. ACTION WITHOUT MEETING. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and such
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
SECTION 23. FEES AND COMPENSATION. Directors shall be entitled to
such compensation for their services as may be approved by the Board of
Directors, including, if so approved, by resolution of the Board of Directors, a
fixed sum and expenses of attendance, if any, for attendance at each regular or
special meeting of the Board of Directors and at any meeting of a committee of
the Board of Directors. Nothing herein contained shall be construed to preclude
any director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
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SECTION 24. COMMITTEES.
(A) EXECUTIVE COMMITTEE. The Board of Directors may
appoint an Executive Committee to consist of one (1) or more members of the
Board of Directors. The Executive Committee, to the extent permitted by law and
provided in the resolution of the Board of Directors shall have and may exercise
all the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to (i) approving or
adopting, or recommending to the stockholders, any action or matter expressly
required by the DGCL to be submitted to stockholders for approval, or (ii)
adopting, amending or repealing any bylaw of the corporation.
(B) OTHER COMMITTEES. The Board of Directors may, from
time to time, appoint such other committees as may be permitted by law. Such
other committees appointed by the Board of Directors shall consist of one (1) or
more members of the Board of Directors and shall have such powers and perform
such duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws.
(C) TERM. Each member of a committee of the Board of
Directors shall serve a term on the committee coexistent with such member's term
on the Board of Directors. The Board of Directors, subject to any requirements
of any outstanding series of preferred Stock and the provisions of subsections
(a) or (b) of this Bylaw, may at any time increase or decrease the number of
members of a committee or terminate the existence of a committee. The membership
of a committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(D) MEETINGS. Unless the Board of Directors shall
otherwise provide, regular meetings of the Executive Committee or any other
committee appointed pursuant to this Section 24 shall be held at such times and
places as are determined by the Board of Directors, or by any such committee,
and when notice thereof has been given to each member of such committee, no
further notice of such regular meetings need be given thereafter. Special
meetings of any such committee may be held at any place which has been
determined from time to time by such committee, and may be called by any
director who is a member of such committee, upon written notice to the members
of such committee of the time and place of such special meeting given in the
manner provided for the giving of written notice to members of the Board of
Directors of the time and place of special meetings of the Board of Directors.
Notice of any special meeting of any committee may be waived in writing at any
time before or after the meeting
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and will be waived by any director by attendance thereat, except when the
director attends such special meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. A majority of the authorized number
of members of any such committee shall constitute a quorum for the transaction
of business, and the act of a majority of those present at any meeting at which
a quorum is present shall be the act of such committee.
SECTION 25. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President (if a director), or if the President is absent, the
most senior Vice President (if a director), or, in the absence of any such
person, a chairman of the meeting chosen by a majority of the directors present,
shall preside over the meeting. The Secretary, or in his absence, any Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
ARTICLE IV
OFFICERS
SECTION 26. OFFICERS DESIGNATED. The officers of the corporation
shall include, if and when designated by the Board of Directors, the Chairman of
the Board of Directors, the Chief Executive Officer, the President, one or more
Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer and
the Controller, all of whom shall be elected at the annual organizational
meeting of the Board of Directors. The Board of Directors may also appoint one
or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and
such other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
SECTION 27. TENURE AND DUTIES OF OFFICERS.
(A) GENERAL. All officers shall hold office at the
pleasure of the Board of Directors and until their successors shall have been
duly elected and qualified, unless sooner removed. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board of
Directors. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the Board of Directors.
(B) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The
Chairman of the Board of Directors, when present, shall preside at all meetings
of the stockholders and the Board of Directors. The Chairman of the Board of
Directors shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers, as the Board of
Directors shall designate from time to time. If there is no President, then the
Chairman of the Board of Directors shall also serve as the Chief Executive
Officer of the corporation and shall have the powers and duties prescribed in
paragraph (c) of this Section 27.
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(C) DUTIES OF PRESIDENT. The President shall preside at
all meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers, as
the Board of Directors shall designate from time to time.
(D) DUTIES OF VICE PRESIDENTS. The Vice Presidents may
assume and perform the duties of the President in the absence or disability of
the President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(E) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record all
acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings of
the stockholders and of all meetings of the Board of Directors and any committee
thereof requiring notice. The Secretary shall perform all other duties given him
in these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(F) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief
Financial Officer shall keep or cause to be kept the books of account of the
corporation in a thorough and proper manner and shall render statements of the
financial affairs of the corporation in such form and as often as required by
the Board of Directors or the President. The Chief Financial Officer, subject to
the order of the Board of Directors, shall have the custody of all funds and
securities of the corporation. The Chief Financial Officer shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time. The President may direct the Treasurer or any
Assistant Treasurer, or the Controller or any Assistant Controller to assume and
perform the duties of the Chief Financial Officer in the absence or disability
of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and
each Controller and Assistant Controller shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time.
SECTION 28. DELEGATION OF AUTHORITY. The Board of Directors may
from time to time delegate the powers or duties of any officer to any other
officer or agent, notwithstanding any provision hereof.
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SECTION 29. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 30. REMOVAL. Any officer may be removed from office at
any time, either with or without cause, by the affirmative vote of a majority of
the directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE V
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE
CORPORATION
SECTION 31. EXECUTION OF CORPORATE INSTRUMENTS. The Board of
Directors may, in its discretion, determine the method and designate the
signatory officer or officers, or other person or persons, to execute on behalf
of the corporation any corporate instrument or document, or to sign on behalf of
the corporation the corporate name without limitation, or to enter into
contracts on behalf of the corporation, except where otherwise provided by law
or these Bylaws, and such execution or signature shall be binding upon the
corporation.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 32. VOTING OF SECURITIES OWNED BY THE CORPORATION. All
stock and other securities of other corporations owned or held by the
corporation for itself, or for other parties in any capacity, shall be voted,
and all proxies with respect thereto shall be executed, by the person authorized
so to do by resolution of the Board of Directors, or, in the absence of such
authorization, by the Chairman of the Board of Directors, the Chief Executive
Officer, the President, or any Vice President.
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ARTICLE VI
SHARES OF STOCK
SECTION 33. FORM AND EXECUTION OF CERTIFICATES. Certificates for
the shares of stock of the corporation shall be in such form as is consistent
with the Certificate of Incorporation and applicable law. Every holder of stock
in the corporation shall be entitled to have a certificate signed by or in the
name of the corporation by the Chairman of the Board of Directors, or the
President or any Vice President and by the Treasurer or Assistant Treasurer or
the Secretary or Assistant Secretary, certifying the number of shares owned by
him in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 34. LOST CERTIFICATES. A new certificate or certificates
shall be issued in place of any certificate or certificates theretofore issued
by the corporation alleged to have been lost, stolen, or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost, stolen, or destroyed. The corporation may require, as a
condition precedent to the issuance of a new certificate or certificates, the
owner of such lost, stolen, or destroyed certificate or certificates, or his
legal representative, to agree to indemnify the corporation in such manner as it
shall require or to give the corporation a surety bond in such form and amount
as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
SECTION 35. TRANSFERS.
(A) Transfers of record of shares of stock of the
corporation shall be made only upon its books by the holders thereof, in person
or by attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
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(B) The corporation shall have power to enter into and
perform any agreement with any number of stockholders of any one or more classes
of stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the DGCL.
SECTION 36. FIXING RECORD DATES.
(A) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall, subject to applicable law, not be more than sixty (60) nor less than
ten (10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
(B) Prior to the Initial Public Offering, in order that
the corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. Any stockholder of
record seeking to have the stockholders authorize or take corporate action by
written consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within ten (10) days after the date on which such a request is
received, adopt a resolution fixing the record date. If no record date has been
fixed by the Board of Directors within ten (10) days of the date on which such a
request is received, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(C) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of
16.
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stock, or for the purpose of any other lawful action, the Board of Directors may
fix, in advance, a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted, and which record
date shall be not more than sixty (60) days prior to such action. If no record
date is fixed, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
SECTION 37. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
OTHER SECURITIES OF THE CORPORATION
SECTION 38. EXECUTION OF OTHER SECURITIES. All bonds, debentures
and other corporate securities of the corporation, other than stock certificates
(covered in Section 33), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE VIII
DIVIDENDS
SECTION 39. DECLARATION OF DIVIDENDS. Dividends upon the capital
stock of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting.
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Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation and applicable
law.
SECTION 40. DIVIDEND RESERVE. Before payment of any dividend,
there may be set aside out of any funds of the corporation available for
dividends such sum or sums as the Board of Directors from time to time, in their
absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the Board of Directors
shall think conducive to the interests of the corporation, and the Board of
Directors may modify or abolish any such reserve in the manner in which it was
created.
ARTICLE IX
FISCAL YEAR
SECTION 41. FISCAL YEAR. The fiscal year of the corporation shall
be fixed by resolution of the Board of Directors.
ARTICLE X
INDEMNIFICATION
SECTION 42. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS,
OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS.
(A) DIRECTORS. The corporation shall indemnify its
directors to the fullest extent not prohibited by the DGCL or any other
applicable law; provided, however, that the corporation may modify the extent of
such indemnification by individual contracts with its directors; and, provided,
further, that the corporation shall not be required to indemnify any director in
connection with any proceeding (or part thereof) initiated by such person unless
(i) such indemnification is expressly required to be made by law, (ii) the
proceeding was authorized by the Board of Directors of the corporation, (iii)
such indemnification is provided by the corporation, in its sole discretion,
pursuant to the powers vested in the corporation under the DGCL or any other
applicable law or (iv) such indemnification is required to be made under
subsection (d).
(B) OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its employees and other agents as set forth in the
DGCL or any other applicable law. The Board of Directors shall have the power to
delegate the determination of whether indemnification shall be given to any such
person to such officers or other persons as the Board of Directors shall
determine.
(C) EXPENSES. The corporation shall advance to any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director, of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other
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enterprise, prior to the final disposition of the proceeding, promptly following
request therefor, all expenses incurred by any director in connection with such
proceeding upon receipt of an undertaking by or on behalf of such person to
repay said amounts if it should be determined ultimately that such person is not
entitled to be indemnified under this Section 42 or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Section 42, no advance shall be made by the corporation to
an officer of the corporation (except by reason of the fact that such officer is
or was a director of the corporation in which event this paragraph shall not
apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and promptly
made (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the proceeding, or (ii) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, that the facts known
to the decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to the best interests of the
corporation.
(D) ENFORCEMENT. Without the necessity of entering into
an express contract, all rights to indemnification and advances to directors
under this Bylaw shall be deemed to be contractual rights and be effective to
the same extent and as if provided for in a contract between the corporation and
the director. Any right to indemnification or advances granted by this Section
42 to a director shall be enforceable by or on behalf of the person holding such
right in any court of competent jurisdiction if (i) the claim for
indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
The claimant in such enforcement action, if successful in whole or in part,
shall be entitled to be paid also the expense of prosecuting his claim. In
connection with any claim for indemnification, the corporation shall be entitled
to raise as a defense to any such action that the claimant has not met the
standards of conduct that make it permissible under the DGCL or any other
applicable law for the corporation to indemnify the claimant for the amount
claimed. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the DGCL or any other applicable law, nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant has not met the applicable standard of conduct.
(E) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on
any person by this Bylaw shall not be exclusive of any other right which such
person may have or hereafter acquire under any applicable statute, provision of
the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law, or by any other applicable law.
19.
<PAGE> 23
(F) SURVIVAL OF RIGHTS. The rights conferred on any
person by this Bylaw shall continue as to a person who has ceased to be a
director, officer, employee or other agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(G) INSURANCE. To the fullest extent permitted by the
DGCL or any other applicable law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Section 42.
(H) AMENDMENTS. Any repeal or modification of this
Section 42 shall only be prospective and shall not affect the rights under this
Bylaw in effect at the time of the alleged occurrence of any action or omission
to act that is the cause of any proceeding against any agent of the corporation.
(I) SAVING CLAUSE. If this Bylaw or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the corporation shall nevertheless indemnify each director to the full extent
not prohibited by any applicable portion of this Section 42 that shall not have
been invalidated, or by any other applicable law. If this Section 42 shall be
invalid due to the application of the indemnification provisions of another
jurisdiction, then the corporation shall indemnify each director and to the full
to the full extent under any other applicable law.
(J) CERTAIN DEFINITIONS. For the purposes of this Bylaw,
the following definitions shall apply:
(1) The term "proceeding" shall be broadly
construed and shall include, without limitation, the investigation, preparation,
prosecution, defense, settlement, arbitration and appeal of, and the giving of
testimony in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative.
(2) The term "expenses" shall be broadly
construed and shall include, without limitation, court costs, attorneys' fees,
witness fees, fines, amounts paid in settlement or judgment and any other costs
and expenses of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Section 42 with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "executive
officer," "officer," "employee," or "agent" of the corporation shall include,
without limitation, situations where such
20.
<PAGE> 24
person is serving at the request of the corporation as, respectively, a
director, executive officer, officer, employee, trustee or agent of another
corporation, partnership, joint venture, trust or other enterprise.
(5) References to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Section
42.
ARTICLE XI
NOTICES
SECTION 43. NOTICES.
(A) NOTICE TO STOCKHOLDERS. Whenever, under any
provisions of these Bylaws, notice is required to be given to any stockholder,
it shall be given in writing, timely and duly deposited in the United States
mail, postage prepaid, and addressed to his last known post office address as
shown by the stock record of the corporation or its transfer agent.
(B) NOTICE TO DIRECTORS. Any notice required to be given
to any director may be given by the method stated in subsection (a), or by
overnight delivery service, facsimile, telex or telegram, except that such
notice other than one which is delivered personally shall be sent to such
address as such director shall have filed in writing with the Secretary, or, in
the absence of such filing, to the last known post office address of such
director.
(C) AFFIDAVIT OF MAILING. An affidavit of mailing,
executed by a duly authorized and competent employee of the corporation or its
transfer agent appointed with respect to the class of stock affected, specifying
the name and address or the names and addresses of the stockholder or
stockholders, or director or directors, to whom any such notice or notices was
or were given, and the time and method of giving the same, shall in the absence
of fraud, be prima facie evidence of the facts therein contained.
(D) TIME NOTICES DEEMED GIVEN. All notices given by mail
or by overnight delivery service, as above provided, shall be deemed to have
been given as at the time of mailing, and all notices given by facsimile, telex
or telegram shall be deemed to have been given as of the sending time recorded
at time of transmission.
(E) METHODS OF NOTICE. It shall not be necessary that the
same method of giving notice be employed in respect of all directors, but one
permissible method may be
21.
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employed in respect of any one or more, and any other permissible method or
methods may be employed in respect of any other or others.
(F) FAILURE TO RECEIVE NOTICE. The period or limitation
of time within which any stockholder may exercise any option or right, or enjoy
any privilege or benefit, or be required to act, or within which any director
may exercise any power or right, or enjoy any privilege, pursuant to any notice
sent him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(G) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the DGCL, the certificate shall state, if such is the fact and if
notice is required, that notice was given to all persons entitled to receive
notice except such persons with whom communication is unlawful.
(H) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever
notice is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the DGCL, the certificate need not state that notice was not given
to persons to whom notice was not required to be given pursuant to this
paragraph.
ARTICLE XII
AMENDMENTS
SECTION 44. AMENDMENTS. Subject to paragraph (h) of Section 42 of
the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the voting stock of the
corporation entitled to vote. The Board of Directors shall also have the power
to adopt, amend, or repeal Bylaws.
22.
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ARTICLE XIII
LOANS TO OFFICERS
SECTION 45. LOANS TO OFFICERS. The corporation may lend money to,
or guarantee any obligation of, or otherwise assist any officer or other
employee of the corporation or of its subsidiaries, including any officer or
employee who is a Director of the corporation or its subsidiaries, whenever, in
the judgment of the Board of Directors, such loan, guarantee or assistance may
reasonably be expected to benefit the corporation. The loan, guarantee or other
assistance may be with or without interest and may be unsecured, or secured in
such manner as the Board of Directors shall approve, including, without
limitation, a pledge of shares of stock of the corporation. Nothing in these
Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or
warranty of the corporation at common law or under any statute.
23.
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EXHIBIT 5.1
[COOLEY GODWARD LLP LETTERHEAD]
June 8, 1999
Paradyne Networks, Inc.
8545 126th Avenue North
Largo, FL 33773
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Paradyne Networks, Inc. (the "Company") of a Registration
Statement on Form S-1 (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") covering the underwritten public offering
of up to 6,900,000 shares of common stock, including 4,000,000 shares to be sold
by the Company (the "Company Shares"), 900,000 shares for which the Underwriters
have been granted an over-allotment option, and 2,000,000 shares to be sold by
certain selling stockholders (the "Selling Stockholder Shares") (collectively,
the "Common Stock").
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus, the Company's Amended and
Restated Certificate of Incorporation and Bylaws and the originals or copies
certified to our satisfaction of such records, documents, certificates,
memoranda and other instruments as in our judgment are necessary or appropriate
to enable us to render the opinion expressed below and (ii) assumed that the
shares of the Common Stock will be sold by the Underwriters at a price
established by the Pricing Committee of the Company's Board of Directors.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Selling Stockholder Shares are, and the Company Shares, when sold and
issued in accordance with the Registration Statement and related Prospectus,
will be, validly issued, fully paid and nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Sincerely,
/s/ Suzanne Sawochka Hooper
- -------------------------------
Suzanne Sawochka Hooper
<PAGE> 1
EXHIBIT 10.1
PARADYNE ACQUISITION CORP.
1996 EQUITY INCENTIVE PLAN
ADOPTED JANUARY 16, 1997
AMENDED APRIL 24, 1997
ADOPTION AND AMENDMENT APPROVED BY STOCKHOLDERS APRIL 24, 1997
AMENDED AND RESTATED _______________, 1999
AMENDMENT AND RESTATEMENT APPROVED BY STOCKHOLDERS _______________, 1999
1. PURPOSES.
A. The purpose of the Plan is to provide a means by which
selected Employees and Directors of and Consultants to the Company and its
Affiliates may be given an opportunity to benefit from increases in value of the
common stock of the Company ("Common Stock") through the granting of (i)
Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses
and (iv) rights to purchase restricted stock.
B. The Company, by means of the Plan, seeks to retain the
services of persons who are now Employees, Directors or Consultants, to secure
and retain the services of new Employees, Directors and Consultants, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company and its Affiliates.
C. The Company intends that the Stock Awards issued under the
Plan shall, in the discretion of the Board or any Committee to which
responsibility for administration of the Plan has been delegated pursuant to
subsection 3(c), be either (i) Options granted pursuant to Section 6 hereof,
including Incentive Stock Options and Nonstatutory Stock Options, or (ii) stock
bonuses or rights to purchase restricted stock granted pursuant to Section 7
hereof. All Options shall be separately designated Incentive Stock Options or
Nonstatutory Stock Options at the time of grant, and in such form as issued
pursuant to Section 6, and a separate certificate or certificates will be issued
for shares purchased on exercise of each type of Option.
2. DEFINITIONS.
A. "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.
B. "BOARD" means the Board of Directors of the Company.
C. "CODE" means the Internal Revenue Code of 1986, as amended.
D. "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
E. "COMPANY" means Paradyne Acquisition Corp., a Delaware
corporation.
F. "CONSULTANT" means any person, including an advisor, engaged
by the Company or an Affiliate to render consulting services and who is
compensated for such services.
1.
<PAGE> 2
Notwithstanding the foregoing, the term "Consultant" shall not include (i)
Directors who are paid only a director's fee by the Company or who are not
compensated by the Company for their services as Directors, or (ii) any person
with respect to whom Form S-8 under the Securities Act is not available to
register the offer and sale of the Company's securities.
G. "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT"
means the employment or relationship as a Director or Consultant is not
interrupted or terminated. The Board, in its sole discretion, may determine
whether Continuous Status as an Employee, Director or Consultant shall be
considered interrupted in the case of: (i) any leave of absence approved by the
Board, including sick leave, military leave, or any other personal leave; or
(ii) transfers between locations of the Company or between the Company,
Affiliates or their successors.
H. "DIRECTOR" means a member of the Board.
I. "DISABILITY" means the permanent and total disability of a
person within the meaning of Section 22(e)(3) of the Code.
J. "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
K. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
L. "FAIR MARKET VALUE" means, as of any date, the value of the
Common Stock of the Company determined as follows:
I. If the Common Stock is listed on any established
stock exchange, or traded on the Nasdaq National Market or the Nasdaq SmallCap
Market, the Fair Market Value of a share of Common Stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or market (or the exchange or market with the greatest
volume of trading in Common Stock) on the last market trading day prior to the
day for which Fair Market Value is being determined, as reported in the Wall
Street Journal or such other source as the Board deems reliable;
II. In the absence of such markets for the Common Stock,
the Fair Market Value shall be determined in good faith by the Board.
M. "INCENTIVE STOCK OPTION" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
N. "LISTING DATE" means the first date upon which any security of
the Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system.
O. "NON-EMPLOYEE DIRECTOR" means a Director who either is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be
2.
<PAGE> 3
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K"), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
P. "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
Q. "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
R. "OPTION" means a stock option granted pursuant to the Plan.
S. "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and conditions
of the Plan.
T. "OPTIONEE" means a person to whom an Option is granted
pursuant to the Plan.
U. "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury Regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
V. "PLAN" means this 1996 Equity Incentive Plan.
W. "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
X. "SECURITIES ACT" means the Securities Act of 1933, as amended.
Y. "STOCK AWARD" means any right granted under the Plan,
including any Option, any stock bonus, and any right to purchase restricted
stock.
Z. "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
3. ADMINISTRATION.
A. The Plan shall be administered by the Board unless and until
the Board delegates administration to a Committee, as provided in subsection
3(c).
3.
<PAGE> 4
B. The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
I. To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; whether a Stock Award will be an Incentive Stock Option,
a Nonstatutory Stock Option, a stock bonus, a right to purchase restricted
stock, or a combination of the foregoing; the provisions of each Stock Award
granted (which need not be identical), including the time or times when a person
shall be permitted to receive stock pursuant to a Stock Award and the number of
shares with respect to which a Stock Award shall be granted to each such person.
II. To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
III. To amend the Plan or a Stock Award as provided in
Section 12.
IV. Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company which are not in conflict with the provisions of the
Plan.
C. The Board may delegate administration of the Plan to a
committee or committees ("Committee") of one or more members of the Board. If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board (and references in this Plan to the Board shall thereafter be to
the Committee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. In the discretion of the Board, a Committee may
consist solely of two or more Outside Directors in accordance with Section
162(m) of the Code and/or two or more Non-Employee Directors, in accordance with
Rule 16b-3. The Board may (i) delegate to a committee of one or more members of
the Board who are not Outside Directors the authority to grant Stock Awards to
eligible persons who are either (1) not then Covered Employees and are not
expected to be Covered Employees at the time of recognition of income resulting
from such Stock Award or (2) not persons with respect to whom the Company wishes
to comply with Section 162(m) of the Code and/or (ii) delegate to a committee of
one or more members of the Board who are not Non-Employee Directors the
authority to grant Stock Awards to eligible persons who are not then subject to
Section 16 of the Exchange Act.
4. SHARES SUBJECT TO THE PLAN.
A. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Stock Awards shall not exceed in the aggregate six million (6,000,000) shares of
Common Stock, plus an annual increase to be added on each June 1, beginning with
June 1, 2000, equal to the lesser of (i) five percent (5%) of the total number
of shares of Common Stock outstanding on such anniversary date, or (ii) four
million five hundred thousand (4,500,000) shares. If any Stock Award shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full (or vested in the case of restricted stock), the stock
4.
<PAGE> 5
not acquired under such Stock Award shall revert to and again become available
for issuance under the Plan.
B. The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
A. Incentive Stock Options may be granted only to Employees.
Stock Awards other than Incentive Stock Options may be granted to Employees,
Directors or Consultants.
B. No person shall be eligible for the grant of an Incentive
Stock Option if, at the time of grant, such person owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates unless the exercise price of such Option is at least
one hundred ten percent (110%) of the Fair Market Value of such stock at the
date of grant and the Option is not exercisable after the expiration of five (5)
years from the date of grant.
C. SECTION 162(M) LIMITATION. Subject to the provisions of
Section 11 relating to adjustments upon changes in the shares of Common Stock,
no Employee shall be eligible to be granted Options covering more than two
million five hundred thousand (2,500,000) shares of Common Stock during any
calendar year. This subsection 5(c) shall not apply prior to the Listing Date
and, following the Listing Date, this subsection 5(c) shall not apply until (i)
the earliest of: (1) the first material modification of the Plan (including any
increase in the number of shares of Common Stock reserved for issuance under the
Plan in accordance with Section 4); (2) the issuance of all of the shares of
Common Stock reserved for issuance under the Plan; (3) the expiration of the
Plan; or (4) the first meeting of shareholders at which Directors are to be
elected that occurs after the close of the third calendar year following the
calendar year in which occurred the first registration of an equity security
under Section 12 of the Exchange Act; or (ii) such other date required by
Section 162(m) of the Code and the rules and regulations promulgated thereunder.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
A. TERM. No Option shall be exercisable after the expiration of
ten (10) years from the date it was granted.
B. PRICE. The exercise price of each Incentive Stock Option shall
be not less than one hundred percent (100%) of the Fair Market Value of the
stock subject to the Option on the date the Option is granted. Notwithstanding
the foregoing, an Incentive Stock Option may be granted with an exercise price
lower than that set forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in a manner
satisfying the provisions of Section 424(a) of the Code.
5.
<PAGE> 6
C. CONSIDERATION. The purchase price of stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (1) by delivery to the Company of other Common Stock of the Company, (2)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other Common Stock of the
Company) with the person to whom the Option is granted or to whom the Option is
transferred pursuant to subsection 6(d), or (3) in any other form of legal
consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement. In addition, where required by applicable law,
deferred payment may not be made of the par value of the Company's Common Stock.
D. TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option may be
transferred to the extent provided in the Option Agreement; provided that if the
Option Agreement does not expressly permit the transfer of a Nonstatutory Stock
Option, the Nonstatutory Stock Option shall not be transferable except by will,
by the laws of descent and distribution or pursuant to a domestic relations
order satisfying the requirements of Rule 16b-3, and shall be exercisable during
the lifetime of the person to whom the Option is granted only by such person or
any transferee pursuant to a domestic relations order. Notwithstanding the
foregoing, the person to whom the Option is granted may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionee, shall thereafter be
entitled to exercise the Option.
E. VESTING. The total number of shares of stock subject to an
Option may, but need not, be allotted in periodic installments (which may, but
need not, be equal). The Option Agreement may provide that from time to time
during each of such installment periods, the Option may become exercisable
("vest") with respect to some or all of the shares allotted to that period, and
may be exercised with respect to some or all of the shares allotted to such
period and/or any prior period as to which the Option became vested but was not
fully exercised. The Option may be subject to such other terms and conditions on
the time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate, including provisions which
call for the forfeiture of the Option in the event Optionee engages in conduct
in competition with the Company's business or leading to termination for cause.
The provisions of this subsection 6(e) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
F. TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
Disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date sixty (60) days after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period specified in the Option Agreement),
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionee does not exercise his or her
Option within the time
6.
<PAGE> 7
specified in the Option Agreement, the Option shall terminate, and the shares
covered by such Option shall revert to and again become available for issuance
under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Status as an
Employee, Director or Consultant (other than upon the Optionee's death or
Disability) would be prohibited at any time solely because the issuance of
shares would violate the registration requirements under the Act, then the
Option shall terminate on the earlier of (i) the expiration of the term of the
Option set forth in the preceding paragraph, or (ii) the expiration of a period
of sixty (60) days after the termination of the Optionee's Continuous Status as
an Employee, Director or Consultant during which the exercise of the Option
would not be in violation of such registration requirements.
G. DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
and again become available for issuance under the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the shares covered by such Option shall
revert to and again become available for issuance under the Plan.
H. DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date twelve (12)
months following the date of death (or such longer or shorter period specified
in the Option Agreement), or (ii) the expiration of the term of such Option as
set forth in the Option Agreement. If, at the time of death, the Optionee was
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not exercised within
the time specified herein, the Option shall terminate, and the shares covered by
such Option shall revert to and again become available for issuance under the
Plan.
I. EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionee may elect at any time while an Employee, Director
or Consultant to exercise the Option as to any part or all of the shares subject
to the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
J. RE-LOAD OPTIONS. Without in any way limiting the authority of
the Board or Committee to make or not to make grants of Options hereunder, the
Board or Committee shall have the authority (but not an obligation) to include
as part of any Option Agreement a provision entitling the Optionee to a further
Option (a "Re-Load Option") in the event the Optionee exercises the Option
evidenced by the Option agreement, in whole or in part, by surrendering other
shares of Common
7.
<PAGE> 8
Stock in accordance with this Plan and the terms and conditions of the Option
Agreement. Any such Re-Load Option (i) shall be for a number of shares equal to
the number of shares surrendered as part or all of the exercise price of such
Option; (ii) shall have an expiration date which is the same as the expiration
date of the Option the exercise of which gave rise to such Re-Load Option; and
(iii) shall have an exercise price which is equal to one hundred percent (100%)
of the Fair Market Value of the Common Stock subject to the Re-Load Option on
the date of exercise of the original Option. Notwithstanding the foregoing, a
Re-Load Option which is an Incentive Stock Option and which is granted to a 10%
stockholder (as described in subsection 5(b)), shall have an exercise price
which is equal to one hundred ten percent (110%) of the Fair Market Value of the
stock subject to the Re-Load Option on the date of exercise of the original
Option and shall have a term which is no longer than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollars ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 11(d) of the Plan and in Section
422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any
such Re-Load Option shall be subject to the availability of sufficient shares
under subsection 4(a) and shall be subject to such other terms and conditions as
the Board or Committee may determine which are not inconsistent with the express
provisions of the Plan regarding the terms of Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in
such form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the terms
and conditions of separate agreements need not be identical, but each stock
bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions as appropriate:
A. PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or the
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company for its benefit.
B. TRANSFERABILITY. No rights under a stock bonus or restricted
stock purchase agreement shall be transferable except by will or the laws of
descent and distribution or, if the agreement so provides, pursuant to a
domestic relations order satisfying the requirements of Rule 16b-3, so long as
stock awarded under such agreement remains subject to the terms of the
agreement.
C. CONSIDERATION. The purchase price of stock acquired pursuant
to a stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board
8.
<PAGE> 9
or the Committee in its discretion. Notwithstanding the foregoing, the Board or
the Committee to which administration of the Plan has been delegated may award
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
D. VESTING. Shares of stock sold or awarded under the Plan may,
but need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee.
E. TERMINATION OF CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of stock held by that person which have not
vested as of the date of termination under the terms of the stock bonus or
restricted stock purchase agreement between the Company and such person.
8. COVENANTS OF THE COMPANY.
A. During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
B. The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares under Stock Awards; provided, however, that
this undertaking shall not require the Company to register under the Securities
Act either the Plan, any Stock Award or any stock issued or issuable pursuant to
any such Stock Award. If, after reasonable efforts, the Company is unable to
obtain from any such regulatory commission or agency the authority which counsel
for the Company deems necessary for the lawful issuance and sale of stock under
the Plan, the Company shall be relieved from any liability for failure to issue
and sell stock upon exercise of such Stock Awards unless and until such
authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
A. The Board shall have the power to accelerate the time at which
a Stock Award may first be exercised or the time during which a Stock Award or
any part thereof will vest, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.
B. Neither an Employee, Director nor a Consultant nor any person
to whom a Stock Award is transferred in accordance with the Plan shall be deemed
to be the holder of, or to have any of the rights of a holder with respect to,
any shares subject to such Stock Award unless and until such person has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
C. Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any holder of Stock Awards any right
to continue in the employ of the Company or any Affiliate, or to continue
serving as a Consultant or Director, or shall affect the right
9.
<PAGE> 10
of the Company or any Affiliate to terminate the employment of any Employee with
or without notice and with or without cause, or the right to terminate the
relationship of any Consultant pursuant to the terms of such Consultant's
agreement with the Company or Affiliate or service as a Director pursuant to the
Company's By-Laws.
D. To the extent that the aggregate Fair Market Value (determined
at the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
E. The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred in accordance with
the Plan, as a condition of exercising or acquiring stock under any Stock Award,
(i) to give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (1) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(2) as to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
F. To the extent provided by the terms of a Stock Award
Agreement, the person to whom a Stock Award is granted may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under a Stock Award by any of the following means or by a
combination of such means: (i) tendering a cash payment; (ii) authorizing the
Company to withhold shares from the shares of the Common Stock otherwise
issuable to the participant as a result of the exercise or acquisition of stock
under the Stock Award; or (iii) delivering to the Company owned and unencumbered
shares of the Common Stock of the Company.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
A. If any change is made in the stock subject to the Plan, or
subject to any Stock Award, without the receipt of consideration by the Company
(through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of shares subject to the Plan pursuant to
subsection 4(a), and the outstanding Stock Awards will be appropriately adjusted
in the class(es) and number of shares and price per share of stock subject to
such outstanding Stock Awards; provided, however, then in no event shall any
adjustment be made pursuant to this subsection 11(a) on account
10.
<PAGE> 11
of any distribution to the Company's stockholders in cash or in kind during the
twelve month period ending July 31, 1997. Such adjustments shall be made by the
Board or the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company.")
B. In the event of: (i) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (ii) a merger or consolidation
in which the Company is not the surviving corporation; or (iii) a reverse merger
in which the Company is the surviving corporation but the shares of the Common
Stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, then to the extent permitted by applicable law: any surviving
corporation or an Affiliate of such surviving corporation shall assume any Stock
Awards outstanding under the Plan or shall substitute similar Stock Awards for
those outstanding under the Plan. Notwithstanding the foregoing, in the event
any surviving corporation and its Affiliates do not assume such Stock Awards or
substitute similar Stock Awards for those outstanding under the Plan, then, with
respect to Stock Awards held by persons then performing services as Employees,
Directors or Consultants, the vesting of such Stock Awards shall be accelerated
in full, the holders of such Stock Awards shall be given reasonable opportunity
to exercise such Stock Awards prior to such event, and such Stock Awards shall
be terminated if not exercised prior to such event.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
A. The Board at any time, and from time to time, may amend the
Plan. However, except as provided in Section 11 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company where stockholder is necessary for the Plan to
satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
B. The Board may in its sole discretion submit any other
amendment to the Plan for stockholder approval, including, but not limited to,
amendments to the Plan intended to satisfy the requirements of Section 162(m) of
the Code and the regulations thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
C. It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
D. Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
E. The Board at any time, and from time to time, may amend the
terms of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
11.
<PAGE> 12
13. TERMINATION OR SUSPENSION OF THE PLAN.
A. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate ten (10) years from the
latest date on which the Plan or an amendment and restatement of the Plan is
adopted by the Board and subsequently approved by the stockholders of the
Company. No Stock Awards may be granted under the Plan while the Plan is
suspended or after it is terminated.
B. Rights and obligations under any Stock Award granted while the
Plan is in effect shall not be impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Stock Award was granted.
14. EFFECTIVE DATE OF PLAN.
This Plan shall become effective as determined by the Board , but no
Stock Awards granted under the Plan shall be exercised unless and until the Plan
has been approved by the stockholders of the Company, which approval shall be
within twelve (12) months before or after the date the Plan is adopted by the
Board.
12.
<PAGE> 1
EXHIBIT 10.2
PARADYNE ACQUISITION CORP.
1996 EQUITY INCENTIVE PLAN
NONSTATUTORY STOCK OPTION GRANT
NOTICE AND AGREEMENT
<TABLE>
<CAPTION>
Name of Optionee Social Security No. Vesting Start Date Date of Grant
<S> <C> <C> <C>
</TABLE>
Pursuant to the 1996 Equity Incentive Plan (the "Plan"), a copy of
which has been delivered to you, you have been granted an OPTION to purchase
________ common shares of Paradyne Acquisition Corp. ("Common Stock") at the
price of $______ per share, subject to the terms and conditions of the Plan and
to your agreement to the additional terms and conditions set forth herein.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein and the
Plan, or as modified on any attachment hereto, your option will vest twenty-five
percent (25%) on the first anniversary date of the Vesting Start Date, rounded
down to the nearest whole number, and six and one quarter percent (6.25%) on
each three (3) month anniversary of the Vesting Start Date thereafter (for full
vesting after four (4) years), provided that vesting will cease upon the
termination of your Continuous Status as an Employee, Director or Consultant.
Notwithstanding the foregoing, your option will be forfeited as of the time you
engage in conduct leading to the termination of your employment with the Company
for Cause. For this purpose, "Cause" shall mean willful misconduct which is
materially injurious to the Company or its affiliates monetarily or otherwise.
Further, your option is subject to forfeiture to the extent not prohibited by
applicable law if you engage in competition with the Company.
2. WHOLE SHARES. Your option may only be exercised for whole
shares.
3. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
contrary contained herein, your option may not be exercised unless the shares
issuable upon exercise of your option are then registered under the Securities
Act or, if such shares are not then so registered, the Company has determined
that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. All certificates representing any of the
Common Stock subject to the option shall have endorsed thereon appropriate
legends reflecting restrictions pursuant to the Plan and/or applicable
securities laws.
1
<PAGE> 2
4. TERM. The term of your option commences on the Vesting Start
Date and expires upon the earliest of:
(i) the tenth (10th) anniversary of the Vesting
Start Date;
(ii) twelve (12) months after your death, if you
die during your Continuous Status as an Employee, Director or Consultant; or
(iii) twelve (12) months after the termination of
your Continuous Status as an Employee, Director or Consultant due to disability;
or
(iv) sixty (60) days after the termination of
your Continuous Status as Employee, Director or Consultant for any other reason,
provided that during any part of such sixty (60) day period the option is not
exercisable solely because of the condition set forth in Section 3 (Securities
Law Compliance), in which event the option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of sixty (60) days after the termination of your Continuous Status as an
Employee, Director or Consultant.
5. EXERCISE AND METHOD OF PAYMENT.
(a) You may exercise your vested option during its term
by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Corporate Secretary of the Company, or
to such person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
(b) By exercising your option you agree that:
(i) as a condition to any exercise of your
option, the Company may require you to enter an arrangement providing for the
payment by you to the Company of any tax withholding obligation of the Company
arising by reason of (1) the exercise of your option; (2) the lapse of any
substantial risk of forfeiture to which the shares are subject at the time of
exercise; or (3) the disposition of shares acquired upon such exercise;
(ii) the Company (or a representative of the
underwriters) may, in connection with the first underwritten registration of the
offering of any securities of the Company under the Act, require that you not
sell or otherwise transfer or dispose of any shares of Common Stock or any other
securities of the Company during such period (not to exceed one hundred eighty
(180) days) following the effective date of the registration statement of the
Company filed under the Act as may be requested by the Company or the
representative of the underwriters. You further agree that the Company may
impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such period.
2
<PAGE> 3
(c) Payment of the exercise price by cash is due
in full upon exercise of all or any part of your option, provided that you may
elect, to the extent permitted by applicable law, to make payment pursuant to a
cashless exercise program under which, prior to the issuance of Common Stock,
results in either the receipt of cash (or check) by the Company or the receipt
of irrevocable instructions to pay the aggregate exercise price to the Company
from the sales proceeds.
6. TRANSFERABILITY. Your option is not transferable, except by
will or by the laws of descent and distribution, and is exercisable during your
life only by you. Notwithstanding the foregoing, by delivering written notice to
the Company, in a form satisfactory to the Company, you may designate a third
party who, in the event of your death, shall thereafter be entitled to exercise
your option.
7. RIGHT OF REPURCHASE. Prior to the date of the first
registration of the Common Stock under Section 12 of the Exchange Act, the
Company shall have the right, but not the obligation, to repurchase all or any
part of the shares received pursuant to the exercise of a vested option at a
price equal to the Fair Market Value of such shares at the date the Company
exercised the right to repurchase (the "Repurchase Option"). The Repurchase
Option shall expire 90 days following the termination of your Continuous Status
as an Employee, Director or Consultant (the "Repurchase Period"). The Repurchase
Option shall be exercised by the Company giving you, or your legal
representative, written notice of its intention to exercise the Repurchase
Option on or before the last day of the Repurchase Period. The Company may, in
exercising the Repurchase Option, designate one or more nominees to purchase the
shares, whether with or without the participation of the Company.
8. OPTION NOT AN EMPLOYMENT CONTRACT. Your option is not an
employment contract and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company, or of the Company to continue your employment with the Company.
9. NOTICES. Any notices provided for in your option or the Plan
shall be given in writing and shall be deemed effectively given upon receipt or,
in the case of notices delivered by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.
10. GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, including without limitation the provisions of the Plan relating to
option provisions, and is further subject to all interpretations, amendments,
rules and regulations which may from time to time be promulgated and adopted
pursuant to the Plan. In the event of any conflict between the provisions of
your option and those of the Plan, the provisions of the Plan shall control.
Defined terms not explicitly defined in this Agreement but defined in the Plan
shall have the same definitions as in the Plan.
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<PAGE> 4
11. ENTIRE UNDERSTANDING. You agree as of the Vesting Start Date,
this Agreement and the Plan set forth the entire understanding between you and
the Company and supersedes all prior oral and written agreements on that subject
with the exception of (i) options previously granted and delivered to you under
the Plan and (ii) the terms on the attachment hereto, if any, agreed to by you
and the Company.
Please indicate your acceptance of terms hereof, and acknowledge that you have
received copies of the Plan, by signing at the place provided and returning the
original of this Agreement to the Corporate Secretary, Paradyne Acquisition
Corp., 8545 126th Ave. N., Largo, Florida 33773 within ten business days of its
receipt by you.
ACCEPTED AND AGREED: PARADYNE ACQUISITION CORP.
SIGNATURE BY:
James L. Slattery, Corporate Secretary
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<PAGE> 1
EXHIBIT 10.4
PARADYNE ACQUISITION CORP.
1999 EMPLOYEE STOCK PURCHASE PLAN
APPROVED BY THE BOARD OF DIRECTORS _______________, 1999
APPROVED BY STOCKHOLDERS _______________, 1999
TERMINATION DATE _______________
1. PURPOSE.
(A) The purpose of this Employee Stock Purchase Plan (the "Plan")
is to provide a means by which employees of Paradyne Acquisition Corp. (the
"Company") and its Affiliates, as defined in subparagraph 1(b), which are
designated as provided in subparagraph 2(b), may be given an opportunity to
purchase common stock of the Company (the "Common Stock").
(B) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(C) The Company, by means of the Plan, seeks to retain the
services of its employees, to secure and retain the services of new employees,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company.
(D) The Company intends that the rights to purchase stock of the
Company granted under the Plan be considered options issued under an "employee
stock purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(A) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(B) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(I) To determine when and how rights to purchase stock of
the Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(II) To designate from time to time which Affiliates of
the Company shall be eligible to participate in the Plan.
(III) To construe and interpret the Plan and rights granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the
1.
<PAGE> 2
exercise of this power, may correct any defect, omission or inconsistency in the
Plan, in a manner and to the extent it shall deem necessary or expedient to make
the Plan fully effective.
(IV) To amend the Plan as provided in paragraph 13.
(V) Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company and its Affiliates and to carry out the intent that the
Plan be treated as an "employee stock purchase plan" within the meaning of
Section 423 of the Code.
(C) The Board may delegate administration of the Plan to a
Committee composed of not fewer than two (2) members of the Board (the
"Committee"). If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, subject, however, to such resolutions, not inconsistent
with the provisions of the Plan, as may be adopted from time to time by the
Board. The Board may abolish the Committee at any time and revest in the Board
the administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(A) Subject to the provisions of paragraph 12 relating to
adjustments upon changes in stock and subject to the increase in the number of
reserved shares described below, the stock that may be sold pursuant to rights
granted under the Plan shall not exceed in the aggregate one million (1,000,000)
shares of Common Stock (the "Reserved Shares"). As of the first nine (9)
anniversaries of the Effective Date of the Plan, the number of Reserved Shares
will be increased automatically by the lesser of (i) two percent (2%) of the
total number of shares of Common Stock outstanding on such anniversary date, or
(ii) one million (1,000,000) shares. If any right granted under the Plan shall
for any reason terminate without having been exercised, the Common Stock not
purchased under such right shall again become available for the Plan.
(B) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate, which shall comply with the requirements of Section 423(b)(5) of
the Code that all employees granted rights to purchase stock under the Plan
shall have the same rights and privileges. The terms and conditions of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven
2.
<PAGE> 3
(27) months beginning with the Offering Date, and the substance of the
provisions contained in paragraphs 5 through 8, inclusive.
5. ELIGIBILITY.
(A) Rights may be granted only to employees of the Company or, as
the Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be greater than two (2)
years. In addition, unless otherwise determined by the Board or the Committee
and set forth in the terms of the applicable Offering, no employee of the
Company or any Affiliate shall be eligible to be granted rights under the Plan,
unless, on the Offering Date, such employee's customary employment with the
Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(B) The Board or the Committee may provide that each person who,
during the course of an Offering, first becomes an eligible employee of the
Company or designated Affiliate will, on a date or dates specified in the
Offering which coincides with the day on which such person becomes an eligible
employee or occurs thereafter, receive a right under that Offering, which right
shall thereafter be deemed to be a part of that Offering. Such right shall have
the same characteristics as any rights originally granted under that Offering,
as described herein, except that:
(I) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right;
(II) the period of the Offering with respect to such right
shall begin on its Offering Date and end coincident with the end of such
Offering; and
(III) the Board or the Committee may provide that if such
person first becomes an eligible employee within a specified period of time
before the end of the Offering, he or she will not receive any right under that
Offering.
(C) No employee shall be eligible for the grant of any rights
under the Plan if, immediately after any such rights are granted, such employee
owns stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or of any Affiliate. For
purposes of this subparagraph 5(c), the rules of Section 424(d) of the Code
shall apply in determining the stock ownership of any employee, and stock which
such employee may purchase under all outstanding rights and options shall be
treated as stock owned by such employee.
(D) An eligible employee may be granted rights under the Plan only
if such rights, together with any other rights granted under "employee stock
purchase plans" of the Company
3.
<PAGE> 4
and any Affiliates, as specified by Section 423(b)(8) of the Code, do not permit
such employee's rights to purchase stock of the Company or any Affiliate to
accrue at a rate which exceeds twenty-five thousand dollars ($25,000) of fair
market value of such stock (determined at the time such rights are granted) for
each calendar year in which such rights are outstanding at any time.
(E) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan; provided, however, that the
Board may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(A) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee not exceeding fifteen percent (15%) of
such employee's Earnings (as defined in subparagraph 7(a)) during the period
which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one or more dates during an Offering (the
"Purchase Date(s)") on which rights granted under the Plan shall be exercised
and purchases of Common Stock carried out in accordance with such Offering.
(B) In connection with each Offering made under the Plan, the
Board or the Committee may specify a maximum number of shares that may be
purchased by any employee as well as a maximum aggregate number of shares that
may be purchased by all eligible employees pursuant to such Offering. In
addition, in connection with each Offering that contains more than one Purchase
Date, the Board or the Committee may specify a maximum aggregate number of
shares which may be purchased by all eligible employees on any given Purchase
Date under the Offering. If the aggregate purchase of shares upon exercise of
rights granted under the Offering would exceed any such maximum aggregate
number, the Board or the Committee shall make a pro rata allocation of the
shares available in as nearly a uniform manner as shall be practicable and as it
shall deem to be equitable.
(C) The purchase price of stock acquired pursuant to rights
granted under the Plan shall be not less than the lesser of:
(I) an amount equal to eighty-five percent (85%) of the
fair market value of the stock on the Offering Date; or
(II) an amount equal to eighty-five percent (85%) of the
fair market value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(A) An eligible employee may become a participant in the Plan
pursuant to an Offering by delivering a participation agreement to the Company
within the time specified in the Offering,
4.
<PAGE> 5
in such form as the Company provides. Each such agreement shall authorize
payroll deductions of up to the maximum percentage specified by the Board or the
Committee of such employee's Earnings during the Offering. "Earnings" is defined
as an employee's wages (including amounts thereof elected to be deferred by the
employee, that would otherwise have been paid, under any arrangement established
by the Company that is intended to comply with Section 125, Section 401(k),
Section 402(h) or Section 403(b) of the Code or that provides non-qualified
deferred compensation), which shall include overtime pay, bonuses, incentive
pay, and commissions, but shall exclude profit sharing or other remuneration
paid directly to the employee, the cost of employee benefits paid for by the
Company or an Affiliate, education or tuition reimbursements, imputed income
arising under any group insurance or benefit program, traveling expenses,
business and moving expense reimbursements, income received in connection with
stock options, contributions made by the Company or an Affiliate under any
employee benefit plan, and similar items of compensation, as determined by the
Board or the Committee. The payroll deductions made for each participant shall
be credited to an account for such participant under the Plan and shall be
deposited with the general funds of the Company. A participant may reduce
(including to zero) or increase such payroll deductions, and an eligible
employee may begin such payroll deductions, after the beginning of any Offering
only as provided for in the Offering. A participant may make additional payments
into his or her account only if specifically provided for in the Offering and
only if the participant has not had the maximum amount withheld during the
Offering.
(B) At any time during an Offering, a participant may terminate
his or her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board or the Committee in the Offering. Upon
such withdrawal from the Offering by a participant, the Company shall distribute
to such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility to participate in any other Offerings under the Plan but such
participant will be required to deliver a new participation agreement in order
to participate in subsequent Offerings under the Plan.
(C) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's employment
with the Company and any designated Affiliate, for any reason, and the Company
shall distribute to such terminated employee all of his or her accumulated
payroll deductions (reduced to the extent, if any, such deductions have been
used to acquire stock for the terminated employee), under the Offering, without
interest.
(D) Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 14 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such rights
are granted.
5.
<PAGE> 6
8. EXERCISE.
(A) On each Purchase Date specified therefor in the relevant
Offering, each participant's accumulated payroll deductions and other additional
payments specifically provided for in the Offering (without any increase for
interest) will be applied to the purchase of whole shares of stock of the
Company, up to the maximum number of shares permitted pursuant to the terms of
the Plan and the applicable Offering, at the purchase price specified in the
Offering. No fractional shares shall be issued upon the exercise of rights
granted under the Plan. The amount, if any, of accumulated payroll deductions
remaining in each participant's account after the purchase of shares which is
less than the amount required to purchase one share of stock on the final
Purchase Date of an Offering shall be held in each such participant's account
for the purchase of shares under the next Offering under the Plan, unless such
participant withdraws from such next Offering, as provided in subparagraph 7(b),
or is no longer eligible to be granted rights under the Plan, as provided in
paragraph 5, in which case such amount shall be distributed to the participant
after such final Purchase Date, without interest. The amount, if any, of
accumulated payroll deductions remaining in any participant's account after the
purchase of shares which is equal to the amount required to purchase whole
shares of stock on the final Purchase Date of an Offering shall be distributed
in full to the participant after such Purchase Date, without interest.
(B) No rights granted under the Plan may be exercised to any
extent unless the shares to be issued upon such exercise under the Plan
(including rights granted thereunder) are covered by an effective registration
statement pursuant to the Securities Act of 1933, as amended (the "Securities
Act") and the Plan is in material compliance with all applicable state, foreign
and other securities and other laws applicable to the Plan. If on a Purchase
Date in any Offering hereunder the Plan is not so registered or in such
compliance, no rights granted under the Plan or any Offering shall be exercised
on such Purchase Date, and the Purchase Date shall be delayed until the Plan is
subject to such an effective registration statement and such compliance, except
that the Purchase Date shall not be delayed more than twelve (12) months and the
Purchase Date shall in no event be more than twenty-seven (27) months from the
Offering Date. If on the Purchase Date of any Offering hereunder, as delayed to
the maximum extent permissible, the Plan is not registered and in such
compliance, no rights granted under the Plan or any Offering shall be exercised
and all payroll deductions accumulated during the Offering (reduced to the
extent, if any, such deductions have been used to acquire stock) shall be
distributed to the participants, without interest.
9. COVENANTS OF THE COMPANY.
(A) During the terms of the rights granted under the Plan, the
Company shall keep available at all times the number of shares of stock required
to satisfy such rights.
(B) The Company shall seek to obtain from each federal, state,
foreign or other regulatory commission or agency having jurisdiction over the
Plan such authority as may be required to issue and sell shares of stock upon
exercise of the rights granted under the Plan. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and
6.
<PAGE> 7
sale of stock under the Plan, the Company shall be relieved from any liability
for failure to issue and sell stock upon exercise of such rights unless and
until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the
Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any
of the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shareholdings acquired upon
exercise of rights under the Plan are recorded in the books of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(A) If any change is made in the stock subject to the Plan, or
subject to any rights granted under the Plan, due to a change in corporate
capitalization and without the receipt of consideration by the Company (through
reincorporation, stock dividend, stock split, reverse stock split, combination
or reclassification of shares), the Plan will be appropriately adjusted in the
class(es) and maximum number of securities subject to the Plan pursuant to
subsection 3(a), and the outstanding rights will be appropriately adjusted in
the class(es) and number of securities and price per share of stock subject to
such outstanding rights. Such adjustments shall be made by the Board, the
determination of which shall be final, binding and conclusive.
(B) In the event of: (1) a dissolution, liquidation or sale of all
or substantially all of the assets of the Company, (2) a merger or consolidation
in which the Company is not the surviving corporation, or (3) a reverse merger
in which the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, then, as determined by the Board in its sole discretion, (i) any
surviving corporation may assume outstanding rights or substitute similar rights
for those under the Plan, (ii) such rights may continue in full force and
effect, or (iii) participants' accumulated payroll deductions may be used to
purchase Common Stock immediately prior to the transaction described above and
the participants' rights under the ongoing Offering terminated.
13. AMENDMENT OF THE PLAN.
(A) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in paragraph 12 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(I) Increase the number of shares reserved for rights
under the Plan;
7.
<PAGE> 8
(II) Modify the provisions as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to obtain employee stock purchase plan treatment
under Section 423 of the Code or to comply with the requirements of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended ("Rule
16b-3")); or
(III) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3.
It is expressly contemplated that the Board may amend the Plan in any respect
the Board deems necessary or advisable to provide eligible employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee stock purchase plans
and/or to bring the Plan and/or rights granted under it into compliance
therewith.
(B) Rights and obligations under any rights granted before
amendment of the Plan shall not be impaired by any amendment of the Plan, except
with the consent of the person to whom such rights were granted, or except as
necessary to comply with any laws or governmental regulations, or except as
necessary to ensure that the Plan and/or rights granted under the Plan comply
with the requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(A) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to the end of
an Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
(B) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its sole discretion, may
deliver such shares and/or cash to the spouse or to any one or more dependents
or relatives of the participant, or if no spouse, dependent or relative is known
to the Company, then to such other person as the Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(A) The Board in its discretion, may suspend or terminate the Plan
at any time. No rights may be granted under the Plan while the Plan is suspended
or after it is terminated.
(B) Rights and obligations under any rights granted while the Plan
is in effect shall not be altered or impaired by suspension or termination of
the Plan, except as expressly provided in
8.
<PAGE> 9
the Plan or with the consent of the person to whom such rights were granted, or
except as necessary to comply with any laws or governmental regulation, or
except as necessary to ensure that the Plan and/or rights granted under the Plan
comply with the requirements of Section 423 of the Code.
(C) Notwithstanding the foregoing, the Plan shall terminate and no
rights may be granted under the Plan after the tenth anniversary of the
Effective Date.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective simultaneously with the effectiveness
of the Company's registration statement under the Securities Act with respect to
the initial public offering of shares of the Company's Common Stock (the
"Effective Date"), but no rights granted under the Plan shall be exercised
unless and until the Plan has been approved by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted by the
Board, which date may be prior to the Effective Date.
9.
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EXHIBIT 10.5
PARADYNE ACQUISITION CORP.
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED BY THE BOARD OF DIRECTORS _______________, 1999
APPROVED BY STOCKHOLDERS _______________, 1999
EFFECTIVE DATE: _______________, 1999
TERMINATION DATE: _______________, 2009
1. PURPOSES.
(A) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive
Options are the Non-Employee Directors of the Company.
(B) AVAILABLE OPTIONS. The purpose of the Plan is to provide a
means by which Non-Employee Directors may be given an opportunity to benefit
from increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.
(C) GENERAL PURPOSE. The Company, by means of the Plan, seeks to
retain the services of its Non-Employee Directors, to secure and retain the
services of new Non-Employee Directors and to provide incentives for such
persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. DEFINITIONS.
(A) "AFFILIATE" means any parent corporation or subsidiary
corporation of the Company, whether now or hereafter existing, as those terms
are defined in Sections 424(e) and (f), respectively, of the Code.
(B) "ANNUAL GRANT" means an Option granted annually to all
Non-Employee Directors who meet the specified criteria pursuant to subsection
6(b) of the Plan.
(C) "ANNUAL MEETING" means the annual meeting of the stockholders
of the Company.
(D) "BOARD" means the Board of Directors of the Company.
(E) "CODE" means the Internal Revenue Code of 1986, as amended.
(F) "COMMON STOCK" means the common stock of the Company.
(G) "COMPANY" means Paradyne Acquisition Corp., a Delaware
corporation.
(H) "CONSULTANT" means any person, including an advisor, (i)
engaged by the Company or an Affiliate to render consulting or advisory services
and who is compensated for such services or (ii) who is a member of the Board of
Directors of an Affiliate. However, the term "Consultant" shall not include (i)
Directors of the Company who are not compensated by the Company for their
services as Directors; (ii) Directors of the Company who are merely paid a
director's fee by the Company for their services as Directors; or (iii) persons
with respect to
1.
<PAGE> 2
whom Form S-8 under the Securities Act is not available to register the offer
and sale of the Company's securities.
(I) "CONTINUOUS SERVICE" means that the Optionholder's service
with the Company or an Affiliate, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Optionholder's Continuous
Service shall not be deemed to have terminated merely because of a change in the
capacity in which the Optionholder renders service to the Company or an
Affiliate as an Employee, Consultant or Director or a change in the entity for
which the Optionholder renders such service, provided that there is no
interruption or termination of the Optionholder's Continuous Service. For
example, a change in status from a Non-Employee Director of the Company to a
Consultant of an Affiliate or an Employee of the Company will not constitute an
interruption of Continuous Service. The Board or the chief executive officer of
the Company, in that party's sole discretion, may determine whether Continuous
Service shall be considered interrupted in the case of any leave of absence
approved by that party, including sick leave, military leave or any other
personal leave.
(J) "CONTINUOUS SERVICE" means that the Optionholder's service
with the Company as a Director is not interrupted or terminated. The
Optionholder's Continuous Service shall be deemed to have terminated only if the
Optionholder no longer is a Director. However, merely becoming an Employee or a
Consultant will not constitute an interruption of Continuous Service if the
Optionholder still is a Director. The Board, in its sole discretion, may
determine whether Continuous Service shall be considered interrupted in the case
of any leave of absence approved by the Board, including sick leave, military
leave or any other personal leave.
(K) "DIRECTOR" means a member of the Board of Directors of the
Company.
(L) "DISABILITY" means the permanent and total disability of a
person within the meaning of Section 22(e)(3) of the Code.
(M) "EMPLOYEE" means any person employed by the Company or an
Affiliate. Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute "employment" by
the Company or an Affiliate.
(N) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(O) "FAIR MARKET VALUE" means, as of any date, the value of the
Common Stock determined as follows:
(I) If the Common Stock is listed on any established
stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap
Market, the Fair Market Value of a share of Common Stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or market (or the exchange or market with the greatest
volume of trading in the Common Stock) on the last market trading day prior to
the day of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable.
(II) In the absence of such markets for the Common Stock,
the Fair Market Value shall be determined in good faith by the Board.
2.
<PAGE> 3
(P) "INITIAL GRANT" means an Option granted to a
Non-Employee Director who meets the specified criteria pursuant to subsection
6(a) of the Plan.
(Q) "NON-EMPLOYEE DIRECTOR" means a Director who is not employed
by the Company or an Affiliate.
(R) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
(S) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(T) "OPTION" means a Nonstatutory Stock Option granted pursuant to
the Plan.
(U) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionholder evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and conditions
of the Plan.
(V) "OPTIONHOLDER" means a person to whom an Option is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Option.
(W) "PLAN" means this Paradyne Acquisition Corp. 1999 Non-Employee
Directors' Stock Option Plan.
(X) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange
Act or any successor to Rule 16b-3, as in effect from time to time.
(Y) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
(A) ADMINISTRATION BY BOARD. The Board shall administer the Plan.
The Board may not delegate administration of the Plan to a committee.
(B) POWERS OF BOARD. The Board shall have the power, subject to,
and within the limitations of, the express provisions of the Plan:
(I) To determine the provisions of each Option to the
extent not specified in the Plan.
(II) To construe and interpret the Plan and Options
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(III) To amend the Plan or an Option as provided in Section
12.
3.
<PAGE> 4
(IV) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best
interests of the Company which are not in conflict with the provisions
of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(A) SHARE RESERVE. Subject to the provisions of Section 11
relating to adjustments upon changes in stock, the stock that may be issued
pursuant to Options shall not exceed in the aggregate two hundred and fifty
thousand (250,000) shares of Common Stock.
(B) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the stock not acquired under such Option shall
revert to and again become available for issuance under the Plan.
(C) SOURCE OF SHARES. The stock subject to the Plan may be
unissued shares or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
Nondiscretionary Options as set forth in section 6 shall be granted
under the Plan to all Non-Employee Directors.
6. NON-DISCRETIONARY GRANTS.
(A) INITIAL GRANTS. Without any further action of the Board, each
Non-Employee Director shall be granted the following Options:
(I) On the effective date of the Plan, each person who is
then a Non-Employee Director automatically shall be granted an Initial
Grant to purchase ten thousand (10,000) shares of Common Stock on the
terms and conditions set forth herein.
(II) Each person who is elected or appointed for the first
time to be a Non-Employee Director after the effective date of the Plan
automatically shall, upon the date of his or her initial election or
appointment to be a Non-Employee Director by the Board or stockholders
of the Company, be granted an Initial Grant to purchase ten thousand
(10,000) shares of Common Stock on the terms and conditions set forth
herein.
(B) ANNUAL GRANTS. On the day following each Annual Meeting
commencing with the Annual Meeting in 2000, each person who is then a
Non-Employee Director and who has attended at least seventy-five percent (75%)
of the regularly scheduled meetings of the Board and the committees of the Board
of which he or she is a member automatically shall be granted an Annual Grant to
purchase five thousand (5,000) shares of Common Stock on the terms and
conditions set forth herein; provided, however, that if the person has not been
serving as a Non-Employee Director for the entire period since the preceding
Annual Meeting, then (i) the seventy-five percent (75%) attendance requirement
shall be calculated based only on the number of scheduled meetings that occur
during the period in which the person served as a Non-Employee Director, and
(ii) the number of shares subject to the Annual Grant shall be reduced
4.
<PAGE> 5
pro rata for each full quarter prior to the date of grant during which such
person did not serve as a Non-Employee Director.
7. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such additional
terms and conditions, not inconsistent with the Plan, as the Board shall deem
appropriate. Each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:
(A) TERM. The Board shall determine, in its sole discretion, the
term of each Option; provided that no Option shall be exercisable after the
expiration of ten (10) years from the date it is granted.
(B) EXERCISE PRICE. The exercise price of each Option shall be one
hundred percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, an
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(C) CONSIDERATION. The purchase price of stock acquired pursuant
to an Option may be paid, to the extent permitted by applicable statutes and
regulations, in any combination of (i) cash or check, (ii) delivery to the
Company of other Common Stock, (ii) deferred payment or (iv) any other form of
legal consideration that may be acceptable to the Board and provided in the
Option Agreement; provided, however, that at any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(D) TRANSFERABILITY. An Option shall not be transferable except by
will or by the laws of descent and distribution and shall be exercisable during
the lifetime of the Optionholder only by the Optionholder. Notwithstanding the
foregoing, the Optionholder may, by delivering written notice to the Company, in
a form satisfactory to the Company, designate a third party who, in the event of
the death of the Optionholder, shall thereafter be entitled to exercise the
Option.
(E) VESTING GENERALLY. Options shall vest and become exercisable
as follows:
(I) Initial Grants may, at the discretion of the Board,
be (i) fully vested and exercisable on the date of grant, or (ii) vested and
exercisable as to fifty percent (50%) of the shares subject to the option on the
date of grant and as to the remaining fifty percent (50%) of the shares subject
to the option on the first anniversary of the date of grant.
5.
<PAGE> 6
(II) Annual Grants shall be fully vested and exercisable
on the date of grant.
(F) TERMINATION OF CONTINUOUS SERVICE. In the event an
Optionholder's Continuous Service terminates (other than upon the Optionholder's
death or Disability), the Optionholder may exercise his or her Option (to the
extent that the Optionholder was entitled to exercise it as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service, or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified in the Option Agreement,
the Option shall terminate.
(G) EXTENSION OF TERMINATION DATE. If the exercise of the Option
following the termination of the Optionholder's Continuous Service (other than
upon the Optionholder's death or Disability) would be prohibited at any time
solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in subsection
7(a) or (ii) the expiration of a period of three (3) months after the
termination of the Optionholder's Continuous Service during which the exercise
of the Option would not be in violation of such registration requirements.
(H) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, after termination, the Optionholder does
not exercise his or her Option within the time specified herein, the Option
shall terminate.
(I) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the three-month period after the termination of the
Optionholder's Continuous Service for a reason other than death, then the Option
may be exercised (to the extent the Optionholder was entitled to exercise the
Option as of the date of death) by the Optionholder's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the Option upon the Optionholder's death, but only
within the period ending on the earlier of (1) the date eighteen (18) months
following the date of death or (2) the expiration of the term of such Option as
set forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
8. COVENANTS OF THE COMPANY.
(A) AVAILABILITY OF SHARES. During the terms of the Options, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Options.
(B) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain
from each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell shares of
Common Stock upon exercise of the Options; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Option or any stock issued or issuable pursuant to any
6.
<PAGE> 7
such Option. If, after reasonable efforts, the Company is unable to obtain from
any such regulatory commission or agency the authority which counsel for the
Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability for failure to issue and
sell stock upon exercise of such Options unless and until such authority is
obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
10. MISCELLANEOUS.
(A) STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Option unless and until such Optionholder has satisfied all
requirements for exercise of the Option pursuant to its terms.
(B) NO SERVICE RIGHTS. Nothing in the Plan or any instrument
executed or Option granted pursuant thereto shall confer upon any Optionholder
any right to continue to serve the Company as a Non-Employee Director or shall
affect the right of the Company or an Affiliate to terminate (i) the employment
of an Employee with or without notice and with or without cause, (ii) the
service of a Consultant pursuant to the terms of such Consultant's agreement
with the Company or an Affiliate or (iii) the service of a Director pursuant to
the Bylaws of the Company or an Affiliate, and any applicable provisions of the
corporate law of the state in which the Company or the Affiliate is
incorporated, as the case may be.
(C) INVESTMENT ASSURANCES. The Company may require an
Optionholder, as a condition of exercising or acquiring stock under any Option,
(i) to give written assurances satisfactory to the Company as to the
Optionholder's knowledge and experience in financial and business matters and/or
to employ a purchaser representative reasonably satisfactory to the Company who
is knowledgeable and experienced in financial and business matters and that he
or she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Option; and (ii) to give
written assurances satisfactory to the Company stating that the Optionholder is
acquiring the stock subject to the Option for the Optionholder's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (iii) the issuance of the shares upon the
exercise or acquisition of stock under the Option has been registered under a
then currently effective registration statement under the Securities Act or (iv)
as to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(D) WITHHOLDING OBLIGATIONS. The Optionholder may satisfy any
federal, state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in addition
to the Company's right to withhold from any
7.
<PAGE> 8
compensation paid to the Optionholder by the Company) or by a combination of
such means: (i) tendering a cash payment; (ii) authorizing the Company to
withhold shares from the shares of the Common Stock otherwise issuable to the
Optionholder as a result of the exercise or acquisition of stock under the
Option; or (iii) delivering to the Company owned and unencumbered shares of the
Common Stock.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(A) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Option, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject both to the
Plan pursuant to subsection 4(a) and to the nondiscretionary Options specified
in Section 5, and the outstanding Options will be appropriately adjusted in the
class(es) and number of securities and price per share of stock subject to such
outstanding Options. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a transaction
"without receipt of consideration" by the Company.)
(B) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of
a dissolution or liquidation of the Company, then all outstanding Options shall
terminate immediately prior to such event.
(C) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR
REVERSE MERGER. In the event of (i) a sale of all or substantially all of the
assets of the Company, (ii) a merger or consolidation in which the Company is
not the surviving corporation or (iii) a reverse merger in which the Company is
the surviving corporation but the shares of Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, then any surviving
corporation or acquiring corporation shall assume any Options outstanding under
the Plan or shall substitute similar Options (including an option to acquire the
same consideration paid to the stockholders in the transaction described in this
subsection 11(c) for those outstanding under the Plan. In the event any
surviving corporation or acquiring corporation refuses to assume such Options or
to substitute similar Options for those outstanding under the Plan, then with
respect to Options held by Optionholders whose Continuous Service has not
terminated, the vesting of such Options shall be accelerated in full, and the
Options shall terminate if not exercised at or prior to such event. With respect
to any other Options outstanding under the Plan, such Options shall terminate if
not exercised prior to such event.
12. AMENDMENT OF THE PLAN AND OPTIONS.
(A) AMENDMENT OF PLAN. The Board at any time, and from time to
time, may amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
8.
<PAGE> 9
(B) STOCKHOLDER APPROVAL. The Board may, in its sole discretion,
submit any other amendment to the Plan for stockholder approval.
(C) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted
before amendment of the Plan shall not be impaired by any amendment of the Plan
unless (i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
(D) AMENDMENT OF OPTIONS. The Board at any time, and from time to
time, may amend the terms of any one or more Options; provided, however, that
the rights under any Option shall not be impaired by any such amendment unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(A) PLAN TERM. The Board may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate on the day before the
tenth (10th) anniversary of the date the Plan is adopted by the Board or
approved by the stockholders of the Company, whichever is earlier. No Options
may be granted under the Plan while the Plan is suspended or after it is
terminated.
(B) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan
shall not impair rights and obligations under any Option granted while the Plan
is in effect except with the written consent of the Optionholder.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board but no
Option shall be exercised unless and until the Plan has been approved by the
stockholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan is adopted by the Board.
15. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation
of this Plan shall be governed by the law of the State of Florida, without
regard to such state's conflict of laws rules.
9.
<PAGE> 10
PARADYNE ACQUISITION CORP.
1999 EMPLOYEE STOCK PURCHASE PLAN OFFERING
ADOPTED __________, 1999
1. GRANT; OFFERING DATE.
(A) The Board of Directors of Paradyne Acquisition Corp. (the
"Company"), pursuant to the Company's 1999 Employee Stock Purchase Plan (the
"Plan"), hereby authorizes the grant of rights to purchase shares of the common
stock of the Company ("Common Stock") to all Eligible Employees (an "Offering").
The first Offering shall begin simultaneously with the effectiveness of the
Company's registration statement under the Securities Act of 1933 with respect
to the initial public offering of the Company's Common Stock and end on April
30, 2001 (the "Initial Offering"). Thereafter, Offerings shall begin on each
November 1 and May 1 and each such Offering shall end on the day prior to the
second anniversary of its Offering Date. The first day of an Offering is that
Offering's "Offering Date." If an Offering Date does not fall on a day during
which the Common Stock is actively traded, then the Offering Date shall be the
next succeeding day during which the Common Stock is actively traded.
(B) Prior to the commencement of any Offering, the Board of
Directors (or the Committee described in subparagraph 2(c) of the Plan, if any)
may change any or all terms of such Offering and any subsequent Offerings. The
granting of rights pursuant to each Offering hereunder shall occur on each
respective Offering Date unless, prior to such date (a) the Board of Directors
(or such Committee) determines that such Offering shall not occur, or (b) no
shares remain available for issuance under the Plan in connection with the
Offering.
(C) Notwithstanding anything to the contrary, in the event that
the fair market value of a share of Common Stock on any Purchase Date during an
Offering is less than the fair market value of a share of Common Stock on the
Offering Date of such Offering, then following the purchase of Common Stock on
such Purchase Date: (i) the Offering shall terminate and (ii) all participants
in the just-terminated Offering shall automatically be enrolled in the new
Offering that shall commence on the day following the Purchase Date on the same
terms on which such participants were enrolled in the terminated Offering.
2. ELIGIBLE EMPLOYEES.
All employees of the Company and each of its Affiliates (as defined in
the Plan) incorporated in the United States shall be granted rights to purchase
Common Stock under each Offering on the Offering Date of such Offering, provided
that each such employee otherwise meets the employment requirements of
subparagraph 5(a) of the Plan (an "Eligible Employee") and that each Eligible
Employee may participate in only one Offering at any given time. Notwithstanding
the foregoing, the following employees shall NOT be Eligible Employees or be
granted rights under an Offering: (i) part-time or seasonal employees whose
customary employment is less than twenty (20) hours per week or less than five
(5) months per calendar
1.
<PAGE> 11
year, and (ii) 5% stockholders (including ownership through unexercised options)
described in subparagraph 5(c) of the Plan shall not be eligible to participate.
3. RIGHTS.
(A) Subject to the limitations contained herein and in the Plan,
on each Offering Date each Eligible Employee shall be granted the right to
purchase the number of shares of Common Stock purchasable with up to fifteen
percent (15%) of such Participant's Earnings (as defined in the Plan) paid
during the period of such Offering.
(B) The maximum number of shares that may be purchased by an
eligible employee on a Purchase Date shall not exceed five thousand (5,000)
shares. The maximum aggregate number of shares available to be purchased by all
Eligible Employees under an Offering shall be the number of shares remaining
available under the Plan on the Offering Date. If the aggregate purchase of
shares of Common Stock upon exercise of rights granted under the Offering would
exceed the maximum aggregate number of shares available, the Board shall make a
pro rata allocation of the shares available in a uniform and equitable manner.
(C) Notwithstanding the foregoing, no employee shall be granted an
option under the Plan which permits such employee's right to purchase stock
under this Plan and all other employee stock purchase plans (described in
Section 423 of the Code) of the Company to accrue at a rate which exceeds twenty
five thousand dollars ($25,000) of fair market value of such stock (determined
at the time such option is granted) for each calendar year in which such option
is outstanding at any time.
4. PURCHASE PRICE.
The purchase price of the Common Stock under the Offering shall be the
lesser of eighty-five percent (85%) of the fair market value of the Common Stock
on the Offering Date (or eighty-five percent (85%) of the fair market value of
the Common Stock on the first day on which the Company's Common Stock is
actively traded that immediately follows the Offering Date if an Offering Date
does not fall on a day during which the Company's Common Stock is actively
traded) or eighty-five percent (85%) of the fair market value of the Common
Stock on the Purchase Date (or eighty-five percent (85%) of the fair market
value of the Common Stock on the first day on which the Company's Common Stock
is actively traded that immediately precedes the Purchase Date if a Purchase
Date does not fall on a day during which the Company's Common Stock is actively
traded).
5. PARTICIPATION.
(A) Except as otherwise provided herein or in the Plan, an
Eligible Employee may elect to participate in an Offering only as of the
beginning of the Offering. An Eligible Employee shall become a participant in
the Plan by delivering an agreement authorizing payroll deductions. Such
deductions shall be made each pay period and must be in whole percentages not to
exceed fifteen percent (15%) of Earnings. The agreement shall be made on such
enrollment form as the Company or a designated Affiliate provides and must be
delivered to the Company or designated Affiliate before the Offering Date to be
effective for such Offering, unless a later time for filing the enrollment form
is set by the Company for all Eligible
2.
<PAGE> 12
Employees with respect to a given Offering Date. As to the Initial Offering, the
time for filing an enrollment form and commencing participation for individuals
who are Eligible Employees on the Offering Date for the Initial Offering shall
be determined by the Company and communicated to such Eligible Employees. A
participant may not make additional contributions under the Plan.
(B) A participant may increase or reduce (including to zero) his
or her participation level as of any May 1 or November 1 during an Offering. Any
such change in participation shall be made by delivering a notice to the Company
or a designated Affiliate in such form and at such time as the Company provides.
In addition, a participant may withdraw from an Offering and receive his or her
accumulated payroll deductions from the Offering (reduced to the extent, if any,
such deductions have been used to acquire Common Stock for the Participant on
any prior Purchase Dates), without interest, at any time prior to the end of the
Offering, excluding the fifteen (15) day period immediately preceding the
Purchase Date, by delivering a withdrawal notice to the Company or designated
Affiliate in such form as the Company of designated Affiliate provides. A
participant who has withdrawn from an Offering shall not again participate in
such Offering but may participate in subsequent Offerings under the Plan by
submitting a new participation agreement in accordance with the terms thereof.
6. PURCHASES.
Subject to the limitations contained herein, on each Purchase Date,
each participant's accumulated payroll deductions (without any increase for
interest) shall be applied to the purchase of whole shares of Common Stock, up
to the maximum number of shares permitted under the Plan and the Offering.
"Purchase Date" shall be defined as October 31, 1999, and each April 30 and
October 31 thereafter. If a Purchase Date does not fall on a day during which
the Common Stock is actively traded then the Purchase Date shall be the nearest
prior day on which the Common Stock is actively traded.
7. NOTICES.
Any notices or agreements provided for in the Offering or the Plan
shall be given in writing, in a form provided by the Company, and unless
specifically provided for in the Plan or this Offering shall be deemed
effectively given upon receipt or, in the case of notices and agreements
delivered by the Company, five (5) days after deposit in the United States mail,
postage prepaid.
8. EXERCISE CONTINGENT ON STOCKHOLDER APPROVAL.
The rights granted under an Offering are subject to the approval of the
Plan by the stockholders of the Company as required for the Plan to obtain
employee stock purchase plan treatment under Section 423 of the Code or to
comply with the requirements of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended.
9. OFFERING SUBJECT TO PLAN.
Each Offering is subject to all the provisions of the Plan, and its
provisions are hereby made a part of the Offering, and is further subject to all
interpretations, amendments, rules and
3.
<PAGE> 13
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of an Offering and
those of the Plan (including interpretations, amendments, rules and regulations
which may from time to time be promulgated and adopted pursuant to the Plan),
the provisions of the Plan shall control.
4.
<PAGE> 1
Exhibit 10.30
***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections
200.80(b)(4), 200.83 and 230.406
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (this "Agreement") is entered into as of
July 31, 1996 by and among LUCENT TECHNOLOGIES INC., a Delaware corporation,
having a principal office at 211 Mt. Airy Road, Basking Ridge, New Jersey 07920
and its affiliates ("Company"), AT&T Paradyne Corporation, a Delaware
corporation, having a principal office at 8545 126th Avenue North, Largo,
Florida 33773 and CAP Acquisition Corp., a Delaware corporation, having a
principal office at 8545 126th Avenue North, Largo, Florida 33773 ("CAPCO"),
collectively referred to herein as "Supplier".
1. TERM
This Agreement shall become effective as of the date here of
and shall continue in effect for a period of four (4) years. The amendment or
termination of this Agreement shall not affect the obligations of either party
to the other under then existing Orders issued pursuant to this Agreement, but
such Orders shall continue in effect as though this Agreement had not expired or
been terminated and was still in effect with respect to said Orders.
2. ORDER
For the purpose of this Agreement, an "Order" shall mean
Company's form of purchase order or contract used for the purpose of ordering
Material. Each Order shall reference this Agreement, thereby incorporating in
such Order the terms and conditions stated in this Agreement. In addition,
orders from affiliates (excluding AT&T Corp. and NCR Corp. when purchasing as
affiliates but not when purchasing as subcontractors) and subcontractors shall
be considered Orders for purposes of the Volume/Price Letter as outlined in a
letter agreement between Texas Pacific Group and Company dated the date of this
Agreement ("Volume/Price Letter").
3. MATERIAL
For the purpose of this Agreement, "Material" shall be defined
as those services performed by Supplier for Company and those communications
products that are identified by comcode numbers and described on Exhibit A to
this Agreement ("Existing Products"); which attachment shall be continuously
updated, to include Enhanced and New Products if such products satisfy the
requirements of the clause ENHANCED AND NEW PRODUCTS.
4. ENHANCED AND NEW PRODUCTS
For the purpose of this Agreement, "Enhanced Product" or
"Enhanced Products" shall mean any product which results out of Company's desire
to have Supplier redesign, modify, or enhance an Existing Product or family of
Existing Products. For the purpose of this Agreement, "New Product" or "New
Products" shall mean any product which is not an Enhanced Product or Existing
Product but which is substantially similar to an of this Agreement, "New
Product" or "New Products" shall mean any product which is not an Enhanced
Product or
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Existing Product but which is substantially similar to an Existing Product with
respect to design and function and possesses reasonable performance
improvements. If Company desires to purchase an Enhanced or New Product(s) from
Supplier, Company shall so notify Supplier and provide Supplier the opportunity
to manufacture such Enhanced or New Product(s), subject to the following
conditions and procedures.
Supplier shall, within thirty (30) days from the date of
Supplier's receipt of Company's notice, inform Company whether Supplier desires
to manufacture and supply such Enhanced or New Product(s) to Company. If
Supplier desires to manufacture and supply such Enhanced or New Product(s),
Supplier shall provide Company (a) a written production plan demonstrating
Supplier's ability to satisfy the Performance Requirement, as described in the
next sentence, for such Enhanced or New Product(s) (such plan shall include
production locations and proposed dates for prototypes, sample production and
full production) and (b) Supplier's proposed Price for such Enhanced or New
Product(s). "Performance Requirement" shall mean the Company's reasonably
prescribed performance standards for Material, including, but not limited to,
quality, compliance with Specifications, delivery and service support, each
determined in the case of an Enhanced Product with reference to standards for an
Existing Product or family of Existing Products.
The parties shall then negotiate in good faith to reach an
agreement on such production plan's ability to satisfy the Performance
Requirements and the Price to be charged for the Enhanced or New Product(s). In
the event the parties agree on the production plan's satisfaction of the
Performance Requirement and the Price for such Enhanced or New Product(s), and
Supplier fulfills its obligations under the production plan (including the
commencement of full production runs), then such Enhanced or New Product(s) will
be added to Exhibit A for the purposes of this Agreement. All work performed by
Supplier under this clause will be at Supplier's sole risk and expense, unless
otherwise agreed to by the parties.
If despite good faith negotiations the parties fail to agree
(i) that the Enhanced or New Product(s) production plan satisfies the
Performance Requirement or (ii) on a Price for the Enhanced or New Product(s),
the parties agree to resolve the dispute through mediation as set forth in the
Clause MEDIATION. In the event that as a result of such mediation, if necessary,
the production plan is deemed to not satisfy the Performance Requirement, or the
product plan slips the Company may purchase the Enhanced or New Product(s) from
another source or sources and, the Volume/Price levels as outlined in the
("Volume/Price Letter") shall be adjusted to reflect the dollar amount purchased
by Company from the other source or sources.
If the Supplier desires not to make available for order by
Company any Enhanced or New Product, the Company may purchase the Enhanced or
New Product(s) from another source or sources and, the Volume/Price levels as
outlined in the Volume Price Letter shall be adjusted to reflect the dollar
amount purchased by Company from the other source or sources.
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5. MATERIAL PURCHASE
During the term of this Agreement, Company shall purchase and
Supplier shall sell Material to Company in accordance with the terms and
conditions set forth in this Agreement and the Exhibits shown which are hereby
made a part of this Agreement.
In the event the terms and conditions of the Exhibits shown
above conflict with the terms and conditions of the Agreement, the terms and
conditions of this Agreement shall prevail.
6. PRICE
For the purposes of this Agreement, the "Price" for Material
shall mean [***] and shall be as set forth on Exhibit A which attachment shall
be revised from time to time as provided in this Agreement. Supplier agrees to
accept Orders directly from any of Company's subcontractors as designated by
Company and extend to Company's subcontractors the Prices set forth for
Material.
7. BEST PRICE
Supplier's Prices to Company for Material contained herein
with applicable discounts and with any increases permitted hereunder, shall be
[***]. If Supplier at any time [***], Supplier shall [***]. For purposes of
determining if Supplier's prices are Best Prices, within the meaning of this
paragraph only. Supplier's Prices shall [***].
8. MARKET RIGHTS
Company has selected Supplier as a preferred supplier for the
Material described in Exhibit A during the four (4) year term of this Agreement.
"Preferred Supplier" means that Company will use commercially reasonable efforts
to purchase Material from Supplier over equivalent (i.e., price, functionality
or performance) material offered by another supplier pursuant to the terms and
conditions of this Agreement. Except for the Preferred Supplier status described
in the foregoing sentence, it is expressly understood and agreed that this
Agreement neither grants to Supplier an exclusive right or privilege to
manufacture, repair, or source all Material of the type described in this
Agreement, nor requires the purchase of any manufactured, repaired, or sourced
Material from Supplier by Company. It is, therefore, understood that Company may
contract with other manufacturers and suppliers for the manufacture or repair of
Material and other products.
9. BENCHMARKING
On a semi-annual basis, or "as needed" by either party,
Supplier and Company shall undertake to benchmark price, quality, product
functionality, and service performance of the Material
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offered by Supplier here under. The Material benchmarked shall be the comcodes
that comprise [***] purchased by Company. Supplier and Company shall review such
benchmark information and Supplier shall develop a plan of action for improving
Material Price, quality, product functionality, and service performance if such
benchmark information indicates improvements are needed when compared to the
then existing standards of the industry of comparable Price, quality, product
functionality and service. Should Supplier fail to introduce improvements that
assure Company that Material is meeting or exceeding competitive benchmarks with
respect to: (1) Material Price within ten (10) days of such review, and (2) for
Material quality, product functionality, or service performance within ninety
(90) days of such review (with Supplier to provide a plan for introducing such
improvements within the first thirty (30) days of such review) then Company
shall have the right to competitively quote such Material in the marketplace.
Company will give Supplier a thirty (30) day prior written notice of an intent
to place business with any other supplier and provide Supplier that thirty (30)
day period to match or beat such other offer received by Company. If Supplier
matches or beats such other offer, Company agrees to continue to place Orders
with Supplier at the new Price, quality, product functionality, and service
levels subject to the terms and conditions of this Agreement. If Supplier does
not match or beat Company's offer, Company may elect to purchase Material from
another source and the Volume/Price levels set forth in the Volume Price Letter
shall be adjusted to reflect the dollar amount purchased by Company from the
other source or sources.
In the event of a dispute with respect to the approach,
procedures or results of the benchmarking, the parties agree to promptly retain
an independent, nonaffiliated consultant experienced in the industry to provide
an objective assessment of the issue(s) in dispute. The determination of the
consultant shall be final and binding.
10. PAYMENT TERMS
Except as otherwise provided in an individual Order issued
hereunder, net thirty (30) days from the later of the date of shipment of
Material to Company or receipt of the invoice therefor by Company.
11. TRANSPORTATION TERMS
FOB Origin, unless both parties mutually agree otherwise.
12. FLEXIBLE DELIVERY ARRANGEMENTS
During the term of this Agreement, Company may give written
notice to Supplier requesting that Supplier implement "Demand Pull", "Pull
Replenishment", "Consignment", and/or some other form of flexible delivery
arrangement for one or more types of Material. Upon mutual agreement between
Company and Supplier, Company shall have the right to implement such flexible
delivery arrangements by providing written notice to Supplier at least thirty
(30) days prior to the agreed upon implementation date. Such notice shall
specify the particular Company facility which will be covered by such flexible
delivery arrangement, the Material covered by such flexible delivery arrangement
and the agreed upon implementation date. The proposed terms and
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conditions of Company's Demand Pull, Pull Replenishment, and Consignment
arrangements are set forth on Exhibits B, C and D of this Agreement.
13. FLEXIBLE ORDERING AND PAYMENT ARRANGEMENTS
During the term of this Agreement, Company may give written
notice to Supplier requesting that Supplier implement Electronic Data
Interchange ("EDI") ordering and payment arrangements for one or more types of
Material. Upon mutual agreement between Company and Supplier, Company shall have
the right to implement such ordering and payment arrangements by providing
written notice to Supplier at least thirty (30) days prior to the implementation
date. Such notice shall specify the particular Company facility which will be
covered by such ordering and payment arrangement, the Material covered by such
ordering and payment arrangement and the requested implementation date. The
parties acknowledge and agree that the implementation of an EDI program will
entail the cooperation of both parties and that such parties will work in good
faith to implement such program as soon as practicable. The proposed terms and
conditions of the applicable ordering and payment arrangement are set forth on
Exhibit E of this Agreement.
14. SPECIFICATIONS OR DRAWINGS
All technical, functional, and safety specifications, designs,
drawings, schematics, test procedures, and packaging, packing, and container
marking specifications (collectively "Specifications"), as mutually agreed upon
by the parties are hereby made a part of this Agreement. Specifications may be
modified from time to time with agreement of the parties and the parties shall
promptly endeavor to mutually agree to equitable adjustments to the Price and/or
delivery schedules resulting from any such modifications. Supplier shall
manufacture Material in accordance with Specifications, so that Material
conforms to such Specifications.
Company's ownership, design, inspection, and/or approval of
Material shall in no way limit Supplier's responsibility for its obligations
under this or any other part of this Agreement.
15. MANUFACTURE DISCONTINUED
Supplier shall provide Company at least one (1) year prior
written notice that any Material covered by this Agreement is recommended as a
candidate to be manufacture discontinued by Supplier. Company shall, within
sixty (60) days after receipt of Supplier's written notice, provide Supplier a
written response indicating Company's approval or disapproval of the manufacture
discontinued status of such Material based upon such Material's impact on the
Company's business, including but not limited to the Company's obligations to
its customers.
If Company does not approve of the Material being manufacture
discontinued, the parties shall negotiate in good faith to determine the final
disposition of such Material.
If the parties agree that Material shall become manufacture
discontinued, Supplier shall accept Company's Orders for such manufacture
discontinued Material under the terms and conditions of this Agreement for one
(1) year from the Supplier's notification date of manufacture discontinued
status. Once the manufacture discontinued Material is no longer available to
order
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by Company, Supplier agrees that the Volume/Price levels set forth in the
Volume/Price Letter shall be adjusted to reflect the dollar amount that can no
longer be purchased by Company.
16. PROCESS CERTIFICATION
In regard to Supplier's manufacturing processes, Company
reserves the right to perform periodic quality surveys and evaluations
including, but not limited to, analysis of manufacturing or assembly position
procedures, equipment calibration, and operator performance, as well as
evaluation of quality control/quality assurance and data collection and analysis
procedures.
Supplier shall conduct appropriate incoming inspection of
components in accordance with its standard practices. Such practices may be
modified from time to time to address specific conditions as requested by
Company after any increases or decreases to Price resulting from such
modifications have been mutually agreed upon.
17. COMPANY ACCEPTANCE AND QUALIFICATION TESTS
Prior to Supplier initiating volume manufacture of Material at
any new facility, Company shall have the right to conduct acceptance or
qualification tests of manufactured Material and associated piece parts and
processes, including but not limited to technical acceptance tests to ensure
conformance to Company's specifications.
18. RIGHT OF ENTRY AND PLANT RULES
Each party shall have the right upon reasonable notice to
enter the premises of the other party during normal business hours with respect
to the performance of this Agreement, subject to all plant rules and
regulations, security regulations and procedures and U.S. Government clearance
requirements if applicable.
19. ATTENDANCE AT SUPPLIER'S PLANT
Company reserves the right to place, at any time, with
reasonable prior notice one or more personnel in Supplier's facility to carry
out the inspection and acceptance tests, process certification, and other
functions Company may deem reasonably necessary ("Inspection Representatives").
The salaries of said personnel, as well as their travel and
living expenses, shall be [***]. Supplier agrees to furnish said personnel with
reasonable working facilities, as necessary, to perform their work and, if
needed, provide office space and support services as required. Supplier will
make suitable arrangements so that said personnel will have access to the areas
where Material is manufactured, tested, stored and shipped. Personnel authorized
in writing by Company shall be empowered to reject the Material to be delivered
to Company in the event that such Material fails to meet required Specifications
and/or acceptance tests.
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20. SHIPPING AND BILLING
For shipments against an Order placed pursuant to this
Agreement Supplier shall: (1) ship such Order complete unless instructed
otherwise; (2) ship to the destination designated in the Order; (3) ship
according to routing instructions given by Company; (4) place the Order number
on all subordinate documents; (5) enclose a packing memorandum with each
shipment and when more than one package is shipped, identify the package
containing the memorandum; (6) mark the Order number on all packages and
shipping papers; (7) render invoices in duplicate or as otherwise specified,
showing the Order number, (8) render invoices for shipments, (9) render invoice
containing carrier name, waybill number and date of shipment; and (10) mail
invoices, bills, and notices to the address shown in the Order. If prepayment of
transportation charges is authorized, Supplier shall include the transportation
charges from the FOB point to the destination as a separate item on the invoice
stating the name of the carrier used. Adequate protective packaging shall be
furnished at no additional charge. Shipping and routing instructions may be
altered as mutually agreed without a writing. [***] permitted [***].
21. MARKING
All Material furnished under this Agreement shall be marked
for identification purposes in accordance with the Specifications set forth in
this Agreement and at a minimum as follows:
(a) Supplier model/serial number; and
(b) Month and year of manufacture.
In addition, Supplier agrees to add any other identification
which might be reasonably requested by Company such as but not limited to
distinctive marks conforming to Company's Serialization Plan or to Company's
Bar-coding Plan after charges, if any, for such additional identification
marking have been agreed upon by Supplier and Company.
22. SUPPLIER INTERVAL
For the purpose of this Agreement, "Lead Time" or "Supplier
Interval" shall mean the period of time expressed in days commencing on the date
an Order for Material is placed with Supplier by Company and ending upon
delivery of such Material to Company's point of destination.
If, during the course of this Agreement, Supplier determines
that it will no longer be able to deliver Material within the then existing Lead
Times, Supplier shall immediately notify Company's Buyer to that effect.
Supplier is encouraged to quote reduced Lead Times when responding to Orders
placed under this Agreement if required to meet Company's requested delivery
date.
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23. TAXES AND INSURANCE PAYMENTS
All [***], and [***] will be paid by [***]. The parties agree
that the charges stated herein include [***] and will not be changed hereafter
as a result of [***], [***] shall indemnify and hold [***] harmless from any
loss which [***] may incur as a result of [***] failure to make tax or insurance
payments.
24. TITLE AND RISK OF LOSS
Title and risk of loss and damage to Material purchased by
Company under this Agreement shall vest in Company when the Material has been
delivered to the FOB point.
25. VARIATION IN QUANTITY
Company assumes no liability for Material produced, processed
or shipped in excess of the amount specified in this Agreement or any Order.
26. UTILIZATION OF MINORITY AND WOMEN OWNED BUSINESS ENTERPRISES
It is Company's policy that Minority and Women-Owned Business
Enterprise ("MWBEs") shall have the maximum practicable opportunity to
participate in the performance of contracts. Supplier agrees to use its good
faith efforts to award subcontracts to carry out this policy to the fullest
extent consistent with the efficient performance of this Agreement. Supplier
agrees to conduct a program which will enable MWBEs to be considered fairly as
subcontractors and suppliers under this Agreement. Supplier shall submit to
Company periodic reports of subcontracting with known MWBEs in such manner and
at such time (not more than quarterly) as Company's representative may
prescribe. Such periodic report shall state separately for Minority and Women
Owned Businesses the subcontracted work which is attributable to Company. In
instances where direct correlation cannot be determined, such MWBE payments may
be established by Supplier comparing Company's payments to Supplier, in that
period, to total payments to Supplier from all of its customers, in that period,
and then arriving at Company's apportionment of such MWBE payments. Nothing in
this clause shall affect or diminish the Supplier's obligations as set forth in
the assignment and subcontracting provisions or any other provision of this
Agreement. Supplier's record of compliance with the provisions of this clause
will be a factor Company will consider favorably in making procurement decisions
about future business with Supplier.
27. RECORDS
Supplier shall identify all records associated with this
Agreement and maintain accurate and complete records including charges payable
by Company under this Agreement. These records shall be maintained in accordance
with recognized commercial accounting practices and shall be readily available
to review and audit by Company.
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28. REPORTS
Supplier agrees to maintain the following auditable Order and
shipment reports and provide copies to Company on or before the fifth working
day of each month:
(1) Order and shipment reports for each shipment, including
Bill of Lading information, if applicable.
(2) At the request of Company, monthly summaries of actual
shipping intervals achieved on Material ordered and manufactured hereunder,
identifying the number of units and such other information as Company may
reasonably request, consistent with Supplier's current practices.
Supplier further agrees to maintain and render quality and
yield data of the type and frequency reasonably specified by Company to assure
proper control of Material quality and reliability. This data may include such
items as in-process daily yields, quality control, and quality assurance daily
records. Supplier shall furnish and render additional reports as may be
reasonably requested by Company.
29. FORECASTS BY COMPANY
The parties acknowledge and agree that the implementation of
an improved forecasting process is important to both parties. The parties agree
to cooperate and will work in good faith to implement such program as soon as
reasonably practicable.
30. SERVICE
Company shall have the right to monitor the delivery
performance of Supplier via special performance reports. Delivery for such
purposes shall mean arrival at the final destination specified in the Order.
Company's goal is that Supplier will strive to achieve or exceed an Average
Percent Received By Lead Time and an Average Percent Received To Required Date
(Past And Current) of [***] of the Orders. "Average Percent Received by Lead
Time" shall mean the required percentage of Material (based in units) delivered
within the applicable lead time for such Material, which percentage will be
calculated monthly. "Average Percent Received to Required Date (Past and
Current)" shall mean the required percentage of Material (based in units)
delivered on the date such Material was requested to be delivered by the
Company, which percentage shall be calculated monthly.
Supplier is expected to make every effort to deliver Material
in accordance with Company's required delivery schedule as contained in
Company's Orders, and as the delivery schedule may be subsequently modified by
Company. Supplier will promptly notify Company of its "Acknowledged Delivery
Schedule", the schedule by which Supplier can deliver Material requested by
Company. Supplier is also expected to communicate to Company any foreseeable
change to Supplier's Acknowledged Delivery Schedule. Supplier's compliance with
the foregoing
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expectations will not relieve Supplier of the minimum service requirements
established in the preceding paragraph.
If Supplier advises Company that it will be unable to meet its
Acknowledged Delivery Schedule, and Company elects to call for expedited
shipment, Supplier will be required to pay the difference in cost between the
method of shipping specified in the Order and the actual cost incurred for
expedited shipment.
31. OZONE DEPLETING CHEMICALS
Supplier hereby warrants that it is aware of international
agreements and pending legislation in several nations, including the United
States, which would limit, ban, and/or tax importation of any product
containing, or produced using, ozone depleting chemicals ("ODCs"), including
chlorofluorocarbons, halons, and certain chlorinated solvents. Supplier hereby
warrants that manufactured and/or repaired Material will conform to applicable
requirements established pursuant to such agreements, legislation, or
regulations, and that manufactured and repaired Material will be able to be
imported into and used lawfully in (and without additional taxes associated with
ODCs not reported to Company by Supplier as set forth in this clause) the United
States and other countries designated by Company, under all such agreements,
legislation, and regulations. Supplier also warrants that it is currently
reducing, and is currently using good faith efforts to cause all of its parts
and component manufacturing vendors to reduce, in an expeditious manner,
eliminate and cause its parts and component manufacturing vendors to eliminate,
the use of ODCs in the manufacture and repair of Material and all of its parts
and components.
Supplier shall, upon execution of this Agreement, and at any
time that New Products or Enhanced Products are ordered under this Agreement or
changes are made to Material manufactured and/or repaired under this Agreement,
complete, sign, and return to Company an ODC Content Certification, in the form
requested by Company. The ODC Content Certification must be signed by Supplier's
facility manager, corporate officer, or delegate.
The term "ODC content" on the ODC Content Certification means
the total pounds of ODC used directly in the manufacture and/or repair of each
unit of Material. This includes all ODCs Supplier uses in its manufacturing,
assembly, and repair operations. Supplier will use good faith efforts to include
all ODC information, used by Supplier's vendors and any other vendors in
producing parts, components, or other products incorporated into Material.
Supplier warrants to Company that all information furnished by
Supplier on each ODC Content Certification will be complete and accurate and
that Company may rely on such information for any purpose, including but not
limited to providing reports to government agencies or otherwise complying with
applicable laws. Supplier agrees to defend, indemnify, and hold Company harmless
of and from any claims, demands, suits, judgments, liabilities, costs, and
expenses (including additional ODC taxes and reasonable attorney's fees) which
Company may incur under any applicable federal, state, or local laws or
international agreements, and any and all amendments thereto, by reason of
Company's use of or reliance on inaccurate or incomplete information furnished
to Company by Supplier on any ODC Content Certification or by reason of
Supplier's breach of this clause.
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Supplier agrees to cooperate with Company in responding to any
inquiry concerning the use of ODCs to manufacture and/or repair Material or
components thereof and to execute without additional charge any documents
reasonably required to certify the absence or quantity of ODCs used to
manufacture and/or repair Material or components thereof.
32. COMPLIANCE WITH ENVIRONMENTAL/HEALTH AND SAFETY/TRANSPORTATION LAWS
Supplier agrees to comply with applicable country or state
environmental, health and safety, and transportation laws and regulations
including but not limited to applicable United States environmental, health and
safety, and transportation laws and regulations. Supplier agrees to indemnify
and hold Company harmless from any loss or damage that may be sustained by
Company by reason of Supplier's failure to comply with this clause.
33. OZONE DEPLETING SUBSTANCES LABELING
Supplier warrants and certifies that all products, including
packaging and packaging components, provided to Company under this Agreement
will be accurately labeled, in accordance with the requirements of 40 CFR Part
82, entitled "Protection of Stratospheric Ozone, Subpart E -- The Labeling of
Products Using Ozone Depleting Substances."
Supplier agrees to indemnify, defend, and save harmless
Company, its officers, directors, and employees from and against any losses,
damages, claims, demands, suits, liabilities, fines, penalties, and expenses
(including reasonable attorney's fees) that may be sustained by Company by
reason of Supplier's noncompliance with such applicable law or the terms of this
warranty and certification.
34. CFC PACKAGING
Supplier warrants that all packaging materials furnished under
this Agreement and all packaging associated with Material furnished under this
Agreement will not have been manufactured using and will not contain
chlorofluorocarbons. "Packaging" means all bags, wrappings, boxes, cartons, and
any other packing materials used for packaging. Supplier shall indemnify and
hold Company harmless for any liability, fine, or penalty incurred by Company to
any third party or governmental agency arising out of Company's good faith
reliance upon said warranty.
35. HEAVY METALS IN PACKAGING
Supplier warrants to Company that no lead, cadmium, mercury,
or hexavalent chromium have been intentionally added to any packaging or
packaging component (as defined under applicable laws) to be provided to Company
under this Agreement. Supplier further warrants to Company that the sum of the
concentration levels of lead, cadmium, mercury, and hexavalent chromium in the
packaging or packaging component provided to Company under this Agreement will
not exceed one hundred (100) parts per million. Upon request, Supplier shall
provide to Company Certificates of Compliance certifying that the packaging
and/or packaging components provided under this Agreement are in compliance with
the requirements set forth
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above in this clause. Supplier shall indemnify and hold Company harmless for any
liability, fine, or penalty incurred by Company to any third party or
governmental agency arising out of Company's good faith reliance upon said
warranties or any Certificates Compliance.
36. INDEMNITY AND INFRINGEMENT
All Work performed by Supplier under this Agreement shall be
performed by Supplier as an independent contractor and not as an agent of
Company. All persons furnished by Supplier shall be considered solely Supplier's
Employees or agents, and Supplier shall be responsible for compliance with all
applicable laws, rules, and regulations relating to labor, working conditions,
wages, and payment of all unemployment, social security, and other payroll
taxes, including contributions when required by law.
Supplier agrees to indemnify and save harmless Company, its
affiliates and its customers and their officers, directors, employees,
successors and assigns (all hereinafter referred to in this clause as "Company")
from and against any losses, damages, claims, demands, suits, liabilities, and
expenses (including reasonable attorneys' fees) that arise out of or result
from: (1) injuries or death to persons or damage to property, including theft,
in any way arising out of or occasioned by, caused or alleged to have been
caused by or on account of the Material, or the performance of Work or Services
performed by Supplier or persons furnished by Supplier; (2) assertions under
Workers' Compensation or similar acts made by persons furnished by Supplier or
by any subcontractor or by reason of any injuries to such persons for which
Company would be responsible under Workers' Compensation or similar acts if the
persons were employed by Company; (3) any failure by Supplier to perform
Supplier's obligations under this Indemnity and Infringement Section; and/or (4)
any infringement or claim of infringement of any patent, trademark, copyright,
trade secret, or other intellectual property right of third parties based on the
manufacture, repair, sale, use, importation, reproduction and/or distribution of
Material furnished to Company hereunder, and/or any part, component, feature or
design of such Material, except that this infringement indemnity shall not apply
to the extent that such claims or infringements arise solely and directly from
Company supplied parts or components, or from Supplier's required adherence to
Company's written instructions or Specifications which are so specified that
such adherence directly causes such claims or infringement and which
instructions or Specifications require the use of Material other than (i)
commercial material which is available on the open market or the same as such
Material or (ii) Material of Supplier's origin, design or selection.
In the case of the infringement indemnity, if Company's or its
customers' manufacture, repair, use, sale, importation, reproduction and/or
distribution of Material is restricted or prevented by injunction, court order
or negotiated settlement on account of such infringement, Supplier shall, at its
expense: (i) procure for Company and Company's customers the right to continue
manufacturing, using, selling, importing, reproducing and/or distributing such
Material; or (ii) replace such Material with a noninfringing product
substantially complying with such Material's Specifications and satisfactory to
Company; or (iii) modify such Material so it becomes noninfringing and performs
in a substantially similar manner to the original Material and satisfactory to
Company; or (iv) in the event of inability to reasonably perform any of the
foregoing, refund to Company the purchase price for affected Material. All
payments refunded
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pursuant to the foregoing provision would continue to be counted toward the
Company's revenue commitment as set forth in the Volume/Price Letter.
Supplier agrees to defend Company, at Company's request,
against any of the referenced claims, demands, or suits at Supplier's expense.
Company agrees to notify Supplier within a reasonable time of any written claims
or demands against Company for which Supplier is responsible under this Clause.
37. TECHNICAL SUPPORT
Ongoing technical support via telephone to Company or
Company's customers will be [***] and shall include but not be limited to the
following: (a) answering technical questions, (b) explaining proper operation
procedures for Material, (c) providing up-to-date information on the status of
Material returned to Supplier for repair, and (d) quoting and explaining any
repair or replacement charges for Material.
38. LATE DELIVERY / LIQUIDATED DAMAGES AND CANCELLATIONS
Supplier agrees that in the event that Company is able to
provide to Supplier demonstrable evidence that any delay by Supplier in
delivering any Material committed to by Supplier under any Order caused the loss
of a contract of Company or caused Company to obtain substitute material from a
third party in order to fulfill the contract, then Company shall [***] set forth
in the Volume/Price Letter for the applicable period.
These provisions concerning late delivery of conforming
Material are intended to be and shall be cumulative and in addition to every
other remedy now or hereafter possessed by Company, including but not limited to
its right to recover damages under the clause entitled WARRANTY.
39. AUDIT
Supplier shall maintain accurate and complete records
including termination charges payable by Company under this Agreement. These
records shall be maintained in accordance with recognized commercial accounting
practices so they may be readily audited and shall be held until costs have been
finally determined under this Agreement and payment or final adjustment of
payment, as the case may be, has been made. Supplier shall permit Company or
Company's Representative to examine and audit these records and all supporting
records at all reasonable times. Audits shall be made not later than one (1)
calendar year after the final delivery date of Material ordered or completion of
services rendered or one (1) calendar year after the expiration date of this
Agreement, whichever comes later. In addition, Supplier shall permit a third
party audit of its sales records to determine compliance with the Volume/Price
Letter.
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40. CLAUSE HEADINGS
The headings of the clauses in this Agreement are inserted for
convenience only and are not intended to affect the meaning or interpretation of
this Agreement.
41. DEFAULT
In the event Supplier shall be in breach or default of any of
the material terms, conditions, or covenants of this Agreement and if such
breach or default shall continue for a period of forty-five (45) days after the
giving of written notice to Supplier thereof by Company that Company intends to
cancel because of such default, then, in addition to all other rights and
remedies which Company may have at law or equity or otherwise, Company shall
have the right to cancel this Agreement and/or Orders without any charge or
obligation or liability of Company, including the right to make appropriate
adjustments to the Volume/Price Levels set forth in the Volume/Price Letter.
42. TERMINATION OF ORDER FOR CAUSE
In the event Supplier exceeds the shipping interval, plus five
(5) working days as specified in an Order issued hereunder because of reasons
attributable to Supplier (other than those contained in the FORCE MAJEURE
Section of this Agreement), then in addition to all other rights and remedies of
law or equity or otherwise and without liability or obligation to Supplier,
Company shall have the right to: [***].
43. TERMINATION OF ORDER WITHOUT CAUSE
Company may at any time terminate without cause any or all
Orders placed by it hereunder. Unless otherwise specified herein, Company's
liability to Supplier with respect to such terminated Order or Orders shall be
limited to [***]. However, no such termination charges will be invoiced, if
within sixty (60) days of notice of termination, manufactured or repaired
Material equivalent in volume to that being terminated is ordered by Company. If
requested, Supplier agrees to substantiate such costs with proof satisfactory to
Company.
Supplier shall use its best efforts to cancel, stop, return,
or otherwise dispose of all Supplier sourced parts not used in manufacture or
repair of Material. Upon request, Supplier shall identify its parts suppliers
and cancellation terms, and shall permit and assist Company in discussions
concerning cancellation charges with such parts suppliers.
44. EMERGENCY BACKUP PLAN
Supplier will furnish to Company for Company's approval,
within sixty (60) days of execution of this Agreement a written plan of action
(an "Emergency Backup Plan") that covers Supplier's plans on how it will
continue to perform its obligations under this Agreement in case of an
unforeseen catastrophe, including a force majeure condition, or any other
condition in which Supplier will be unable to produce and ship Material for four
(4) consecutive weeks. The
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Emergency Backup Plan will identify Supplier's secondary manufacturing
location(s) and include the estimated time for the implementation of such
Emergency Backup Plan and production of Material.
The Emergency Backup Plan shall provide, among other things,
that in the event of any unforeseen catastrophe, including a force majeure
condition, or any other condition in which Supplier will be unable to produce
and ship acceptable Material for four (4) consecutive weeks, Supplier shall use
its reasonable best efforts to (a) manufacture and ship the Material from one or
more of its other manufacturing facilities to meet Company's requirements for
Material; (b) commence shipments of Material to Company from such secondary
manufacturing facilities no later than thirty (30) days after the commencement
of the unforeseen catastrophe or other condition; and (c) achieve the following
levels of shipments from such secondary manufacturing facilities: (i) a minimum
of forty (40) percent of Company's then current forecast after thirty (30) days
of the commencement of the unforeseen catastrophe or any other condition; (ii) a
minimum of sixty (60) percent of Company's then current forecast after
forty-five (45) days of the commencement of the unforeseen catastrophe or any
other condition; and (iii) one hundred (100) percent of Company's then current
forecast after sixty (60) days from the commencement of the unforeseen
catastrophe or any other condition.
45. EXPORT CONTROL
Supplier acknowledges that any software and technical
information (hereinafter referred to as "technology"), including but not limited
to services and training, provided under this Agreement may in fact be subject
to United States export laws and regulations, and may require the prior written
approval of the U.S. Department of Commerce for export or reexport. Supplier
further acknowledges that it has the responsibility for obtaining such approval,
and will, in fact, do so prior to exportation.
Supplier and Company agree that they will not, without the
prior written approval of the U.S. Department of Commerce, transfer or release
(directly or indirectly) any unpublished technology, written, oral, or
otherwise, acquired from Lucent Technologies Inc. or Supplier (as applicable),
or any direct product of such technology (including processes, materials, and
services) to any country listed below, or to any resident or national of such
country, or to any party listed on the U.S. Table of Denial Orders or any other
blocked or denied parties list published by the U.S. Government:
Albania, Armenia, Azerbaijan, Belarus, Bulgaria, Cambodia,
Cuba, Estonia, Georgia, Iran, Iraq, Kazakhstan, Krygystan, Laos, Latvia, Libya,
Lithuania, Moldova, Mongolia, North Korea, People's Republic of China, Romania,
Russia, Syria, Tajikistan, Turkmenistan, Ukraine, Uzbekistan, Vietnam, and the
Bosnian-Serb controlled areas of Bosnia/Herzegovina.
It is understood that this restriction does not apply to
technology (1) that has been made generally available to the public in any form
including technology released orally or visually in public conferences, lectures
and trade shows; (2) in publications that may be obtained without cost or at
minimal cost, or are readily available in public libraries; and, (3) which can
not be used
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or adapted for use in design, manufacture, production, utilization or
reconstruction of articles or materials.
46. NOTICES
Any notice or demand which under the terms of this Agreement
or under any statute must or may be given or made by Supplier or Company shall
be in writing addressed to the respective parties as stated in the applicable
Order. Notices shall deemed to have been given or made when sent by telegram,
telex, confirmed facsimile, certified or registered mail. Addresses may be
changed at any time by giving prior written notice.
47. INSURANCE
Supplier shall maintain and cause Supplier's subcontractors
performing work for Company in connection with this Agreement to maintain during
the term of this Agreement: (1) Workers Compensation insurance as prescribed by
the law of the state or nation in which the Work is performed, (2) employer's
liability insurance with limits of at least [***] each occurrence, and (3)
comprehensive automobile liability insurance if the use of motor vehicles is
required, with limits of at least [***] for bodily injury and property damage
for each occurrence and (4) Comprehensive General Liability ("CGL") insurance,
including Blanket Contractual Liability, and Broad Form Property damage, with
limits of at least [***] combined single limit for personal injury and property
damage for each occurrence, and (5) if the furnishing to Company (by sale or
otherwise) of products or Material is involved, CGL insurance endorsed to
include products liability and completed operations coverage in the amount of
[***] for each occurrence. All CGL insurance shall designate LUCENT TECHNOLOGIES
INC., its assigns, affiliates, and their officers, directors and employees (all
hereinafter referred to in this clause as "Company") as an additional insured.
Supplier agrees that Supplier, Supplier's insurer(s) and
anyone claiming by, through, under or in Supplier's behalf shall have no claim,
right of action or right of subrogation against Company and its customers based
on any loss or liability insured against under the foregoing insurance. Supplier
and Supplier's applicable subcontractors performing work for Company shall
furnish prior to the start of work certificates or adequate proof of the
foregoing insurance including, if specifically requested by Company, copies or
endorsements and insurance policies. Company shall be notified in writing at
least thirty (30) days prior to cancellation of or any change in the policy.
48. SEVERABILITY
If any of the provisions of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate or
render unenforceable the entire Agreement, but rather the entire Agreement shall
be construed as if not containing the particular invalid or
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unenforceable provision or provisions, and the rights and obligations of
Supplier and Company shall be construed and enforced accordingly.
49. WAIVER
The failure of either party at any time to enforce any right
or remedy available to it under this Agreement or otherwise with respect to any
breach or failure by the other party shall not be construed to be a waiver of
such right or remedy with respect to any other breach or failure by the other
party.
50. SUPPLIER'S INFORMATION
Except as otherwise provided for in a Nondisclosure Agreement,
no Specifications, drawings, sketches, models, samples, tools, computer or other
apparatus programs, technical or business information, or data, written, oral,
or otherwise, furnished by Supplier to Company under this Agreement or any
Order, or in contemplation of this Agreement shall be considered by Supplier to
be confidential or proprietary.
51. USE OF INFORMATION
Any Developed Information, Specifications, drawings, sketches,
models, samples, tools, computer or other apparatus programs, technical or
business information or data, written, oral, or otherwise, owned or controlled
by Company (information") and furnished to or acquired by Supplier under this
Agreement, or in contemplation of this Agreement, shall remain Company's
property. All copies of such Information in written, graphic, or other tangible
form shall be returned to Company at its request. Unless such Information was
previously known to Supplier free of any obligation to keep it confidential, or
has been or is subsequently made public by Company or a third party, it shall be
kept confidential by Supplier, shall be used only in performing under this
Agreement, and may not be used for any other purposes except upon such terms as
may be agreed upon between Supplier and Company in writing.
52. FUNDED DEVELOPMENT/INTELLECTUAL PROPERTY
Supplier agrees not to engage and nor to perform for Company
specific development or design work ("Development") without an advance written
agreement defining ownership of the Development.
53. SURVIVAL OF OBLIGATIONS
Company's and Supplier's obligations and warranties under this
Agreement, which by their nature would continue beyond the termination or
expiration of this Agreement, including, by way of illustration only and not
limitation, those in the clauses COMPLIANCE WITH LAWS, RELEASES VOID, IMPLEADER,
USE OF INFORMATION, FUNDED DEVELOPMENT/INTELLECTUAL PROPERTY, WARRANTY,
INSURANCE, and INDEMNITY AND INFRINGEMENT, shall survive termination,
cancellation, or expiration of this Agreement.
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54. RELEASES VOID
Neither party shall require (i) waivers or releases of any
personal rights or (ii) execution of documents which conflict with the terms of
this Agreement, from employees. representatives or customers of the other in
connection with visits to its premises and both parties agree that no such
releases, waivers or documents shall be pleaded by them or third persons in any
action or proceeding.
55. ASSIGNMENT
Except as set forth below, neither Company nor Supplier shall
assign any right or interest under this Agreement and the Volume/Price Letter or
(with respect to Supplier) under an Order issued pursuant to this Agreement
(excepting monies due or to become due) or delegate any Work or other obligation
to be performed or owed under this Agreement and the Volume/Price Letter or an
Order either in whole or in part without the prior written consent of the other
party which consent shall not be unreasonably withheld. Any attempted assignment
or delegation in contravention of the above provisions shall be void and
ineffective. Any assignment of monies shall be void and ineffective to the
extent that (1) Supplier shall not have given Company at least thirty (30) days
prior written notice of such assignment or (2) such assignment attempts to
impose upon Company obligations to the assignee additional to the payment of
such monies, or to preclude Company from dealing solely and directly with
Supplier in all matters pertaining to this Agreement including the negotiation
of amendments or settlements of charges due.
Notwithstanding the provisions set forth above, Company shall
have the right to assign this Agreement and the Volume/Price Letter and to
assign its rights and delegate its duties under this Agreement and the Volume
Price Letter either in whole or in part, at any time and without Supplier's
consent; provided however that such assignment shall only be permitted to an
affiliate or subsidiary of Company having assets greater than [***]. Company
shall give Supplier thirty (30) days prior written notice of any such
assignment. The assignment shall neither affect nor diminish any rights or
duties that Supplier or Company may then or thereafter have as to services or
Material ordered by Company prior to the effective date of the assignment.
Upon the acceptance of the assignment and assumption of the
duties under this Agreement and the Volume/Price Letter by the assignee, Company
shall be released and discharged, to the extent of the assignment, from all
further duties under this Agreement and the Volume/Price Letter as to services
or Material not ordered by Company by the effective date of the assignment.
56. CHOICE OF LAW
The construction, interpretation and performance of this
Agreement and all transactions under it shall be governed by the laws of the
State of New York excluding its choice of laws rules and excluding the
Convention for the International Sale of Goods. The parties agree
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that the provisions of Article 2 "Sales" of the New York Uniform Commercial Code
apply to this Agreement and all transactions under it, including agreements and
transactions relating to the furnishing of services, the lease or rental of
equipment or Material, and the license of software. Supplier agrees to appear in
any court wherein an action is commenced against Company based on a claim for
which Supplier has agreed to indemnify Company under this Agreement.
57. COMPLIANCE WITH LAWS
Supplier and all persons furnished by Supplier shall at their
own expense comply with all applicable laws, ordinances, regulations, and codes
in their performance of this Agreement. Supplier and all persons furnished by
Supplier shall at their own expense be responsible for identifying and obtaining
any and all approvals (except for foreign country homologation and foreign
country approvals or certifications as set forth under the clause COMPLIANCE
WITH FEDERAL COMMUNICATIONS COMMISSION'S RULES AND REGULATIONS PARTS 15 AND 68),
permits, licenses, certificates, insurance, inspections, or the like which may
be required to perform their obligations under the Agreement including, but not
limited to, any licenses required for export of Material Supplier agrees to
indemnify and hold Company harmless from any loss or damage that may be
sustained by Company by reason of Supplier's or Supplier's suppliers failure to
do so.
58. LICENSES
No licenses, express or implied, under any patents,
copyrights, trademarks, or other intellectual property rights are granted by
Company to Supplier under this Agreement or any contract or Order issued
pursuant to this Agreement.
59. IMPLEADER
Supplier shall not implead or bring an action against Company
or its customers or the employees of either based on any claim by any person for
personal injury or death to an employee of Company or its affiliates or their
respective customers occurring in the course or scope of employment and that
arises out of Material or services furnished under this Agreement.
60. FORCE MAJEURE
Neither party shall be held responsible for any delay or
failure in performance of any part of this Agreement or Order to the extent such
delay or failure is caused by fire, flood, explosion, war, strike, embargo,
government requirement, civil or military authority, act of God, act or omission
of carriers or other similar causes beyond its control and without the fault or
negligence of the delayed or nonperforming party or its subcontractors ("force
majeure conditions"). Notwithstanding the foregoing, Supplier's liability for
loss or damage to Company's Material in Supplier's possession or control shall
not be modified by this clause. If any force majeure condition occurs, the party
delayed or unable to perform shall give immediate notice to the other party and
the party affected by the other's delay or inability to perform may elect to:
(1) suspend this Agreement or Order for the duration of the force majeure
condition and (i) at its option obtain elsewhere manufacturing or repair
services to have been furnished under this
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Agreement or Order and deduct from any commitment the quantity obtained or for
which commitments have been made elsewhere and the Volume/Price levels set forth
in the Volume Price Letter shall be adjusted to reflect the dollar amount
purchased by Company from the other source or sources, and (ii) once the force
majeure condition ceases, resume performance under this Agreement or Order with
an option in the affected party to extend the period of this Agreement or Order
up to the length of time the force majeure condition endured and/or (2) when the
delay or nonperformance continues for a period of at least thirty (30) days,
terminate, at no charge, the applicable Order or the part of it relating to
Material not already shipped or Services not already performed. Unless written
notice is given within forty-five (45) days after the affected party is notified
of the force majeure condition, (1) shall be deemed selected.
61. IDENTIFICATION
Supplier shall make no use of any identification of Company or
its affiliated companies in its advertising or promotional efforts in reference
to activities undertaken by Supplier under this Agreement without Company's
prior written consent. The term "identification" includes any trade name,
trademark, service mark, insignia, symbol, or any simulation thereof, and any
code, drawing, specification, or evidence of Company's inspection. Supplier
agrees to remove any such identification prior to any sale, use or disposition
of Material or equipment rejected or not purchased by Company, and shall
indemnify. Company, Lucent Technologies Inc. and its affiliated companies
against any claim arising out of Supplier's failure to do so. This clause does
not modify the USE OF INFORMATION clause.
62. COMPLIANCE WITH FEDERAL COMMUNICATIONS COMMISSION'S RULES AND
REGULATIONS PARTS 15 AND 68
Material sold to, manufactured and/or repaired for Company
hereunder for sale or use within the United States shall comply with the
requirements of Parts 15 and 68 of the FCC Rules and Regulations. Material sold
to, manufactured and/or repaired for Company hereunder for sale or use outside
the United States shall comply with the requirements of those targeted
countries. All countries not previously identified as acceptable by Supplier
must be approved in advance by Supplier.
In the event that Supplier does not obtain such Agency
approvals and/or certifications as required by law, Supplier agrees to indemnify
and save Company harmless from any damages, liabilities, claims, or demands,
costs, expenses (including but not limited to rework expressly necessary to
bring Material into compliance) and reasonable attorney's fees which Company may
incur on account thereof.
Nothing herein shall be deemed to diminish or otherwise limit
Supplier's obligations under the clause WARRANTY clause of this Agreement.
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63. FIELD RETURNS (REPAIR SERVICE)
Supplier agrees to provide repair services on all Material
ordered hereunder both during the term of, and for a period of five (5) years
after the expiration of this Agreement. Company agrees to obtain a Return
Material Authorization prior to returning the Material.
Field Returns are Material returned to Supplier that has been
purchased by a customer and either used or not used. This Material may represent
both defective and non-defective units. Supplier agrees to repair all Material,
returning it to a state of repair whereby it will satisfy all terms and
conditions of this Agreement, and applicable Orders. All Material furnished for
repair will remain the property of Company. The interval for this repair shall
not exceed seven (7) working days from receipt of product at Supplier's
facility. The price and any new terms for Repairs not covered by this Agreement
shall be mutually agreed upon by the parties. The price for these repairs shall
be set forth in the applicable Orders.
Supplier agrees to identity all costs associated with this
repair activity. Complete and accurate records will be maintained by Supplier so
as to enable Company and Supplier to effectively evaluate this Field Return
procedure.
Material repaired by Supplier shall have the repair completion
date stenciled on the bottom of the base of Material or otherwise identified in
a permanent manner at a readily visible location on Material as mutually agreed
upon.
All invoices originated by Supplier for repair services must
be clearly identified as such, and must contain a reference to Company's Order
for these repair services. Further, the provisions of the clause SHIPPING AND
BILLING, other than provisions relating to transportation charges with respect
to Material repaired under warranty, shall apply to Supplier's return to Company
of repaired Material. Company shall give Supplier six (6) months notice if
Company decides to terminate repair services performed by Supplier.
64. INITIALLY DEFECTIVE MATERIAL
"Initially Defective" as used in this clause shall mean any
defective Material returned by Company within thirty (30) days from the date of
sale to end-user. Such Initially Defective Material may be returned to Supplier
by Company for replacement with risk of in transit loss or damage borne by and
freight paid by Company.
Accompanying the Initially Defective Material will be a repair
order, which will include the following:
(1) Identify Material as Initially Defective and contain a
brief description of the defect, if possible.
(2) Identify whether Material is used.
(3) Ship-to address of Company.
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In the event Supplier decides that Initially Defective
Material should be replaced, and Supplier has a "Refurbishment Replacement
Program" in place for Material, then Supplier shall ship a new replacement unit
within seven (7) days of receipt of the defective Material. Supplier shall bear
the transportation cost and risk of loss for the return of such Material. If
Supplier does not have a "Refurbishment Replacement Program" currently in place,
and then implements a program, Supplier shall notify Company within thirty (30)
days and extend to Company the seven (7) day replacement provision for Initially
Defective Material. Until Supplier implements the "Refurbishment Replacement
Program", Supplier shall repair Initially Defective Material as set forth above.
After the initial thirty (30) day period for Company's return
of defective Material to Supplier, defective Material shall be returned to
Supplier by Company accompanied by the Repair Order, with risk of loss borne and
freight paid by Company. At the option of Supplier, such Material will be
repaired or replaced by Supplier at no cost to Company for in warranty returns.
Unless otherwise agreed upon, Supplier shall complete repairs
and ship returned Material to Company within twenty (20) days of receipt of the
defective Material. Supplier shall bear the cost of freight and assume the risk
of loss for shipment to Company of repaired or replaced Material.
If Material returned to Supplier for repair as provided for in
this clause is determined to be beyond repair, Supplier shall promptly so notify
Company and, unless otherwise agreed to by Supplier and Company, ship
replacement Material without charge within seven (7) days of receipt of in
warranty Material if Supplier has a "Refurbishment Replacement Program" in place
for Material. If Supplier does not have a "Refurbishment Replacement Program"
currently in place, and then implements a program Supplier shall notify Company
within thirty (30) days and extend to Company the seven (7) day replacement
provision for in warranty Material. Until Supplier implements the "Refurbishment
Replacement Programs, Supplier shall repair Initially Defective Material as set
forth above.
Any Material which is repaired, modified, replaced, or
otherwise serviced by Supplier shall be warranted as provided in the clause
WARRANTY for the remainder of the warranty period or ninety (90) days after
Material is shipped to Company, whichever is later (based upon the date repair,
modification, or other service is completed and accepted by Company).
A repair and/or replacement report detailing the repairs or
modification to all units returned by Company will be provided on a monthly
basis.
65. EPIDEMIC CONDITION
In the event that during the term of this Agreement and for
one year after the last shipment date of Material hereunder, Company notifies
Supplier (in accordance with the NOTICES clause) that Material shows evidence of
an Epidemic Condition, Supplier shall prepare and propose a "Corrective Action
Plan" (CAP) with respect to such Material within ten (10)
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working days of such notification, addressing implementation and procedure
milestones for remedying such Epidemic Condition(s). An extension of this
time-frame is permissible upon mutual agreement of the parties.
Upon notification of the Epidemic Condition to Supplier,
Company shall have the right to postpone shipments of unshipped Material by
giving written notice of such postponement to Supplier, pending correction of
the Epidemic Condition. Such postponement shall temporarily relieve Supplier of
its shipment liability and Company of its shipment acceptance liability. Should
Supplier not agree to the existence of an Epidemic Condition or should Company
not agree to the Corrective Action Plan, then Company shall have the right to
suspend all or part of its unshipped Orders without liability to Company until
such time as a mutually acceptable solution is reached.
An Epidemic Condition, excluding potential safety hazards,
will be considered to exist when one or more of the following conditions occur:
1. Failure reports or statistical sampling showing that three
percent (3%) or more of any consecutive one hundred (100) units of Material
delivered to Company or Company's customers are rejected for defective materials
or workmanship; or repair reports indicate nonconformance for the same defect of
five percent (5%) of the installed Material base.
2. Reliability plots of relevant data indicate that Material
has actual Mean Time Between Failures (MTBF) of less than eighty (80%) percent
of the MTBF stipulated in Specification for Material. The MTBF parameter of
Material is defined as the total operation or power-on time of any population
under observation ("T"), in hours, divided by the total number of critical
failures ("n") that have occurred during the observed period. A critical failure
is defined as a failure to operate per the requirements of Specification. The
total operating time for a population is the summation of operating time of
individual units in that population. MTBF is expressed as MTBF=T/n. An Epidemic
Condition shall exist when data derived from populations being tracked confirms
the condition with eighty (80%) percent statistical confidence.
3. Material Dead on Arrival ("DOA") failures exceed the
Epidemic DOA failure rate which is defined as two percent (2%) of Material
delivered to Company or Company's customer within a one (1) month period.
Only major functional visual/mechanical/appearance defects are
considered for determining Epidemic Condition. Material could be either sampled,
or at Company option, one hundred (100%) percent audited at Company warehouses,
factories, or Company's customers' locations. If Material is sampled, the data
must have eighty (80%) percent or better statistical confidence.
For the purpose of this Agreement, functional DOA shall not
include Material for which no defect is found and shall be defined as any
Material that during the test, installation or upon its first use fails to
operate as expected or specified. Visual/mechanical/appearance DOA is defined as
any Material containing one or more major defects that would make Material unfit
for use or installation.
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An Epidemic Condition shall not include failure due to
customer misapplication, misuse, abuse, lightning, utilization of parts not
approved by Supplier, or chain failures induced by internally or externally
integrated subassemblies.
In the event that Supplier develops a remedy for the defect(s)
that caused the Epidemic Condition and Company agrees in writing that the remedy
is acceptable, Supplier shall:
(a) Incorporate the remedy in the affected Material in
accordance with Engineering Change Control procedures or manufacturing
procedures, as applicable, agreed to by the parties.
(b) Ship all subsequent Material incorporating the required
modification correcting the defect(s) at no additional charge to Company; and
(c) Repair and/or replace at Supplier's option Material that
caused the Epidemic Condition. In the event that Company incurs costs due to
such repair and/or replacement, including but not limited to labor and shipping
costs, Supplier shall reimburse Company for such costs, as mutually determined
and agreed upon by both parties. Supplier shall bear such risk of in transit
loss and damage for such repaired and/or replaced Material shipped to Company.
Supplier and Company shall mutually agree in writing as to the
remedy's implementation schedule. Supplier agrees to utilize its best efforts to
implement in accordance with agreed-upon schedule.
In the event that Supplier is unable to develop a mutually
agreeable remedy, or does not adequately take into account the business
interests of Company, as reasonably agreed by the parties, Company may (1)
develop such remedy and implementation cost and risk of in transit loss and
damage shall be allocated between the parties as set forth in this clause,
and/or (2) cancel postponed Orders without liability and return all confirmed
Material affected by such Epidemic Condition for full refund, payable by
Supplier within thirty (30) days after receipt of returned Material (with risk
of loss of in transit damage borne by Supplier) and Company shall have the right
to adjust the Volume/Price levels set forth in the Volume/Price Letter to
reflect the dollar amount being canceled, and/or (3) terminate this Agreement
without further liability.
66. TITLE TO PARTS FURNISHED BY COMPANY
All parts furnished by Company shall remain Company's property
and be kept segregated and marked PROPERTY OF LUCENT TECHNOLOGIES INC. Supplier
agrees to be responsible for any loss or damage to such parts while in
Supplier's possession or under Supplier's control. Company may inspect,
inventory, and authenticate the amount of parts that are furnished under this
Agreement during Supplier's normal business hours. Supplier shall provide
Company access to the premises wherein all such parts are located. Supplier
shall at Company's option, return to Company or hold for Company's disposition
any and all of such parts and any scrap produced remaining in Supplier's
possession upon termination of this Agreement.
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Supplier will not assert or file common law or statutory lien
against parts furnished by Company, and hereby waives any such common law and
statutory liens. Supplier shall, within ten (10) days of receipt of Company's
parts, notify Company in writing of any claims for quantity variation in the
parts furnished to Supplier.
Supplier shall store Company parts in protected areas approved
by Company. In case of removal from one building to another, Supplier's
responsibility for loss or damage shall continue and Supplier shall give Company
advance notice in writing of the removal, except when the removal is required
during Supplier's manufacturing process.
Supplier shall list parts furnished by Company on all
documents covering manufactured and/or repaired Material shipped from Supplier
to Company.
67. TITLE TO SPECIAL TOOLING AND TEST EQUIPMENT
Special tooling and test equipment ("Tooling") furnished by
Company for use by Supplier under this Agreement shall remain Company's property
at all times, and Supplier shall:
(1) Be responsible for the safekeeping of Tooling and assume
all risks of loss or damage to same, except for reasonable wear and tear.
(2) Maintain and use Tooling in accordance with all applicable
local and country occupational safety and health requirements and other safety
requirements, codes, or standards. Supplier agrees to indemnify and hold
harmless Company from and against any and all losses, damages, claims, demands,
suits, and liabilities (including reasonable attorney's fees) of any kind and
nature whatsoever (including but not limited to claims resulting from injuries
or death to persons or damage to property) in any way arising out of or
resulting from the maintenance, ownership, possession, operation, use,
condition, storage, or movement of Tooling or any accident in connection
therewith.
(3) Permanently mark or if impracticable to do so then affix
labeling stating that Tooling is the PROPERTY OF LUCENT TECHNOLOGIES INC.
(4) Store Tooling, when not in use, on racks or in sections of
Supplier's plant marked PROPERTY OF LUCENT TECHNOLOGIES INC., and, in case of
removal of all or any part of it from one building to another, Supplier's
responsibility for loss or damage shall continue and Supplier shall give Company
advance notice in writing of the removal, except when the removal is required
during Supplier's manufacturing process.
(5) Use Tooling only in the manufacture and/or repair of
Material furnished to Company, unless otherwise agreed in writing by Company,
and deliver it to Company upon demand FOB Supplier's plant without additional
charge for removal, packing, or crating.
(6) Repair or replace parts of Tooling as needed from time to
time without charge to Company. This includes, among other things, adjusting,
replaces punches or die sections, and sharpening and keeping tools in good
working condition. At any time when Supplier proposes replacing the entire tool
because (a) tool life has been expended or worn
25
<PAGE> 26
beyond economical repair, or (b) design changes by Company necessitate
modification or complete replacement, Supplier shall first obtain Company's
written approval, and the replacement Tooling shall be subject to the terms of
this Agreement. Company shall bear the cost of components needed to repair its
test equipment.
(7) Permit Company to inspect, inventory, and authenticate the
account of Tooling furnished under this Agreement during Supplier's normal
business hours. Supplier shall provide Company access to the premises where all
such Tooling is located. The obligations assumed by Supplier with respect to
Tooling as furnished under this Agreement are for the protection of Company's
property. Supplier shall, at Company's option, return to Company or hold for
Company's disposition any or all of such Tooling and associated drawings in
Supplier's possession free of restrictions at (a) the completion of the
applicable Order, if such tooling relates to such Order, or (b) termination of
this Agreement.
68. WARRANTY
Supplier warrants to Company that the Material furnished will
be new product free from defects in design, material, and workmanship, and will
conform to the Specifications, drawings, and samples referred to in this
Agreement or any Order under this Agreement and will perform satisfactorily for
a period of twenty-four (24) months or such longer period as may be agreed to
from time to time from the date of delivery to Company. Supplier warrants that
at time of delivery of the Material, such Material shall be free of any security
interest or any other lien or any other encumbrance whatsoever. Supplier also
warrants to Company that Services will be performed in a first class workmanlike
manner. In addition, if Material furnished contains components subject to one or
more manufacturer's warranties, Supplier hereby assigns such warranties to
Company to the extent permissible. All warranties shall survive inspection,
acceptance, and payment. Material not meeting the warranties will be repaired or
replaced at no cost to Company.
At Company's option, defective or nonconforming Material will
be returned to Supplier for repair or replacement at no cost to Company, with
risk of in-transit loss and damage borne by Company and freight paid by Company.
Unless otherwise agreed upon by Supplier and Company, Supplier shall complete
repairs and ship the repaired Material within seven (7) working days of receipt
of defective or nonconforming Material.
Supplier shall bear the risk of in-transit loss and damage and
shall prepay and bear the cost of freight for shipments to Company of repaired
or replaced Material.
Supplier should be contacted for a Return Material
Authorization Number prior to the return of any Material.
69. QUALITY
Supplier commits to ensure that all manufacturing and design
operations which contribute to the design, development, production and services
of Material remain ISO 9001 or 9002 certified and with respect to certain of
Supplier's subcontractors, are on a plan to achieve
26
<PAGE> 27
such certification. Furthermore, Supplier will use its reasonable best efforts
to attain and maintain acceptable ratings in any future quality programs as
agreed to by the parties hereto.
70. MEDIATION
If a dispute arises out of or relates to this Agreement or its
breach and the parties have not been successful in resolving such dispute
through negotiation, the parties agree to attempt to resolve the dispute through
non-binding mediation by submitting the dispute to a sole mediator selected by
the parties or, at any time at the option of a party, to mediation by the
American Arbitration Association ("AAA"). Each party shall bear its own expenses
and an equal share of the expenses of the mediator and the fees of the AAA. The
parties, their representatives, other participants and the mediator shall hold
the existence, content and result of the mediation in confidence. If such
dispute is not resolved by such mediation or either party elects to terminate
such mediation, the parties shall have the right to resort to any remedies
permitted by law. All defenses based on passage of time shall be tolled pending
the termination of the mediation. Nothing in this clause shall be construed to
preclude any party from seeking injunctive relief in order to protect its rights
pending mediation. A request by a party to a court for such injunctive relief
shall not be deemed a waiver of the obligation to mediate. During the pendency
of the mediation, pricing for Material shall be held at the then existing
levels.
71. ENTIRE AGREEMENT
This Agreement shall incorporate any additional typed or
written provisions on the front side of Company's Orders issued and accepted
pursuant to this Agreement and shall constitute the entire agreement between the
parties with respect to the subject matter of this Agreement, and this Agreement
and the Order(s) and shall not be modified or rescinded, except by a writing
signed by Supplier and Company. In the event of a conflict between this
Agreement and the typed provisions on the Order, this Agreement shall prevail.
All references in these terms and conditions to this Agreement or to work,
services, Material, equipment, products, software or information furnished
under, in performance of, pursuant to, or in contemplation of, this Agreement
shall also apply to any Orders issued pursuant to this Agreement. Printed
provisions on the reverse side of Company's Orders and all provisions on
Supplier's forms shall be deemed deleted, alterations, addenda, or otherwise,
shall be of no force and effect, unless expressly consented to by the parties in
writing. Estimates or forecasts furnished by Company shall not constitute
commitments. The provisions of this Agreement supersede all contemporaneous oral
agreements and all prior oral and written quotations, communications, agreements
and understandings of the parties with respect to the subject matter of this
Agreement. The term "Work" as used in this Agreement may also be referred to as
"services."
AT&T PARADYNE CORPORATION LUCENT TECHNOLOGIES INC.
By: /s/ W. Preston Granbery By: /s/ Carleton S. Fiorina
----------------------------- ------------------------------
Name: W. Preston Granbery Name: Carleton S. Fiorina
----------------------------- ------------------------------
27
<PAGE> 28
Title: Authorized Agent Title: Vice President
----------------------------- ------------------------------
Date: 7/31/96 Date:
----------------------------- ------------------------------
CAP ACQUISITION CORP.
By: /s/ David M. Stanton
-----------------------------
Name: David M. Stanton
-----------------------------
Title: President
-----------------------------
Date: 7/31/96
-----------------------------
28
<PAGE> 29
EXHIBIT A
MATERIAL PRICE AND LEAD TIME
[***]
- -------------------
*Confidential Treatment Requested
A-1
<PAGE> 30
EXHIBIT B
MATERIAL ON CONSIGNMENT
The terms set forth herein (the "Consignment Arrangement")
will govern any Material on Consignment ("Consigned Material") at a Company
location, each as mutually agreed upon by Company and Supplier and as set forth
in Schedule(s) in the form attached hereto.
1. TERM OF CONSIGNMENT ARRANGEMENT - The term of the
Consignment Arrangement shall be specified in the acknowledged Consignment
Purchase Order.
2. FOB - Consignment site.
3. MATERIAL MANAGEMENT - Supplier shall ship all Consigned
Material via any nationally recognized carrier selected by Company and Supplier.
At the beginning of each 12 month period of this Consignment
Arrangement or otherwise agreed to by Company and Supplier, Company shall issue
to Supplier a "Master Purchase Order" for each Consigned Material. The Master
Purchase Order shall contain Company's twelve (12) month good faith estimated
annual usage for each Consigned Material. The estimated annual usage will be
provided by the Company solely for administrative purpose and shall not
constitute a commitment by the Company to purchase from Supplier the amount set
forth in the estimated annual usage.
Each week the Company shall send to Supplier a Forecast (the
"Weekly Consignment Forecast") for each Consigned Material. The Weekly
Consignment Forecast shall contain an updated twelve (12) month forecast,
including the Company's good faith weekly estimated requirements for a minimum
of the next 26 weeks, for each Consigned Material. Such Forecast shall be issued
by the Company solely for Supplier's Material planning purposes and shall not
constitute a commitment by the Company to purchase from Supplier the amount of
Material set forth in such Weekly Consignment Forecast. The Weekly Consignment
Forecast may differ from the Master Purchase Order estimated annual usage. In
addition, the Weekly Consignment Forecast shall (a) show the quantities
delivered by Supplier that are currently in Consigned Material storage (as
hereinafter defined) and (b) list by part number the amount of Material
withdrawn by Company from Consigned Material storage during such week and the
balance of such Consigned Material Storage. Supplier shall invoice Company each
month for Consigned Material withdrawn by Company in the previous month.
Supplier shall review the Weekly Consignment Forecast and
shall adjust Consigned Material Storage Stock support levels and Supplier's work
in process as set forth herein for the mutually agreed to quantities. Supplier
shall manufacture and ship enough Material into Consigned Material Storage so
that Consigned Material Storage contains the following: one (1) week forecast
plus a level of safety stock not to exceed the next three (3) weeks of Company's
forecast for such part numbers based on the then current Weekly Consignment
Forecast.
B-1
<PAGE> 31
Supplier shall have the Material Management (which shall be
based upon the Weekly Consignment Forecast) responsibility for Company's
Consignment Site for the Consigned Material. Supplier shall be responsible for
notifying Company of inventory fluctuations considered to be excessive by
Supplier. If upside fluctuations are deemed excessive by Supplier, Supplier and
Company shall work together on a delivery plan mutually agreeable to both
parties.
Company's commitment to purchase Consigned Material shall be
only those quantities withdrawn by Company from Consigned Material Storage and
as set forth below. Returns to Consigned Material Storage must be with the prior
written approval of Supplier.
If at any time during the twelve (12) month period covered by
a Master Purchase Order, this Consignment Arrangement is terminated by either
party as set forth below, or if Company changes its Weekly Consignment Forecast
to eliminate or materially reduce the quantities forecasted under the Master
Purchase Order, or if this Consignment Arrangement expires and is not renewed
during the term of this Agreement, Company's liability to Supplier shall be to
purchase the sum of the first four (4) weeks of gross forecasted amounts for
such terminated, eliminated or materially reduced or expired items (as
forecasted in the previous week's Weekly Consignment Forecast) and Supplier's
work in process and/or raw materials and components. Company's liability for
work in process and/or raw materials and components should not exceed the
Supplier's Lead Time referenced on Exhibit A of gross forecasted amounts for
such terminated, eliminated or materially reduced or expired items (as
forecasted in the previous week's Weekly Consignment Forecast), Such total of
gross forecasted amounts shall be referred to in this clauses as "Forecasted
Material". For that portion of the Forecasted Material at Supplier's location,
Company's obligation under this subsection shall be limited to the sum of (a)
[***] and (b) [***], (i) [***] and (ii) [***] other customers in the ordinary
course of business over a reasonable period of time); less [***] set forth in
(a) and (b) above. If requested by the Company, Supplier agrees to substantiate
such costs and purchase Price with proof reasonable satisfactory to Company.
Upon such termination, elimination, material reduction or
expiration the parties shall meet promptly to determine the finished Materials,
work in process, components and raw materials for which Company is responsible
as set forth above. Supplier shall, at Company's option and expense, ship to
Company or scrap such finished Materials, work in process and raw materials and
components for which Company is liable under this clause.
4. MATERIAL ON CONSIGNMENT - Supplier shall deliver the
Consigned Material as set forth below:
a. Contact Person - The Company's contact person for
each Consignment Arrangement shall be set forth in Company's Weekly Consignment
Forecast.
b. Consigned Material Storage - Upon receipt of each
shipment of Consigned Material, Company shall cause it to be placed in
segregated storage ("Consigned Material Storage") at the Consignment Site
partitioned or marked to evidence Supplier's
- -------------------
*Confidential Treatment Requested
B-2
<PAGE> 32
ownership and in such a way that the Consigned Material may be readily
distinguished from other inventory by physical inspection. Supplier may
physically inspect Consigned Material in Consigned Material Storage at mutually
agreeable times during normal business hours. After such inspection, Supplier
may invoice Company for any unaccounted for inventory of Consigned Material at
the Price then in effect under this Agreement.
c. Title and Risk of Loss - Upon receipt of
Consignment Material, risk of loss of such lot shall pass to Company. Upon
withdrawal of any item in such lot by Company from Consigned Material Storage,
title to such item shall pass to Company and sale of that lot shall be deemed to
occur.
d. Terms of Payment - Net 30 days.
e. Withdrawal from Consigned Material Storage -
Company may withdraw or cause to be withdrawn Consigned Material from Consigned
Material Storage at any time. Company shall keep or cause to be kept records and
report to Supplier weekly the quantities withdrawn and the balance of Consigned
Material in Consigned Material Storage as set forth in the clause MATERIAL
MANAGEMENT. Supplier's invoices for the Consigned Material shall be based upon
such withdrawal reports. Supplier shall regularly replace quantities withdrawn
to maintain mutually agreed upon stock support levels as set forth in the clause
MATERIAL MANAGEMENT.
f. Shipping Information - Promptly after each
shipment of Consigned Material under this Agreement, Supplier shall furnish to
Company and if Company so requests, to a designated party at the Consignment
Site, a written report setting forth at least the following (i) Company's Order
number; (ii) Consignment Destination; (iii) Origin location; (iv) Name of
Carrier and Truck number (v) lot identification number of each lot; (vi) net
weight of each lot; and (vii) description and quantity of Material in each lot.
g. Personal Property Taxes - Supplier shall be
responsible for the reporting and payment of personal property taxes, if any, on
any Consigned Material in such Consigned Material Storage by Company, except
state and local sale use taxes, as applicable.
h. Transportation Loss - As to loss of or damage to
Consigned Material which is reasonably apparent upon delivery from the carrier,
Company shall cause the following to be done:
(i) At time of delivery, mark the delivery
receipt before signing with appropriate exceptions describing the damage;
(ii) At the time of delivery, request the
carrier to either inspect the loss or damage and forward to Supplier a signed
exception report outlining the extent of loss or damage, or issue a written
waiver of inspection and forward it to Supplier; and
(iii) Within ten days after delivery,
inspect the damaged Material and notify Supplier whether Company will (a) accept
it at a mutually agreed lower Price reflecting the transportation damage (if
Supplier had the risk of loss), or (b) reject it. Rejected items shall
B-3
<PAGE> 33
be set aside by Company pending disposition by Supplier as soon as reasonably
possible but no later than sixty days following delivery, after which time any
such damaged Consigned Material remaining undisposed of shall be deemed to be
abandoned and Company may dispose of it as it sees fit without any obligation to
Supplier.
As to concealed transportation damage, if after withdrawal of
any Consigned Material from Consigned Material Storage, Company discovers
concealed transportation damage, Company shall notify Supplier within five days
of such discovery, take reasonable steps to preserve evidence of how such damage
occurred and take all actions provided in for (b)(iii) above. Where Consigned
Material Storage is located on premises other than Company premises, Company
shall direct the owner of such other premises to comply with the procedure set
forth in this clause.
5. OPTION TO EXTEND - Company shall have the right to extend
the period specified in the clause TERM OF CONSIGNMENT ARRANGEMENT with the
consent of Supplier for up to six(6) months without any increase in Price by
giving Supplier at least thirty (30) days prior written notice.
6. TERMINATION (Consignment Arrangement Only) - Either party
may terminate the Consignment Arrangement with prior written notice of at least
sixty (60) days. Upon receipt or sending such notice, as applicable, Supplier
shall immediately stop work as specified in the notice. Company's liability to
Supplier with respect to such termination shall be limited to the purchase of
the quantities set forth in Clause 3 above, such quantities to be counted as of
the termination date set forth in the notice.
7. CONSIGNMENT SERVICE PERFORMANCE - The Company intends to
monitor the delivery performance of Supplier via special performance reports as
set forth in the Clause SERVICE in the Supply Agreement. In addition, so long as
Company complies with its obligations pursuant to Section 4, Material for
Consignment purposes, Supplier shall strive to achieve or exceed [***]
performance rating for percent of forecasted quantity on hand when measured.
- -------------------
*Confidential Treatment Requested
B-4
<PAGE> 34
EXHIBIT C
PULL REPLENISHMENT ARRANGEMENT
The terms set forth herein (the "Pull Replenishment
Arrangement") will govern any Material on Pull Replenishment at a Company
location, each as mutually agreed upon by Company and Supplier.
1. TERM OF PULL REPLENISHMENT ARRANGEMENT - The term of the
Pull Replenishment Arrangement shall be specified in the Pull Replenishment
Purchase ("PRP") Order acknowledged by Supplier.
2. PULL REPLENISHMENT PROCESS - For Pull Replenishment
Material, Company shall prepare and deliver to Supplier an annual PRP order(s)
establishing the minimum release quantity for Material. On Monday of each week,
Company shall provide Supplier with an updated twelve (12) month forecast,
including the Company's reasonable and good faith estimated requirements for a
minimum of the next twenty six (26) weeks, for each Pull Replenishment Material
(the "Forecast"). Supplier will receive "Request to Ship" notices as Company
uses Material and requires replenishment of Material. Supplier will deliver
within two to three days of Supplier's receipt of the Request to Ship" 100% of
the quantity designated in the "Request to Ship" notice. Supplier shall
reference the annual PRP order number on its shipping and invoicing documents.
The Forecast received weekly from Company shall be for planning purposes only
and, except to the extent set forth below, shall not be deemed a commitment by
the Company to purchase from Supplier the amount set forth in the Forecast.
Company will acknowledge receipt of Material delivered in the prior week via the
succeeding week's Forecast.
Supplier shall maintain (a) an inventory of inspected finished
Pull Replenishment Material equal to the amount of such Material forecasted to
be used by the Company during weeks one (1) through three (3) of the then
current Forecast and (b) work in process and/or raw materials and components in
the aggregate sufficient to manufacture such Pull Replenishment Material
equivalent to weeks four (4) through eight (8) of then current Forecast. From
time to time, the parties will review the foregoing levels of inventory, work in
process and/or raw material and components and will negotiate on lower inventory
levels, work in process and materials and components based on Supplier's
satisfactory Pull Replenishment service performance.
Supplier shall review the weekly Forecast and make adjustments
to Supplier's inspected inventory of Pull Replenishment Material, work in
process and raw materials and components based upon increases/decreases in the
Forecast. Supplier shall be responsible for notifying Company of inventory
fluctuations considered to be excessive by Supplier. If upside fluctuations are
deemed excessive by Supplier, Supplier and Company shall work together on a
delivery plan mutually agreeable to both parties.
The Company's commitment for the purchase of Pull
Replenishment Material shall be limited to (a) the quantities set forth in the
"Request to Ship" notice of the Forecast and (b) the finished and inspected by
Supplier inventory of Pull Replenishment Materials, work in process, raw
materials and components as set forth above.
C-1
<PAGE> 35
The Company's liability for the items above shall be limited
to the sum of (a) [***]; (b) [***]; and (c) for [***].
3. TERMINATION OF PULL REPLENISHMENT ARRANGEMENTS - Company
may at any time terminate any or all annual PRP orders, in whole or in part,
upon thirty (30) days written notification to Supplier. Upon receipt of such
notice, Supplier shall immediately stop work as specified in the notice to
Supplier. Company liability to Supplier with respect to such termination shall
be as set forth in paragraph 2 above. Upon such termination, the parties shall
meet promptly to determine the finished Pull Replenishment Material, work in
process and raw material and components for which Company is responsible as set
forth above. Supplier shall, at Company's option and expense, ship to Company or
scrap such finished Material, work in process and raw materials and components
for which Company is liable under this Agreement.
4. PULL REPLENISHMENT SERVICE PERFORMANCE - The Company
intends to monitor the delivery performance of Supplier via special performance
report set forth in the clause SERVICE of the Supply Agreement. Supplier will
strive to achieve or exceed the service goals established in the clause SERVICE.
- -------------------
*Confidential Treatment Requested
C-2
<PAGE> 36
EXHIBIT D
DEMAND - PULL
The terms set forth herein (the "Demand Pull Arrangement")
will govern any Material on Demand Pull at a Company location, each as mutually
agreed upon by Company and Supplier.
1. TERM OF DEMAND PULL ARRANGEMENT - The term of the Demand
Pull Arrangement shall be specified in the Demand Pull purchase (DPP) order
acknowledged by Supplier.
2. DEMAND PULL PROCESS - For Demand Pull Material, Company
shall prepare and deliver to Supplier an annual DPP order(s). On Monday of each
week, Company shall provide Supplier with an updated twelve (12) month forecast,
including the Company's reasonable and good faith estimated requirements for a
minimum of the next twenty six (26) weeks, for each Demand Pull Material (the
"Forecast"). The Forecast may also contain authorization by Company to Supplier
to ship within twenty-four hours and Supplier will deliver within the week of
Supplier's receipt of the Forecast provided said Forecast is actually received
on Monday, 100% of the quantity designated in the column entitled "Ship Action"
to be received by Thursday of the current week. Supplier shall reference the
annual DPP order number on its shipping and invoicing documents. The Forecast
shall be for planning purposes only and except to the extent set forth below,
shall not be deemed a commitment by the Company to purchase from Supplier the
amount set forth in the annual DPP order or the Forecast. Company will
acknowledge receipt of Material delivered in the prior week via the succeeding
week's Forecast.
Supplier shall maintain (a) an inventory of inspected finished
Demand Pull Material equal to the amount of such Material forecasted to be used
by the Company during weeks one (1) through three (3) of the then current
Forecast and (b) work in process and/or raw materials and components in the
aggregate sufficient to manufacture such Demand Pull Material equivalent to
weeks four (4) through eight (8) of then current Forecast. From time to time,
the parties will review the foregoing levels of inventory, work in process
and/or raw material and components and will negotiate on lower inventory levels,
work in process and materials and components based on Supplier's satisfactory
demand pull service performance.
Supplier shall review the weekly Forecast and make adjustments
to Supplier's inspected inventory of Demand Pull Material, work in process and
raw materials and components based upon increases/decreases in the Forecast.
Supplier shall be responsible for notifying Company of inventory fluctuations
considered to be excessive by Supplier. If upside fluctuations are deemed
excessive by Supplier, Supplier and Company shall work together on a delivery
plan mutually agreeable to both parties.
The Company's commitment for the purchase of Demand Pull
Material shall be limited to (a) the quantities set forth in the "Ship Action"
column of the Forecast and (b) the finished and inspected by Supplier inventory
of Demand Pull Materials, work in process, raw materials and components as set
forth above.
D-1
<PAGE> 37
The Company's liability for the items above shall be limited
to the sum of (a) the [***]; (b) [***]; and (c) [***]; less (d) [***] set forth
in (a), (b), and (c) of this paragraph. If requested by the Company, Supplier
will substantiate such costs and purchase prices with proof reasonably
satisfactory to the Company.
3. TERMINATION OF DEMAND PULL ARRANGEMENTS - Company may at
any time terminate any or all annual DPP orders, in whole or in part, upon
thirty (30) days written notification to Supplier. Upon receipt of such notice,
Supplier shall immediately stop work as specified in the notice to Supplier.
Company liability to Suppliers with respect to such termination shall be as set
forth in paragraph 2 above. Upon such termination, the parties shall meet
promptly to determine the finished Demand Pull Material, work in process and raw
material and components for which Company is responsible as set forth above.
Supplier shall, at Company's option and expense, ship to Company or scrap such
finished Material, work in process and raw materials and components for which
Company is liable under this Agreement.
4. DEMAND PULL SERVICE PERFORMANCE - The Company intends to
monitor the delivery performance of Supplier via special performance report set
forth in the clause SERVICE. Supplier will strive to achieve or exceed the
service goals established in the clause SERVICE of the Supply Agreement.
- -------------------
*Confidential Treatment Requested
D-2
<PAGE> 38
EXHIBIT E
FLEXIBLE ORDERING AND PAYMENT SPECIFICATIONS
"How to Get Started on Electronic Procurement Communications
with AT&T" dated May 1, 1995 is attached hereto and made part of this
Attachment.
<PAGE> 1
Exhibit 10.31
***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections
200.80(b)(4), 200.83 and 240
EXCLUSIVITY AND AMENDMENT AGREEMENT
THIS IS AN EXCLUSIVITY AND AMENDMENT AGREEMENT ("Amendment") by and
between LUCENT TECHNOLOGIES INC., a Delaware corporation ("Lucent"), PARADYNE
CORPORATION (formerly "AT&T Paradyne Corporation"), a Delaware corporation
("Paradyne"), and GLOBESPAN SEMICONDUCTOR INC. (Formerly "CAP Acquisition
Corp."), a Delaware corporation ("GlobeSpan").
RECITALS
WHEREAS, Lucent, Paradyne, GlobeSpan (or their controlling entities), and other
entities over which Lucent, Paradyne or GlobeSpan have control, have entered
into certain agreements with respect to, arising from or in relation to the sale
by Lucent to Paradyne Partners LP of AT&T Paradyne Corporation in 1996;
WHEREAS, Lucent, Paradyne and GlobeSpan now wish to amend certain of the
foregoing agreements and to assume the rights and obligations stated herein;
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Lucent, GlobeSpan and Paradyne hereby agree as
follows:
AGREEMENT
Unless otherwise defined herein, all capitalized terms shall have the meanings
assigned to them in the Volume Purchase Letter or the Supply Agreement, as such
agreements are hereinafter defined.
1. NOTE. The parties acknowledge the cash payment from Lucent to Paradyne
on May 5, 1998, in the amount of Eight Million One Hundred Thirty-six
Thousand Six Hundred and Sixty-nine Dollars and Fifty-three Cents
($8,136,669.53) which represents a Ten Million Dollar ($10,000,000.00)
cash payment to Paradyne net of One Million Eight Hundred and
Sixty-three Thousand Three Hundred and Thirty Dollars and Forty-seven
Cents ($1,863,330.47) of interest due Lucent on the Core Business Note
for the period January 1, 1998 through March 31, 1998. In addition to
this payment, the parties agree that the Core Business Note issued by
AT&T Paradyne Corporation in favor of Lucent on July 31, 1996 (the
"Note"), in the original principal amount of Seventy-Six Million Two
Hundred Fifty Thousand Dollars ($76,250,000) is hereby cancelled. As of
March 31, 1998, the principal and deferred interest balance on the Note
was Sixty Five Million Seven Hundred Eleven Thousand Six Hundred Fifty
Four Dollars and Twenty-nine Cents ($65,711,654.29). Lucent hereby
forgives payment of principal in the amount of Sixty Three Million
Dollars ($63,000,000) and all accrued interest thereon for the period
beginning April 1, 1998 through August 6, 1998 in the amount of
Nineteen Thousand Eight Hundred and Forty-nine Dollars and Thirty-two
Cents ($19,849.32) per day. The remaining balance of Two Million Seven
Hundred and Eleven Thousand Six Hundred Fifty-four Dollars and
Twenty-nine cents ($2,711,654.29) plus accrued interest on such
remaining balance for the period beginning
<PAGE> 2
April l, 1998 through August 6, 1998 will be paid in accordance with
the terms of the payoff letter ("Payoff Letter") attached hereto as
EXHIBIT A ("PAYOFF LETTER").
2. WARRANT. The parties agree that the definition of "Expiration Date" set
forth in SECTION 1 ("DEFINITIONS") of the Warrant to Purchase Common
Stock of CAP Acquisition Corp. (also referred to as Warrant No. 1)
entered into on July 31, 1996, by and between CAP Acquisition Corp. and
Lucent shall be deleted in its entirety and replaced with the
following: "Expiration Date" shall mean the earlier of (i) June 30,
2001; or (ii) the date on which the Warrant shall be cancelled pursuant
to subsection 2.2(d).
3. SECURITY AGREEMENT. The parties agree that the Security Agreement
("Security Agreement") entered into on July 31, 1996 by and between
AT&T Paradyne Corporation and Lucent is hereby terminated. Lucent shall
deliver executed financing statements as evidence such termination in
accordance with the terms of the Payoff Letter.
4. GUARANTY. The parties agree that the Guaranty ("Guaranty") entered into
on July 31, 1996, by and between Paradyne Canada, Ltd., a Canadian
corporation, and Lucent is hereby terminated.
5. STOCK PLEDGE AGREEMENT. The parties agree that the Stock Pledge
Agreement ("Stock Pledge Agreement") entered into on July 31, 1996, by
and between Paradyne Acquisition Corp., a Delaware corporation,
("PAC"), AT&T Paradyne Corporation and Lucent is hereby terminated.
Lucent shall deliver the original stock certificate to PAC in
accordance with the terms of the Payoff Letter.
6. VOLUME PURCHASE LETTER. The parties agree that the volume purchase
letter ("Volume Purchase Letter") entered into on July 31, 1996, by
and between AT&T Paradyne Corporation and CAP Acquisition Corp., is
hereby terminated. All references in the Volume Purchase Letter
contained in the Supply Agreement (as hereinafter defined) shall be
deleted, except to the extent inconsistent with the intent of this
Amendment.
7. SUPPLY AGREEMENT: MARKET RIGHTS. The parties agree that SECTION 8
("MARKET RIGHTS") of the Supply Agreement ("Supply Agreement") entered
into on July 31, 1996, by and among AT&T Paradyne Corporation, CAP
Acquisition Corp., and Lucent, shall be deleted in its entirety and
replaced with the following:
8. MARKET RIGHTS.
(a) Supplier will supply 100% of Company's requirements for Access
Products (as defined in Subsection 8(d)) for resale as "Stand-Alone
Products" through June 30, 2001. Stand-Alone Products means products
that operate individually or as a component in a Supplier system.
Examples of Stand-Alone Products are the Supplier 3160 DSU/CSUs and/or
cards that are inserted into a carrier to create a system. An example
of a product that is not Stand-Alone would be a board or component that
is to be inserted into another vendor's product as an OEM in order to
complete a function that the other vendor wishes to provide. Company
shall not purchase products for resale as Stand-Alone Products that
2.
<PAGE> 3
are substantially similar in design, functionality, and operating
characteristics to and compete in the marketplace with those Access
Products defined in Subsection 8(d), and as they basically exist on the
date of this Amendment. With respect to Company's internal requirements
for Access Products, Supplier shall have Preferred Supplier status
("Preferred Supplier") through the same period. Preferred Supplier
status shall mean, with respect to Company's internal requirements,
that Supplier shall be given the first opportunity to supply such
products. Supplier's ability to sell to any customer will not be
restricted. Supplier will use diligent efforts to meet such
requirement, shall be free to contract at its discretion with third,
parties to manufacture products of its design or otherwise assist in
fulfilling the requirements for its Access Products.
(b) Quarterly relationship meetings will occur with alternating sites
between Supplier and Company. Attendees shall include decision level
making representatives of each party. The host company shall assume
agenda and minute responsibility. Minutes require joint approval or
noted objections but such minutes should not be construed as binding or
enforceable legal agreements. Interim working group meetings will
continue similar to the structure today.
(c) Appropriate concepts contained in the Supply Agreement, modified to
be consistent with this Agreement, will continue including best price
(as amended for the agreed upon process for international sales and
excluding special bid situations, governmental sales, other unique
sales opportunities and an added, provision for comparability of
quantities), forecasting, ordering and delivery terms and a
benchmarking provision.
(d)-(i) Company shall satisfy 100% of its requirements for Access
Products for resale as "Stand-Alone Products" during the term of this
Amendment from Supplier for the following core products, their
enhancement, and their normal evolution within currently defined market
segments:
1. ANALOG PRODUCTS [***]
2. SUBRATE DSUs [***]
3. TI CSU'S AND TI DSU/CSUs [***]
4. TI ACCESS MULTIPLEXERS [***]
5. FRAME RELAY ACCESS UNITS
a) [***]
b) T3 ATM "OVER" FRAME RELAY NETWORK ACCESS PRODUCTS [***]
c) NxTI ATM/FRAME RELAY NETWORK ACCESS PRODUCTS [***]
- -------------------
*Confidential Treatment Requested
3.
<PAGE> 4
(ii) Company shall not be restricted by this Agreement for Access
Products in the following market segments:
L. TI ACCESS MULTIPLEXERS [***]
2. T3 ATM "OVER" FRAME RELAY OUTSIDE THE SCOPE OF
"FRAMEAWARE" APPLICATIONS.
3. NxTL ATM "OVER" FRAME RELAY OUTSIDE THE SCOPE OF
"FRAME AWARE" APPLICATIONS.
4. ALL ATM PRODUCTS MANUFACTURED BY COMPANY, UNLESS
OTHERWISE PROHIBITED UNDER THE TERMS OF THE
NONCOMPETITION AGREEMENT DATED 7/31/96 BETWEEN
COMPANY AND SUPPLIER.
5. ALL VOICE OVER PRODUCTS, RFC 1490 TRANSLATION
DEVICES, AND FRAME RELAY ROUTING-DEVICES [***]
(iii)Exception Statements-
1. APPLICABLE ONLY TO THE SUPPLIER'S ANALOG PRODUCTS OF
SECTION 8(d)(i)-1 - Company shall not be obligated to purchase
100% of its requirements from Supplier unless the products are
currently embedded, in Company designs, drawings, or
configurators. Company will not proactively encourage current
analog customers to replace Supplier's analog products with
like products from other manufacturers. Company shall not be
obligated to purchase 100% of its requirements from Supplier
if customer has called for a specific vendor's product in an
RFP or sale. In those cases where customer has called for a
specific vendor's product, Company may not make a concerted
effort to expend marketing dollars, include as part of an
offer, promote, pay commission or incentives, nor PEC/Com code
such products for general availability of the other vendor's
analog products. Company should first attempt to respond with
Supplier's equipment and revert to another vendor as a last
resort.
2. APPLICABLE ONLY TO THE SUPPLIER'S TI CSU AND TI DSU/CSUs OF
SECTION 8(d)(i)-3 - Company shall not be obligated to purchase
100% of its requirements from Supplier to respond to special
situations where the customer has called for a specific
DSU/CSU vendor product in a RFP or sale on a one-off basis.
Company may not, however, make any concerted effort to expend
marketing dollars, include as pan of an offer, promote, pay
commission or incentives nor PEC/Com code products for general
availability, of the other vendor's DSU/CSU products. Company
should first attempt to respond with Supplier's equipment and
revere to another vendor as a last resort.
- -------------------
*Confidential Treatment Requested
4.
<PAGE> 5
3. In all of the above cases, Company will provide Supplier
with written notification of the one-off, sale of the other
vendor's products. Company shall provide information
consisting of product, type, dollar value of the transaction,
and rationale for the resale of the other vendor's product.
4. Excluded from the exclusivity obligations of rigs Amendment
are products purchased by Acquired Companies, where prior to
acquisition by Company, these Acquired Companies purchased and
included substantially similar product from other sources in
their systems designs. However, not excluded are substantially
similar Stand-Alone Products where a Supplier Access Product
is or becomes a feasible alternative. To determine if such
substantially similar product is or becomes a feasible
alternative, Company and Supplier shall utilize the
Benchmarking provisions, and if required, follow the dispute
resolution process outlined under Benchmarking. Use of "Other
Sourced Product" in any form other than the original offer
will be subject to the exclusivity, provisions and not an
exception under subsection 4. Additionally, if after
acquisition, the Acquired Company develops a need for an
Access Product substantially similar to those defined herein,
then they shall satisfy 100% of this requirement from
Supplier. In no way is this meant to relieve Company of its
obligations under the Noncompetition Agreement, dated 7/31/96.
(e) Requests for Access Product enhancements and new features or new
products shall be processed through the Quarterly Meeting process, or
as needed, and decisions to proceed shall be based upon a business
relationship, that assures a positive business case for each party.
Upon failure to reach an agreed upon action plan, the resolution
escalation process shall go to Supplier CEO and Company Purchasing Vice
President or designee. In the event of a dispute, the "industry
consultant" steps described under SECTION 9 ("BENCHMARKING"), as
amended in this Amendment, may be invoked by either party.
8. SUPPLY AGREEMENT: BENCHMARKING. The parties agree that SECTION 9
("BENCHMARKING") of the Supply Agreement shall be deleted in its
entirety and replaced with the following:
9. BENCHMARKING
On a quarterly basis, Company and Supplier shall, if requested
by either party, undertake to benchmark price, quality, product
functionality, and service performance of material offered by
Supplier. Price shall mean general pricing issues or trends, not
specific opportunities which shall, continue to be handled under
the Supplier "P Quote" process. Product functionality shall mean
a major function that represents an industry trend and which is
considered essential to compete in the current marketplace and
preserve market share. Singular features that Supplier may or
may not have as part of the product offering would not qualify
for benchmarking. The decision to benchmark will be presented
and developed at regularly scheduled quarterly business
meetings. Prior to any benchmarking, both companies shall agree
5.
<PAGE> 6
upon the framework to conduct the benchmarking process (see
Exhibit B). This shall include clear identification of industry,
leaders to be benchmarker.
Following the benchmark study, Supplier and Company shall review
such benchmark information and Supplier shall develop a plan of
action for improving Material Price, quality, product
functionality, and service performance if such benchmark
information indicates improvements are needed when compared to
the then existing standards of the industry of comparable Price,
quality, product functionality and service. Supplier shall
introduce improvements that assure Company that Material is
meeting or exceeding competitive benchmarks with respect to: (1)
Material Price within thirty (30) days after the later of such
review or objective assessment as described below, and (2) for
Material quality, product functionality, or service performance
within a mutually agreed upon period after the later of such
review or objective assessment. Supplier will provide a plan for
introducing such improvements within the first thirty (30) days
of such review objective assessment. If Supplier fails to
perform as described in items 1 or 2 above, Company shall have
the right to competitively quote such Material in the
marketplace. Company will give Paradyne a thirty (30) day prior
written notice of such intent to place business with any other
vendor and provide Supplier that thirty (30) day period to match
or beat such other offer received by Company. If Supplier
matches or beats such other offer, Company agrees to continue to
place Orders with Supplier at the new price, quality, product
functionality, and service levels subject to the terms and
conditions of this Amendment. If Supplier does not match or beat
Company's offer, Company may elect to purchase Material from
another source without further obligation of exclusivity for
those products. Where Company and Supplier have agreed upon a
schedule and the scheduled General Availability for such new
feature, functionality or quality slips without contributing
fault by Company, Company may procure a competitive product.
In the event of a dispute with respect to approach, procedure or
results of the benchmarking, the parties agree to promptly
retain an independent, non-affiliated consultant experienced in
the industry to provide an objective assessment of the issue(s)
in dispute. The determination of the consultant shall be final
and binding.
This Amendment is the complete and exclusive statement of the parties with
respect to this subject matter, and merges and supersedes all communications,
negotiations and agreements between the parties with respect thereto. This
Amendment may be executed in counterparts, each of which shall be deemed an
original, and ail of which together shall constitute one and the same
instrument. Except as expressly modified herein, all agreements between, the
parties shall remain fully in effect and shall continue to bind the parties.
Without limiting the generality of the foregoing, the parties understand and
agree that the Noncompetition Agreement of July 31, 1996, by and among Lucent,
Paradyne Partners L.P., Paradyne Acquisition Corp., AT&T Paradyne Corporation,
and CAP Acquisition Corp., shall remain fully in effect and shall continue to
bind the parties.
6.
<PAGE> 7
AGREED TO:
LUCENT TECHNOLOGIES INC.
BY: /s/
----------------------------------------------
TITLE: Vice President, Enterprise Networks
-------------------------------------------
DATE: 8/6/98
-------------------------------------------
PARADYNE CORPORATION
BY: /s/ Andrew S. May
----------------------------------------------
TITLE: CEO
-------------------------------------------
DATE: 8/6/98
--------------------------------------------
GLOBESPAN SEMICONDUCTOR INC.
BY: /s/
----------------------------------------------
TITLE: President and CEO
-------------------------------------------
DATE: 8/28/98
--------------------------------------------
7.
<PAGE> 8
EXHIBIT A
PAYOFF LETTER
LUCENT TECHNOLOGIES INC.
600 MOUNTAIN AVENUE. ROOM 6A-408
MURRAY HILL, NEW JERSEY 07974
August 6, 1998
Paradyne Corporation
8545 126th Avenue North
Largo, Florida 33779-2826
RE: PAYOUT ARRANGEMENTS AND FORGIVENESS OF DEBT
Ladies and Gentlemen:
We refer to the Core Business Note dated as of July 3l, 1996 (as
amended and in effect from time to time, the "Note") issued by Paradyne
Corporation f/k/a AT&T Paradyne Corporation ("Paradyne") (the "Borrower") in
favor of Lucent Technologies Inc. (the "Lender") in the original principal
amount of $76,250,000.00.
The Borrower has advised the Lender that it intends to repay certain
amounts due and owing under the Note (the "Loans") and has requested that the
Lender provide the Borrower with appropriate pay-off figures of the principal,
interest and other amounts owing by the Borrower to the Lender under the Note.
The pay-off figures for the Borrower as of August 6, 1998 (the "Computation
Date") under the Note are as follows (collectively, together with any additional
interest accruing, or fees and expenses incurred, after the Computation Date,
that must be paid by the Borrower, the "Pay-Off Amount"):
<TABLE>
<CAPTION>
<S> <C>
Principal: $2,711,654.29
Interest: $ 109,358.09
Total Amount Owing $2,821,012.37
</TABLE>
From and after the Computation Date and until the Pay-Off Date (as
defined, below), interest shall continue to accrue on the unpaid principal
amount of the Loans at the rates set forth in the Notes. The per diem accrual of
interest on the Loans would be $854.36. Upon request of the Borrower, the Lender
shall provide the Borrower with a revised figure for the amount of interest to
be paid as part of the Pay-Off Amount plus any additional fees and expenses
incurred since the Computation Date that must be paid as part of the Pay-Off
Amount.
Lender hereby waives the five day notice requirement set forth in
Section 2(b) of the Note.
8.
<PAGE> 9
Effective immediately upon receipt of the Pay-Off amount Lender hereby
releases its lien and security interest in Borrower's assets and relinquishes
any and all right, title and interest Lender may have in such assets. Promptly
after the date hereof, but in no event later than three (3) business days,
Lender agrees to execute any UCC financing statements, including releases,
termination statements, or other documentation as Borrower may request. Lender
also agrees to promptly return the shares of capital stock of Borrower and the
stock powers issued in connection therewith to Paradyne Acquisition Corp., a
Delaware Corporation ("PAC"), pursuant to that certain Pledge Agreement dated as
of July 31, 1996 by and between Lender, PAC and Paradyne. Lender further agrees
to promptly return the cancelled Guaranty; (Core Note and Lucent Interim Note)
made by Paradyne Canada Ltd., a Canadian corporation ("Paradyne Canada"), in
favor of Lender on July 3l, 1996 to Paradyne Canada.
Very truly yours,
LUCENT TECHNOLOGIES INC.
By: /s/ D. K. Peterson
-----------------------------
D. K. Peterson
Title: EVP & CFO
--------------------------
Date:
---------------------------
ACCEPTED AND AGREED TO:
PARADYNE CORPORATION F/K/A AT&T PARADYNE
CORPORATION
By: /s/ Andrew S. May
-------------------------------
Title: CEO
----------------------------
Date: 8/27/98
-----------------------------
9.
<PAGE> 10
EXHIBIT B
BENCHMARKING PROCESS
[***] [***]
- -------------------
*Confidential Treatment Requested
10.
<PAGE> 1
Exhibit 10.37
***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections
200.80(b)(4), 200.83 and 230.406
DISTRIBUTOR AGREEMENT
THIS AGREEMENT, dated this 21st day of September, 1993 (the "Effective Date"),
is between TECH DATA CORPORATION, a Florida corporation ("Tech Data"), and AT&T
PARADYNE ("AT&T PARADYNE").
W I T N E S S E T H:
WHEREAS, Tech Data desires to purchase certain Products from AT&T
PARADYNE from time to time; and
WHEREAS, AT&T PARADYNE desires to sell certain Products to Tech Data in
accordance with the terms and conditions set forth in this Agreement; and
WHEREAS, AT&T PARADYNE desires to appoint Tech Data as its
non-exclusive distributor to market Products within the territory defined
below-,
NOW, THEREFORE, in consideration of the mutual promises herein
contained and other good and valuable consideration, Tech Data and AT&T PARADYNE
hereby agree as follows:
ARTICLE I. TERM OF AGREEMENT
1.1 Term of Agreement During the term of this Agreement AT&T PARADYNE will
provide to Tech Data the Products so forth in Purchase Orders (as
defined herein) in accordance with the terms and conditions set forth
in this Agreement. The term of this Agreement shall commence on the
Effective Date and, unless terminated by either party as set forth in
this Agreement shall remain in full force and effect for a term of one
(1) year, and will be automatically renewed for successive one (1) year
terms unless prior written notification of nonrenewal is received at
least sixty (60) days prior to the renewal date.
1.2 AT&T PARADYNE manufacturers, produces, and/or supplies microcomputer
products and desires to grant to Tech Data the right to sell and
distribute certain of those products, as hereinafter defined, upon the
terms and conditions set forth below. Tech Data is engaged in the sale
and distribution of microcomputer products and desires to have the
right to sell and distribute AT&T PARADYNE's products upon said terms
and conditions.
In consideration of the mutual covenants and agreements set forth
below, the parties hereto agree as follows:
1.3 Definitions. The following definitions shall apply to this Agreement.
(a) "Applicable Specification" shall mean the functional
performance, operational and compatibility characteristics of
a Product agreed upon in writing by the parties or, in the
absence of an agreement, as described in applicable
Documentation.
1.
<PAGE> 2
(b) "Documentation" shall mean user manuals, training
materials, product descriptions and specifications, technical
manuals, license agreements, supporting materials and other
printed information relating to the Products, whether
distributed in print, electronic, or video format, in effect
as of the date of the applicable Purchase Order and
incorporated therein by reference.
(c) "Products" shall mean, individually or collectively as
appropriate, hardware, licensed software, Documentation,
developed Products, supplies, accessories, and other
commodities related to any of the foregoing, provided or to be
provided by AT&T PARADYNE pursuant to this Agreement.
(d) "Standard Products" shall mean Products requiring no
changes, alterations, or additions, from those Products
customarily offered by AT&T PARADYNE, described in brochures
and by exhibits.
(e) "Customized Products" shall mean any Products AT&T
PARADYNE must purchase requiring AT&T PARADYNE to perform
changes, alterations, assembly, additions or special packaging
prior to shipping to Tech Data, as described in brochures and
by exhibits.
(f) "Territory" shall mean the United States of America and
its territories and possessions, and Canada.
(g) "Customers" of Tech Data shall include dealers, resellers,
value added resellers and other similar Customers, but shall
not include End Users unless specifically set forth in an
addendum to the Agreement.
(h) "End Users" shall mean final retail purchasers or
licensees who have acquired Products for their own use and not
for resale, remarketing or redistribution, unless specifically
set forth in a separate agreement.
(i) "Services" means any warranty, maintenance, advertising,
marketing or technical support and any other services
performed or to be performed by AT&T PARADYNE.
(j) "Retailer" shall mean any person or entity who sells any
Product to end-users.
(k) "Vendor Non-Affiliated Purchasers" shall mean any person
or entity that purchases the Products from AT&T PARADYNE for
sale to Retailers that is not affiliated with AT&T Corporation
or any AT&T subsidiary.
(l) "Return Price" for any unit of Product shall mean the
amount originally billed Tech Data for such unit less any
rebates or amounts with respect to such unit actually paid or
credited by AT&T PARADYNE to Tech Data, but shall not include
any deductions or offsets for cash, prepaid or early paid
discounts.
1.4 Appointment an Distributor. AT&T PARADYNE hereby grants to Tech Data
the non-exclusive right to distribute Products during the term of this
agreement within the Territory as herein defined. AT&T PARADYNE
reserves the right to appoint other authorized distributors Tech Data
will use its best efforts to promote sales of the Products within the
Territory.
<PAGE> 3
ARTICLE II. PURCHASE ORDERS
2.1 In the event that AT&T PARADYNE shall (i) sell any additional Product
not set forth on Exhibit A, or (ii) introduce a new version or
materially change the specifications or packaging of, or discontinue
any Product, AT&T PARADYNE shall use reasonable efforts to notify Tech
Data, not less than thirty (30) days in advance of such an event and,
in any event, at least as quickly as AT&T PARADYNE notifies any other
reseller.
2.2 Issuance and Acceptance of Purchase Orders. Tech Data may purchase and
AT&T PARADYNE shall sell to Tech Data, Products as described below:
(a) Tech Data may issue to AT&T PARADYNE one or more purchase
orders identifying the Products Tech Data desires to purchase
from AT&T PARADYNE. Each Purchase Order may include other
terms and conditions which are consistent with the terms and
conditions of this Agreement, or which are necessary to place
a Purchase Order, such as billing and shipping information,
required delivery dates, delivery locations, and the purchase
price or charges for Products, including any discounts or
adjustments for special marketing programs. Purchase orders
may be placed by Tech Data by fax or electronically
transferred.
(b) A Purchase Order shall be deemed accepted by AT&T PARADYNE
unless AT&T PARADYNE notifies Tech Data in writing within ten
(10) days after receiving the Purchase Order that AT&T
PARADYNE does not accept the Purchase Order.
(c) AT&T PARADYNE shall accept Purchase Orders from Tech Data
for additional Products which Tech Data is contractually
obligated to furnish to its Customers and does not have in its
inventory upon the termination of this Agreement; provided
Tech Data notifies AT&T PARADYNE of any and all such
transactions in writing within sixty (60) days after the
termination date.
(d) The agreement shall not obligate Tech Data to purchase any
Products or services except as specifically set forth in a
written purchase order.
2.3 Purchase Order Alterations or Cancellations. Fifteen (15) days prior to
shipment of Standard Products, AT&T PARADYNE shall accept an alteration
or cancellation to a Purchase Order in order to: (i) change a location
for delivery, (ii) modify the quantity or type of Products to be
delivered or (iii) correct typographical or clerical errors. Tech Data
may not alter or cancel any Purchase Order for Customized Products
after such time as the Products have been altered to a point where such
Products are no longer capable of resale by AT&T PARADYNE after
reasonable efforts.
2.4 At the request of Tech Data, AT&T PARADYNE shall consign to Tech Data a
reasonable number of demonstration units of the Product to aid Tech
Data and its sales staff in the support and promotion of the Product.
All units consigned will be returned to AT&T PARADYNE in good
condition, reasonable wear and tear excepted, when requested by AT&T
PARADYNE at any time eleven (11) months after delivery to Tech, Data.
<PAGE> 4
2.5 Product Shortages. AT&T PARADYNE agrees to maintain sufficient Product
inventory to permit it to fill Tech Data's orders as required herein.
If a shortage of any Product in AT&T PARADYNE's inventory exists in
spite of AT&T PARADYNE's good faith efforts, AT&T PARADYNE agrees to
allocate its available inventory of such Product to Tech Data in
proportion to Tech Data's percentage of all ATM customer orders for
such Product during the previous twelve (12) months.
ARTICLE III - DELIVERY AND
ACCEPTANCE OF PRODUCTS
3.1 Subsidiaries. AT&T PARADYNE understands and acknowledges that Tech Data
may obtain Products in accordance with this Agreement for the benefit
of subsidiaries of Tech Data. Upon prior approval from AT&T PARADYNE
subsidiaries of Tech Data shall be entitled to obtain Products directly
from AT&T PARADYNE pursuant to this Agreement.
3.2 Acceptance of Products. Tech Data shall, after a reasonable time to
inspect each shipment, accept each Product on the date (the "Acceptance
Date") when such Products and all necessary documentation are delivered
to Tech Data in accordance with the Purchase Order and the Product
specifications. Any Products not ordered or not otherwise in accordance
with the purchase order, such as mis-shipments, overshipments will be
returned to AT&T PARADYNE at AT&T PARADYNE's expense (including costs
of shipment) and shall promptly refund to Tech Data all monies paid in
respect to such Products. Tech Data shall not be required to accept
partial shipment unless Tech Data agrees prior to shipment.
Tech Data shall have the ability to return for credit products which
have boxes that are or become damaged. An offsetting purchase order
will be placed for all bad box returns. In addition, AT&T PARADYNE will
supply to Tech Data, at no charge, any and all missing material(s).
3.3 Defective Products. In the event any Products are received in a
defective condition or not in accordance with AT&T PARADYNE's published
specifications or the documentation relating to such Products, Tech Data
may return the Products for full credit. Products shall be deemed
defective if the Product, or any portion of the Product, fails to
operate properly on initial "burn in", boot, or use as applicable. Tech
Data shall have the right to return any such Products that are returned
to Tech Data from its Customers or End Users within sixty (60) days of
the Products' initial delivery date to the end-user. All freight charges
for returned Products will be paid by Tech Data or Tech Data's Customer.
3.4 Transportation of Products. AT&T PARADYNE shall deliver the Products to
Tech Data at the location shown and on the delivery date set forth in
the applicable Purchase Order or as otherwise agreed upon by the
parties. Charges for transportation of to Products shall be paid by AT&T
PARADYNE. AT&T PARADYNE shall use only those common carriers preapproved
by Tech Data or listed in Tech Data's published routing instructions,
unless prior written approval of Tech Data is received.
<PAGE> 5
3.5 Title and Risk of Loss. AT&T PARADYNE shall ship Product only pursuant
to Tech Data's published routing instructions or purchase orders
received by AT&T PARADYNE. Product shall be shipped F.O.B. Tech Data's
warehouse with title and risk of loss or damage to pass to Tech Data
upon shipment by AT&T PARADYNE to the warehouse designated on Tech
Data's purchase order. The foregoing notwithstanding, all
transportation, insurance and handling charges for any Products so
shipped shall be borne by AT&T PARADYNE.
3.6 Resale of Products by Tech Data. During the term of this Agreement, Tech
Data may market, promote, distribute and resell Products to Customers of
Tech Data, either directly or through its subsidiaries, in accordance
with the following terms and conditions:
(a) AT&T PARADYNE shall amend to Tech Data and each Customer
of Tech Data the same warranties and indemnifications, with
respect to Products purchased and resold hereunder as AT&T
PARADYNE extends to its end-user Customers. The term of
warranties and indemnities extended by AT&T PARADYNE to an End
User shall commence upon delivery of the Product to the End
User.
(b) AT&T PARADYNE shall support the Product and any efforts to
sell the Product by Tech Data, and provide sales literature,
advertising materials and reasonable training and support in
the sale and use of the Product to Tech Data's employees and
Customers, if requested by Tech Data. AT&T PARADYNE also
agrees to provide Tech Data telephone support representative
at no charge during AT&T PARADYNE's normal business hours.
AT&T PARADYNE agrees to provide Tech Data's customers
telephone representatives at no charge, Monday through Friday
9:00 am to 8:00 pm EST.
(c) AT&T PARADYNE shall provide [***] to Tech Data and the
Customers of Tech Data, sales training, marketing support,
advertising materials and technical training in connection
with the resale of Products as are currently offered or that
may be offered by AT&T PARADYNE. Tech Data reserves the right
to [***].
(d) As reasonably necessary and upon mutual agreement, Tech
Data will make its facilities available for, and will assist
AT&T PARADYNE in providing, Product training and support.
(e) Tech Data may advertise and promote the Product and/or
AT&T PARADYNE in a commercially reasonable manner and may use
AT&T PARADYNE's trademarks, service marks and trade names in
connection therewith; provided that, Tech Data shall submit
the advertisement or promotion to AT&T PARADYNE for review and
approval prior to its initial release, which approval shall
not be unreasonably withheld or delayed. Copies of any
proposed publication containing any such mark, name or logo
shall be submitted to AT&T PARADYNE for review and approval,
and Tech Data shall make reasonable commercial efforts to
obtain AT&T PARADYNE's approval at least thirty (30) days
prior to publication.
- ---------------------------
* Confidential Treatment Requested
<PAGE> 6
(f) AT&T PARADYNE shall clearly mark each unit package with
the serial number, product description and machine readable
bar code (employing ISBN or other industry standard bar code)
approved in writing by Tech Data.
3.7 Inventory Adjustment. Notwithstanding anything else to the contrary in
this Agreement, at any time during the term of this Agreement Tech Data
may return to AT&T PARADYNE Products with an aggregate return price
equal to [***] of the total aggregate purchase price of Products
delivered to Tech Data during the year [***]. Tech Data shall obtain a
AT&T PARADYNE issued Return Equipment Authorization ("REA") number,
which shall not be unreasonably withheld, for all Product returned
under this Section 3.7, and shall accompany all such returns with an
order for Product in an amount equal to [***]. Upon receipt of such
Products, AT&T PARADYNE shall credit Tech Data with an amount equal to
[***]. To be eligible for such a return, Product must be in its
original, unopened package. All freight charges for returned Products
will be paid by Tech Data.
In addition, Tech Data shall have the right to return for full credit,
without limitation as to the dollar amount, all Products that become
obsolete or AT&T PARADYNE discontinues or are removed from AT&T
PARADYNE's current price list; provided Tech Data returns such Products
within ninety (90) days after Tech Data receives written notice that
such Products are obsolete, discontinued or are removed from AT&T
PARADYNE's price list.
3.8 Time of Performance. Time is hereby expressly made of the essence with
respect to each and every term and provision of this agreement, except
for delivery dates which are estimates only.
3.9 Quality Control. AT&T PARADYNE shall test and inspect Products prior to
shipment. AT&T PARADYNE's standard inspection records, and a report
setting forth product defect percentage rates are to be maintained by
AT&T PARADYNE and made available to Tech Data upon request with
reasonable notice or, at the option of Tech Data, on a quarterly basis.
ARTICLE IV. WARRANTIES,
INDEMNITIES AND LIABILITIES
4.1 Warranty. Tech Data may return any Product which it or any of it's
Customer's finds to be defective in workmanship or material for credit
in the amount of the Return Price of such Product. AT&T PARADYNE shall
indemnify and hold Tech Data, its subsidiaries, harmless from and
against all actions, claims, losses, damages, liabilities, awards,
costs and expenses (including a reasonable attorney's fee) resulting
from or arising out of any breach or claimed breach of the foregoing
warranties. All transportation charges for Product so returned shall be
borne by Tech Data.
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<PAGE> 7
AT&T PARADYNE hereby represents and warrants that the Products do and
will conform to all codes, laws or regulations of any governmental
agency. AT&T PARADYNE provides a warranty to end users who purchase the
Product. Such warranty is included in the Product package. Such
warranty is not in lieu of Tech Data's rights within Section 4.1 above,
and shall not be considered to be AT&T PARADYNE's warranty to Tech Data
or Tech Data's Retailers. SUCH WARRANTIES TO THE END USER ARE IN LIEU
OF ALL OTHER WARRANTIES TO THE END USER, EXPRESS OR IMPLIED, EITHER IN
FACT OR BY AN OPERATION OF LAW, STATUTORY OR OTHERWISE, INCLUDING
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR USE OR INTENDED PURPOSE.
AT&T PARADYNE NEITHER ASSUMES NOR AUTHORIZES ANY OTHER PERSON TO ASSUME
FOR IT ANY OTHER LIABILITY IN CONNECTION WITH THE SALE, INSTALLATION OR
USE OF ITS PRODUCTS, NOR MAKES ANY WARRANTY WHATSOEVER FOR ANY
NON-STANDARD PRODUCT ORDERED BY TECH DATA HEREUNDER. IN NO EVENT WILL
AT&T PARADYNE HAVE ANY OBLIGATION OR LIABILITY FOR ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES (INCLUDING, BUT NOT LIMITED TO, ANY LOSS OF
REVENUE, PROFIT OR BUSINESS) SUSTAINED BY TECH DATA OR THE COST OR
COVER ARISING FROM OR OTHERWISE RELATED TO THE PRODUCTS OR THIS
AGREEMENT. The foregoing limitation shall not limit AT&T PARADYNE's
obligation to defend and hold harmless Tech Data against certain third
party claims as provided herein.
In the event AT&T PARADYNE recalls any or all of the Products due to
defects, revisions, or upgrades, Tech Data shall provide reasonable
assistance in such recall; provided that, AT&T PARADYNE shall pay all
of Tech Data's expenses in connection with such.
4.2 Proprietary Rights Indemnification. AT&T PARADYNE hereby represents and
warrants that AT&T PARADYNE has all right, title, ownership interest
and/or marketing rights necessary to provide the Products to Tech Data,
and Products and their sale and use hereunder do not infringe upon any
copyright, patent, trade secret or other proprietary or intellectual
property right of any third party, and that there are no suits or
proceeding, pending or threatened alleging any such infringement. AT&T
PARADYNE shall indemnify and hold Tech Data, Tech Data's related and/or
subsidiary companies, Tech Data's Customers and End Users and their
respective successors, officers, directors, employees and agents
harmless from and against any and all actions, claims, losses, damages,
liabilities, awards, costs and expenses, including but not limited to
AT&T PARADYNE's manufacture, sale, offering for sale, distribution,
promotion or advertising, of the Products supplied under this Agreement
(including attorney's fees) which they or any of them incur or become
obligated to pay resulting from or arising out of any breach or claimed
breach of the foregoing warranty, or by reason of any acts that may be
committed suffered or permitted by AT&T PARADYNE. AT&T PARADYNE shall
defend and settle, at its expense, all suits or proceedings arising
therefrom. Tech Data shall inform AT&T PARADYNE of any such suit or
proceeding against Tech Data and shall have the right to participate in
the defense of any such suit or proceeding at Tech
<PAGE> 8
Data's expense and through counsel of Tech Data's choosing. In the
event an injunction is sought or obtained against the use of a Product
or in Tech Data's opinion is likely to be sought or obtained, AT&T
PARADYNE shall within ninety (90) days of receipt of notice, at its
option and expense, either (i) procure for Tech Data, its Customers and
Product End Users the right to continue to use the infringing Product
as set forth in this Agreement, or (ii) replace, to the extent Products
are available, or modify the Product to make its use non-infringing
while being capable of performing the same function without degradation
of performance. AT&T PARADYNE shall have no liability under this
Section for any infringement based on the use of any equipment or
software, if the equipment or software is used in a manner or with
equipment for which it was not reasonably intended, or if the equipment
or software is used in an infringing process. AT&T PARADYNE's
obligations hereunder shall survive termination of this Agreement.
4.3 Cross Indemnification. In the event any act or omission of either party
or its employees, servants, agents or representatives causes or results
in (i) loss, damage to or destruction of property of the other party or
third parties, and/or (ii) death or injury to persons including, but
not limited to, employees or invitees of either party, then such party
shall indemnify, defend and hold the other party harmless from and
against any and all claims, actions. damages, demands, liabilities,
costs and expenses, including reasonable attorneys' fees and expenses,
resulting therefrom. The indemnifying party shall pay or reimburse the
other party promptly for all such loss, damage, destruction, death or
injury.
4.4 Insurance.
(a) The parties shall be responsible for providing Workman's
Compensation insurance on its employees.
(b) Without in any way limiting AT&T PARADYNE's indemnification
obligations as set forth in this Agreement, AT&T PARADYNE shall
maintain Comprehensive General Liability (Bodily Injury and Property
Damage) Insurance in such amounts as is set forth on the attached
certificate of insurance, including the following supplementary
coverage:
(1) Personal Injury Liability with "employee" and
"contractual" exclusions deleted;
(2) Product and Completed Operations Liability;
(3) AT&T PARADYNE shall provide certificates of all
coverage to Tech Data naming Tech Data as additional
insured and requiring ten (10) days prior notice to
Tech Data before termination of any such insurance.
4.5 Limitation of Liability. NEITHER PARTY SHALL BE LIABLE TO THE OTHER
PURSUANT TO THIS AGREEMENT FOR AMOUNTS REPRESENTING LOSS OF PROFITS,
LOSS OF BUSINESS OR INDIRECT, CONSEQUENTIAL, OR PUNITIVE DAMAGES OF THE
OTHER PARTY.
<PAGE> 9
4.6 Unauthorized Representations. Tech Data shall have no authority to
alter or extend any of the warranties of AT&T PARADYNE expressly
contained or referred to in this Agreement without prior approval of
AT&T PARADYNE.
4.7 Continuing Availability of Parts. AT&T PARADYNE agrees to offer for
sale to Tech Data for the purpose of warranty or resale to its
Customers during the term of this Agreement for a period of five (5)
years after the expiration of this Agreement, functionally equivalent
maintenance, replacement and repair parts for all Products sold to Tech
Data.
4.8 Disclaimer of Warranties. AT&T PARADYNE has made expressed warranties
in this Agreement and in documentation, promotional and advertising
materials. EXCEPT AS SET FORTH HEREIN OR THEREIN, AT&T PARADYNE
DISCLAIMS ALL WARRANTIES WITH REGARD TO THE PRODUCTS.
ARTICLE V. PAYMENT TO AT&T PARADYNE
5.1 Changes, Prices and Fees for Products. The price and applicable
discount, if any, for the Product shall be as set forth in Exhibit A.
Tech Data shall not be bound to sell Product to its customers at any
prices suggested by AT&T PARADYNE.
5.2 Most Favored Pricing and Terms. The Discounts and Payment Terms for the
Products now or hereafter set forth on Exhibit A shall [***] of such
Product who purchases Product for resale. It is acknowledged by both
parties hereto that AT&T PARADYNE shall [***]. The offer may be with
specific regard to, though not limited to, Purchase Price of Product,
Payment Terms, inventory protection, allocation of available Products,
or availability of special funding for special projects or programs.
5.3 Price Increase. AT&T PARADYNE shall have the right to change the list
price of any Product upon giving thirty (30) days' prior written notice
to Tech Data. In the event that AT&T PARADYNE shall raise the list
price of a Product, [***].
5.4 Price Decrease. In the event AT&T PARADYNE reduces the price of any
Product or offers the Product at a lower price, including raising the
discount offered, to any other like Purchaser, AT&T PARADYNE shall
provide thirty (30) days prior written notice and [***]. AT&T will also
credit Tech Data for the difference between the invoice price charged
to Tech Data and the reduced price for each unit of Product held in
inventory by Tech Data's customers on the date the reduced price is
first offered by AT&T PARADYNE provided Tech Data's customers request
is received by AT&T PARADYNE within sixty (60) days from the time the
reduced price is first offered and is accompanied by reasonable
commercial documents.
5.5 Payment. Terms of payment for any order shall be net thirty (30) days;
except for Tech Data's initial order for any Product, for which payment
shall be due ninety (90) days from date of the applicable invoice and
Tech Data may return any of the initial order for credit
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* Confidential Treatment Requested
<PAGE> 10
within ninety (90) days of delivery of the initial order to Tech Data.
AT&T PARADYNE shall invoice Tech Data no earlier than the applicable
shipping date for the Products covered by such invoice.
Notwithstanding any other provision in this Agreement to the contrary,
Tech Data shall not be deemed in default under this Agreement if it
withholds any payment to AT&T PARADYNE because of legitimate dispute
between the parties so long as the amount withheld is not greater than
the disputed amount.
5.6 Taxes. Tech Data's Purchase Price [***] that may be applicable to the
Products. When AT&T PARADYNE has the legal obligation to collect such
taxes, [***].
5.7 For each Product shipment to Tech Data, AT&T PARADYNE shall issue to
Tech Data an invoice showing Tech Data's order number and the Vendor
Product model number, description, price and any discount. At least
monthly AT&T PARADYNE shall provide Tech Data with a current statement
of account.
5.8 Tech Data shall provide to AT&T PARADYNE a monthly sales out report of
the total dollar volume and number of units of Products shipped by Tech
Data, sorted by zip code, within fifteen (15) days of the close of the
month.
5.9 Advertising Credit. AT&T PARADYNE agrees to cooperate with Tech Data in
advertising and promoting the Product and/or AT&T PARADYNE and hereby
grants Tech Data a [***] of invoice amounts for Product purchased by
Tech Data from AT&T PARADYNE to the extent that Tech Data uses the
[***]. Tech Data will provide a copy of AT&T PARADYNE's prior approval
and proof of performance for promotional programs, and Tech Data will
provide AT&T PARADYNE a copy of Tech Data's Co-op policy and
guidelines. AT&T PARADYNE may from time to time at its sole discretion
separately authorize Tech Data to conduct advertising and other
activities and may agree at that time to pay the costs thereof from
funds outside of the allowance granted in the preceding sentence.
Invoices rendered hereunder shall be paid by AT&T PARADYNE within
thirty (30) days of invoice date. In the event AT&T does not make such
payment within thirty (30) days after invoice date, Tech Data shall
provide AT&T PARADYNE with thirty (30) days notice of its intent to
deduct such amount from any amounts due AT&T PARADYNE hereunder. In the
event AT&T PARADYNE has not made such payment following the expiration
of such thirty (30) day notice, Tech Data shall have the right to
deduct such amount from any amounts due AT&T PARADYNE under this
Agreement.
5.10 Tech Data shall provide AT&T PARADYNE a ninety (90) day forecast of
anticipated sales on a monthly basis. Forecast shall not be considered
firm commitments on the part of Tech Data to purchase any Products.
ARTICLE VI. TERMINATION
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* Confidential Treatment Requested
<PAGE> 11
6.1 Termination. Either party may terminate this Agreement upon (a) sixty
(60) days written notice to the other following any material breach or
omission by the other with respect to any term, representation,
warranty, condition or covenant hereof and (b) the failure of such
other party to cure such breach or omission prior to the expiration of
a sixty (60) day period.
6.2 For the purpose of this Agreement, a party shall be in default if (a)
it materially breaches a terms of this Agreement and such breach
continues for a period of thirty (30) business days after it has been
notified of the breach, or (b) it shall cease conducting business in
the normal course, become insolvent, make a general business assignment
for the benefit of its creditors, suffer or permit the appointment or a
receiver for its business or assets, or shall avail itself of or become
subject to any proceeding under the Federal Bankruptcy Act or any other
federal or state statue relating to insolvency or the protection of
rights of creditors.
6.3 Rights Upon Termination. Termination of any Purchase Order or this
Agreement shall not affect AT&T PARADYNE's right to be paid for
undisputed invoices for Products already shipped. The termination of
this Agreement shall not affect any of AT&T PARADYNE's warranties,
indemnifications or obligations relating to returns, credits or any
other matters set forth in this agreement that are to survive
termination in order to carry out their intended purpose, all of which
shall survive this Agreement. Upon termination of this Agreement, Tech
Data shall discontinue holding itself cut as a distributor of AT&T
PARADYNE's Products. The expiration of the term of this Agreement shall
not affect the obligations of either party to the other party pursuant
to any Purchase Order previously forwarded to AT&T PARADYNE.
6.4 Repurchase of Products Upon Termination. Tech Data may return any
Product in its inventory to AT&T PARADYNE for credit against
outstanding invoices, or for cash refund if there are no invoices then
outstanding, within sixty (60) days following the termination of this
Agreement. In such event, AT&T PARADYNE shall issue a Return Equipment
Authorization (REA) number to Tech Data for all such Products. Any
credit or refund due Tech Data for returned product shall be equal to
the purchase price of the Product, less any discounts or credits
previously received, but shall not include any deduction or offset for
prepaid or early pay discounts. Such returns shall not reduce or offset
any co-op payments or obligations owed to Tech Data
ARTICLE VII. MISCELLANEOUS
7.1 Binding Nature, Assignment, and Subcontracting. This Agreement shall be
binding on the parties and their respective successors and assigns, but
neither party shall have the power to assign this Agreement without the
prior written consent of the other party.
7.2 Counterparts. This Agreement may be executed in several counterparts,
all of which taken together shall constitute one single agreement
between the parties.
<PAGE> 12
7.3 Headings. The Article and Section headings used in this Agreement are
for reference and convenience only and shall not enter into the
interpretation hereof.
7.4 Relationship of Parties. Tech Data is performing pursuant to this
Agreement only as an independent contractor. Nothing set forth in this
Agreement shall be construed to create the relationship of principal
and agent between Tech Data and AT&T PARADYNE. Neither party shall act
or represent itself, directly or by implication, as an agent of the
other party.
7.5 Confidentiality. Each party acknowledges that in the course of
performance of its obligations pursuant to this Agreement, it may
obtain certain confidential and/or proprietary information. Each party
hereby agrees that all such information communicated to it by the other
party, its subsidiaries, or Customers, whether before or after the
effective date, shall be and was received in strict confidence, shall
be used only for purposes of this Agreement, and shall not be disclosed
without the prior written consent of the other party, except as may be
necessary by reason of legal, accounting or regulatory requirements
beyond either party's reasonable control. The provisions of this
Section shall survive the term or termination of this Agreement for any
reason.
7.6 Arbitration. Any disputes arising under this Agreement shall be
submitted to arbitration in accordance with such rules as the parties
jointly agree. If the parties are unable to agree on arbitration
procedures, arbitration shall be conducted in Pinellas County, Florida
in accordance with the rules of the American Arbitration Association.
Any such award shall be final and binding upon both parties.
7.7 Notices. Wherever one party is required or permitted to give notice to
the other pursuant to this Agreement, such notice shall be deemed given
when delivered in hand, by telex or cable, or when mailed by registered
or certified mad, return receipt requested, postage prepaid, and
addressed as follows:
In the case of AT&T PARADYNE: In the Case of Tech Data:
---------------------------- ------------------------
AT&T Paradyne Tech Data Corporation
8545 126th Avenue North 5350 Tech Data Drive
Largo, FL 34649-2826 Clearwater, Fl 34620
Attn: Vice President and General Attn: Jennifer M. Dougan
Manager of Personal Director of Marketing Operations
Communications Technology cc: Debi A. Schwatka
cc: Corporate Secretary Contracts Administrator
Either party may from time to time change its address for notification
purposes by giving the other party written notice of the new address
and the date upon which it will become effective.
7.8 Force Majeure. In the event that performance by a party under this
Agreement is precluded or adversely materially affected because of the
occurrence of an event,
<PAGE> 13
unforeseen development, or contingency beyond the control of such
party, the rights and obligations of such party shall be governed by
this provision.
For the purpose of this Agreement, an event, an unforeseen development,
or contingency beyond the control of the party shall include, but shall
not be limited to, the following: war, declared or undeclared,
revolution, insurrection, counter revolution, isolated instances of
violence, labor or material shortages, fire, flood, storm, tempest,
riots, civil commotion, acts of God including (but not limited to)
lightening, severe weather, earthquakes or other acts of nature, acts
of public enemy, prohibition of import or export of goods covered
hereby, governmental orders, regulations, restrictions, and all other
similar causes.
Each party shall be excused from any failure to perform any obligation,
except for the payment of uncontested invoices by Tech Data, hereunder
to the extent such failure is caused by the foregoing causes. Any
suspension of the performance by reason of this provision shall be
limited to the period during which the cause or the related effect of
failure exists, and such suspension shall not affect the running of the
time period provided for in this Agreement.
(a) A party whose performance is prevented, restricted or
interfered with by reason of a Force Majeure condition shall
be excused from such performance to the extent of such Force
Majeure condition so long as such party provides the other
party with prompt written notice describing the Force Majeure
condition immediately continues performance whenever and to
the extent such causes are removed.
(b) If, due to a Force Majeure condition, the scheduled time
of delivery or performance is or will be delayed for more than
ninety (90) days after the scheduled date, the party not
relying upon the Force Majeure condition may terminate,
without liability to the other party, any Purchase Order or
portion thereof covering the delayed Products.
7.9 Return Material Authorization Numbers. In the event any provision of
this Agreement call/allow for Tech Data to return Product to AT&T
PARADYNE as described here, Tech Data will obtain an Return Equipment
Authorization (REA) number from AT&T which will be issued within five
(5) working days of Tech Data's request; however, if the REA is not
received within five (5) business days, AT&T PARADYNE shall accept
returned Products absent an REA. The net purchase price, minus any
adjustments of such Products returned to AT&T PARADYNE shall be
credited to Tech Data's account.
7.10 Credits to Tech Data. In the event any provisions of this Agreement or
any other agreement between Tech Data and AT&T PARADYNE require that
AT&T PARADYNE grant credits to Tech Data's account, and such credits
are not received within thirty (30) days then, all such credits shall
become effective immediately upon notice to AT&T PARADYNE. In such
event, Tech Data shall be entitled to deduct any such credits from the
red monies owed to AT&T PARADYNE. In the event credits exceed any
balances owed by Tech Data to AT&T PARADYNE, then AT&T PARADYNE shall
upon receipt of Tech Data's request accompanied by valid supporting
documentation from Tech Data,
<PAGE> 14
pay Tech Data the amount of such credit within thirty (30) days of
AT&T's receipt of such request.
7.11 Severability. If, but only to the extent that, any provision of this
Agreement is declared or found to be illegal, unenforceable or void,
then both parties shall be relieved of all obligations arising under
such provision, it being the intent and agreement of the parties that
this Agreement shall be deemed amended by modifying such provision, to
the extent necessary to make it legal and enforceable while preserving
its intent.
7.12 Waiver. A waiver by either of the parties of any covenants, conditions
or agreements to be performed by the other or any breach thereof shall
not be construed to be a waiver of any succeeding breach thereof or of
any other covenant, condition or agreement herein contained.
7.13 Remedies. All remedies set forth in this Agreement shall be cumulative
and in addition to and not in lieu of any other remedies available to
either party at law, in equity or otherwise, and may be enforced
concurrently or from time to time.
7.14 Survival of Terms. Termination or expiration of this Agreement for any
reason shall not release either party from any liabilities or
obligations set forth in this Agreement which (i) the parties have
expressly agreed shall survive any such termination or expiration, or
(ii) remain to be performed or by their nature would be intended to be
applicable following any such termination or expiration.
7.15 Nonexclusive Market and Purchase Rights. It is expressly understood and
agreed that this Agreement does not grant to AT&T PARADYNE or Tech Data
an exclusive right to purchase or sell Products and shall not prevent
either party from developing or acquiring other Vendors or Customers or
competing Products.
7.16 Entire Agreement. This Agreement, including any Exhibits and documents
referred to in this Agreement or attached hereto, constitutes the
entire and exclusive statement of Agreement between the parties with
respect to its subject matter and there are no oral or written
representations, understandings or agreements relating to this
Agreement which are not fully expressed herein.
7.17 Governing Law. This Agreement shall have Florida as its situs and shall
be governed by and construed in accordance with the laws of the State
of Florida.
7.18 Software Licenses. Whenever the Products described in this Agreement
shall include software licenses, AT&T PARADYNE hereby grants to Tech
Data a nonexclusive license to market, demonstrate and distribute the
software to Customers of Tech Data. Tech Data agrees to comply with
AT&T PARADYNE's reasonable software license agreements, and agrees to
use reasonable efforts to protect AT&T PARADYNE's software, including
using reasonable efforts to avoid allowing Customers, individuals, or
employees to make any unauthorized copies of AT&T PARADYNE's licensed
software; to modify, disassemble or decompile any software; to remove,
obscure or after any notice
<PAGE> 15
of patent, trademark, copyright or trade name; or authorize any person
to do anything that Tech Data is prohibited from doing under this
Agreement. Provided, however, AT&T PARADYNE shall provide Tech Data
with copies of appropriate software and documentation, at no charge,
for the purpose of effectively demonstrating equipment to Customers.
This demonstration software shall be updated as appropriate to insure
that current software is available for sales demonstration. Tech Data
acknowledges that no title or ownership of the proprietary rights to
any software is transferred by virtue of this Agreement. Tech Data will
use reasonable efforts to protect AT&T PARADYNE's rights under this
section but Tech Data is not authorized and shall not be required to
instigate legal action on behalf of AT&T PARADYNE or its suppliers
against third parties for infringement. Tech Data will notify AT&T
PARADYNE of any infringement of which it has actual knowledge.
7.19 International Business. AT&T PARADYNE acknowledges that Tech Data may
desire to obtain Products or Systems for use in countries outside the
United States and its territories. The parties acknowledge that in such
case it may be necessary to order into additional agreements between
AT&T PARADYNE and Tech Data and/or the respective subsidiaries, agents,
distributors or subsidiaries authorized to conduct business in such
countries or to negotiate further terms and conditions to provide for
such right. The parties intend that any further agreements or terms and
conditions will be consistent with and based upon the applicable terms
and conditions of this Agreement, subject, however, to requirements of
local law and local business practice. All Products obtained pursuant
to this Section shall be deemed for purposes of calculating accumulated
purchases and any discounts set forth in this Agreement, to have been
obtained pursuant to this Agreement.
7.20 Compliance with U.S. Export Regulations and Other Laws. Tech Data shall
comply with the rule and regulation under the U.S. Export
Administration Act, the U.S. Anti-Boycott provisions, and the U.S.
Foreign Corrupt Practices Act, as well as all of the applicable U.S.
federal, state and municipal statues, rules and regulations.
IN WITNESS WHEREOF, the parties have each caused this Agreement to be
signed and delivered by its duly authorized officer or representative as of the
Effective Date.
AT&T PARADYNE TECH DATA CORPORATION
By: /s/ Jean Claude Vrignaud By: /s/ Peggy K Caldwell
Printed Name: Jean Claude Vrignaud Printed Name: PEGGY K CALDWELL
Title: Vice President and General Title: Senior Vice President
Manager Marketing
Personal Communications
Technology
Date: Date: 4/29/93
<PAGE> 16
ATTACHMENT A
TECH DATA/AT&T PARADYNE
PRICE LIST
<TABLE>
<CAPTION>
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DATAPORT LIST PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
[***] [***] [***]
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</TABLE>
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1.
<PAGE> 17
AT&T
LAUNCH PLAN
October - November 1993
OBJECTIVES
To introduce and gain mind share for the AT&T modem products within Tech Data's
sales force, Var, and Reseller customer base.
INTERNAL ACTIVITIES
SALES TRAINING - Cost $250
Sales Training will take place during the month of December. The format will be
four one hour sessions. We request creation and handout of a quick reference
guide including product specifications and Tech Data part numbers along with
literature of you products.
PORTABILITY PROMOTION - Cost $8,000
In October Tech Data will have a month long company wide promotion with a
theme centered around portability. Participation would give you great exposure
within Tech Data.
EXTERNAL ACTIVITIES
DIRECT MAIL - $4,000
A 2-color direct mail piece will be produced and sent to Tech Data's top 10,000
customers, introducing the complete line of AT&T modems. Target date for
mailing approximately 30 days after contract completion, and initial order is
placed. The direct mail piece can include a dealer introductory offer.
DEALER INCENTIVE - Cost $5,000 est
Included in the CRN ads and the direct mail piece. An example would be two
modems - get a third for $50 off.
JUST THE FAX - Cost $1,000
Depending on timing of the launch, one inclusion in Tech Data's automated fax
service announcing AT&T as a new vendor. Distributed to our top $4,000
customers.
ON-HOLD MESSAGE - Cost $400
On Tech Data's automated telephone system, customers listen to promotions,
special prices, as well as product announcements. We would like to include AT&T
for September.
TECH DATA CATALOG - Cost $6,000
Full Page, Compatibility chart, B&W
COST SUMMARY
Internal Sales Training $250
Portability Promotion $8,000
External Direct Mail $4,000
Dealer Incentive $5,000
Just The Fax $1,000
On-Hold Message $400
Tech Data Catalog $6,000
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$24,650
1.
<PAGE> 1
Exhibit 10.38
***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections
200.80(b)(4), 200.83 and 230.406
OEM AGREEMENT
# LGSC103DS
THIS AGREEMENT IS MADE AND ENTERED INTO BY PREMISYS COMMUNICATIONS, INC. AND ITS
PARENT PREMISYS COMMUNICATIONS HOLDINGS, INC., HAVING THEIR PRINCIPAL PLACE OF
BUSINESS AT 1032 ELWELL COURT, PALO ALTO, CALIFORNIA, 94303, A CALIFORNIA
CORPORATION, HEREINAFTER COLLECTIVELY REFERRED TO AS, "SELLER", AND AT&T
PARADYNE CORPORATION, A DELAWARE CORPORATION, HAVING ITS PRINCIPAL PLACE OF
BUSINESS AT 8545 126TH AVENUE NORTH, P.O. BOX 2826, LARGO, FLORIDA 34649-2826,
HEREINAFTER REFERRED TO AS "BUYER".
WHEREAS, Buyer desires to purchase from Seller certain Products as defined
hereinafter.
WHEREAS, Seller desires to supply Buyer with such Products,
The above parties therefore agree that the following mutual promises and
covenants shall govern the sale by Seller, and the purchase by Buyer, of such
Products.
01.0. DEFINITIONS
01.1. EFFECTIVE DATE
The "Effective Date" of this Agreement shall be the date of execution.
01.2. TERM OF AGREEMENT
The initial term of this Agreement shall commence upon the Effective
Date of this Agreement by Seller and Buyer and shall terminate FIVE (50) years
after the Acceptance Date, unless sooner terminated as hereinafter provided.
01.3. PRODUCT
"Product" or "Products" shall mean the Seller's Channel Bank product
line as set forth in Exhibit A, including all associated hardware, software,
firmware, documentation and any enhancements or modifications thereof. This
shall include "New Products" that have been mutually agreed to between the
parties for inclusion into this Agreement.
01.4. RELEASE
"Release" shall mean Buyer's printed, written or Electronic Data
Interchange (EDI) order to Seller specifying Product shipment, quantities and
Buyer's shipment dates.
01.5. SPECIFICATIONS
1.
<PAGE> 2
"Specifications" shall mean those purchase specifications
(#351-0047-0031) for the Product as now set forth in Exhibit B and as modified
from time to time in accordance with this Agreement.
01.6. EPIDEMIC
"Epidemic" shall mean the occurrence of one or more of the following
events:
a. Products that are dead on arrivals (DOA's) exceeding the
greater of three (3) percent of the Products delivered to Buyer or Buyer's
customer within a one month period.
b. Four (4) percent or more of any consecutive one hundred
Products delivered to Buyer or Buyer's customer that are rejected for defective
materials or workmanship.
c. Field repair reports indicate a non conformance to the
Specifications for the same defect of four (4) percent or more of the installed
Product base.
d. Reliability plots of field data for two (2) consecutive
months indicate that Products have an actual mean time between failure (MTBF)
less than eighty percent (80%) of the MTBF specified at one hundred and one
thousand (101,000) hours.
01.7. NEW PRODUCT
"New Product" shall mean any of Seller's products distributed after
execution of this Agreement, that would (i) replace or obsolete existing Product
or (ii) include all existing functions of the Products plus any Enhancements or
(iii) create a more favorable price/performance ratio than the Products.
Further, New Product shall include any new, jointly developed with Buyer or
existing models that offer new features, options or other new technology not
previously offered on existing Products but would otherwise not be offered to
Buyer under the existing Product specifications.
01.8. DELIVERY SCHEDULE
"Delivery Schedule" shall mean the mutually agreed upon date(s) of
shipment of Product to Buyer's customer. This date, that Product is to ship to
Buyer's designated customers, shall also be referred to as the "Scheduled Ship
Date".
01.9. ENHANCEMENT
"Enhancements" shall mean minor modifications or additions to the
Products which shall not materially alter its architecture or fundamental
functionality. Enhancements include substantial cost reductions of Products, or
portions of the Products.
01.10. SOFTWARE
2.
<PAGE> 3
"Software" shall mean any binary product in the form of object code,
whether residing on media loadable into the Products or in the Products as
firmware, and all documentation related to its use.
01.11. SOFTWARE BUG FIX
A "Software Bug Fix" shall mean any Software related defect that has
been fixed in a later revision of software.
01.12. SOFTWARE MAINTENANCE RELEASE
A "Software Maintenance Release" shall mean any Software that has been
revised by including one or more Software Bug Fixes into the base Software.
01.13. SOFTWARE FEATURE RELEASE
A "Software Feature Release" shall mean any Software that has been
revised to include new features or functionally.
01.14. ACCEPTANCE DATE
The "Acceptance Date" of the Product shall mean the date in which the
Buyer agrees that the Product has successfully passes the Buyer's internal
system tests and field beta tests and the product can be introduced into the
Buyer's controlled introduction process.
02.0. PURCHASE AND SALE OF PRODUCTS
02.1. PURCHASE AND SALE
Seller agrees to manufacture the Products released hereunder by Buyer
in accordance with the Specifications and to sell such Products, including any
Enhancements, to Buyer, and Buyer agrees to purchase from Seller the Products on
the terms and conditions and at the prices as hereinafter provided.
02.1.1 NO RESALE RESTRICTIONS
Except as provided herein, nothing contained herein shall be deemed in
any way restrict the rights of Buyer with respect to the resale of the Products
purchased hereunder.
02.2. EXPORTATION
Buyer agrees not to export the Products, or any systems containing the
Products, or any technical data relating to the Products without first obtaining
licenses or any other approvals required by the United States Department of
Commerce or other United States governmental agencies. Buyer agrees not to
export to any prohibited countries listed under the United States Export
Administration Act of 1979 as amended and updated from time to time and the
regulations promulgated thereunder.
3.
<PAGE> 4
02.3. MARKET RIGHTS
02.3.1. WORLDWIDE MARKET RIGHTS
Both Seller and Buyer intend that Buyer and the Buyer's distributors
shall be a primary distribution channel for the Products to end-user customers
for both the domestic and international markets. The Buyer shall have worldwide
distribution rights to sell the Products.
Seller shall assist Buyer in obtaining type approvals and homologation
for Buyer to distribute Products worldwide. Homologation schedules and
distribution of homologation costs are to be mutually agreed upon between the
Buyer and Seller. Seller further agrees where applicable to list Buyer's OEM
name on certificates already earned, where possible.
With respect to non domestic market rights Seller and Buyer agree to
the following:
a. On ore before the effective date of this Agreement, Buyer
will provide to Seller a confidential list (Buyer's list) of those
countries in which Buyer will support sales of the Products through
Buyer's direct sales operations or its in-country distributors. The
Buyer's list will also indicate the names of the distributors that
Buyer intends to use for resale of the Products in each country. Seller
will review the Buyer's list and within ten (10) days after receipt of
such list: i.) Seller shall provide to the Buyer a list (Seller's list)
that specifies any areas of potential conflicts or problems with the
Buyer's list and will specify the names of the distributors within the
countries on the Buyer's list that the Seller is currently in
negotiation with, ii.) Seller further agrees that it will not enter
into any new discussions to add other in-country distributors to the
countries on the Buyer's list for at least six (6) months after the
Effective Date without Buyer's written consent. After Seller has
received Buyer's list and returned to the Buyer the Seller's list, the
Buyer agrees to grant Seller forty five (45) day in which to close on
any distribution agreements that the Seller may have in process.
b. Any time within one year after the Effective Date Buyer may
add countries to the Buyer's list as Buyer requires. The same
guidelines as outlined in item a. of this Section will be used for each
country, with the six month time period starting after Seller receives
Buyer's written request to add the countries to the Buyer's list.
c. Beginning one year after the Effective Date any new
countries added to the Buyer's list, per item a. and b. above, will be
subject to a four month rather than a six month window.
d. Buyer and Seller agree to review at least semi-annually
Buyer's sales performance in each country where it is selling the
Products. If minimal performance objectives are not being met in any
country, Buyer and Seller will implement mutually agreeable programs to
improve sales performance in those countries.
4.
<PAGE> 5
e. Notwithstanding paragraphs a. through d. above, Seller at
its option may sell directly to carriers and service providers, and
OEMs who may sell to these carriers and service providers. However,
Seller agrees to inform Buyer, whenever practical of any opportunity
for sales of Product in those international countries where Buyer has
direct sales channels, except when Seller is unable to do so due to
business conditions including, but not limited to, non-disclosure
agreements, RFPs directed to Seller, and opportunities brought to
Seller by its other partners.
If Buyer wishes to pursue an opportunity brought to Buyer by Seller,
Buyer will provide to Seller a plan to pursue the opportunity in a time
frame in accordance with the following applicable situation:
1) Pursuit of an opportunity for which there is no
pressing deadline from an external entity: Buyer will submit
to Seller a plan within 60 days.
2) Pursuit of an opportunity which is constrained by
a deadline imposed by an external entity. Buyer must submit a
plan to Seller within a time period as required to meet
Seller's needs. Seller shall make every reasonable effort to
maximize the amount of time that the Buyer has to respond.
If rejected by the Seller, Seller will inform Buyer
of the reasons for rejection within four (4) business days and
conversely Buyer has four days to remedy reasons for
rejection, if practical. If accepted, Seller will assist Buyer
in Buyer's plan to pursue that opportunity. Furthermore,
Seller will not pursue direct sales to the identified customer
unless such customer indicates that its does not wish to do
business with Buyer.
In those cases where Buyer has proposed the Product
into an account, and that account subsequently contacts Seller
directly, Seller will inform Buyer as soon as practicable. In
addition, Seller will use all reasonable efforts to maintain
sales of Product through Buyer. If the account informs Seller
that it does not want to purchase from Buyer, Seller may
pursue that business directly. In such cases, Seller will
provide compensation to Buyer in the form of a commission on
revenue for all Products sold to that customer for a 12 month
period. Such commission will be based on the discount that
Seller offers to that customer according to the following
schedule:
<TABLE>
<CAPTION>
Seller's Discount to Purchaser Buyer's Commission
<S> <C>
0 to 15% [***]
15 to 20% [***]
21 to 25% [***]
26 to 30% [***]
31 to 35% [***]
36 to 40% [***]
</TABLE>
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5.
<PAGE> 6
<TABLE>
<S> <C>
41% or more [***]
</TABLE>
All such commission will be in the form of a credit
which Buyer may apply up to 50% of the purchase price of any
future purchases of Products.
In addition, any U.S.-based reseller with which
Seller may have an agreement is not precluded from providing
Product to any of its international customers.
f. Seller agrees to support Buyer's international sales
efforts for the Products without preferential treatment to other
resellers.
With respect to domestic (US) market rights and obligations, Buyer and Seller
agree to the following:
g. For a period of twelve months from the general availability
of the Products to the Buyer's customers ("General Availability
Date"), Seller agrees to limit to twenty (20) the number of
distributors authorized by Seller to sell its products. These
distributors can be either stocking or non-stocking distributors
classified as "VADs" (Distributors) and resellers (exclusive of
OEMs).
h. The limit of twenty (20) distributors in (a) does not apply
to OEMs, telcos, Inter-Exchange Carrier's or other providers or
resellers of telecommunications services. It also does not apply
to wholesale distributors which primarily sell to such
telecommunications service providers. For a period of twelve
months from General Availability Date, such wholesale distributors
shall be limited to four (4) and shall be reviewed with Buyer.
Specific wholesale distributors may change from time to time,
although the number shall be limited to four.
i. If Buyer wishes to pursue an opportunity brought to Buyer
by Seller, Buyer will provide to Seller a plan to pursue the
opportunity in a time frame in accordance with the following
applicable situation:
1) Pursuit of an opportunity for which there is no
pressing deadline from an external entity: Buyer will submit
to Seller a plan within 60 days.
2) Pursuit of an opportunity which is constrained y a
deadline imposed by an external entity: Buyer must submit a
plan to Seller within a time period as required to meet
Seller's needs. Seller shall make every reasonable effort to
maximize the amount of time that the Buyer has to respond. If
rejected by the Seller, Seller will inform Buyer of the
reasons for rejection within four (4) business days and
conversely Buyer has four (4) days to respond, if practicable.
j. Seller agrees to review Seller's present distributors and
future distributors before authorizing distribution or sale of its
Products with the Buyer in order to minimize sales channel
conflict and sales expense for both parties. The intent of these
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6.
<PAGE> 7
reviews is to assure Seller that its desired market coverage is
being met and to assure Buyer that its sales penetration is
maximized.
k. Seller agrees to maintain a minimum differential of 19%,
referenced to Seller's published list price, between the most
favorable VAD or Distributor (not OEM's) contract pricing and that
of the Buyer. In the event of an exception to this for specific
distributor sales opportunities, the Seller shall notify the Buyer
and gain the Buyer's agreement as to the special pricing for that
opportunity.
l. In those cases where Buyer has proposed the Product into an
account, and that account subsequently contacts Seller directly,
Seller will inform Buyer as soon as practicable. In addition,
Seller will use all reasonable efforts to maintain sales of
Product through Buyer. If the account informs Seller that it will
not purchase from Buyer, Buyer shall inform Seller and Seller with
Buyer's approval may pursue that business directly. In such cases,
Seller will provide compensation to Buyer in the form of a
commission on net revenue on all Product sold to that customer for
a 12 month period. Such commission will be based on the discount
that Seller offers to that customer according to the following
schedule:
<TABLE>
<CAPTION>
Seller's Discount to Purchaser Buyer's Commission
<S> <C>
0 to 15% [***]
15 to 20% [***]
21 to 25% [***]
26 to 30% [***]
31 to 35% [***]
36 to 40% [***]
41% or more [***]
</TABLE>
All such commission will be in the form of a credit
which Buyer may apply up to 50% of the purchase price of any
future purchases of Products.
02.3.2. OTHER MARKET RIGHTS
Seller will agree not to enter into any technology transfers,
joint development efforts, manufacturing rights, or distribution agreements for
Products with the following: Codex, Racal-Milgo, N.E.T., Timeplex, Newbridge,
Stratacom, G.D.C., or Gandalf. Buyer and Seller may from time to time add
companies to this list by mutual agreement.
Buyer may provide Seller with a list of it's customers (not to
exceed 1,600) and Seller agrees that it will not pursue direct sales with said
customers. This list may be updated from time to time. Seller agrees that if its
direct sales force attempts to sell Products to customers of Buyer, then Seller
at the request of Buyer will support Buyer in the sale, unless that customer has
stated that it only buys product directly from the manufacturer or will not
purchase Products from the Buyer. Seller in these cases will not show
preferential financial consideration to any of the Sellers
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7.
<PAGE> 8
distribution channels in competitive sales situations. In the event that Seller
does sell under this paragraph, the commission schedule applicable to domestic
sales in sub paragraph 1. shall apply.
02.3.3. RETENTION OF MARKET RIGHTS
In order to retain the preferential market rights specified in
paragraphs 2.3.1. a-d with respect to the international rights, paragraphs
2.3.1. g-j with respect to domestic rights and paragraph 2.3.2 (hereinafter
collectively called "Preferential Market Rights"), Buyer and Seller agree to the
following:
a. From the Effective Date of this Agreement the Buyer agrees to
attempt to achieve purchase objectives of Products of six hundred (600) units by
September 1, 1993, purchases of an additional seven hundred (700) units by March
1, 1994, purchases of an additional one thousand (1,000) units by September 1,
1994, and an additional one thousand four hundred and fifty (1,450) units by
March 1, 1995.
b. Buyer and Seller will review Seller's purchase performance on
said dates. Buyer's Preferential Marketing Rights may thereafter terminate, at
the election of Seller after thirty days written notice, if Buyer failed to meet
the purchase objectives unless Seller was unable to meet Buyer's requested
deliveries during such period, if such requests were consistent with the
forecast provided under section 03.3. The above state performance objectives and
remedies apply solely to the Preferential Marketing Rights and shall in no way
be construed to affect Buyer's other rights under this Agreement or any other
terms and conditions of this Agreement.
c. On or before March 1, 1995, Buyer and Seller shall in good
faith meet and negotiate the six month purchase targets for the remainder of the
term of this Agreement. Absent reaching agreement the Preferential Marketing
Rights shall terminate on March 1, 1995, unless Buyer has offered to attempt to
purchase at least in the aggregate the same number of units purchased during the
prior six months and thereafter such Preferential Marketing Rights shall
terminate.
03.0. ORDERING OR PRODUCTS
03.1. USE OF RELEASES
Buyer shall issue Releases via Buyer's purchase orders, or
customer drop ship orders confirmed in writing and/or via Electronic Data
Interchange (EDI), specifying Buyer's part numbers and/or model numbers,
quantities, prices, destination and Delivery Schedule(s) for the Products
furnished under this Agreement. Releases for Products which are the subject of
this Agreement will be considered released under the provisions of this
Agreement unless otherwise specified in writing. This Agreement will take
precedence over any preprinted terms of Buyer's Releases in the event there are
conflicting or additional terms and conditions.
Seller shall have EDI available, in a format compatible with
Buyer's current software, within six (6) months of the Effective Date of this
Agreement.
8.
<PAGE> 9
Seller shall drop ship Releases and logistics spare parts at
Buyer's request to Buyer or Buyer's customer at locations specified by Releases
as defined, above. Seller shall utilize freight carriers designated by Buyer in
Buyer's Corporate Routing Guide, a copy of which is attached hereto as Exhibit
C, unless otherwise specified on Buyer's Release.
0.3.2. RELEASE ACKNOWLEDGMENT
Seller shall acknowledge to Buyer each Release within 24 hours
where possible, but no more than 48 hours of Seller's receipt of same. Such
acknowledgment shall constitute acceptance of the Release, and Seller will at
the same time confirm the Scheduled Ship Date.
03.3. FORECAST
Buyer will provide a rolling monthly forecast of Buyer's demand
for the Product with visibility for the next six (6) months. The quantity of
Products forecast for the first month of a given forecast will be no more than
one hundred twenty percent (120%) of the Products forecast for the second month
of the immediately prior forecast. This shall hold true for any ninety (90) day
period of the then current monthly rolling forecast. The forecast given for any
period beyond this ninety (90) day window may be increase by any amount.
This forecast will be for planning purposes only.
03.4. RELEASE RESCHEDULE BY BUYER
Buyer has the right to reschedule any Release up to an including
twenty one (21) calendar days before a Release's Scheduled Ship Date. Buyer may
reschedule any Release one (1) time without surcharge within twenty one (21)
calendar days of the Release's Schedule Ship Date. Buyer may reschedule the same
Release additional times upon payment of two (2) percent of the Buyer's purchase
price of such Release or five hundred dollars ($500.00), whichever is less, for
each time the Buyer makes such additional reschedulings. All rescheduled ship
date under this Section shall be no more than thirty (30) days after the then
current ship date for the Release.
Notwithstanding the above, Buyer may reschedule in any manner 100%
of any Release under this Agreement without surcharge or penalty in the event of
Seller's delay in delivery of production quantities of the products ordered in
conformity with this Agreement.
03.5. RELEASE RESCHEDULE BY SELLER
At no time can the Seller reschedule any of the Buyer's Releases
that were previously committed and assigned Scheduled Ship Dates by the Seller
without the express advance authorization of the Buyer. This advance notice of
the Seller's potential rescheduling of the Buyer's Release must be provided to
the Buyer, with all reasonable effort, five (5) business days before the
Release's Scheduled Ship Date.
03.6. RELEASE INCREASE AND RELEASE DECREASE
Notwithstanding anything else in this Agreement to the contrary,
Buyer may, up to and including twenty (21) business days before a Scheduled
Shipment Date, without surcharge or
9.
<PAGE> 10
penalty, increase or decrease the quantity of Products previously ordered for
such shipment. If Buyer increases a Release within twenty (21) business days
before Scheduled Shipment Date for that Release, Seller shall use reasonable
commercial efforts to meet such increased Release. Buyer and Seller shall
negotiate in good faith any associated expediting fees, provided Seller provides
documented evidence of such charges which are agreed to and accepted by Buyer.
03.7. CANCELLATION
Buyer may cancel a Release up to and including twenty one (21)
calendar day before the scheduled ship date without surcharge. Releases
cancelled within twenty one (21) calendar days of the Scheduled Ship Date will
be subject to a [***] percent cancellation charge. This cancellation charge
shall not exceed [***] ($[***]) for any one (1) Release. A Release shall not be
considered to be cancelled where it is immediately replaced by another identical
Release.
Cancellation charges are expressed as a percentage of the Buyer's
purchase price of a Release which would have been applicable had it not been
canceled. Payment of the applicable cancellation charges shall be invoiced by
Seller and paid by Buyer within thirty (30) calendar days of its receipt of such
invoice.
03.8. PRODUCT SHIPMENT AND DELIVERY
03.8.1. EQUIPMENT PACKAGING
Seller shall package Products for shipment in conformance with the
specifications as contained in Exhibit D and will utilize only Electro-Static
Discharge (ESD) protective packaging.
All logistics spares shall be packaged in reusable containers
capable of withstanding shipment to multiple destinations and packaged at the
Field Replacement Unit level (FRU). The outer package will be marked with the
Buyer's model or part number, serial number (if applicable), manufacturing date
and the description of the part ordered.
All Product chassis will be labeled with the Buyer's part number,
model number, serial number and manufacturing date.
All Products will be labeled on the outside of the box with the
Buyer's part number, unit model number, serial number and manufacturing date.
The shipping label and packing slips will state, at a minimum, the
customer's name and telephone number, street address, city, state, zip code,
Buyer's Release number, Buyer's customer purchase order number (if supplied),
and the number of each box of a total box count.
03.8.2. DELIVERY
Until such time as Releases issued and accepted require shipment
in a given month of Products aggregating more than one hundred ten percent
(110%) of the then current forecast
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10.
<PAGE> 11
quantity (pursuant to Section 03.3 above) for that month all shipments will be
made within twenty one (21) calendar days after receipt of Buyer's Release by
Seller, unless a later date is specified on the Release. Otherwise, Seller shall
use reasonable commercial efforts to deliver Products in accordance with the
Delivery Schedules set forth in any Release issued and accepted in conformity
with this Agreement. Seller shall ship to the locations designated by Buyer.
Seller will provide proof of delivery for all shipments to Buyer's customers, if
requested by Buyer. Seller will drop ship Product to Buyer's customers. Seller
will not ship any of the Buyer's Release short any parts on the Release without
the approval of Buyer.
03.8.3. F.O.B. POINT
Shipments of Product shall be F.O.B. Seller's manufacturing
facility in the domestic United States. Freight charges for shipments of Product
will be billed third party to Buyer's freight account unless otherwise specified
on the Release. Seller will comply with all shipping instructions specified in
the Buyer's Routing Guide. Title to shipped Products and risk of loss passes to
Buyer upon delivery of the Product to Buyer, Buyer's Customer, Buyer's Agent, or
designated common carrier at the F.O.B. point specified above. Insurance
coverage on all shipments will be the responsibility of the Buyer.
Seller will bear the cost of transportation for non-conforming,
and defective in warranty material.
03.9. SHIPMENT ACKNOWLEDGMENT
Seller will provide Buyer with a shipment acknowledgment form
within twenty four (24) hours of the shipment to the Buyer's customer. Buyer
will include at a minimum, the serial number of the unit, the date shipped, the
part number and quantity shipped, the carrier name, and the waybill number on
the shipment acknowledgment form.
04.0. PRICES
Buyer and Seller agree that the Seller's list prices, Buyer's
purchase prices and discount levels for the Products are as set forth in Exhibit
A for the term of this Agreement unless changed and amended as mutually agreed
by the parties. The parties agree that it is in their mutual interest to meet
semi-annually to review market position, market pricing, competition, pricing
structures, manufacturing costs, product improvements and sales plans to
determine ways to increase market shares and reduce costs. Based on the above
semi-annual meeting the then current pricing and discount structures will be
established. Mutually agreed upon recommendations will be set forth for the
relevant party to pursue to enhance market position, reduced costs, increased
sale efficiency or gain additional market share. Both parties agree to
establish, on or before three months after the Effective Date of this Agreement,
the appropriate measurements and to share the cost information with one another
in an effort to establish a baseline for these evaluations. The parties will
make every reasonable effort to reduce cost in their respective areas, as a
goal, by seven (7) percent per year.
11.
<PAGE> 12
Should any recommendation result in a cost savings to either
party, the parties agree to share in these benefits. Information regarding the
savings or cost reductions will be shared between the parties. Resulting savings
will be allocated between the parties semi-annually on a [***] percent ([***]%)
- - [***] percent ([***]%) basis. The party responsible for implementing the
saving will receive [***] percent ([***]%), and the other party will receive
[***] percent ([***]%) of the resulting saving.
Prices are exclusive of all sales, use, property, and the like
taxes. Any such tax Seller may be required to collect or pay upon the sale or
delivery of the Product shall be paid or collected by the Buyer and such sums
shall be promptly due and payable to Seller by Buyer under the payment terms of
the Agreement; however, Seller agrees to accept valid tax exemption documents in
lieu of payment where applicable.
04.1. TERMS OF PAYMENT
Seller shall render and date its invoice and shipment
acknowledgment form for any Products it shall deliver hereunder to Buyer or
Buyer's customer concurrent with the shipment of such Product. Terms of payment
are net thirty (30) days from the date of invoice. Incorrect invoices will be
returned unpaid for correction, with every reasonable effort, within seventy-two
(72) hour of receipt.
0.4.2. TAXES
Buyer shall bear all applicable federal, state, municipal, and
other government taxes (such as sales, use or similar taxes) and all personal
property taxes assessable on the Products after delivery to the carrier by
Seller unless Buyer provides Seller with a proper tax exempt certificate. Custom
duties and brokerage fees incurred due to a shipment to Buyer's customer shall
be borne by Buyer.
04.3. CASH ADVANCE
Buyer agrees to provide Seller certain cash advances in accordance
with Exhibit G. The amounts reflected in Exhibit G represent the parties' best
estimate of shipments to occur during the period specified; in the event actual
shipments vary from those set forth in Exhibit G, the amounts will be adjusted
accordingly. In addition, if the Agreement terminates before the Net Balance on
Account (as set forth in Exhibit G) reaches zero, Seller will remit to Buyer any
such outstanding balance within thirty (30) days of the effective date of
termination.
05.0. WARRANTY AND LIMIT OF LIABILITY
05.1. WARRANTY PERIOD
Seller warrants that the Products will conform to the applicable
Specifications set forth in Exhibit B and will be free from defects in materials
and workmanship under normal use for a period of sixty (60) months after
shipment from Seller's plant. Buyer's inspection, approval,
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12.
<PAGE> 13
acceptance, use of or payment for all or any such Product shall be deemed not to
constitute a waiver of any warranty or of any term or condition hereof.
05.2. BREACH
In the event of a breach of warranty, Buyer shall provide Seller
with the opportunity to inspect and test product claimed to be defective on
Buyer's premises, or if Seller deems it necessary, at Seller's factory.
Corrective action required on the part of Seller is contingent upon Seller's
examination disclosing that claimed defects have not been caused by misuse,
abuse, neglect, unauthorized alteration or modification, improper installation
or mishandling. The liability of Seller is limited, at the option of Seller, to
either (1) repair of the defective Product or (2) the replacement by Seller at
its cost of the defective Product, or (3) refund of the purchase price of the
defective Product, in the event that the previously stated remedies are not
reasonably available. Whenever the preceding remedies are not practicable, Buyer
may, at its option, remedy any defect in the Product using available parts and
other resources to accomplish such repair or replacement. Buyer's actions under
such condition will be considered to be "authorized" by Seller so that warranty
and the correction of further deficiencies will not be affected. Unless
otherwise agreed to in writing, Seller will bear all costs associated with
correction of the Product, including Buyer's labor, incurred to identify,
remove, package, ship, reinstall and test the replacement for the defective
Product up to a maximum of two (2) times the Buyer's total purchase price of the
defective Product. All transportation and insurance costs, whether incurred by
Buyer or Seller are Seller's responsibility. In the event that Seller can
demonstrate to Buyer's satisfaction that Buyer's claim of breach of warranty is
invalid, e.g., the claimed defect cannot be duplicated or was caused by Buyer's
actions (except as provided above), or that the Product was incorrectly
diagnosed as defective by Buyer, then the above remedies do not apply to the
respective Product which Buyer claimed to be defective. Other remedies and
obligations pertaining to other equipment/Product are unaffected.
05.3. WARRANTY RESPONSE TIME
Buyer, if practicable, shall use its spare parts inventory to
effect immediate replacement of the defective item(s) and return the defective
item(s) to Seller for repair/replacement. Seller will effect the
repair/replacement and return the item(s) to Buyer within fifteen (15) days
after receipt of the defective item(s); however, Seller will respond to
emergency situations by immediately shipping Product on hand within twenty four
(24) hours.
05.4. WARRANTY LIMITATION
THE ABOVE WARRANTIES COVERING THE PRODUCTS DO NOT INCLUDE AND
SELLER DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. THE PROVISIONS OF THIS CONTRACT ARE SELLER'S SOLE OBLIGATIONS, AND
BUYER'S EXCLUSIVE REMEDIES, FOR BREACH OF ANY WARRANTY, EXCEPT FOR THE
PROVISIONS OF THE PARAGRAPH ENTITLED "EPIDEMIC". UNDER NO CIRCUMSTANCES SHALL
SELLER BE LIABLE IN ANY WAY TO BUYER FOR INDIRECT, SPECIAL OR CONSEQUENTIAL
DAMAGES, INCLUDING BUT NOT LIMITED TO, ANY LOSS OF BUSINESS OR PROFITS,
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WHETHER OR NOT FORESEEABLE AND WHETHER OR NOT BASED ON BREACH OF WARRANTY, IN
CONNECTION WITH THE SALE OF PRODUCTS.
05.5. WARRANTY EXCLUSIVITY
The warranties of Seller contained herein extend solely to Buyer
and shall only be enforceable by Buyer. Seller makes no warranty to any persons
other than Buyer.
06.0. QUALITY ASSURANCE
Notwithstanding the post-acceptance obligations of Seller, Buyer
has a significant interest in the quality of the Product. Because the Product
has a useful life expectancy greater than the warranty obligation period and
because of the goodwill lost by malfunctioning Products even though they may be
corrected at Seller's expense, it is agreed by Buyer and Seller that without
limiting or abridging Buyer's rights to inspect the Product prior to acceptance
or Seller's post-acceptance obligations, the following provisions shall apply to
ensure acceptable quality for Products manufactured for Buyer under the terms of
this Agreement:
06.1. QUALITY CONTROL MONITORING
At any and all reasonable times during the term of this Agreement,
provided Buyer has notified Seller at least two (2) days in advance, Buyer's
representatives shall have access to Seller's facilities to monitor its quality
control system.
06.2. QUALITY CONTROL MAINTENANCE
Seller shall maintain the quality control system mutually agreed
upon at the Effective Date and as specified in the Specifications. Changes to
such documents must be submitted to Buyer.
06.3. ACCEPTANCE TESTS
Acceptance test procedures for final manufacturing testing are as
set forth in Exhibit E of this contract.
06.4. SOURCE INSPECTION
All Products shall be subject to inspection and test by Buyer at
Seller's facility if Buyer so desires. Buyer may, at its option, implement a
sampling inspection with lot rejection in accordance with an appropriate
sampling plan and inspection procedure to be accomplished at Seller's facility.
If any inspection or test is made on Seller's premises, Seller shall, without
additional charge, provide all reasonable facilities and assistance for the
safety and convenience of Buyer's inspector subject to the security and safety
regulations existing at the facilities.
06.5. WORKMANSHIP STANDARDS
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All Products shall be in compliance to the Buyer workmanship
standards, IPC 610, as a minimum criteria of workmanship.
06.6. ISO 9000 COMPLIANCE
Seller shall, with every reasonable effort, apply for ISO 9001
registration by October 30, 1993 and be registered by March 30, 1994.
06.7. SELLER/BUYER CONTINUOUS IMPROVEMENT EFFORTS
Buyer and Seller mutually agree to develop continuous improvement
task teams in an effort to reduce costs in both processes and Products that will
mutually benefit both parties in the areas of:
a. Target Costs
b. Cost Reduction Efforts, including both materials and processes
c. On Time Shipments as measured by Customer Request Date and
Scheduled Ship Date.
d. Repair Data, including DOA's, Infant mortality and Root Cause
Analysis.
e. Cycle Time Reductions, including Manufacturing, Repair, Release
Processing Spare Parts Delivery and Others.
f. Electronic Data Interchange (EDI).
07.0. INSPECTION
07.1. INSPECTION AT DESIGNATED DELIVERY LOCATION
Within thirty (30) days of the receipt of any Product at its
designated delivery location, Buyer may submit such Product to the criteria as
set forth in the Specification, Section 4.2, entitled "Acceptance Testing",
attached hereto and made a part of this Agreement. Buyer shall be entitled to
reject any product that fails to conform to the Purchase Specifications. Notice
of any such rejection shall be issued within five (5) business days by Buyer to
Seller.
Upon rejection, Buyer will notify Seller of such rejection and
cause for rejection and return the entire shipment or any portion, to Seller.
Seller accepts all cost of rejected lots, including but not limited to shipping
charges back to Buyer, any insurance costs, and all risk of loss (F.O.B.
Destination) for rejected Products. If Seller does not receive such notice of
any such rejection from Buyer within thirty (30) calendar days after shipment of
Product, such Product shall be deemed accepted by Buyer for purposes of this
Section 7. Any Products returned under this Section 7 will be shipped by a
carrier selected by Seller, or Seller will be liable for freight charges at a
rate equivalent to Buyer's documented freight rates. If it is determined that
any Products returned by Buyer under this Section 7 are conforming to the
Specification then (i) Seller shall utilize such Products for Buyer's releases
and Buyer shall, notwithstanding anything to the contrary in this Section 7, pay
for the expenses associated with Buyer's original return of such Products to
Seller under this Section 7.
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Notwithstanding the foregoing, damage to Products caused by
Buyer's Shipper shall not be considered a nonconformity to the Specification.
07.2. INSPECTION AT SELLER'S LOCATION
Buyer may, at its option, inspect the Product at Seller's facility
prior to shipment. Buyer's inspection shall be done by its designated
representative (hereinafter referred to as "Representative") who will be
permitted by Seller to witness the Acceptance Test of Product purchased by Buyer
hereunder. In the event that the Representative ascertains that an item of
Product is defective, said Representative will advise Seller's authorized
personnel and such defect shall be remedied prior to shipment. Rejected lots (or
Products) will then be corrected and re-submitted for re-inspection at Seller's
expense. All Products shall be subject to inspection and test by Buyer at
Seller's facility if Buyer so desires. Buyer may, at its option, implement a
sampling inspection with lot rejection in accordance with an appropriate
sampling plan and inspection procedure to be accomplished at the Seller's
facility. If any inspection or test is made on Seller's premises, Seller shall
without additional charge, provide all reasonable facilities and assistance for
the safety and convenience of Buyer's inspectors subject to the security and
safety regulations existing at the facility. Seller shall take the
responsibility to coordinate all source inspection schedules to allow Seller to
meet the Scheduled Ship Dates committed by Seller to Buyer.
07.3. QUALITY LEVEL REQUIREMENTS
Seller shall maintain the quality levels specified in the
Specifications. Seller shall be responsible for any and all reasonable
inspection costs resulting from Seller being disqualified from the surveillance
plan as set forth in the Specifications after the first six (6) months from the
initial shipment of the Products under this Agreement. The first six (6) months
will be the quality history and data collection period.
07.4. FIRST INSTALL SUPPORT
Seller will provide, at Buyer's request, at locations selected by
Buyer and at no cost to Buyer, technically competent personnel and any
necessary spare parts to assist in the identification and resolution of any
performance problems which jeopardize the progress of the first four (4)
installations of the Product in the continental United States. Seller will also
provide, at Buyer's request, any performance information available which could
assist Buyer in an evaluation of Product performance.
08.0. SELLER'S LEGAL AUTHORITY
Seller represents and warrants that it presently has and will
retain the unencumbered legal authority to convey to Buyer the title, rights
and licenses to the Products, and that the performance by Seller of its
obligations hereunder is not and will not be in violation of the rights of any
third party. The foregoing representation and warranty does not apply to the
infringement by the Products of proprietary rights, for which Section 16.7.
below sets forth the exclusive remedy.
09.0. COMPLIANCE TO STANDARDS
09.1. SELLER'S CERTIFICATION REQUIREMENTS
Seller agrees, at its expense and a mutually agreeable schedule,
to obtain the applicable approvals and certifications of FCC, UL, CSA, BSI,
BABT, DOC and VDE, and other safety and emission standards as listed in the
Purchase Specifications # 351-0047-0031, for equipment supplied by Seller.
Sellers shall obtain such approvals and certifications prior to
the shipment of any Products requiring such approvals. If Seller cannot meet
his requirement, Seller shall so advise Buyer in writing. Buyer, at its option,
may grant limited waivers to receive such non-compliant Product. Seller agrees
to assure that all Product shipment made to countries outside of the
Continental United States will be certified and approved to the appropriate
levels as required by said countries. All cable purchased under this Agreement
must meet the applicable UL and CSA requirements.
09.2. BUYERS CERTIFICATION REQUIREMENTS
Buyer shall be responsible for obtaining all required approvals
and certifications for its product incorporating Seller's Product, at its
expense. Seller agrees to consult with Buyer in connection with Buyer's
applications for such approvals and certifications and to provide testing, data,
and documentation in connection therewith.
09.3. BUYERS REMEDY FOR NON-COMPLIANCE
If Seller ships Product to Buyer or Buyer's customer in violation
of Section 09.1 above then Buyer may, at its option, (1) terminate this contract
in its entirety, (2) terminate its obligations within the contract for the
Product or Products not in compliance (including terminating any outstanding
Releases for such Products) without liability or consequence and without
affecting any other Products that may be a part of this contract, (3) waive any
or all of these compliance requirements for any Release of such Product(s)
without waiving the requirement for full compliance of all other Products
shipped if applicable, such waiver to be in accordance with Section 16.14.,
"WAIVER", (4) hold the Seller responsible for the reimbursement of all costs
incurred by the Buyer or Buyer's customer, to include but not be limited to
penalties, agency fees and shipping charges, for such non-compliant product.
10.0. PRODUCT CHANGES
10.1. PRODUCT CHANGES BY BUYER
In the event that a change to the Specifications or a modification
to the Products is requested by Buyer:
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a. Buyer shall advise Seller of the requested change.
b. Seller, after reviewing the requested change, shall within the
time periods specified in Section 7.0 of the Specification advise Buyer of the
costs and length of time to effect such change. The lead time into production
and the per unit price change, if any. Seller shall not implement such change
without Buyer's prior written consent. Seller is under no obligation to make any
changes requested by Buyer without Seller's agreement.
Seller shall not implement such change without producing required
engineering change requests in accordance with Section 7.0 of the
Specifications.
In the event Seller's quote time to effect the requested change
and the lead time into production is not acceptable to Buyer based on Buyer's
good faith analysis of its market requirements, Buyer will so notify Seller. At
Buyer's request, the parties will negotiate in good faith a mutually acceptable
development and production schedule and Seller will provide Buyer a revised
non-reimbursable engineering ("NRE") cost and per unit price change estimate
within sixty (60) days of such request. Buyer will then have thirty (30) days to
elect to have Seller implement such modification at Buyer's expense. In the
event Seller wishes to provide the modification to its third party customers,
Seller and Buyer will negotiate, prior to delivery of the modification to any
such customer, a reasonable schedule for reimbursing Buyer for its payments of
NRE costs.
If Seller is unwilling or unable to undertake the requested
modification project, it will promptly inform Buyer, and Buyer will have the
option, exercisable within sixty (60) days of Seller's notification, to
undertake the modification project itself. If Buyer exercises such option,
Seller will promptly provide Buyer such Manufacturing Information reasonably
required to product a Modified Product (as defined below), and will grant Buyer
a non-exclusive, non-transferable license (i) to use, copy and modify the
applicable Manufacturing Information to product the Modified Product, and (ii)
subject to agreement on appropriate license and/or royalty fees to be paid to
Seller (to be negotiated in good faith by the parties), to use and distribute
the Modified Product Developed by Buyer in accordance with the terms of this
Agreement.
Notwithstanding the foregoing, the obligations of Seller under the
preceding paragraph are conditional upon Buyer's ability to secure such
manufacturing licenses or other proprietary rights of third parties, if any, as
may be required to undertake any modifications or produce or distribute Modified
Products. Seller agrees to provide reasonable assistance to Buyer to secure such
rights. Moreover, Seller's obligations under this Section shall not apply to any
requested modification to the extent Seller's compliance with the provisions of
this Section would breach Seller's obligations to a third party.
For the purposes of this Section, "Modified Product" shall mean a
Product (such as a voice card, WAN card or other separately identified product)
which is the subject of the modification and in which the modification is
incorporated.
10.2. NEW PRODUCT DEVELOPED BY SELLER
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If Seller develops a New Product, Seller shall notify Buyer in
writing at least thirty (30) days prior to the time of the initial public
announcement of such New Product, unless other terms are mutually agreed upon,
in advance and in writing, by the parties. At the time of such written notice,
Seller shall also provide to Buyer the available specifications, description,
and technical data necessary to evaluate the New Product. Further, Seller shall
notify Buyer when a working model of the New Product is available for an
engineering evaluation. Buyer reserves the right to replace an existing Product
with the New Product for all future Releases at the time the New Product is
offered commercially and at a price which is mutually agreeable.
10.3. PRODUCT CHANGES BY SELLER
Seller shall not change the Specifications or make any engineering
changes to the Products affecting form, fit, function, backward compatibility,
or spare parts without Buyer's prior written approval. Buyer will approve or
disapprove any such change within the time periods as specified in Section 7.0
of the Specification. If the Buyer's disapproval is not given within such time
periods of receipt of such notice, Seller shall be authorized to make the
necessary change, unless otherwise mutually agreed to by the parties. However,
Seller may change the Specifications or Products without Buyer's prior written
approval if such changes are for reasons of Product safety, certification
compliance or to avoid or eliminate any actual or alleged infringement or
potential infringement by the Product of any patent or copyright. Seller will
provide Buyer all necessary documentation concerning any change by Seller, as
outlined in Section 7.0 of the Specification, at least 30 days prior to the
first shipment of changed Product.
10.4. PRODUCT DISCONTINUANCE
Seller agrees to notify Buyer at least fifteen (15) months prior
to the discontinuance of any Products listed in Exhibit A of this Agreement
provided Buyer agrees to reasonably cooperate with Seller to shorten this notice
period. New Products that are introduced to replace a discontinued Product will
be functionally equivalent or better than the Products being replaced, and the
terms and conditions in section 10.0. of this Agreement related to functional
equivalence will apply to all proposed New Products.
10.5. PRODUCT COLOR AND LOGO
Seller will paint, logo and label the Product to the
specifications provided by the Buyer, which include the Buyer's Paint/Finish and
Color, Corporate Logo Guidelines, and Corporate Product Marking Specifications.
Seller agrees to complete this task, with every reasonable effort, 90 days after
a written request has been received from the Buyer. All non-recurring expenses
will be the responsibility of the Seller. If this Agreement is terminated prior
to the Buyer purchasing one thousand (1000) Products than the Buyer will
reimburse the Seller for all reasonable non-recurring expenses.
11.0. MARKETING LITERATURE/MANUALS
11.1. SALES KITS/LITERATURE
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Sample sales literature, specification sheets and other materials
of an inexpensive nature will be provided free of charge as these materials
become available. Seller shall, at the time of execution of this agreement,
provide Buyer an initial quantity of one thousand five hundred (1500) marketing
brochures. Costlier items such as point of purchase kits, merchandising kits,
demonstration programs, etc., will be provided free of charge in single
quantities or in quantities deemed reasonable by the Seller. Additional
quantities of such items as previously stated will be offered by Seller to Buyer
at Seller's cost.
11.2. MANUAL UPDATES
Seller shall provide, in electronic format where possible, Buyer
with timely updates for manuals designated as deliverable with the Product and
those necessary for Product support.
11.3. MANUAL DEVELOPMENT
Seller and Buyer agree to jointly develop a marketing guide for
this Product. This marketing guide should be completed three (3) months after
this agreement has been executed. Buyer agrees to bear the costs of the
production and duplication for this document.
12.0. SELLER'S COPYRIGHTED MATERIALS
Seller agrees to grant and hereby grants to Buyer a worldwide,
paid-up right to reproduce and distribute any copyrightable materials owned by
Seller that Seller makes generally commercially available to end-users of the
Products. Such materials shall include, but not be limited to, end-user
documentation, software and firmware fixes and maintenance releases (provided
that Buyer may only distribute such updates to end-users of the Products solely
for use with the Products), marketing materials, and technical bulletins. The
Buyer's name and trademarks can be used on such material. The Seller's name and
trademarks can be used on such material provided that each item of such material
shall contain trademark notices as may be reasonably requested by Seller to
protect Seller's trademark rights. Each item of such material shall the
statutory copyright notices.
13.0. CUSTOMER SERVICE SUPPORT
13.1. INITIAL DOCUMENTS
Upon the execution of this Agreement, if not previously furnished,
or as soon thereafter as possible, but in no event later than sixty (60) days
prior to the schedule delivery of the first production unit, the Seller shall
furnish, at Buyer's option, and if generally commercially available from Seller,
the following:
13.1.1. SELLER TECHNICAL MANUALS
One reproducible copy of the Seller technical manuals.
13.1.2. LINE ART AND ILLUSTRATIONS
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Reproducible (quality black on white first generation printed
copy) full sized copy of all line art and illustrations.
13.1.3. PARTS LIST
Parts breakdown within each Technical Manual. The parts breakdown
will list the part numbers of the typical field replaceable assemblies, to
include, but not be limited to, printed circuit board assemblies, power
supplies, and socket mounted chips.
13.2. DOCUMENT UPDATES
During the term of this Agreement, Seller shall provide the
following to Buyer Customer Service, if generally available from Seller:
13.2.1. TECH BULLETINS/SERVICE AIDS
A copy of Seller generated technical bulletins, subsystem service
aids and other instructions to the field covering problems, changes in
maintenance practices, parts, tools, etc.
13.2.2. DATA PACKAGE
For each Product model the applicable current data package shall
include, but is not limited to, flyers, boilerplates technical specification
lists, and other pertinent documentation intended for use by the Buyer's
customer or support personnel.
13.2.3. SPECIFICATION CHANGE REPORTS
Provide Buyer with copies of any changes of the Specifications of
the Product or any part, or any changes in the documentation or publications
itself. Such reports must be submitted within 30 days of publication by Seller.
13.2.4. SERVICE LITERATURE
Service literature shall consist of, but is not limited to,
troubleshooting guides, test data, service bulletins, training guides, other
media training tools (videos, computer based training software, course
development tools and information, self-study guides, etc.), application notes,
part numbers, and catalogs and will be made available to Buyer at Seller's cost.
Buyer may copy these materials for providing maintenance to its own customers
(in accordance with Section 12.0.).
13.3. TRAINING
13.3.1. INITIAL TRAINING
Seller shall provide free of charge, at a mutually agreed upon
time, training at Buyer's Customer Service Headquarters in Largo, Florida in the
selling, marketing, operation, installation, maintenance and board level
diagnosis, if board level diagnosis is applicable, of Product for the Buyer's
personnel. Training will be of a level and of such depth that qualified Buyer's
personnel
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so trained can, in turn, train other qualified Buyer's personnel. This training
shall be jointly developed and reviewed for acceptance by the Buyer. Such
training shall include the following courses and materials offered at no charge:
a. Three (3) training sessions for up to twelve (12) of Buyer's
Customer Service employees which may be recorded in audio or video by the Buyer
for its later use in training employees and any third party support as approved
by Seller.
b. Two (2) training sessions for up to a total of twenty-five (25)
of Buyer's Sales, Marketing and/or System Engineering personnel. This training
shall consist of sufficient information to properly sell and market the Products
and should include subject matter concerning the following items: new or
enhanced applications, new or enhanced feature/functionality, and competitive
market information.
c. All manuals and other course materials will be provided free of
charge for such training courses. Buyer may copy such materials in accordance
with Section 12.0. of this agreement.
13.3.2. NEW OR IMPROVED PRODUCT TRAINING
If additional or New Products (as defined in 1.7.) are added to
this Agreement or improvements or Enhancements are made by Seller to Products
purchased by Buyer then as mutually agreed to by the parties Seller shall
provide training in accordance with Section 13.3.1.
13.3.3. SUPPLEMENTAL TRAINING
Supplemental training will be provided at times and locations
mutually agreeable to both parties at Seller's then-current most favorable
charges for training.
If the training is to be performed in Seller's facilities, Seller
shall furnish all necessary course material required for such training. Buyer
shall bear the cost of travel and living expenses of its personnel.
If training is to be performed at other than Seller's facilities,
Buyer shall reimburse Seller for reasonable travel expenses incurred by Seller's
personnel to the extent that such expenses arise directly from training being
performed at other than Seller's facilities. In such cases Buyer shall provide
adequate training facilities and training equipment. Seller will provide all
appropriate training materials as specified in Section 13.3.1.
13.4. SUPPORT
Seller shall, at all times, have available to Buyer qualified
System Engineering and/or Customer Service Engineering support and personnel to
provide telephone assistance in resolving field installation, configuration, and
maintenance problems encountered by Buyer. If Seller is unable to solve Buyer's
problems via telephone, Seller shall, at Buyer's expense and within twenty-four
(24) hours after notice from Buyer, supply technical personnel competent to
resolve the problem at Buyer's designated location at Seller's then prevailing
rate per day, plus travel, living, and incidental expenses, (excluding First
Install Support Section 7.4). However, to the extent that the problems
encountered by Buyer are due to "Epidemics" as defined in Section 1.6,
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Seller shall provide personnel, if necessary, at a representative site until the
problems are resolved, without charge to Buyer.
13.5. SPARE PARTS
13.5.1. SPARE PARTS DELIVERY
Subject to the provisions of Section 13.5.2. below, Seller shall
use best efforts to ship spare parts in accordance with Buyer's schedules;
provided, however, such schedules allow Seller at least the following
lead-times, after receipt of Buyer's Releases, to ship the parts Release(s):
TYPE OF RELEASE LEAD-TIME FOR SHIPMENT (ARO)
Emergency Releases 24 HOURS
Initial Provisioning 90 Calendar Days
Replenishment Releases 21 Calendar Days (if forecasted)
90 Calendar Days (if unforecasted)
Buyer requests for shipments sooner than the lead-time set forth above are
subject to Seller's agreement.
13.5.2. LIST OF SPARE PARTS AND SUPPLIERS
Seller will provide Buyer with a list of those Seller's vendors
who are suppliers to Seller of spare parts for Products. Seller will also
provide Buyer with a recommended spare parts list. Such lists will be provided
to Buyer within thirty (30) days after execution of this Agreement.
13.5.3. SPARE PARTS AVAILABILITY WARRANTY
Seller shall stock sufficient quantities of spare units and spare
parts to insure twenty-four (24) hour response time. Seller will ship such
emergency Releases to the location identified by Buyer. Buyer will pay for any
shipping and handling charges.
13.6. REPAIR AND REFURBISHMENT SERVICES
13.6.1. REPAIR COST PRICE WARRANTY
Seller warrants that the prices charged and/or discounts granted
for the sale and repair of Products and spare parts will not be any less
favorable than prices charged and/or discounts granted by Seller to any Seller's
authorized wholesale distributors who purchase similar value of spare parts
under similar terms and conditions. This section shall survive the termination
of this agreement until Seller is no longer obligated to provide support under
Section 13.6.3.
13.6.2. REPAIR/REFURBISHMENT SERVICES BY SELLER
Seller shall provide repair and refurbishment services for
Products listed under Exhibit A which are no longer under warranty. For Products
manufactured by Seller within three (3)
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years of the date such repair or refurbishment is requested, prices for such out
of warranty repair and refurbishment shall not exceed twenty percent (20%) of
the then current Buyer's purchase prices. For Products returned for repair and
refurbishment under this section for which no defect is found, a charge not to
exceed seven percent (7%) of the then current Buyer's purchase price or fifty
(50) US dollars, whichever is greater, will be assessed for test and handling.
Products shall be returned to Seller freight prepaid. Seller shall complete
authorized services and reship to Buyer freight prepaid within fifteen (15) days
after receipt of the Products and authorization from Buyer. Seller warrants that
any out of warranty Products repaired and/or refurbished by Seller will be in
conformance with the Specifications and free from defects in material and
workmanship for a period, from date of shipment to Buyer, of 12 months.
Seller agrees to provide information and training to Buyer that
will allow Buyer to establish and maintain an authorized pass/fail test for the
Products. Seller further agrees to provide Buyer, if necessary, any special
materials, piece parts or test equipment required for this pass/fail test at
Seller's current cost for such items.
13.6.3. REPAIR PERIOD
Seller agrees to repair a particular type of Product for a period
of at least five (5) years following delivery of the last unit of such Product
delivered under this Agreement. Seller agrees to provide and maintain an
adequate stock of parts peculiar to the Product during this time period.
Further, Seller will provide Buyer a last buy opportunity on any components or
sub-assemblies to be discontinued or no longer available.
13.6.4. REPAIR/REFURBISHMENT SERVICES BY BUYER
Buyer shall have the right to perform repair and refurbishment of
the Product. Seller shall, not later than thirty (30) days after Buyer's written
request, provide Buyer with a reproducible copy of all normal Product
documentation and manuals necessary for Buyer to repair/refurbish and test the
Products, and shall throughout the term of this Agreement furnish reproducible
copies of any changes to such information. In the event that
repair/refurbishment of the Products require use of special material, tools,
fixtures, jigs, apparatus or parts of Seller's design, Buyer shall have the
right to purchase such items from Seller or its suppliers.
This information shall be treated as proprietary.
14.0. REMEDIES
14.1. TERMINATION
14.1.1. INSOLVENCY
If either party ceases doing business as a going concern, becomes
insolvent, suffers or permits the appointment of a receiver for its business or
assets or shall avail itself of, or become subject to, any proceeding under the
Federal Bankruptcy Code of 1978, (as amended), or any statute of any state
relating to insolvency or the protection of the rights of creditors, then (at
option of the other party) this Agreement shall terminate and be of no further
force and effect.
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14.1.2. FOR BREACH
Either party may terminate this Agreement if the other party is in
material breach and has failed to cure such breach within forty-five (45) days
after receipt of written notice thereof. Amounts withheld from Seller for reason
of valid dispute shall be excluded.
14.2. MANUFACTURING RIGHTS
A perpetual, royalty free, license to manufacture the Products
listed in Exhibit A shall be granted to Buyer under the following conditions:
a. Discontinuance of Product or support of Product listed in
Exhibit A.
b. New Product (as defined) replaces or obsoletes existing
Product but New Product fails to meet Buyer's Specification.
c. Seller becomes insolvent.
If more than thirty percent of the voting stock of Seller shall be under the
control of a competitor of Buyer, Buyer shall have, upon such occurrence, an
immediate right and license to manufacture the Products subject to a reasonable
license fee, to be agreed upon by the parties. Absent such agreement, the
determination of such fee shall be subject to arbitration under Section 16.19.
Buyer will have the right to withdraw the Manufacturing Information contained in
the escrow account for manufacturing the Products.
Notwithstanding the foregoing, the obligations of Seller under the
preceding sentence are conditional upon Buyer's ability to secure such
manufacturing licenses or other proprietary rights of third parties, if any, as
may be required to manufacture such Product. Seller agrees to provide reasonable
assistance to Buyer to secure such rights including the assignment of its rights
under such licenses.
Furthermore Seller will grant to Buyer the license to manufacture
the Products listed in Exhibit A under the following conditions: (1) Seller is
in material breach of this Agreement and such breach in not cured within the
time period specified in Section 14.1.2.; and (2) Buyer is not currently
manufacturing the Products, listed in Exhibit A, under a different agreement
with the Seller. The parties agree that the following will apply:
a. The Seller shall retain all the intellectual property rights to
the Products.
b. Seller shall maintain full Product revenue recognition for the
Products during this period. The transfer pricing guidelines between the parties
shall be as follows:
1. The Buyer's Manufacturing Costs shall consist of materials,
labor, overhead and a fifteen (15) percent profit margin for
each Product manufactured.
2. The Transfer Price shall be the price as stated in Exhibit
A, under the heading "AT&T Purchase".
3. The Seller's Current Manufacturing Cost shall be that price
which is being paid by the Seller to its current subcontract
manufacturer.
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4. If the Buyer's Manufacturing Costs are less than the
current Transfer Price but greater than the Seller's Current
Manufacturing Cost then the Buyer will sell the Product to the
Seller at the Buyer's Manufacturing Costs, and the Seller will
in turn sell the Product back to the Buyer at a price which is
the higher of (1) the Transfer Price or (2) one hundred six
(106) percent of the Buyer's Manufacturing Costs.
5. If the Buyer's Manufacturing Costs are greater than the
Seller's Current Manufacturing Cost and is greater than or
equal to the Transfer Price then the Buyer will sell the
Product to the Seller at the Buyer's Manufacturing Costs, and
the Seller will in turn sell the Product back to the Buyer at
a price not to exceed one hundred six (106) percent of the
Buyer's Manufacturing Cost.
6. If the Buyer's Manufacturing Costs are less than or equal
to the Seller's Current Manufacturing Cost then the Buyer will
sell the Product to the Seller at the Seller's Current
Manufacturing Cost, and the Seller will in turn sell the
Product back to the Buyer at the Transfer Price.
7. Both parties agree to share cost data sufficient to
evaluate adherence to the above requirements.
c. Where the Seller is able to cure the material breach outside of
the time periods specified in Section 14.1.2. and has proven to the Buyer that
the material breach has been cured, the Seller will be granted the option to
discontinue the Buyer's right to manufacture the Products under the following
conditions:
1. The Seller must reimburse the Buyer for all customary and
reasonable costs incurred in the start up phases of the Buyer
manufacturing processes; and
2. Seller cannot discontinue the Buyer's right to manufacture
until one (1) year has expired after the Buyer has begun
manufacture of Products.
14.3 ESCROW
Seller certifies it will deposit all Manufacturing Information,
including the items listed in Exhibit F, for Buyer to manufacture the Products
listed in Exhibit A, with an escrow agent within forty five (45) days of signing
this Agreement. The escrow account will be updated on a monthly basis or as
appropriate, but no less than every three (3) months, to insure that all
technical information remains current.
A mutually acceptable escrowee is to be selected within forty-five
(45) days of the effective date of this Agreement. Seller and the escrowee agree
to maintain materials in escrow. Seller agrees to initiate the immediate release
of all materials in escrow upon receipt of request from Buyer under the
existence of the conditions for release specified in Section 14.2., of this
Agreement entitled "Manufacturing Rights".
14.4. EPIDEMIC
25.
<PAGE> 26
If an Epidemic shall occur at any time prior to the expiration of
this Agreement, then Seller shall, as mutually agreed to by the parties, do the
following at Seller's expense:
a. Forthwith investigate the same and determine its cause;
b. Supply on-site technical support and all necessary parts to
repair or replace Product known to be affected by the Epidemic;
c. Permit Buyer to return all known defective Product of the same
model designation and all effected spare parts not field repaired or replaced
which were affected by the Epidemic to Seller's factory for either repair or
replacement at no charge to Buyer (and Seller shall pay all shipment costs both
to and from Seller's factory);
d. Ensure that the appropriate quality controls and other measures
are taken so that all Product of similar type supplied subsequent to the date of
such an Epidemic shall not have the problems which caused the Epidemic.
15.0. FORCE MAJEURE
Neither party hereto shall be deemed to be in default of any
failure in performance of this Agreement, resulting from acts beyond the control
of such party but only during the time period that such Force Majeure event is
in affect. For the purposes of this Agreement, such acts shall include but not
be limited to, Acts of God, civil or military authority, civil disturbances,
war, strikes, fires, other catastrophes, or other "force majeure" events beyond
the parties control. The party whose performance is affected by a force majeure
event must provide to the other party a written notice of a force majeure event
within two (2) days after the force majeure event occurs. If the force majeure
condition precludes performance for more than forty five (45) days, then the
other party may elect to terminate this Agreement without additional liability
to either party.
16.0. GENERAL
16.1. RENEWAL
This Agreement may be renewed, as mutually agreed to by the
parties, for successive one (1) year periods after the expiration of the initial
term. Notice of renewal must be in writing and submitted to the other party at
least sixty (60) days prior to the end of the initial term or any renewal term,
provided that prior to the commencement date of a renewal term the parties shall
have agreed to the purchase price and purchase commitments applicable to such
renewal term.
16.2. SUCCESSORS AND ASSIGNS
Except as otherwise provided in this section, the rights and
duties of Buyer and Seller hereunder are personal to them and are not assignable
or delegable; any assignment or attempted assignment of rights or delegation of
duties shall be void except for the assignment of receivables for financial
reasons. Either party may assign this Agreement to a parent, subsidiary, or
affiliated entity or to another entity in connection with the sale or transfer
of substantially all of its business assets provided the non-assigning party is
notified promptly of such assignment and such assignee undertakes in writing to
assume the obligations of this Agreement.
16.3. MOST FAVORED CUSTOMER
26.
<PAGE> 27
Notwithstanding any other provisions of this Agreement, all of the
prices, warranties, and terms granted by Seller to Buyer hereunder are hereby
warranted by Seller to be comparable to, or more favorable to Buyer than the
equivalent prices, warranties, and terms that have been offered by Seller to any
other Customer during the period from the effective date of this Agreement to
its termination. If at any time during this period, Seller shall have contracted
with any other Customer for the identical or substantially similar Product as
listed in Exhibit A hereto, on a basis that provides prices, warranties or terms
to that customer more favorable than those provided to Buyer hereunder, then:
Seller shall within thirty (30) days after the effective date of such other
contract 1) notify Buyer in writing of such fact, explaining the more favorable
basis in detail and 2) regardless of whether such notice is sent by Seller or
received by Buyer, this Agreement shall be deemed to be automatically amended,
effective retroactively to the effective date of such other contract, to offer
the same prices, warranties, or terms to the Buyer. The provision of this clause
shall survive the closing and termination of this Agreement.
16.4. INDEMNITY
Seller agrees that it will indemnify and hold harmless Buyer
against and from any and all claims, damages, and liability, including expenses
and reasonable attorneys' fees, suffered by Buyer resulting from personal injury
and/or tangible property damage to third parties, including without limitation,
Buyer's employees, caused by the failure of the Products to conform to
Specifications or defects in materials and workmanship of the Products, or the
negligent acts of Seller, arising out of the performance under this Agreement or
Seller's breach of this Agreement; provided, however, that this obligation shall
not cover any damage to the Products themselves. Buyer agrees that it will
indemnify and hold harmless Seller against and from any and all claims, damages
and liability, including expenses and reasonable attorneys' fees, suffered by
Seller resulting from personal injury and/or tangible property damage to third
parties, including without limitation Seller's employees, caused by defects in
components supplied by Buyer and incorporated into the Products, or the acts of
Buyer or buyer's breach of this Agreement provided that such defects in such
components do not result from defects in the Products. In the event any claim
covered by this indemnity is asserted against either party, the other party
shall provide reasonable cooperation and assistance in the defense thereof and
the other party will grant the indemnifying party control over the defense of
any action.
16.5. TRADEMARKS AND TRADENAMES
Buyer may use Seller's trade name, trademarks and product names
only in connection with Buyer's distribution of the Products and in a format and
style approved by Seller. Buyer will use such trademark notices as may be
reasonably requested by Seller to protect Seller's trademark rights.
16.6. PROPRIETARY INFORMATION
Certain data or information disclosed by the Seller may be
proprietary in nature and must be so marked or identified ("Proprietary
Information") or if provided orally or visually the aforementioned information
must be claimed as such and provided to the other party in writing, within
thirty (30) calendar days of the date of disclosure. Buyer agrees to take all
reasonable
27.
<PAGE> 28
measures to protect Proprietary Information and, without limiting the foregoing,
agrees to exert at least the same effort to prevent disclosure of such
Proprietary Information as it would its' own proprietary information and to not
disclose any part thereof without the Seller's written consent (such consent not
be unreasonably withheld). Notwithstanding any provisions herein concerning
non-disclosure of the Proprietary Information, Buyer shall have no obligations
hereunder for any such information which Buyer can document 1) is already known
to Buyer at the time Seller disclosed such Proprietary Information to Buyer, 2)
is or becomes known to the general public through publications, inspection of
Product or otherwise and through no wrongful act of Buyer, 3) is received from a
third party without that party's breach of disclosure restriction and without
breach of this Agreement, 4) is shown to have been independently developed by
Buyer, 5) is disclosed to a third party by Seller without a similar restriction
on the third party's rights, or 6) is approved for release or use by written
authorization of Seller. The obligations of this section shall survive
termination of this Agreement for a period of two (2) years. Seller retains
exclusively for itself all proprietary rights in and to all designs, engineering
details, and other data pertaining to all Products.
16.7. PATENT/COPYRIGHT INFRINGEMENT INDEMNIFICATION
Seller is unaware of any claim, either threatened or impending,
that the Products infringe any patent, trademark or copyright. Seller agrees to
indemnify and hold harmless Buyer from and against all damages, liability and
cost suffered or incurred as a result of any claim that any Products furnished
pursuant to this Agreement constitutes an infringement of any patent, trademark
or copyright provided that Buyer gives Seller reasonable notice of any such
claims. Said indemnification shall extend only to damages assessed against or
costs incurred by Buyer as the result of a judgment rendered by a court of last
resort or a court of lower jurisdiction from which no appeal has been taken
holding that any Product, spare parts and documentation furnished pursuant to
this Agreement constitutes an infringement of any patent, trademark or
copyright, or to any settlement of such claim consented to in writing by Seller.
Buyer shall not be entitled to recover from Seller any loss of profits suffered
by Buyer as a result of such infringement or alleged infringement.
At the request and expense of Seller, Buyer shall assist and
cooperate with Seller in defending against any such alleged infringement. It is
agreed that Seller shall undertake the sole and complete defense of any such
claim of infringement through counsel of its own choice and at its expense. In
case any Product is held to constitute an infringement in such suit or
proceeding and the use of said Product is enjoined, Seller shall, at its own
expense and option, either (a) procure for Buyer the right to continue using
such Product, (b) modify said Product so as to render it non-infringing, or (c)
accept the return of said Product and refund the purchase price. The provisions
of this Section shall not apply with respect to any claim of patent, trademark,
or copyright infringement based solely on the components added to the Products
by Buyer. Further the provisions of this Section shall not apply if the
infringement arises out of a modification of said Products after delivery by
Seller. The rights granted to Buyer under this section 16.7. are Buyer's sole
and exclusive remedy for any alleged infringement of any proprietary rights of
any kind.
16.8. INDEPENDENT CONTRACTOR
28.
<PAGE> 29
It is understood and agreed that nothing stated in the Agreement
shall be construed as creating the relationship of employer and employee or
principal and agent between the parties hereto. Buyer and Seller shall be deemed
independent contractors at all times with respect to their performance and
neither shall have the right or authority to assume or create any obligation,
express or implied, on behalf of the other except as may be otherwise provided
herein. Neither Buyer nor Seller will use any words, perform any act, or make
any statement, written or oral, which would imply or indicate, or tend to imply
or indicate, that it or its business is an agent or representative of the other
party; an agency, division, subsidiary, or branch of the other; or that one, in
any manner, either directly or indirectly, owns, controls, maintains, or
operates the other or its business. Neither party is in any manner responsible
or liable for the other's obligations; nor does any relationship exist between
Seller and Buyer, other than that of independent contractor.
16.9. GOVERNING LAW
This Agreement shall be governed by and construed according to the
laws of the State of Florida.
16.10. SEVERABILITY
If any provisions of the Agreement shall be held invalid, illegal
or unenforceable, the validity, legality or enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
16.11. NOTICES
Every notice or other communication required or contemplated by
this Agreement by either party shall be delivered by (a) personal delivery, (b)
certified or registered mail (postage prepaid, return receipt requested), or (c)
"tested telecopy" (a telecopy for which the proper answer back has been
received) addressed to the parties for whom intended at the following address:
If to Seller, at the following address:
Premisys Communications, Inc.
1032 Elwell Court
Suite 111
Palo Alto, California 94303
Attn: Robert Dilfer
Telecopy Number: (415) 940-7713
If to Buyer, at the following address:
AT&T Paradyne
8545 126th Avenue North
P.O. Box 2826
Largo, Florida 34649-2826
29.
<PAGE> 30
Attn: Subcontracts Manager
Telecopy Number: (813) 530-2623
or at such other address as the intended recipient previously shall have
designated by written notice to the other party. Notice by mail shall be
effective on the date it is officially recorded as delivered to the intended
recipient by return receipt or equivalent. All notices and other communication
required or contemplated by this Agreement delivered in person or sent by
"tested" telecopy shall be deemed to have been delivered to and received by the
addressee and shall be effective on the date of the personal delivery or on the
date sent, respectively. Notice not given in writing shall be effective only if
acknowledged in writing by a duly authorized representative of the party to whom
it was given.
16.12. ENTIRE AGREEMENT
This Agreement, including any exhibits attached hereto,
constitutes the entire Agreement and supersedes all prior communications,
representations, agreements, understandings, either verbal or written, between
the parties with respect to the subject matter hereof. This Agreement may not be
altered, modified, amended or otherwise changed except by supplemental written
agreement signed by duly authorized officers of both parties.
16.13. AUTHORITY TO COMMIT
Buyer and Seller each represent and warrant that the
representatives executing this Agreement are duly authorized and empowered to
sign on their behalf.
16.14. WAIVER
A waiver by either party of any default of the other party shall
not be deemed to be a continuing waiver or a waiver of any other default or of
any other provision of this Agreement, but shall apply solely to the instance to
which the waiver is directed.
16.15. PRIVACY
Neither Buyer nor Seller shall, without first obtaining the other
party's written authorization, in any manner disclose the terms and conditions
of this Agreement; (except as may be necessary to perform in accordance with the
terms of this Agreement or as required by law), or any information in any way
related to this Agreement, or any Release or the business of the other party.
16.16 SURVIVING PROVISIONS
The rights and obligations of Buyer and Seller arising under the
Sections 5.0., 13.6.3., 16.4., 16.5., 16.6., and 16.7. shall survive the
termination of this Agreement for a period of three (3) years unless otherwise
stipulated elsewhere.
16.17. ORDER OF PRECEDENCE
30.
<PAGE> 31
If acknowledgments and invoices are issued on Seller's standard
forms containing printed terms and conditions therein, then such printed terms
and conditions shall be of no force and effect. The terms and conditions of this
Agreement shall take precedence over Buyer's Releases terms and conditions. The
Specifications and other such documents made as part of this Agreement shall
take precedence over any other such documents not attached or referenced within
this Agreement.
16.18. HEADINGS NOT CONTROLLING
Headings used in this contract are for reference only and shall
not be deemed a part of this contract.
16.19. ARBITRATION
Except as provided herein, any controversy or claim arising out of
or related to this Agreement, or the breach hereof, will be settled by
arbitration before a panel of one arbitrator in ORLANDO, FLORIDA, in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitrator will have knowledge of and
experience with the telecommunications industry. The arbitration hearing will
commence within ninety (90) days after appointment of the arbitrator. Unless the
arbitrator finds that exceptional circumstances justify delay, the hearing will
be completed and an award will be rendered in writing within ninety (90) days
after the commencement of the hearing. The arbitrator shall include in the award
the prevailing party's costs of arbitration and reasonable fees of attorneys,
accountants and other professionals connected with the arbitration.
Seller or Buyer will not be required to arbitrate any dispute
relating to actual or threatened unauthorized use or disclosure of its
confidential information or violation of its proprietary rights in the Products,
jointly or individually developed products or enhancements thereto, or their
designs.
16.20. FEES
In any suit or arbitration to enforce this agreement, the
prevailing party will have the right to recover its costs and reasonable fees of
attorney, accountants, and other professionals.
17.0. ADDITIONAL AGREEMENTS
It is the intent of both the Buyer and the Seller to review as
required the need to amend this agreement or to enter into new agreements for
the mutual benefit of the parties.
Buyer and Seller agree to meet at least every six (6) months to
review market conditions and business opportunities that may require new
agreements to increase sales, market share and/or market position. Such
agreements may include, but are not limited to bi-lateral technology transfer,
joint development of new products, or enhancements to existing Products.
31.
<PAGE> 32
Should these meeting identify a market opportunity for either
party, Buyer and Seller agree to enter into "Good Faith" negotiations toward an
Agreement that benefits both parties.
18.0. MANUFACTURING
Buyer shall have the right to become a primary manufacturing
source for the Seller's Products and New Products, at the Buyer's or any of it
affiliate's manufacturing locations, if it can meet or beat the material terms
and conditions of Seller's then current primary manufacturing source. All bids
shall be fairly reviewed by the Seller for meeting product manufacturing and
quality standards that the Seller would propose to any other sub-contract
manufacture. Seller agrees to share all manufacturing cost data for the Products
with the Buyer and to actively pursue the exchange of the manufacturing
information required for the Buyer to submit such a bid. If the bid to
manufacture the Products is rejected by Seller, Seller will within ten (10) days
of such rejection submit to the Buyer a memorandum detailing the reason why the
bid was rejected.
If during the term of this Agreement Buyer elects to manufacture
the Products for its customers at its facilities or any affiliated facility,
then Buyer shall have such right provided the transfer price to Seller is no
greater than the aggregate of the costs Seller would have otherwise incurred if
manufacturing had been done by its then existing supplier, assembly was done by
the Seller (including freight, duty, testing, inspection) and any other costs
that Seller would have otherwise incurred.
For any products or enhanced products jointly developed by the
parties pursuant to Section 17.0., both parties will have the rights to
manufacture and market (such marketing rights subject to limitations contained
in this agreement) such products. If Buyer develops enhanced products it shall
have the right to manufacture and sell such products subject to a reasonable
royalty for any incorporated Seller proprietary technology.
19.0. SOFTWARE
19.1. SOFTWARE LICENSE
Buyer acknowledges and agrees that the Products contain software
and firmware (the "Software") that is not sold to Buyer. Seller hereby grants
Buyer and Buyer's authorized distributors a license to reproduce and distribute
the Software to and sublicense end-users of the Product to use the Software
solely in connection with the Products.
The Buyer shall sublicense the Software under a license agreement
with the Buyer's end user customer that contains substantially the same
provisions as are contained herein and Buyer will ensure that its distributors
also comply with this requirement.
19.2. SOFTWARE AVAILABILITY
All software will be made available to the Buyer in both a hard
coded (firmware EPROM, etc.) and a soft coded copy (diskette, tape, etc.) as
deemed necessary by the Buyer for the particular application.
32.
<PAGE> 33
19.3 SOFTWARE WARRANTY
Seller agrees that the Software shall be warranted to the same
terms and conditions as specified for the Products.
19.4 SOFTWARE MODIFICATIONS
Seller agrees to provide Buyer with two (2) master copies of all
requested Software Bug Fixes, Software Maintenance Releases and the associated
documentation at no charge for the term of this Agreement. All Software Feature
Releases will be provided to the Buyer at a cost mutually agreed to by the
parties and in accordance with Section 16.3 of this Agreement. If Software Bug
Fixes are incorporated into the Software Feature Releases and not made available
as a Software Maintenance Release then the Software Feature Release will be
provided, as requested, to the Buyer at no charge.
All Software Bug Fixes and Software Maintenance Releases will be
made available to the Buyer on the day that it is generally available. All
Software Feature Releases will be available to the Buyer as required by the
Buyer. All technical documentation for a Software Feature Release will be
available to the Buyer in a camera ready state thirty (30) days prior to the
general availability of such release.
19.5. SOFTWARE SUPPORT
Seller agrees to provide support services to the Buyer for the
Software in accordance with the support provisions as defined for the Products
of this Agreement. Seller further agrees to coordinate the prioritization of all
Software problems as reported by the Buyer into the follow on releases based
upon the priorities reviewed with the Buyer. The Seller will issue monthly
reports to the Buyer covering status of the Software problems, current time
frames for repair, current development testing and results. Software for which
new versions have been issued will continued to receive support for two (2)
years post issuance of versions by Seller.
Seller agrees to provide a single point of contact within their
development organizations for consultation, defining unique features,
establishing priorities for unique features, new Software Feature Releases
information, establishing priorities, status and results for Software Bug Fixes.
Seller agrees to provide support service response times for
Buyer's Software reported problems, proposed changes and Enhancements (also
referred to by Buyer as Modifications Requests (MR)) as specified in the
Specification.
20.0. SIGNATURE
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date(s) set forth below.
AT&T PARADYNE CORPORATION
33.
<PAGE> 34
BY: /s/ J. P. Hectus
TITLE: Sr. V.P., CEO and Treasurer
DATE: 12/4/92
PREMISYS COMMUNICATIONS, INC.
BY: /s/ Raymond Lin
TITLE: President / CEO
DATE: 12/4/92
PREMISYS COMMUNICATIONS HOLDINGS, INC.
BY: /s/ Raymond Lin
TITLE: President / CEO
DATE: 12/4/92
34.
<PAGE> 35
[AT&T PARADYNE LOGO]
AGREEMENT NUMBER LGSC103DS
AMENDMENT NUMBER 1
PAGE 1 OF 4
DATE: 7/8/93
PREMISYS COMMUNICATIONS, INC.
1032 ELWELL COURT
PALO ALTO, CALIFORNIA 94303
Agreement number LGSC103DS, dated and signed, December 24, 1992, by and between
Premisys Communications Inc. and AT&T Paradyne will be amended as follows:
1.0 Exhibit A, Product Model Numbers/Descriptions/List Prices/Discount Levels,
is hereby deleted in its entirety and replaced by a new Product Model
Numbers/Descriptions/List Prices/Discount Levels, Exhibit A, revision 1, dated
7/8/93, attached hereto and made a part hereof.
2.0 All other term and conditions of the above stated Agreement remain
unchanged.
This Amendment shall be effective for all Releases received by Premisys for AT&T
Paradyne on or after August 1, 1993.
ACCEPTED: July 16, 1993 ACCEPTED: July 19, 1993
AT&T Paradyne Premisys Communications, Inc.
By: /s/ James L. Slattery By: /s/ Raymond Lin
Title: Sr. Vice President, Secretary & Title: President / CEO
General Counsel
AT&T PARADYNE - PROPRIETARY
USE PURSUANT TO COMPANY INSTRUCTION
AMENDMENT NUMBER 1 - LGSC103DS
1 - 07/08/93
<PAGE> 36
COMPANY CONFIDENTIAL INTERNAL USE ONLY
PREMISYS COMMUNICATIONS, INC.
IMACS/800
PRICE LIST EFFECTIVE AUGUST 1, 1993
<TABLE>
<CAPTION>
U.S.
LIST AT&T AT&T
MODEL NO. PEC CODE DESCRIPTION PRICE PRICE DISCOUNT
<S> <C> <C> <C> <C> <C>
Common Equipment:
8901 25801 AC power supply [***] [***] [***]
8902 25802 DC power supply [***] [***] [***]
8903 25803 -48V DC converter [***] [***] [***]
8904 25804 -48V Ringing generator [***] [***] [***]
8918 25800 Universal enclosure with installation kit [***] [***] [***]
8920 25816 Interface card with 2,400 baud modem [***] [***] [***]
8800 25806 CPU control card with 2 T1/E1 bus-connect [***] [***] [***]
(non-redundant) [***] [***] [***]
8804 CPU control card with 4 T1/E1 bus-connect [***] [***] [***]
(redundant-capable) [***] [***] [***]
8801 25807 CPU control card with cross-connect [***] [***] [***]
(redundant-capable) [***] [***] [***]
T1/E1 WAN Cards:
8000 25811 Single T1/E1 line interface [***] [***] [***]
8010 25812 Dual T1/E1 line interfaces [***] [***] [***]
8014 Dual T1/E1 line interfaces with 1 x 3 relays [***] [***] [***]
811 25814 DSX/CEPT plug-in module [***] [***] [***]
812 25815 CSU plug-in module [***] [***] [***]
Voice Cards:
8108 25819 8-port, 2-wire E&M/TO [***] [***] [***]
8118 25821 8-port, 4-wire E&M/TO [***] [***] [***]
8119 8-port, 4-wire E&M/TO - Extended Range [***] [***] [***]
8128 25823 8-port, 2-wire FXS/FXSDN/PLAR/DPO - 900 Ohm [***] [***] [***]
8129 8-port, 2-wire FXS/FXSDN/PLAR/DPO - 600 Ohm [***] [***] [***]
8138 25826 8-port, 2-wire FXO/FXODN/MRD/DPT - 900 Ohm [***] [***] [***]
8139 8-port, 2-wire FXO/FXODN/MRD/DPT - 600 Ohm [***] [***] [***]
Data Cards:
8202 25826 2-port RS-530/V.35 super-rate data [***] [***] [***]
8212 25827 2-port V.35 super-rate data [***] [***] [***]
8215 4-port RS-530/V.35 super-rate data [***] [***] [***]
8220 25828 10-port RS-232C sub-rate data [***] [***] [***]
8248 5-port OCU-DP [***] [***] [***]
8249 25829 2-port OCU-DP with error correction [***] [***] [***]
8254 25883 4-port DSO-DP/G.703 co/contra directional [***] [***] [***]
Other Cards:
8401 25830 External alarm card [***] [***] [***]
</TABLE>
* Confidential Treatment Requested
2.
<PAGE> 37
<TABLE>
<CAPTION>
U.S.
LIST AT&T AT&T
MODEL NO. PEC CODE DESCRIPTION PRICE PRICE DISCOUNT
<S> <C> <C> <C> <C> <C>
Cables and Accessories: [***] [***] [***]
1106 RJ48 to 2 BNC Adapter (for E1) [***] [***] [***]
1114X 25881 5-ft RJ48M to DB25M Cross-Over Cable (for SRU) [***] [***] [***]
1114M 25882 5-ft RJ48M to DB25M Straight-Thru Cable (for SRU) [***] [***] [***]
1121 25888 50-Pin to 2 RJ48 Adapter with Test Jacks (for T1) [***] [***] [***]
1161 25880 50-Pin to 8 RJ48 Adapter (for T1) [***] [***] [***]
1203X 25858 5-ft DB25M to V.35M Cross-Over Cable (for V.35 HSU) [***] [***] [***]
1203M 25885 5-ft DB25M to V.35M Straight-Thru Cable (for V.35 HSU) [***] [***] [***]
1204X 25858 5-ft DB25M to RS530M Cross-Over Cable (for RS530M HSU) [***] [***] [***]
1204M 25857 5-ft DB25M to RS530M Straight-Thru Cable (for RS530M HSU) [***] [***] [***]
1207 25863 6-ft 3-to-4 50-Pin E&M Cable (All Male Connectors) [***] [***] [***]
1208 25860 6-ft 3-to-1 50-Pin FXS Cable (All Male Connectors) [***] [***] [***]
1208 6-ft 3-to-1 50-Pin TO Cable (All Male Connectors) [***] [***] [***]
1210 25861 5-ft 50-Pin Male to Male Amphenol Cable (for Multiple Uses) [***] [***] [***]
1212X 25883 5-ft DB25M to RS449M Cross-Over Cable (for RS449 HSU) [***] [***] [***]
1212M 25882 5-ft DB25M to RS449M Straight-Thru Cable (for RS449 HSU) [***] [***] [***]
1215X 25885 5-ft RJ48M to DB15F Cross-Over Cable (for PBX) [***] [***] [***]
1215M 25864 5-ft RJ48M to DB15M Straight-Thru Cable (for CSU) [***] [***] [***]
1216F 25852 15-ft RJ48M to DB25F Straight-Thru Cable (for VT100) [***] [***] [***]
1216M 25851 15-ft RJ48M to DB25M Straight-Thru Cable (for VT100) [***] [***] [***]
1217 25854 25-ft RJ11M to RJ11M Cable (for Modem) [***] [***] [***]
1220 25877 25-ft 50-Pin Male to Female Amp/Champ Extension Cable [***] [***] [***]
1221 25878 25-ft DB25M to DB25F Extension Cable (for RS232 operation) [***] [***] [***]
1222 25875 25-ft DB25M to DB25F Extension Cable (for RS530 operation) [***] [***] [***]
1224 25874 25-ft DB25M to DB25F Extension Cable (for V.35 operation) [***] [***] [***]
1230 1-ft RJ48M to RJ48M Shielded Cable (for T1) [***] [***] [***]
1231 25853 25-ft RJ48M to RJ48M Shielded Cable (for T1) [***] [***] [***]
1232 25873 50-ft RJ48M to RJ48M Shielded Cable (for T1) [***] [***] [***]
1233 25872 100-ft RJ48M to RJ48M Shielded Cable (for T1) [***] [***] [***]
1239 Y Adapter for WAN Card Redundancy (Bus Connect Systems) [***] [***] [***]
1240 5-inch DB25M to DB25F RS530 Adapter Cables [***] [***] [***]
1251 25869 RS-530 to V.35 Personality Module [***] [***] [***]
1252 25870 RS-530 to RS-232 Personality Module [***] [***] [***]
1255 25871 RS232/RS-232 DB25 Female-to-Female Gender Changer [***] [***] [***]
1257 25885 V.35 M34 Female-to-Female Gender Changer [***] [***] [***]
1258 25888 RS449 DB37 Female-to-Female Gender Changer [***] [***] [***]
1263X 5-ft DB28M to V.35M (M34) Cross-Over Cable (for 4-port HSU) [***] [***] [***]
1263M 5-ft DB28M to V.35M (M34) Straight-Thru Cable (for 4-port HSU) [***] [***] [***]
1264X 5-ft DB28M to RS530M (DB25) Cross-Over Cable (for 4-port HSU) [***] [***] [***]
1264M 5-ft DB28M to RS530M (DB25) Straight-Thru Cable (for 4-port HSU) [***] [***] [***]
1265X 5-ft DB28M to RS449M (DB37) Cross-Over Cable (for 4-port HSU) [***] [***] [***]
1285M 5-ft DB28M to RS449M (DB37) Straight-Thru Cable (for 4-port HSU) [***] [***] [***]
1288 25-ft DB28M to DB28F Extension Cable (for V.35 operation) [***] [***] [***]
1289 25-ft DB28M to DB28F Extension Cable (for RS530/RS449 operation) [***] [***] [***]
1604 25888 M88 Block with 2 Female 50-Pin Amp/Champ Connectors [***] [***] [***]
1609 25887 Type 1 Dual Tap Adapter with 2 RJ48X Jacks (for T1) [***] [***] [***]
</TABLE>
* Confidential Treatment Requested
3.
<PAGE> 38
<TABLE>
<CAPTION>
U.S.
LIST AT&T AT&T
MODEL NO. PEC CODE DESCRIPTION PRICE PRICE DISCOUNT
<S> <C> <C> <C> <C> <C>
Factory Upgrades:
6001 Model 8800 CPU to Model 8804 CPU [***] [***] [***]
6002 Model 8800 CPU to Model 8801 CPU [***] [***] [***]
6003 Model 8804 CPU to Model 8801 CPU [***] [***] [***]
</TABLE>
- --------------------------
* Confidential Treatment Requested
4.
<PAGE> 39
[AT&T PARADYNE LOGO]
AGREEMENT NUMBER LGSC103DS
AMENDMENT NUMBER 2
PAGE 1 OF 5
DATE: 3/17/94
PREMISYS COMMUNICATIONS, INC.
1032 ELWELL COURT
PALO ALTO, CALIFORNIA 94303
Agreement number LGSC103DS, dated and signed, December 4, 1992, by and between
Premisys Communications Inc. and AT&T Paradyne will be amended as follows:
1.0 Exhibit A, Product Model Numbers/Descriptions/List Prices/Discount Levels,
dated 7/8/93, is hereby deleted in its entirety and replaced by a new Product
Model Numbers/Descriptions/List Prices/Discount Levels, Exhibit A, dated
3/17/94, attached hereto and made a part hereof.
2.0 All other term and conditions of the above stated Agreement remain
unchanged.
This Amendment shall be effective for all Releases received by Premisys for AT&T
Paradyne on or after March 15, 1994.
ACCEPTED: March 30, 1994 ACCEPTED: March 30, 1994
AT&T Paradyne Premisys Communications, Inc.
By: /s/ Mike Kazban By: /s/ Robert M. Lefkowits
Title: Product Manager Title: V.P. of Marketing
AT&T PARADYNE - PROPRIETARY
USE PURSUANT TO COMPANY INSTRUCTION
AMENDMENT NUMBER 2 - LGSC103DS
1 - 3/17/94
<PAGE> 40
COMPANY CONFIDENTIAL
PREMISYS COMMUNICATIONS, INC.
IMACS
PRICE LIST EFFECTIVE MARCH 15, 1994
<TABLE>
<CAPTION>
U.S.
LIST AT&T
MODEL NO. PEC CODE DESCRIPTION PRICE PRICE
<S> <C> <C> <C> <C>
Common Equipment:
8901 25801 AC power supply [***] [***]
8902 25802 DC power supply [***] [***]
8903 25803 -48V DC converter [***] [***]
8904 25804 -48V Ringing generator [***] [***]
8916 IMACS/600 Universal enclosure with installation kit [***] [***]
(cover not included)*
8918 25800 IMACS/800 Universal enclosure with installation kit [***] [***]
8920 25816 Interface card with 2,400 baud modem [***] [***]
8800 25806 CPU control card with 2T1/E1 bus-connect (non [***] [***]
redundant)
8801 25807 CPU control card with cross-connect (redundant-capable) [***] [***]
8804 CPU control card with 4 T1/E1 bus-connect (redundant- [***] [***]
capable)
T1/E1 WAN Cards:
8000 25811 Single T1/E1 line interface [***] [***]
8010 25812 Dual T1/E1 line interfaces [***] [***]
8014 Dual T1/E1 line interfaces with 1 x 3 relays [***] [***]
811 25814 DSX/CEPT plug-in module [***] [***]
812 25815 CSU plug-in module [***] [***]
Voice Cards:
8108 25815 8-port, 2-wire E&M/TO [***] [***]
8118 25821 8-port, 4-wire E&M/TO [***] [***]
8119 8-port, 4-wire E&M/TO - Extended Range [***] [***]
8128 25823 8-port, 2-wire FXS/FXSON/PLAR/DPO - 900 ohm [***] [***]
8129 8-port, 2-wire FXS/FXSDN/PLAR/DPO - 600 ohm [***] [***]
8138 25825 8-port, 2 wire FXO/FXODN/MRD/DPT - 900 ohm [***] [***]
8139 8-port, 2-wire FXO/FXODN/MRD/DPT - 600 ohm [***] [***]
Data Cards:
8202 25826 2-port RS-530/V.35 super-rate data [***] [***]
8212 25827 2-port V.35 super-rate data [***] [***]
8213 2-port RS-530/RS-368/V.25bls super-rate data* [***] [***]
8215 4-port RS-530/V.35 super-rate data [***] [***]
8220 25828 10-port RS-232C sub-rate data [***] [***]
8224 4-port RS-232C sub-rate data* [***] [***]
8230 8-port subrate FRAD card* [***] [***]
8248 5-port OCU-DP [***] [***]
845 5-port OCU-DP child card* [***] [***]
8249 25829 2-port OCU-DP with error correction [***] [***]
8254 25883 4-port DSO-DP/G.703 co/comtra directional [***] [***]
Server Cards:
8840A ISDN PRI server card - 1 D channel* [***] [***]
8840B ISDN PRI server card - 2 D channels* [***] [***]
8840C ISDN PRI server card - 8 D channels* [***] [***]
Other Cards:
8401 25830 External alarm card [***] [***]
Network Management Software:
7002B PremLink Network Management (base license)* [***] [***]
7002U PremLink Network Management (additional user workstation) [***] [***]
* - consult factory for delivery lead times
</TABLE>
* Confidential Treatment Requested
2.
<PAGE> 41
<TABLE>
US
LIST AT&T
MODEL NUMBER PEC CODE DESCRIPTION PRICE PRICE
<S> <C> <C> <C> <C>
Cables and Accessories: [***] [***]
1106 RJ48 to 2 BNC Adapter (for E1) [***] [***]
1114F 25882 5-ft RJ48M to DB2SF Straight-Thru Cable (for SRU) [***] [***]
1114M 25882 5-ft RJ48M to DB2SM Straight-Thru Cable (for SRU) [***] [***]
1114X 25881 5-ft RJ48M to DB25M Cross-Over Cable (for SRU) [***] [***]
1118 25-ft RJ48M to RJ48M Silver-Satin Cable (for OCU-DP) [***] [***]
1121 25866 50-Pin to 2 RJ48 Adapter with Test Jacks (for T1) [***] [***]
1181 25880 50-Pin to 8 RJ48 Adapter (for T1) [***] [***]
1201F 15-ft DB9 to DB2SF Straight Thru [***] [***]
1201M 15-ft DB9 to DB25M Straight Thru [***] [***]
1203F 25855 5-ft DB25M to V.3SF Straight-Thru Cable (for V.35 HSU) [***] [***]
1203M 25855 5-ft DB25M to V.35M Straight-Thru Cable (for V.35 HSU) [***] [***]
1203X 25856 5-ft DB25M to V.35M Cross-Over Cable (for V.35 HSU) [***] [***]
1204F 25857 5-ft DB25M to RS59OF Straight-Thru Cable (for RS530 HSU) [***] [***]
1204M 25857 5-ft DB25M to RS53OM Straight-Thru Cable (for RS530 HSU) [***] [***]
1204X 25858 5-ft DB25M to RS53OM Cross-Over Cable (for RS530 HSU) [***] [***]
1207 25859 6-ft 3-to-4 50-Pin E&M Cable (All Male Connectors) [***] [***]
1208 25860 6-ft 3-to-1 50-Pin FXS Cable (All Male Connectors) [***] [***]
1209 6-ft 3-to-1 50-Pin TO Cable (All Male Connectors) [***] [***]
1210 25861 5-ft 50-Pin Male to Male Amphenol Cable (for Multiple Uses) [***] [***]
1212F 25862 5-ft DB25M to RS449F Straight-Thru Cable (for RS449 HSU) [***] [***]
1212M 25862 5-ft DB25M to RS449M Straight-Thru Cable (for RS449 HSU) [***] [***]
1212X 25863 5-ft DB25M to RS449M Cross-Over Cable (for RS449 HSU) [***] [***]
1215M 25864 5-ft RJ48M to DB15M Straight-Thru Cable (for CSU) [***] [***]
1215X 25865 5-ft RJ48M to DB15F Cross-Over Cable (for PBX) [***] [***]
1216F 25852 15-ft RJ48M to DB2SF Straight-Thru Cable (for VT100) [***] [***]
1216M 25851 15-ft RJ48M to DB25M Straight-Thru Cable (for VT100) [***] [***]
1217 25854 25-ft RJ11M to RJ11M Cable (for Modem) [***] [***]
1220 25877 25-ft 50-Pin Male to Female Amp/Champ Extension Cable [***] [***]
1221 25876 25-ft DB25M to DB25F Extension Cable (for RS232 operation) [***] [***]
1222 25875 25-ft DB25M to DB25F Extension Cable (for RS530 operation) [***] [***]
1224 25874 25-ft DB25M to DB25F Extension Cable (for V.35 operation) [***] [***]
1230 1-ft RJ48M to RJ48M Shielded Cable (for T1) [***] [***]
1231 25853 25-ft RJ48M to RJ48M Shielded Cable (for T1) [***] [***]
1232 25873 50-ft RJ48M to RJ48M Shielded Cable (for T1) [***] [***]
1233 25872 100-ft RJ48M to RJ48M Shielded Cable (for T1) [***] [***]
1239 Y Adapter for WAN Card Redundancy (Bus Connect Systems) [***] [***]
1240 5-inch DB26M to DB25F RS530 Adapter Cables [***] [***]
1251 25869 RS-530 to V.3S Personality Module [***] [***]
1252 25870 RS-530 to RS-232 Personality Module [***] [***]
1253 25871 RS232/RS530 DB25 Female-to-Female Gender Changer [***] [***]
1257 25885 V.35 M34 Female-to-Female Gender Changer [***] [***]
1258 25886 RS449 DB37 Female-to-Female Gender Changer [***] [***]
1263F 5-ft DB26M to V.35F (M34) Straight-Thru Cable (for DB26 HSUs) [***] [***]
1263M 5-ft DB36M to V.35M (M34) Straight-Thru Cable (for DB26 HSUs) [***] [***]
1263X 5-ft DB26M to V.3SM (M34) Cross-Over Cable (for DB26 HSUs) [***] [***]
1264F 5-ft DB26M to RS53OF (DB25) Straight-Thru Cable (for DB26 HSUs) [***] [***]
1264M 5-ft DB26M to RS53OM (DB25) Straight-Thru Cable (for DB26 HSUs) [***] [***]
1264X 5-ft DB26M to RS53OM (DB25) Cross-Over Cable (for DB26 HSUs) [***] [***]
1265F 5-ft DB26M to RS449M (DB37) Straight-Thru Cable (for DB26 HSUs) [***] [***]
1265M 5-ft DB26M to RS449M (DB37) Straight-Thru Cable (for DB26 HSUs) [***] [***]
1265X 5-ft DB26M to RS449M (DB37) Cross-Over Cable (for DB26 HSUs) [***] [***]
1268 25-ft DB26M to DB26F Extension Cable (for V.35 operation) [***] [***]
1269 25-ft DB26M to DB26F Extension Cable (for RS53O/RS449 [***] [***]
operation)
1504 25868 M66 Block with 2 Female 50-Pin Amp/Champ Connectors [***] [***]
Reference Manuals:
1901 IMACS/800 Reference Guide
1902 PremLink Reference Guide
1903 Cable and Equipment Guide
1904 IMACS/600 Reference Guide
</TABLE>
NOTE: Cables, accessories, and manuals are not subject to discount.
* Confidential Treatment Requested.
3.
<PAGE> 42
<TABLE>
U.S.
LIST AT&T
MODEL NO. PEC CODE DESCRIPTION PRICE PRICE
<S> <C> <C> <C> <C>
Advanced Replacement Upgrades: [***] [***]
CPU Cards
5001AR 25889 Model 8800 CPU to Model 8804 CPU [***] [***]
6002AR 25890 Model 8800 CPU to Model 8801 CPU [***] [***]
6003AR 25891 Model 8804 CPU to Model 8801 CPU [***] [***]
CPU Cards
9001AR 20111 8800 CPU card firmware upgrade to latest version [***] [***]
9002AR 20112 8801 CPU card firmware upgrade to latest version [***] [***]
9003AR 8804 CPU card firmware upgrade to latest version [***] [***]
Data Cards
8202AR 20104 2-port RS-530/V.35 super-rate data [***] [***]
8212AR 20105 2-port V.35 super-rate data [***] [***]
8213AR 2-port RS-530/RS-366/V.25bis super-rate data [***] [***]
8215AR 20106 4-port RS-530/V.35 super-rate data [***] [***]
8220AR 20107 10-port RS-232C sub-rate data [***] [***]
8224AR 4-port RS-232C sub-rate data [***] [***]
8230AR 20107 8-port subrate FRAD card [***] [***]
8248AR 20108 5-port OCU-DP [***] [***]
8249AR 20109 2-port OCU-DP with error correction [***] [***]
8254AR 20110 4-port DSO-DP/G.703 co/contra directional [***] [***]
Terms and conditions on advanced replacement upgrades:
User must order an advanced replacement upgrade from Premisys.
Advanced replacement board will be sent, with return label for old board.
Old board must be returned freight pre-paid to Premisys within 21 days of receipt of replacement board.
If old board is not received within 21 days, user will be billed for the list price of the board.
Upgraded boards retain the warranty period of the original board.
Factory Upgrades:
CPU Cards
6001FG Model 8800 CPU to Model 8804 CPU [***] [***]
6002FG Model 8800 CPU to Model 8801 CPU [***] [***]
6003FG Model 8804 CPU to Model 8801 CPU [***] [***]
CPU Cards
9001FG CPU card firmware upgrade to latest version [***] [***]
Data Cards:
8202FG 2-port RS-530/V.35 super-rate data [***] [***]
8212FG 2-port V.35 super-rate data [***] [***]
8213FG 2-port RS-530/RS-366/V.25bis super-rate data [***] [***]
8215FG 4-port Rs-530/V.35 super-rate data [***] [***]
8220FG 10-port RS-232C sub-rate data [***] [***]
8224FG 4-port RS-232C sub-rate data [***] [***]
8230FG 8-port subrate FRAD data [***] [***]
8248FG 5-port OCU-DP [***] [***]
8249FG 2-port OCU-DP with error correction [***] [***]
8254FG 4-port DSO-DP/G.703 co/contra directional [***] [***]
Terms and conditions on factory upgrades:
User must obtain an RA number from Premisys before returning board for upgrade.
Board must be sent freight pre-paid to Premisys.
Premisys will return the upgraded board via standard ground freight within 21 days of receipt.
Upgraded boards retain the warranty period of the original board.
Advanced replacement is not included in upgrade price.
</TABLE>
* Confidential Treatment Requested
4.
<PAGE> 43
<TABLE>
<CAPTION> U.S.
LIST AT&T
MODEL NO. PEC CODE DESCRIPTION PRICE PRICE
<S> <C> <C> <C> <C>
EEPROM Upgrade [***] [***]
CPU Cards
9001EP CPU card firmware upgrade to latest version [***] [***]
Data Cards:
8202EP 2-port RS-530/V.35 super-rate data [***] [***]
8212EP 2-port V.35 super-rate data [***] [***]
8213EP 2-port RS-530/RS-366/V.25bls super-rate data [***] [***]
8215EP 4-port RS-350/V.35 super-rate data [***] [***]
8220EP 10-port RS-232C sub-rate data [***] [***]
8224EP 4-port RS-232C sub-rate data [***] [***]
8230EP 8-port sub-rate FRAD card [***] [***]
8248EP 5-port OCU-DP [***] [***]
8249EP 2-port OCU-DP with error correction [***] [***]
8254EP 4-port DSO-DP/G703 co/contra directional [***] [***]
</TABLE>
- --------------------------
Terms and conditions on EEPROM upgrades:
A non-discountable handling fee of $750 will be added to each order for EEPROM
upgrades.
EEPROM upgrades are available only to authorized Premisys service
organizations.
Improper installation of EEPROM(s) may void the Premisys warranty.
Upgraded boards retain the warranty period of the original board.
Advanced replacement is not included in upgrade price.
* Confidential Treatment Requested
5.
<PAGE> 44
[AT&T PARADYNE LOGO]
AGREEMENT NUMBER LGSC103DS
AMENDMENT NUMBER 3
PAGE 1 OF 1
DATE: 5/24/94
PREMISYS COMMUNICATIONS, INC.
48664 MILMONT DR.
FREMONT, CALIFORNIA 94538
Agreement number LGSC103DS, dated and signed, December 4, 1992, by and between
Premisys Communications Inc. and AT&T Paradyne will be amended as follows:
1.0 Exhibit B, the purchase specification (Specification), AT&T Paradyne part
number 351-0047-0031, revision A, is hereby deleted in its entirety and replaced
with, revision B, attached hereto and made apart hereof.
2.0 All other term and conditions of the above stated Agreement remains
unchanged.
This Amendment shall be effective upon the parties' acceptance of the same, as
signed and dated below.
ACCEPTED: June 20, 1994 ACCEPTED: July 8, 1994
AT&T Paradyne Premisys Communications, Inc.
By: /s/ By: /s/
Title: Title: V.P.
AT&T PARADYNE - PROPRIETARY
USE PURSUANT TO COMPANY INSTRUCTION
AMENDMENT NUMBER 3 - LGSC103DS
1 - 5/24/94
<PAGE> 45
[AT&T PARADYNE LOGO]
AGREEMENT NUMBER LGSC103DS
AMENDMENT NUMBER 4
PREMISYS COMMUNICATIONS, INC.
48664 MILMONT DR.
FREMONT, CALIFORNIA 94538
Agreement number LGSC103DS, dated and signed December 4, 1992 by and between
Premisys Communications Inc. and AT&T Paradyne Corporation is hereby amended as
follows. In the event there are conflicts in the terms of this Amendment and the
OEM Agreement, the terms of the Amendment will apply.
1.0 BASE PRICES
1.1 For Product shipped under this amendment, AT&T PDN will pay Base Prices
per attachment "B", which will average an additional [***] off the
current Price List as of January 1, 1995. Such Base Pricing in
Attachment B will be decreased an additional [***] and an additional
[***] in 1997.
1.2 The new Base Prices and discounts will become effective on the date the
contract amendment is signed and will be applied to all unshipped
orders as well as future orders. Discount levels will reflect date of
order receipt. In such cases where special pricing has been agreed upon
between Premisys and AT&T PDN in response to special bids, present or
future, the discount structure will reflect the lower of the special
pricing or the discounts under the terms of this amendment.
1.3 Pricing and discounts under this amendment are warranted by Premisys to
be comparable to or more favorable to AT&T PDN than equivalent prices,
warranties and terms offered by Premysis to any other customer for the
term of this amendment.
2.0 DISCOUNT STRUCTURE
2.1. AT&T PDN will be granted additional price discounts off of the Base
Price according to the discount tables below.
a. Product discounts will depend upon AT&T PDN's shipment volumes and
will include current Products as listed in the then-current
Attachment B and any "new" Products which AT&T PDN might choose to
ship in the future (exclusive of Product(s) which might be
developed through any joint development efforts). Shipments will
be valued at the prices actually paid by AT&T PDN during the same
period.
- --------------------------
* Confidential Treatment Requested
AMENDMENT NUMBER 3 - LGSC103DS
USE PURSUANT TO PROPRIETARY DOCUMENT PROCEDURE
1
<PAGE> 46
AGREEMENT NUMBER LSC103DS
AMENDMENT NUMBER 4
CALENDAR YEAR 1995
Shipment Volume Discount
($million)
[***] [***]%
[***] [***]%
[***] [***]%
[***] [***]%
CALENDAR YEAR 1996
Shipment Volume Discount
($million)
[***] [***]%
[***] [***]%
[***] [***]%
[***] [***]%
CALENDAR YEAR 1997
Shipment Volume Discount
($million)
[***] [***]%
[***] [***]%
[***] [***]%
[***] [***]%
3.0 ECLIPSE PRODUCT DEVELOPMENT
AT&T PDN within 60 days of execution of this amendment will cease its
current development of the Eclipse Product as defined by the Eclipse
Architecture Specification Draft Issue 1.0, dated October 21, 1994, and
the Eclipse Release One System Requirements Specification Draft Issue
1, dated February 13, 1995. This decision will be represented by an
internal announcement, which will be provided under confidentiality to
Premisys. This does not preclude any future developments from using the
technology and know-how gained from the Eclipse Product development
effort.
4.0 DISTRIBUTION AGREEMENT
4.1 Distribution to AT&T entities - It Is agreed that AT&T PDN will have
sole marketing and sales rights to all AT&T entities. If Premisys knows
or has reason to know that AT&T or any AT&T entity (to include Business
Units, divisions or majority-owned subsidiaries) is
- --------------------------
* Confidential Treatment Requested
Amendment Number 3 - LGSC103DS
Use Pursuant to Propriety Document Procedure
2
<PAGE> 47
AGREEMENT NUMBER LSC103DS
AMENDMENT NUMBER 4
the end-user customer or is in the distribution chain of any sale by
Premisys' Distributors or OEMs, then Premisys will provide no other
than standard Product support or pricing in support of such sale.
4.2 In the event that AT&T has the ability to enter international markets
based on its local manufacturing capabilities or content and where
Premisys has no current form of distribution, AT&T Paradyne will be
able to request and, upon agreement of mutually agreed to objectives,
be granted an exclusive marketing and sales rights in that country.
Buyer and Seller will establish mutually agreeable performance
objectives for each country in which it is selling Products and will
review at least semi-annually Buyer's sales performance in those
countries. If minimal performance objectives are not being met in any
country, Buyer and Seller will implement mutually agreeable programs to
improve sales performance in those countries. In the event that AT&T
Paradyne does not meet performance objectives agreed upon, such
exclusive marketing rights will be forfeited. Upon forfeiting such
exclusive marketing and sales rights, AT&T PDN will immediately be
granted nonexclusive marketing and sales rights for those same
countries.
4.3 Except for the provisions of this amendment upon execution of this
amendment Premisys will not be limited in any fashion in having
relationships with other companies.
4.4 It is the intent of AT&T PDN to more fully utilize Premisys and their
partners as a distribution vehicle for products developed and/or
bundled with other Premisys Products and Technologies. These
developments may include, but not be limited to CAP and related
Transmission Products, [MU] Law modem Products and other complementary
Network Access Products. This relationship will be developed and
defined under a separate Distribution Agreement.
5.0 JOINT DEVELOPMENT
5.1 AT&T PDN will develop and submit to Premisys a Technology Plan which
will be updated quarterly. The Technology Plan will include AT&T PDN's
plans for integrating technologies and features into the Premisys
Product platform as well as any other plans for joint development
activities. Such planned technologies and features to be integrated
will be reasonably achievable and will be in support of AT&T Paradyne's
then-current Technology Roadmap. Premisys agrees to implement the
Technology Plan of which an implementation schedule will be mutually
agreed upon. Such implementation schedule will reflect commercially
reasonable project start dates and completion dates which will be
incorporated into a documented project plan and the Premisys Master
Release Plan. In the event AT&T PDN wishes to undertake additional
integration or joint development efforts not included in the Technology
plan, AT&T PDN and Premisys will negotiate such projects in good faith.
5.2 The terms of the current joint Development Agreement LGSC104DS, dated
September 30, 1993, and as amended from time to time, will remain in
effect.
Amendment Number 3 - LGSC103DS
Use Pursuant to Propriety Document Procedure
3
<PAGE> 48
AGREEMENT NUMBER LSC103DS
AMENDMENT NUMBER 4
6.0 TRAINING AND SUPPORT
Premisys agrees to provide training and support to AT&T Tier 4 Support
group. Such training and support will consist of one Tier 4 training
class as soon as practicable, one Tier four training class by end of
1995, and one Tier 4 class for each major release. Classes will be held
at a location of AT&T PDN's choosing and will include all training
materials. Training and materials will be adequate to ensure that AT&T
PDN has the ability to be self-sustaining in internal training and Tier
4 support.
7.0 GENERAL
7.1 The term of this amendment and OEM Agreement LGSC103DS will, be five
years from the execution of this amendment with an option to extend the
agreement an additional two years at AT&T Paradyne's sole discretion.
Pricing for the fourth and fifth years of this agreement period will be
negotiated in good faith prior to December 31, 1997.
7.2 This terms of this amendment are confidential except for any
disclosures which might be necessary to meet the minimum disclosure
requirements of the SEC.
7.3 Within 30 days of the execution of this amendment, AT&T PDN and
Premisys will issue a mutually agreed-to news release describing its
key elements.
This amendment shall be effective upon the parties' acceptance of the same, as
signed and dated below.
ACCEPTED: March 20, 1995 ACCEPTED: April 1, 1995
AT&T Paradyne Premisys Communications, Inc.
By: /s/ By: /s/
Title: V.P. & GM Access Products Title: CFO
Amendment Number 3 - LGSC103DS
Use Pursuant to Propriety Document Procedure
4
<PAGE> 49
[AT&T PARADYNE LOGO]
AGREEMENT NUMBER LGSC103DS
AMENDMENT NUMBER 5
PAGE 1 OF 4
DATE: 03/15/95
PREMISYS COMMUNICATIONS, INC.
48664 MILMONT DR.
FREMONT, CALIFORNIA 94538
Agreement number LGSC103DS dated and signed December 4, 1992, by and between
Premisys Communications Inc. and AT&T Paradyne will be amended as follows:
1.0 Seller agrees to repair free of charge all, defective returned circuit card
assemblies (CCA's), to the latest engineering change order (ECO) of the printed
wiring board (PWB) (minor hardware Enhancements) and the latest Software
Maintenance Release of any Software that may reside on the CCA. Seller further
agrees that if any hardware defect is a class A(x) or any Software defect is a
class one (1) or two (2) severity code a defined in the Specification of this
Agreement and requires a new PWB, the new PWB totally populated to produce the
new CCA shall be provided to Buyer free of charge as replacement for the CCA's
as returned to Seller by Buyer.
For Enhancements to CCA's, Enhancement is further defined as class B(x)
and D defects for hardware and Severity code three (3) and four (4) for
Software, as defined in the Specification, and release to release Software
Enhancements, Seller agrees to upgrade the CCA's to the current shippable
revision, including all Enhancements, to the CCA for the following costs:
SOFTWARE AND MINOR HARDWARE ENHANCEMENTS
User Data Modules [***]
25826 - 8202
25827 - 8212
25895 - 8215
20121 - 8213
25828 - 8220
25829 - 8249
20122 - 845
25833 - 8245
25896 - 8248
25830 - 8401
20123 - 8230
User Voice Modules [***]
25819 - 8108
25821 - 8118
25823 - 8128
25825 - 8138
25894 - 8119
25892 - 8129
25893 - 8139
CPU's [***]
25806 - 8800
25807 - 8801
25888 - 8804
WAN's [***]
25811 - 8000
25812 - 8010
25814 - 811
25887 - 811B
25815 - 812
25813 - 8014
- ---------------------------
* Confidential Treatment Requested
AT&T PARADYNE - PROPRIETARY
USE PURSUANT TO COMPANY INSTRUCTIONS
AMENDMENT NUMBER 4 - LGSC103DS
3 -03/15/95
<PAGE> 50
Server Cards [***]
20124 - 8840A
20125 - 8840B
20126 - 8840C
Common Equipment [***]
25801 - 8901
25802 - 8902
25803 - 8903
25804 - 8904
25816 - 8920
NO TROUBLE FOUND (NTF) [***]
HARDWARE ENHANCEMENT (Applies only where PWB's have under gone an artwork turn.)
User Data Modules [***]
25826 - 8202
25827 - 8212
25895 - 8215
20121 - 8213
25828 - 8220
25829 - 8249
20122 - 845
25883 - 8245
25896 - 8248
25830 - 8401
20123 - 8230
User Voice Modules [***]
25819 - 8108
25821 - 8118
25823 - 8128
25825 - 8138
25894 - 8119
25892 - 8129
25893 - 8139
CPU's
25806 - 8800 [***]
25807 - 8801 [***]
25888 - 8804 [***]
WAN's [***]
25811 - 8000
25812 - 8010
25814 - 811
25887 - 811B
25815 - 812
25813 - 8014
Server Cards [***]
20124 - 8840A
20125 - 8840B
20126 - 8840C
Common [***]
25801 - 8901
25802 - 8902
25803 - 8903
25804 - 8904
25816 - 8920
2.0 All other term and conditions of the above stated Agreement remain
unchanged.
AT&T Paradyne Premisys Communications, Inc.
* Confidential Treatment Requested
By: /s/ By: /s/
Title: V.P. & GM Access Products Title: CFO
Date: 3/20/95 Date: 4/1/95
- ---------------------------
AT&T PARADYNE - PROPRIETARY
USE PURSUANT TO COMPANY INSTRUCTIONS
AMENDMENT NUMBER 4 - LGSC103DS
3 -03/15/95
<PAGE> 51
[AT&T PARADYNE LOGO]
AGREEMENT NUMBER LGSC103DS
AMENDMENT NUMBER 6
PAGE 1 OF 1
DATE: 03/15/95
PREMISYS COMMUNICATIONS, INC.
48664 MILMONT DR.
FREMONT, CALIFORNIA 94538
Agreement number LGSC103DS dated and signed December 4, 1992, by and between
Premisys Communications Inc. and AT&T Paradyne will be amended as follows:
1.0 Exhibit A, IMACS PRICING LIST, dated 03/17/94, is hereby deleted in its
entirety and replaced by a new IMACS PRICING List, Exhibit A, dated
March 06, 1995, attached hereto and made a part hereof.
2.0 All other terms and conditions of the above stated Agreement remain
unchanged.
3.0 This IMACS PRICING LIST, with stated AT&T pricing, will be the basis
for which all dollar volume discounts, as referenced and detailed in
Amendment #4, will, be applied against to calculate new AT&T pricing as
said discounts go into effect.
This amendment for new pricing shall be effective as of March 07, 1995 for all
current orders as of that date.
AT&T PARADYNE PREMISYS COMMUNICATIONS, INC.
By: By:
Title: V.P. & GM Access Products Title: CFO
Date: 3/20/95 Date: 4/1/95
AT&T PARADYNE - PROPRIETARY
USE PURSUANT TO COMPANY INSTRUCTIONS
AMENDMENT NUMBER 4 - LGSC103DS
3 -03/15/95
<PAGE> 52
COMPANY CONFIDENTIAL ATTACHMENT B
PREMISYS COMMUNICATIONS, INC.
IMACS PRICING
EFFECTIVE MARCH 6, 1995
<TABLE>
<CAPTION>
U.S. AT&T
MODEL NO. DESCRIPTION LIST PRICE PRICE
<S> <C> <C> <C>
Common Equipment: [***] [***]
8901 AC power supply [***] [***]
8902 48V DC power supply [***] [***]
8903 48V DC converter [***] [***]
8904 48V Ringing generator [***] [***]
8907 24V DC power supply** [***] [***]
8916 IMACS/600 universal enclosure with installation kit (cover not included) [***] [***]
8918 IMACS/800 universal enclosure with installation kit [***] [***]
8919 IMACS/900 universal enclosure with installation kit **(2) [***] [***]
8920 8 T1/E1 interface card with 2,400 baud modem - 32Kb NVRAM [***] [***]
8922 8 T1/E1 interface card with 2,400 baud modem - 128Kb NVRAM **(2) [***] [***]
922 2-port external synchronization module for 8922 **(2) [***] [***]
8925 2 T1 interface card without modem [***] [***]
8926 2 T1 interface card with modem **(1) [***] [***]
8927 2 E1 interface card without modem **(1) [***] [***]
CPU Control Cards:
NOTE: Firmware version must be specified for the following CPU control cards.
See IMACS Firmware Options on page 2.
8800 CPU control card with 2 T1/E1 bus-connect (non-redundant) - 256 K [***] [***]
8801 CPU control card with cross-connect (redundant-capable) - 256 K [***] [***]
8802 CPU control card with cross-connect (redundant-capable) - 512 K **(2) [***] [***]
8804 CPU control card with 4 T1/E1 bus-connect (redundant-capable) - 256 K [***] [***]
8805 CPU control card with 4 T1/E1 bus-connect (redundant-capable) - 512 K **(2) [***] [***]
T1/E1 WAN Cards:
8000 Single T1/E1 line interface [***] [***]
8010 Dual T1/E1 line interfaces [***] [***]
8014 Dual T1/E1 line interfaces with 1 x 3 relays [***] [***]
811 DSX/CEPT plug-in module [***] [***]
812 CSU plug-in module [***] [***]
Voice Cards:
8108 8-port, 2-wire E&M/TO [***] [***]
8115 4-port, 4-wire E&M/TO - Extended Range **(1) [***] [***]
8118 8-port, 4-wire E&M/TO [***] [***]
8119 8-port, 4-wire E&M/TO - Extended Range [***] [***]
8124 4-port, 2-wire FXS/FXSDN/PLAR/DPO - 900 Ohm**(1) [***] [***]
8125 4-port, 2-wire FXS/FXSDN/PLAR/DPO - 600 Ohm**(1) [***] [***]
8128 8-port, 2-wire FXS/FXSDN/PLAR/DPO - 900 Ohm [***] [***]
8129 8-port, 2-wire FXS/FXSDN/PLAR/DPO - 600 Ohm [***] [***]
8134 4-port, 2-wire FXO/FXODN/MRD/DPT - 900 Ohm**(1) [***] [***]
8135 4-port, 2-wire FXO/FXODN/MRD/DPT - 600 Ohm**(1) [***] [***]
8138 8-port, 2-wire FXO/FXODN/MRD/DPT - 900 Ohm [***] [***]
8139 8-port, 2-wire FXO/FXODN/MRD/DPT - 600 Ohm [***] [***]
** consult factory for delivery lead times [***] [***]
(1) requires version 3.2 or higher host firmware [***] [***]
(2) requires version 4.0 or higher host firmware [***] [***]
</TABLE>
*Confidential Treatment Requested
2.
<PAGE> 53
COMPANY CONFIDENTIAL ATTACHMENT B
PREMISYS COMMUNICATIONS, INC.
IMACS PRICING
EFFECTIVE MARCH 6, 1995
<TABLE>
<CAPTION>
U.S. AT&T
MODEL NO. DESCRIPTION LIST PRICE PRICE
<S> <C> <C> <C>
Data Cards
8202 2-port RS-530/V.35 super-rate data [***] [***]
8212 2-port V.35 super-rate data [***] [***]
8213 2-port RS-530/RS-366/V.25bis super-rate data [***] [***]
8215 4-port RS-530/V.35 super-rate data [***] [***]
8220 10-port RS-232C sub-rate data [***] [***]
8228 8-port sub-rate B7R IP concentrator card (1) [***] [***]
8230 8-port subrate FRAD card [***] [***]
8248 5-port OCU-DP [***] [***]
8247 5-port OCU-DP (expandable) ** (1) [***] [***]
845 5-port OCU-DP child card [***] [***]
8249 2-port OCU-DP with error correction [***] [***]
8254 4-port DSO-DP/G.703 co/contra directional [***] [***]
8260 8-port 2-wire (2B1Q) ISDN BRI card (1) [***] [***]
8261 8-port 2-wire (2B1Q) ISDN BRI card (2), span power [***] [***]
Server Cards: [***] [***]
8810 Frame relay server (68 ports, 16 MB RAM, with accelerator) ** (2) [***] [***]
8811 Frame relay server (36 ports, 4 MB RAM, no accelerator) ** (2) [***] [***]
8820 IP concentrator (128 ports, 8 MB RAM, no accelerator) ** (2) [***] [***]
8840A ISDN PRI server card - 1 D channel [***] [***]
8840B ISDN PRI server card - 2 D channels [***] [***]
8840C ISDN PRI server card - 8 D channels [***] [***]
8870 ADPCM Server (3) [***] [***]
8880 4 channel inverse mux server with BONDING modes 0 and 1 software ** (1) [***] [***]
Other Cards:
8401 External alarm card [***] [***]
IMACS Firmware Options:
6000-30 Version 3.0 host firmware with Reference Manual [***] [***]
6000-32 Version 3.2 host firmware without TCP/IP/SNMP with Reference Manual [***] [***]
6000-32T Version 3.2 host firmware with TCP/IP/SNMP with Reference Manual [***] [***]
6000-33 Version 3.3 host firmware without TCP/IP/SNMP with Reference Manual ** [***] [***]
6000-33T Version 3.3 host firmware with TCP/IP/SNMP with Reference Manual ** [***] [***]
6000-40 Version 4.0 host firmware without TCP/IP/SNMP with Reference Manual ** (4) [***] [***]
6000-40T Version 4.0 host firmware with TCP/IP/SNMP with Reference Manual ** (4) [***] [***]
** consult factory for delivery lead times
(1) requires version 3.2 or higher host firmware
(2) requires version 4.0 or higher host firmware
(3) requires 8801 Rev B1 CPU when used with 3.X host firmware; requires
8802 or 8805 CPU when used with 4.0 host firmware
(4) requires 8922 interface card and either 8802 or 8805 CPU card
PremLink 2.0 Software:
7100-20 PremLink Version 2.0 - Single CPU license for Sun Solaris 1.x [***] [***]
</TABLE>
* Confidential Treatment Requested
3.
<PAGE> 54
<TABLE>
<CAPTION>
U.S. AT&T
MODEL NO. DESCRIPTION LIST PRICE PRICE
<S> <C> <C> <C>
Cables and Accessories
NOTE: Cables and accessories are not subject to discount.
1106 RJ48 to 2 BNC Adapter (for E1) [***] [***]
1114F 5-ft RJ48M to DB25F Straight-Thru Cable (for SRU) [***] [***]
1114M 5-ft RJ48M to DB25M Straight-Thru Cable (for SRU) [***] [***]
1114X 5-ft RJ48M to DB25M Cross-Over Cable (for SRU) [***] [***]
1114CX 5-ft RJ48M to DB25M External Clock Cable (for SRU) [***] [***]
1118 25-ft RJ48M to RJ48M Silver-Satin Cable (for OCU-DP) [***] [***]
1121 50-Pin to 2 RJ48 Adapter with Test Jacks (for T1) [***] [***]
1181 50-Pin to 8 RJ48 Adapter (for T1) [***] [***]
1201F 15-ft D89 to DB25F Straight Thru [***] [***]
1201M 15-ft DB9 to DB25M Straight Thru [***] [***]
1203F 5-ft DB25M to V.35F Straight-Thru Cable (for V.35 HSU) [***] [***]
1203M 5-ft DB25M to V.35M Straight-Thru Cable (for V.35 HSU) [***] [***]
1203X 5-ft DB25M to V.35M Cross-Over Cable (for V.35 HSU) [***] [***]
1204F 5-ft DB25M to RS530F Straight-Thru Cable (for RS530 HSU) [***] [***]
1204M 5-ft DB25M to RS530M Straight-Thru Cable (for RS530 HSU) [***] [***]
1204X 5-ft DB25M to RS530M Cross-Over Cable (for RS530 HSU) [***] [***]
1206F 5-ft DB15M to DB25F Straight-Thru Cable (for RS366 HSU Ports) [***] [***]
1207 6-ft 3-to-4 50-Pin E&M Cable (All Male Connectors) [***] [***]
1208 6-ft 3-to-1 50-Pin FXS Cable (All Male Connectors) [***] [***]
1209 6-ft 3-to-1 50-Pin TO Cable (All Male Connectors) [***] [***]
1210 5-ft 50-Pin Male to Male Amphenol Cable (for Multiple Uses) [***] [***]
1212F 5-ft DB25M to RS449F Straight-Thru Cable (for RS449 HSU) [***] [***]
1212M 5-ft DB25M to RS449M Straight-Thru Cable (for RS449 HSU) [***] [***]
1212X 5-ft DB25M to RS449M Cross-Over Cable (for RS449 HSU) [***] [***]
1213 5-ft 50-Pin Male Amphenol Cable to 2 RJ-48F Cable (for 8 T1 [***] [***]
Interface Card) [***] [***]
1215M 5-ft RJ48M to DB15M Straight-Thru Cable (for CSU) [***] [***]
1215X 5-ft RJ48M to DB15F Cross-Over Cable (for PBX) [***] [***]
1216F 15-ft RJ48M to DB25F Straight-Thru Cable (for VT100) [***] [***]
1216M 15-ft RJ48M to DB25M Straight-Thru Cable (for VT100) [***] [***]
1217 25-ft RJ11M to RJ11M Cable (for Modem) [***] [***]
1220 25-ft 50-Pin Male to Female Amp/Champ Extension Cable [***] [***]
1221 25-ft DB25M to DB25F Extension Cable (for RS232 operation) [***] [***]
1222 25-ft DB25M to DB25F Extension Cable (for RS530 operation) [***] [***]
1224 25-ft DB25M to DB25F Extension Cable (for V.35 operation) [***] [***]
1230 1-ft RJ48M to RJ48M Shielded Cable (for T1) [***] [***]
1231 25-ft RJ48M to RJ48M Shielded Cable (for T1) [***] [***]
1232 50-ft RJ48M to RJ48M Shielded Cable (for T1) [***] [***]
1233 100-ft RJ48M to RJ48M Shielded Cable (for T1) [***] [***]
1239 Y Adapter for WAN Card Redundancy (Bus Connect Systems) [***] [***]
1240 5-inch DB26M to DB25F RS530 Adapter Cables [***] [***]
</TABLE>
* Confidential Treatment Requested
4.
<PAGE> 55
<TABLE>
<CAPTION>
U.S. AT&T
MODEL NO. DESCRIPTION LIST PRICE PRICE
<S> <C> <C> <C>
Cables and Accessories (continued):
NOTE: Cables and accessories are not subject to discount.
1251 RS-530 to V.35 Personality Module [***] [***]
1252 RS-530 to RS-232 Personality Module [***] [***]
1255 RS232/RS530 DB25 Female-to-Female Gender Changer [***] [***]
1257 V.35 M34 Female-to-Female Gender Changer [***] [***]
1258 RS449 DB37 Female-to-Female Gender Changer [***] [***]
1263F 5-ft DB26M to V.35F (M34) Straight-Thru Cable (for DB26 HSUs) [***] [***]
1263M 5-ft DB26M to V.35M (M34) Straight-Thru Cable (for DB26 HSUs) [***] [***]
1263X 5-ft DB26M to V.35M (M34) Cross-Over Cable (for DB26 HSUs) [***] [***]
1264F 5-ft DB26M to RS530F (DB25) Straight-Thru Cable (for DB26 HSUs) [***] [***]
1264M 5-ft DB26M to RS530M (DB25) Straight-Thru Cable (for DB26 HSUs) [***] [***]
1264X 5-ft DB26M to RS530M (DB25) Cross-Over Cable (for DB26 HSUs) [***] [***]
1265F 5-ft DB26M to RS449M (DB37) Straight-Thru Cable (for DB26 HSUs) [***] [***]
1265M 5-ft DB26M to RS449M (DB37) Straight-Thru Cable (for DB26 HSUs) [***] [***]
1265X 5-ft DB26M to RS449M (DB37) Cross-Over Cable (for DB26 HSUs) [***] [***]
1268 25-ft DB26M to DB28F Extension Cable (for V.35 operation) [***] [***]
1269 25-ft DB26M to DB28F Extension Cable (for RS530/RS449 operation) [***] [***]
1504 M66 Block with 2 Female 50-Pin Amp/Champ Connectors [***] [***]
Reference Manuals:
- -----------------
NOTE: Manuals are not subject to discount.
1901 IMACS Reference Guide [***] [***]
1902 PremLink Reference Guide [***] [***]
1903 cable and Equipment Guide [***] [***]
</TABLE>
*Confidential Treatment Requested
5.
<PAGE> 56
<TABLE>
<CAPTION>
U.S. AT&T
MODEL NO. DESCRIPTION LIST PRICE PRICE
<S> <C> <C> <C>
Advanced Replacement Upgrades:
CPU Cards
3001AR Model 8800 CPU to Model 8804 CPU [***] [***]
3002AR Model 8800 CPU to Model 8801 CPU [***] [***]
3003AR Model 8804 CPU to Model 8801 CPU [***] [***]
3100AR Add TCP/IP/SNMP firmware to any CPU card [***] [***]
Advanced Replacement Enhancements:
3010AR Firmware enhancement to any card [***] [***]
3020AR Any other enhancement to any module [***] [***]
Terms and conditions on advanced replacements:
User must order an advanced replacement upgrade from Premisys.
Advanced replacement board will be sent, with return label for old board.
Old board must be returned freight pre-paid to Premisys within 21 days of
receipt of replacement board.
If old board is not received within 21 days, user will be billed for the list
price of the board.
Replaced board retains the warranty period of the original board.
Return-to-Factory Upgrades:
CPU Cards:
3001FG Model 8800 CPU to Model 8804 CPU [***] [***]
3002FG Model 8800 CPU to Model 8801 CPU [***] [***]
3003FG Model 8804 CPU to Model 8801 CPU [***] [***]
3100FG Add TCP/IP/SNMP firmware to any CPU card [***] [***]
Return-to-Factory Enhancements:
3010FG Firmware enhancement to any card [***] [***]
3020FG Any other enhancement to any module [***] [***]
Terms and conditions on return-to-factory enhancements and upgrades:
User must obtain an RA number from Premisys before returning board for upgrade.
Board must be sent freight pre-paid to Premisys.
Premisys will return the upgraded board via 2nd day air freight within 21 days
of receipt.
Upgraded boards retain the warranty period of the original board.
Advanced replacement is not included in upgrade price.
EEPROM Upgrades:
3010EP Firmware upgrade to any CPU card [***] [***]
3020EP Firmware upgrade to any other card [***] [***]
Terms and conditions on EEPROM upgrades:
User is responsible for proper handling of EEPROMS and circuit boards.
Improper handling by user may result in voiding of warranty.
</TABLE>
* Confidential Treatment Requested
6.
<PAGE> 57
[PARADYNE LOGO]
AGREEMENT NUMBER GSC103DS
AMENDMENT NUMBER 7
PAGE 1 OF 1
DATE 12/02/96
PREMISYS COMMUNICATIONS, INC.
48664 MILMONT DRIVE
FREMONT, CALIFORNIA 94538
Agreement number LGSC103DS dated and signed December 4, 1992, by and between
Premisys Communications Inc. and Paradyne Corporation will be amended as
follows:
1.0 Exhibit A, IMACS PRICING LIST, dated 03/08/95, is hereby deleted in its
entirety and replaced by a new IMACS PRICING List, Exhibit A, dated
11/14/96, attached hereto and made a part hereof.
2.0 This IMACS PRICING LIST, with stated Paradyne Corporation Pricing, will
be the basis for which all dollar volume discounts, as referenced and
detailed in Amendment #4, will be applied against to calculate new
Paradyne pricing as said discounts go into effect.
3.0 The Price of all packages are the sum of the parts unless noted
otherwise in the attached Pricing List.
4.0 All other terms and conditions of the above stated Agreement remain
unchanged.
This amendment for new pricing shall be effective as of January 1, 1996 for all
orders current as of that date.
PARADYNE CORPORATION PREMISYS COMMUNICATIONS, INC.
By: /s/ Andrew May By: /s/
Title: President & COO Title: V.P. Controller
Date: 1/3/97 Date: 1/17/97
PARADYNE CORPORATION - PROPRIETARY
USE PURSUANT TO COMPANY INSTRUCTIONS
AMENDMENT NUMBER 7 - LGSC103DS
1 - 12/02/96
<PAGE> 58
Premisys Communications, Inc.
IMACS Pricing
For Paradyne
<TABLE>
<CAPTION>
Prod
number Description ATT Price
- ----------- ----------- ----------
<S> <C> <C>
8901 AC power supply [ ** ]x
8902 -48V DC power supply [ ** ]x
890220 -48V DC power supply - support OOS @ 39V [ ** ]x
8903 -48V DC converter (115 VAC input) [ ** ]x
8905 -48V DC Converter (115 - 240 VAC input) [ ** ]x
8904 -48V Ringing generator [ ** ]x
8906 -48V RINGING GENERATOR [ ** ]x
8907 24V DC power supply [ ** ]x
8916 IMACS/600 universal enclosure [ ** ]x
891620 IMACS/600 UNIVERSAL ENCLOSURE [ ** ]x
8918 IMACS/800 universal enclosure [ ** ]x
891820 IMACS/800 universal enclosure w/ instal
kit, dual feed pwr supply [ ** ]x
8919 IMACS/900 UNIVERSAL ENCLOSURE **(2) [ ** ]x
8920 8 T1/E1 interface card with 2,400 baud
modem - 32 Kb NVRAM [ ** ]x
8923### 8 T1/E1 interface card with 2,400 baud
modem - 128 Kb NVRAM (4) [ ** ]x
892320### 8 T1/E1 interface card with 2,400 baud
modem - 128 Kb NVRAM (4) [ ** ]x
8921 8 T1/E1 interface card w/out modem -
32 Kb NVRAM [ ** ]x
892120 8 T1/E1 interface card without modem -
32 Kb NVRAM [ ** ]x
892220 8 T1/E1 interface card without modem -
128Kb NVRAM with ext sync module for
framed T1/E1 (2) [ ** ]x
892221 8 T1/E1 interface card without modem -
128Kb NVRAM with ext sync module for
unframed T1/E1**(2) [ ** ]x
8925 2 T1 interface card without modem [ ** ]x
8926 2 T1 interface card with modem (1) [ ** ]x
8927 2 E1 interface card without modem(1) [ ** ]x
1183 E1 Distribution Panel (8 E1s) [ ** ]x
1184 Distribution Panel [ ** ]
</TABLE>
x indicates agreement on the price
NOTE: items in red italic are New products.
* Confidential Treatment Requested.
24
<PAGE> 59
<TABLE>
<S> <C> <C>
8800 CPU control card with 2 T1/E1 bus-connect
(non-redundant) - 256K [ ** ]x
880020 CPU control card with 2 T1/E1 bus-connect
(non-redundant) - 256K [ ** ]x
8801 CPU control card with 8 T1/E1
cross-connect (redundant-capable) - 256K [ ** ]x
880120 CPU control card with 8 T1/E1
cross-connect (redundant-capable) - 256 K [ ** ]x
8802# CPU control card with 8 T1/E1
cross-connect (redundant-capable) -
512 K (4) [ ** ]x
880220# CPU control card with 8 T1/E1
cross-connect (redundant-capable)-
512 K (4) [ ** ]x
8804 CPU control card with 4 T1/E1
bus-connect (redundant-capable) - 256 K [ ** ]x
880420 CPU control card with 4 T1/E1 bus-connect
(redundant-capable) - 256 K [ ** ]x
60342 Version 3.4.2 host firmware [ ** ]x
60343 Version 3.4.3 host firmware [ ** ]x
60344 Version 3.44 host firmware [ ** ]x
60400 Version 4.0.0 host firmware (5) [ ** ]x
60410 Version 4.1.0 host firmware (5) [ ** ]x
60420 Version 4.2.0 host firmware (5) [ ** ]x
60430 Version 4.3.0 host firmware (5) [ ** ]x
60440 Version 4.4.0 host firmware (5) [ ** ]x
60450 Version 4.5.0 host firmware (5) [ ** ]x
60101 TCP/IP/SNMP host code option [ ** ]x
60102 TR08 host code option [ ** ]x
8000 Single T1/E1 WAN [ ** ]x
800020 Single T1/E1 WAN [ ** ]x
8010 Dual T1/E1 WAN [ ** ]x
801020 Dual T1/E1 WAN [ ** ]x
801120 Universal Dual T1/E1 WAN** [ ** ]x
8014 Dual T1/E1WAN with 1 x 3 relays [ ** ]x
801420 Dual T1/E1WAN with 1 x 3 relays [ ** ]x
811 DSX/CEPT plug-in module [ ** ]x
81120 DSX/CEPT plug-in module [ ** ]x
812 CSU plug-in module [ ** ]x
81220 CSU plug-in module [ ** ]x
82020 1168 kbps HDSL plug-in mod for Uni
WAN 8011 [ ** ]x
8108 8-port, 2-wire E&M [ ** ]x
8115 4-port, 4-wire E&M - Extended
</TABLE>
* Confidential Treatment Requested.
25
<PAGE> 60
<TABLE>
<S> <C> <C>
Range (6) [ ** ]x
8119 8-port, 4-wire E&M - Extended Range [ ** ]x
8124 4-port, 2-wire FXS - 900 Ohm (1) [ ** ]x
8125 4-port, 2-wire FXS - 600 Ohm (1) [ ** ]x
8128 8-port, 2-wire FXS - 900 Ohm [ ** ]x
8129 8-port, 2-wire FXS - 600 Ohm [ ** ]x
8134 4-port, 2-wire FXO - 900 Ohm (1) [ ** ]x
8135 4-port, 2-wire FXO - 600 Ohm (1) [ ** ]x
8138 8-port, 2-wire FXO - 900 Ohm [ ** ]x
8139 8-port, 2-wire FXO - 600 Ohm [ ** ]x
8149 6 Port 16 KHz FXS Coin Card - 600 Ohm (2) [ ** ]x
8159 6 Port 16 KHz FXO Coin Card - 600 Ohm (2) [ ** ]x
8202 2-port HSU w/ RS-530/V.35 i/f [ ** ]x
8212 2-port HSU w/ V.35 i/f [ ** ]x
8213 2-port HSU w/ RS-530/RS-366/V.25bis i/f [ ** ]x
8215 4-port HSU w/ RS-530/V.35 i/f [ ** ]x
821520 4-port HSU w/ RS-530/V.35 i/f [ ** ]x
8220 10-port SRU w/ RS-232C/V.24 i/f [ ** ]x
8228 8-port sub-rate B7R IP concentrato
card (1) [ ** ]x
8230 8-port subrate FRAD card [ ** ]x
8231 8-port subrate FRAD card (HDLC only) [ ** ]x
8247 5-port OCU-DP (expandable) (6) [ ** ]x
845 5-port OCU-DP child card (6) [ ** ]x
8249 2-port OCU-DP with error correction [ ** ]x
8254 4-port DSO-DP/G.703 co/contra directional [ ** ]x
8260 8-port BRI U i/f card (1) [ ** ]x
826020 8-PORT BRI U I/F CARD (1) [ ** ]x
8261 8-port BRI U i/f card, with sealing
current (1) [ ** ]x
826120 8-PORT BRI U I/F CARD, WITH SEALING
CURRENT (1) [ ** ]x
8811 ACS-68 server (3) [ ** ]x
881120 ACS-68 server (3) [ ** ]x
8813 ACS-68 SERVER WITH EXP-64 MODULE (3) [ ** ]x
881320 ACS-68 server with Exp-64 module (3) [ ** ]x
8871 ADPCM Server [ ** ]x
887120 ADPCM Server [ ** ]x
8880 4 channel inverse mux server with
BONDING modes 0 and 1 software (1) [ ** ]x
8840A ISDN PRI server card - 1 D
</TABLE>
* Confidential Treatment Requested.
26
<PAGE> 61
<TABLE>
<S> <C> <C>
channel [ ** ]x
8840B ISDN PRI server card - 2 D channels [ ** ]x
8840C ISDN PRI server card - 8 D channels [ ** ]x
62100 Frame relay server software for AC
card (3) [ ** ]x
8401 External alarm card [ ** ]x
840120 External alarm card [ ** ]x
8402 External alarm card - 3 ports and power
fail alarm [ ** ]x
840220 External alarm card - 3 ports and
power fail alarm [ ** ]x
1500 External Sync Panel [ ** ]x
2001 Blank Card Filler Panel [ ** ]x
<CAPTION>
Notes
-----
<S> <C> <C>
** Consult factory for delivery lead times
# formerly 8801b
## formerly 8805
### formerly 8920b
(1) Requires version 3.2 or higher
(2) Requires version 4.0 or higher
(3) Requires version 4.1 or higher
(4) Required for Host 4.0 of higher
(5) Requires 8923 or 8922 and 8802
(6) Requires Host 3.4.1 or higher
(7) 8811 or higher ACS
Front panel types
Std = standard molded face plate
M/E = metal face plate with ejec
1106 RJ48 to 2 BNC Adapter (for E1) [ ** ]x
1114F 5-ft RJ48M to DB25F Straight-Thru
Cable (for SRU) [ ** ]x
1114M 5-ft RJ48M to DB25M Straight-Thru
Cable (for SRU) [ ** ]x
1114X 5-ft RJ48M to DB25M Cross-Over Cable
(for SRU) [ ** ]x
1114CX 5-ft RJ48M to DB25M External Clock Cable
(for SRU) [ ** ]x
1118 25-ft RJ48M to RJ48M Silver-Satin Cable
(for OCU-DP) [ ** ]x
1121 50-Pin to 2 RJ48 Adapter with Test Jacks
(for T1) [ ** ]x
1181 50-Pin to 8 RJ48 Adapter (for T1) [ ** ]x
1201F 15-ft DB9M to DB25F Straight Thru (for
Interface) [ ** ]x
1201M 15-ft DB9M to DB25M Straight Thru (for
Interface) [ ** ]x
1202F 15-ft DB9F to DB25F Straight Thru
(for Interface) [ ** ]x
1202M 15-ft DB9F to DB25M Straight
</TABLE>
* Confidential Treatment Requested.
27
<PAGE> 62
<TABLE>
<S> <C> <C>
Thru (for Interface) [ ** ]x
1203F 5-ft DB25M to V.35F Straight-Thru Cable
(for V.35 HSU) [ ** ]x
1203M 5-ft DB25M to V.35M Straight-Thru Cable
(for V.35 HSU) [ ** ]x
1203X 5-ft DB25M to V.35M Cross-Over Cable
(for V.35 HSU) [ ** ]x
1204F 5-ft DB25M to RS530F Straight-Thru Cable
(for RS530 HSU) [ ** ]x
1204M 5-ft DB25M to RS530M Straight-Thru Cable
(for RS530 HSU) [ ** ]x
1204X 5-ft DB25M to RS530M Cross-Over Cable
(for RS530 HSU) [ ** ]x
1206F 5-ft DB15M to DB25F Straight-Thru Cable
(for RS366 HSU Ports) [ ** ]x
1207 6-ft 3-to-4 50-Pin E&M Cable (All Male
Connectors) [ ** ]x
1208 6-ft 3-to-1 50-Pin FXS Cable (All Male
Connectors) [ ** ]x
1209 6-ft 3-to-1 50-Pin TO Cable (All Male
Connectors) [ ** ]x
1210 5-ft 50-Pin Male to Male Amphenol Cable
(for Multiple Uses) [ ** ]x
1212F 5-ft DB25M to RS449F Straight-Thru Cable
(for RS449 HSU) [ ** ]x
1212M 5-ft DB25M to RS449M Straight-Thru Cable
(for RS449 HSU) [ ** ]x
1212X 5-ft DB25M to RS449M Cross-Over Cable
(for RS449 HSU) [ ** ]x
1213 5-ft 50-Pin Male Amphenol Cable to 2
RJ-48F Cable (for 8 T1 Interface Card) [ ** ]x
1215M 5-ft RJ48M to DB15M Straight-Thru Cable
(for CSU) [ ** ]x
1215X 5-ft RJ48M to DB15F Cross-Over Cable
(for PBX) [ ** ]x
1216F 15-ft RJ48M to DB25F Straight-Thru Cable
(for VT100) [ ** ]x
1216M 15-ft RJ48M to DB25M Straight-Thru
Cable (for VT100) [ ** ]x
1217 25-ft RJ11M to RJ11M Cable (for Modem) [ ** ]x
1220 25-ft 50-Pin Male to Female Amp/Champ
Extension Cable [ ** ]x
1221 25-ft DB25M to DB25F Extension Cable
(for RS232 operation) [ ** ]x
1222 25-ft DB25M to DB25F Extension Cable
(for RS530 operation) [ ** ]x
1224 25-ft DB25M to DB25F Extension Cable
(for V.35 operation) [ ** ]x
1230 1-ft RJ48M to RJ48M Shielded Cable
(for T1) [ ** ]x
</TABLE>
* Confidential Treatment Requested
28
<PAGE> 63
<TABLE>
<S> <C> <C>
1231 25-ft RJ48M to RJ48M Shielded
Cable (for T1) [ ** ]x
1232 50-ft RJ48M to RJ48M Shielded Cable
(for T1) [ ** ]x
1233 100-ft RJ48M to RJ48M Shielded Cable
(for T1) [ ** ]x
1239 Y Adapter for WAN Card Redundancy (Bus
Connect Systems) [ ** ]x
1240 5-inch DB26M to DB25F RS530 Adapter Cables[ ** ]x
1251 RS-530 to V.35 Personality Module [ ** ]x
1252 RS-530 to RS-232 Personality Module [ ** ]x
1255 RS232/RS530 DB25 Female-to-Female Gender
Changer [ ** ]x
1257 V.35 M34 Female-to-Female Gender Changer [ ** ]x
1258 RS449 DB37 Female-to-Female Gender
Changer [ ** ]x
1263F 5-ft DB26M to V.35F (M34) Straight-Thru
Cable (for DB26 HSUs) [ ** ]x
1263M 5-ft DB26M to V.35M (M34) Straight-Thru
Cable (for DB26 HSUs) [ ** ]x
1263X 5-ft DB26M to V.35M (M34) Cross-Over
Cable (for DB26 HSUs) [ ** ]x
1264F 5-ft DB26M to RS530F (DB25) Straight-Thru
Cable (for DB26 HSUs) [ ** ]
1264M 5-ft DB26M to RS530M (DB25) Straight-Thru
Cable (for DB26 HSUs) [ ** ]x
1264X 5-ft DB26M to RS530M (DB25) Cross-Over
Cable (for DB26 HSUs) [ ** ]x
1265F 5-ft DB26M to RS449M (DB37) Straight-Thru
Cable (for DB26 HSUs) [ ** ]x
1265M 5-ft DB26M to RS449M (DB37) Straight-Thru
Cable (for DB26 HSUs) [ ** ]x
1265X 5-ft DB26M to RS449M (DB37) Cross-Over
Cable (for DB26 HSUs) [ ** ]x
1268 25-ft DB26M to DB26F Extension Cable
(for V.35 operation) [ ** ]x
1269 25-ft DB26M to DB26F Extension Cable
(for RS530/RS449 operation) [ ** ]x
1504 M66 Block with 2 Female 50-Pin Amp/Champ
Connectors [ ** ]x
</TABLE>
* Confidential Treatment Requested.
29
<PAGE> 64
<TABLE>
<S> <C> <C> <C>
1901 IMACS Reference Guide [ ** ]x
1902 EMS Reference Guide [ ** ]x
1903 Cable and Equipment Guide [ ** ]x
1904 TCP/IP Manual [ ** ]x
3001AR Model 8800 CPU to Model 8804 [ ** ]x [**] *Price if old part is not
CPU returned to Premisys
3002AR Model 8800 CPU to Model 8801 [ ** ]x [**] *Price if old part is not
CPU returned to Premisys
3003AR Model 8804 CPU to Model 8801 [ ** ]x [**] *Price if old part is not
CPU returned to Premisys
3100AR Add TCP/IP/SNMP firmware to any CPU card [ ** ]x
3010AR Firmware enhancement to any card [ ** ]x
3020AR Any other enhancement to any module [ ** ]x
Terms and conditions on advance replacements:
User must order advanced replacement product from Premisys
Advanced replacement board will be sent with return label for old
board
Old board must be returned freight pre-paid to Premisys within 21
days of receipt of replacement board
If old board is not received within 21 days, the user will be
billed for the list price of the board
Replaced board retains the warranty period of the original board
</TABLE>
<TABLE>
<S> <C> <C> <C>
3001FG Model 8800 CPU to Model 8804 [ ** ]x [**] *Price if old part is not
CPU returned to Premisys
3002FG Model 8800 CPU to Model 8801 [ ** ]x [**] *Price if old part is not
CPU returned to Premisys
3003FG Model 8804 CPU to Model 8801 [ ** ]x [**] *Price if old part is not
CPU returned to Premisys
3100FG Add TCP/IP/SNMP firmware to any CPU card [ ** ]x
3010FG Firmware enhancement to any card [ ** ]x
3020FG Any other enhancement to any module [ ** ]x
Terms and conditions on return-to-factory enhancements and
upgrades:
User must obtain an RA number from Premisys before returning board
for upgrade.
Board must be sent freight pre-paid to Premisys.
Premisys will return the upgraded board via 2nd day air freight
within 21 days of receipt.
Upgraded boards retain the warranty period of the original board.
Advanced replacement is not included in upgrade price.
</TABLE>
<TABLE>
<S> <C> <C>
3010EP Firmware upgrade to any CPU card [ ** ]x
3020EP Firmware upgrade to any other card [ ** ]x
</TABLE>
Terms and conditions on EPROM upgrades:
* Confidential Treatment Requested.
30
<PAGE> 65
User is responsible for proper handling of EPROM's and circuit
boards.
Improper handling by user may result in voiding of warranty.
<TABLE>
<S> <C> <C>
1920 Corporate Brochure [ ** ]x
1921 Corporate Cover Folder [ ** ]x
1922 IMACS Data Sheet [ ** ]x
1923 ATM Data Sheet [ ** ]x
1924 Frame Relay Data Sheet [ ** ]x
1925 ISDN BRX Data Sheet [ ** ]x
1926 Assembly of collateral into folder [ ** ]x
1927 Complete set of collateral (1920, 1921,
1922, 1923, 1924, 1925, 1926) [ ** ]xx
</TABLE>
PACKAGE PRICING
The packages listed below are not a sum of the parts and are being included
in this agreement.
All other packages are a sum of the parts and will not be listed
individually on this agreement.
<TABLE>
<S> <C> <C>
UN 2525-TW1 1 LOW COST TIME WARNER PACKAGE [ ** ]x
GA 8916 1 AAC FRONT LOADING ENCLOSURE [ ** ]
GA 8800 1 BUS CONNECT CPU-NON REDUNDANT [ ** ]
GA 8000 1 SINGLE T1/E1 (WAN) [ ** ]
GA 811 1 DSX/CEPT PLUG IN MODULE [ ** ]
GA 8925 1 2 T1 Interface Card w/o modem [ ** ]
UN 2525-TWA 1 AC POWER PACKAGE FOR TIME WARNER [ ** ]x
GA 8901 1 AC POWER SUPPLY (110/220) [ ** ]
GA 8903 1 INTERNAL AC-DC CONVERTER [ ** ]
GA 8904 1 48V RINGING GENERATOR [ ** ]
UN 2525-TWD 1 DC POWER PACKAGE FOR TIME WARNER [ ** ]x
GA 8902 1 DC POWER SUPPLY (-48) [ ** ]
GA 8904 1 48V RINGING GENERATOR [ ** ]
UN 2525-41U 1 RELEASE 4.1 UPGRADE PACKAGE [ ** ]x
NR 880220/ 1 CPU Xcon 512K RAM w/4.1 FW-Metal [ ** ]
60410
NR 892320 1 128K NV RAM Interface
w/Modem-Metal [ ** ]
GA 61000 1 TCP/IP SNMP SW OPTION [ ** ]
UN 2525-FRU 1 FRAME RELAY UPGRADE PACKAGE [ ** ]x
NR 880220/ 1 CPU Xcon 512K RAM w/4.1 FW-Metal [ ** ]
60410
NR 892320 1 128K NV RAM Interface
w/Modem-Metal [ ** ]
UN 881120/ 1 Frame Relay Server/ACS-68
62100 Server [ ** ]
UN 60101 1 Frame Relay Software [ ** ]
</TABLE>
* Confidential Treatment Requested.
31
<PAGE> 66
[PARADYNE LOGO]
AGREEMENT NUMBER GSC103DS
AMENDMENT NUMBER 8
PAGE 1 OF 1
DATE 12/02/96
PREMISYS COMMUNICATIONS, INC.
48664 MILMONT DRIVE
FREMONT, CALIFORNIA 94538
Agreement number LGSC103DS dated and signed December 4, 1992, by and between
Premisys Communications Inc. and Paradyne Corporation will be amended as
follows:
1.0 Notwithstanding the provisions of Paragraph 4.1 of Amendment Number 4
of this Agreement, it is agreed that Premisys will be allowed to accept
orders from BCS Division of Lucent Technologies (BCS) for the purpose
of repair and upgrade of Field returns alone and for no other
purpose(s). Premisys may accept such orders directly from BCS and shall
bill BCS directly for services provided pursuant to those orders.
2.0 It is further agreed that the pricing charged BCS for such repair and
upgrades shall be the same as that charged to Paradyne under Amendment
Number 5 of this Agreement.
3.0 All other terms and conditions of the above stated Agreement remain
unchanged.
PARADYNE CORPORATION PREMISYS COMMUNICATIONS, INC.
By: /s/ Andrew May By:
Title: President & COO Title: V.P. Controller
Date: 1/3/97 Date: 1/17/97
PARADYNE CORPORATION - PROPRIETARY
USE PURSUANT TO COMPANY INSTRUCTIONS
AMENDMENT NUMBER 7 - LGSC103DS
1 - 12/02/96
<PAGE> 67
[PARADYNE LOGO]
AGREEMENT NUMBER GSC103DS
AMENDMENT NUMBER 9
PAGE 1 OF 1
DATE 05/13/97
PREMISYS COMMUNICATIONS, INC.
48664 MILMONT DRIVE
FREMONT, CALIFORNIA 94538
Agreement number LGSC103DS dated and signed December 4, 1992, by and between
Premisys Communications Inc. and Paradyne Corporation will be amended as
follows:
1.0 Exhibit A, IMACS PRICING LIST, dated 11/14/96, is hereby deleted in its
entirety and replaced by a new IMACS PRICING List, Exhibit A, dated
1/1/97 (printed 3/28/97), which shall be attached hereto and made a
part hereof.
2.0 This IMACS PRICING LIST, with stated Paradyne Corporation Pricing, will
be the basis for which all dollar volume discounts, as referenced and
detailed in Amendment #4, will be applied against to calculate new
Paradyne pricing as said discounts go into effect.
3.0 The Price of all packages are the sum of the parts unless noted
otherwise in the attached Pricing List.
4.0 All other terms and conditions of the above stated Agreement remain
unchanged.
This amendment for new pricing shall be effective as of January 1, 1997 for all
orders current as of that date.
PARADYNE CORPORATION PREMISYS COMMUNICATIONS, INC.
By: /s/ Andrew May By: /s/
Title: President & CEO Title: V.P. Controller
Date: 6/27/97 Date: 6/3/97
PARADYNE CORPORATION - PROPRIETARY
USE PURSUANT TO COMPANY INSTRUCTIONS
AMENDMENT NUMBER 9 - LGSC103DS
1 - 5/13/97
<PAGE> 68
PREMISYS COMMUNICATION, INC.
IMACS PRICING
FOR PARADYNE
<TABLE>
<CAPTION>
1997
PRODUCT NUMBER DESCRIPTION PRICE
- -------------------------------------------------------------------------------
<S> <C> <C>
8901 AC power supply [**]
8902 (48V DC power supply) [**]
890220 (48V DC power supply - support OOS @ 39V) [**]
890250 SSTE '-48V DC power supply - support OOS @ 39V [**]
8903 (48V DC converter (115 VAC input)) [**]
8905 (48V DC Converter (115 - 240 VAC input)) [**]
8904 (48V Ringing generator) [**]
8906 (48V Ringing generator) [**]
8907 24V DC power supply [**]
8916 IMACS/600 universal enclosure [**]
891620 IMACS/600 universal enclosure [**]
8918 IMACS/800 universal enclosure [**]
891820 IMACS/800 universal enclosure w/ install kit, dual
feed pwr supply [**]
891822 IMACS/800 universal enclosure w/ install kit, dual
feed pwr supply, NEBS [**]
891850 SSTE IMACS/800 universal enclosure w/ install kit,
dual feed pwr supply [**]
8919 IMACS/900 universal enclosure **(2) [**]
8920 8 T1/E1 interface card with 2,400 baud modem - 32
Kb NVRAM [**]
892020 8 T1/E1 interface card with 2,400 baud modem - 32
Kb NVRAM metal [**]
8923### 8 T1/E1 interface card with 2,400 baud modem - 128
Kb NVRAM (4) [**]
892320### 8 T1/E1 interface card with 2,400 baud modem - 128
Kb NVRAM (4) [**]
8921 8 T1/E1 interface card w/out modem - 32 Kb NVRAM [**]
892120 8 T1/E1 interface card without modem - 32 Kb NVRAM [**]
892220 8 T1/E1 interface card without modem - 128Kb NVRAM
with ext sync module for framed T1/E1 (2) [**]
892250 SSTE 8 T1/E1 interface card without modem - 128Kb
NVRAM with ext sync module for framed T1/E1 (2) [**]
892221 8 T1/E1 interface card without modem - 128Kb NVRAM
with ext sync module for unframed T1/E1**(2) [**]
8925 2 T1 interface card without modem [**]
8926 2 T1 interface card with modem (1) [**]
8927 2 E1 interface card without modem(1) [**]
1183 E1 Distribution Panel (8 E1s) [**]
1184 Distribution Panel [**]
8800 CPU control card with 2 T1/E1 bus-connect (non-
redundant) - 256K [**]
880020 CPU control card with 2 T1/E1 bus-connect (non-
redundant) - 256K [**]
8801 CPU control card with 8 T1/E1 cross-connect
(redundant-capable) - 256 K [**]
880120 CPU control card with 8 T1/E1 cross-connect
(redundant-capable) - 256 K [**]
8802# CPU control card with 8 T1/E1 cross-connect
(redundant-capable) - 512 K (4) [**]
880220# CPU control card with 8 T1/E1 cross-connect
(redundant-capable) - 512 K (4) [**]
880221 CPU control card with 8 T1/E1 cross-connect
(redundant-capable) - 512 K (4) [**]
880250 SSTE CPU control card with 8 T1/E1 cross-connect
(redundant-capable) - 512 K (4) [**]
8804 CPU control card with 4 T1/E1 bus-connect
(redundant-capable) - 256 K [**]
880420 CPU control card with 4 T1/E1 bus-connect
(redundant-capable) - 256 K [**]
60342 Version 3.4.2 host firmware [**]
60343 Version 3.4.3 host firmware [**]
60344 Version 3.44 host firmware [**]
60400 Version 4.0.0 host firmware (5) [**]
60410 Version 4.1.0 host firmware (5) [**]
</TABLE>
* Confidential Treatment Requested
Page 1
<PAGE> 69
PREMISYS COMMUNICATIONS, INC.
IMACS PRICING
FOR PARADYNE
<TABLE>
<CAPTION>
1997
PRODUCT NUMBER DESCRIPTION PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
60420 Version 4.2.0 host firmware (5) [**]
60430 Version 4.3.0 host firmware (5) [**]
60440 Version 4.4.0 host firmware (5) [**]
60450 Version 4.5.0 host firmware (5) [**]
60101 TCP/IP/SNMP host code option [**]
60102 TR08 host code option [**]
63100 MCC Firmware [**]
8000 Single T1/E1 WAN [**]
800020 Single T1/E1 WAN [**]
8010 Dual T1/E1 WAN [**]
801020 Dual T1/E1 WAN [**]
801050 SSTE Dual T1/E1 WAN [**]
801120 Universal Dual T1/E1 WAN** [**]
8014 Dual T1/E1WAN with 1 x 3 relays [**]
801420 Dual T1/E1WAN with 1 x 3 relays [**]
811 DSX/CEPT plug-in module [**]
81120 DSX/CEPT plug-in module [**]
81150 SSTE DSX/CEPT plug-in module [**]
812 CSU plug-in module [**]
81220 CSU plug-in module [**]
82020 1168 kbps HDSL plug-in mod for Univ WAN 8011 [**]
8108 8-port, 2-wire E&M [**]
8119 8-port, 4-wire E&M - Extended Range [**]
811920 8-port, 4-wire E&M - Extended Range metal [**]
8128 8-port, 2-wire FXS - 900 Ohm [**]
8129 8-port, 2-wire FXS - 600 Ohm [**]
8138 8-port, 2-wire FXO - 900 Ohm [**]
8139 8-port, 2-wire FXO - 600 Ohm [**]
8149 6 Port 16 KHz FXS Coin Card - 600 Ohm (2) [**]
8159 6 Port 16 KHz FXO Coin Card - 600 Ohm (2) [**]
8202 2-port HSU w/ RS-530/V.35 i/f [**]
8212 2-port HSU w/ V.35 i/f [**]
8213 2-port HSU w/ RS-530/RS-366/V.25bis i/f [**]
8215 4-port HSU w/ RS-530/V.35 i/f [**]
821520 4-port HSU w/ RS-530/V.35 i/f [**]
821550 SSTE 4-port HSU w/ RS-530/V.35 i/f [**]
8220 10-port SRU w/ RS-232C/V.24 i/f [**]
8228 8-port sub-rate B7R IP concentrator card (1) [**]
8230 8-port subrate FRAD card [**]
8231 8-port subrate FRAD card (HDLC only) [**]
8247 5-port OCU-DP (expandable) (6) [**]
845 5-port OCU-DP child card (6) [**]
8249 2-port OCU-DP with error correction [**]
8254 4-port DSO-DP/G.703 co/contra directional [**]
8260 8-port BRI U i/f card (1) [**]
826020 8-port BRI U i/f card (1) [**]
8261 8-port BRI U i/f card, with sealing current (1) [**]
826120 8-port BRI U i/f card, with sealing current (1) [**]
8811 ACS-68 server (3) [**]
881120 ACS-68 server (3) [**]
8813 ACS-68 server with Exp-64 module (3) [**]
881320 ACS-68 server with Exp-64 module (3) [**]
8871 ADPCM Server [**]
887120 ADPCM Server [**]
8880 4 channel inverse mux server with BONDING modes
0 and 1 software(1) [**]
8840A ISDN PRI server card - 1 D channel [**]
8840B ISDN PRI server card - 2 D channels [**]
8840C ISDN PRI server card - 8 D channels [**]
62100 Frame relay server software for ACS card (3) [**]
8401 External alarm card [**]
840120 External alarm card [**]
8402 External alarm card - 3 ports and power fail alarm [**]
</TABLE>
* Confidential Treatment Requested
Page 2
<PAGE> 70
PREMISYS COMMUNICATIONS, INC.
IMACS PRICING
FOR PARADYNE
<TABLE>
<CAPTION>
1997
PRODUCT NUMBER DESCRIPTION PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
840220 External alarm card - 3 ports and power fail alarm [**]
840250 SSTE External alarm card - 3 ports and power fail
alarm [**]
1500 External Sync Panel [**]
150050 SSTE External Sync Panel [**]
2001 Blank Card Filler Panel [**]
Notes
** Consult factory for delivery lead times [**]
# formerly 8801b [**]
## formerly 8805 [**]
### formerly 8920b [**]
(1) Requires version 3.2 or higher [**]
(2) Requires version 4.0 or higher [**]
(3) Requires version 4.1 or higher [**]
(4) Required for Host 4.0 or higher [**]
(5) Requires 8923 or 8922 and 8802 [**]
(6) Requires Host 3.4.1 or higher [**]
(7) 8811 or higher ACS [**]
Front panel types [**]
Std = standard molded face plate [**]
M/E = metal face plate with ejec [**]
1106 RJ48 to 2 BNC Adapter (for E1) [**]
1114F 5-ft RJ48M to DB25F Straight-Thru Cable (for SRU) [**]
1114M 5-ft RJ48M to DB25M Straight-Thru Cable (for SRU) [**]
1114X 5-ft RJ48M to DB25M Cross-Over Cable (for SRU) [**]
1114CX 5-ft RJ48M to DB25M External Clock Cable (for SRU) [**]
1118 25-ft RJ48M to RJ48M Silver-Satin Cable (for OCU-DP) [**]
1121 50-Pin to 2 RJ48 Adapter with Test Jacks (for T1) [**]
1181 50-Pin to 8 RJ48 Adapter (for T1) [**]
1201F 15-ft DB9M to DB25F Straight Thru (for Interface) [**]
1201M 15-ft DB9M to DB25M Straight Thru (for Interface) [**]
1202F 15-ft DB9F to DB25F Straight Thru (for Interface) [**]
1202M 15-ft DB9F to DB25M Straight Thru (for Interface) [**]
1203F 5-ft DB25M to V.35F Straight-Thru Cable (for V.35
HSU) [**]
1203M 5-ft DB25M to V.35M Straight-Thru Cable (for V.35
HSU) [**]
1203X 5-ft DB25M to V.35M Cross-Over Cable (for V.35 HSU) [**]
1204F 5-ft DB25M to RS530F Straight-Thru Cable (for RS530
HSU) [**]
1204M 5-ft DB25M to RS530M Straight-Thru Cable (for RS530
HSU) [**]
1204X 5-ft DB25M to RS530M Cross-Over Cable (for RS530 HSU) [**]
1206F 5-ft DB15M to DB25F Straight-Thru Cable (for RS366
HSU Ports) [**]
1207 6-ft 3-to-4 50-Pin E&M Cable (All Male Connectors) [**]
1208 6-ft 3-to-1 50-Pin FXS Cable (All Male Connectors) [**]
1209 6-ft 3-to-1 50-Pin TO Cable (All Male Connectors) [**]
1210 5-ft 50-Pin Male to Male Amphenol Cable (for Multiple
Uses) [**]
1212F 5-ft DB25M to RS449F Straight-Thru Cable (for RS449
HSU) [**]
1212M 5-ft DB25M to RS449M Straight-Thru Cable (for RS449
HSU) [**]
1212X 5-ft DB25M to RS449M Cross-Over Cable (for RS449 HSU) [**]
1213 5-ft 50-pin Male Amphenol Cable to 2 RJ-48F Cable
(for 8 T1 interface) [**]
1215M 5-ft RJ48M to DB15M Straight-Thru Cable (for CSU) [**]
1215X 5-ft RJ48M to DB15F Cross-Over Cable (for PBX) [**]
1216F 15-ft RJ48M to DB25F Straight-Thru Cable (for VT100) [**]
1216M 15-ft RJ48M to DB25M Straight-Thru Cable (for VT100) [**]
1217 25-ft RJ11M to RJ11M Cable (for Modem) [**]
1220 25-ft 50-Pin Male to Female Amp/Champ Extension
Cable [**]
1221 25-ft DB25M to DB25F Extension Cable (for RS232
operation) [**]
1222 25-ft DB25M to DB25F Extension Cable (for RS530
operation) [**]
1224 25-ft DB25M to DB25F Extension Cable (for V.35
operation) [**]
1230 1-ft RJ48M to RJ48M Shielded Cable (for T1) [**]
</TABLE>
* Confidential Treatment Requested
Page 3
<PAGE> 71
PREMISYS COMMUNICATIONS, INC.
IMACS PRICING
FOR PARADYNE
<TABLE>
<CAPTION>
1997
PRODUCT NUMBER DESCRIPTION PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
1231 25-ft RJ48M to RJ48M Shielded Cable (for T1) [**]
1232 50-ft RJ48M to RJ48M Shielded Cable (for T1) [**]
1233 100-ft RJ48M to RJ48M Shielded Cable (for T1) [**]
1239 Y Adapter for WAN Card Redundancy (Bus Connect
Systems) [**]
1240 5-inch DB26M to DB25F RS530 Adapter Cables [**]
1251 RS-530 to V.35 Personality Module [**]
1252 RS-530 to RS-232 Personality Module [**]
1255 RS232/RS530 DB25 Female-to-Female Gender Changer [**]
1257 V.35 M34 Female-to-Female Gender Changer [**]
1258 RS449 DB37 Female-to-Female Gender Changer [**]
1261F 5-ft DB25(M) to M34(F) Straight-Thru Cable V.35
cable [**]
1261M 5-ft DB25(M) to M34(M) Straight-Thru Cable V.35
cable [**]
1263F 5-ft DB26M to V.35F (M34) Straight-Thru Cable (for
DB26 HSUs) [**]
1263M 5-ft DB26M to V.35M (M34) Straight-Thru Cable (for
DB26 HSUs) [**]
1263X 5-ft DB26M to V.35M (M34) Cross-Over Cable (for
DB26 HSUs) [**]
1264F 5-ft DB26M to RS530F (DB25) Straight-Thru Cable
(for DB26 HSUs) [**]
1264M 5-ft DB26M to RS530M (DB25) Straight-Thru Cable
(for DB26 HSUs) [**]
1264X 5-ft DB26M to RS530M (DB25) Cross-Over Cable (for
DB26 HSUs) [**]
1265F 5-ft DB26M to RS449M (DB37) Straight-Thru Cable
(for DB26 HSUs) [**]
1265M 5-ft DB26M to RS449M (DB37) Straight-Thru Cable
(for DB26 HSUs) [**]
1265X 5-ft DB26M to RS449M (DB37) Cross-Over Cable (for
DB26 HSUs) [**]
1268 25-ft DB26M to DB26F Extension Cable (for V.35
operation) [**]
1269 25-ft DB26M to DB26F Extension Cable (for RS530/
RS449 operation) [**]
1504 M66 Block with 2 Female 50-Pin Amp/Champ Connectors [**]
1901 IMACS Reference Guide [**]
1902 EMS Reference Guide [**]
1903 Cable and Equipment Guide [**]
1904 TCP/IP Manual [**]
3001AR Model 8800 CPU to Model 8804 CPU [**]
3002AR Model 8800 CPU to Model 8801 CPU [**]
3003AR Model 8804 CPU to Model 8801 CPU [**]
3100AR Add TCP/IP/SNMP firmware to any CPU card [**]
3010AR Firmware enhancement to any card [**]
3020AR Any other enhancement to any module [**]
</TABLE>
Terms and conditions on advanced replacements:
User must order an advanced replacement upgrade
from Premisys.
Advanced replacement board will be sent with return
label for old board.
Old board must be returned freight pre-paid to
Premisys within 21 days of receipt of replacement
board.
If old board is not received within 21 days, the user
will be billed for the list price of the board
Replaced board retains the warranty period of the
original board.
<TABLE>
<S> <C> <C>
3001FG Model 8800 CPU to Model 8804 CPU [**]
3002FG Model 8800 CPU to Model 8801 CPU [**]
3003FG Model 8804 CPU to Model 8801 CPU [**]
3100FG Add TCP/IP/SNMP firmware to any CPU card [**]
3010FG Firmware enhancement to any card [**]
3020FG Any other enhancement to any module [**]
</TABLE>
Terms and conditions on return-to factory
enhancements and upgrades.
User must obtain an RA number from Premisys before
returning board for upgrade.
Board must be sent freight pre-paid to Premisys.
Premisys will return the upgraded board via 2nd day air
freight within 21 days of receipt.
Upgraded boards retain the warranty period of the
original board.
Advanced replacement is not included in upgrade price.
* Confidential Treatment Requested
<TABLE>
<S> <C> <C>
3010EP Firmware upgrade to any CPU card [**]
3020EP Firmware upgrade to any other card [**]
</TABLE>
* Confidential Treatment Requested
Page 4
<PAGE> 72
PREMISYS COMMUNICATIONS, INC.
IMACS PRICING
FOR PARADYNE
<TABLE>
<CAPTION>
1997
PRODUCT NUMBER DESCRIPTION PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
Terms and conditions on EPROM upgrades.
User is responsible for proper handling of EPROM's
and circuit boards.
Improper handling by user may result in voiding of
warranty.
1920 Corporate Brochure [**]
1921 Corporate Cover Folder [**]
1922 IMACS Data Sheet [**]
1923 ATM Data Sheet [**]
1924 Frame Relay Data Sheet [**]
1925 ISDN BRX Data Sheet [**]
1926 Assembly of collateral into folder [**]
1927 Complete set of collateral (1920, 1921, 1922,
1923, 1924, 1925, 1926) [**]
</TABLE>
PACKAGE PRICING
The packages listed below are not a sum of the parts and are being included in
this agreement.
All other packages are a sum of the parts and will not be listed individually on
this agreement.
The pricing on these packages is good thru December 31, 1997
<TABLE>
<S> <C> <C>
2525-TWA AC POWER PACKAGE FOR TIME WARNER [**]
8901 AC POWER SUPPLY (110/220) [**]
8903 INTERNAL AC-DC CONVERTER [**]
8904 48V RINGING GENERATOR [**]
2525-TWD DC POWER PACKAGE FOR TIME WARNER [**]
8902 DC POWER SUPPLY (-48) [**]
8904 48V RINGING GENERATOR [**]
2525-41U RELEASE 4.1 UPGRADE PACKAGE [**]
880220/60410 CPU Xcon 512K RAM w/4.1 FW-Metal [**]
892320 128K NV RAM Interface w/Modem-Metal [**]
60101 TCP/IP SNMP SW OPTION [**]
2525-FRU FRAME RELAY UPGRADE PACKAGE [**]
880220/60410 CPU Xcon 512K RAM w/4.1 FW-Metal [**]
892320 128K NV RAM Interface w/Modem-Metal [**]
881120/62100 Frame Relay Server/ACS-68 Server [**]
60101 TCP/IP SNMP SW OPTION [**]
</TABLE>
* Confidential Treatment Requested
Page 5
<PAGE> 1
EXHIBIT 10.39
[ASCEND LOGO]
ASCEND COMMUNICATIONS, INC.
NETWORK MANAGEMENT PARTNERS PROGRAM AGREEMENT
This Agreement ("Agreement") effective of the date as written below, is by and
between Ascend Communications, Inc. ("Ascend"), a Delaware corporation having a
principal place of business at One Ascend Plaza, Harbor Bay Parkway, Alameda,
CA 94502, USA and Paradyne Corporation ("Partner"), a Delaware corporation
having a principal place of business at 8545 126th Ave N. Largo, Florida, 33773.
WHEREAS, Ascend is in the business of developing, manufacturing, and
marketing, communications products ("Ascend's Products") and
distributing, selling and licensing such Products to Ascend's
customers ("Customers");
WHEREAS, Partner is in the business of manufacturing, selling, licensing
and servicing network management products known as DCE Manager
and Performance Wizard ("Partner's Products") and associated
hardware; and
WHEREAS, Ascend and Partner wish to enter into an arrangement in which
Partner develops an interface (the "Integration Module") between
Ascend's Navis and Partner's FrameSaver(R) SLV and/or NMS
platform of which all rights, design, and intellectual property
shall be owned by Partner, and
WHEREAS, Ascend offers, on a non-exclusive basis, to its partners Ascend's
Network Management Partners Program (the "Program") and Partner
desires to participate in the Program.
NOW THEREFORE, in consideration of the mutual promises herein contained, the
parties hereby agree as follows:
1. Under the Program, Ascend may reference sell to its Customers the
Integration Module, on a non-exclusive basis, US and international
Customers which may have need of Partner's Products, associated hardware,
and/or services. Partner shall contract directly with the Customers for the
provision, including Customer's evaluation, of such products and/or
technical support services. Partner and Ascend further agree:
a. that only as related to the sale of the network management solutions
incorporating Partner's Products and the Integration Module, Partner
shall act in a supporting role in formulating joint account strategy,
and in the planning, testing and integration of Ascend and Partner
products to support the Customers' networks, as Ascend reasonably
directs; and while it is agreed that Partner will retain primary
responsibility for all issues affecting the sale and delivery of
Partner's Products and services, Partner will work cooperatively with
Ascend to achieve the objectives of the joint account strategy;
1
<PAGE> 2
b. that Partner will provide at no cost to Ascend adequate
quantities of Partner's standard non-confidential documentation,
materials, and sales tools as agreed by the parties to be necessary
under this Agreement and which Ascend may provide to the Customers;
c. that in conjunction with the sale of Partner's Products and/or the
Integration Module Partner and Ascend will cooperate in a timely
manner and perform work as reasonably requested, including testing,
as authorized by the Customer and agreed upon by the parties to
insure the adequate support of the Customers and in the successful
integration of products into the Customers' networks;
d. that Partner will furnish on a best efforts basis and as mutually
agreed by the parties, necessary personnel to accomplish
interoperability testing at Partner's designated location;
e. that, hereto and made a part of this Agreement as Exhibit A,
Partner will undertake any necessary work to develop release 1 of
the Integration Module and nay other products required to allow
Partner's product(s) to work with Ascend's products, including
network management systems. Partner's expenditure on release 1 of
the Integration Module shall be limited to one staff year.
Follow-on releases of the Integration Module resulting in increased
levels of functional integration between Partner's network
management system and Ascend's network management system shall
optionally be jointly defined and implemented by both Ascend and
Partner. To support this development, Ascend agrees to provide
Partner with reasonable technical support as defined in the SOW to
ensure compatibility. Should the parties agree that it is necessary
that Ascend loan to Partner certain of Ascend's equipment, software
and/or documentation ("Equipment") to enable Partner to complete
such development, testing and integration activities as outlined in
this subsection, the parties agree that the terms and conditions of
the Equipment Loan Agreement attached as Exhibit A shall govern the
loan of such Equipment;
f. that at an agreed upon discount off of list prices Partner will
license the DCE Manager and Performance Wizard software directly to
the end user customer or give Ascend the right to distribute and
sublicense such software.
2. Partner's sales and technical contacts under this Agreement are:
Sales: Technical:
----- ---------
Name: Dennis Fowler Name: Jeff Davis
-------------- --------------
Phone: (813) 301-9104 Phone: (727) 530-2864
-------------- --------------
Fax: (813) 301-9015 Fax: (727) 532-5131
-------------- --------------
3. This Agreement shall be effective as of the date accepted in writing by a
corporate officer of Ascend and shall terminate upon sixty (60) days' prior
written notice by either party. No termination of this Agreement shall
affect any obligations incurred, as contemplated under this Agreement, prior
to the effective date of termination. The provisions of Sections 5, 6, 7, 8
and 9 shall survive the termination or expiration of this Agreement. Partner
acknowledges that Ascend may change or discontinue the Program at any time.
2
<PAGE> 3
contemplated under this Agreement, prior to the effective date of
termination. The provisions of Sections 5, 6, 7, 8 and 9 shall survive the
termination or expiration of this Agreement. Partner acknowledges that
Ascend may change or discontinue the Program at any time.
4. Partner is an independent contractor in all respects connected with this
Agreement, and neither Partner nor the employees of Partner shall be
considered employees or agents of Ascend for any purpose whatsoever.
5. Either party has the right to terminate this Agreement in the event that
the other party fails to cure any material breach within ten (10) days
following notice thereof.
Each party agrees that if it fails to comply with any of its obligations
under Sections 6 or 7 hereof, the other party will suffer immediate,
irreparable harm for which monetary damages may not be adequate and that,
in addition to all other remedies provided at law or in equity, the other
party shall be entitled to injunctive relief.
6. Partner and Ascend shall each (i) keep in confidence all products,
software, data, business or technical information, products, designs,
know-how, programs or intelligence, whether in machine readable or visually
readable form, which is the property of and is confidential and proprietary
to the other and/or its licensors ("Confidential Information"), (ii) use
Confidential Information only in fulfillment of its obligations under this
Agreement, (iii) not transfer or disclose Confidential Information to
anyone other than its employees and consultants who require disclosure in
connection with this Agreement and who are subject to confidentiality
obligations in substance at least as strict as these, and (iv) not copy
Confidential Information. The restrictions contained in this Agreement
against disclosure or dissemination of Confidential Information shall not
apply to information previously known or independently developed by the
receiving party, rightfully acquired from an ultimate source other than the
disclosing party, subsequently publicly disclosed by the disclosing party
or disclosed under requirement by law or a court order.
Upon the expiration or termination of this Agreement for any reason, each
party shall return to the other party all Confidential Information of the
other party. The confidentiality obligations of the parties will survive
termination or expiration of the contract for a period of three (3) years,
from the date of such termination or expiration.
7. Ascend and Partner will publicly announce the existence of this Agreement
subsequent to the execution of this Agreement. Partner will be given prior
opportunity to review the proposed text of the public announcement, and
will be allowed to make recommendations. Ascend and Partner will jointly
determine the timing of and the final text of this announcement.
In no event shall Partner disclose the existence, terms or substance of
this Agreement to any third party for any reason without the prior written
consent of an officer of Ascend. Ascend may in its sole discretion publicly
announce the existence of this Agreement in accordance with this Section 7.
Notwithstanding the foregoing, after such public
3
<PAGE> 4
4. Partner is an independent contractor in all respects connected with this
Agreement, and neither Partner nor the employees of Partner shall be
considered employees or agents of Ascend for any purpose whatsoever.
5. Either party has the right to terminate this Agreement in the event that
the other party fails to cure any material breach within ten (10) days
following notice thereof.
Each party agrees that if it fails to comply with any of its obligations
under Sections 6 or 7 hereof, the other party will suffer immediate,
irreparable harm for which monetary damages may not be adequate and that,
in addition to all other remedies provided at law or in equity, the other
party shall be entitled to injunctive relief.
6. Partner and Ascend shall each (i) keep in confidence all products,
software, data, business or technical information, products, designs,
know-how, programs or intelligence, whether in machine readable or
visually readable form, which is the property of and is confidential and
proprietary to the other and/or its licensors ("Confidential
Information"), (ii) use Confidential Information only in fulfillment of
its obligations under this Agreement, (iii) not transfer or disclose
Confidential Information to anyone other than its employees and
consultants who require disclosure in connection with this Agreement and
who are subject to confidentiality obligations in substance at least as
strict as these, and (iv) not copy Confidential Information. The
restrictions contained in this Agreement against disclosure or
dissemination of Confidential Information shall not apply to information
previously known or independently developed by the receiving party,
rightfully acquired from an ultimate source other than the disclosing
party, subsequently publicly disclosed by the disclosing party or
disclosed under requirement by law or a court order.
Upon the expiration or termination of this Agreement for any reason, each
party shall return to the other party all Confidential Information of the
other party. The confidentiality obligations of the parties will survive
termination or expiration of the contract for a period of three (3) years,
from the date of such termination or expiration.
7. Ascend and Partner will publicly announce the existence of this Agreement
subsequent to the execution of this Agreement. Ascend and Partner will
jointly determine the timing of and the text of this announcement.
8. In no event shall either party use the other party's name or any
trademark, trade name or service mark on any product or in any promotional
literature, advertising or other public announcement without the prior
written consent of the other party.
9. IN NO EVENT SHALL EITHER PARTY BE LIABLE, WHETHER IN CONTRACT, IN TORT OR
ON ANY OTHER BASIS, FOR ANY INCIDENTAL, CONSEQUENTIAL, INDIRECT OR SPECIAL
DAMAGES OR LIABILITIES, OR FOR LOSS OF REVENUE, LOSS OF BUSINESS OR OTHER
FINANCIAL LOSS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR FROM
EACH PARTY'S ACTS OR OMISSIONS, EVEN IF SUCH PARTY HAS REASON TO KNOW OF
THE POSSIBILITY OF SUCH A LOSS.
4
<PAGE> 5
10. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns, but neither party
shall have the right to assign or otherwise transfer its rights under
this Agreement without receiving the express prior written consent of
the other party. Either party may, however, assign this Agreement in the
event of a sale of all or substantially all of the other party's assets
or stock to which assignment the other party consents in advance.
Notwithstanding the foregoing, should a sale of all or substantially all
of Partner's assets or stock occur to a competitor of Ascend's, Partner
shall immediately notify Ascend of such event and Ascend shall have the
right in its sole discretion to immediately terminate this Agreement.
Notwithstanding the foregoing, either party shall with prior written
notice and without the approval of the other party have the right to
assign this agreement to its parent or subsidiary or affiliate of such
party or of its parent.
11. Either party may elect to continue performance hereunder notwithstanding
any breach of this Agreement and such performance shall not constitute a
waiver of any of such party's rights hereunder.
12. Any notice required or permitted to be given under this Agreement shall
be effective when received by a party at the address set forth above or
at such other address as such party may request by notice.
13. This Agreement will be governed by and construed according to the laws of
the State of Delaware, without regard to that body of law controlling
conflicts of law.
14. If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
This Agreement, together with any and all exhibits, attachments, and schedules
referred to herein, and expressly made a part hereof that are duly signed by the
parties is the complete and exclusive statement of the agreement between the
parties, superseding all proposals or prior agreements, oral or written, and all
other communications between the parties relating to the subject matter of this
Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in
duplicate by their duly authorized representatives as of the day and year first
written above.
ACCEPTED AND AGREED ACCEPTED AND AGREED
ASCEND COMMUNICATIONS, INC. PARTNER
BY: ????? BY: ?????
--------------------------- ------------------------
PRINT: V.P. Product Marketing PRINT: Andy May
------------------------ ---------------------
TITLE: ????? TITLE: President and CEO
------------------------ ---------------------
EFFECTIVE DATE: 11/3/98 DATE: October 29, 1998
--------------- ----------------------
5
<PAGE> 6
EXHIBIT A
EQUIPMENT LOAN AGREEMENT
THIS EQUIPMENT LOAN AGREEMENT ("Agreement") is made effective as of the date
written below by and between Ascend Communications, Inc. ("Ascend"), having a
principal place of business at having a principal place of business at One
Ascend Plaza, Harbor Bay Parkway, Alameda, CA 94502, and Paradyne ("Partner"),
having a principal place of business at 8545 126TH Ave N. Largo, Florida, 33773.
In consideration of the shipment by Ascend of the Equipment referred to below
and receipt hereof by Partner, the parties agree that the terms and conditions
contained herein shall govern the loan of the Ascend Products, including
software, listed on the attached Equipment Schedule ("Equipment") by Ascend to
Partner.
1. Ascend agrees to deliver to Partner the Equipment (the "Equipment") for the
period (the "Loan Period") commencing upon Ascend's delivery of Equipment
to a common carrier for delivery to Partner F.O.B. and terminating upon
Partner's completion of work to be provided by Partner under the Network
Management Partners Program Agreement dated ______________ between the
parties. Partner shall utilize the Equipment in accordance with the terms
and conditions of this Equipment Loan Agreement solely for purposes of
performing the Services under the Network Management Partners Program
Agreement. Nothing herein shall be construed as granting Partner a license
under any patent, patent application, trade secret, trademark, or copyright
which Ascend may have or obtain relating to the Equipment or Ascend's other
products, whether announced or proposed.
2. Title to and ownership of the Equipment are and shall at all times remain
with Ascend. Partner shall not perform any act inconsistent with Ascend's
title and ownership of the Equipment. Delivery of all Equipment shall be
made F.O.B. Ascend's manufacturing facility. Risk of loss of or damage to
the Equipment shall pass to Partner upon Ascend's delivery of Equipment to
a common carrier and shall remain with Partner until the Equipment is
returned to Ascend. All software, documentation or any information
disclosed pursuant to the terms of this Agreement are confidential and
proprietary to Ascend or its licensors and shall not be reproduced or
copied by Partner, and Partner shall not use the software, documentation,
Equipment or any information disclosed hereunder except as expressly
authorized herein or in the Agreement. In no event, whether expressly, by
implication or otherwise, are any Ascend proprietary rights granted
hereunder, either now or hereafter, as to or related to the Equipment or to
any other Ascend products or any enhancements or modifications. Partner
acknowledges that any unauthorized use or disclosure of any of such
information would seriously harm Ascend's competitive position.
3. During the term of the Loan Period and in accordance with this Agreement,
Ascend grants to Partner a nonexclusive, nontransferable license to use the
object code form of the software products included with the Equipment only
as necessary to perform the services set forth in the Network Management
Partners Program Agreement.
6
<PAGE> 7
4. Partner is responsible for installation and deinstallation of the
Equipment. Ascend agrees to provide reasonable assistance for installation
and deinstallation. The Equipment shall at all times remain at the location
specified on the attached Equipment Schedule. Partner shall not transfer,
assign, disclose or otherwise make available the Equipment, including and
documentation or any portion or copy thereof, to any third party except as
expressly authorized under this Agreement.
5. At the expiration of the Loan Period (unless earlier terminated) the
Equipment and all related documentation shall be returned to Ascend in the
same condition as delivered, normal wear and tear excepted. Partner shall
pay for all costs of Equipment repair and/or refurbishment. No
modifications and/or additions shall be made to the Equipment by Partner
without Ascend's prior written approval. If modifications and/or additions
have been authorized by Ascend, the Equipment shall be restored to its
original condition by Partner at its expense prior to return to Ascend. If
the Equipment is not returned within ten (10) days after notification that
the Loan Period has expired or has been terminated, Ascend shall invoice
Partner and a sale and license thereof shall be conclusively considered to
have occurred at Ascend's then-current price list, subject to Ascend's
standard terms and conditions of sale and license which shall apply to the
sale of Equipment and this Agreement shall be deemed terminated.
6. The Equipment is made available to Partner at Partner's request, on an
"as-is" basis, with no warranties, representations or obligations or
undertakings on Ascend's behalf whatsoever with respect thereto. Without
limitation, Ascend accepts no responsibility to maintain the Equipment, nor
with respect to any product deficiencies or defects. ASCEND MAKES NO
EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES OF ANY KIND, INCLUDING BUT
NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR
PARTICULAR PURPOSE. Ascend shall not be liable for any direct, indirect,
incidental, special or consequential damages arising out of or in
connection with the delivery, possession, use or operation of the
Equipment.
7. In the event Partner neglects or fails to perform any of its obligations
under this Agreement and such default is not corrected to Ascend's
satisfaction within five (5) days of receipt of Ascend's notice of such
default, then this Agreement may be immediately terminated by Ascend. If
the Equipment becomes, or in Ascend's opinion likely to become, the subject
of a U.S. intellectual property infringement claim, this Agreement shall
immediately terminate and Ascend, at its own cost and expense will remove
the Equipment and neither party shall have any further liability to the
other under this Agreement or otherwise. In any event, and without
limitation, Partner shall reimburse Ascend for all costs and expenses
(including attorney's fees) incurred by Ascend in repossessing the
Equipment.
8. This Agreement is not assignable. Any such assignment shall automatically
be null and void. This Agreement supersedes all prior Agreements concerning
the subject matter herein and may not be changed or modified except by a
written communication signed by both parties. This Agreement constitutes
the entire agreement governing the Equipment specified herein between
Ascend and Partner and may not be modified or amended other than by a
written instrument executed by both parties. This Agreement shall be
governed by the laws of the state of Delaware.
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<PAGE> 8
A valid contact binding upon the parties hereto shall become effective upon
execution of this Agreement by duly-authorized representative of both parties.
Ascend Communications Corp. Partner
By: /s/ Thomas C. DeCindo By: /s/ Andy May
------------------------- --------------------
Name Thomas C. DeCindo Name: Andy May
------------------------ ------------------
Title: VP Product Marketing Title: President and CEO
---------------------- -----------------
Effective Date: March 3, 1998 Date: October 29, 1998
------------------- -----------------
8
<PAGE> 9
EQUIPMENT SCHEDULE
EQUIPMENT
Detailed below is the proposed equipment for loans to ____________ ("Partner"):
Item Part No Description Qty
EQUIPMENT LOCATION
The Equipment shall remain located at partner's facility at Largo, Florida.
9
<PAGE> 1
EXHIBIT 10.40
Paradyne Corporation ***Text Omitted and
and Filed Separately
AG Communication Systems Corporation Confidential Treatment
Requested Under
Joint Development and Distribution Agreement 17 C.F.R. Sections
200.80(b)(4),
200.83 and
230.406
This Joint Development and Distribution Agreement ("Agreement")
as of June 10, 1998 ("Effective Date") by and between Paradyne Corporation
("Paradyne"), a Delaware corporation, having its principal place of business at
8545 126th Avenue North, Largo, FL 33773 and AG Communication Systems
Corporation ("AGCS"), a Delaware corporation having its principal place of
business at 2500 West Utopia Road, Phoenix, AZ 85027.
WHEREAS, the parties each manufacture and sell certain telecommunications
hardware and software;
WHEREAS, the parties desire to enter into a non-exclusive arrangement to
develop and market a telephony product solution for the Network Service
Provider market (the Derived Telephony Product, as further defined below);
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises and covenants set forth below, Paradyne and AGCS mutually agree as
follows:
1. Definitions
a. "DLC" shall mean Digital Loop Carrier technology.
b. "DSLAM" shall mean Digital Subscriber Loop Access Multiplexer
technology.
c. "MVP Endpoints" shall mean the hardware and software intended for use
at the customer premises developed by Paradyne pursuant to this Agreement and
which shall be part of the Derived Telephony Product.
d. "Network Service Providers" shall mean a business with a
telecommunication infrastructure that sells voice and data telecommunication
services to the business and/or consumer market.
e. "Paradyne MVP Technology" shall mean Paradyne's proprietary Multiple
Virtual Phone (MVP) technology, as previously disclosed to AGCS pursuant to a
Confidentiality Agreement dated January 21, 1998 and more fully described on
Appendix A, that is included in both the MVP Endpoint and Switch Product
developed hereunder.
f. "Switch Product" shall mean the Central Office switch, DLC, or DSLAM
(including central office and remote versions) equipment of AGCS incorporating
the Paradyne MVP Technology supporting voice-only traffic or a combination of
voice and data traffic (but excluding data-only traffic) on copper loops, which
is developed by AGCS pursuant to this
<PAGE> 2
Agreement as further specified on Appendix A and which shall be part of the
Derived Telephony Product.
g. "Derived Telephony Product" shall mean the derived telephony product
line jointly developed by the parties hereunder comprised of both the MVP
Endpoint and the Switch Product. The Derived Telephony Product shall have ports
supporting derived voice-only traffic and/or ports supporting both derived
voice and data traffic.
2. Technology Licensing
a. Subject to the terms and conditions of this Agreement, Paradyne hereby
grants to and only to AGCS a non-exclusive, non-sublicensable (except as
expressly provided herein), non-transferable license to use the Paradyne MVP
Technology during the term of this Agreement solely (i) for the purpose of
incorporating the Paradyne MVP Technology into the AGCS-developed Switch
Product and to manufacture, or have manufactured, such Switch Product; and (ii)
to distribute, sell and/or lease solely to Network Service Providers the Switch
Product that incorporates the MVP Technology in accordance with the terms of
this Agreement. AGCS may use distributors provided that each such distributor
may not use other subdistributors and each distributor shall be bound by an
enforceable writing to substantially the same limitations, conditions and
restrictions as those set forth in this Agreement.
b. AGCS agrees that if Paradyne identifies certain AGCS-owned technology
to which Paradyne desires a license for the purpose of developing the Derived
Telephony Product, AGCS shall grant Paradyne a license to use such technology
for such purpose and will negotiate in good faith with Paradyne to establish a
reasonable license fee.
3. Development and Product Availability
a. Paradyne will use reasonable best efforts to develop and manufacture
the MVP Endpoints, and AGCS will use reasonable best efforts to develop and
manufacture the Switch Product in accordance with the schedule set forth below
and the Statement of Work attached hereto as Appendix B. If either party's
performance is delayed beyond the times specified in the Statement of Work, any
dates or time periods relevant to performance by the other party hereunder
shall be appropriately and equitably extended to account for any delays
resulting therefrom if such delays affect that other party's ability to timely
perform. If either party proposes a change to the Statement of Work, the other
party will reasonably and in good faith consider and discuss with the proposing
party the proposed change.
i) Phase 1 - GTE Demonstration product was completed in March 1998.
ii) Phase 2 - Derived Telephony Product based on the integrated line
card and voice-only MVP Endpoints will be available on 7/15/98.
iii) Phase 3 - Derived Telephony Product based on a standalone shelf
unit and voice-only, FCC Class A certified MVP Endpoints will be
available on 8/23/98.
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<PAGE> 3
iv) Phase 4 - Derived Telephony Product based on a standalone shelf
unit and Paradyne voice and data MVP Endpoints with FCC Class B
testing completed and certification requested and will be
available on 9/5/98
v) Phase 5 - The enhancement of the Derived Telephony Product which
includes a standalone shelf unit or integrated card, Paradyne
multidrop voice and data MVP Endpoints, and development, testing,
certification and delivery of a Burr Brown or equivalent AFE.
This enhancement is targeted for 4/15/99, but is subject to
change based on the results of detailed product definition and
associated milestones that will be established by October 30,
1998.
b. The parties will use reasonable best efforts to ensure the
compatibility and interoperation of the MVP Endpoints and the Switch Product.
c. If either party desires to have any third party develop or integrate
new features or products intended for use with the Derived Telephony Product,
such party must obtain the written consent of the other party. In addition, if
such development would infringe the other party's intellectual property or
proprietary rights, the parties will negotiate additional appropriate license
fees for such development.
d. During the design phase of development hereunder, the parties will
cooperate to review the other party's product component selection and, where
appropriate, will use reasonable best efforts to use and jointly purchase common
components.
4. MVP Technology License Fee
In consideration for the license granted by Paradyne to AGCS hereunder,
AGCS shall pay to Paradyne the license fees set forth on Appendix C. If AGCS
desires to use the Paradyne MVP Technology to develop applications other than
the Derived Telephony Product, Paradyne shall use reasonable best efforts to
negotiate with AGCS to establish additional license fees and other parameters
for such use.
5. Ownership and Restrictions
a. Paradyne shall retain all right, title and interest in the Paradyne MVP
Technology and MVP Endpoints. AGCS shall retain all right, title and interest in
the Switch Product (subject to Paradyne's ownership of the MVP Technology
incorporated therein). No rights or licenses are granted by either party except
as expressly set forth herein.
b. Without the express written consent of Paradyne, AGCS shall not (nor
shall it allow others to): delete or fail to reproduce any copyright or other
proprietary notices appearing in or on the Paradyne MVP Technology or MVP
Endpoints, (ii) modify, disassemble, decompile or otherwise reverse engineer the
software comprising the Paradyne MVP Technology or MVP Endpoints or otherwise
attempt to learn the source code, structure, or algorithms
3
<PAGE> 4
underlying such software, or (iii) distribute, sell and/or lease the MVP
Endpoints except as part of the Derived Telephony Product.
c. Without the express written consent of AGCS, Paradyne shall not (nor
shall it allow others to): (i) delete or fail to reproduce any copyright or
other proprietary notices appearing in or on the Switch Product, (ii) except
with regard to the Paradyne MVP Technology contained therein, modify,
disassemble, decompile or otherwise reverse engineer the software comprising
the Switch Product or otherwise attempt to learn the source code, structure, or
algorithms underlying such software, or (iii) distribute, sell and/or lease the
Switch Product except as part of the Derived Telephony Product.
6. Distribution
a. Subject to the terms and conditions of this Agreement, Paradyne hereby
grants to and only to AGCS a non-exclusive, worldwide right to purchase MVP
Endpoint units from Paradyne for distribution and sale to Network Service
Providers only as part of the Derived Telephony Product in accordance with the
terms of this Agreement. Subject to the terms and conditions of this Agreement,
Paradyne grants to and only to AGCS a non-exclusive, worldwide,
non-sublicensable (except as expressly provided herein), non-transferable
license to distribute and sublicense directly to Network Service Providers such
software that is part of the MVP Endpoint in accordance with the terms of this
Agreement, provided that (i) all such use and distribution is in object code
form only; and (ii) such distribution and sublicense shall be pursuant to a copy
of AGCS' standard end user license agreement. AGCS may use distributors provided
that each such distributor may not use other subdistributors and each
distributor shall be bound by an enforceable writing to substantially the same
limitations, conditions and restrictions as those set forth in this Agreement.
b. Subject to the terms and conditions of this Agreement, AGCS hereby
grants to Paradyne a non-exclusive, worldwide right to purchase the Switch
Product units from AGCS for distribution and sale to Network Service Providers
only as part of the Derived Telephony Product in accordance with the terms of
this Agreement. Subject to the terms and conditions of this Agreement, AGCS
grants to Paradyne a non-exclusive, worldwide, non-sublicensable (except as
expressly provided herein), non-transferable license to distribute and
sublicense directly to Network Service Providers in accordance with the terms
of this Agreement such software that is part of the Switch Product that is not
already owned by Paradyne pursuant to this Agreement, provided that (i) all
such use and distribution is in object code form only; and (ii) such
distribution and sublicense shall be pursuant to a copy of Paradyne's standard
end user license agreement. Paradyne may use distributors provided that each
such distributor may not use other subdistributors and each distributor shall
be bound by an enforceable writing to substantially the same limitations,
conditions and restrictions as those set forth in this Agreement.
7. Public Announcement
a. The parties will use reasonable best efforts to create the following
joint public announcements: (i) an announcement of the development of the
voice-only application of the Derived Telephony Product; and (ii) an
announcement of the development of the data
4
<PAGE> 5
application of the Derived Telephony Product no more than ninety (90) days
prior to the first commercial availability of such product (as defined in the
Statement of Work attached hereto as Appendix B). Should market conditions
require, either party may request the other party to accelerate the
announcement set forth in this Section (a); provided, however, that neither
party shall issue a press release with regard to the Derived Telephony Product
or the subject matter of this Agreement without the other party's prior written
approval, which shall not be unreasonably withheld.
b. (i) Each party shall provide to the other party thirty (30) days
advance notice of any material press release by that party prior to July 1,
1999 regarding distribution of derived voice or derived voice and data
products, and (ii) Paradyne shall provide to AGCS thirty (30) days notice of
any material press release by Paradyne prior to July 1, 1999 regarding third
party partnerships using Paradyne MVP Technology; provided, however, that the
notifying party is not required to disclose the name of any involved third
party or the terms of any third party agreement if such name or terms are
protected by a confidentiality agreement with such third party, unless the
third party consents in writing to such disclosure.
8. Confidentiality
Each party (the "Receiving Party") agrees that the technology, and all
code, inventions, algorithms, know-how and ideas it obtains from the other
party (the "Disclosing Party") and all other business, technical and financial
information it obtains from the Disclosing Party are the confidential property
of the Disclosing Party ("Confidential Information"). Except as expressly and
unambiguously allowed herein, the Receiving Party will hold in confidence and
not use or disclose any Confidential Information of the Disclosing Party and
shall ensure that its employees comply with such obligations. The Receiving
Party's nondisclosure obligation shall not apply to information it can
document: (a) was rightfully in the Receiving Party's possession without
restriction as to confidentiality before receipt from the Disclosing Party; (b)
is or becomes a matter of public knowledge through no breach of any
confidentiality agreement by the Receiving Party; (c) is rightfully received by
the Receiving Party from a third party without a duty of confidentiality; (d)
is independently developed by the Receiving Party without use of the
Confidential Information by employees without access to such Confidential
Information; (e) is required to be disclosed by court order, provided that the
Receiving Party uses diligent efforts to limit disclosure and to obtain
confidential treatment or a protective order and has notified the Disclosing
Party reasonably in advance of such disclosure and has allowed the Disclosing
Party to participate in the proceeding.
9. Standardization of MVP
After [***] MVP Endpoints have been sold pursuant to this Agreement,
Paradyne may, at its discretion, consider standardizing the Paradyne MVP
Technology. If Paradyne proceeds with such standardization efforts. AGCS will
cooperate in good faith with Paradyne to support Paradyne's efforts.
- -------
***Confidential Treatment Requested
5
<PAGE> 6
10. Product Pricing
a. AGCS agrees to pay Paradyne the prices set forth on Appendix D for the
units of MVP Endpoints ordered by AGCS and accepted by Paradyne hereunder.
Paradyne agrees to pay AGCS the prices set forth on Appendix D for the units of
Switch Product ordered by Paradyne and accepted by AGCS hereunder. Both parties
mutually agree that the prices set forth in Appendix D shall not increase during
the term of this agreement unless mutually agreed upon by the parties CEOs in
order to address market or manufacturing conditions.
b. AGCS agrees that it will purchase all MVP Endpoints from Paradyne.
Paradyne agrees to not financially compensate its sales force nor accept
financial compensation for itself or its employees from a third party Derived
Telephony DSLAM provider of which compensation is attributed to the sales of
such third party's Derived Telephony DSLAM products.
c. All payments due by either party hereunder shall be paid in U.S.
dollars in the U.S. not later than thirty (30) days following the date of the
applicable invoice. The purchasing party shall be responsible for all taxes
(except the selling party's U.S. income taxes), duties, withholdings or other
governmental assessments due on any amounts owed by the purchasing party
hereunder. All shipping, rigging and other destination charges will be invoiced
by the selling party and paid by the purchasing party. At the selling party's
option, interest charges may be added to any past due amounts at the rate of
( )% per month; or if this interest rate exceeds the maximum allowed by
applicable law, then at the maximum lawful rate. Risk of loss to products
shipped hereunder shall pass to the purchasing party upon delivery to a common
carrier. The selling party shall cooperate in every reasonable way to facilitate
the purchasing party's claims, if any, to the transportation agent for lost
products. Notwithstanding the passage of title and risk of loss, the selling
party shall retain a security interest in the products shipped hereunder until
full payment is made by the purchasing party to the selling party. The
purchasing party agrees to execute and deliver all documents requested by the
selling party to protect and maintain the selling party's security interest.
d. If a customer requests a specific feature enhancement to the Derived
Telephony Product, the parties shall negotiate in good faith to determine any
appropriate additional fees to be charged to the customer for such enhancements
(including but not limited to upfront payments and/or purchase commitments). The
party that has the primary customer relationship (as mutually agreed upon by the
parties) shall take the lead in such negotiations with the customer.
e. If Paradyne and AGCS mutually determine that the general market demands
enhancements or corrections to the initial Derived Telephone Product, Paradyne
and AGCS will make such enhancements or corrections to the MVP Endpoint and the
Switch Product, respectively, at no cost to the other party.
f. In the event that during the term of this Agreement either party
identifies a one-time key sales opportunity of extraordinarily large volumes,
the parties agree in good faith to negotiate special one-time pricing for
purchases by the other for such an opportunity. As specified under Section 1
Rule 2 and Section 2 Rule 2 of Appendix D products sold to the other party
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<PAGE> 7
under this arrangement shall not be further discounted. However, the quantity
shipped under theses opportunities will be included in determining the
cumulative number of products shipped for purposes of determining the discount
level under Appendix D.
11. Forecasts/Ordering
a. Paradyne and AGCS, respectively, will commence to provide to the other
four weeks after the Effective Date of the Agreement a rolling twelve (12) month
non-binding forecast of their quantity requirements for the Switch Product or
the MVP Endpoints, respectively, revised on a monthly basis and submitted by the
fifth business day of each month. The start month of each forecast shall the be
the fifth month after the date the forecast is submitted. (e.g. the forecast
submitted in January reflect product needs for May of that year through April of
the next year) If no forecast is timely submitted for a particular month, the
last forecast submitted by the forecasting party shall become the new forecast.
Succeeding forecasts after the initial one shall not reflect increases greater
then 25% of the first month, 50% of the second month and 100% of the months
thereafter. Such percentages shall be calculated on the immediately preceding
forecast for the same month. If orders exceed the limitations set forth in the
preceding sentence, the manufacturing party will have no obligation with respect
thereto, but the parties will discuss in good faith the additional amount, if
any, that the manufacturing party is willing to attempt to supply consistent
with its other obligations and the ordering party will adjust its order
accordingly.
If the parties determine that certain component parts required in the
manufacture of the MVP Endpoints and/or the Switch Product require more than
sixteen (16) weeks lead time prior to shipment date, the parties will negotiate
in good faith a separate agreement whereby the parties can share in the cost of
pre-purchasing and storing inventory of such components in order to expedite the
ordering and manufacturing process.
b. Rescheduling - Upon written notice prior to ten (10) business days
before scheduled shipment of an order, the ordering party may place any order on
hold or reschedule any order once and only once for shipment not later than
ninety (90) days from the originally scheduled ship date.
c. Cancellation of Orders - Upon written notice either party may cancel
all or any part of any Purchase Order upon payment of the following restocking
charges as a percentage of the discounted price of the Product so canceled:
If within 0 to 4 weeks from schedule ship date [***]%
If within 5 to 8 weeks from schedule ship date [***]%
If within 9 to 12 weeks from schedule ship date [***]%
If within 13 to 16 weeks from schedule ship date [***]%
d. Ordering - All orders must allow at least sixteen (16) weeks lead time
prior to the requested shipment date. All orders placed by the parties hereunder
shall reference this
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*** Confidential Treatment Requested
7
<PAGE> 8
Agreement and are subject to acceptance by the other party. Paradyne agrees to
use reasonable best efforts to sell to AGCS such quantities of MVP Endpoints as
AGCS may order in accordance with the terms of this Agreement, and AGCS agrees
to use reasonable best efforts to sell to Paradyne such quantities of Switch
Product as Paradyne may order in accordance with the terms of this Agreement.
Each party shall submit the orders to the other party in writing or
electronically and may be sent by facsimile, e-mail or EDI. Within forty-eight
(48) hours of receipt of an order from the purchasing party, the selling party
shall acknowledge the order and confirm the requested ship date by return
facsimile. In the event that the selling party is unable to meet the purchasing
party's requested ship date(s), the parties will negotiate an acceptable ship
date. Furthermore, it is the intention of the parties that this Agreement be
controlling over additional or different terms of any order, confirmation,
invoice or similar document, and that waivers and amendments shall be effective
only if made by non-preprinted agreements clearly understood by both parties to
be an amendment or waiver to this Agreement.
Each order submitted shall include (i) a description of the product being
ordered, inclusive of any numerical and or alphabetical identification which may
be referenced on the selling party's applicable price list; which may now or
hereafter be attached to this Agreement (ii) the requested delivery date; (iii)
the applicable price, (iv) the location to which the product is to be shipped,
(v) quantity to be shipped and (vi) purchase order number.
12. Product Changes
a. Subject to compliance with the other terms and conditions of this
Agreement, Paradyne may at any time, make changes in the MVP Endpoints or modify
the drawings and specifications relating thereto,or substitute MVP Endpoints of
later design to fill an order provided the changes, modifications or
substitutions under normal and proper use do not impact upon the form, fit or
function or are required for safety purposes. Subject to compliance with the
other terms and conditions of this Agreement, AGCS may at any time, make changes
in the Switch Product or modify the drawings and specifications relating
thereto, or substitute Switch Products of later design to fill an order provided
the changes, modifications or substitutions under normal and proper use do not
impact upon the form, fit or function or are required for safety purposes.
b. Each party will provide prior notice to the other party of all changes
to an MVP Endpoint or Switch Product that changes the revision level of such
product ("Change Notice") at least thirty (30) days in advance of scheduled
shipment. In the Change Notice, the party will identify changes, which affect
interchangeability with previously shipped product or compatibility at a higher
level of assembly. Upon request from the other party, that party will supply a
small number of sample products for test. If the party notifies the other that
the changes are unacceptable within ten (10) days of notification, or if samples
are involved, within fifteen (15) days of receiving the samples, the parties
will meet and in good faith develop mutually acceptable alternative solutions to
the requirement that gave rise to the need for the revision. If the other party
does not provide written notification of objection to the requesting party
within the time period specified above, the requesting party shall have no
obligation to accommodate the other party's objections.
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<PAGE> 9
13. Most Favored Nations
a. Product Pricing. Each party ("the Selling Party") agrees that while
this Agreement is in effect, the product pricing terms set forth on Appendix D
offered to the other party hereunder ("the Purchasing Party") shall be [
] the product pricing offered by the Selling Party [***] (not including an
agreement that is entered as a result of court order or primarily to settle a
bona fide dispute regarding infringement of the MVP Endpoints or Switch Products
or proprietary rights relating thereto) with a similarly situated third party
who offers products directly competing with the Purchasing Party for the sale of
similar products to Network Service Providers. The Selling Party agrees to
provide the Purchasing Party, within (10) days after the close of any agreement
that the Selling Party reasonably believes to fall within the scope of this
section 13(a), with notice of the relevant terms of such agreement. Within ten
(10) days of such notice, the Purchasing Party may elect to substitute such
product pricing terms for the product pricing terms of this Agreement; provided,
however, that: (1) any consideration previously provided to the Selling Party
hereunder shall be non-refundable, and (2) the Purchasing Party shall adopt all
of the additional restrictions, obligations and license limitations imposed in
such agreement. In determining whether an agreement falls within the scope of
this section 13(a), all of the terms of this Agreement and such agreements shall
be analyzed as a whole.
b. License Fee. Paradyne agrees that for a period of [***] months after
the Effective Date of this Agreement, the license fees set forth on Appendix C
hereto shall be [***] percent [***] lower than the license fees offered by
Paradyne for the use of the Paradyne MVP Technology under any agreement of
similar scope under similar terms and conditions (not including an agreement
that is entered as a result of court order or primarily to settle a bona fide
dispute regarding infringement of the MVP Endpoints or proprietary rights
relating thereto) with a similarly situated third party who offers products
directly competing with the Purchasing Party for the sale of similar products to
Network Service Providers. Paradyne agrees to provide AGCS, within (10) days
after the close of any agreement that Paradyne reasonably believes to fall
within the scope of this section 13(b), with notice of the relevant terms of
such agreement. Within ten (10) days of such notice, Paradyne shall offer to
AGCS similar consideration terms; provided, however, that: (1) any consideration
previously provided to Paradyne hereunder shall be non-refundable, and (2) AGCS
shall adopt all of the additional restrictions, obligations and license
limitations imposed in such agreement. In determining whether an agreement falls
within the scope of this Section 13(b), all of the terms of this Agreement and
such agreements shall be analyzed as a whole.
14. Branding
a. Each party hereby grants to the other party a non-exclusive,
non-sublicensable license to use that party's trademarks identified on Appendix
E (the "Marks") solely for the purpose of marketing, distributing and selling
the Derived Telephony Product in accordance with the terms of this Agreement
and the terms of the party's respective marketing guidelines as provided in
writing to the other party. In the event that a party reasonably determines
that the other party is not in compliance with such provisions and guidelines,
that party shall, upon thirty (30) days prior written notice, have the right to
suspend the other party's use of
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*** Confidential Treatment Requested
9
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the Marks until such time as the other party meets such standards and
provisions to Mark owner's reasonable satisfaction.
b. Neither party shall at any time do or permit any act to be done which
may in any way impair the rights of the other party in its Marks and the
parties will discontinue all use of the other party's Marks immediately upon
the termination or expiration of this Agreement.
c. Co-Branding. During the term of this Agreement, the parties agree to
co-brand the Derived Telephony Product as follows: Subject to the terms and
conditions of section 14(a): (i) Paradyne agrees to include the AGCS Marks on
all MVP Endpoints sold pursuant to this Agreement, [***] to AGCS and in a manner
to be agreed upon by the parties, and (ii) AGCS agrees to include Paradyne's
Marks on all Switch Products sold pursuant to this Agreement, [***] to Paradyne
and in a manner to be agreed upon by the parties. Provided, however, that on or
before January 1 of each calendar year during the term of this Agreement, if at
least [***] MVP Endpoints were not shipped to AGCS during the prior year, then
the parties shall discuss in good faith the appropriateness of continued
co-branding and the fees for such when annual shipments are expected to be below
[***] MVP Endpoints and/or [***] Switch Products for AGCS and Paradyne
respectively. Notwithstanding the foregoing, this Section 14(c) shall apply only
to the respective products and shall not obligate either party to include the
other party's Marks on any product packaging or other relevant product
documentation (which either party may do at its discretion, subject to the other
party's approval of such use and under the terms and conditions of Section
14(a)).
d. Private Labeling. If requested in writing by AGCS, Paradyne shall
include a particular customer's trademark on the MVP Endpoints and associated
documentation (in a manner to be agreed upon by the parties), solely for sales
of the Derived Telephony Product to a Network Service Provider of more than
100,000 units per year. In consideration of the foregoing, AGCS shall pay to
Paradyne, within thirty days of the date of invoice from Paradyne, an additional
fee of [***] dollars [***] per MVP Endpoint. If the customers require private
labeling to include packaging, the parties agree to negotiate a mutually agreed
upon fee.
15. Sales and Marketing
a. Within ninety (90) days of the Effective Date of this Agreement, the
parties shall jointly approach GTE, Lucent, Brooks Fiber, Alltel and AT&T
WorldNet in order to convince such companies to adopt the Derived Telephony
Product as their Derived POTS solution.
b. Each party agrees to use reasonable best efforts to market and
distribute the Derived Telephony Product. Either party shall have the right to
separately market and distribute its respective portion of the Derived
Telephony Product on a standalone basis or as bundled with other products.
c. If requested by a customer or mutually agreed to by the parties, the
parties will use reasonable best efforts to established direct fulfillment
structures.
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16. Second Source Requirement
In the event that a potential Network Service Provider customer demands
that a second source for the manufacture of the Derived Telephony Product be
available (a "Second Source Manufacturer"), the party negotiating with such
customer will use diligent efforts to ensure that Paradyne and AGCS are the
Primary Source for the Derived Telephony Product for at least a period of three
(3) years. "Primary Source" for the purpose of this Section 16 shall mean the
provider of at least ninety percent (90%) (or other percentage negotiated with
the particular customer and mutually agreed upon by the parties) of the total
dollar amount and quantity for each party's portion of the Derived Telephony
Product purchased by the customer over the three-year period. Both parties shall
cooperate to mutually negotiate acceptable terms and conditions with such
Second Source Manufacturer with regard to the manufacture of the Derived
Telephony Product.
17. Escrow
a. Paradyne and AGCS each agree to place and periodically update, for
the benefit of the other party, the source code and all reasonable
documentation necessary to manufacture, have manufactured and/or maintain the
MVP Endpoints and the Switch Product, respectively (the "Escrow Materials"), in
escrow with a mutually agreeable escrow agent (the "Escrow Agent"). Both
parties shall enter into a mutually acceptable escrow agreement substantially
in the forms attached hereto as Appendix G ("Escrow Agreement") with the Escrow
Agent setting forth the terms stated herein.
b. The "Release Condition" shall mean that the Releasing Party is unable
to supply or maintain its respective portion of the Derived Telephony Product
in material breach of its obligations to do so hereunder. Upon release of the
Escrow Materials in accordance with the Escrow Agreement, the Escrow
Beneficiary shall have a non-transferable, non-sublicensable, non-exclusive
license, to use the Releasing Party's Escrow Materials solely to sell,
distribute, lease, manufacture, have manufactured, support and maintain the
Releasing Party's portion of the Derived Telephony Product as developed
pursuant to this Agreement only to the extent necessary to fulfill the
Releasing Party's obligations under section 11(d) of this Agreement and only
for so long as such Release Condition continues to include a reasonable phase
back period. The Escrow Beneficiary shall maintain the Releasing Party's Escrow
Materials in confidence as "Confidential Information" of the Releasing Party
and disclose the Escrow Materials to employees or contractors only as necessary
to exercise the rights granted herein.
18. Covenants
a. Each party shall use reasonable best efforts to: (i) keep the other
party informed as to any problems encountered with the Derived Telephony
Product and any resolutions arrived at for those problems, (ii) communicate
promptly to each other any and all modifications, design changes or
improvements of the Derived Telephony Product suggested by any customer,
employee or agent, and (iii) cause quarterly, their respective Chief Executive
Officers (CEO) and one other representative chosen by the CEO to meet and
review Derived Telephony Product cost reductions and pricing to each other.
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b. Paradyne agrees that AGCS shall have any and all right, title and
interest in and to any such suggested modifications, design changes or
improvements of the Switch Product, without the payment of any additional
consideration therefor either to Paradyne, or its employees, agents or
customers, and that it will reasonably cooperate with AGCS in this regard; and
AGCS agrees that Paradyne shall have any and all right, title and interest in
and to any such suggested modifications, design changes or improvements of the
MVP Technology and MVP Endpoints, without the payment of any additional
consideration therefor either to AGCS, or its employees, agents or customers,
and that it will reasonably cooperate with Paradyne in this regard.
c. Each party agrees to comply with the U.S. Foreign Corrupt Practices
Act (regarding, among other things, payments to government officials) and all
export laws and restrictions and regulations of the Department of Commerce, the
United States Department of Treasury Office of Foreign Assets Control ("OFAC"),
or other United States or foreign agency or authority, and agrees not to
export, or allow the export or re-export of any Derived Telephony Product or
any portion thereof in violation of any such restrictions, laws or regulations;
the exporting party shall obtain and bear all expenses relating to any
necessary licenses and/or exemptions with respect to the export from the U.S. of
all material or items deliverable by the other party to any location and shall
demonstrate to the other party compliance with all applicable laws and
regulations prior to delivery thereof by the other party.
19. Warranty and Disclaimer
WARRANTIES AND DISCLAIMERS OF THE RESPECTIVE PARTIES ARE CONTAINED IN APPENDIX
F.
20. Service and support
a. Paradyne and AGCS each shall provide to the other reasonable training
at the providing party's facility at no cost, however, the attending party
shall pay travel and living expenses. The intent of this training is to ensure
that the sales, technical and engineering forces have a competent understanding
of the functionality, maintenance, support and installation of the MVP Endpoint
and the Switch Product, respectively. The frequency and extent of such training
during the term on this Agreement will be agreed upon with the intent of
optimizing each other's success. Initial training will be conducted within 60
days of the commercial availability of the Derived Telephony Product.
b. Each party agrees to use reasonable best efforts to provide first
level support for the Derived Telephony Product for each party's own customer
base within North America and will establish a mutually acceptable means of
support for Derived Telephony Products sold outside of North America.
c. Paradyne shall use reasonable best efforts to provide second and third
level support to AGCS for the MVP Endpoints, and AGCS shall use reasonable best
efforts to provide second and third level support to Paradyne for the Switch
Products, sold pursuant to this Agreement in accordance with the terms set
forth on Appendix F.
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d. At each parties expense, each will furnish the other party with such
quantities as shall be determined appropriate, of its standard information,
marketing literature, brochures, manuals, Product information letters, etc.
relating to the Products, Services and Licensed Materials, and thereafter, upon
request each party shall furnish additional quantities at the respective
party's current cost.
21. Indemnification
a. Paradyne hereby agrees to defend, indemnify and hold AGCS harmless
from any third party claims that the Paradyne MVP Technology infringes a third
party's U.S. patent, copyright trademark or other proprietary right or
misappropriates a trade secret; provided that Paradyne shall have received
prompt written notice of the claim from AGCS, Paradyne shall have the option to
solely control the defense and settlement of such claims, and AGCS shall
provide reasonable assistance to Paradyne in the defense or settlement of such
claims. The foregoing obligation of Paradyne does not apply with respect to
Paradyne MVP Technology or portions or components thereof (i) modified by AGCS
or a third party after shipment by Paradyne, if the alleged infringement
relates to such modification, or (ii) where AGCS' use or distribution of the
Paradyne MVP Technology is not in accordance with the licenses granted in this
Agreement. The foregoing sets forth Paradyne's entire liability, and AGCS' sole
remedy, with respect to any alleged infringement of the Paradyne MVP Technology.
b. AGCS hereby agrees to defend, indemnify and hold Paradyne harmless
from any third party claims that the Switch Product infringes a third party's
U.S. patent, copyright, trademark or other proprietary right or misappropriates
a trade secret; provided that AGCS shall have received prompt written notice of
the claim from Paradyne, AGCS shall have the option to solely control the
defense and settlement of such claims, and Paradyne shall provide reasonable
assistance to AGCS in the defense or settlement of such claims. The foregoing
obligation of AGCS does not apply with respect to Switch Product or portions or
components thereof (i) modified by Paradyne or a third party after shipment by
AGCS, if the alleged infringement relates to such modification, or (ii) where
Paradyne's use or distribution of the Switch Product is not in accordance with
the licenses granted in this Agreement. The foregoing sets forth AGCS' entire
liability, and Paradyne's sole remedy, with respect to any alleged infringement
of the Switch Product.
22. LIMITED LIABILITY. EXCEPT WITH REGARD TO THE PARTIES' RESPECTIVE
INDEMNITY OBLIGATIONS SET FORTH IN SECTION 21 ABOVE, IN NO EVENT SHALL EITHER
PARTY BE LIABLE WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT UNDER ANY
CONTRACT, TORT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY (I) FOR ANY
INCIDENTAL, CONSEQUENTIAL, SPECIAL, INDIRECT DAMAGES, LOST PROFITS OR LOST DATA
OR COST OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES, EVEN IF
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, OR (II) IN
EXCESS OF THE AMOUNTS PAID BY THE OTHER PARTY HEREUNDER.
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<PAGE> 14
23. Term and Termination
a. This Agreement shall continue in effect for a period of five (5) years
from the Effective Date hereof (the "Initial Term") and shall renew
automatically for additional one-year periods ("Renewal Terms") unless either
party provides written notice of termination to the other party at least ninety
(90) days prior to the expiration of the Initial Term or any Renewal Term or
earlier terminated as provided in Section 23(b) below. If this Agreement is
terminated by either party upon ninety (90) days notice pursuant to this
Section 23(a): (i) the other party may make one last purchase of the other
party's portion of the Derived Telephony Product, in accordance with the terms
of this Agreement, for delivery within up to three (3) months of termination of
the Agreement, and (ii) either party may purchase continuing support from the
other party, if such support is available, upon payment of the other party's
standard support fee.
b. If Paradyne terminates the Agreement pursuant to Section 23(a) and the
license fee in Section 2a has been paid in full: (i) AGCS' license under
Section 2(a) shall become perpetual following termination of this Agreement,
provided that AGCS complies with all of the other applicable surviving terms
and restrictions as set forth herein, and (ii) if the MVP Endpoints are no
longer commercially available on competitive terms, from either Paradyne or any
other third party, then, Paradyne shall grant to AGCS a royalty free license,
specified in Section 14b, to manufacture, have manufacture, distribute, sell
and/or lease the MVP Endpoints at no charge, provided that AGCS shall provide
all necessary support and maintenance for such MVP Endpoints.
c. If AGCS terminates the Agreement pursuant to Section 23(a): (i) AGCS
shall have a continuing royalty free Paradyne MVP technology license to
maintain the embedded base of Switch Product and a royalty bearing license to
continue to sell the Switch product. Such royalty shall be mutually agreed
upon, and if failing to agree will be resolved using arbitration procedures in
Section 25n and (ii) if the Switch Products are no longer commercially
available on competitive terms from either AGCS or any other third party, then
AGCS will grant to Paradyne a perpetual, royalty free license to manufacture,
have manufactured, distribute, sell and/or lease the Switch Products at no
charge, provided that Paradyne shall provide all necessary support and
maintenance for such Switch Products.
d. Either party may terminate this Agreement as follows: (i) upon thirty
(30) days written notice if the other party materially defaults in the
performance of its obligations hereunder and such default is not corrected
within the thirty (30) day period, or (ii) immediately if the other party files
a petition in bankruptcy, makes an assignment for the benefit of creditors, is
adjudicated bankrupt or insolvent, petitions or applies for a receiver or
trustee for a substantial part of its property, or commences any proceeding
under any reorganization arrangement, dissolution or liquidation law or statute
of any jurisdiction or if there is commenced against such party any proceeding
which has not been dismissed within one hundred twenty (120) days of such
commencement. In the event of the termination of this Agreement in accordance
with the terms of this Section 23.d. the defaulting party under 23(d)(i) above
and the party that is the subject of the bankruptcy or other proceeding under
23(d)(ii) above shall be deemed the terminating party, and the rights and
obligations of the parties set forth in Sections 23.b and 23.c shall apply.
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<PAGE> 15
e. Except as otherwise expressly provided herein, upon expiration or
termination of this Agreement: (i) all rights and licenses granted herein shall
terminate, (ii) the parties shall each return to the other party, or destroy,
the other party's Confidential Information, and (iii) the provisions of Sections
5, 8, 17, 18(b) & (c), 19, 21, 22, 23 and 25 shall remain in effect. Termination
is not the sole remedy under this Agreement and whether or not termination is
effected, other remedies will remain available in accordance with the terms of
this Agreement as further defined in Section 25n.
24. Paradyne Restriction
a. Paradyne agrees that it will not develop, or have developed, for the
markets, a Paradyne DSLAM which uses the Paradyne MVP Technology to provide
derived POTS applications and which is designed to directly compete with the
Switch Product ("Paradyne Voice DSLAM") prior to [***].
b. Paradyne will not "Introduce" a Paradyne Voice DSLAM in [***] prior to
[***]. The term "Introduce" or "Introduction" for the purpose of this Section 24
shall mean the first time Paradyne enters into substantive discussions intended
to lead to a definitive agreement for the distribution of the Paradyne Voice
DSLAM to any Network Service Provider in the [***] markets.
c. In addition, Paradyne will delay Introduction of the Paradyne Voice
DSLAM in [***] as follows:
i. until [***] if AGCS provides to Paradyne before [***] a letter authored
by [***] which states that [***] has successfully tested the Derived Telephony
Product in [***] labs and has certified the Derived Telephony Product for
deployment within [***] internal network; and that [***] plans to conduct
Derived Telephony Product field trial activity during the [***] of [***] and if
successful, plans on deploying at least 100,000 lines of Derived Telephony
Product during [***].
ii. until [***] if Paradyne receives by [***] a non-cancelable purchase
order from either AGCS or for a minimum of [***] MVP Endpoints, which order
is shipped complete by [***].
d. If Paradyne fails to produce and make available in accordance with the
acceptance criteria established in the Statement of Work any material milestone
contained in any of the five product phases as further defined in the Statement
of Work set forth on Appendix B, which materially affects AGCS ability to
perform, the parties may mutually agree to extend the dates set forth in
Sections 24(b) and (c) above; provided, however, that the foregoing shall not
apply if Paradyne's failure to meet such milestones was due in whole or in part
to a delay or failure by AGCS hereunder which materially affected Paradyne's
ability to perform.
e. Both parties agree that the restrictions set forth in this Section 24
apply only to [***] and that Paradyne may develop Paradyne Voice DSLAM for, and
introduce a Paradyne Voice DSLAM into, any other country or region at any time.
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f. Notwithstanding the foregoing, if an entity acquires substantially all
of the business or assets of Paradyne involved in the direct performance of
this Agreement, and such new entity is developing or markets another DSLAM
product, Paradyne may enhance, market, sell and fully exploit such DSLAM
product using Paradyne MVP Technology to provide derived POTS functionality in
any market at any time, provided that, during the period in which any of the
restrictions set forth in this Section 24 above may be applicable, Paradyne
provides written notice to AGCS of such change and does not sell such product
until ninety (90) days from the date of such written notice.
25. Miscellaneous
a. Governing Law. This agreement shall be governed by and interpreted in
accordance with the laws of the State of New York, without reference to
conflict of laws principles and without regard to the United Nations Convention
on Contracts for the International Sale of Goods. In any action or proceeding
to enforce rights under this Agreement, the prevailing party shall be entitled
to recover costs and attorneys' fees.
b. Independent Contractors. The parties hereto are independent
contractors. Nothing contained herein or done in pursuance of this Agreement
shall constitute either party the agent of the other party for any purpose or
in any sense whatsoever, or constitute the parties as partners or joint
ventures. Each party is solely responsible for all of its employees and agents
and its labor costs and expenses arising in connection therewith.
c. No Assignment. Neither party may, without the other party's prior
written consent, which consent shall not be unreasonably withheld, assign or
delegate this agreement or any of the party's rights or duties hereunder.
d. Amendment. No alteration, amendment, waiver, cancellation or any
other change in any term or condition of this Agreement shall be valid or
binding on either party unless mutually agreed to in writing by both parties.
e. No Waiver. The failure of either party to enforce at any time any of
the provisions of this Agreement, or the failure to require at any time
performance by the other party of any of the provisions of this Agreement,
shall in no way be construed to be a present or future waiver of such
provisions, nor in any way affect the validity of either party to enforce each
and every such provision thereafter. The express waiver by either party of any
provision, condition, or requirement of this Agreement shall not constitute a
waiver of any future obligation to comply with such provision, condition, or
requirement.
f. Severability. If for any reason a court of competent jurisdiction
finds any provision of this Agreement, or portion thereof, to be unenforceable,
that provision of the Agreement will be enforced to the maximum extent
permissible to as to effect the intent of the parties, and the remainder of
this Agreement will continue in full force and effect. The parties agree to
negotiate in good faith an enforceable substitute provision for any
unenforceable provision that most nearly achieves the intent and economic
effect of the unenforceable provision.
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<PAGE> 17
g. Notices. All notices, requests, demands, waiver, and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given: (i) when delivered by hand or confirmed
facsimile transmission; (ii) one day after delivery by receipted overnight
delivery; or (iii) four days after being mailed by certified or registered mail,
return receipt requested, with postage prepaid to the appropriate address as
set forth below:
Paradyne Corporation
8545 126th Avenue North
Largo, Florida 33773
Attention: President
Copy to: Corporate Secretary
AG Communication Systems Corporation
2500 West Utopia Road
Phoenix, AZ 85027
Attention: VP, Business Operation, New Ventures
Copy to AGCS General Counsel
h. Headings. The heading used in this Agreement are use for convenience
only and are not to be considered in construing or interpreting this Agreement.
i. Entire Agreement. The terms and conditions herein contained and the
referenced exhibits and appendices which are incorporated herein by this
reference constitute the entire agreement between the parties with respect to
the subject matter hereof and supersede all previous and contemporaneous
agreements and understandings, whether oral or written, between the parties
hereto with respect to the subject matter hereof.
j. Counterparts. This Agreement may be executed in counterparts or
duplicate originals, all of which shall be regarded as one and the same
instrument, and which shall be the official and governing version in the
interpretation of this Agreement.
k. Non-Solicitation. During the term of this Agreement and for a period
of one year thereafter, the parties agree that they will not directly solicit
the employees of the other to induce them to come to work for the other party.
This section shall not be construed to prohibit a party from considering
unsolicited requests for employment received from the other party's employees.
l. Force Majeure. A party shall not be liable for nonperformance or delay
in performance caused by any event reasonably beyond the control of such party
including but not limited to wars, hostilities, revolutions, riots, civil
commotion, national emergency, strikes, lock-outs, unavailability of supplies,
epidemics, fire, flood, earthquake, force of nature, explosion, embargo or any
other Act of God, or any law, proclamation, regulation, ordinance or other act
or order of any court, government or governmental agency.
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m. EQUITABLE RELIEF. The parties agree that a breach by a party, or its
employees or agents, of the obligations under Sections 5 or 3 of this Agreement,
will result in irreparable harm to the other party for which monetary damages
may be inadequate, and the injured party shall be entitled to seek appropriate
equitable or injunctive relief.
n. ARBITRATION. Any controversy or claim arising out of the
interpretation, performance or breech of any provision of this Agreement, shall
be settled by arbitration to be held in New Orleans, Louisiana in accordance
with and through the American Arbitration Association Rules for Commercial
Arbitration in effect on the date of this Agreement. The arbitration shall be
conducted by a single arbitrator selected by the American Arbitration
Association. The arbitrator shall take evidence directly from witnesses and
documents as presented by the parties; all witnesses shall be made available
for cross-examination. The arbitrator shall render an award within six (6)
months of the request for arbitration. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court of competent jurisdiction in any
country, or application may be made to such court for a judicial acceptance of
the award and an enforcement as the law of such jurisdiction may require or
allow. The foregoing shall not prevent either party from seeking equitable
relief as otherwise permitted by the terms of this Agreement.
AG COMMUNICATION SYSTEMS PARADYNE CORPORATION
CORPORATION
Signature: /s/ Mark Somer Signature: /s/ Andrew Mase
Name: Mark Somer Name: Andrew Mase
Title: VP & GM AG Communication Systems Title: President & CEO
Date: 10 June 98 Date: 6/10/98
<PAGE> 19
APPENDIX A
Description of Paradyne Multiple Virtual Phone (MVP) Technology:
MVP is a subscriber line technology includes layer 1 Physical Media Dependent
and Transmission Convergence (TC) layers (TC-cell, TC-frame and TC-bit-sync)
that includes multi-drop concepts for derived POTS services and data services.
Generally, MVP includes invention from the premises POTS interface to the
central office PSTN interface. MVP provides additional POTS services to the
premises. MVP is exclusive of any data communication, including non-POTS
bit-sync data. Multiple Virtual Line (MVL) technology supports data multi-drop
concepts and is a subset and a separately licensed component of the MVP
Technology and which is not licensed under this Agreement.
Description of the Switch Product:
SuperLine(TM) Products are products that provide high speed data access and
multiple lines of telephony service -- allocating bandwidth only on demand; all
over, single cable pair with splitterless POTS support.
One of the product offerings is a SuperLine(TM) platform -- comprising a high
density central site modem that is hardened for use in remote terminal
environments as well as central offices -- combines high speed data services
with additional telephone lines, all without a truck roll to the customer
premises. In addition to the survivable (POTS) telephone service, one or two
additional telephone lines can be provided using SuperLine(TM) bandwidth, when
required. The additional telephony services support all custom features such
as: 911, Caller ID, distinctive ringing, etc., and support FAX and modem calls
up to the V90 standard. Standard analog telephone sets and the existing
telephony infrastructure of local digital switches, CO wiring billing and OAM&P
are used with these SuperLine(TM) lines. Interface to the local digital switch
is TR303, DDI and in the future TR008. Many data services are supported
including: Internet access; work at home access (corporate, governmental and
educational LANs); video meetings, IP telephony, etc.
This SuperLine(TM) platform has capacity for 96 customer links, with each line
card providing 8 ports. Each link to the customer supports 2 derived lines, as
well as, the existing POTS service and data. The shelf telephony interface
supports both DDI for the GTD5 and TR303 for GTD5, 5ESS, DMS100 and most other
digital switching product deployed throughout the network today including
Digital Loop Carrier equipment. The platform's WAN data interface is two 10/100
base T links.
The other product offerings are integrated SuperLine(TM) circuit packs designed
specifically for a particular digital switch or digital loop carrier (i.e.
Server Cards). These Server Cards bring the same technology and capability
inherent in the SuperLine(TM) platform to a single card, which can be inserted,
into an existing digital switch or digital loop carrier's line shelf. This
allows the network provider to use existing switch, power and trucking capacity
to generate additional subscriber revenue with minimum additional investment.
A-1
<PAGE> 20
Appendix B
Statement of Work
Attached hereto
B-1
<PAGE> 21
Appendix C
Paradyne MVP Technology License Fees
AGCS shall select one of the following two license fee options:
Option One - $[***]
AGCS shall pay $[***] to Paradyne as follows: (Note: the Phases denoted below
are further defined in the Statement of Work)
a) Within thirty (30) days of execution of the Agreement - $[***]
b) Within thirty (30) days of Completion of Product Phase 2 - $[***]
c) Within thirty (30) days of Completion of Product Phase 3 - $[***]
d) The later of February 1, 1999 or thirty (30) days after
Completion of Product Phase 4 - $[***]
e) Within thirty (30) days of Completion of Product Phase 5 - $[***]
Option Two - $[***]
1. AGCS shall pay $[***] to Paradyne as follows: (Note: the Phases denoted
below are further defined in the Statement of Work)
a) Within thirty (30) days of execution of the Agreement - $[***]
b) Within thirty (30) days of Completion of Product Phase 2 - $[***]
c) Within thirty (30) days of Completion of Product Phase 3 - $[***]
d) Within thirty (30) days of Completion of Product Phase 4 - $[***]
e) Within thirty (30) days of Completion of Product Phase 5 - $[***]
and
2. AGCS shall pay to Paradyne a fee of $[***] per unit of MVP Endpoint
Technology (Options A, B, E and F) for the first [***] units purchased
hereunder.
For the purpose of this Appendix C, "Completion" of a product phase shall mean
acceptance by AGCS of the deliverable resulting from the applicable Product
Phase as defined by the test and acceptance criteria set forth in the Statement
of Work.
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Appendix D
Equipment Pricing
The parties agree that the pricing set forth in this Appendix D shall
apply to purchases of products under this Agreement up to and including
December, 31, 1999. Thereafter, either party may change the prices listed
hereunder once per year during the term of this Agreement upon sixty-(60) days
written notice to the other party. Notwithstanding, such notice, any mutually
approved outstanding quotes or orders will be honored.
1. MVP Premise Equipment Pricing for 1998 and 1999
A. The first [***] MVP Endpoints purchased by AGCS from Paradyne will be
priced at the [***] unit discount level. AGCS will then market the Derived
Telephony Product to prospective customers. Should AGCS sell the Derived
Telephony Product for more than the combined [***] unit discounted price
(AGCS' port price plus Paradyne's endpoint price), then AGCS shall pay to
Paradyne [***] percent [***] of the incremental revenue. If additional units
are required in 1998, both paries will mutually agree on the discount level.
B. After the sale of the initial [***] MVP Endpoints, the following
pricing shall apply to all purchases by AGCS hereunder:
<TABLE>
<CAPTION>
List Price 25,000 50,000 75,000 100,000
MVP Premise Equipment units. units. units. units.
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A. Voice Only MVP Endpoint, [***] [***] [***] [***] [***]
POTS / 1 Derived POTS
B. Voice Only MVP Endpoint, [***] [***] [***] [***] [***]
POTS / 2 Derived POTS
C. Ethernet -- Data Only MVP [***] [***] [***] [***] [***]
Endpoint,
POTS / Data
D. USB -- Data Only MVP Endpoint, [***] [***] [***] [***] [***]
POTS / Data
E. Ethernet -- MVP Full [***] [***] [***] [***] [***]
Configuration,
POTS / 2 Derived POTS / Data
F. USB -- MVP Full Configuration, [***] [***] [***] [***] [***]
POTS / 2 Derived POTS / Data
</TABLE>
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EARNED DISCOUNT
The parties mutually agree that:
a) The earned discount period (ED Period) is defined as
January 1 to December 31 of any calendar year.
b) The initial discount level for 1999 will be at the 50,000
unit level. All MVP Endpoints shipped in 1998 will be added to the accumulated
volume shipped in 1999 ED period and will be eligible for earned discount for
the 1999 ED period.
c) The discount level achieved in a ED period will be the
initial discount level for the next ED period (e.g. if Paradyne shipped AGCS
75,000 units during the 1999 ED period, then the initial discount level for the
2000 ED period would be at the 75,000 unit level).
d) The discount level for an order will be based upon the
greater of the earned discount or the total number of all MVP Endpoints (A-F)
shipped prior to the specific order during that year (e.g., if Paradyne has
shipped AGCS 35,000 unit A's, 42,000 unit B's and 45,000 unit E's, the volume
discount level would be at the 1000,000 unit level because the total equals
100,000 units).
e) Earned discount will be determined annually. The calculation
of earned discount will be completed during January and is based on the MVP
Endpoints shipped in the previous ED period. The earned discount is the
difference between the actual discount applied to the individual orders and the
discount earned based on the accumulative total units shipped during the ED
period. Paradyne will determine if further discounts are due based upon the
discount schedule set forth above and the rules stated below. If a credit is
due, Paradyne will issue a credit to AGCS for the total amount due. Paradyne
will apply this credit to subsequent orders by AGCS hereunder. If the credit is
not fully consumed within the first calendar quarter of the current year then
Paradyne will remit to AGCS the excess amount by March 31st of the current year.
If monies are due, Paradyne will issue an invoice to AGCS for the outstanding
amount having net thirty day terms.
Rule 1 -- Application of discount on orders during the ED period:
Higher level discounts will be applied to all shipments
when the number of units shipped exceeds the next
higher discount level. (e.g. during the 1999 the
initial discount level is at the 50,000 unit level. All
orders for MVP Endpoints will be priced at the 50,000
unit level until 75,000 units have been shipped to
AGCS. The 75,000 unit level discount will be applied to
all orders after 75,000 units have been shipped to
AGCS).
Rule 2 -- Special pricing on large orders:
Due to market conditions, an order may receive special
pricing. The units shipped as part of these orders will
not be eligible for earned discount monies, however the
shipped unit volume will be used in calculating the
D-2
<PAGE> 24
total units shipped during the ED period and to determine
the initial discount for the next ED period.
Rule 3 -- Annual True Up of earned discount:
Rule 3a -- Determination of the discount level achieved
At the end of the ED period Paradyne will review all
orders and calculate the actual number of units shipped
to determine the discount level to be applied to all
units shipped during the ED period. The discount level
achieved will be rounded to the unit level nearest to
the number of units shipped. (e.g. if Paradyne shipped
65,000 units to AGCS during 1999 then the level
achieved would be 75,000, if only 60,000 units were
shipped then the discount level achieved would be the
50,000 unit level discount).
Rule 3b -- Calculation of the earned discount
The earned discount will be the different between the
initial discount applied to the units shipped and the
actual discount level achieved using Rule 3a. The
earned discount amount is determined on a per endpoint
type basis for each order. The total earned discount
for the order is the sum of earned discount amounts for
each endpoint type shipped with the order. If a credit
or invoice is required they be issued via the terms and
conditions defined in Section 1 B (e) of this Appendix.
Rule 3c -- Earned discount on units shipped in different ED
periods
The units in an order are given a discount level at the
time the order is placed based on the actual number of
units shipped. The discount level determined at the
date of order will be used for all units shipped as
part of that order. This applies even when the shipment
schedule spans ED periods. Only the units actually
shipped in a given ED period will be used to determine
the earned discount level.
D-3
<PAGE> 25
Example 1: If AGCS places four (4) orders throughout the year, and each order
placed contains various MVP Endpoint types totaling 25,000 units, the pricing
and invoicing would be as shown below: All orders were shipped within the ED
period. The discount level for all orders in the next ED period would be at
100,000 unit level.
Orders placed during 1999
Note Initial discount is at the [***] unit level
<TABLE>
<CAPTION>
Endpoint Order Invoice Earned
Order Type Volume Price Amount Discount Net Amount Comments
- ------- -------- ------- ------- ------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 A 25,000 $[xxx] $[xxx] $[xxx] $[xxx]
2 B 25,000 $[xxx] $[xxx] $[xxx] $[xxx]
3 C 25,000 $[xxx] $[xxx] $[xxx] $[xxx] unit level discount achieved
4 D 25,000 $[xxx] $[xxx] $[xxx] $[xxx]
TOTAL 100,000 $[xxx] $[xxx] $[xxx]
</TABLE>
Earned discount calculation for previous orders
100,000 unit level discount achieved
<TABLE>
<CAPTION>
Endpoint Order Invoiced Earned Earned
Order Type Volume Price Price Discount
- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
1 A 25,000 $[xxx] $[xxx] $[xxx]
2 B 25,000 $[xxx] $[xxx] $[xxx]
3 C 25,000 $[xxx] $[xxx] $[xxx]
4 D 25,000 $[xxx] $[xxx] $[xxx]
TOTAL 100,000 $[xxx]
</TABLE>
- -------------
*** Confidential Treatment Requested
D-4
<PAGE> 26
Example 2: The earned discount level achieved in the previous period was at the
100,000 unit level. An order for 50,000 units is placed in March 99 with a
delivery schedule over the next 12 months. However, the shipment schedule
resulted in delivery of only 25,000 units during the ED period. Two other
orders totaling 40,000 units were placed and shipped during the ED period.
Therefore, earned discount must be recaptured for the ED period based on Rule
3b. The discount level for the next ED period is at the 75,000 unit level using
Rule 3c.
<TABLE>
<CAPTION>
SCHEDULE ACTUAL
SHIPMENT SHIPMENT ENDPOINT SHIPPED GROSS EARNED
DELIVERY DATE DATE TYPE VOLUME PRICE AMOUNT DISCOUNT NET AMOUNT
- -------- -------- -------- -------- ------- ----- ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Order 1
a Mar-99 Mar-99 A 12,500 $[***] [***] [***] [***]
b Jun-99 Jun-99 B 12,500 $[***] [***] [***] [***]
c Aug-99 Feb-00 E 0 $[***] [***] [***] [***]
d Feb-00 Apr-00 E 0 $[***] [***] [***] [***]
Order 2 May-99 Oct-99 B 20,000 $[***] [***] [***] [***]
Order 3 Jun-99 Nov-99 E 20,000 $[***] [***] [***] [***]
------ ------ ----- ------ ----- ------ -------- ----------
TOTAL 66,000 [***] [***] [***]
</TABLE>
Earned Discount Calculations
<TABLE>
<CAPTION>
ENDPOINT SHIPPED INVOICED EARNED
ORDER TYPE VOLUME PRICE EARNED PRICE DISCOUNT
- ----- -------- ------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
Order 1
a A 12,500 [***] [***] [***]
b B 12,500 [***] [***] [***]
c E 0 [***] [***] [***]
d E 0 [***] [***] [***]
Order 2 B 20,000 [***] [***] [***]
Order 3 E 20,000 [***] [***] [***]
----- ------ -------- ------------ --------
TOTAL 65,000 [***]
</TABLE>
- -----------------------
*** Confidential Treatment Requested
D-5
<PAGE> 27
2. AGCS Switch Product Pricing for 1998 and 1999
A. The initial discount level to Paradyne for 1999 will be at the [***]
unit level
<TABLE>
<CAPTION>
Port List Price/ 25,000 Ports 50,000 Ports 75,000 Ports 100,000
Description Port Price/Port Price/Port Price/Port Ports Price/
Port
- ----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A - [***] [***] [***] [***] [***]
Integrated
Voice and
Data Port
B - DSLAM [***] [***] [***] [***] [***]
Voice and
Data Port
C - Integrated [***] [***] [***] [***] [***]
Voice Only
Port
D - DSLAM [***] [***] [***] [***] [***]
Voice Only
Port
</TABLE>
Earned Discount
The parties mutually agree that:
a) The earned discount period (ED Period) is defined as January 1 to
December 31 of any calendar year
b) All Switch Products shipped to Paradyne in 1998 will be added to the
accumulated volume shipped to Paradyne in 1999 ED period and will be
eligible for earned discount for the 1999 ED period.
c) The discount level achieved in a ED period will be the initial
discount level for the next ED period (e.g. if AGCS shipped Paradyne
75,000 ports during the 1999 ED period, then the initial discount
level for the 2000 ED period would be at the 75,000 port level).
d) The discount level for an order will be based upon the greater of the
earned discount or the total number of all Switch Products (A-D)
shipped prior to the specific order during the year (e.g., if AGCS has
shipped Paradyne 35,000 unit A type ports, 42,000 units B type ports
and 45,000 unit E type ports, the
- -----------------------
*** Confidential Treatment Requested
D-6
<PAGE> 28
volume discount level would be at the 100,000 port level because the
total equals 100,000 ports).
e) Earned discount will be determined annually. The calculation of earned
discount will be completed during January and is based on the Switch
Product shipped in the previous "ED period". The earned discount is
the difference between the actual discount applied to the individual
orders and the discount earned based on the accumulative total of
units shipped during the ED period. AGCS will determine if further
discounts are due based upon the discount schedule set forth above and
the rules stated below. If a credit is due AGCS will issue a credit
for the total amount due. If the credit is not fully consumed within
the first calendar quarter of the current year then AGCS will remit to
Paradyne the excess amount by March 31st of the current year. If
monies are due AGCS will issue an invoice to Paradyne for the
outstanding amount having net thirty day terms.
Rule 1 -- Application of discount on orders during the ED period:
Higher level discounts will be applied to all shipments when the
number of port shipped exceeds the next higher discount level, (e.g.
during the 1999 the initial discount level is at the 50,000 port level.
All orders for Switch Product will be priced at the 50,000 port level
until 75,000 units have been shipped to Paradyne. The 75,000 port
level discount will be applied to all orders after 75,000 ports have
been shipped to Paradyne).
Rule 2 -- Special pricing on large orders:
Due to market conditions, an order may receive special pricing. The
port shipped as part of these orders will not be eligible for earned
discount monies, however the shipped port volume will be used in
calculating the total ports shipped during the ED period and to
determine the initial discount for the next ED period.
Rule 3 -- Annual True Up of earned discount:
Rule 3a -- Determination of the discount level achieved
At the end of the ED period AGCS will review all orders and
calculate the actual number of ports shipped to determine the
discount level to be applied to all ports shipped during the ED
period. The discount level achieved will be rounded to the unit
level nearest to the number of units shipped. (e.g. if AGCS shipped
65,000 ports to Paradyne during 1999 then the level achieved would
be 75,000, if only 60,000 ports were shipped then the discount
level achieved would be 50,000 port unit level discount).
D-7
<PAGE> 29
Rule 3b - Calculation of the earned discount
The earned discount will be the different between the initial
discount applied to the ports shipped and the actual discount level
achieved using Rule 3a. The earned discount amount is determined on
a per Switch Product Port type basis for each order. The total
earned discount for the order is the sum of earned discount amounts
for each Switch Product Port type shipped with the order. If a
credit or invoice is required, they will be issued via terms and
conditions defined in Section 2e of this Appendix.
Rule 3c - Earned discount on units shipped in different ED periods
The ports in an order are given a discount level at the time the
order was placed based on the actual number of ports shipped. The
discount level determined at the date of order will be used for all
ports shipped as part of that order. This applies even when the
shipment schedule spans ED periods. Only the ports actually shipped
in a given ED period will be used to determine the earned discount
level.
D-8
<PAGE> 30
Example 1: If Paradyne places four (4) orders throughout the year, and each
order placed contains various Switch Product types totaling 25,000 ports, the
pricing and invoicing would be as shown below: All orders were shipped within
the ED period. The discount level for all orders in the next ED period would be
at 100,000 port level.
Orders placed during 1999
Note: Initial discount is at the [***] unit level
<TABLE>
<CAPTION>
ENDPOINT ORDER INVOICE EARNED
ORDER TYPE VOLUME PRICE AMOUNT DISCOUNT NET AMOUNT COMMENTS
- ----- -------- ------ ------- ------------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 A 25,000 $[***] $ [***] $ [***] $ [***]
2 B 25,000 $[***] $ [***] $ [***] $ [***]
3 C 25,000 $[***] $ [***] $ [***] $ [***] [***] unit level discount achieved
4 D 25,000 $[***] $ [***] $ [***] $ [***]
TOTAL 100,000 $[33,025,000] $[3,500,000] $[29,525,000]
</TABLE>
Earned discount calculation for previous orders
[***] unit level discount achieved
<TABLE>
<CAPTION>
ENDPOINT ORDER INVOICE EARNED EARNED
ORDER TYPE VOLUME PRICE PRICE DISCOUNT
- ----- -------- ------ ------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1 A 25,000 $[***] $ [***] $ [***]
2 B 25,000 $[***] $ [***] $ [***]
3 C 25,000 $[***] $ [***] $ [***]
4 D 25,000 $[***] $ [***] $ [***]
TOTAL 100,000 $ [***]
</TABLE>
- ------------------------
*** Confidential Treatment Requested
D-9
<PAGE> 31
Example 2: The earned discount level achieved in the previous period was at the
100,000 unit level. An order for 50,000 ports is placed in March 99 with a
delivery schedule over the next 12 months. However, the shipment schedule
resulted in delivery of only 25,000 ports during the ED period. Two other orders
totaling 40,000 ports were placed and shipped during the ED period. Therefore,
earned discount must be recaptured for the ED period based on Rule 3b. The
discount level for the next ED period is at the 75,000 port level using Rule 3c.
<TABLE>
<CAPTION>
Schedule Actual
Shipment Shipment Endpoint Shipped Earned
Delivery Date Date Type Volume Price Gross Amount Discount Net Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Order 1
a Mar-99 Mar-99 A 12,500 S [***] [***] [***] [***]
b Jun-99 Jun-99 B 12,500 S [***] [***] [***] [***]
c Aug-99 Feb-00 C 0 S [***] [***] [***] [***]
d Feb-00 Apr-00 D 0 S [***] [***] [***] [***]
Order 2 May-99 Oct-99 C 20,000 S [***] [***] [***] [***]
Order 3 Jun-99 Nov-99 D 20,000 S [***] [***] [***] [***]
TOTAL 55,000 [***] [***] [***]
</TABLE>
Earned Discount Calculations
<TABLE>
<CAPTION>
Endpoint Shipped Invoiced Earned
Order Type Volume Price Earned Price Discount
<S> <C> <C> <C> <C> <C>
Order 1
a A 12,500 [***] [***] [***]
b B 12,500 [***] [***] [***]
c C 0 [***] [***] [***]
d D 0 [***] [***] [***]
Order 2 C 20,000 [***] [***] [***]
Order 3 D 20,000 [***] [***] [***]
TOTAL 65,000 [***]
</TABLE>
- -------
*** Confidential Treatment Requested
D-10
<PAGE> 32
Appendix E
Marks
TRADEMARKS AND OTHER INDICIA - Paradyne
Products and Licensed Materials purchased hereunder and the packaging therefor
may bear certain trade names, trademarks, trade devices, logos, codes or other
symbols of Paradyne, (herein "Indicia"). Paradyne hereby grants AGCS permission
to use Indicia in the AGCS marketing and advertising of, and in AGCS' publicity
relating to, the Products, Services and Licensed Materials PROVIDED such use
conforms to Paradyne standards and guidelines relating thereto which Paradyne
may furnish from time to time. AGCS may not conduct business under Paradyne's
name or logo. AGCS may not use any of Paradyne's Indicia or variations thereof
to identify AGCS or AGCS' products or services, and AGCS may not use any of
Paradyne's Indicia in a manner that is likely to confuse the public concerning
the relationship of the parties. AGCS' use of Indicia shall inure to the
benefit of Paradyne and shall not invest in AGCS any rights in or to the
Indicia. All uses of Indicia by AGCS shall be subject to pre-publication or
pre-use review and written approval by Paradyne. If, in Paradyne's judgment,
any use of Indicia by AGCS is deemed detrimental to the Indicia or Paradyne's
reputation, or is deemed otherwise undesirable, Paradyne may withdraw such
permission without liability as a result thereof.
TRADEMARKS AND OTHER INDICIA - AGCS
During the Term of this Agreement, AGCS authorizes Paradyne to display and use
the trademarks "AGCS" and "ATTUM(r)" and "SuperLine(tm)", in connection with
Paradyne sales, advertisement, service and promotion of Product(s). Paradyne
will indicate in all publicity and printed material relating to the Product(s)
that such trademarks are the property of AGCS. No rights are granted to
Paradyne to use trademarks and trade names of third parties used concerning
Product(s).
Paradyne shall not change or remove any trademark, trade name, logo, copyright
notice, model or serial number, or other such designation affixed to any
Product(s) without the prior written consent of AGCS.
Paradyne shall not, at any time, use or register, any such AGCS designation, as
a business, corporate or trade name nor shall it use, display or register any
trademark, trade name, business or corporate name which is in whole or in part
similar to or confusing with any such designation.
Nothing contained in this Agreement shall grant Paradyne interest in any
trademark, name, logo or other trade designation of AGCS, and Paradyne agrees
that it will not at any time during or after this Agreement assert or claim any
interest in, or do anything which may adversely affect the validity or
enforceability of, any trademark, trade name, or logo belonging or licensed to
AGCS or the rights of AGCS thereon. On termination of this Agreement, and after
a reasonable phase out period, Paradyne shall forthwith cease all display,
advertising, and use of all such names, marks, logos and designations and shall
not thereafter use, advertise or display any name, mark or logo which is, or
any part of which is, similar to or confusing with any such designation
associated with any Product(s).
E-1
<PAGE> 33
Appendix F
Support and Maintenance Terms
Warranty Policy - AGCS
Hardware Warranty
AGCS warrants that the goods sold hereunder will be free from defects in
material and workmanship; that such goods will be fit for the ordinary purposes
for which such goods are used; and that goods title thereto is conveyed to
Paradyne. The warranty period for Hardware Defects shall be two (2) years from
date of shipment. Other then as expressed herein Paradyne shall not make any
warranties on behalf of AGCS.
This Warranty does not extend to substitute equipment and components specified
by Paradyne, to products not of AGCS' manufacture which are peripheral to or
not integrated into AGCS' manufactured assemblies, including, without
limitation, power equipment, test equipment, traffic data collection equipment
and protective equipment; to equipment normally consumed in operation or which
has a normal life shorter than twelve (12) months; or to purchased products not
sold by AGCS. As to such products, AGCS conveys to Paradyne the Warranty, if
any, of AGCS' supplier. This Warranty does not extend to damage to goods
resulting from extraneous causes not attributable to AGCS, including, without
limitation, damage caused in whole or in part by improper storage,
installation, operation or maintenance; misuse, neglect or abuse; or
unauthorized alteration or repair.
THE FOREGOING IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED
INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTY OF MERCHANTABILITY.
Software Warranty
AGCS warrants that each Software release will perform substantially in
accordance with the User's Guide or documentation provided with the product for
a period of ninety (90) days after in-service.
This Warranty shall be voided, both as to the Licensed Software and as to any
goods used in connection therewith if any Licensed Software is modified or
otherwise changed other than by or at the direction of AGCS.
The failure to insert or permit AGCS to insert any Release (Modification
Release or Point Release or similar instruction provided for the purpose of
correcting deficiencies) into the Licensed Software shall void the Warranty,
both as to the Licensed Software and as to any goods used in connection
therewith.
ANY UNAUTHORIZED USE OF THE LICENSED SOFTWARE TO IMPLEMENT ANY OPTIONAL
FEATURES WHICH HAVE NOT BEEN PURCHASED SHALL
F-1
<PAGE> 34
IMMEDIATELY VOID THIS WARRANTY FOR THAT SITE BOTH AS TO THE LICENSED SOFTWARE
AND AS ANY GOODS USED IN CONNECTION THEREWITH, AND TERMINATE ANY OBLIGATION OF
AGCS TO FURTHER SUPPORT THE LICENSED SOFTWARE FOR THAT SITE.
In Warranty Support
Unlimited, toll-free telephone assistance is provided with AGCS' standard
warranty service, including:
- Seven days a week, twenty-four hours a day (7x24) technical phone
support available through the AGCS Customer Support Center (CSC).
- Telephone response within two (2) hours of reporting a problem.
- Telephone assistance in the diagnosis and resolution of system problem.
- Routine telephone assistance in the support of the initial installation,
daily operation or implementation of system upgrades.
If Paradyne requires warranty service, it should call 1-888-888-AGCS and provide
sufficient, relevant information to enable the CSC to understand, analyze and
resolve the problem.
- - Hardware Support - In case of a defect, AGCS will issue a Customer Return
Authorization (CRA). Based on criticality of need as determined by CSC, CSC
will either; (i) ground ship a replacement unit within two (2) business days;
or (ii) repair and ship the original product within ten (10) business days of
its receipt. For both repairs and replacements, Paradyne shall ship the
warranted Product to AGCS' designated location in its original or equivalent
packaging with the applicable CRA number, prepay shipping charges and bear
the risk of loss or damage during shipment. AGCS will pay freight costs to
return repaired equipment to Paradyne's or a designated U.S. location. If CSC
provided a replacement unit, the hardware unit returned for repair will
remain the property of AGCS.
- - Software Support - For Critical Defects, AGCS will provide ongoing support
until mitigated or resolved. AGCS will provide resolutions to Major Defects
within a reasonable time after they have been reported to, confirmed and
agreed to by AGCS. Resolutions for Minor Defects, that have been reported to,
confirmed and agreed to by AGCS, may be included in subsequent software
modification releases, point releases and feature releases, as AGCS deems
appropriate.
AGCS REPAIRS NOT COVERED UNDER WARRANTY
Paradyne will be charged for second level support for out of warranty Products.
Second level support will be at no charge for in warranty Products.
F-2
<PAGE> 35
AGCS agrees to provide repair services on Products purchased for which the
warranty period has lapsed. Repair charges for hardware will be at 30% of
discounted price of equipment in effect at the time of repair.
Paradyne shall be responsible for all costs associated with returning Product
for repair to AGCS' facility in Genoa. AGCS will pay freight costs to return
repaired Product to specified location within the continental United States.
If Product returned for repair is determined to be irreparable, AGCS shall
promptly notify Paradyne. AGCS shall, at Paradyne's option, sell to Paradyne a
replacement Product, if available, at the then current discounted price or
return the Product in it's irreparable state.
Price for Additional AGCS Services
Product Support
AGCS offers support services in three (3) areas of expertise: Sales and
Marketing, System Integration Engineering and Customer (technical) Support. The
pricing for these services is denoted below:
<TABLE>
<CAPTION>
Support Service Type Price/Hour (US$)*
-------------------- -----------------
<S> <C>
Sales and Marketing [***]
System Integration Engineering [***]
Customer Support [***]
</TABLE>
- -------------------
* Prices do not include AGCS travel and expenses which shall also be the
responsibility of Paradyne should travel be required.
Product Training
Other than the training defined in Section 20(a), AGCS provides both
Installation and Technical training for all their Products in English. The
duration of the class varies depending on content. This training is available
at AGCS' Phoenix, Arizona facility. Airfare for the training in Phoenix and the
related travel cost incurred will be the responsibility of the Paradyne.
<TABLE>
<CAPTION>
Number of Students Price/Student/Dav (US$)
------------------ -----------------------
<S> <C>
One to Four [***]
Five to Six [***]
Seven to Eight [***]
</TABLE>
AGCS will also provide training at a mutually agreed to location within the
United States, for a flat fee of [***] per week. Paradyne shall also be
responsible for AGCS' instructor airfare and reasonable travel expenses during
the duration of the course. Maximum class size for any training course shall be
eight (8) people.
- -------
*** Confidential Treatment Requested
F-3
<PAGE> 36
Note: AGCS reserves the right to adjust the pricing defined in this Appendix
annually. Prices shown are as of January 1, 1998. Discounts do not apply to
Services pricing.
WARRANTY Policy - Paradyne
A. Hardware WARRANTY
Paradyne shall provide a return to factory warranty for two (2) years from the
later of (1) shipping from Paradyne or (2) shipment from AGCS' distributors, but
in no event later than one year from shipment from Paradyne, and provided that
AGCS provides a Point of Sales Report for that Product which AGCS directly ships
to their Distributors and/or their end users identifying (1) the Product by
serial number, (2) the customer to which the Product is shipped, and (3) the
date of shipment. Paradyne warrants to AGCS that the products will, during the
warranty period and under proper and normal use, be free from defects in
material or workmanship and will conform to the specifications contained in the
MVP Endpoint data sheets.
If any failure to conform to the WARRANTY appears in any Product(s), which are
in possession of AGCS or its identified distributors, or any end users,
Paradyne will, at its sole option, either (i) repair or replace the Product(s),
or thereafter (ii) will refund or credit AGCS' purchase price of the defective
Product(s), provided that Paradyne is provided written notification of the
purported failure to conform to this WARRANTY within the applicable Products(s)
warranty period and Paradyne determines that the Product(s) fails to conform to
its specification as defined in the applicable datasheets.
AGCS shall follow Paradyne's then current instructions in the Return Policy
section, regarding return of readily returnable Product(s). No such Product(s)
will be accepted for repair, replacement, refund or credit absent such
instructions being followed. In the case of any such return, AGCS shall assume
risk of loss and damage during shipment to Paradyne and shall pay all
transportation charges. Repaired or replacement Product(s) shall be shipped to
a designated destination within the contiguous forty-eight United States or the
District of Columbia by Paradyne at its expense and risk of loss and damage.
AGCS shall be responsible for any requested premium transportation of repair or
replacement part(s) or Product(s). If Paradyne determines that the Product(s)
do not fail to conform to the specification, AGCS shall pay Paradyne all costs
of handling, inspection, repairs and transportation at Paradyne's then
prevailing rates.
Paradyne shall not be responsible under this WARRANTY for deinstallation or
reinstallation or for related expenses arising out or the alteration of AGCS or
a third party's premise or building, or removal, replacement or relocation of
other items not purchased hereunder.
Repaired and replaced part(s) provided under the above WARRANTY are warranted as
set forth above, but for only sixty (60) days from the date of repair or
replacement or for the remainder of the Product WARRANTY period, whichever is
greater, and such parts may be new, remanufactured or refurbished, at the sole
discretion of Paradyne.
The foregoing WARRANTY does not extend to Licensed Materials; to expendable
items; to experimental or developmental Product(s); or to Product(s) which have
been altered by anyone
F-4
<PAGE> 37
other than Paradyne or Paradyne's authorized service provider; have been used
in material violation of Paradyne's instructions; or have had their serial
numbers or month and year of manufacture of shipment removed, defaced or
altered. AGCS shall not make any warranties on behalf of Paradyne.
THE FOREGOING WARRANTY IS IN LIEU OF ALL EXPRESS AND IMPLIED WARRANTIES,
INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. AGCS'S SOLE AND EXCLUSIVE REMEDY SHALL BE PARADYNE'S
OBLIGATION TO REPAIR, REPLACE, CREDIT OR REFUND AS SET FORTH ABOVE.
B. LICENSED MATERIAL (SOFTWARE) WARRANTY
Paradyne warrants to AGCS that, upon shipment, Licensed Materials will be free
from defects which result in a material failure of the applicable Product(s) to
execute instructions. If under normal and proper licensed use, the Licensed
Materials prove to have such a defect (1) within the later of ninety (90) days
from the date of shipment thereof to AGCS, or shipment from AGCS' distributors;
or (2) within ninety (90) days after installation completion, Paradyne at its
sole option, will either correct or replace the same without charge at its
facility or provide a full refund or credit. No Licensed Materials will be
accepted for correction or replacement except upon the written authorization
and in accordance with instructions of Paradyne as defined in the Return Policy
section. Any transportation expenses and risk of loss associated with returning
such Licensed Materials to Paradyne shall be borne by AGCS. At Paradyne's sole
option, correction may be incorporated into a new release of the Licensed
Materials which will be made available to AGCS at no charge. Such
corrections may be performed by Paradyne at AGCS' facility.
In the event that Paradyne determines after investigation that the Licensed
Materials are not defective, AGCS shall pay all costs of handling, inspection,
testing and transportation, including travel and living costs incurred by
Paradyne's personnel.
Paradyne makes no warranty with respect to defective conditions or
non-conformities caused by any of the following acts: misuse, neglect, accident
or abuse by anyone other than Paradyne or its subcontractors; improper actions
(i.e. wiring, repairing, alteration, installation, storage or maintenance) by
anyone other than Paradyne or its subcontractors; use in a manner not in
accordance with specifications, operating instructions or license-to-use;
failure of AGCS, its distributors, or end-users to apply previously applicable
Paradyne modifications and corrections. In addition, Paradyne makes no warranty
with respect to Software defects other than those which materially affect
performance in accordance with Paradyne's specification and defects related to
the Direct VAR's data base errors.
WARRANTY EXCLUSIONS AND LIMITATION OF LIABILITY: THE FOREGOING WARRANTY IS
EXCLUSIVE AND IN LIEU OF ALL OTHER EXPRESS AND IMPLIED WARRANTIES IN CONNECTION
WITH THE LICENSED MATERIALS COVERED BY THIS ARTICLE INCLUDING BUT NOT LIMITED
TO WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. AGCS'
SOLE AND EXCLUSIVE REMEDY SHALL BE
F-5
<PAGE> 38
PARADYNE'S OBLIGATION TO CORRECT, REPLACE, CREDIT OR REFUND, AS SET FORTH ABOVE.
C. Repair Procedure
Paradyne shall provide or arrange for in-warranty or out-of-warranty repair
services in accordance with the Return Policy. For all in-warranty or
out-of-warranty repairs AGCS shall pay transportation charges to Paradyne.
Paradyne shall pay transportation charges back to AGCS, its distributors, or its
end-users. AGCS shall be responsible for all customs, duties, brokerage fees,
and taxes.
Upon attaining a cumulative quantity of [***] units in purchases under this
Agreement or upon a firm commitment for such quantity, Paradyne will provide to
AGCS a mutually agreed to amount of consignment Product within thirty (30) days
of an agreement as to quantity which in no event shall exceed [***] percent
([ ]%) of the quantity purchased to date. AGCS will use this consignment for
the sole purpose of meeting its end user's demand for immediate replacement of
failed in Warranty MVP Endpoints. AGCS will provide a consignment report monthly
detailing the usage of the consignment stock. Additionally, AGCS will return all
defective MVP Endpoints, at its expense. If consignment MVP Endpoints are used
to satisfy out of warranty repair then AGCS will pay Paradyne the applicable
discounted price for the MVP Endpoint.
D. Return Policy
Warranty Verification
Paradyne product warranty's are verified upon the receipt of your call. If a
warranty has not been registered the support personnel may request proof of
purchase and will use the date of shipment shown on the bill or invoice. If the
warranty has not been registered and proof of purchase cannot be provided we
will access the Paradyne equipment base and date the warranty from the time the
unit was shipped to AGCS or its distributor.
Services Available
In Warranty and Out of Warranty Repair Service
Standard Warranty repair service has a fifteen day turn around time. For rush
repairs we provide same day expedite service. Customers must return equipment
overnight, first business day and the repair center will repair and ship
overnight on the day of receipt. The fee for this service is [***] in addition
to the repair fees, if any. Some defects may preclude this service being
available. In the event this were to occur you would be contacted with an
explanation on the same day and other available options would be explored to
meet your needs. Forty eight hour service is available for an additional [***].
Expedited shipping is available in the event a repair has been completed and you
find you cannot wait for standard carrier service. This fee is [***]. All
repairs are quoted at a flat rate which includes standard freight services
within the USA. Customs brokerage, duties, export fees, etc. are the
responsibility of the customer. Evaluation
- --------------------
*** Confidential Treatment Requested
F-6
<PAGE> 39
without repair, cosmetic repairs, test only and update for operational
equipment are available by special quote. Quotes and RMA's are provided on the
same day if the request is made during business hours, 8 a.m. to 5 p.m., EST.
Messages or faxed requests during off hours will be answered promptly the next
business day.
Obtaining Service
In Warranty and Out of Warranty
To obtain service:
Please have the following information available before you call:
- Company Name and address
- Contact name and telephone number
- Ship to, bill to, and attention to
- Model number and serial number of the unit
- Description of the problem you are experiencing
1. Call the number from the list below, Monday through Friday, between the
hours of 8 a.m. and 5 p.m. EST, excluding holidays, or fax the required
information to:
1-800-772-7691 (Phone, USA and Canada only)
1-813-530-8099 (International)
1-813-530-8690 (Fax)
Telephone or fax messages are accepted 24 hours a day.
2. The Repair Center personnel will provide you with a Return Material
Authorization (RMA) number and a repair cost if applicable. If the unit is
submitted as a warranty repair but it is determined that the defect is not
covered a repair center representative will contact you with a flat rate repair
cost. Work on out of warranty units/defects will not commence until your
purchase order has been received.
3. Pack the unit securely, put the RMA Number# in a visible location on the
outside of the package.
4. Ship the package insured and prepaid to:
Paradyne
Attn.: Repair Center Dock A
8545 126th Avenue North
Largo, Florida 33773
5. Our repair center will update if applicable, repair and return the unit to
you.
E. TRAINING
Other then the training defined in Section 20(a), Paradyne provides the
following MVP Endpoint Product training classes, at a standard rate of $____
per student, per day, with all classes being held in Largo, FL. --
F-7
<PAGE> 40
AGCS will be responsible for all travel and lodging expenses associated with
these training classes.
<TABLE>
<CAPTION>
Training Course Duration
- --------------- --------
<S> <C>
SALES 2 DAYS
OPERATIONS 2-3 DAYS
INSTALLATION & MAINTENANCE 2-3 DAYS
</TABLE>
Note: Paradyne reserves the right to adjust the pricing defined in this
Appendix annually. Prices shown are as of January 1, 1998. Discounts do not
apply to Services Pricing.
F-8
<PAGE> 41
Appendix G
Escrow Agreement
ESCROW AGREEMENT
This Source Material Escrow Agreement ("Escrow Agreement") dated this ____ day
of June __, 1998, is entered into among AG Communication Systems Corporation, a
Delaware corporation, having its principal place of business at 2500 West
Utopia Road, Phoenix, Arizona 85027 ("AGCS"), Paradyne Corporation, a Delaware
corporation, having its principal place of business at 8545 126th Avenue North,
Largo, Florida 33773 ("Company"), and _______________a _______________
corporation, with offices at ____________________ ("Escrow Agent").
WITNESSETH
WHEREAS, Company and AGCS are parties to a Joint Development Agreement dated
_______________ ("Agreement") pursuant to which AGCS has agreed to become a
distributor of Company's End Points product (the "Product") which incorporates
Company's MVP technology; and
WHEREAS, the Agreement provides, among other things, that Company shall place
the source code and related documentation for the Product in escrow, all as
more fully set forth in the Agreement; and
WHEREAS, Escrow Agent has agreed to serve as Escrow Agent for the Product
source code and documentation pursuant to the terms and conditions contained
herein;
NOW, THEREFORE, in consideration of the mutual covenants contained herein, and
for other valuable consideration, the adequacy and receipt of which are hereby
acknowledged, Company, AGCS and Escrow Agent hereby agree as follows.
1. Deposits
(a) Within thirty (30) days after delivery to AGCS of the first commercial unit
of the Product as provided for by the Agreement, Company shall deposit with
Escrow Agent, the source material described on Schedule A (the "Source
Material"), attached hereto and made a part hereof, which Schedule lists
software tapes and other materials and documentation related thereto that
would be reasonably necessary for the manufacture and maintenance of the
Product required to be placed into escrow.
G-1
<PAGE> 42
(b) All additions to the Source Material listed on Schedules A, together with
revisions thereto, shall be deposited into escrow as provided in Section 2
below. The Escrow Agent will issue to Company a receipt for each delivery
of Source Material.
(c) The Source Material held by the Escrow Agent shall remain the exclusive
property of Company. The Escrow Agent shall not use the Source Material or
disclose the same to any third party except as specifically provided for
herein and nothing in this Escrow Agreement shall be construed as a
conveyance by Company of all or any of its rights, title or interest in the
Source Material to the Escrow Agent, except as specifically provided
herein.
(d) The Escrow Agent will hold the Source Material in safekeeping pursuant to
the terms and conditions set forth herein, and act as custodian thereof, at
its offices hereinabove indicated, unless and until the Escrow Agent
receives notice pursuant to the terms of this Escrow Agreement that the
Escrow Agent is to deliver the Source Material to AGCS or Company, in which
case the Escrow Agent shall deliver the Source Material to the party
identified therein, subject, however, to the provisions of this Escrow
Agreement. The Source Material shall be retained by Escrow Agent on its
premises at all times, under the express control of an officer designated
by it, whose identity shall be made known to AGCS and Company promptly upon
designation.
2. Representation of Company to AGCS
(a) Company states that:
(i) The Source Material delivered to Escrow Agent constitutes the most
recent Source Material for the Product; and
(ii) The Source Material delivered to the Escrow Agent will be reviewed,
inspected and supplemented with all revisions, corrections,
enhancements or other changes, as necessary, but at least annually,
at AGCS' request, to ensure its current status for each release
thereof made after the date of this Escrow Agreement. AGCS shall
provide Escrow Agent and Company with at least ten (10) business
days' notice of the date and time of the inspection, which shall be
during normal business hours. Escrow Agent shall make the Source
Material available to Company and AGCS for such inspection.
(iii) Each party shall be responsible for its own costs associated with
any inspection of the Escrow Material.
3. Release from Escrow
3.1 Delivery by Escrow Agent to AGCS.
G-2
<PAGE> 43
Escrow Agent agrees that the Source Material shall be held by it for release
and delivery to AGCS, under the terms and conditions hereinafter set forth, but
only in the event that:
(a) Company notifies Escrow Agent in writing to effect delivery to AGCS at a
specific address or
(b) Escrow Agent has received from AGCS:
(i) written notification that Company is unable to supply Product to
AGCS as required by the Agreement, or to maintain the Product as
required by the Agreement ("Company Default");
(ii) evidence satisfactory to Escrow Agent that AGCS has previously
notified Company of such Company Default in writing;
(iii) a written demand, signed by an elected officer of AGCS, that the
Source Material be released and delivered to AGCS;
(iv) a written undertaking from the AGCS, signed by an elected officer of
AGCS, that the copy of the Source Material being supplied to AGCS
will be used only as permitted under the terms of the License
Agreement;
(v) specific instructions from AGCS for this delivery, and
(c) In the event that the provisions of paragraph 3.1(b) are met, Escrow Agent
shall, within five (5) days of receipt of all of the items specified in
paragraph 3.1(b), send by certified mail a copy of all such documents
received by it to Company. Company shall have thirty (30) days from the
date Escrow Agent shall have sent the documents to Company to send to
Escrow Agent a copy of a temporary or final injunction or temporary
restraining order issued by the court granting such relief prohibiting the
transfer of the Source Material to AGCS. In such a case, the Escrow Agent
will retain the Source Material in its possession. In the event the
injunctions or restraining orders obtained by Company are vacated or
released and AGCS again requests the release of the Escrow Material, AGCS
and Company will repeat the procedures set forth in paragraphs 3.1(b) and
3.1(c) hereof.
(d) If, within thirty (30) days after mailing the items specified in paragraph
3.1(b) to Company, Escrow Agent has not received from Company a copy of the
injunctions or restraining order referred to in paragraph 3.1(c) above,
then Escrow Agent shall release the Source Material to AGCS in accordance
with the instructions specified in paragraph 3.1(b)(v).
3.2 Delivery By Escrow Agent to Company
Escrow Agent shall release and deliver the Source Material to Company upon the
occurrence of any of the following:
G-3
<PAGE> 44
(a) Mutual Termination.
The presentation to Escrow Agent of a written notice of termination,
executed by authorized representatives of Company and AGCS, stating that
this Escrow Agreement has been terminated by the mutual agreement of
Company and AGCS and directing Escrow Agent to release and deliver the
Source Material to Company by a specified method within ten (10) days of a
specified date, or
(b) Non-Payment.
Non-payment of any fees or charges invoiced by Escrow Agent to AGCS. Escrow
Agent shall give notice of non-payment of any fee due and payable hereunder
to both AGCS and Company and, in such event, AGCS shall have the right to
pay the unpaid fee within ten (10) days from the date of receipt of notice
from Escrow Agent. Upon timely payment of the unpaid fee by AGCS, this
Agreement shall continue in force and effect. Should the fee not be paid by
AGCS within the notice period, Escrow Agent shall promptly release the
Source Material to Company upon payment of the unpaid fee to Escrow Agent.
4. Use of Source Material
Upon delivery of the Source Material to AGCS, AGCS agrees that its use (and
modification, as required) of the Source Material shall be strictly limited
to the manufacture, sale and/or license and maintenance of the Product.
AGCS shall not duplicate, sell or license the Source Material to others or
market the Source Material in any manner.
5. Duties and Limited Obligations of Escrow Agent
(a) Escrow Agent shall be under no obligation or responsibility to either
Company or AGCS to determine the existence, relevance, completeness,
accuracy or other aspects of the Source Material or any portions thereof
deposited from time to time by Company. Escrow Agent shall have no
obligation or responsibility to determine whether what is deposited or
accepted by it for deposit is or is not Source Material as defined herein.
Furthermore, this Escrow Agreement shall constitute notice to any third
person or entity who may acquire a right of access to the Source Material
that Escrow Agent's duty is limited as set forth herein and that Escrow
Agent is not liable to any such third person or entity. Company and AGCS
further agree that Escrow Agent shall not be liable for any forgeries or
impersonations concerning any documents of record or other documents it is
handling in its capacity as Escrow Agent.
(b) Escrow Agent agrees to prevent any unauthorized person or persons from
gaining access to the Source Material, except as specifically provided by
this Escrow Agreement.
G-4
<PAGE> 45
(c) Escrow Agent agrees not to use the Source Material for any purpose except
as provided hereunder.
(d) Company and AGCS further agree that if they disagree on any matter
connected with this Escrow Agreement, Escrow Agent will not be required to
settle the matter. If Escrow Agent is made a party to legal proceedings,
Escrow Agent will be entitled to such reasonable compensation for services,
costs and attorneys' fees as may be awarded, which compensation shall be
paid by the non-prevailing party.
6. Limitation of Liability
(a) Escrow Agent agrees to exercise care in protecting the Source Material in
the same manner that it would exercise care in protecting its own trade
secrets and materials of this nature. Except for actual frauds gross
negligence or intentional misconduct, Escrow Agent shall not be liable to
Company or to any party claiming beneficiary status under this Agreement
for an act, or failure to act, by Escrow Agent in connection with this
Agreement. In the event Escrow Agent commits said fraud, gross negligence
or misconduct, Escrow Agent shall be liable for direct and actual provable
damages that result from Escrow Agent's violation of the terms of this
Agreement, but Escrow Agent shall not be liable for special, indirect,
incidental or consequential damages. Notwithstanding anything contained in
this Section to the contrary, in the event Escrow Agent discloses the
Source Material to any party other than Company or AGCS in violation of the
terms of this Agreement, Escrow Agent shall be liable, without limitation,
for any and all damages related thereto or resulting therefrom, including
actual, special, indirect, incidental or consequential damages.
(b) The Escrow Agent shall not be liable for any damages due to causes beyond
its reasonable control, including but not limited to, acts of God.
(c) EXCEPT AS SET FORTH HEREIN, AND EXCEPT FOR ACTS WHICH ARE THE RESULT OF ITS
NEGLIGENCE OR MALFEASANCE, THE ESCROW AGENT DISCLAIMS ALL WARRANTIES,
INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
(d) Nothing herein contained shall limit Escrow Agent's liability, if any, to
AGCS or Company for damages directly resulting from Escrow Agent's failure
to perform its duties as set forth in this Escrow Agreement.
7. Indemnification
Company and AGCS agree to indemnify Escrow Agent for and hold it harmless
against, any loss, cost or expense incurred or suffered in connection with,
as a result of, service as Escrow Agent under this Escrow Agreement, except
for any costs or expenses suffered as a result of Escrow Agent's misconduct
or negligence.
G-5
<PAGE> 46
UNLESS SPECIFICALLY SET FORTH HEREIN, IN NO EVENT SHALL EITHER AGCS OR
COMPANY, WHETHER AS A RESULT OF BREACH OF CONTRACT, TORT (INCLUDING
NEGLIGENCE) OR OTHERWISE, HAVE ANY LIABILITY TO THE ESCROW AGENT OR ANY
THIRD PARTY FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
8. Confidentiality
Escrow Agent and its employees agree to hold confidential the Source
Material and to exercise the same degree of care that a reasonable and
careful company would exercise with similar records of its own.
9. Payment to Escrow Agent
As payment for its services hereunder, the Escrow Agent shall receive
annual charges as set forth in Escrow Agent's Escrow Storage Price List.
The first such annual charges will be paid by AGCS within ten (10) days of
the execution of this Escrow Agreement by all parties hereto. Each year
thereafter, AGCS will pay the appropriate charges on or before the
anniversary of the effective date of this Escrow Agreement. The annual fee
may be adjusted by the Escrow Agent on an annual basis by the lesser of ten
(10%) percent or the change in the Producers Price Index over the preceding
twelve (12) months. The Escrow Agent shall notify AGCS of any such
adjustment to the annual fee at least thirty (30) days prior to the annual
fee due date.
10. Termination
Unless the delivery of the Source Material to AGCS is disputed by Company,
this Escrow Agreement shall terminate: (i) on the delivery of the Source
Material to Company; or (ii) one year from the delivery of the Source
Material to AGCS. This Escrow Agreement may also be terminated by Escrow
Agent, Company or AGCS upon sixty (60) days advance written notice provided
that within fifteen (15) days after delivery of the above-referenced sixty
(60) day notice, a successor escrow agent, (agreed to by AGCS and Company),
has been appointed, and a procedure for the orderly transfer of the Source
Material from the Escrow Agent to the successor escrow agent, has been
formalized and agreed to by all parties.
11. Survival of Provisions
The parties agree that where the context of any provision indicates an
intent that it shall survive the completion, expiration, termination or
cancellation of this Escrow Agreement, then it shall so survive.
12. Notices
G-6
<PAGE> 47
All notice and other communications hereunder or in connection herewith shall
be deemed to have been given if delivered personally or sent by registered or
certified mail in writing, return receipt requested and first class postage
prepaid;
(a) If to AGCS: General Counsel
AG Communication Systems Corporation
2500 West Utopia Road
Phoenix, Arizona 85027
(b) If to Company: General Counsel
Paradyne Corporation
8545 126th Avenue North
Largo, Florida 33773
(c) If to Escrow Agent:
13. Waiver, Amendment or Modification, Severability
This Escrow Agreement shall not be waived, amended or modified except by
the written agreement of all of the parties affected by such waiver,
amendment or modification. Any invalidity, in whole or in part, of any
provision of this Escrow Agreement shall not affect the validity of any
other of its provisions, provided that the invalidity of any such provision
does not affect the intention of the parties with respect to the escrow
established hereunder.
14. Applicable Law and Dispute Resolution
This Escrow Agreement including any dispute which may be brought as a
result hereof, shall be construed and enforced in accordance with the laws
of the State of New York. The dispute resolution and/or arbitration
provisions of the Agreement are not applicable to this Escrow Agreement.
15. Subject Headings
The subject headings of this Escrow Agreement have been placed thereon for
the convenience of the parties and shall not be considered in any question,
interpretation or construction of this Escrow Agreement.
16. Disputes and Interpleader
G-7
<PAGE> 48
(a) In the event of any dispute between Company and AGCS or any third party
claiming beneficiary status under this Agreement, Escrow Agent may submit
this matter to any court of competent jurisdiction in an interpleader or
similar action. Any and all costs incurred by Escrow Agent in connection
therewith shall be borne by the third party seeking a copy of the Source
Material. Without limiting the generality of the foregoing, if Escrow
Agent shall be uncertain as to its duties or rights hereunder, shall
receive any notice, advice, schedule, report, certificate, direction or
other document from any person or entity with respect to the Source
Material, that, in the opinion of the management of Escrow Agent is in
conflict with any of the provisions of this Agreement, or shall be advised
that a dispute has arisen with respect to the ownership or right of
possession of the Source Material or any part thereof, Escrow Agent shall
be entitled, without liability to anyone, to refrain from taking any
action other than to exercise best efforts to keep safely the Source
Material until Escrow Agent shall be directed otherwise in writing by an
order, decree, or judgment of a court of competent jurisdiction that is
then finally affirmed on appeal or that by the lapse of time or otherwise
is no longer subject to appeal, but Escrow Agent shall be under no duty to
institute or defend any such proceeding.
17. Entire Agreement
This Escrow Agreement and referenced Schedules constitute the entire
agreement and understanding of the parties with respect to the escrowed
materials, and herein have merged all prior and collateral
representations, promises or conditions, whether oral or written.
G-8
<PAGE> 49
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to be
duly executed and delivered by the proper and duly authorized officers of each
party as of the day and year first above written.
PARADYNE CORPORATION AG COMMUNICATION CORPORATION
SYSTEMS
By By
-------------------- --------------------
Name Name
-------------------- --------------------
Title Title
-------------------- --------------------
ESCROW AGENT
By
--------------------
Name
--------------------
Title
--------------------
G-9
<PAGE> 1
EXHIBIT 10.41
PARADYNE
- -------------------------------------------------------------------------------
MARKETING & LICENSE AGREEMENT ***Text Omitted and
BY AND BETWEEN NETSCOUT SYSTEMS, INC. Filed Separately
AND PARADYNE CORPORATION Confidential Treatment
AMENDMENT NUMBER 2 Requested Under
PAGE 1 OF 2 17 C.F.R. Sections
DATE 11/04/98 200.80(b)(4)
200.83 and
230.406
NETSCOUT SYSTEMS, INC.
4 TECHNOLOGY PARK
WESTFORD, MASSACHUSETTS 01886
The Marketing & Licensing Agreement dated and signed January 26, 1998
(hereinafter the "Agreement") by and between NetScout Systems, Inc.
(hereinafter "NetScout") and Paradyne Corporation (hereinafter "Paradyne")
shall be amended as follows:
1. Section 1.8 shall be deleted in its entirety and replaced by the following:
1.8 "Revision" shall mean any correction, modification, maintenance
release, update, enhancement, and/or new version of the Licensed
Product developed solely by NetScout.
2. Section 21.1 shall be deleted in its entirety and replaced by the following:
21.1 Term. The initial term of this Agreement shall be five (5) years from
the date set forth in the first sentence of this Agreement. Prior to
the end of this term, the parties shall meet and negotiate in good
faith an extension of this Agreement. Failing to agree upon such
extension, this Agreement shall terminate one hundred and eighty days
after the initial term. During such 180 day period, and
notwithstanding the terms of Section 2.1.3 of this Agreement, Paradyne
shall in preparation for the termination of the Agreement, have the
right to develop, have developed, market and sell, and/or establish
OEM and/or technology licensing agreements for RMON-based technologies
for the purpose of offering such RMON products to customers to sustain
and enhance the market position of Paradyne's RMON products without
detriment due to the pending or actual termination of the agreement.
3. The following Section 21.9 shall be appended to the Agreement:
21.9 Continuing rights. Notwithstanding anything in this Agreement to the
contrary, in the event of termination under this Section 21 or Section
23.3 of this Agreement Paradyne shall have the right to continue to
use and distribute the Licensed Product as necessary (1) to ship any
outstanding orders, (2) to meet ongoing contractual commitments, and
(3) to meet product requirements of Paradyne customers who have an
installed base of the Resale Products and require continued supply.
Such shipments shall be subject to royalties under Schedule A except
where termination is made necessary due to NetScout's default.
Further, in the event royalties are paid, NetScout shall agree to
provide reasonable continued support for bug fixes and maintenance of
the Licensed Product. Paradyne shall further have the right to use and
distribute the Licensed Product as required to support those Resale
Products having shipped prior to the date of final termination or
under the provisions of this Section.
Paradyne Corporation - PROPRIETARY
Use Pursuant to Company Instructions
Amendment Number 2
Marketing and Licensing Agreement, NetScout Systems, Inc.
11/04/98
Page 1 of 2
<PAGE> 2
All other terms of the Agreement remain the same.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the
date(s) set forth below.
PARADYNE CORPORATION NETSCOUT SYSTEMS, INC.
By: /s/ Andrew Shay By: /s/ Nathan (?)
-------------------------------- ----------------------------------
Title: CEO Title: VP, Business Development
----------------------------- -------------------------------
Date: 11/11/98 Date: 11/11/98
----------------------------- -------------------------------
Paradyne Corporation - PROPRIETARY
Use Pursuant to Company Instructions
Amendment Number 2
Marketing and Licensing Agreement, NetScout Systems, Inc.
11/04/98
Page 2 of 2
<PAGE> 3
[PARADYNE LOGO]
________________________________________________________________________________
Marketing & License Agreement
By and Between NetScout Systems,
Inc. and Paradyne Corporation
Amendment Number 1
Page 1 of 10
Date 03/__/98
NetScout Systems, Inc.
4 Technology Park
Westford, Massachusetts 01886
Marketing & License Agreement dated and signed January 26, 1998 by and between
NetScout Systems, Inc. and Paradyne Corporation will be amended as follows:
1. Section 1.13: Add the words "or a unique customer application" before "that
cannot be resolved by Paradyne."
2. Section 3.1.3: Add the words "and its Authorized Service Providers" after
the word "Paradyne."
3. Section 3.1.4: Add the words "and Paradyne's Authorized Service Providers"
before the word "Customers."
4. Section 6.1: Add the words "for Licensed Product and Resale Product" before
the words "via a telephone support service as set forth in Exhibit D."
After the words "a paging service after hours, on weekends and holidays"
add the following sentence: "NetScout will make best efforts to reply to
the page within one (1) hour." Change reference to "Tier 1 and Tier 2
Support" to "Tier 3 Support."
5. Section 6.4: Delete last sentence and replace with the following sentence:
"In the event NetScout discontinues manufacture and license of the Licensed
Product, NetScout agrees to continue support and maintenance services for a
period of one (1) year for the software and for the period of five (5)
years for the hardware from such discontinuance.
6. Section 7.1: Add the following at the end of Section 7.1: "Exhibit F
outlines training classes, their locations, costs (if applicable), length
of courses, and complete description of the courses. In the event that
there are seats available for any of the above-mentioned training that are
unfilled by Paradyne employees, such seats may be filled by Paradyne's
Authorized Service Providers."
7. Section 8.2: Add the words "and Authorized Service Provider evaluations"
after the words "sales demonstrations."
Paradyne Corporation - PROPRIETARY
Use Pursuant to Company Instructions
Marketing & License Agreement, NetScout Systems, Inc.
Amendment Number 1
<PAGE> 4
8. Section 8.3: Add the word "day" after "ninety (90)."
9. Section 11.1: Delete the entire last sentence and replace with the
following: "Notwithstanding the preceding sentence, in the event Paradyne
elects to price the RMON feature set separately, the NetScout royalty shall
be the [***] percent [(***%)] of the Paradyne price for the RMON feature or
[***] for each version of embedded RMON as listed in Exhibit A."
10. Section 12.3: Replace entire section as follows: "Purchase Orders. Resale
Product orders may be made via purchase orders, or customer drop ship orders
confirmed in writing by facsimile. Purchase orders shall include the
following details: Paradyne's part number for NetScout's products,
description, quantity, destination, delivery date(s), PO dollar total,
preferred shipper and customer number for billing."
Additionally, add the following paragraphs:
"At Buyer's request Seller shall drop ship orders for product to Buyer or
Buyer's customer at locations specified by purchase orders as defined,
above."
"NetScout will provide proof of delivery for all shipments to Paradyne's
customers, if requested by Paradyne and if specified shipper provides same
upon request from NetScout. NetScout will not ship any of Paradyne's
purchase order short of any parts on the purchase order without the approval
of Paradyne."
"Shipment Acknowledgment"
"Seller will provide Buyer with a shipment acknowledgment form within
twenty-four (24) hours of the shipment to the Buyer or Buyer's customer.
Seller will include, at a minimum, the serial number of the unit, the date
shipped, the part number and quantity shipped, the carrier name, and the
waybill number on the shipment acknowledgment form."
"At no time may NetScout reschedule any previously committed ship dates
without ten (10) days advance written authorization by Paradyne."
11. Add "Section 12.13 Forecast, Buyer will provide a rolling monthly forecast
of Buyer's demand for the Product with visibility for the next six (6)
months. This forecast will be for planning purposes only."
12. Section 12.4: Delete the second sentence and replace it as follows:
"NetScout's normal lead-time for NetScout Resale hardware products is
twenty-one (21) days from order replacement. NetScout's normal lead-time for
NetScout Resale software products is seven (7) days from order placement.
Paradyne Corporation - PROPRIETARY
Use Pursuant to Company Instructions
Marketing & License Agreement, NetScout Systems, Inc.
Amendment Number 1
- --------------------
*** Confidential Treatment Requested
<PAGE> 5
13. Section 12.5: Replace in its entirety with the following:
"Cancellation/Reschedule. Paradyne reserves the right to reschedule or
cancel PO's or parts of PO's without penalty, provided that the requested
reschedule or cancellation is made more than ten (10) days from the
scheduled delivery of the products. Any cancellation requests made inside
the ten (10) day window shall be subject to [***] percent [(***%)]
cancellation fee. Paradyne also reserves the right to reschedule PO's or
parts of PO's within ten (10) days of the scheduled delivery date provided
that the requested delivery date does not extend beyond ninety (90) days
from the original scheduled delivery date."
14. Section 12.6: Add "(subject to Section 17.1, Product Discontinuance)"
after "attached price list" in the first sentence.
15. Section 12.7: Delete paragraph one in its entirety and replace as follows:
NetScout warrants the Resale Products for a period of one (1) year from a
Customer's acceptance and that the Resale Products will be free from
defects in material and workmanship. Paradyne's inspection, approval,
acceptance, use of or payment for all or any such Resale Product shall be
deemed not to constitute a waiver of any warranty or of any term or
condition hereof. NetScout shall repair or replace, at no charge, any
Resale Products returned to NetScout during the warranty period. In the
event that the above remedies are not reasonably available, NetScout shall
refund the purchase price. This is NetScout's sole remedy to Paradyne
and/or End Users under this Agreement for warranty claims.
Add the words, "EXCEPT FOR THE SECTION ENTITLED "EPIDEMIC", before the
words "THE WARRANTIES MADE IN THIS PARAGRAPH ARE MADE IN LIEU OF ALL OTHER
EXPRESS WARRANTIES, WHETHER ORAL OR WRITTEN."
16. Section 12.10: Change "thirty (30) business days" to "forty-five (45)
business days" and add ", and will make best efforts to provide within
thirty (30) days of the close of each calendar quarter," before "Point of
Sale...." Add "the state or the" before the word "zip" in the last
sentence.
17. Section 12.11: Add "or its designated Authorized Service Provider" after
the word "Paradyne" in the first sentence. Add this sentence at the end of
this section: "In addition, out of warranty maintenance agreements for the
Resale Products may be offered by Paradyne's Authorized Service Providers."
18. Add Section 12.14 Repair Period: "Seller will effect the
repair/replacement and return the item(s) to Buyer within fifteen (15)
days after receipt of the defective item(s); however, Seller will respond
to emergency situations by immediately shipping Product on hand within
forty-eight (48) hours. At the cost identified in Exhibit D, Seller agrees
to repair or replace a particular type of Product for a period of five
Paradyne Corporation - PROPRIETARY
Use Pursuant to Company Instructions
Marketing & License Agreement, NetScout Systems, Inc.
Amendment Number 1
- --------------------
*** Confidential Treatment Requested
<PAGE> 6
(5) years following delivery of the last unit of such Product delivered
under this Agreement. Seller agrees to provide and maintain an adequate
stock of parts peculiar to the Product during this time to effect such
repair."
19. Add "Section 12.15 Quality: The Resale Products shall meet the quality
requirements of Exhibit E of this Agreement.
20. Section 18.4: Delete last sentence and replace with "However, such rights
will not become effective until such time as NetScout dissolves or ceases
to do business.
21. Section 18.5: Change reference to "Section 21, Termination" to read
"Section 21, Term and Termination."
22. Section 18: Add sub-section, Agreement to Negotiate Rights to the Resale
Produce:" Under the following conditions the parties agree to enter into
good faith negotiations for Paradyne to acquire the rights to manufacture,
further develop, market, service and sell NetScout Resale Products.
Discontinuance of the Resale Products defined in Exhibit A, provided
no functionally equivalent substitute is made available at or below
the specified price.
NetScout becomes insolvent, or ceases to honor its commitment to
deliver products under the terms of this Agreement.
Material Breach of this Agreement by NetScout that is not cured within
the time period as specified in Section 21, Term and Termination.
Notwithstanding the foregoing, the obligations of NetScout under this
Section are conditional upon Paradyne's ability to secure such
manufacturing usage licenses or other proprietary rights of third
parties, if any, as may be required to manufacture such Product.
NetScout agrees to provide reasonable assistance to Paradyne to secure
such rights."
23. EXHIBIT D: Add "and its Authorized Service Providers" after the word
"Paradyne" in the first sentence. Within the heading "Repair & Maintenance
Charges add "applicable to Paradyne and its Authorized Service Providers"
before the words "(single repair)". Within the heading "Maintenance
Agreements (h/w & s/w)" add "available to Paradyne and its Authorized
Service Providers". Under the heading "Repair Services" delete the last
sentence and replace with "Paradyne or Paradyne's customer shall be
responsible for transportation expenses to NetScout's facilities and
NetScout will be responsible for transportation expenses back to Paradyne
or Paradyne's customer." Under the heading "Priority Shipments" change
"twenty-four (24) hours" to "forty-eight (48) hours."
24. The Quality Agreement by and between the parties shall be attached hereto
and made a part of this Agreement as Exhibit E.
Paradyne Corporation - PROPRIETARY
Use Pursuant to Company Instructions
Marketing & License Agreement, NetScout Systems, Inc.
Amendment Number 1
<PAGE> 7
25. All other terms and conditions of the above stated Agreement remain
unchanged.
26. SIGNATURE
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the
date(s) set forth below.
PARADYNE CORPORATION NETSCOUT SYSTEMS, INC.
By: /s/ J. (?) By: /s/ Nathan (?)
--------------------------------- ------------------------------
Title: SUP Title: VP Business Development
------------------------------ ---------------------------
Date: 3/20/98 Date: 4/22/98
------------------------------- ---------------------------
Paradyne Corporation - PROPRIETARY
Use Pursuant to Company Instructions
Marketing & License Agreement, NetScout Systems, Inc.
Amendment Number 1
<PAGE> 8
EXHIBIT E
QUALITY
1.0 QUALITY ASSURANCE
Notwithstanding the post-acceptance obligations of Seller, Buyer has a
significant interest in the quality of the Product. Because the Product has a
useful life expectancy greater than the warranty obligation period and because
of the good will lost by malfunctioning Products, even though they may be
corrected at Seller's expense, it is agreed by Buyer and Seller that without
limiting or abridging Buyers rights to inspect the Product prior to acceptance
or Seller's post-acceptance obligations, the following provisions shall apply
to ensure acceptable quality for Products manufactured for Buyer under the
terms of this Agreement:
1.1 QUALITY CONTROL MONITORING & SOURCE INSPECTION
Buyer reserves the right, at any time during the term of this agreement,
with five (5) calendar days prior notice and subject to product availability,
to place one or more personnel in SELLER facilities to carry out inspection and
acceptance tests, process certifications, review of quality data, and other
functions Buyer may deem reasonably necessary to maintain quality objectives.
Personnel authorized by Buyer shall be empowered to reject the material
intended for the delivery to Customers in the event that such material fails to
meet required specifications or acceptance tests. In the event that the
Representative ascertains that an item of Product is defective, said
Representative will advise Seller's authorized personnel and such defect shall
be remedied prior to shipment. Rejected lots (or Products) will then be
corrected and re-submitted for re-inspection at Seller's expense.
Buyer may, at its option, implement a sampling inspection with lot
rejection in accordance with an appropriate sampling plan and inspection
procedure to be accomplished at Seller's facility. If any inspection or test is
made on Seller's premises, Seller shall, without additional charge, provide all
reasonable facilities and assistance for the safety and convenience of Buyer's
inspector subject to the security and safety regulations existing at the
facilities.
1.2 ACCEPTANCE TESTS
Acceptance test procedures for final manufacturing testing and for product
acceptance purposes will be mutually agreed upon buy the Buyer and Seller.
1.3 WORKMANSHIP STANDARDS
All Products shall be in compliance with the Buyer's workmanship
standards, IPC-A-610, as a minimum criteria of workmanship.
1.4 QUALITY CONTROL SYSTEM & ISO 9000 COMPLIANCE
Seller shall maintain the quality control system mutually agreed upon at
the Effective Date of this contract and as specified in the Specifications.
Seller shall, with every reasonable and timely effort, apply for and/or maintain
ISO 9001 registration. Seller is expected to use its reasonable best efforts to
attain and maintain acceptable ratings resulting from any future quality system
assessments.
Paradyne Corporation - PROPRIETARY
Use Pursuant to Company Instructions
Marketing & License Agreement, NetScout Systems, Inc.
Amendment Number 1
<PAGE> 9
1.5 SELLER/BUYER CONTINUOUS IMPROVEMENT EFFORTS
Buyer and Seller mutually agree to develop a continuous improvement plan in
an effort to reduce overall costs and improve Quality in both Processes and
Products that will mutually benefit both parties in the areas of:
a. On Time Shipments as measured by requirements set forth in Contract.
b. Repair Data, including DOAs, Infant mortality and Root Cause Analysis.
c. Electronic Data Interchange (EDI).
d. Utilizing freight carriers designated by Buyer in Buyer's Corporate
Routing Guide.
1.6 NOTIFICATION OF QUALITY ISSUES
Buyer is to be notified within 24 hours of catastrophic failures affecting
customer safety or equipment performance of Buyer equipment. These failures
include, but are not limited to, Product failures which greatly exceed the
normal failure rate of Buyer product, or line down conditions at SELLER which
may impact the timely shipment or quality of Buyer products. Buyer product
produced at SELLER must maintain a demonstrated confirmed DOA defect rate not
exceeding SELLER supplied MTBF calculations for Product.
1.7 CORRECTIVE ACTION FOR QUALITY ISSUES
SELLER is expected to maintain a functioning and documented Quality system
to provide timely and effective corrective action(s) regarding quality issues.
Upon request from Buyer, SELLER is to determine the root cause of quality
defects, ensure that these defects are prevented from shipping to customers, and
provide effective corrective action to prevent the recurrence of these, or
similar, defects. Buyer reserves the right to stop shipment of Buyer product
from SELLER facilities until such actions deemed necessary to corrective the
defect have been completed.
1.8 INSPECTION AT DESIGNATED DELIVERY LOCATION
Within 30 days of the receipt of any Product at its designated delivery
location, Buyer may submit such Product to the criteria as set forth in the
agreed upon Specifications. Buyer shall be entitled to reject any product that
fails to conform to the Purchase Specifications. Notice of any such rejection
shall be issued within five (5) business days by Buyer to Seller.
Upon rejection, Buyer will notify Seller of such rejection and cause for
rejection and return the entire shipment or any portion, to Seller. Seller
accepts all cost of rejected lost shipping charges back to Seller and Buyer, any
insurance costs, all risk of loss [F.O.B. Destination], and for rejected
Products. If Seller does not receive such notice of any such rejection from
Buyer within thirty [30] calendar days after shipment of Product, such Product
shall be deemed accepted by Buyer for purposes of this Section of this
agreement. Any Products returned under this Section of the agreement will be
shipped by a carrier selected by Seller, or Seller will be liable for freight
charges at a rate equivalent to Buyer's documented freight rates. If it is
determined that any Products returned by Buyer under this Section of this
agreement are conforming to the Specification then (i) Seller shall utilize such
Products for Buyer's releases and Buyer shall, notwithstanding anything to the
contrary in this Section, pay for the expenses associated with Buyers original
return of such Products to Seller under this Section. Notwithstanding the
foregoing, damage to Products caused by Buyer's Shipper shall not be considered
a nonconformity to the Specification.
1.9 FIRST INSTALL SUPPORT
Seller will provide, at Buyer's request, at locations selected by Buyer and
at no cost to Buyer, technically competent personnel and any necessary spare
parts to assist in the identification and resolution of any performance problems
which jeopardize the progress of the installations of the Product in the
continental United States. Seller will also provide, at Buyer's request, any
performance information available which could assist Buyer in an evaluation of
Product performance.
Paradyne Corporation - PROPRIETARY
Use Pursuant to Company Instructions
Marketing & License Agreement, NetScout Systems, Inc.
Amendment Number 1
<PAGE> 10
EXHIBIT F
NETSCOUT TRAINING
The following is a list of available NetScout Training Classes:
Available through March 31, 1998 from NetScout Training Department:
NETSCOUT MANAGER 5.0 - 3 DAY CLASS. STANDARD TUITION: $[***] PER STUDENT
This course is intended to provide network administrators and support
specialists with the knowledge and skills needed to extract the extensive
network monitoring data available through the deployment of NetScout
Manager in combination with NetScout RMON and Enterprise RMON probes.
At the conclusion of the class, participants will be able to:
Install and configure NetScout probes and NetScout Manager
Configure report data polling, report templates, and produce reports
created from polled data
Understand how RMON is used in managing and monitoring Ethernet, Fast
Ethernet, CDDI, FDDI, Token Ring, WAN and switched networks.
NETSCOUT WEBCAST - 1 DAY CLASS. STANDARD TUITION: $[***] PER STUDENT
At the conclusion of the class, participants will be able to:
Install and configure NetScout WebCast Software
Configure report data, report templates, and product reports created
from NetScout SQL database over the Web.
Starting April 1 Chesapeake will be NetScout's Authorized Training Partner
and the above two classes will be combined into
NETSCOUT MANAGER 5.0/WEBCAST TRAINING - 4 DAY CLASS, STANDARD TUITION $[***]
Starting April 1 NetScout will begin offering a class for partners such as
Paradyne:
NETSCOUT MANAGER FOR PARTNERS - 2 DAY CLASS, STANDARD TUITION $[***]
This course is intended to provide partner sales, sales engineers and
service support specialists with the knowledge and skills needed to extract
the extensive network monitoring data available through the deployment of
NetScout Manager in combination with NetScout RMON and Enterprise RMON
probes.
At the conclusion of the class, participants will be able to:
Use NetScout Manager to monitor network problems. The direction of
this new class will be to solve problems. It will be workstation
independent working more with the functionality of monitoring network
segments and trouble shooting problems, less on how to do the basics
such as installation and Unix command line actions.
NETSCOUT MANAGER ADVANCED TRAINING - 5 DAY CLASS, STANDARD TUITION $[***]
(Starting in May)
This course is intended to provide partner Technical Assistance Center
support specialists and Trainers
with the knowledge and skills needed
to provide first and second level TAC support to customers
Paradyne Corporation - PROPRIETARY
Use Pursuant to Company Instructions
Marketing & License Agreement, NetScout Systems, Inc.
Amendment Number 1
- ----------------------
*** Confidential Treatment Requested
<PAGE> 11
and authorized distributors and to Trainers developing course
materials and may be required to answer questions and use NetScout
Manager in ways not covered in a basic class.
Paradyne Corporation - PROPRIETARY
Use Pursuant to Company Instructions
Marketing & License Agreement, NetScout Systems, Inc.
Amendment Number 1
<PAGE> 12
MARKETING & LICENSE AGREEMENT
BY AND BETWEEN
NETSCOUT SYSTEMS, INC.
AND
PARADYNE CORPORATION
January 26, 1998
<PAGE> 13
This Marketing & License Agreement ("Agreement") is made this 26th day of
January, 1998, by and between NetScout Systems, Inc., a Delaware corporation
having its principal place of business at 4 Technology Park, Westford, MA 01886
("NetScout") and Paradyne Corporation, a Delaware corporation having its
principal place of business at 8545 126th Avenue North, PO Box 2826, Largo, FL
34649-2826 ("Paradyne"), (mutually hereinafter referred to as the "Parties").
WHEREAS, NetScout and Paradyne have entered into a memorandum of understanding,
dated December 2, 1997 ("MOU"), for the purpose of summarizing the discussion
between the Parties concerning the integration and co-marketing of each other's
products and technologies; and
WHEREAS, the MOU further sets forth the agreement of the Parties respecting the
arrangement, engineering commitments, training, support, licensing and
royalties obligations; and
WHEREAS, it is the Parties' intentions to enter into a definitive written
agreement no later than thirty (30) days from the date of the MOU, which shall
incorporate the terms and conditions governing such activities as set forth in
the MOU, and shall further define and establish the respective
responsibilities, obligations and rights concerning the transactions associated
with such activities and contemplated by the Parties hereunder, and
WHEREAS, it is the Parties intentions to enter into good faith negotiations to
complete an amendment to this Agreement incorporating mutually acceptable
manufacturing terms within thirty (30) days of the signing of this Agreement.
Now, in consideration of the covenants and premises contained herein, the
parties agree as follows:
1 Definitions
The following words, terms or phrases, where initialized with a capital
letter, shall have the meanings indicated in this section.
1.1 "Affiliate" shall mean an entity that controls, is controlled by or is
under common control with Paradyne (with "control" meaning ownership
of more than fifty percent (50%) of the voting stock of the entity or,
in the case of a non-corporate entity, an equivalent interest).
1.2 "Business Day" shall mean Monday through Friday, excluding local
holidays.
1.3 "Documentation" shall mean a functional description of the Licensed
Product, direction for installation, and use, and any other
explanatory material necessary for a user to perform all of the
functions of the Licensed Product.
1.4 "Customer" for the purpose of this Agreement shall mean the person(s)
or entity properly licensed to use the Licensed Product."
1.5 "Licensed Product" shall mean any NetScout software product/NetScout
RMON feature set embedded into a Paradyne Hardware product (English
and all Foreign Language versions), in object code form, all future
Revisions to such Licensed Product, and all Documentation associated
with such Licensed Product.
1.6 "Paradyne" shall include its Affiliates.
1.7 "Problem" shall mean a demonstrable instance of adverse and incorrect
operation of a Licensed Product due to a material non-conformance to
the Licensed Product's specification or Documentation.
1.7 "Resale Product" shall have the meanings as set forth in Exhibit B.
Marketing & License Agreement Paradyne and NetScout Confidential page 1
NetScout and Paradyne Use Pursuant to Company Procedures 01/26/98
<PAGE> 14
1.8 "Revision" shall mean any correction, modification, maintenance
release, update, enhancement, and/or new version of the Licensed Product.
1.9 "Software" shall mean all computer programs, databases and
firmware, (i) embedded in the Products or (ii) sold on a stand-alone basis as
Products, and all Documentation and technical specifications associated
therewith.
1.10 "Source Code" shall mean (i) all Software source code which has
been provided by NetScout (including from time to time each upgrade, enhancement
or other modification), together with, to the extent in existence, (A) any
pertinent commentary or explanation that may be necessary to render such Source
Code understandable and usable by a trained computer-programming expert, (B)
such system documentation, statements of principles of operation and schematics
as are necessary or useful for the effective understanding of such Source Code,
and (C) all devices, programming or documentation (including compilers,
workbenches, tools and higher-level proprietary languages) employed by NetScout
for the development, maintenance and implementation of such Source Code.
1.11 "Tier 1 Support" shall mean the services provided by Paradyne in
response to a Customer's initial notification of a suspected Problem.
1.12 "Tier 2 Support" shall mean the provision of diagnostics provided
by Paradyne to determine the severity of the Problem, attempt to reproduce and
correct the suspected Problem, or determine that the Problem cannot be
reproduced.
1.13 "Tier 3 Support" shall mean the provision of backup technical
and/or engineering services by NetScout the resolve a Problem that has been
determined to be, or is highly probable to be, the result of a design or
manufacturing defect that cannot be resolved by Paradyne.
2. THE ARRANGEMENT
2.1 Paradyne agrees, during the term of the Agreement, to conform to
the following:
2.1.1 to exclusively utilize NetScout's RMON network
management Software and related agent Software
applications in/with its RMON products during the term
of this Agreement; and
2.1.2 to market and offer for sale to customers the NetScout
Manager Plus Software and other NetScout software
modules as available, and exclusively recommend for
sale to customers head end probes in all FrameSaver
FRAUs with RMON technology networks, excepting sales to
customers whose RMON technology networks incorporate
hardware or software which has been purchased form
other source (e.g. through Cisco); and
2.1.3 not to: (i) directly or indirectly develop RMON-based
technologies which are competitive to NetScout, (ii)
position the FrameSaver or any other Paradyne product
as a probe; (iii) incorporate RMON support in any of
their network management platforms; or (iv)
manufacture, OEM or acquire third party probe products
for the purpose of offering such products to customers
as competitive products to NetScout's probes
2.2 NetScout agrees, during the term of the Agreement, to conform to
the following:
Marketing & License Agreement Paradyne and NetScout Confidential page 2
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<PAGE> 15
2.2.1 to reference Paradyne as a strategic partner for DSU's,
DSL's and Multiplexers; and
2.2.2 to provide Paradyne preference when sourcing DSU's or
integration of DSU technology into NetScout probe products,
provided Paradyne is meeting its obligations under this
Agreement and Paradyne's proposal is market competitive and
meets NetScout's functional specifications as defined by
NetScout's timely delivered Request for Proposal.
3. LICENSE
3.1 In accordance with the terms and conditions of this Agreement, Net
grants to Paradyne, and Paradyne accepts from NetScout, a worldwide,
perpetual, non-exclusive right and license to promote, market, sell,
license and distribute the Licensed Product as set out below. The
following terms and conditions govern the license granted by
NetScout, and NetScout's obligations thereunder.
3.1.1 NetScout has, upon execution of the MOU, provided Paradyne
with the Source Code for the Licensed Product for the
limited purpose of enabling Paradyne to port/embed the
following groups of RMON into its FrameSaver endpoint
devices:
3.1.1.1 RMON 1 - Statistics Group; RMON 1 - Alarm Group;
RMON 1 - Events Group; RMON 2 TOPN - IP Layer Host
Group, RMON 2 - Protocol Director Group; RMON 2 -
Protocol Distribution Group; NetScout WAN
Enterprise Extensions; and RMON 2 - User History
Group.
3.1.1.2 Paradyne shall further implement enhancements to
its FrameSaver FRAU's to provide mutually agreed
to MIB extensions which shall allow NetScouts
Manager Software access to Paradyne's patented
technology. Such patented technology provides
non-disruptive real-time monitoring of frame relay
parameters (e.g. latency on a per DLCI basis,
dropped packets and mapping of DLCI's to remote
end points.).
3.1.1.3 Paradyne expressly agrees to treat the Licensed
Product Source Code with the same degree of care
that Paradyne treats its own confidential source
code. Paradyne shall limit access to the Source
Code for the Licensed Product to Paradyne
employees to the extent that such employees need
access to perform their respective duties related
to embedding of the Licensed Product in
Paradyne's Framesaver endpoint devices.
3.1.2 Paradyne shall include license terms and conditions
substantially similar to those set forth in Exhibit C with
each Licensed Product sold.
3.1.3 Paradyne may use the Licensed Product for support
evaluation, maintenance, and other activities connected with
service of the Licensed Product including, without
limitation, the provision of updates and Revisions to
Customers.
3.1.4 Paradyne may copy and distribute Documentation for the
Licensed Product. Paradyne agrees to maintain NetScout's
copyright notices or
Marketing & License Agreement Paradyne and NetScout Confidential page 3
NetScout and Paradyne Use Pursuant to Company Procedures 01/26/98
<PAGE> 16
trademarks on all copies of Documentation that is
distributed to Customers.
3.1.5 Paradyne agrees: (i) not to create or attempt to create by
reverse engineering, disassembly, decompilation or
otherwise, the source code or internal structure, or
organization of the Products, or any part thereof, from any
object code or information that may be made available to
it, or aid, abet or permit others to do so; and (ii) not to
remove any Product identification or notices of any
proprietary or copyright restrictions from the Product or
any support material, except for one (1) archival copy.
3.1.6 Paradyne is prohibited from making any modifications,
adaptations, enhancements, changes, or derivative works of
the Licensed Product unless authorized in writing by
NetScout. Notwithstanding the preceding sentence, Paradyne
is expressly authorized to perform whatever work is
necessary or advisable by NetScout to embed the Licensed
Product in Paradyne's FrameSaver products as defined below.
To the extent NetScout authorizes the development of
derivative works, Paradyne shall thereafter retain title to
the derivative work developed by or on behalf of Paradyne,
provided that NetScout shall retain title to the underlying
work upon which such derivative work is based.
4 TITLE AND RIGHTS TO THE LICENSED PRODUCT
4.1 The Licensed Product and Revisions to the Licensed Product are
proprietary to NetScout, and NetScout shall retain all right,
title and interest in and to the Licensed Product including all
rights under applicable patents, copyrights, trademarks and
trade secrets, and to any foreign language version of the
Licensed Product developed or acquired by NetScout.
4.2 NetScout represents that it has at the time of execution of this
Agreement, and will continue to maintain during the term of this
Agreement, the full right and authority to grant this license,
and that neither this license nor performance under this
Agreement does or shall conflict with any other agreement or
obligation to which NetScout is a party or by which it is bound.
4.3 To the extent necessary to give effect to this Agreement, the
licenses granted to Paradyne shall include rights under any
applicable patents, copyrights, trademarks and trade secrets
belonging to NetScout or which NetScout has acquired or may
acquire.
4.4 Paradyne agrees to include NetScout's copyright notice on all
copies of the Licensed Product in substantially the following
form: "portions of this software licensed by NetScout Software,
Inc., Westford, Massachusetts, Copyright(c) [NetScout(TM)] 19__,
All rights reserves."
5. ENGINEERING REQUIREMENTS
5.1 In consideration of Paradyne's purchase obligation as defined
below, NetScout agrees to perform the following engineering
services:
5.1.1 to co-develop the revised RMON User History Group for
support of Paradyne's standard and enterprise MIB's;
Marketing & License Agreement Paradyne and NetScout Confidential page 4
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<PAGE> 17
5.1.2 to deliver the device code for RMON User History Group
capability prior to the alpha availability of the
NetScout agent code version 4.5;
5.1.3 to deliver the updated NetScout Manager Plus Software
that supports configuration and graphical display of the
RMON User History Group capability prior to the beta
availability of the NetScout Manager Software, version 5.5.
5.1.4 NetScout agrees to negotiate in good faith any engineering
changes requested by Paradyne which represent changes in
functionality of the Products not currently included in
NetScout's specifications and user manuals, and not
addressed in NetScout's future development plans may be
identified by NetScout under non-disclosure during business
reviews. NetScout's decision to incorporate any such
engineering changes will be primarily based on Paradyne's
projected sales forecast for such functionally modified
products and the expense to institute the proposed changes.
5.2 NetScout further agrees to provide engineering consulting services to
Paradyne at a rate of [***] dollars per month ($[***] month)
during the porting of the Licensed Product into the Paradyne
FrameSaver endpoint devices. The recommended approach for such
engineering consulting services shall be for Paradyne to bring their
engineering environment to NetScout's facilities to enable Paradyne's
engineers to work more closely with NetScout's engineers and
resources (e.g. QA, testing labs, etc.).
5.3 Epidemic Failure. As a result of the limited purchase volumes
forecasted during the Initial Term of the Agreement, NetScout shall
not establish a definitive position regarding percentages, penalties
and/or specific action plans to address "Epidemic" failures which may
occur during the term of this Agreement. NetScout agrees, however, in
the event that Paradyne or its Customers identify an unreasonably
excessive amount of defective, failed or dead on arrival ("DOA")
products during any quarterly period, to establish an action plan to
effect an immediate remedy to the problem. NetScout further agrees to
provide on-site technical support and all necessary parts to repair
or replace product known to be affected by such Epidemic, and to use
commercially reasonable efforts to ensure that the appropriate
quality controls and other measures are taken so that all product of
similar type supplied subsequent to the date of such an Epidemic
shall be free from the problems which caused the Epidemic.
6. TECHNICAL SUPPORT
6.1 NetScout agrees to provide Tier 3 Support via a telephone
support service as set forth in Exhibit D. The telephone support
service will be delivered by a NetScout support person during
NetScout's normal working hours (8 am - 6 pm, EST.), and a best
effort paging service after hours, on weekends and holidays.
Paradyne shall pay a fee of [***] ($[***]) annually, billed
quarterly, for the first year of Tier 1 and 2 Support; fees for
years 2 and 3 and any subsequent extensions of the Agreement shall
be mutually determined thirty (30) days prior to the expiration of
the then current year. Fee considerations shall include a range of
[***] percent ([***]%) of install base dollar and escalation call
volumes.
Marketing & License Agreement Paradyne and NetScout Confidential page 5
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<PAGE> 18
6.2 NetScout will provide Paradyne with updates and Revisions to Licensed
Product at the time NetScout makes such updates and Revisions for
beta to enable Paradyne to meet its Customer support requirements.
6.3 Thirty (30) days prior to the date of public distribution of a
Revision, NetScout will, if applicable, provide the source code of
such Revision to Paradyne to enable Paradyne to port/embed the
Revision to the FrameSaver endpoint devices. NetScout will make best
efforts to provide written notification to Paradyne at least
forty-five (45) days prior to any new release or new version of the
Licensed Product, or any change in the Licensed Product that would
materially affect its performance in the FrameSaver endpoint devices.
6.4 NetScout will support and maintain the most current version and one
(1) version immediately preceding the then most current version of
the Licensed Product as modified to run in the FrameSaver end point
devices. Such support and maintenance will be provided for the term
of this Agreement. In the event NetScout discontinues manufacture and
license of the Licensed Product, NetScout agrees to continue support
and maintenance services for a period of one (1) year from such
discontinuance.
7 TRAINING
7.1 NetScout agrees to provide initial Product training for a mutually
determined numbers of Paradyne employees at NetScout's Westford, MA
location. The initial training shall be provided at no charge,
excluding payment of travel and lodging of Paradyne's employees.
NetScout further agrees to provide no charge training (excluding
payment of travel and lodging of Paradyne's employees) for up to ten
(10) Paradyne employees prior to each major Software release.
Additional students may be added to the Software release training
classes at NetScout's published rates. Any other training required
beyond the initial and major release training will be performed at
NetScout's published rates. It is recommended that "train the
trainer" personnel participate in the initial and/or major release
training to support an efficient and cost effective training roll-out.
8 SALES DEMONSTRATION PRODUCTS
8.1 Paradyne shall procure, at the applicable hardware resale discounts,
a mutually determined number of hardware Products to be used for
sales, Customer demonstration and Beta Test purposes.
8.2 Paradyne shall procure, at a cost of [ *** ] dollars ($[ *** ]) per
copy, a mutually determined number of NetScout Manager Plus Software
packages to be used for sales demonstrations. Paradyne will keep such
demonstration Software current by procuring additional Software for
each Major release developed by NetScout. NetScout shall issue a
permanent license for each demonstration Software product purchased.
Paradyne shall be responsible for maintaining the licenses (serial
tracking and platform designations), and shall identify the serial
number and product platform (e.g. Unix or NT) when ordering upgrades
for the Software product.
8.3 Paradyne shall procure, at a cost of [***] dollars ($[*** ]) per copy,
a mutually determined number of NetScout Manager Plus Software
packages to be used for Customer evaluations. Paradyne will keep such
evaluation Software
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current by procuring additional Software for each Major release
developed by NetScout. NetScout shall issue a limited ninety
(90) license for such Software product purchased. Such license
may only be extended by express written approval by NetScout.
8.4 The fee paid by Paradyne for demonstration and evaluation
Software products shall cover the cost of the CD, Documentation,
order processing and administration. Software product orders
shall comply with the purchase order process defined hereinbelow.
9 MARKETING
9.1 NetScout will assist Paradyne, as necessary, to develop
marketing materials to promote the sale of the FrameSaver end
point devices that contain the Licensed Product.
9.2 Paradyne agrees to allocate sufficient funding to complete
twelve (12) seminars per year and to institute direct mail
programs.
9.3 NetScout grants Paradyne the right and license to use NetScout's
name and trademarks in connection with the marketing and sale of
the FrameSaver products, the Licensed Product, and Resale
Products (NetScout Manager Plus and NetScout probes).
10 DOCUMENTATION
10.1 NetScout will provide sufficient copies of its Documentation,
including any applicable copies in electronic form, to enable
Paradyne to incorporate printed copies of the end user
Documentation with each FrameSaver product shipment. The
Documentation may be distributed either as a standalone manual
or in conjunction with Paradyne's standard documentation,
provided, however, that NetScout's proprietary markings remain in
place and are clearly marked. NetScout retains all underlying
rights and ownership to any pre-existing Documentation that may
be utilized by Paradyne to create end user marketing, sales and
technical documentation for the FrameSaver products.
10.2 NetScout grants Paradyne the right to copy NetScout's
Documentation to distribute internally to its sales and
engineering organization, and externally to Customers either in
promotion of the products or in conjunction with the delivery of
the FrameSaver products.
10.3 Any portion of NetScout documentation used in Paradyne
documentation may be promoted in manners consistent with current
tools available (e.g. the Paradyne Web page). Paradyne, however,
may not incorporate NetScout's entire manual(s) onto its Web
page.
11 ROYALTY FEES AND PAYMENT
11.1 Paradyne agrees to pay NetScout, net thirty (n/30) days after
the close of each quarter, a royalty, as defined in Exhibit A,
for each FrameSaver product (56k and T1 versions) sold with
embedded Licensed Product, during the previous quarter for the
term of this Agreement, any extensions to this Agreement, and
any resulting survival periods. Notwithstanding the preceding
sentence, in the event Paradyne elects to price the RMON feature
set separately, the NetScout royalty shall be [***] percent
([***]%) of the separate list price for the RMON
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feature or [***] as listed for each version of embedded RMON listed in
Exhibit A.
11.2 Payment of service support fees as described in Section 6.1
hereinabove shall be due net thirty (n/30) days after the close of
each quarter.
11.3 Any payments made to NetScout, whether as royalties for the Licensed
Product sales or for Resale Product purchases, shall be made without
deduction for any sales use, value-added or other taxes, duties or
levies, except that Paradyne shall have the right to withhold from
payments to NetScout any taxes that Paradyne is required to withhold
under applicable law. Paradyne shall provide NetScout with a
certificate form the applicable tax authorities or other evidence
reasonably required by NetScout to evidence such tax withholding
status.
11.4 Paradyne agrees to provide audit reports to NetScout on a quarterly
basis indicating the number of Licensed Products sold during the
previous quarter to assist the Parties in their quarterly royalty
reconciliation.
11.5 The Parties agree to meet twice annually to review royalty pricing in
light of competitive pressures. Royalty pricing shall be adjusted,
accordingly, to respond to competitive pricing pressures.
12 NETSCOUT RESALE PRODUCTS TERMS AND CONDITIONS
12.1 Paradyne Purchase Obligation. During the first twelve (12) months
following availability of the FrameSaver FRAU's incorporating the
Licensed Product Paradyne agrees to purchase [***] dollars ($[***]) of
NetScout products of which [***] dollars ($[***]) shall be Resale
Products.
12.2 Pricing & Discounts. In consideration of Paradyne's purchase
obligation as set forth in 11.1 above, NetScout extends to Paradyne
the right and license to resell NetScout's probes, management and
diagnostic applications (the "Resale Products"), set forth in Exhibit
B; and, grants Paradyne, for the initial term of this Agreement, a
purchase discount equal to [***] percent ([***]%) and [***] percent
([***]%) off of NetScout's then current list price for NetScout
Manager Software and probes, respectively.
Thirty (30) days prior to the end of the initial term and any
subsequent term of this Agreement, the Parties agree to meet to review
purchase volumes and determine the appropriate Resale Products'
discount level for the next term of the Agreement.
12.3 Purchase Orders. Resale Product orders may be initially made via
telephone or facsimile, provided Paradyne follows the orders with hard
copy purchase orders ("PO's") within a reasonable period of time
thereafter. PO's shall include the following details: Paradyne's part
number for NetScout's products, description, quantity, delivery
date(s) and PO dollar total.
12.4 Order Acceptance & Lead-time. NetScout will accept orders and confirm
delivery schedules within twenty-four (24) hours from receipt of
Paradyne's order placement. NetScout's normal lead-time for NetScout
products is twenty-one (21) days from order placement. NetScout,
however, will make the best efforts to meet, as necessary, Paradyne's
priority requirements.
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12.5 Cancellation/Reschedule. Paradyne reserves the right to cancel PO's or
parts of PO's, without penalty, provided the requested cancellation is
made more than ten (10) days from the scheduled delivery of the
products. Any cancellation requests made inside the eleven (11) day
window shall be subject to [ ] percent (%) cancellation fee. Paradyne
also reserves the right to reschedule PO's or parts of PO's at any
time prior to the scheduled delivery date provided the requested
delivery date does not extend beyond sixty (60) days from the
originally scheduled delivery date.
12.6 Price Changes. NetScout reserves the right to add/delete products from
the attached price list, and further reserves the right to modify
pricing, as required, at any time during the term of this Agreement.
NetScout shall make best efforts to notify Paradyne at least thirty
(30) days prior to any price changes. In the event of a price increase
for Resale Products after order acceptance by NetScout, the applicable
price shall be the price in effect at the time the order was accepted
by NetScout provided the order is scheduled to ship within sixty (60
days from the date of order placement. In the event of a price
decrease in the price of the Resale Products, NetScout shall, on the
effective date of the decrease in price(s), automatically adjust any
unshipped orders for all affected Resale Products to reflect the lower
pricing. In the event of a price increase, NetScout will provide price
protection (e.g. offer products at the lower pricing) for: (i) any
orders placed prior to the price increase and scheduled to ship within
sixty (60) days from the date of the price increase, and (ii) any new
orders placed within sixty (60) days after the price increase.
12.7 Limited Resale Product Warranty. NetScout warrants the Resale Products
for a period of ninety (90) days from a Customer's acceptance that the
Resale Products will be free from defects in material and workmanship.
NetScout shall repair or replace, at no charge, any Resale Products
returned to NetScout during the warranty period. This is NetScout's
sole remedy to Paradyne and/or End Users under this Agreement for
warranty claims.
NETSCOUT HEREBY DISCLAIMS ANY IMPLIED WARRANTIES OR MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. THE WARRANTIES MADE IN THIS
PARAGRAPH ARE MADE IN LIEU OF ALL OTHER EXPRESS WARRANTIES, WHETHER
ORAL OR WRITTEN.
12.8 Payment. Payment for the Resale Products shall be due net thirty
(n/30) days from the date of receipt by Paradyne. Any payments made to
NetScout for Resale Product purchases shall be made without deduction
for any sales, use, value-added or other taxes, duties or levies,
except that Paradyne shall have the right to withhold from payments to
NetScout any taxes that Paradyne is required to withhold under
applicable law. Paradyne shall provide NetScout with a certificate
from the applicable tax authorities or other evidence reasonably
required by NetScout to evidence such tax payment.
12.9 Title & Risk of Loss. All orders shall be shipped FOB, Westford, MA.
Title and risk of loss shall immediately pass upon delivery to the
respective carrier.
12.10 Point of Sale Reporting. Paradyne agrees to provide to NetScout,
within thirty (30) business days of the close of each calendar
quarter, Point of Sale (POS)
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reports identifying the quantity and dollar value, and zip
code/country code, for the Resale Products sold by Paradyne in
the previous calendar quarter.
12.11 Service and Support. Paradyne shall be obligated to provide
customer service and support for Resale Products during the
applicable warranty period, with backup support from NetScout as
necessary. NetScout shall be responsible for providing customer
service and support for out of warranty Resale Products, provided
such Resale Products carry maintenance agreements. Escalation
guidelines and post warranty service charges are incorporated in
Exhibit D.
13 CONFIDENTIAL INFORMATION
All confidential information exchanged by the Parties during the term of
this Agreement shall be treated pursuant to a certain Non-Disclosure
Agreement, effective December 3, 1997, and incorporated herein by
reference.
14 LICENSED PRODUCT LIMITED WARRANTY AND DISCLAIMER OF LIABILITY
14.1 NetScout has no control over the conditions under which Paradyne
and Customers use the Licensed Product, and does not/cannot
warrant the results obtained by such use.
14.2 NetScout warrants that no security measures have been
incorporated in the Licensed Product which would impair its use
and operation except such measures as are disclosed to Paradyne
in writing and approved by Paradyne in writing.
14.3 In addition to warranting that it has the right to grant the
licenses contained in this Agreement, NetScout warrants under the
terms and conditions of the End User license agreement, attached
hereto as Exhibit C, that the magnetic media on which the
Licensed Product resides shall be free from defects in material
and workmanship under normal usage. NetScout further warrants
that the Licensed Product will perform substantially in
accordance with the current written functional specifications and
documentation. The warranties contained in this paragraph are
made for a period of ninety (90) days from the date that the
Licensed Product is delivered to the Customer.
14.4 NetScout warrants that it has the right and is duly authorized to
enter into this Agreement and has sufficient rights, title and
interest in and to the Licensed Product and related Documentation
to grant the licenses and shall not make commitments to others
inconsistent herewith.
14.5 NetScout does not warrant that the functions contained in the
Licensed Product will meet the requirements of Paradyne or the
Customer, or that the operation of the Licensed Product will be
uninterrupted or error free. The warranty shall not cover any
copy of the Licensed Product that has been altered or changed in
any way by Paradyne, excepting changes authorized by NetScout
pursuant to Section 3.1.6 hereinabove, or by the Customer.
NetScout further shall not be responsible for problems caused by
changes in or modifications to the operating characteristics of
any computer hardware or operating system on which the Licensed
Product was intended to be used, nor will NetScout be responsible
for problems which occur as a result of the use of the Licensed
Product in conjunction with hardware which is incompatible with
the operating system for which the Licensed Product was designed
for and/or intended to be used with.
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14.6 THE FOREGOING LICENSED PRODUCT WARRANTIES OF NETSCOUT ARE IN LIEU
OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
14.7 The above warranties shall survive any delivery, acceptance,
payment, termination or expiration of this Agreement or any PO's
provided hereunder, and shall run to Paradyne, its successors,
assigns, Customers and users of the Licensed Product.
15. ENGINEERING CHANGES
15.1 NetScout may, without prior approval from or prior notice to
Paradyne, make changes to the Licensed Products (i) which do not
adversely affect interchangeability with previously shipped
Product or (ii) when required for safety, regulator, or legal
purposes.
15.2 NetScout will notify Paradyne forty-five (45) day in advance of
scheduled shipment of any changes to the NetScout software
product/NetScout RMON feature set embedded into a Paradyne
hardware product ("Embedded Products") which adversely affect
interchangeability with previously shipped Embedded Products.
NetScout further agrees to provide, with its forty-five (45) day
advanced notification, upgrade recommendations that will
reconcile any interchangeability problems which may result form
the proposed changes.
16. NEW PRODUCT DEVELOPED BY SELLER
16.1 If NetScout develops a new product that NetScout believes will
benefit both parties, NetScout shall notify Paradyne in writing
at least sixty (60) days prior to the time of the initial public
announcement of such new product, unless other terms are mutually
agreed upon, in advance and in writing, by the paries. At the
time of such written notice, NetScout shall also provide to
Paradyne a beta product along with any available specifications,
description, and technical data to enable Paradyne to perform an
engineering evaluation of the new product.
17. PRODUCT DISCONTINUANCE
17.l NetScout agrees to notify Paradyne at least twelve (12) months
prior to the discontinuance of any Resale Product listed in
Exhibit B of this Agreement. Paradyne shall be granted a right to
make a last time buy of the discontinued Resale Product during
the notice period, and shall receive technical support of the
Resale Product and all replacement Resale Products throughout the
term of this Agreement, and for a period of five (5) years after
the Agreement expires.
18. EXTENSION OF MANUFACTURING RIGHTS
18.1 A perpetual license to continue embedding the Licensed Products
during the manufacture of the Paradyne products listed in Exhibit
A, shall be granted to Paradyne under the following conditions:
18.2 Discontinuance of the Licensed Products defined in Exhibit A,
provided no functionally equivalent substituted is made available
at or below the specified price.
18.3 A new Licensed Product replaces or obsoletes existing Licensed
Product and the
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new Licensed Product fails to meet the specifications defined herein
this Agreement.
18.4 NetScout becomes insolvent. Paradyne will have the right to withdraw
the Manufacturing Information contained in the escrow account in
preparation for manufacturing the Products. However, such rights will
not become effective until such time as NetScout dissolves or ceases
to do business.
18.5 Material Breach of this Agreement by NetScout that is not cured
within the time period as specified in Section 21, Termination.
18.6 Such perpetual license will be subject to the royalties set forth in
Exhibit A.
18.7 Notwithstanding the foregoing, the obligations of NetScout under this
Section are conditional upon Paradyne's ability to secure such
manufacturing usage licenses or other proprietary rights of third
parties, if any, as may be required to manufacture such Product.
NetScout agrees to provide reasonable assistance to Paradyne to
secure such rights.
19. LIMITATION OF REMEDIES
19.1 Except as set forth in the Indemnity section below, NetScout's
entire liability and Paradyne's exclusive remedy for breach of
Section 14 shall be the replacement by NetScout of any Licensed
Product which fails to meet NetScout's Limited Warranty defined in
such section. Neither party shall have any liability for special,
incidental or consequential damages, including lost profits, arising
out of this Agreement or with respect to the installation, use
operation or support of the Licensed Product and Resale Products,
even if such party has been apprised of the possibility of such
damages.
19.2 Except as set forth in the Indemnity section below, either party's
total liability arising from breach of warranty, breach of contract,
negligence, strict liability or tort, or any other legal theory shall
in no way exceed the greater of (i) the sum total of license fees
paid and Resale Products purchased by Paradyne, and (ii) ____________
dollars ($_________). This limitation of liability shall not apply to
personal injury or direct damage resulting from claims of gross
negligence or willful misconduct, provided the injured party asserts
a right to recover those direct damages from the other Party.
20. INDEMNIFICATION
20.1 NetScout shall defend, hold harmless and indemnify Paradyne and its
Customers from and against any claim that NetScout's Licensed
Product, Resale Products and Documentation (collectively the
"Materials") supplied or licensed hereunder infringe any patent,
copyright, trade secret, trademark or other intellectual property
rights of a third party, and NetScout will pay the costs and damages
related thereto, including, without limitation, reasonable attorneys'
fees, provided that: (a) Paradyne promptly notifies NetScout in
writing of the claim; and (b) NetScout has sole control of the
defense and all related settlement negotiations.
20.2 The obligation of NetScout under paragraph 1 of this Section 20 is
conditioned on Paradyne's agreement that if the Materials or the
operation thereof, become, or in the opinion of NetScout, are likely
to become, the subject of such a claim, that Paradyne will permit
NetScout, at the sole option and expense of NetScout, either
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<PAGE> 25
to procure the right for Paradyne to continue marketing and
distributing the Materials or to replace or modify them so that they
become non-infringing, provided that such replacement or modification
does not materially degrade the performance or functionality of the
Materials NetScout shall have no liability for any claim based upon
the combination or use of any of the Materials supplied hereunder with
equipment, data or programming not supplied by NetScout, or based upon
alteration or modification of NetScout's Material by Paradyne,
provided the liability would not arise absent the combination,
alteration or modification.
20.3 The foregoing states the entire obligation of NetScout to Paradyne
with respect to infringement of patents, copyrights and trade secrets,
trademarks or other intellectual property rights.
21 TERMS AND TERMINATION
21.1 Term. The initial term of this Agreement shall be three (3) years from
the date set forth in the first sentence of this Agreement.
Thereafter, this Agreement shall automatically be renewed for
additional one (1) year terms, unless terminated by either party upon
ninety (90) days advance written notice to the other party.
21.2 If either party ceases doing business as a going concern, becomes
insolvent, suffers or permits the appointment of a receiver for its
business or assets or shall avail itself of, or become subject to, any
proceeding under the Federal Bankruptcy Code of 1978, (as amended), or
any statute of any state relating to insolvency or the protection of
rights of creditors, then (at the option and upon noticed from the
other party) this Agreement shall terminate and be of no further force
and effect.
21.4 In the event either party defaults any obligations in this Agreement,
the other party shall give written notice of such default, and, if the
party in default fails to cure within sixty (60) days of the notice,
the other party shall have the right to terminate. NetScout's right to
terminate, however, shall be immediate in the event of breach by
Paradyne of Section 2.1.3 hereinabove.
21.5 Upon termination of this Agreement, regardless of the reason, the
rights and licenses granted to Paradyne under this Agreement shall be
immediately revoked. Within ten (10) days after termination, Paradyne
shall return to NetScout or destroy, at NetScout's discretion, the
Source Code for the Licensed Product and all copies thereof, except
those copies necessary for continued maintenance and support as set
forth in Section 3.1.3 hereunder. Any such destruction shall require
certification in writing that the Source Code and any copies thereof
have been destroyed. TERMINATION SHALL NOT RELIEVE PARADYNE OR
NETSCOUT OF ITS OBLIGATIONS REGARDING THE CONFIDENTIALITY IN ANY
LICENSED PRODUCT(S).
21.6 Without limiting any of the provisions contained in the preceding
paragraphs of this section, in the event of termination as a result of
Paradyne's failure to comply with any of its obligations under this
Agreement, Paradyne shall continue to be obligated for any payments
due as of the date of termination. Termination of Paradyne's license
rights shall be in addition to an not in lieu of any equitable
remedies available to NetScout.
21.7 All notices of termination will be in writing and delivered pursuant
to Section
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23.7 All notices shall be mailed to the name and address listed
below in the Notices section.
21.8 Rights and Obligations after Termination. Excepting any rights
provided hereinabove, the Parties mutually agree to return to each
other, no later than thirty (30) days after termination of this
Agreement, any Confidential Information which has been provided.
22 ARBITRATION
22.1 Any controversy or claim, whether based on contract, tort, or other
legal theory (including, but not limited to, any claim of fraud or
misrepresentation), arising out of or related to this Agreement
shall be resolved by arbitration pursuant to this Paragraph and
the then current rules and supervision of the American Arbitration
Association. The duty to arbitrate shall extend to any officer,
employee, agent, or subsidiary making or defending any claim which
would otherwise be arbitrable hereunder. The arbitration shall be
held in the headquarters city of the party not initiating the claim
before a single arbitrator who is knowledgeable in business
information and electronic data processing systems. The
arbitrator's decision and award shall be final and binding and may
be entered in any court having jurisdiction thereof. The arbitrator
shall not have the power to award punitive or exemplary damages.
Issues of arbitrability shall be determined in accordance with the
federal substantive and procedural laws relating to arbitration; all
other aspects shall be interpreted in accordance with the laws of
the State of New York. Each party shall bear its own attorney's
fees associated with the arbitration and other costs and expenses
of the arbitration shall be borne as provided by the rules of the
American Arbitration Association. If court proceedings to stay
litigation or compel arbitration are necessary, the party who
unsuccessfully opposes such proceedings shall pay all associated
costs, expenses and attorney's fees which are reasonably incurred
by the other party. If any portion of this Paragraph is held to be
unenforceable, it shall be served and shall not affect either the
duty to arbitrate hereunder or any other part of this Paragraph.
23. GENERAL
23.1 Governing Law. This Agreement and any PO's issued hereunder shall
be governed by and interpreted in accordance with the laws of New
York.
23.2 Compliance with Laws. All materials and products supplied and work
performed under this Agreement shall comply with all applicable
United States and foreign laws and regulations. Either party's
failure to comply with any of the requirements of this Section may
result in a material breach of this Agreement.
23.3 Assignment: Either party shall have the right to assign this
Agreement and to assign its rights and delegate its duties under
this Agreement either in whole or in part at any time upon written
notice to the non-assigning party and without the non-assigning
party's consent.
Upon an assignment by either party and with thirty days prior
written notice the non-assigning party may terminate the Agreement
in the event that the assignee, in the non-assigning party's
reasonable opinion, is a competitor of the non-assigning party or
is of questionable financial stability and/or soundness.
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An assignment pursuant to this section shall neither affect nor
diminish any rights or duties that either party may then or
thereafter have as to Products, Licensed Materials or Services
delivered prior to the effective date of this assignment. Upon the
assumption of the duties under this Agreement by the assignee, the
assigning party shall be released and discharged, to the extent of
the assignment, from all further duties under this Agreement as to
Products, Licensed Materials or Services not delivered by the
assigning party by the effective date of the assignment.
23.4 Modification/Binding Effect. This Agreement shall not be valid until
signed and accepted by an authorized representative of each Party,
and no Party shall be bound by any change, alteration, amendment,
modification, termination or attempted waiver of any of the
provisions hereof unless in writing and signed by an authorized
representative of the Party against whom it is sought to be enforced.
This Agreement shall be binding on and inure to the benefit of the
Parties hereto and their prospective successors, legal
representatives and permitted assigns.
23.5 Nonwaiver.
23.5.1 All rights and remedies conferred by this Agreement, by any
other instrument, or by law are cumulative and may be
exercised singularly or concurrently. If any provision of this
Agreement is held invalid by any law or regulation of any
government or by any court, such invalidity shall not affect
the enforceability of any other provisions hereof.
23.5.2 No forbearance, delay or indulgence by either party in
enforcing the provisions of this Agreement shall prejudice or
restrict the rights of that party nor shall any waiver of its
rights operate as a waiver of any subsequent breach and no
right, power or remedy herein conferred upon or reserved for
either party is exclusive of any other right, power or remedy
available to the Party and each such right, power or remedy
shall be cumulative.
23.5.3 Either Party may seek injunction preliminary or other
equitable relief to remedy any actual or threatened dispute.
23.6 Independent Contractor. The relationship between the Parties is that
of independent contractors, and under no circumstances shall any of
the employees of one party be deemed to be employees of the other
party for any purpose. Except as specifically provided herein, this
Agreement shall not be construed (a) as authority for either party to
act for the other in an agency or any other capacity, or to make
commitments of any kind for the account of or on behalf of the other
or (b) to imply that Paradyne is an agent of NetScout as defined by
applicable law.
23.7 Notices.
Any legal notices ("Legal Notices") given under this Agreement shall
be written and shall be sent by registered or certified mail, postage
prepaid, return receipt requested, overnight courier services with
signature verification, personal delivery, or facsimile if followed
up with original document via any one of the aforementioned delivery
modes. Legal Notices shall be defined as any written correspondence
made by either party to amend or modify this Agreement, provide
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<PAGE> 28
notice of cure in the event of breach, provide notice of
termination/expiration, or to initiate legal proceedings, as provided
for by law, in the event of a contract dispute or tortious action
resulting from the negligence of either party in performing its
obligations hereunder. All Legal Notices shall be effective when first
received at the following addresses listed below:
If to NetScout: If to Paradyne:
NetScout Systems, Inc. Paradyne Corporation
4 Technology Park 8545 126th Avenue North
Westford, MA 01886 PO Box 2826,
Largo, FL 34649-2826
Attention: Charles Tillett Attention: Manager of Corporate
Contracts
with copies to: Nathan Kalowski with copies to: Director of
and Eileen Haggerty Frame Relay
Products
23.8 The Parties mutually agree that technical notices, sales, marketing
and business information shall not be considered Legal Notices, and
shall not follow the formal notice processes defined above, and may be
delivered to/from each other's office locations by personal delivery,
mail or express carrier, electronic means, or facsimile.
23.9 Force Majeure. Neither party will be liable for delay in performing
its obligations or for any failure to perform its obligations
hereunder, if the delay results from circumstances beyond the
reasonable control of the Party including, but not limited to, force
majeure, Act of God, refusal of license, law, ordinance, policy,
regulation, decree, order, judgment or governmental act, utility
curtailments, power failures, fire, flood, bad weather, explosion,
accident, civil commotion, war or act of war, industrial dispute, or
impossibility of commercial impracticability of obtaining materials or
services or providing service due to any of the above circumstances.
23.10 Headings Identification. The headings appearing at the beginning of
the sections contained in this Agreement have been inserted for
identification and reference purposes only, and shall not be used in
the construction and interpretation of this Agreement.
23.11 Entire Agreement/Order of Precedence. Each party acknowledges that it
has read this Agreement, understands it, and agrees to be bound by its
terms, and further agrees that this is the complete and entire
understanding between the Parties on this subject matter and
supersedes all prior agreements, proposals, representations,
statements, or understandings between them on this subject. The
provisions of this Agreement may be amended or waived only by a
writing executed by the authorized representatives of the Parties
hereto. In case of conflict of terms between the terms and conditions
of a PO or an invoice and the terms and conditions of this Agreement,
the terms and conditions of this Agreement shall prevail.
23.12 Survival. All sections, which by their nature should survive the
expiration or
Marketing & License Agreement Paradyne and NetScout Confidential page 16
NetScout and Paradyne Use Pursuant to Company Procedures 01/26/98
<PAGE> 29
termination of this Agreement, shall survive, including, without
limitation, Sections 4.2, 4.4, 5, 12, 13, 17, 18, 19, 20, 21 and 23
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement.
NETSCOUT SYSTEMS, INC. PARADYNE CORPORATION
/s/ Nathan Kalowski /s/ Pat Murphy
- ---------------------------- --------------------------------
Signature Signature
Nathan Kalowski Pat Murphy
- ---------------------------- --------------------------------
Name Name
VP, Business Development S.V.P. & CFO
- ---------------------------- --------------------------------
Title Title
Marketing & License Agreement Paradyne and NetScout Confidential page 17
NetScout and Paradyne Use Pursuant to Company Procedures 01/26/98
<PAGE> 30
EXHIBIT A
PRODUCT ROYALTY SCHEDULE
<TABLE>
<CAPTION>
T1 56k
Product Royalty Royalty Description
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
FrameSaver 9620/9120 $[***] $[***] Existing Products.
Contains no NetScout Intellectual
Property.
FrameSaver 962x/912x $[***] $[***] Contains NetScout mini-RMON1,
w/RMON mini-RMON2, IP Top Talkers, and
User History Group Intellectual
Property
FrameSaver 9621/912x $[***] $[***] Contains NetScout mini-RMON1
w/RMON buckets and User History Group Intellectual
Property.
All other Paradyne DSU's $[***] $[***] Existing products. Contains no
NetScout Intellectual Property.
</TABLE>
Marketing & License Agreement Paradyne and NetScout Confidential page 18
NetScout and Paradyne Use Pursuant to Company Procedures 01/26/98
- ---------------
*** Confidential Treatment Requested
<PAGE> 31
EXHIBIT B
RESALE PRODUCTS LISTING
NetScout Price List
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Model Description Price($)
- ----- ----------- --------
<S> <C> <C>
LAN PROBES
Ethernet
- --------
6010/8 Ethernet Probe (8 Meg)
6010/16 Ethernet Probe (16 Meg)
6010E2/16 Dual-Interface Ethernet Probe (16 Meg)
Multi-port Ethernet
- -------------------
7301ET/32 Four Port Ethernet Probe (32 Meg)
7302ET/64 Eight Port Ethernet Probe (64 Meg)
7303ET/64 Twelve Port Ethernet Probe (64 Meg)
Fast Ethernet
- -------------
7201ET/32 Half Duplex 100BaseTX/Ethernet (32 Meg)
7211ET/32 Full Duplex 100BaseTX/Ethernet (32 Meg)
7221ET/32 Dual-Interface Half Duplex 100BaseTX/Ethernet (32 Meg)
Note: Full Duplex 100BaseTX probes include FDX-TX Tap Kit
7203ET/32 Half Duplex 100BaseFX/Ethernet (32 Meg)
7213ET/32 Full Duplex 100BaseFX/Ethernet (32 Meg)
7223ET/32 Dual-Interface Half Duplex 100BaseFX/Ethernet (32 Meg)
Note: Full Duplex 100BaseFX probes include FDX-FX Tap Kit
Token Ring
- ----------
6020/8 Token Ring Probe (8 Meg)
6020/16 Token Ring Probe (16 Meg)
6020T2/16 Dual-Interface Token Ring Probe (16 Meg)
Ethernet/Token Ring
- -------------------
6030/16 Ethernet/Token Ring Probe (16 Meg)
</TABLE>
4.03P1M1 Rev D Effective January 15, 1998 2
<PAGE> 32
EXHIBIT B
RESALE PRODUCTS LISTING
NetScout Price List
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MODEL DESCRIPTION PRICE($)
- ----- ----------- --------
<S> <C> <C>
WAN PROBES
- ----------
T1/E1 WAN
- ---------
6050/8 T1/E1 WAN/Ethernet Probe (8 Meg) [***]
6050/16 T1/E1 WAN/Ethernet Probe (16 Meg) [***]
6070/8 T1/E1 WAN/Token Ring Probe (8 Meg) [***]
6070/16 T1/E1 WAN/Token Ring Probe (16 Meg) [***]
Note: T1/E1 WAN probes include a T1/E1 Tap Kit.
Please specify the cable interface. (V.35,X.21 single clock,
X.21 dual clock, RS422/RS449, EIA530, RS232) Default is V.35
T3/E3 WAN
- ---------
7401ET/32 T3/E3 WAN (HSSI)/Ethernet Probe (32 Meg) [***]
7401TR/32 T3/E3 WAN (HSSI)/Token Ring Probe (32 Meg) [***]
Note: T3/E3 WAN probes include a T3/E3 Tap Kit. (HSSI interface)
Multi-port Sub-rate WAN
- -----------------------
7502ET/32 Two Port Sub-rate WAN/Ethernet Probe (32 Meg) [***]
7502TR/32 Two Port Sub-rate WAN/Token Ring Probe (32 Meg) [***]
7504ET/32 Four Port Sub-rate WAN/Ethernet Probe (32 Meg) [***]
7504TR/32 Four Port Sub-rate WAN/Token Ring Probe (32 Meg) [***]
Note: Multi-port WAN probes include T1/E1 Tap Kits.
Please specify the cable interface. (V.35, X.21 single clock,
X.21 dual clock, RS422/RS449, EIA530, RS232) Default is V.35
FDDI/CDDI PROBES
- ----------------
CDDI (SAS)
- ----------
7101ET/32 CDDI/Ethernet Probe - Single Attached (32 Meg) [***]
7101TR/32 CDDI/Token Ring Probe - Single Attached (32 Meg) [***]
FDDI (SAS)
- ----------
7102ET/32 FDDI/Ethernet Probe - Single Attached (32 Meg) [***]
7102TR/32 FDDI/Token Ring Probe - Single Attached (32 Meg) [***]
FDDI (DAS)
- ----------
7103ET/32 FDDI/Ethernet Probe - Dual Attached (32 Meg) [***]
7103TR/32 FDDI/Token Ring Probe - Dual Attached (32 Meg) [***]
ATM (OC3)
- ---------
8100ET/32 ATM (OC3)/Ethernet Probe (32 Meg) [***]
</TABLE>
4.03P1M1 Rev D Effective January 15, 1998 3
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<PAGE> 33
EXHIBIT B
RESALE PRODUCTS LISTING
<TABLE>
<CAPTION>
NETSCOUT PRICE LIST
- ----------------------------------------------------------------------------------------------------------------
Model Description Price ($)
----- ----------- ---------
<S> <C> <C>
SOFTWARE
NetScout Manager Plus
9115 NetScout Manger Plus of Unix (SUN, HP-UX, AIX) [***]
9125 NetScout Manger Plus for Windows (95 & NT) [***]
(Note: NetScout Manager Plus provides integrated tools for monitoring LANs, WANs,
Frame Relay links and Switched networks)
Upgrade NetScout Manager to NetScout Manager Plus
9116 Upgrade NSM for Unix to NSM Plus for Unix (Password Upgrade) [***]
9126 Upgrade NSM for Windows NT to NSM Plus for Windows NT [***]
(Password Upgrade)
Expert Visualizer
9130 Expert Visualizer for Unix (SUN, HP-UX, AIX) [***]
NetScout Server
9135 NetScout Server for Unix (SUN, HP-UX, AIX) [***]
9140 NetScout Server for WindowsNT [***]
NetScout WebCast
9145 NetScout WebCast for Unix (SUN, HP-UX, AIX) [***]
9150 NetScout WebCast for WindowsNT [***]
RMON2 Software Agent
5100 NetScout Agent for WindowsNT [***]
PROBE FIRMWARE OPTIONS
Resource Monitor
NRM Resource Monitor Option [***]
Proxy RMON Monitor
PRM Proxy RMON Monitor Option [***]
Note: Supported on Models 6010 and 6010E2 only.
Netflow Monitor
NFM Netflow Monitor Option [***]
</TABLE>
4.03P1M1 Rev D Effective January 15, 1998 4
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<PAGE> 34
EXHIBIT B
RESALE PRODUCTS LISTING
<TABLE>
<CAPTION>
NETSCOUT PRICE LIST
- -------------------------------------------------------------------------------
Model Description Price($)
- ----- ----------- --------
<S> <C> <C>
UPGRADE OPTIONS FOR INSTALLED PROBES
- ------------------------------------
Memory Upgrade Options for 6000 Series
- --------------------------------------
6002M16 Memory Upgrade - 2 Meg to 16 Meg [***]
6004M16 Memory Upgrade - 4 Meg to 16 Meg [***]
6008M16 Memory Upgrade - 8 Meg to 16 Meg [***]
6016M32 Memory Upgrade - 16 Meg to 32 Meg [***]
Factory installed options - requires return of probe to factory for upgrade.
-------------------------
Memory Upgrade Options for 7000 Series
- --------------------------------------
7008M32 Memory Upgrade - 8 Meg to 32 Meg [***]
7016M32 Memory Upgrade - 16 Meg to 32 Meg [***]
7032M64 Memory Upgrade - 32 Meg to 64 Meg [***]
Factory installed options - requires return of probe to factory for upgrade.
-------------------------
Interface Upgrades for 6000 Series
- ----------------------------------
6000E2 2nd Ethernet Interface for Model 6010 [***]
6000T2 2nd Token Ring Interface for Model 6020 [***]
Note: Adding Interfaces to any 6000 Series probe requires a minimum
16 Meg Unit.
Factory installed options - requires return of probe to factory for upgrade.
-------------------------
Interface Upgrades for 7000 Series
- ----------------------------------
7200TX 2nd Half Duplex 100BaseTX Interface for Model 7201 [***]
7200FX 2nd Half Duplex 100BaseFX Interface for Model 7203 [***]
7300E4 Additional Four-Port Ethernet Interface for Model [***]
7300 probes
7500WN Additional WAN Interfaces for Model 7500 probes [***]
Note: Adding Interfaces to any 7000 Series probe requires a minimum
32 Meg Unit.
Factory installed options - requires return of probe to factory for upgrade.
-------------------------
MISCELLANEOUS OPTIONS
- ---------------------
Fast Ethernet FDX Tap Kits (includes cables)
- --------------------------------------------
FDX-TX Additional Full Duplex Fast Ethernet Tap Kit for [***]
100BaseTX
FDX-FX Additional Full Duplex Fast Ethernet Tap Kit for [***]
100BaseFX
T1/E1 WAN Tap Kits (includes cables)
- ------------------------------------
V35-Tap Additional Tap Kit for T1/E1 WAN (V.35) [***]
X21/1-Tap Additional Tap Kit for T1/E1 WAN (X.21) [***]
X21/2-Tap Additional Tap Kit for T1/E1 WAN (X.21) [***]
RS422-Tap Additional Tap Kit for T1/E1 WAN (RS422/RS449) [***]
EIA530-Tap Additional Tap Kit for T1/E1 WAN (EIA530) [***]
RS232-Tap Additional Tap Kit for T1/E1 WAN (RS232) [***]
</TABLE>
4.03P1M1 Rev D Effective January 15, 1998 5
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<PAGE> 35
EXHIBIT B
RESALE PRODUCTS LISTING
<TABLE>
<CAPTION>
NetScout Price List
- --------------------------------------------------------------------------------------
Model Description Price
- ----- ----------- -----
<S> <C> <C>
T3/E3 WAN Tap Kit (includes cables)
- -----------------------------------
WAN-HSSI Additional Tap Kit for T3/E3 WAN (HSSI) [***]
Fiber Optic Splitters (Includes cables)
- ---------------------------------------
OPT-SPLT1 Additional 80/20 Multi-mode Fiber Optic Splitter [***]
Cables
- ------
2950-100 Additional Cat 5 CDDI Cable (15') [***]
2950-180 T3/E3 WAN (HSSI) Tap Cables [***]
2950-215 Additional Probe Console Cable (6') [***]
Fiber Cables & Couplers
- -----------------------
2950-60 Additional ST to ST Coupler [***]
2950-70 Additional ST to MIC Coupler [***]
2950-80 Additional Duplex SC to SC Cable (24') [***]
2950-90 Additional Duplex SC to ST Cable (24') [***]
Rack Mount
- ----------
RM-19 Shelf for Rack Mounting (holds three 7000 series probes) [***]
RMK-6000 Rack Mount Kit for 6000 Series Probes [***]
Documentation
- -------------
2930-170 NetScout Probe User Guide [***]
2930-610 NetScout Manager Plus User Guide [***]
2930-620 NetScout Manager Plus Administrator Guide [***]
2930-430 NetScout Expert Visualizer User Guide [***]
NetScout Training
- -----------------
NetScout Manager Plus Training (3 days) [***]
NetScout WebCast Training (1 day) [***]
</TABLE>
(Note: Training classes are held at NetScout Systems and the prices listed above
are per student. Prices for on-site training can be obtained by calling NetScout
Systems).
4.03P1M1 Rev D Effective January 15, 1998 6
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<PAGE> 36
EXHIBIT B
RESALE PRODUCTS LISTING
NetScout Price List
- -------------------------------------------------------------------------------
NetScout Systems, Inc.
Support & Maintenance
Policy and Pricing
NetScout Systems, Inc.
4 Technology Park Drive Westford, MA 01886
TEL 978-614-4000 - FAX 978-614-4004
4.03P1M1 Rev D Effective January 15, 1998 7
- -------------------------------------------------------------------------------
<PAGE> 37
EXHIBIT B
RESALE PRODUCTS LISTING
NETSCOUT PRICE LIST
- --------------------------------------------------------------------------------
If Extended Hardware Maintenance coverage is desired and was not purchased
at the same time the hardware was purchased, coverage will be offered at
NetScout Systems' sole discretion. Contact NetScout Systems' Sales
Administration for a price quote.
(Note: Hardware products covered under Extended Hardware Maintenance will
be repaired or replaced at NetScout Systems sole discretion upon return to
factory, freight prepaid. Hardware Warranty and Extended Hardware
Maintenance do not cover functional upgrades. Functional upgrades such as
faster processors, increased Memory/Flash, etc., are separately chargeable
at the current price listed in the NetScout Price List.)
NON-WARRANTY HARDWARE REPAIR
Hardware products no longer under warranty or Extended Hardware Maintenance
can be repaired on a single occurrence basis by returning a product,
freight prepaid, to NetScout Systems. NetScout Systems will repair and
return, freight included, for the one price indicated. The repaired unit
will be under warranty for a period of 90 days after return to the
customer. (Note: If the unit is not repairable, the customer will be
notified and the unit will be returned to the customer.)
BILLING
For ordering and billing convenience, all yearly prices will be pro-rated
on a monthly basis to provide a single yearly contract covering all
NetScout products.
PROFESSIONAL SERVICES
A new fee based Professional Service is now available to assist customer IT
staffs in the installation of NetScout products. A NetScout trained
technician will install, configure and test NetScout products at the
customer site and provide hands on training to the customer's technical
staff.
Professional Services will be billed at [***] per day plus expenses.
PRICING
<TABLE>
<CAPTION>
MANAGEMENT Software Technical Support
SOFTWARE Updates (only) & Updates
- ---------------------------------------------- -------------- -----------------
<S> <C> <C>
Model 9115 - NetScout Manager Plus for Unix $[***] $[***]
Model 9125 - NetScout Manager Plus for Windows $[***] $[***]
Model 9135 - NetScout Server for Unix $[***] $[***]
Model 9140 - NetScout Server for WindowsNT $[***] $[***]
Model 9145 - NetScout WebCast for Unix $[***] $[***]
Model 9150 - NetScout WebCast for WindowsNT $[***] $[***]
Model 9130 - Expert Visualizer for Unix $[***] $[***]
</TABLE>
4.03P1M1 Rev D Effective January 15, 1998 9
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<PAGE> 38
EXHIBIT B
RESALE PRODUCTS LISTING
NetScout Price List
- --------------------------------------------------------------------------------
GENERAL
Support will be provided, free of charge, for a period of 90 days from the
date of original shipment. Customers will have unlimited phone support
during normal business hours (Toll free 800-357-RMON). As a condition of
support, the user is required to identify the serial numbers of the products
involved. Support Coverage can be extended beyond the initial 90 day period
through the purchase of Technical Support Coverage.
Updates will be provided for Management Station and/or Probe software, free
of charge, for a period of 90 days from the date of original shipment.
Updates will include all bug fixes and enhancements which become elements
of the standard product. Eligibility for software updates can be extended
beyond the initial 90 day period through the purchase of either Software
Update Coverage or Technical Support Coverage.
TECHNICAL SUPPORT COVERAGE
Technical Support Coverage provides unlimited phone support during normal
business hours (Toll free 800-357-RMON) and access to Software Updates. If
Technical Support Coverage is desired, all products purchased by an
individual customer must be under contract.
SOFTWARE UPDATE COVERAGE
Software Update Coverage can be purchased for products not under Technical
Support Coverage. Software Updates will include all bug fixes and
enhancements which become elements of the standard product. If Software
Update Coverage is purchased, all copies of that product (Management
Software or Probe) must be placed contract.
7X24 SUPPORT SERVICES
For an additional charge, 7X24 Support Services can be purchased which
provides telephone support 7 days a week, 24 hours a day, with guaranteed
call back within 2 hours.
Please contact NetScout Systems' Customer Support department for price
quotes on 7X24 Support Services. (Note: This service requires that all
NetScout products be under Technical Support Coverage.)
HARDWARE WARRANTY
Hardware products are warranted for a period of 1 year after initial
shipment and will be repaired or replaced at NetScout System sole discretion
upon return to factory, freight prepaid.
EXTENDED HARDWARE MAINTENANCE
Hardware maintenance coverage can be extended an additional two years
(bringing the total to three years) through the purchase of Extended
Hardware Maintenance Coverage. The Extended Hardware Maintenance pricing
listed in this Price List is valid only if the coverage is purchased at the
same time the hardware is purchased.
4.03P1M1 Rev D Effective January 15, 1998 8
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<PAGE> 39
EXHIBIT B
RESALE PRODUCTS LISTING
NetScout Price List
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TECHNICAL
SOFTWARE SUPPORT & EXTENDED NON-
PROBES & UPDATE SOFTWARE HARDWARE WARRANTY
SOFTWARE AGENTS ONLY UPDATE MAINTENANCE REPAIR
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Software Agent for NT $[***] $[***] $[***] $[***]
- ---------------------
Model 5100
- --------------------------------------------------------------------------------
LAN Probes
- ----------
Model 6010, 6020 $[***] $[***] $[***] $[***]
Model 6010E2, 6020T2, 6030 $[***] $[***] $[***] $[***]
- --------------------------------------------------------------------------------
WAN Probes
- ----------
Model 6040, 6050, 6060, 6070 $[***] $[***] $[***] $[***]
- --------------------------------------------------------------------------------
FDDI Probes
- -----------
Model 7101 $[***] $[***] $[***] $[***]
Model 7102 $[***] $[***] $[***] $[***]
Model 7103 $[***] $[***] $[***] $[***]
- --------------------------------------------------------------------------------
Fast Ethernet Probes
- --------------------
Model 7201 $[***] $[***] $[***] $[***]
Model 7203 $[***] $[***] $[***] $[***]
Model 7211 $[***] $[***] $[***] $[***]
Model 7213 $[***] $[***] $[***] $[***]
Model 7221 $[***] $[***] $[***] $[***]
Model 7223 $[***] $[***] $[***] $[***]
- --------------------------------------------------------------------------------
Multiport Ethernet Probes
- -------------------------
Model 7301 $[***] $[***] $[***] $[***]
Model 7302 $[***] $[***] $[***] $[***]
Model 7303 $[***] $[***] $[***] $[***]
- --------------------------------------------------------------------------------
T3 WAN Probes
- -------------
Model 7401 $[***] $[***] $[***] $[***]
- --------------------------------------------------------------------------------
Multiport WAN Probes
- --------------------
Model 7501 $[***] $[***] $[***] $[***]
Model 7502 $[***] $[***] $[***] $[***]
Model 7503 $[***] $[***] $[***] $[***]
Model 7504 $[***] $[***] $[***] $[***]
- --------------------------------------------------------------------------------
ATM LAN Probe
- -------------
Model 8100 $[***] $[***] $[***] $[***]
- --------------------------------------------------------------------------------
WAN TAPS
- --------
T1/E1 WAN Taps $[***] $[***]
T3/E3 WAN Taps $[***] $[***]
- --------------------------------------------------------------------------------
Fiber Optic Splitter
- --------------------
OPT-SPLT1 $[***] $[***]
- --------------------------------------------------------------------------------
100BaseT Full Duplex Taps
- -------------------------
FDX-TX $[***] $[***]
FDX-FX $[***] $[***]
- --------------------------------------------------------------------------------
</TABLE>
4.03P1M1 Rev D Effective January 15, 1998 10
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<PAGE> 40
EXHIBIT C
LICENSE TERMS AND CONDITIONS
Paradyne shall license the Licensed Product, subject to terms and conditions
substantially similar to those set forth in the remainder of this Exhibit.
Terms and Conditions
The Licensed Product is owned by Paradyne and its suppliers, and is protected by
the copyright laws of the United States and other countries, and by
international treaty provisions.
Paradyne and its suppliers retain ownership of the Licensed Product and no
rights are granted to you other than a license to use the Licensed Product,
subject to the terms expressly set forth in this license agreement ("License").
This License imposes certain restrictions on your use of the License Product.
YOU MAY:
- - use the Licensed Product with Paradyne FrameSaver Products purchased
within this package;
- - make copies of the Licensed Product for backup purposes, but you may not
use the backup to make copies other than as a replacement for the original
copy. You must include on the backup copy all copyright and other notices
included on the Licensed Product.
YOU MAY NOT:
- - copy any part of the Licensed Product other than for backup or duplicate
any of the Licensed Product onto ROM or similar devices that were not
supplied by Paradyne unless permitted above;
- - copy any of the written materials accompanying the Licensed Product;
- - use the Licensed Product on ANY DSU/CSU, IMUX or xDSL product, or other
hardware except as permitted above;
- - transfer or assign your rights to use the Licensed Product except upon a
transfer of any associated Paradyne hardware with which or for which the
Licensed Product was supplied, and then only if the transferee agrees to be
bound by all of the terms of this License;
- - decompile, disassemble, reverse engineer, or modify, in any way, any part
of the Licensed Product, except to the extent that the foregoing
restriction is expressly prohibited by applicable law.
YOU ACKNOWLEDGE AND AGREE THAT:
- - the structure, sequence, organization and source code of the Licensed
Product are valuable trade secrets of Paradyne and its suppliers;
- - export of the Licensed Product may be restricted by the export control laws
of the United States of America and other countries. You agree to comply
with all such export control laws;
- - upon any violation of any of the provisions of this License, your rights to
use the Licensed Product shall automatically terminate and you shall be
obligated to return to Paradyne or destroy all of the Licensed Product;
- - your opening of this package or use of the Licensed Product signifies that
you have read and agreed to the terms of this License. You further agree
that it is the complete and exclusive
Marketing& license Agreement Paradyne and NetScout Confidential page 20
NetScout and Paradyne Use Pursuant to Company Procedures 01/26/98
<PAGE> 41
EXHIBIT C
LICENSE TERMS AND CONDITIONS (CONTINUED)
statement of the agreement between Paradyne and you, and that it
supersedes any proposal or prior agreement, oral, or written, and any
other communications between us relating to the subject matter of this
License. In addition, you agree that none of the foregoing terms and
conditions may be modified except in writing signed by you and
Paradyne;
- this License shall be governed by Florida law, other than its
provisions concerning the applicability of laws of other jurisdictions.
Limited Warranty
Limited Warranty. Paradyne warrants that under normal use and conditions the
Licensed Product will be free from significant defects in materials and
workmanship for a period of ninety (90) days from the date of purchase by you
from Paradyne or Paradyne's authorized reseller or distributor.
Customer Remedies. Paradyne and its suppliers' entire liability and your
exclusive remedy shall be, at Paradyne's option, (i) repair or replacement of
the Licensed Product that fails to meet Paradyne's Limited Warranty, or (ii)
return of the price paid. Paradyne and its suppliers shall have no
responsibility, warranty or other obligation whatsoever as a result of (a) the
use of the Licensed Product in a manner inconsistent with the accompanying
manuals and this License, (b) any modifications made to the Licensed Product,
or (c) failure of the Licensed Product as a result of accident, abuse, or
misapplication.
NO OTHER WARRANTIES. THE WARRANTIES SET FORTH ABOVE ARE EXCLUSIVE AND IN LIEU
OF ALL OTHER WARRANTIES. PARADYNE AND ITS SUPPLIERS MAKE NO OTHER WARRANTIES,
EXPRESS OR IMPLIED, AND PARADYNE AND ITS SUPPLIERS EXPRESSLY DISCLAIM ALL OTHER
WARRANTIES, INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OR
SATISFACTORY QUALITY, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND
ANY WARRANTY OF NON-INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS. MOREOVER, THE
PROVISIONS SET FORTH ABOVE STATE THE ENTIRE RESPONSIBILITY OF PARADYNE AND ITS
SUPPLIERS AND YOUR SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO ANY BREACH OF ANY
WARRANTY.
LIMIT OF LIABILITY. UNDER NO CIRCUMSTANCES AND UNDER NO THEORY OF LIABILITY
SHALL PARADYNE OR ITS SUPPLIERS BE LIABLE FOR COSTS OF PROCUREMENT OF
SUBSTITUTE PRODUCTS OR SERVICES, LOST PROFITS, LOST SAVINGS, LOSS OF INFORMATION
OR DATA, OR ANY OTHER SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES,
ARISING IN ANY WAY OUT OF THE SALE, LICENSE OR USE OF, OR INABILITY TO USE, THE
LICENSED PRODUCT, EVEN IF PARADYNE AND ITS SUPPLIERS HAVE BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES, AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL
PURPOSE OF ANY LIMITED WARRANTY.
Marketing & License Agreement Paradyne and NetScout Confidential page 21
NetScout and Paradyne Use Pursuant to Company Procedures 01/26/98
<PAGE> 42
EXHIBIT D
PRODUCT SUPPORT AND PRIORITIZATION GUIDELINES
Paradyne will provide Tier 1 and Tier 2 Support for Customers in the same manner
that it provides such support for its other similar products. NetScout will
provide Tier 3 Support via telephone or electronic mail, five (5) days per week,
during NetScout's normal business hours (8 am - 6 pm, EST), and, and via a
paging service for after hours, weekend and holiday escalations. Paradyne shall
provide NetScout feedback for any Licensed Product bugs and potential fixes to
the bugs, which will be reviewed by NetScout and subsequently incorporated into
the Licensed Product, as required. In the event Paradyne is unable to resolve a
Customer's problem and NetScout Tier 3 Support is required, Paradyne will
escalate the problem to NetScout per a Customer assigned priority level.
NetScout will respond as follows:
Priority 1: The Customer's production network is down, causing critical impact
to business operations.
NetScout Response: Within four (4) hours, NetScout will provide Paradyne with a
schedule for resolving the problem and will identify the resources which will be
committed to managing the problem resolution. NetScout will make best efforts to
resolve the problem within two (2) days. NetScout will dedicate an individual to
manage the problem until a satisfactory Customer solution has been provided.
Priority 2: The Customer's production network is severely degraded, impacting
significant aspects of business operations.
NetScout Response: Within eight (8) hours, NetScout will provide Paradyne with a
schedule for resolving the problem and will identify the resources which will be
committed to managing the problem resolution. NetScout will make best efforts to
resolve the problem within one (1) week's time. NetScout agrees to commit
whatever resources are commercially reasonable and necessary to manage the
problem until a satisfactory Customer solution has been provided.
Priority 3: The Customer's network performance is degraded, but with little
impact on business operations.
NetScout Response: Within one (1) week, Paradyne will provide Paradyne with a
schedule for resolving the problem. Resources will be assigned, upon
availability.
Critical On-Site Support. In the event critical on-site support is required,
NetScout will make such services available at a charge of [***] dollars per hour
($[ ]), excluding travel and reasonable meal expenses.
Repair & Maintenance Charges (Single Repair)
6000 family $[***] unit
7000 family $[***] unit
Marketing & License Agreement Paradyne and NetScout Confidential page 22
NetScout and Paradyne Use Pursuant to Company Procedures 01/26/98
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EXHIBIT D
PRODUCT SUPPORT AND PRIORITIZATION GUIDELINES
Maintenance Agreements (h/w & s/w)
6000 family $[***] year
7000 family $[***] year
Repair Services. NetScout will repair all defective Products within fifteen
(15) days of receipt of the NetScout Products at NetScout's Westford MA
facility. All returned units must be accompanied by a Return Authorization (RA)
number and defective tag which identifies the alleged failure with the unit.
Paradyne shall be responsible for transportation expenses to and from
NetScout's facilities.
Priority Shipments. Provided PRODUCTS are in NetScout's inventory, NetScout
will ship PRODUCTS within twenty-four (24) hours of order receipt to assist
Paradyne in its delivery of critical service and support to customers. In the
event PRODUCTS are not in NetScout's inventory, NetScout will make best efforts
to ship as expeditiously as possible.
Marketing & License Agreement Paradyne and NetScout Confidential page 23
NetScout and Paradyne Use Pursuant to Company Procedures 01/26/98
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EXHIBIT 10.42
AMENDMENT NO. 2 TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT ("Amendment") is dated
as of March 17, 1999 and is entered into by and between BankAmerica Business
Credit, Inc. ("Lender") and Paradyne Corporation ("Borrower"). All capitalized
terms used herein but not otherwise defined shall have the meanings ascribed to
them in the Agreement (as hereinafter defined).
WITNESSETH
WHEREAS, the Borrower and the Lender have entered into that certain Loan
and Security Agreement dated as of July 31, 1996, as amended and supplemented
(the "Agreement"); and
WHEREAS, the Borrower desires to amend the Agreement and the Lender is
willing to do so, subject to the terms and conditions stated herein;
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Borrower and Lender hereby agree as follows:
Section 1. Amendment to the Agreement. The Lender and Borrower agree that
the Agreement shall be amended as follows:
A. Amendment to Section 1. The definition of "Availability"
contained in Section 1 of the Agreement is amended by deleting the words
"Forty-Five Million Dollars ($45,000,000)" and inserting in lieu thereof
the words "Thirty-Five Million Dollars ($35,000,000)".
B. Amendment to Section 2. The first sentence of Section 2.1 of the
Agreement is amended to read as follows:
"Subject to all of the terms and conditions of this Agreement,
the Lender shall make available a total credit facility of up to
$35,000,000 (the 'Total Facility') for Borrower's use from time to
time during the term of this Agreement."
C. Amendment to Section 3. Section 3.3 of the Agreement is amended
to read as follows:
"3.3 Unused Line Fee. For every month during the term of this
Agreement, the Borrower shall pay the Lender a fee (the 'Unused Line
Fee') in an amount equal to: (i) during any month that the amount
determined under (y) below is equal to or greater than $15,000,000,
three-eighths percent (0.375%) per annum, or (ii) during any month
that the amount
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determined under (y) below is less than $15,000,000, one-half percent
(0.50%) per annum, multiplied by the average daily amount by which (x)
$35,000,000 exceeded (y) the sum of (a) the average daily outstanding
amount of Revolving Loans and (b) the average daily undrawn face
amount of all outstanding Letters of Credit during such month, with
the unpaid balance of Revolving Loans calculated for this purpose by
applying payments immediately upon receipt. The Unused Line Fee, if
any, shall be calculated on the basis of a year of three hundred
sixty (360) days and actual days elapsed, and shall be payable to the
Lender on the first day of each month with respect to the prior
month."
Section 2. Conditions. The effectiveness of this Amendment is subject to
the satisfaction of the following conditions precedent:
A. Amendment. Fully executed copies of this Amendment signed by the
Borrower and a ratification signed by the Guarantor shall be delivered to
Lender.
B. Resolution. A certificate executed by the Secretary or Assistant
Secretary of Borrower certifying that the Borrower's Board of Directors has
adopted resolutions authorizing the execution, delivery and performance by
Borrower of the Amendment shall be delivered to Lender.
C. Other Documents. Borrower shall have executed and delivered to
Lender such other documents and instruments as Lender may require.
Section 3. Miscellaneous.
A. Survival of Representations and Warranties. All representations
and warranties made in the Agreement or any other document or documents
relating thereto, including, without limitation, any Loan Document
furnished in connection with this Amendment, shall survive the execution
and delivery of this Amendment and the other Loan Documents, and no
investigation by Lender or any closing shall affect the representations and
warranties or the right of Lender to rely thereon.
B. Reference to Agreement. The Agreement, each of the Loan
Documents, and any and all other agreements, documents or instruments now
or hereafter executed and delivered pursuant to the terms hereof, or
pursuant to the terms of the Agreement as amended hereby, are hereby
amended so that any reference therein to the Agreement shall mean a
reference to the Agreement as amended hereby.
C. Agreement Remains in Effect. The Agreement and the Loan
Documents remain in full force and effect and the Borrower ratifies and
confirms its agreements and covenants contained therein. The Borrower
hereby confirms that, after giving effect to this Amendment, no Event of
Default or Default exists as of such date.
D. Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the
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remainder of this Amendment and the effect thereof shall be confined to the
provision so held to be invalid or unenforceable.
E. APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE
PERFORMABLE IN THE STATE OF CALIFORNIA AND SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
F. Successors and Assigns. This Amendment is binding upon and shall
inure to the benefit of Lender and Borrower and their respective successors
and assigns; provided, however, that Borrower may not assign or transfer
any of its rights or obligations hereunder without the prior written
consent of Lender.
G. Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an
original, but all of which when taken together shall constitute one and
the same instrument.
H. Headings. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
I. NO ORAL AGREEMENTS. THIS AMENDMENT, TOGETHER WITH THE OTHER LOAN
DOCUMENTS AS WRITTEN, REPRESENTS THE FINAL AGREEMENT BETWEEN LENDER AND
BORROWER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN LENDER AND BORROWER.
IN WITNESS WHEREOF, the parties have executed this Amendment under seal on
the date first written above.
PARADYNE CORPORATION
By: /s/ PATRICK MURPHY
-------------------------------------
Name: Patrick Murphy
Title: CFO
BANKAMERICA BUSINESS CREDIT, INC.
By: /s/ GARY WHITAKER
-------------------------------------
Name: Gary Whitaker
Title: VP
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CONSENTS AND REAFFIRMATIONS
The undersigned hereby consents to the terms and conditions of that
Amendment No. 2 to Loan and Security Agreement dated as of March 17, 1999,
between Paradyne Corporation and BankAmerica Business Credit, Inc. ("Creditor")
and reaffirms its obligations under a Guaranty dated as of July 31, 1996 (the
"Guaranty") made by the undersigned in favor of the Creditor and acknowledges
and agrees that the Guaranty remains in full force and effect.
Dated as of March 17, 1999.
PARADYNE CANADA, LTD.
By: /s/ Patrick Murphy
------------------------------------
Name: Patrick Murphy
----------------------------------
Title: CFO
----------------------------------
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EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 (Registration No. 333-76385) of our reports
dated June 8, 1999, relating to the financial statements of Paradyne Networks,
Inc. (formerly "Paradyne Acquisition Corp.") and the Financial Statement
Schedule listed in Item 16(b) of this Form S-1, and our report dated November
23, 1998, relating to the financial statements of Paradyne Predecessor Business,
all of which appear in such Prospectus. We also consent to the references to us
under the headings "Experts" and "Selected Consolidated Financial Data" in such
Prospectus. However, it should be noted that PricewaterhouseCoopers LLP has not
prepared or certified such "Selected Consolidated Financial Data."
/s/ PricewaterhouseCoopers LLP
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PricewaterhouseCoopers LLP
Tampa, Florida
June 8, 1999
