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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NUMBER 000-23305
FVC.COM, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 77-0357037
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
3393 OCTAVIUS DRIVE, SANTA CLARA, CA 95054
(Address of principal executive offices) (Zip code)
(408) 567-7200
(Registrant's Telephone Number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $0.001 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [X]
As of March 31, 1999 there were 16,574,537 shares of the
registrant's common stock outstanding, and the aggregate market value of such
shares held by non-affiliates of the registrant (based upon the closing sale
price of such shares on the Nasdaq National Market on March 31, 1999) was
approximately $140.3 million. Shares of the registrant's common stock held by
each executive officer, director and holder of five percent or more of the
registrant's common stock outstanding as of March 31, 1999 have been excluded
in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Designated portions of the registrant's definitive proxy statement for
the 1999 Annual Meeting of Stockholders are incorporated by reference into Part
III of this Form 10-K.
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PART I
ITEM 1. BUSINESS.
IN ADDITION TO THE HISTORICAL INFORMATION CONTAINED IN THIS
DESCRIPTION OF THE BUSINESS OF FVC.COM, INC. (THE "COMPANY"), THIS ITEM CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT") THAT INVOLVE RISKS AND
UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION,
STATEMENTS CONTAINING THE WORDS "BELIEVES," ANTICIPATES," "EXPECTS," AND WORDS
OF SIMILAR IMPORT. SUCH FORWARD-LOOKING STATEMENTS WILL HAVE KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY RESULTS, TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE,
AMONG OTHERS, THE RISK FACTORS SET FORTH BELOW, UNDER "--OVERVIEW", "--RISK
FACTORS" "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS FORM 10-K AS WELL AS THE RISK
FACTORS SET FORTH IN THE COMPANY'S REGISTRATION STATEMENT ON FORM S-1 (FILE NO.
333-38755) DECLARED EFFECTIVE ON APRIL 29, 1998 (THE "REGISTRATION STATEMENT").
THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS
CONTAINED HEREIN.
OVERVIEW
The Company provides high quality, cost-effective video networking
solutions that integrate video with voice and data, over existing and Next
Generation Internet ("NGI") network infrastructures. The Company combines its
expertise in real-time network systems and video technology to extend the
capabilities of Quality of Service ("QoS") across existing network
architectures, including Internet Protocol ("IP"), Asynchronous Transfer Mode
("ATM") and Ethernet. A network based on an architecture that supports QoS can
simultaneously carry multiple video streams, as well as voice and data. The
Company's broad product line enables it to deliver end-to-end solutions for a
wide range of enterprise video applications, such as distance learning,
telemedicine, video marketing and video manufacturing. A critical element of the
Company's technology is its Multimedia Operating Software ("MOS"), designed to
guarantee network resources for real-time video applications in the presence of
voice and data on any network capable of supporting QoS. The Company's high
quality, easy-to-use video networking systems are scalable to multiple locations
and thousands of users. The Company's solutions address its customers'
requirements for high quality, interactive visual communications through a broad
range of Internet video server and video access products. The Company was
incorporated in California in October 1993 and reincorporated in Delaware in
December 1997. The Company first shipped its video networking products in 1995.
The Internet was originally designed to support delay-tolerant data
transmission applications such as electronic mail. Until recently, the limited
bandwidth and QoS capabilities of this first-generation Internet did not support
the implementation of interactive visual applications. The enhanced
communication enabled by interactive visual applications such as Internet video
networking can provide significant benefits in a broad range of environments.
These include distance learning, telemedicine, video marketing and video
manufacturing. As a result, a broadband Internet to enable end users at remote
locations to learn and work across networks -- interactively and in real time --
is becoming widely deployed. Network managers have begun to implement Internet
and intranet networks with the considerably greater bandwidth and support for
QoS required to enable Internet video networking applications. Current broadband
network implementations include statewide ATM networks, campus and enterprise
ATM backbones and ATM wide area networks ("WANs") using T1, DS-3, OC-3 and E-3
links.
The Company has global original equipment manufacture ("OEM")
relationships with Nortel Networks and Lucent Technologies ("Lucent"), and has
established relationships with a number of value added resellers ("VARs") and
systems integrators, including Electronic Data Systems ("EDS"), Bell Atlantic
Network Integration ("BANI"), British Telecommunication plc ("BT"), France
Telecom, International Business Machines ("IBM"), NEC Corporation, Ascend
Communications Inc. ("Ascend") and Nippon Telephone and Telegraph ("NTT"). The
Company has also built a network of international distributors to sell, service
and support its products in more than 40 countries worldwide. The Company's
solutions have been deployed by a broad range of educational institutions,
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corporations and government agencies, such as Virginia Tech (distance learning
facilities); IBM (headquarters facility); British Airways (headquarters
facility), and Shanghai Info Port (government metropolitan network).
In August 1998, the Company acquired ICAST Corporation ("ICAST") for
total consideration of approximately $7.6 million, including $1.8 million for
the assumption of liabilities. Prior to the acquisition, ICAST was a privately
held, development-stage company that had minimal revenues since its inception in
May 1996. Since its inception, ICAST has been engaged in developing software
designed for Internet and intranet broadcasting of real-time video, audio and
data. The Company completed development of the ICAST technology and began
shipping the resulting I-Studio product to address the IP streaming market in
December 1998.
INDUSTRY BACKGROUND
In recent years, deployment of the communications infrastructure that
constitutes the Internet has evolved to meet the requirements of new and
emerging Internet applications. Specifically, because the technologies employed
were unable to differentiate between bursty data transmissions and broadcast
video streams, the first generation Internet could not support high quality
video networking applications. This situation limited the deployment and use of
interactive applications that allow end users to simultaneously utilize high
quality video and data applications.
The need for a broadband Next Generation Internet (NGI) to enable end
users at remote locations to work and learn across the network -- interactively
and in real time -- is becoming widely accepted. The enhanced communication
enabled by high quality video networking can provide significant benefits in a
broad range of environments. All levels of educational institutions can utilize
distance learning facilities to enable experts to teach in any classroom.
Businesses can hold high quality, face-to-face meetings without time consuming
travel. Sales professionals can deliver presentations to prospective customers
in many cities in a single day. Hospitals can deploy telemedicine to enable a
team of doctors in different locations to diagnose and treat patients remotely.
Manufacturing companies can achieve efficiencies by offering real-time
instruction and support for workers on the factory floor.
Network managers have responded to the need to implement these types of
applications by deploying intranet and Internet networks with considerably
greater bandwidth and support for QoS. Additional bandwidth permits greater
application scalability, and QoS provides the predictable latency essential for
quality Internet video. Bell Atlantic Integration, Inc. ("BANI"), a network
integrator driven by demands for multi-service networks, incorporated voice,
data and video capabilities into its core network infrastructure. Similarly, the
U.S. Federal Government has provided funding since early 1997 for the deployment
of an NGI for applications such as distance learning. Additionally, Internet2,
an Internet Engineering Task Force initiative, has provided new ways to
implement QoS in an IP environment. Further, corporations are implementing high
bandwidth QoS-capable, video-enabled intranets for learning and working in real
time across their networks. Together, these implementations of advanced
networking initiatives comprise what the Company defines as the NGI.
The initial NGI networks are being deployed as statewide ATM networks.
ATM-based transport for WANs allows implementation of high bandwidth networks
based on architectures that support QoS, simultaneous multiple video streams,
voice and data. Local area networks ("LANs") are typically based on Ethernet
running the IP protocol and provide a means of connecting end-user equipment
onto the NGI.
To achieve broad market acceptance, a video networking solution for the
NGI must offer high quality interactive video and access to live and stored
video while seamlessly integrating voice and data traffic. An effective video
networking solution must also be scalable, easy to use, cost-effective, and
leverage an organization's existing investment in video equipment and in other
network infrastructures, including the ability to extend ATM QoS characteristics
to Ethernet and IP networks.
THE COMPANY'S SOLUTION
The Company provides a high quality, cost-effective video networking
solution for the enterprise that integrates video with voice and data over
existing network infrastructures. A critical element of the Company's
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technology is its MOS software, designed to guarantee network resources for
real-time video applications in the presence of voice and data on any network
capable of supporting QoS. The Company combines its expertise in real-time
network systems and video technology to extend the capabilities of QoS across
existing network architectures, including IP, ATM and Ethernet. The Company's
high quality, easy-to-use video networking systems are scalable to multiple
locations and thousands of users. The Company's products can be grouped into
three product categories:
INTERACTIVE VIDEO - IP and ATM products that allow geographically
distributed organizations to communicate through real-time, two-way
videoconferencing.
VIDEO STREAMING - IP and ATM streaming video products that deliver
real-time video, audio and data streams across the Internet and
intranets.
NETWORK ACCESS - Flexible wide area network remote access switching
systems that enable integration of voice, video and data on a
single network.
THE COMPANY'S STRATEGY
The Company's strategy is to enhance its leadership position in high
quality, cost-effective, video networking solutions in Internet and intranet
environments for education, business and governments. The key elements of the
Company's strategy are:
EXTEND LEADERSHIP POSITION IN VIDEO NETWORKING. The Company intends to
extend its leadership position as a provider of end-to-end systems for the
delivery of high quality video over networks that support QoS. By concentrating
on its core competencies in real-time network systems, QoS and video technology,
the Company believes it has the speed and flexibility to remain at the forefront
of high quality video networking for the enterprise and continue to gain market
share as demand for high quality video increases.
EXTEND TECHNOLOGY BASE. The Company leverages current LAN and WAN
infrastructures to provide a solution that is easy to deploy, easy to use and
cost-effective. The Company's MOS software and system products allow the large
installed base of interactive video equipment to operate on a wide range of
transmission standards such as IP, Integrated Service Digital Network ("ISDN"),
T1/E1 and ATM. The Company's products enable network managers to extend QoS
across multiprotocol networks without changes to interface cards or wiring. The
Company recently broadened its product line to support IP/Ethernet networks and
MPEG-II systems for broadcast quality applications and to deliver high quality
video over emerging IP/SONET networks.
LEVERAGE AND BROADEN STRATEGIC RELATIONSHIPS. To penetrate the market
quickly, the Company combines its core competencies in rapid product development
and deployment with the resources of industry leaders to market, implement and
support complex video applications on a global basis. The Company has
established relationships with networking vendors, including Nortel Networks,
IBM and Lucent, as well as vendors of video equipment, such as Accord, MMAC,
Optibase, PictureTel, Polycom, VideoServer, VTEL and Zydacron. The Company has
also established relationships with network integrators, such as BANI and
Electronic Data Systems Corporation ("EDS"), and has an active program to
establish additional OEM, co-developer, reseller and co-marketing relationships
with technology leaders worldwide.
MAINTAIN FOCUS ON LARGE INSTALLATIONS. The Company has been successful
at focusing its selling efforts on large installations for applications such as
learning in the higher education, K-12, corporate and government marketplaces,
as well as for corporate meetings. These applications represent an attractive
market segment due to their growth rates and QoS-capable infrastructures. The
Company's marketing strategy is also oriented towards other vertical markets
that share these characteristics, such as telemedicine, video marketing and
real-time instruction and support. The Company expects to deliver
video-networking solutions efficiently within each vertical market by
replicating successful installations for similar end users.
EXPAND GLOBAL DISTRIBUTION PRESENCE. The Company enjoys the benefit of
the global distribution reach of its strategic partners, such as Nortel
Networks. The Company also has regional representatives that market its products
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and/or use these products to offer video services in Europe and Asia, including
companies such as BT, France Telecom, NEC Corporation, NTT, Telia AB in Sweden,
Telenor Online AS in Norway and Telstra in Australia. The Company intends to
continue to use a broad variety of global distribution channels to introduce and
maintain the presence of its products in markets worldwide through a combination
of OEMs, VARs and systems integrators.
THE COMPANY'S PRODUCTS AND TECHNOLOGY
The Company offers an extensive line of products for the implementation
of its high quality video solutions. The Company's video access products
facilitate the connection of traditional room systems, desktop video equipment
and personal computers to enterprise networks. The Company's video server
products provide a range of critical video services such as multicasting,
recording, storage and translation across the Internet and corporate intranets.
At the center of the Company's product family is its MOS software that is
designed to guarantee network resources for real-time video applications on any
QoS-capable network.
INTERACTIVE VIDEO PRODUCTS
The Company's interactive video networking products enable the use of
video to communicate anywhere in the world through private and public WAN
infrastructures. The fully integrated, managed conferencing product line
supports multiple videoconferencing standards including ISDN (H.320), IP
(H.323), and ATM (H.321 and H.310) to offer a range of quality levels for
different applications.
VIDEO ACCESS NODE (VaN) - Flexible MPEG-2 videoconferencing system for
point-to-point and multi-point conferences.
V-ROOM - Interface that attaches room systems from various vendors to
an ATM network.
VC-NIC - Interface that attaches PCs, room systems and multi-point
videoconferencing bridges to an ATM network.
V-GATE - Multi-standard gateway that provides transparent bridging
between ISDN, ATM and IP networks.
V-CONFERENCE - Multi-point conferencing bridge that allows several
sites to participate simultaneously in a single videoconference.
VIDEO LOCATOR SERVICE - Web-based server that allows viewers to see and
manage videoconferences.
STREAMING VIDEO PRODUCTS
The Company's streaming video products deliver real-time video, audio,
and data streams across enterprise intranets and the Internet. In contrast to
interactive (two-way) video, streaming video enables one-way applications such
as video on demand for corporate communications. With these products, high
quality, full-screen, full-motion video can be delivered to everyone in an
organization.
I-STUDIO - Network device that allows the recording, storage and
playback of video over IP networks.
I-TV VIEWER AND GUIDE - Client software for finding and viewing
broadcast and stored MPEG-1, H.261, and H.263 streams.
I-RELAY - Bridge for relaying MPEG-1, H.261 and H.263 multicast streams
over unicast network.
I-RECORDER - Server that provides MPEG-1, H.261 and H.263 storage,
broadcast and video-on-demand playback for IP networks.
I-CASTER - Server for H.261 and H.263 broadcast on IP networks.
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I-METER - Performance monitoring and usage analysis application for
streaming video on IP networks.
V-CACHE - Storage and playback device for MPEG-1 and MPEG-2 streams
over ATM backbones. Support for QoS and a distributed architecture storage
server provide the scalability required by service providers.
V-CASTER - MPEG-1 and MPEG-2 broadcast server for ATM backbones. Full
support for QoS and IP multicast assures the highest video quality.
MULTIMEDIA OPERATING SOFTWARE (MOS) - PC client software for viewing
streams in MPEG-1, MPEG-2, AVI and other popular formats.
VIDEO MANAGER - Web interface that allows users to view and manage
video streams over multiple streaming servers
MULTISERVICE WAN ACCESS PRODUCTS
ACCESS NGI - Flexible and modular WAN Access Switch system designed to
extend QoS to branch and remote office environments. Comprehensive support is
provided for interconnecting a wide range of video, voice and data networking
equipment, including PBX's, Routers and Videoconferencing systems. Currently
available modules include the following capabilities:
Data Networking - OC-3 ATM, 25Mb/s ATM, 10Base-T, 100Base-T,
ATM DXI, IP Routing.
Video Networking - H.320 Room Systems, H.323 Desktops, H.321, V-Ether
10Base-T & 100Base-T.
Voice Networking - Digital PBX, Analog PBX, Analog Handsets.
WAN Access - T1, T1 IMA, High Speed Serial, OC-3 WAN, DS-3, E3, E1.
Typical applications for the Access NGI include distance learning,
internet access and voice call trunking in educational, government and corporate
environments.
MARKETING, SALES AND CUSTOMER SUPPORT
The Company believes that significant growth areas for its video
networking products are in education, government and business environments. The
Company's products take advantage of QoS-capable broadband networks being
implemented in these environments to achieve high quality video transmission.
The Company markets its products to business customers, government
users and educational providers through its internal sales force and indirect
sales channels. The Company's internal sales force uses the Company's video
technology to directly qualify and stimulate end-user demand, as well as to
manage the Company's strategic relationships with OEMs, VARs and systems
integrators. Large portions of the Company's sales to date have been
fulfilled through the Company's OEMs, including Nortel Networks. Sales
through Nortel Networks (including Bay Networks) represented approximately
39% of the Company's total sales in 1998, 64% in 1997 and 29% in 1996. OEMs
either sell and install the Company's products directly or work with leading
systems integrators to sell and install the Company's products. Systems
integrators qualified to sell and install the Company's products include
BANI, BT,EdgeNet Technologies, Inc., EDS, France Telecom, GTE Corporation,
Global Telemedics, IBM, NTT, NEC Corporation and Telstra.
In addition to its global OEM relationships with Nortel Networks and
Lucent, the Company maintains a network of distributors in Europe and Asia
licensed to sell its products under the FVC.COM name. The Company's
international distributors are known as FVC.COM France and Spain, which are
operated by Tekelec Airtronic GmbH; and FVC.COM Asia, Benelux, Germany, Nordic,
Korea and the United Kingdom, which are operated by private companies. The
Company opened offices in Japan and Australia in 1999. In the years ended
December 31, 1998, 1997 and 1996, approximately 21%, 20% and 36%, respectively,
of the Company's sales were generated from customers outside of North America.
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The Company provides service and support to its customers through its
OEMs, distributors and resellers in more than 40 countries worldwide. The
Company employs a support model that trains its business partners to identify
and resolve basic problems (level one and level two support). The Company
provides level three technical support to its OEMs and VARs.
RESEARCH AND DEVELOPMENT
Since its inception, the Company has recognized that a strong technical
base is essential to its long-term success and has made a substantial investment
in research and development. To date, the Company has aggressively brought a
wide range of products into the marketplace. The Company intends to make
substantial investments in product development and to participate in the
development of industry standards. The Company monitors changing customer needs
and works closely with its OEM partners, end-user customers and market research
organizations to track changes in the marketplace, including emerging industry
standards in both networking and video. The Company intends to maintain its
focus on broadening its product line to include emerging video technologies,
such as MPEG-II at the high end and IP video at the low end.
The Company's research and development expenditures totaled $9.5
million, $5.4 million and $2.9 million for the years ended December 31, 1998,
1997 and 1996, respectively. The Company performs its research and product
development activities at its headquarters in Santa Clara. The Company also
hires engineers located in India on a contract basis from time to time.
COMPETITION
The video networking industry is becoming increasingly competitive.
The Company believes that its principal competitive advantage in the video
networking market is the ability to provide easy-to-use, cost-effective, high
quality video networking solutions that integrate video with voice and data,
while leveraging existing network infrastructures. Working at the
intersection of the video and networking markets provides the Company with
the potential to establish strategic relationships with a wide range of
companies. However, this also results in competition from many companies in
certain segments of the video networking area.
As an end-to-end, high quality ATM-based video networking solution,
the Company's products face actual and potential competition in different
market segments. The Company's most direct competitors that currently offer
video networking over ATM include FORE Systems, Inc. ("FORE"), Newbridge
Networks Corporation ("Newbridge"),Tektronix, Inc. and Cisco Systems. The
Company's products also compete with systems based on other technologies,
such as the ISDN-based video networking products offered by Madge Networks
N.V. ("Madge"). The Company's technology licensing agreement with IBM has
resulted in products that may compete with products sold by companies such as
Newbridge in the high-end H.310 interactive video market. In video storage,
the Company's V-Cache products face competition from companies that also
offer high-performance servers to store video, such as Silicon Graphics, Inc.
("SGI"), Starlight Networks, Inc. ("Starlight"), Sun Microsystems, Inc.
("Sun") and The Network Connection ("TNC"). In the video broadcast area, the
Company's products also compete with systems and software products of
companies that provide streamed video over IP/Ethernet networks, such as
Optivision, Inc. ("Optivision"). The Company faces potential competition from
large companies that have products in related areas, such as Microsoft
Corporation ("Microsoft") and Intel Corporation ("Intel"). The Company could
encounter new competition if companies that distribute the Company's
products, or make interactive video equipment that is used together with the
Company's products, develop or acquire video networking technologies or
products.
The Company's principal method of competition is product performance.
To compete effectively, the Company must continue to offer an end-to-end
solution, provide high-performance products that comply with applicable
standards and are easy to use, and expand its product distribution channels
domestically and internationally. There can be no assurance that the Company
will be able to compete effectively on these bases.
MANUFACTURING
The Company uses third-party manufacturers to perform materials
planning, production scheduling, mechanical assembly, board testing, system
integration, burn-in and final system testing of its products. The
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Company currently outsources manufacturing to Smartflex Systems, Inc.
("Smartflex")(which recently acquired Tanon Manufacturing, Inc., the
Company's former manufacturer), Empac International Corporation ("Empac") and
PCB Assembly Corporation ("PCB") as turnkey manufacturers of certain
products. The Company's operations staff develops manufacturing strategies
and qualifies manufacturing processes and suppliers. The Company and its
contract manufacturers work together to reduce manufacturing costs and to
resolve quality control issues. The manufacturer ships the products directly
to the customer without any further testing by the Company. The Company's
manufacturing strategy enables it to leverage the manufacturing capabilities
of its third-party manufacturers, while allowing the Company to focus on its
core competencies of rapid product development and deployment. If one or more
of the Company's manufacturers experiences quality or other problems, product
shipments by the Company may be delayed. If the Company is required to
replace its manufacturers, such a change could result in short-term cost
increases and delays in delivery that could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company maintains a safety stock of critical components and reserve inventory
that would not be sufficient to meet increases in demand occurring
simultaneously with delayed deliveries from manufacturers.
INTELLECTUAL PROPERTY
The Company believes that its future success depends primarily upon its
ability to rapidly bring new products to market, enabling it to remain at the
forefront of high quality video networking. The Company's success and ability to
compete in the networking industry also depends, in part, upon its ability to
protect its proprietary technology and operate without infringing the
proprietary rights of others.
The Company does not rely on patent protection for, and does not hold
any patents relating to, its products. In addition, the Company's adherence to
industry-wide technical standards and specifications may limit its opportunities
to provide proprietary product features capable of protection. The Company
currently relies upon a combination of trade secret, copyright and trademark
laws and contractual restrictions to establish and protect proprietary rights in
its products. The Company also enters into confidentiality and invention
assignment agreements with its employees and enters into non-disclosure
agreements with its suppliers, distributors and customers to limit access to and
disclosure of its proprietary information. There can be no assurance that these
statutory and contractual arrangements will be sufficient to deter
misappropriation of the Company's proprietary technologies or that independent
third parties will not develop similar or superior technologies. The development
of alternative technologies by third parties could adversely affect the
competitiveness of the Company's products. In addition, the laws of some
countries do not provide the same degree of protection of the Company's
proprietary information as do the laws of the United States.
The commercial success of the Company will also depend, in part, on its
ability to obtain licenses to third-party technology and on the Company not
breaching its existing and future licenses of third-party technology used in
certain of the Company's products. The Company entered into a license agreement
for certain technology with Advanced Telecommunications Modules Limited ("ATML")
in February 1994. The agreement provides the Company with a perpetual
non-exclusive license and can be terminated by either party upon 60 days notice
for material breach. In addition, the Company entered into a non-exclusive
technology license agreement with IBM in October 1997 for IBM's Video Access
Node ("VAN") technology. IBM may terminate this agreement for material breach by
the Company. In addition, IBM has the right to acquire any Company intellectual
property based on the licensed technology under certain circumstances, including
a material breach by the Company.
EMPLOYEES
As of December 31, 1998, the Company employed approximately 100
individuals full-time. In addition, the Company employs a number of temporary
contract employees. The Company's employees are not represented by a collective
bargaining agreement. The Company believes its relationships with its employees
are good.
In keeping with its philosophy to concentrate on its core competencies,
the Company contracts with third parties for data processing, accounting and
human resource functions.
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YEAR 2000 COMPLIANCE
The Company uses a significant number of computer software programs
and operating systems in its internal operations, as well as in its products.
The use of computer programs that rely on two-digit date programs to perform
computations and decision-making functions may cause computer systems to
malfunction in the Year 2000 and lead to significant business delays and
disruptions. While the Company believes that the software applications that
it uses or has developed are Year 2000-compliant, to the extent that any of
these software applications contain source code that is unable to
appropriately interpret the upcoming calendar Year 2000, some level of
modification or possible replacement of such source code or applications may
be necessary. The Company has analyzed the software applications that it uses
or has developed and, as a result, the Company at this time does not
anticipate any significant expense in ensuring that they are Year
2000-compliant. However, until the Year 2000 arrives, the Company cannot be
absolutely certain that its analysis is correct. Additionally, there can be
no assurance that the Company's suppliers, vendors or other enterprises with
which the Company interacts are or will be Year 2000- compliant. Failure of
these third-party enterprises to achieve Year 2000 compliance could have a
material adverse effect on the Company's business, financial condition and
results of operations. See also Item 7 "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Year 2000 Compliance."
RISK FACTORS
In addition to the other information provided in this report, the
following risk factors, and the risk factors set forth in the Company's
Registration Statement, should be considered in evaluating the Company and its
business.
LIMITED OPERATING HISTORY: CUMULATIVE LOSSES; STOCK PRICE
The Company has a limited operating history upon which an evaluation of
the Company and its prospects can be based. The Company was incorporated in
October 1993 and first shipped its video networking products in 1995. The
Company's prospects must be considered in light of the risks, expenses and
difficulties encountered by companies in their early stage of development,
particularly companies in new and rapidly evolving markets and companies
experiencing rapid growth and expansion. To address these risks, the Company
must, among other things, continue to achieve market acceptance for its
products, maintain technological leadership, respond to evolving markets and
competition, and attract, retain and motivate qualified employees. There can be
no assurance that the Company will be successful in addressing these risks.
As of December 31, 1998, the Company had an accumulated deficit of
$22.6 million. In addition, as of December 31, 1998, the Company had gross
deferred tax assets of approximately $7.3 million, consisting primarily of net
operating loss carryforwards. Based on a number of factors, including the lack
of a history of profits and the fact that the Company competes in a developing
market that is characterized by rapidly changing technology, management believes
that it is more likely than not that the Company will not be able to realize its
deferred tax assets, and thus a full valuation reserve has been recorded as of
December 31, 1998. The Company's ability to achieve a consistent, profitable
level of operations depends on a number of factors, many of which are beyond the
control of the Company.
The Company's stock price, like that of other technology companies, is
subject to significant volatility. If revenues or earnings in any quarter fail
to meet the investment community's expectations, there could be an immediate
impact on the company's stock price. The stock price may also be affected by
broader market trends unrelated to the Company's performance. Past financial
performance should not be considered a reliable indicator of future performance,
and investors should not use historical trends to anticipate results or trends
in future periods.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company has experienced, and will in the future experience,
fluctuations in revenues, gross margins and operating results. The Company's
gross margins have historically fluctuated from period to period and are
expected to continue to fluctuate in the future. Gross margins are significantly
influenced by a variety of factors,
9.
<PAGE>
including product mix, percentage of revenues derived from OEMs versus
distributors or resellers, pricing within the video networking industry and
the prices of significant components used in the Company's products.
Various factors, in addition to those discussed above, contribute to
the fluctuations in revenues, gross margins and operating results, including the
Company's success in accurately forecasting demand for new orders (which may
have short lead-times before required shipment), new product introductions and
price reductions by competitors and the efforts of OEMs, distributors,
resellers, contract manufacturers and component suppliers on behalf of the
Company.
MARKET ACCEPTANCE OF VIDEO NETWORKING
The Company's success depends on the market acceptance of video
networking. Potential end-users must accept video applications as a viable
alternative to face-to-face meetings and conventional classroom based learning.
New applications, such as the use of video in marketing, selling and
manufacturing, are still in the development stage. If video networking fails to
achieve broad commercial acceptance or such acceptance is delayed, the Company's
business, financial condition and results of operations could be materially
adversely affected.
DEPENDENCE ON DISTRIBUTION RELATIONSHIPS
The Company currently sells through OEMs, distributors and resellers
("distribution relationships"). The Company's future performance will depend
in large part on sales of its products through its distribution
relationships, such as Nortel Networks (including Bay Networks), Lucent
Technologies and other key partners. During the year ended December 31, 1998,
Nortel Networks (including Bay Networks) was the Company's most significant
OEM, representing 39% of the Company's revenues.
Agreements with Nortel Networks and other
distribution partners generally provide for discounts based on the Company's
list prices, and do not require minimum purchases. These agreements do not
restrict development or distribution of competitive products. Therefore, some of
the entities that distribute the Company's products may compete with the
Company. The Company cannot assure that an OEM, distributor or reseller will
dedicate sufficient resources or give sufficient priority to selling the
Company's products. The Company depends on its distribution relationships for
most customer support, and expends significant resources to train its OEMs,
distributors and resellers to support their customers.
As a result of the concentration of the Company's customer base, loss
of business or cancellation of orders from any of these customers, significant
changes in scheduled deliveries to any of these customers, or decreases in the
prices of products sold to any of these customers, could have a material adverse
effect on the Company's results of operations.
LIMITED NUMBER OF LARGE PROJECTS; LENGTHY SALES AND IMPLEMENTATION
CYCLE
The Company depends on a limited number of large end-user projects
for a majority of its revenues, which has resulted in, and may in the future
result in, significant fluctuations in quarterly revenues. The Company
expects that revenues from the sale of products to large end-users will
continue to account for a significant percentage of its revenues in any
particular quarter for the foreseeable future. Additionally, a significant
portion of the Company's sales of video networking products has historically
been to government-related agencies, such as military and educational
institutions, or third parties using the Company's products on behalf of
government agencies. Such government-related customers are often subject to
budgetary pressures and may from time to time reduce their expenditures
and/or cancel orders. The loss of any major customer, or any reduction or
delay in orders by such customer, or the failure of the Company or its
distribution partners to market the Company's products successfully to new
customers could have a material adverse effect on the Company's business,
financial condition and results of operations.
Sales of the Company's products require an extended sales effort.
The Company must first train the entities with which it has distribution
relationships to market the Company's products. The period from an initial
sales call to an end-user agreement typically ranges from six to twelve
months, and can be longer. Therefore, the
10.
<PAGE>
timing of revenues may be unpredictable. This could have a material adverse
effect on the Company's business, financial condition and results of
operations.
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS
Rapid technological change and evolving industry standards characterize
the markets for the Company's products. The Company's success will depend, in
part, on its ability to maintain its technological leadership, enhance and
expand its existing product offerings, and develop and introduce in a timely
manner new products that achieve market acceptance. The development of new,
technologically advanced products is a complex and uncertain process requiring
high levels of innovation, as well as the accurate anticipation of technological
and market trends. The Company has experienced delays in the introduction of new
products in the past and may experience such delays in the future.
As technology changes, the Company's success will also depend in part
upon its ability and the ability of its strategic partners to comply with
evolving industry standards. As standards evolve, the Company must modify its
products, or develop and support new versions of its products. The failure of
the Company's products to comply, or delays in achieving compliance, with
various evolving industry standards could delay introduction of the Company's
products. In addition, there can be no assurance that products or technologies
developed by others will not render the Company's products noncompetitive or
obsolete.
The inability of the Company to respond effectively to technological
changes, or to comply with the various existing and evolving industry standards,
or product announcements by competitors, could have a material adverse effect on
the Company's business, financial condition and results of operations.
DEPENDENCE ON SUPPLIERS
Several critical components used in the Company's products, including
certain custom and programmable semiconductors such as the Pisces ASIC, the
SESAR ASIC, Strong ARM and an ATM adapter, are currently available only from
Lucent, Integrated Telecom Technology, Inc. ("IgT"), Integrated Device
Technologies, Inc. ("IDT"), and Intel, respectively. The Company does not have
long-term agreements with these suppliers, and they are not obligated to provide
components to the Company for any specific period, in any specific quantity or
at any specific price, except as may be provided in a particular purchase order.
Qualifying additional suppliers is a time consuming and expensive process, and
there is a greater likelihood of problems arising during a transition period to
a new supplier. There can be no assurance that the existing suppliers will
continue to meet the Company's requirements for these components. Any
interruption in the supply of these components, or the inability of the Company
to procure these components from alternate sources at acceptable prices and
within a reasonable period of time, or any excessive rework costs associated
with defective components or process errors, could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company uses a product sales forecast based on anticipated product
orders to determine its components requirements. As a result of the relatively
short lead-time on certain orders, however, this forecast may not be accurate.
Certain components used in the Company's products require an order lead-time of
up to 16 weeks. Failure of the Company to predict accurately its required
quantities of these components could result in shipment delays. The Company has
from time to time experienced shortages of certain other key components. There
can be no assurance that the Company will not experience shortages in component
supplies in the future, which could have a material adverse affect on the
Company's business, financial condition and results of operations.
INFRINGEMENT OF THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS
The Company is subject to the risk of litigation alleging
infringement of third party intellectual property rights from both its
licensed and proprietary technology. A number of companies have developed
technologies or received patents on technologies that may be related to or be
competitive with the Company's technologies. The Company has not conducted a
patent search relating to the technology used in its products and holds no
patents. The defense of any lawsuit could be time-consuming and expensive and
result in damages, license fees, royalty
11.
<PAGE>
payments and/or restrictions on the Company's ability to sell its products,
any of which could have a material adverse effect on the Company's business,
financial condition, and results of operations.
DEPENDENCE ON THIRD PARTIES FOR MANUFACTURING
The Company currently outsources the manufacturing of its products.
The Company relies on three vendors, Smartflex, Empac and PCB, to manufacture
certain of its products. If one or more of these manufacturers experiences
quality or other problems, product shipments by the Company may be delayed.
The Company has experienced such delays in the past and may experience delays
in the future. If the Company is required to find replacements for its
manufacturers, such change could result in short-term cost increases and
delays in delivery, which could have a material adverse effect on the
Company's business, financial condition and results of operations. The
Company maintains a safety stock of critical components and reserve inventory
that would not be sufficient to meet increases in demand occurring
simultaneously with delayed deliveries from manufacturers. There can be no
assurance that the Company will be able to negotiate acceptable arrangements
with its existing or future manufacturers, or if negotiated, that such
arrangements will be on terms favorable to the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's success is significantly dependent on the
contributions of a number of its key personnel. Key personnel include Ralph
K. Ungermann, Chairman of the Board of Directors, Richard M. Beyer, Chief
Executive Officer and President, and Allwyn Sequeira, Vice President,
Engineering and Chief Technical Officer. The loss of the services of Messrs.
Ungermann, Beyer or Sequeira could have a material adverse effect on the
Company. With the exception of Mr. Beyer, none of the Company's employees,
including its senior management, is bound by an employment or non-competition
agreement, and the Company does not maintain "key person" life insurance on
any employee.
CONTROL BY INSIDERS
The Company's executive officers, directors and their affiliates
beneficially own approximately 4,739,982, or 28.6%, of the outstanding shares
of common stock. As a result, such persons may have the ability to
effectively control the Company and direct its affairs and business,
including the election of directors and approval of significant corporate
transactions. Such concentration of ownership may also have the effect of
delaying, deferring or preventing a change in control of the Company, and
making certain transactions more difficult or impossible absent the support
of such stockholders, including proxy contests, mergers involving the
Company, tender offers, open-market purchase programs or other purchases of
common stock that could give stockholders of the Company the opportunity to
realize a premium over the then prevailing market price for shares of common
stock.
ITEM 2. PROPERTIES.
The Company is headquartered in Santa Clara, California, where it
leases approximately 48,000 square feet of space that houses administrative,
sales and marketing, customer service and product development activities. The
space is leased under operating leases that expire in 2005. Rental expense under
these facility leases for the year ended December 31, 1998 was approximately
$511,000. The Company believes that its existing facilities are adequate to meet
current needs.
ITEM 3. LEGAL PROCEEDINGS.
On or about April 9, 1999, several purported class action suits were
filed in the U.S. District Court for the Northern District of California
alleging violations of the federal securities laws against the Company and
certain of its officers and directors in connection with the Company's
reporting of its financial results for the period ended December 31, 1998.
These actions have just been commenced, and no trial dates have been set.
Accordingly, management cannot predict with certainty the ultimate resolution
of these lawsuits. However, management believes that the Company has
meritorious defenses to these actions, and the Company intends to defend
itself vigorously. In addition, the Company maintains directors and officers
liability insurance coverage that management believes is applicable to the
claims contained in these lawsuits.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1998.
12.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) The Company's common stock is traded on the Nasdaq National Market
under the symbol "FVCX." Public trading of the common stock commenced on April
29, 1998. Prior to that, there was no public market for the common stock. The
following table sets forth, for the periods indicated, the high and low sale
price per share of the common stock on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
1998
<S> <C> <C>
Second Quarter (from April 29, 1998) $17 $9-1/2
Third Quarter $17-3/4 $7-1/2
Fourth Quarter $19 $7-13/16
</TABLE>
As of March 31, 1999 there were approximately 250 holders of record
of the Company's common stock. On March 31, 1999, the last sale price reported
on the Nasdaq National Market System for the Company's common stock was
$12.75 per share.
The Company has never declared or paid any cash dividends on its
capital stock. The Company intends to retain any future earnings to support
operations and to finance the growth and development of the Company's business
and does not anticipate paying cash dividends for the foreseeable future.
(b) The effective date of the Company's registration statement, filed
on Form S-1 under the Securities Act of 1933, as amended (File No. 333-38755),
was April 29, 1998 (the "Registration Statement"). The class of securities
registered was common stock and all securities registered were sold in the
offering. The managing underwriters for the offering were BancAmerica Robertson
Stephens (now known as BancBoston Robertson Stephens), Bear, Stearns & Co. Inc.
and Hambrecht & Quist LLC. Pursuant to the Registration Statement, the Company
sold 3,132,000 shares of its common stock for an aggregate offering price of
$40,716,000. Also pursuant to the Registration Statement, certain selling
stockholders of the Company sold 180,000 shares of common stock of the Company
for an aggregate offering price of $2,340,000.
In connection with the offering, the Company incurred expenses of
approximately $4.7 million, of which approximately $2.9 million represented
underwriting discounts and commissions and approximately $1.8 million
represented other expenses related to the offering. All such expenses were
direct or indirect payments to others. The net offering proceeds to the Company
and the selling stockholders after total expenses were $36.1 million and $2.2
million, respectively.
Through December 31, 1998, the Company used $6.9 million of the net
proceeds from the offering to repay outstanding indebtedness, including $2.3
million for the outstanding balance under its working capital line of credit and
$2.6 million for the outstanding balance of the loan from Hambrecht & Quist
Guarantee Finance, LLC described in Item 7, and $29.2 million for working
capital and general corporate purposes. The use of the proceeds from the
offering did not represent a material change in the use of the proceeds
described in the Registration Statement.
13.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table presents summary selected historical data of the
Company as of and for each of the five years in the period ended December 31,
1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues .............................................. $ 37,251 $ 18,771 $ 12,093 $ 3,670 $ --
Cost of revenues ...................................... 19,220 10,466 6,547 2,874 --
-------- -------- -------- -------- ---------
Gross profit ........................................ 18,031 8,305 5,546 796 --
-------- -------- -------- -------- ---------
Operating expenses:
Research and development ............................ 9,463 5,420 2,930 2,582 1,208
Selling, general and administrative ................. 11,878 6,997 4,886 3,603 1,419
Acquired in-process research and development ........ 4,664 -- -- -- --
-------- -------- -------- -------- ---------
Total operating expenses (1) ........................ 26,005 12,417 7,816 6,185 2,627
-------- -------- -------- -------- ---------
Loss from operations .................................. (7,974) (4,112) (2,270) (5,389) (2,627)
Other income (expense), net ........................... (42) (216) 27 79 46
-------- -------- -------- -------- ---------
Net loss .............................................. (8,016) $ (4,328) $ (2,243) (5,310) (2,581)
Net loss per share:
Basic (2) ........................................... (0.69) (1.44) (1.14) (5.30) $ (13.95)
Diluted (2) ......................................... (0.69) (1.44) (1.14) (5.30) $ (13.95)
Shares used to compute net loss per share:
Basic (2) ........................................... 11,541 3,012 1,974 1,001 185
Diluted (2) ......................................... 11,541 3,012 1,974 1,001 185
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments ... $ 26,748 $ 2,500 $ 676 $ 2,787 $ 2,699
Working capital ..................................... 32,939 1,891 1,046 1,452 2,410
Total assets ........................................ 51,165 11,104 5,432 4,516 2,998
Total debt .......................................... 1,665 3,466 1,312 392 --
Accumulated deficit ................................. (22,550) (14,534) (10,206) (7,963) (2,653)
Total stockholders' equity .......................... 38,613 1,909 2,074 2,017 2,619
</TABLE>
- -------------------
(1) Operating expenses include non-cash employee stock compensation charges of
$1.1 million, $1.1 million and $339,000 for the years ended December 31, 1998,
1997 and 1996, respectively.
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the computation of net loss per share.
14.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE NOTES THERETO INCLUDED IN ITEM 8 OF THIS FORM 10-K. IN
ADDITION TO THE HISTORICAL INFORMATION CONTAINED IN THIS ITEM, THIS ITEM
CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT THAT INVOLVE RISKS AND
UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION,
STATEMENTS CONTAINING THE WORDS "BELIEVES," ANTICIPATES," "EXPECTS," AND
WORDS OF SIMILAR IMPORT. SUCH FORWARD-LOOKING STATEMENTS WILL HAVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY RESULTS, TO
BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS
INCLUDE, AMONG OTHERS, THE RISK FACTORS SET FORTH ABOVE IN
"BUSINESS--OVERVIEW", "BUSINESS--RISK FACTORS", THE RISK FACTORS SET FORTH IN
THIS ITEM AND ELSEWHERE IN THIS FORM 10-K AS WELL AS THE RISK FACTORS SET
FORTH IN THE COMPANY'S REGISTRATION STATEMENT. THE COMPANY ASSUMES NO
OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN
OVERVIEW
The Company provides high quality, cost-effective video networking
solutions that integrate video with voice and data over existing network
infrastructures. The Company's products enable end-to-end video in a wide range
of room and desktop environments for video applications such as distance
learning, distance meetings and distance medicine. The Company was incorporated
in California in October 1993 and reincorporated in Delaware in December 1997.
The Company first shipped its video networking products in 1995.
The Company markets its products to business customers, government
users and educational providers through its internal sales force and indirect
sales channels. A large portion of the Company's sales to date have been
fulfilled through the Company's OEMs, including Nortel Networks. Sales through
Nortel Networks (including Bay Networks) represented approximately 39% of the
Company's total sales in 1998, 64% in 1997 and 29% in 1996. These OEMs either
sell and install the Company's products directly or work with leading systems
integrators to sell and install the Company's products. Systems integrators
qualified to sell and install the Company's products include BANI, BT, EDS,
France Telecom, GTE Corporation, Global Telemedics, NTT, IBM, NEC Corporation
and Telstra.
In addition to its global OEM relationship with Nortel Networks and
Lucent, the Company maintains a network of distributors in Europe and Asia
licensed to sell its products under the FVC.COM name. The Company's
international distributors are known as FVC.COM France and Spain, which are
operated by Tekelec Airtronic GmbH; and FVC.COM Asia, Benelux, Germany, Nordic,
Korea and the United Kingdom, which are operated by private companies. The
Company opened offices in Japan and Australia in 1999. In the years ended
December 31, 1998, 1997 and 1996, approximately 18%, 20% and 36%, respectively,
of the Company's sales were generated from customers outside of North America.
The Company expects that direct sales from shipments to customers outside of
North America will continue to represent a significant portion of its future
revenues. In addition, the Company believes that a small portion of its sales
through Nortel Networks and other distribution partners is sold to international
end-users. Revenues from the Company's international operations are subject to
various risks. To date, the Company has not engaged in any foreign currency
hedging activity.
Revenues are recognized upon shipment of product to customers,
provided no significant obligations remain, collectibility is probable and
returns are estimable. Revenues from sales to certain of the Company's
resellers are subject to agreements allowing rights of return and price
protection. In such cases, the Company provides reserves for estimated future
returns and credits for price protection upon revenue recognition. Such
reserves are estimated based upon historical rates of returns and allowances,
reseller inventory levels, the Company's estimates of sell through by
resellers and other related factors. Actual results could differ from these
estimates. In the event of inability to estimate returns from any reseller,
the Company defers revenue recognition until the reseller has sold through
the products.
Advance payments received from customers and gross margin deferred
with respect to sales to resellers wherein the Company does not have the
ability to estimate returns are recorded as deferred revenue. At December 31,
1998, deferred revenue was $3.9 million, a significant portion of which
related to approximately $7.1 million of FVC.COM product inventory held at
Nortel Networks, for which the Company will recognize revenue when Nortel has
sold through such inventory because of the Company's inability to estimate
returns associated with such inventory.
Nortel has recently communicated to the Company its desire to move
to a drop ship model, in which case Nortel will not carry any inventory of
the Company's products. The Company's contract with Nortel Networks will
expire in May 1999 and the Company is currently actively negotiating with
Nortel the terms of a new contract with the drop ship model.
ICAST ACQUISITION. In August 1998, the Company acquired ICAST for total
consideration of approximately $7.6 million, including $1.8 million for the
assumption of liabilities. Prior to the acquisition, ICAST was a privately held,
development-stage company that had minimal revenues since its inception in May
1996. Since
15.
<PAGE>
its inception, ICAST has been engaged in developing software designed for
Internet and intranet broadcasting of real-time video, audio and data.
Revenues for 1998 were $37.3 million, an increase of 98 percent over
revenues of $18.8 million in 1997. Pro forma net loss for 1998 was $3.4
million (excluding a one-time charge relating to the acquisition of ICAST),
or $0.29 per diluted share, compared with a net loss of $4.3 million for
1997. Including the acquisition charge, the net loss for 1998 was $8.0
million, or $0.69 per diluted share.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's
Consolidated Statements of Operations as a percentage of total revenues for the
periods indicated. The data set forth below should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues ........................................................ 100.0% 100.0% 100.0%
Cost of revenues................................................. 51.6% 55.8% 54.1%
-------- -------- --------
Gross profit................................................ 48.4% 44.2% 45.9%
-------- -------- --------
Operating expenses:
Research and development.................................... 25.4% 28.9% 24.2%
Selling, general and administrative......................... 31.9% 37.2% 40.4%
Acquired in-process research and development................ 12.5% 0% 0%
-------- ------- -------
Total operating expenses (1)............................ 69.8% 66.1% 64.6%
-------- -------- --------
Operating loss................................................... (21.4%) (21.9%) (18.7%)
Other income (expense), net...................................... (0.1%) (1.2%) 0.2%
-------- -------- --------
Net loss (21.5%) (23.1%) (18.5%)
-------- -------- --------
-------- -------- --------
</TABLE>
(1) Operating expenses include non-cash employee stock compensation charges of
$1,065,000 (2.9% of total revenues), $1,137,000 (6.1% of total revenues) and
$339,000 (2.8% of total revenues) for the years ended December 31, 1998, 1997
and 1996, respectively.
REVENUES. Revenues increased 98%, rising to $37.3 in 1998, from
$18.8 million in 1997 and $12.1 million in 1996. The increase in revenues in
both 1998 and 1997 resulted from higher unit shipments due to wider
acceptance of the Company's products as a result of marketing efforts of the
Company and its strategic partners. Revenues attributable to the acquisition
of ICAST were immaterial in 1998. Sales through Nortel Networks (including
Bay Networks) increased 25.6%, rising to $15.7 million in 1998, from $12.5
million in 1997 and $3.7 million in 1996.
GROSS PROFIT. Gross profit consists of revenues less the cost of
revenues, which consists primarily of costs associated with the manufacture of
the Company's products by outside manufacturers and related costs of freight,
inventory obsolescence, royalty and warranty. These manufacturers procure the
majority of materials, except for certain key components that the Company
purchases from third-party vendors.
Gross profit increased 117%, rising to $18.0 million in 1998 from $8.3
million in 1997 and $5.5 million in 1996. Gross margin (gross profit as a
percentage of revenues) increased to 48.4% in 1998 from 44.2% in 1997 and 45.9%
in 1996. The increases in gross profit in 1998 over 1997, and in 1997 over 1996,
were primarily due to the related increases in revenues. The increase in gross
margin for 1998 over 1997 was primarily due to a shift in
16.
<PAGE>
product mix to higher margin products, an increase in the percentage of total
revenues derived from higher margin reseller channels and decreases in
product costs for certain of the Company's products. Gross margin was
relatively constant in 1997 versus 1996.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of personnel costs, cost of contracts and outside consultants,
supplies and material expenses, equipment depreciation and overhead costs.
Research and development expenses increased 75%, rising to $9.5 million in 1998,
from $5.4 million in 1997 and $2.9 million in 1996. As a percentage of total
revenues, research and development expenses decreased to 25.4% in 1998 from
28.9% in 1997 and 24.2% in 1996. The increases in absolute dollars in 1998 over
1997 and 1997 over 1996 were principally due to the hiring of additional
engineers and consultants for product development, including personnel costs in
1998 associated with hiring additional engineers in connection with the ICAST
acquisition. Research and development expenses include non-cash compensation
charges relating to the Company's employee stock plans of $476,000 in 1998,
$506,000 in 1997 and $174,000 in 1996. The decrease from 1997 to 1998 in
research and development expenses as a percentage of revenues was due to the
relatively greater increase in revenues for 1998 compared to research and
development expenses for 1998. The Company believes that research and
development expenses will continue to increase in absolute dollars for the
foreseeable future. However, such expenses will fluctuate depending on various
factors, including the status of development projects.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses include personnel and related overhead costs for
sales, marketing, finance, human resources and general management. Such
expenses also include costs of outside contractors, advertising, trade shows
and other marketing and promotional expenses. Selling, general and
administrative expenses increased 70%, rising to $11.9 million in 1998 from
$7.0 million in 1997 and $4.9 million in 1996. As a percentage of total
revenues, selling, general and administrative expenses decreased to 31.9% in
1998 from 37.2% in 1997 and 40.4% in 1996. The increase in absolute dollars
in 1998 over 1997 and 1997 over 1996 was the result of the expansion of the
Company's sales and marketing infrastructure, as well as higher marketing
costs associated with advertising and promotional activities, and higher
selling costs related to the increases in revenues. Selling, general and
administrative expenses include non-cash compensation charges relating to the
Company's employee stock plans of $589,000 in 1998, $631,000 in 1997 and
$165,000 in 1996. The decrease from 1997 to 1998 in selling, general and
administrative expenses as a percentage of revenues was due to the relatively
greater increases in revenues for 1998 compared to selling, general and
administrative expenses for 1998. The Company anticipates that selling,
general and administrative expenses will continue to increase in absolute
dollars in the foreseeable future as the Company expands its selling and
marketing efforts and continues to incur the administrative costs associated
with a publicly held company.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. In August 1998, the
Company acquired ICAST for total consideration of approximately $7.6 million,
including $1.8 million for the assumption of liabilities. Prior to the
acquisition, ICAST was a privately held, development-stage company that had
minimal revenues since its inception in May 1996. Since its inception, ICAST has
been engaged in developing software designed for Internet and intranet
broadcasting of real-time video, audio and data. The acquisition was accounted
for under the purchase method of accounting. Accordingly, the results of
operations of ICAST are included in the Consolidated Financial Statements from
the date of acquisition.
Initially approximately $6.2 million of the total purchase price of
ICAST was allocated to the value of in-process research and development
("IPR&D") and was charged to the Company's operations in the third quarter
ended September 30, 1998. Since the acquisition, and as a result of the
recent views expressed by Securities and Exchange Commission (the "SEC")
staff, as discussed below, the Company has reduced its estimate of the amount
allocated to IPR&D as a result of the ICAST acquisition by $1.5 million to
$4.7 million for the year ended December 31, 1998 and allocated $2.5 million
to goodwill and other identified intangibles. As a result of the reduction in
the IPR&D charge, amortization of intangibles increased by $116,000, from
$56,000 to $172,000, and the basic and diluted net loss per share decreased
from $0.82 to $0.69 for the year ended December 31, 1998.
The amount allocated to IPR&D and intangible assets in the third
quarter of 1998 was made in a manner consistent with widely recognized appraisal
practices at the date of acquisition. Subsequent to the acquisition, however,
the SEC staff expressed views that took issue with certain appraisal practices
generally employed in determining the fair value of the IPR&D that was the basis
for the Company's measurement of its IPR&D charge.
17.
<PAGE>
The charge of $6.2 million, as first reported by the Company, was based upon
the work of an independent valuation firm that had utilized the methodologies
the SEC has since announced it does not consider appropriate.
As a result of computing IPR&D using the SEC's current preferred
methodology, the Company, in consultation with its independent accountants,
decided to revise the amount originally allocated to IPR&D. The Company has
revised earnings for the third quarter of 1998 and will amend its Report on Form
10-Q for the quarter ended September 30, 1998 and its Report on Form 8-K/A
previously filed with the SEC.
At the time of the acquisition, ICAST was a privately held, development
stage company involved in research and development of a low-bit rate software
product designed for Internet and intranet broadcasting of real-time video,
audio and data. The value assigned to IPR&D was based on this research project
for which technological feasibility had not been established. The value was
determined by estimating the expected cash flows from this project once
commercially viable, discounting the net cash flows back to their present value
and then applying a percentage of completion. The net cash flows from the
identified project are based on management estimates of revenues, cost of sales,
research and development costs, selling, general and administrative costs, and
income taxes from the project. The research and development costs included in
the model reflect costs to sustain the project, but exclude costs to bring the
in-process project to technological feasibility. The estimated revenues are
based on management projections for the project and are expected to peak in the
year 2000 and decline thereafter as other new products are expected to become
available. These projections are based on management estimates of market size
and growth, expected trends in technology, and the nature and expected timing of
new product introductions by the Company and its competitors. Projected gross
margins approximate recent historical performance of other Company products. The
estimated selling, general and administrative costs, and research and
development costs were estimated excluding synergies expected from the
acquisition.
The discount rate used in discounting the net cash flows from IPR&D is
22%. This discount rate reflects the uncertainties surrounding the successful
development of the IPR&D, market acceptance of the technology, the useful life
of such technology, the profitability levels of such technology and the
uncertainty of technological advances that could potentially impact the
estimates described above.
The percentage of completion for this project was determined by
comparing both effort expended and research and development costs incurred as of
August 1998, to the remaining effort to be expended and research and development
costs to be incurred, based on management's estimates, to bring the project to
technological feasibility. Based on these comparisons management estimated the
project to be approximately 83% complete as of the date of acquisition. The
project was substantially completed in December 1998. The effort and costs
required to complete the project approximated the estimates made by management
at the date of acquisition.
Management believes that the restated IPR&D charge of $4.7 million is
valued consistently with the SEC staff's current views regarding valuation
methodologies. There can be no assurances, however, that the SEC staff will not
take issue with any assumptions used in the Company's valuation model and
require the Company to further revise the amount allocated to IPR&D.
OTHER INCOME (EXPENSE), NET. Other income (expense), net consists
primarily of interest expense relating to the Company's credit facilities and
long-term debt, offset in part by interest income earned on short term
investments and cash balances. Net other expense totaled $42,000 in 1998,
compared to net other expense of $216,000 in 1997 and net other income of
$27,000 in 1996. The decrease in net other expense from 1997 to 1998 was
primarily due to interest income earned on the proceeds from the Company's
initial public offering completed in May 1998 and a reduction in interest
expense due to the repayment of borrowings under short-term credit facilities
with the proceeds from the initial public offering.
INCOME TAXES. As of December 31, 1998, the Company had net operating
loss carryforwards for federal tax purposes of approximately $9.0 million.
Approximately $1.8 million of the net operating loss carryforwards resulted
from the Company's acquisition of ICAST. These carryforwards, if not utilized
to offset future taxable income, will expire at various dates beginning in
2010. Under the ownership change limitations provided by the Internal Revenue
Code of 1986, as amended, the amount of and benefit from the net operating
losses that can be carried forward may be impaired or limited in certain
circumstances. See Note 7 of Notes to Consolidated Financial
18.
<PAGE>
Statements. As of December 31, 1998, the Company had gross deferred tax
assets of approximately $7.3 million. The Company has incurred losses since
inception. No benefit has been recorded for income taxes for any of the
periods presented as the Company believes that, based on the history of such
losses and other factors, the weight of available evidence indicates that it
will not be able to realize the benefit of these net operating losses. Thus,
a full valuation reserve has been recorded.
LIQUIDITY AND CAPITAL RESOURCES
Since inception through the completion of its initial public offering
in May 1998, the Company financed its operations primarily through private
placements of equity securities and to a lesser extent through certain credit
facilities and long-term debt. As of December 31, 1998, the Company had cash,
cash equivalents and short-term investments of $26.7 million and working capital
of $32.9 million.
The Company has used cash in its operating activities primarily to fund
losses of $22.6 million incurred through December 31, 1998, and to finance its
working capital needs.
During 1998, the Company had a net loss of $8.0 million, which was
primarily due to a non-cash charge for acquired in-process research and
development of $4.7 million and non-cash compensation charges of $1.3
million. The Company also experienced an increase in accounts receivable of
$8.6 million, which was the primary factor resulting in $7.0 million of cash
used in operating activities. The increase in accounts receivable was due to
increased sales in 1998 as compared to 1997. During 1997, the Company had a
net loss of $4.3 million which was offset in part by an increase in accounts
payable of $3.0 million, resulting in $2.6 million of cash used in operating
activities. During 1996, the Company had a net loss of $2.2 million, and
increases in accounts receivable and inventories of $1.7 million and $1.0
million, respectively, resulting in $4.4 million of cash used in operating
activities.
Cash used for acquisition of property and equipment was $2.0 million in
1998, compared to $451,000 in 1997 and $504,000 in 1996. The capital
expenditures consisted of purchases of computers and related equipment,
furniture and fixtures necessary to support the Company's growth. To date the
Company has not made significant outlays for capital expenditures because of its
strategy to outsource manufacturing and certain other functions.
The Company has a working capital line of credit with Silicon Valley
Bank that provides for borrowings of up to $10 million. Borrowings under the
line of credit bear interest at the bank's prime rate (8.5% at December 31,
1998), are secured by certain assets of the Company and are limited to certain
percentages of the Company's accounts receivable and inventory balances. As of
December 31, 1998, the Company had no borrowings outstanding under this line.
The line expires in June 2000 and requires the Company to comply with certain
financial ratios and covenants, and also limits the Company's ability to pay
dividends. As of December 31, 1998, the Company was in compliance with all
financial covenants contained in the line of credit agreement.
In February 1998, the Company agreed in principle to enter into a
transaction with Hambrecht & Quist Guaranty Finance, LLC ("Guaranty Finance"),
whereby Guaranty Finance would loan the Company up to $5 MILLION. Under the
related agreements that were executed on March 12, 1998 and subsequently amended
on April 24, 1998, (i) Guaranty Finance agreed to lend the Company up to $5
million at an interest rate of 12% per annum, $1.1 million of which was loaned
to the Company in March 1998 and $1.5 million of which was loaned to the Company
in April 1998 (the "Loan") and (ii) Guaranty Finance purchased from the Company
for $1,250 a warrant to purchase 125,000 shares of the Company's common stock at
a per share purchase price equal to the initial public offering price of $13.00.
The warrant is exercisable through March 1, 2003. The fair value of this warrant
was estimated to be $563,000 and was expensed as an additional cost of financing
in 1998. The Company paid a $100,000 fee to Guaranty Finance in consideration
for entering into the Loan. This financing agreement expired on December 31,
1998.
In May 1998, the Company completed its initial public offering whereby
the Company sold 3,132,000 shares of common stock. Net proceeds to the Company
aggregated approximately $36.1 million. The Company used $6.9 million of the net
proceeds from its initial public offering to repay outstanding indebtedness.
19.
<PAGE>
The Company believes that its cash, cash equivalents and short term
investments of $26.7 million at December 31, 1998, together with existing
sources of liquidity, will provide adequate cash to fund its operations for at
least the next 12 months. Thereafter, if cash generated by operations is
insufficient to satisfy the Company's liquidity requirements, the Company may be
required to sell additional equity or debt securities or increase its lines of
credit. The sale of additional equity or convertible debt securities may result
in additional dilution to the Company's stockholders.
YEAR 2000 COMPLIANCE
The Year 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's information technology hardware, embedded technologies, such as
microprocessors, or software that is date-sensitive may recognize a date using
"00" as the year 1900 rather than the year 2000. Because the Company uses a
significant number of computer software programs and operating systems in its
internal operations, as well as in its products, Year 2000 issues create certain
risks for the Company. If the Company's internal management information systems
do not correctly recognize and process date information beyond the year 1999,
there could be an adverse impact on the Company's operations. To address these
Year 2000 issues, the Company has developed and substantially completed a
program to evaluate its internal systems. Assessment and remediation are
proceeding in parallel, and the Company currently plans to have changes to these
information systems completed and tested by June 1999. These activities are
intended to encompass all major categories of internal systems used by the
Company. The Company has not yet determined the potential cost of purchasing,
installing, modifying or testing its internal systems, but currently estimates
they will not exceed $100,000.
To assist customers in evaluating their Year 2000 issues, the Company
has begun a program to assess the capability of its current products and
products no longer being produced to handle the Year 2000. Testing has not yet
been completed, but based on tests conducted thus far, the Company believes that
all current products shipping are "Year 2000 Compliant." It is expected that
assessment and remediation will be ongoing in 1999 with the goal of
appropriately resolving all material product issues by June 1999. The
incremental costs incurred to date related to these programs have not been
material. The incremental costs that will be incurred by the Company regarding
the testing of current or older products for Year 2000 compliance, and answering
and responding to customer requests related to Year 2000 issues, have not yet
been determined but are currently not expected to be material and are not
expected to exceed $100,000. Based on currently available information, the
Company does not believe that the Year 2000 matters discussed above related to
internal systems or products sold to customers will have a material adverse
impact on its financial condition or overall trends in results of operations;
however, it is still uncertain to what extent the Company may be affected by
such matters. In addition, customers may delay purchase decisions because of
uncertainty about Year 2000 issues.
Except as implied in any limited product warranty, the Company does not
believe it is legally responsible for costs incurred by customers related to
ensuring Year 2000 compliance. Nevertheless, the Company is incurring various
costs to provide customer support and customer satisfaction services regarding
Year 2000 issues and it is anticipated that these expenditures will continue
through calendar year 1999. As used by the Company, "Year 2000 Compliant" means
that when used properly and in conformity with the product information provided
by the Company, and when used with "Year 2000 Compliant" computer systems, the
Company's product will accurately store, display, process, provide, and/or
receive data from, into, and between the twentieth and twenty-first centuries,
including leap year calculations, provided that all other technology used in
combination with the Company's product properly exchanges date data with the
Company's product. There can be no assurance that (i) third party technologies
used in combination with the Company's products will be Year 2000 Compliant and
(ii) the Company's products will not be adversely affected when used with such
third party technologies, nor can the Company represent that any modifications
to its products made by a party other than the Company will be Year 2000
Compliant.
The Company has contacted its key suppliers of goods or services and
other relevant third parties to determine if they are adequately addressing Year
2000 issues and what might be the possible effects on the Company if those
parties are not adequately prepared for the year 2000. Based on these inquiries,
the Company believes that the majority of its key suppliers of goods and
services are presently Year 2000 Compliant and the
20.
<PAGE>
remaining suppliers will be Year 2000 Compliant by the end of 1999. However,
failure of any key supplier or other relevant third party to address Year
2000 readiness could potentially have a material effect on the Company's
business, financial condition and results of operations.
The Company is in the process of developing a contingency plan to
address situations that may result if its key suppliers and other relevant third
parties are unable to achieve Year 2000 readiness. There can be no assurance
that the Company will be able to develop a contingency plan to adequately
address issues that may arise in the year 2000. The failure of the Company to
develop and implement, if necessary, an appropriate contingency plan could have
a material impact on the operations of the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
As of December 31, 1998, the Company held a total of $26.7 million
of cash, cash equivalents and short-term investments. These securities, which
consist primarily of U.S. government securities, municipal notes and
corporate bonds, are subject to interest rate risk and will decline in value
if market interest rates increase. If market interest rates were to increase
immediately and uniformly by 10 percent from levels as of December 31, 1998,
the decline in fair value of the portfolio would not be material.
The Company transacts substantially all of its revenues and costs in
U.S. dollars and therefore is not subject to fluctuations in foreign exchange
rates. Accordingly, the Company currently does not use derivative financial
instruments. The Company has no fixed rate obligations except for capitalized
leases of approximately $365,000. As such the fair value of the Company's
fixed rate obligations is not subject to an adverse material impact from
changes in interest rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's Financial Statements and Notes thereto appear beginning
at page F-1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There has been no change in the Company's independent accountant during
the two most recent fiscal years.
21.
<PAGE>
PART III
Certain information required in Part III of this Report is incorporated
by reference to the Company's proxy statement (the "Proxy Statement") for the
Company's 1999 Annual Meeting of Stockholders. The Proxy Statement will be filed
with the SEC in accordance with Regulation 14A under the Exchange Act no later
than April 30, 1999.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Identification of Directors:
The information concerning the Company's directors and
nominees is incorporated by reference from the section entitled
"Proposal I: Election of Directors" in the Proxy Statement, a copy of
which will be filed with the SEC no later than April 30, 1999.
(b) Identification of Executive Officers:
The information concerning the Company's Executive Officers is
incorporated by reference from the section entitled "Management" in the
Proxy Statement, a copy of which will be filed with the SEC no later
than April 30, 1999.
(c) Compliance with Section 16(a) of the Exchange Act:
Based solely upon a review of Forms 3 and 4 and amendments
thereto furnished to the Company pursuant to Rule 16a-3(e) during the
1998 fiscal year and Form 5 and amendments thereto furnished to the
Company with respect to fiscal year 1998, no director, officer, or
beneficial owner of more than 10 percent of any class of equity
security of the Company has failed to file on a timely basis, as
disclosed by the above forms, reports required by Section 16(a) of the
Exchange Act during the 1998 fiscal year or prior fiscal years.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the section entitled "Executive Compensation" in the Proxy Statement, a copy of
which will be filed with the SEC no later than April 30, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement, a copy of which will be filed with the SEC
no later than April 30, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
the section entitled "Certain Relationships and Related Transactions" in the
Proxy Statement, a copy of which will be filed with the SEC no later than April
30, 1999.
22.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------- ----------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger and Reorganization among the
Registrant, FVC Acquisition Corp., ICAST Corporation and
Certain Shareholders of ICAST Corporation, dated as of
July 30, 1998 (1)
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (2) (exhibit 3.3)
3.2 Certificate of Ownership and Merger, effective
August 3, 1998 (3) (exhibit 3.1(i))
3.3 Bylaws of the Registrant (2) (exhibit 3.4)
4.1 Specimen Common Stock Certificate (3)
*10.1 1997 Equity Incentive Plan (2)
*10.2 Form of Incentive Stock Option Grant (2)
*10.3 Form of Nonstatutory Stock Option Grant (2)
*10.4 1997 Employee Stock Purchase Plan (2)
*10.5 Form of 1997 Employee Stock Purchase Plan Offering (2)
*10.6 1997 Non-Employee Directors' Stock Option Plan (2)
*10.7 Form of Nonstatutory Stock Option Grant
*10.8 Executive Officers' Change of Control Plan
</TABLE>
23.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------- ----------------------------------------------------------------
<S> <C>
*10.9 Non-Employee Directors' Change of Control Plan
*10.10 Form of Indemnification Agreement between the Registrant
and its directors and executive officers (2) (exhibit 10.7)
10.11 Amended and Restated Investors' Rights Agreement, dated as
of April 1, 1998, among the Registrant and the investors
named therein (2) (exhibit 10.8)
10.12 Lease Agreement between the Registrant and John Arrillaga,
or his successor Trustee, UTA 7/20/77, dated July 19, 1995
(the "Lease Agreement") (2) (exhibit 10.9)
10.13 Amendment No. 1 to the Lease Agreement, dated November
7, 1997 (2) (exhibit 10.9(i))
10.14 Amendment No. 4 to the Lease Agreement, dated February
4, 1999
10.16 Loan and Security Agreement between the Registrant and
Silicon Valley Bank ("SVB"), dated July 3, 1996 (2)
(exhibit 10.10)
10.17 Amendment to Loan and Security Agreement between the
Registrant and SVB, dated June 10, 1998 (3) (exhibit
10.10(i))
10.18 Master Lease Agreement between the Registrant and
Comdisco, Inc. ("Comdisco"), dated April 30, 1997
(2) (exhibit 10.11)
10.19 Subordinated Loan and Security Agreement between the
Registrant and Comdisco (2) (exhibit 10.12)
10.20 Original Equipment Manufacturing Agreement between the
Registrant and Bay Networks, Inc., dated November 3, 1995,
as amended through April 9, 1997 (2) (exhibit 10.13)
10.21 Fourth Amendment to OEM Agreement, between the Registrant
and Bay Networks, Inc., dated October 26, 1997 (2) (exhibit
10.13(i))
10.22 OEM Reseller Agreement between the Registrant and Northern
Telecom Inc., dated May 1, 1997 (2) (exhibit 10.14)
10.23 Development and License Agreement between the Registrant
and Advanced Telecommunications Modules Limited, dated
February 25, 1994, as amended (2) (exhibit 10.15)
10.24 Equipment Manufacturing OEM Agreement between the Registrant
and VTEL Corporation, dated August 20, 1997 (2) (exhibit 10.16)
10.25 Technology Licensing Agreement between IBM Corporation and
the Registrant, dated October 16, 1997 (2) (exhibit 10.17)
10.26 Warrant issued to SVB, dated April 11, 1997 (2) (exhibit 10.18)
10.27 Warrants issued to Comdisco, each dated April 30, 1997 (2)
(exhibit 10.19)
10.28 Subordinated Loan and Security Agreement between the
Registrant and Comdisco, dated October 23, 1997 (2)
(exhibit 10.20)
10.29 Warrant issued to Comdisco, dated November 19, 1997 (2)
(exhibit 10.21)
10.30 Lease Agreement between the Registrant and John Arrillaga,
or his successor Trustee, UTA 7/20/77, dated November 7, 1997
(2) (exhibit 10.22)
10.31 Letter Agreement between IBM Corporation and the Registrant,
dated February 8, 1998 (2) (exhibit 10.23)
10.32 Loan and Security Agreement between the Registrant and
Hambrecht & Quist Guaranty Finance, LLC, dated March 12, 1998
(2) (exhibit 10.24)
</TABLE>
24.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------- ----------------------------------------------------------------
<S> <C>
10.33 Intellectual Property Security Agreement between the Registrant
and Hambrecht & Quist Guaranty Finance, LLC, dated
March 12, 1998 (2) (exhibit 10.25)
10.34 Common Stock Warrant Purchase Agreement between the Registrant
and Hambrecht & Quist Guaranty Finance, LLC, dated March 12, 1998
(2) (exhibit 10.26)
10.35 Warrant issued to Hambrecht & Quist Guaranty Finance, LLC,
dated March 12, 1998 (2) (exhibit 10.27)
10.36 $5,000,000 Promissory Note, dated March 13, 1998, issued by the
Registrant to Hambrecht & Quist Guaranty Finance, LLC
(2) (exhibit 10.28)
*10.37 Amendment No. 1 to Incentive Stock Options, dated as of
December 1, 1998, between the Registrant and James M. Nielsen
*10.38 Employment Agreement, dated as of December 14, 1998, by and
between the Registrant and Richard M. Beyer
10.39 Amended and Restated Promissory Note, dated December 16, 1998,
issued in favor of the Registrant by Allwyn Sequeira
11.1 Statement of Computation of Earnings (Loss) Per Share (4)
23.1 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- ----------------------
*Management contract or compensatory plan or arrangement.
(1) Incorporated by reference to exhibit 2.1 to the Company's Current
Report on Form 8-K filed on September 15, 1998 (File No. 000-23305).
(2) Incorporated by reference to the corresponding or indicated exhibit in
the Company's Registration Statement on Form S-1, as amended
(File No. 333-38755).
(3) Incorporated by reference to the corresponding or indicated exhibit in
the Company's Quarterly Report on Form 10-Q filed on June 10, 1998
(File No. 000-23305).
(4) See Note 1 to Notes to Consolidated Financial Statements.
(b) REPORTS ON FORM 8-K.
The Company filed the following report on Form 8-K during the fourth
quarter of the fiscal year 1998.
(1) Form 8-K/A filed on November 9, 1998, regarding the filing
of pro forma financial statements in connection with the
acquisition of ICAST Corporation.
25.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Santa
Clara, State of California, on the 14th day of April 1999.
FVC.COM, INC.,
By: /s/ RICHARD M. BEYER
--------------------------------------
Richard M. Beyer
CHIEF EXECUTIVE OFFICER AND PRESIDENT
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Richard M. Beyer and Ralph K. Ungermann,
and each of them, his 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 to this Report on Form
10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission granting unto
such 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 that all such
attorneys-in-fact and agents, or any of them or their or his substitute or
substituted, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------ -----------------------
<S> <C> <C>
/s/ RICHARD M. BEYER Chief Executive Officer, President & April 14, 1999
- ------------------------------------------ Director (Principal Executive Officer)
Richard M. Beyer
/s/ JAMES O. MITCHELL Vice President, Operations and Chief April 14, 1999
- ------------------------------------------ Financial Officer (Principal
James O. Mitchell Financial and Accounting Officer)
/s/ RALPH UNGERMANN Chairman of the Board of Directors April 14, 1999
- ------------------------------------------
Ralph Ungermann
/s/ NEAL M. DOUGLAS Director April 14, 1999
- ------------------------------------------
Neal M. Douglas
Director April __, 1999
- ------------------------------------------
Pier Carlo Falotti
/s/ DAVID A. NORMAN Director April 13, 1999
- ------------------------------------------
David A. Norman
/s/ JAMES R. SWARTZ Director April 14, 1999
- ------------------------------------------
James R. Swartz
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------ ----------------------
<S> <C> <C>
/s/ ENZO TORRESI Director April 14, 1999
- ------------------------------------------
Enzo Torresi
/s/ ROBERT WILMOT Director April 14, 1999
- ------------------------------------------
Robert Wilmot
</TABLE>
SIGNATURE PAGE
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of FVC.COM, 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 FVC.COM,
Inc. and its subsidiaries at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of 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
San Jose, California
April 5, 1999, except as to Note 12,
which is as of April 9, 1999
<PAGE>
FVC.COM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
-------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,315 $ 2,500
Short-term investments 16,433 --
Accounts receivable, net of allowances of $215 and $168 11,221 2,469
Inventory 6,053 4,178
Prepaid expenses and other current assets 1,241 627
-------- --------
Total current assets 45,263 9,774
Property and equipment, net 2,400 1,043
Other assets 3,502 287
-------- --------
Total assets $ 51,165 $ 11,104
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under short-term credit facilities $ -- $ 1,306
Notes payable 1,300 --
Current portion of long-term debt 137 848
Accounts payable 5,045 4,141
Accrued liabilities 1,937 1,326
Deferred revenue 3,905 262
-------- --------
Total current liabilities 12,324 7,883
-------- --------
Long-term debt, net of current portion 228 1,312
-------- --------
Commitments and contingencies (Notes 8 and 12)
Stockholders' equity:
Convertible preferred stock, $.001 par value; 5,000,000 and 10,000,000
shares authorized, respectively; 0 and 8,040,153 shares issued and
outstanding, respectively -- 8
Common stock, $.001 par value; 35,000,000 and 30,000,000 shares authorized,
respectively; 16,389,007 and 4,824,684 shares issued and outstanding,
respectively 16 5
Additional paid-in capital 61,649 17,267
Notes receivable from stockholders (502) (837)
Accumulated deficit (22,550) (14,534)
-------- --------
Total stockholders' equity 38,613 1,909
-------- --------
$ 51,165 $ 11,104
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-2.
<PAGE>
FVC.COM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996
--------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues $ 37,251 $ 18,771 $ 12,093
Cost of revenues 19,220 10,466 6,547
--------------- ---------------- ----------------
Gross Profit 18,031 8,305 5,546
--------------- ---------------- ----------------
Operating expenses:
Research and development, 9,463 5,420 2,930
Selling, general and administrative 11,878 6,997 4,886
Acquired in-process research and development 4,664 - -
--------------- ---------------- ----------------
Total operating expenses 26,005 12,417 7,816
--------------- ---------------- ----------------
Loss from operations (7,974) (4,112) (2,270)
Interest expense (1,057) (295) (91)
Other income, net 1,015 79 118
--------------- ---------------- ----------------
--------------- ---------------- ----------------
Net loss $ (8,016) $ (4,328) $ (2,243)
--------------- ---------------- ----------------
--------------- ---------------- ----------------
Net loss per share:
Basic $ (0.69) $ (1.44) $ (1.14)
Diluted $ (0.69) $ (1.44) $ (1.14)
Shares used to compute net loss per share:
Basic 11,541 3,012 1,974
Diluted 11,541 3,012 1,974
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-3.
<PAGE>
FVC.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
-------------------- ------------------- PAID-IN FROM ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS DEFICIT EQUITY
---------- -------- ---------- ------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 7,383,125 $ 7 4,261,999 $ 4 $10,156 $ (187) $ (7,963) $ 2,017
Issuance of common stock, net - - 601,964 1 1,085 (737) - 349
Issuance of Series C preferred stock,
net 148,135 - - - 637 - - 637
Issuance of Series D preferred stock,
net 168,375 - - - 1,314 - - 1,314
Net loss (2,243) (2,243)
---------- -------- ---------- ------- ---------- ------------ ----------- -------------
Balance at December 31, 1996 7,699,635 7 4,863,963 5 13,192 (924) (10,206) 2,074
Issuance of Series C preferred stock,
net 20,518 - - - 137 - - 137
Issuance of Series D preferred stock,
net 320,000 1 - - 2,548 - - 2,549
Exercise of stock options - - 32,700 - 77 - - 77
Issuance (repurchase) of common stock,
net - - (71,979) - 176 87 - 263
Stock compensation charges - - - - 1,137 - - 1,137
Net loss - - - - - - (4,328) (4,328)
---------- -------- ---------- ------- ---------- ------------ ----------- -------------
Balance at December 31, 1997 8,040,153 8 4,824,684 5 17,267 (837) (14,534) 1,909
Issuance of common stock in initial
public offering, net - - 3,132,000 3 36,072 - - 36,075
Conversion of preferred stock into
common stock upon initial public
offering (8,040,153) (8) 8,040,153 8 - - - -
Issuance of common stock and other
equity instruments for business
acquisition - - 401,389 - 5,179 - - 5,179
Exercise of stock options - - 194,133 - 815 - - 815
Issuance (repurchase) of common stock,
net - - (203,352) - (147) 335 - 188
Stock compensation charges - - - - 2,463 - - 2,463
Net loss - - - - - - - (8,016)
---------- -------- ---------- ------- ---------- ------------ ----------- -------------
Balance at December 31, 1998 - $ - 16,389,007 $ 16 $61,649 $ (502) $ (22,550) $ 38,613
---------- -------- ---------- ------- ---------- ------------ ----------- -------------
---------- -------- ---------- ------- ---------- ------------ ----------- -------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-4.
<PAGE>
FVC.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (8,016) $ (4,328) $ (2,243)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,961 566 342
Non-cash stock compensation 1,250 1,137 339
Acquired in-process research and development 4,664 -- --
Other (44) 215 (42)
Changes in assets and liabilities net of effects of
acquisition of ICAST Corporation:
Accounts receivable (8,591) (347) (1,660)
Inventory (1,839) (2,948) (1,025)
Prepaid expenses and other current assets (614) (568) (19)
Other assets (694) (12) (28)
Accounts payable 843 3,012 601
Accrued liabilities 468 689 151
Deferred revenue 3,643 (18) (813)
-------- -------- ---------
Net cash used in operating activities (6,969) (2,602) (4,397)
-------- -------- ---------
Cash flows used in investing activities:
Acquisition of ICAST Corporation, net of cash received (360) -- --
Acquisition of property and equipment (1,987) (451) (504)
Purchase of short-term investments (16,433)
Restricted cash -- -- (30)
-------- -------- ---------
Net cash used in investing activities (18,780) (451) (534)
-------- -------- ---------
Cash flows from financing activities:
Borrowings under short-term credit facilities 3,600 801 999
Repayment of short-term credit facilities (4,906) (494) --
Proceeds from long-term debt -- 2,250 --
Repayment of long-term debt (2,014) (235) --
Proceeds from issuance of stock, net 37,078 2,793 2,003
Repayment of capital lease obligations (194) (238) (182)
-------- -------- ---------
Net cash provided by financing activities 33,564 4,877 2,820
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents 7,815 1,824 (2,111)
Cash and cash equivalents at beginning of period 2,500 676 2,787
-------- -------- ---------
Cash and cash equivalents at end of period $ 10,315 $ 2,500 $ 676
-------- -------- ---------
-------- -------- ---------
Supplemental cash flow information:
Cash paid for interest $ 206 $ 248 $ 78
Equipment acquired under capital lease obligations -- 203 103
Issuance of warrants to third parties 1,213 233 --
Common stock issued and options and warrants assumed in
connection with acquisition of ICAST Corporation 5,179 -- --
Debt assumed in connection with acquisition of ICAST 1,300 -- --
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-5.
<PAGE>
FVC.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
FVC.COM, Inc. (the "Company") was incorporated in California in
October 1993 and subsequently reincorporated in Delaware in December 1997 as
First Virtual Corporation. In July 1998, the Company changed its name to
FVC.COM, Inc. The Company is engaged in developing, manufacturing and
marketing video networking systems for use in business, government and
educational environments. The Company sells its products worldwide through
original equipment manufacturers ("OEM partners"), distributors and resellers.
In October 1997, the Company's Board of Directors authorized and the
stockholder's subsequently approved the reincorporation of the Company in
Delaware, which was effected on December 2, 1997. All per share amounts have
been adjusted in the accompanying consolidated financial statements to reflect
the reincorporation in Delaware. The Board also authorized and the stockholders
subsequently approved, an increase in the authorized shares of common stock to
35,000,000 and a decrease in the authorized shares of preferred stock to
5,000,000 which became effective upon the closing of the Company's initial
public offering on May 4, 1998.
The Company has one reporting segment based on its management
structure.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Investments in entities of which the
Company owns between 20% and 50% and entities on which the Company has the
ability to exercise significant influence but not control are accounted for
under the equity method. Other investments are accounted for using the cost
method. All significant inter-company accounts and transactions have been
eliminated.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents and those with
maturities greater than three months are considered short-term investments. The
Company has classified all short-term investments as available-for-sale.
Short-term investments held at December 31, 1998 have been presented at cost,
which approximates fair value.
INVENTORY
Inventory is stated at the lower of cost or market, cost being
determined using the first-in, first-out method.
RESTRICTED CASH
As of December 31, 1997, the Company's other assets included restricted
cash of $135,000, representing collateral for an outstanding letter of credit,
which expired on April 28, 1998.
F-6.
<PAGE>
FVC.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets,
generally three years. Leasehold improvements are amortized using the
straight-line method over the shorter of the estimated useful lives of the
assets or the remaining lease term.
GOODWILL AND OTHER PURCHASED INTANGIBLE
ASSETS
Goodwill, representing the excess of purchase price and acquisition
costs over the fair value of net assets of businesses acquired, and other
purchased intangibles are amortized on a straight-line basis over the estimated
economic lives, which range from 4 to 5 years. Amortization expense relating to
goodwill and other intangible assets was $172,000 for 1998. No amortization
expense with respect to goodwill and other intangible assets was recognized in
1997 and 1996.
LONG-TERM ASSETS
The Company periodically reviews the recoverability of long-term assets
whenever events or changes in circumstances indicate that the carrying amount of
an asset might not be recoverable.
REVENUE RECOGNITION
Revenues are recognized upon shipment of product to customers,
provided no significant obligations remain, collectibility is probable and
returns are estimable. Revenues from sales to certain of the Company's
resellers are subject to agreements allowing rights of return and price
protection. In such cases, the Company provides reserves for estimated future
returns and credits for price protection upon revenue recognition. Such
reserves are estimated based on historical rates of return and allowances,
reseller inventory levels, the Company's estimates of expected sell through
by resellers and other related factors. Actual results could differ from
these estimates. Actual results could differ from these estimates. In the
event of inability to estimate returns from any reseller, the Company defers
revenue recognition until the reseller has sold through the products.
Advance payments received from customers and gross margin deferred
with respect to sales to resellers wherein the Company does not have the
ability to estimate returns are recorded as deferred
revenue.
The Company on occasion receives nonrecurring engineering funding
for development projects. Revenues from such funding are recognized over the
term of the respective contract using the percentage of completion method.
Amounts received under such projects have not been material to date.
A provision is made upon revenue recognition for the estimated cost to
repair or replace products under warranty arrangements. The Company provides a
limited amount of telephone technical support to customers. These activities are
generally considered insignificant customer support obligations and related
costs are accrued upon revenue recognition.
SOFTWARE DEVELOPMENT COSTS
Software development costs incurred prior to the establishment of
technological feasibility are included in research and development and are
expensed as incurred. Software development costs incurred subsequent to the
establishment of technological feasibility through the period of general market
availability of the product are capitalized, if material. To date, all software
development costs have been expensed as incurred.
STOCK-BASED COMPENSATION
The Company accounts for employee stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion (APB)
No. 25, "Accounting for Stock Issued to Employees," and related Interpretations.
Options and warrants granted to non-employees are accounted for using the fair
value
F-7.
<PAGE>
FVC.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
method prescribed by Statement of Financial Accounting Standards No. 123 (FAS
123), "Accounting for Stock-Based Compensation." The Company also provides
additional pro forma disclosures as required under FAS 123. (See Note 10)
INCOME TAXES
Income taxes are accounted for using an asset and liability approach.
The asset and liability approach requires the recognition of taxes payable or
refundable for the current year and deferred tax liabilities and assets for the
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. The measurements of current and deferred
tax liabilities and assets are based on provisions of currently enacted tax law;
the effects of future changes in tax laws or rates are not anticipated. The
measurement of deferred tax assets is reduced, if necessary, by the amount of
any tax benefits that, based on available evidence, are not expected to be
realized.
NET LOSS PER SHARE
Basic earnings (loss) per share is based on the weighted-average number
of common shares outstanding excluding contingently issuable or returnable
shares, such as shares of unvested restricted common stock. Diluted earnings
(loss) per share is based on the weighted-average number of common shares
outstanding and dilutive potential common shares outstanding. As a result of the
losses incurred by the Company during 1998, 1997 and 1996, all potential common
shares were anti-dilutive and excluded from the diluted net loss per share
calculations.
The following table summarizes securities outstanding as of each period
end which were not included in the calculation of diluted net loss per share
since their inclusion would be anti-dilutive:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1997 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Unvested restricted common stock 492 1,198 2,169
Preferred stock -- 8,040 7,700
Warrants 290 61 --
Stock options 3,322 2,130 928
</TABLE>
Unvested restricted common stock represents stock that has been issued
but which is subject to repurchase to the extent the holder does not remain
associated with the Company until such shares are vested. Stock options
outstanding at December 31, 1998, 1997 and 1996 had a weighted average exercise
price of $8.30, $5.71 and $2.60, respectively, and expire beginning in July 2001
through December 2008.
CONCENTRATION OF CREDIT RISK AND GEOGRAPHIC DISTRIBUTION OF REVENUES
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash, cash
equivalents, short-term investments and accounts receivable. The Company invests
its excess cash in a variety of financial instruments such as U.S. government
securities, municipal notes and corporate bonds. The Company, by policy, limits
the amount of credit exposure to any one financial institution or commercial
issuer. The Company sells its products to original equipment manufacturers,
distributors, value-added resellers and end-user customers throughout the world.
The Company performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral from its customers. The Company
provides an allowance for uncollectible accounts receivable based upon the
expected collectibility of such receivables. To date, the Company has not
experienced any significant bad debts.
F-8.
<PAGE>
FVC.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1998, 1997 and 1996 revenues from one customer represented 39%, 64%
and 29% of total revenues.
The following table summarizes the percentage of total revenues by
geographic area based on the destination of the related shipments:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997 1996
---------- -------- ---------
<S> <C> <C> <C>
United States 79% 80% 64%
Asia 9% 8% 17%
Europe 12% 12% 19%
Total 100% 100% 100%
</TABLE>
At December 31, 1998, outstanding receivables from two customers
represented 29% and 10% of accounts receivable. At December 31, 1997,
outstanding receivables from three customers represented 39%, 18% and 15% of
accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, cash equivalents, short-term investments
and other current assets and liabilities such as accounts receivable, accounts
payable and accrued liabilities, as presented in the financial statements,
approximates fair value based on the short-term nature of these instruments. The
recorded amount of long-term debt approximates fair value as the actual interest
rates approximate current competitive rates.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS
130 requires that all items recognized under accounting standards as
comprehensive income be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements.
Adoption of this new standard had no effect on the Company's financial
statements since none of its transactions to date have resulted in any material
items meeting the definition of components of comprehensive income. Accordingly,
the Company's reported net loss approximates its comprehensive net loss for each
of the periods presented.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133). The new standard
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Under FAS 133, gains or losses resulting
from changes in the values of derivatives are to be reported in the statement
of operations or as a deferred item, depending on the use of the derivatives
and whether they qualify for hedge accounting. The key criterion for hedge
accounting is that the derivative must be highly effective in achieving
offsetting changes in fair value or cash flows of the hedged items during the
term of the hedge. The Company is required to adopt FAS 133 in the first
quarter of 2000. The Company currently transacts substantially all of its
revenues and costs in US dollars and does not enter into any derivative
instruments. Accordingly, management does not currently expect adoption of
this new standard to have a significant impact on the Company.
F-9.
<PAGE>
FVC.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DEPENDENCE ON SUPPLIERS
The Company's ability to timely deliver its products is dependent upon
the availability of quality components and subsystems used in these products.
The Company depends in part upon subcontractors to manufacture, assemble and
deliver certain items in a timely and satisfactory manner. The Company obtains
certain components and subsystems from single or a limited number of sources. A
significant interruption in the delivery of such items could have a material
adverse effect on the Company's financial condition and results of operations.
NOTE 2 - ACQUISITION OF ICAST CORPORATION
In August 1998, the Company acquired ICAST Corporation, ("ICAST").
Since its inception, ICAST has been developing software designed for Internet
and intranet broadcasting of real-time video, audio and data. The Company
acquired all of the outstanding stock of ICAST in exchange for 401,389 shares of
FVC.COM common stock, a cash payment of $327,000 and the assumption of certain
outstanding ICAST stock options and warrants and debt. The transaction was
accounted for as a purchase; accordingly, the purchase price was allocated to
the assets acquired and liabilities assumed based upon their estimated fair
market values at the date of acquisition as determined by an independent
appraisal. The acquired in-process research and development represents the
estimated fair market value, using a risk-adjusted income approach, of
specifically identified technologies which had not reached technological
feasibility and had no alternative future uses.
IN-PROCESS RESEARCH AND DEVELOPMENT
The purchase price, including liabilities assumed of $1.8 million,
aggregated approximately $7.6 million, of which $6.2 million was initially
allocated to acquired in-process research and development. As a result of
recent views expressed by SEC staff, as discussed below, the Company
subsequently reduced its estimate of the amount allocated to in-process
research and development ("IPR&D") by $1.5 million to $4.7 million for the
year ended December 31, 1998 and allocated $2.5 million to goodwill and other
identified intangibles. As a result of the reduction in the IPR&D charge,
amortization of intangibles increased by $116,000 from $56,000 to $172,000
for the year ended December 31, 1998. The basic and diluted net loss per
share decreased from $0.82 to $0.69 for the year ended December 31, 1998.
The amount allocated to IPR&D and intangible assets in the third
quarter of 1998 was determined in a manner consistent with widely recognized
appraisal practices at the date of acquisition. Subsequent to the acquisition,
the SEC staff expressed views that took issue with certain appraisal practices
generally employed by companies in determining the fair value of the in-process
research and development that was the basis for the Company's measurement of its
in-process research and development charge. The charge of $6.2 million, as first
reported by the Company, was based upon the work of an independent valuation
firm that had utilized the methodologies the SEC subsequently announced it does
not consider appropriate.
As a result of computing in-process research and development using the
current SEC preferred methodology, the Company, has revised the amount
originally allocated to in-process research and development. The Company has
revised earnings for the third quarter of 1998 and is amending its Report on
Form 10-Q and Report on Form 8-K/A previously filed with the SEC.
At the time of the acquisition, ICAST was a privately held, development
stage company involved in research and development of a low-bit rate software
product designed for Internet and intranet broadcasting of real-time video,
audio and data. The value assigned to in-process research and development was
based on this research project for which technological feasibility had not been
established. The value was determined by estimating the expected cash flows from
this project once commercially viable, discounting the net cash flows back to
their present value and then applying a percentage of completion.
The percentage of completion for this project was determined by
comparing both effort expended and research and development costs incurred as
of August 1998, to the remaining effort to be expended and research and
F-10.
<PAGE>
FVC.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
development costs to be incurred, based on management's estimates, to bring
the project to technological feasibility. Based on these comparisons
management estimated the project to be approximately 83% complete as of the
date of acquisition. The project was substantially completed in December
1998. The effort and costs required to complete the project approximated the
estimates made by management at the date of acquisition.
Management believes that the restated in-process research and
development charge of $4.7 million is valued consistently with the SEC staff's
current views regarding valuation methodologies. There can be no assurances,
however, that the SEC staff will not take issue with any assumptions used in the
Company's valuation model and require the Company to further revise the amount
allocated to in-process research and development.
The following pro forma information reflects the results of operations
for years ended December 31, 1998 and 1997 as if the acquisition of ICAST
Corporation had occurred as of the beginning of the periods presented, after
giving effect to certain pro forma adjustments and excludes the charge relating
to IPR&D. These pro-forma results have been prepared for comparative purposes
only and do not purport to be indicative of what operating results would have
been had the acquisition actually taken place as of the beginning of such
periods or what operating results may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------------
1998 1997
---------------- -----------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenues $ 37,495 $ 18,878
Net loss $ (5,406) $ (6,722)
Net loss per share $ (0.46) $ (1.97)
</TABLE>
NOTE 3 - INITIAL PUBLIC OFFERING
In May 1998, the Company completed its initial public offering whereby
the Company sold 3,132,000 shares of its common stock to the public at a price
of $13 per share. The Company received $36.1 million of cash, net of
underwriting discounts, commissions and other offering costs. In addition, each
outstanding share of convertible preferred stock was automatically converted
into one share of common stock (see Note 9). The Company used $6.9 million of
the net proceeds from its initial public offering to repay outstanding
indebtedness, including $2.3 million for borrowings under its working capital
line of credit and $2.6 million for the outstanding balance of a loan from
Hambrecht & Quist Guaranty Finance, LLC (see Note 5).
F-11.
<PAGE>
FVC.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Inventory:
Raw materials $ 3,176 $ 1,418
Finished goods 2,877 2,760
----------- ------------
$ 6,053 $ 4,178
----------- ------------
----------- ------------
Prepaid expenses and other current assets
Deferred initial public offering costs $ - $ 583
Other 1,241 44
----------- ------------
$ 1,241 $ 627
----------- ------------
----------- ------------
Property and equipment:
Computers and equipment $ 3,718 $ 1,720
Furniture and fixtures 496 271
Leasehold improvements 222 109
----------- ------------
4,436 2,100
Less accumulated depreciation and amortization (2,036) (1,057)
----------- ------------
$ 2,400 $ 1,043
----------- ------------
----------- ------------
Accrued liabilities:
Accrued employee compensation $ 921 $ 642
Other 1,016 684
----------- ------------
$ 1,937 $ 1,326
----------- ------------
----------- ------------
</TABLE>
As of both December 31, 1998 and 1997, property and equipment recorded
under capital leases, consisting primarily of computers and equipment, totaled
$740,000 with related accumulated amortization of $630,000 and $498,000,
respectively.
NOTE 5 - CREDIT FACILITIES AND NOTES PAYABLE
The Company has a working capital line of credit agreement with a bank
that provides for borrowings of up to $10,000,000. Borrowings under the line of
credit are limited to a specified percentage of eligible accounts receivable and
inventory, and are secured by substantially all of the assets of the Company.
Interest on borrowings is set at the bank's prime rate (8.5% at December 31,
1998). Among other provisions, the Company is required to maintain certain
financial covenants and is prohibited from paying dividends. The line of credit
agreement expires in June 2000. No borrowings were outstanding under this line
at December 31, 1998 and $1.3 million was outstanding at December 31, 1997.
In February 1998, the Company agreed in principle to enter into a
transaction with Hambrecht & Quist Guaranty Finance, LLC ("Guaranty Finance"),
whereby Guaranty Finance would loan the Company up to $5 million. Under the
related agreements which were executed on March 12, 1998 and subsequently
amended on April 24, 1998, (i) Guaranty Finance agreed to lend the Company up to
$5 million at an interest rate of 12% per annum, $1.1 million of which was
loaned to the Company in March 1998 and $1.5 million of which was loaned to the
Company in April 1998 (the "Loan") and (ii) Guaranty Finance purchased from the
Company for $1,250 a warrant to purchase 125,000 shares of the Company's common
stock at a per share purchase price equal to the initial public offering price
of $13.00. The warrant is exercisable through March 1, 2003. The fair value of
this warrant was estimated to be approximately $563,000, using the Black-Scholes
model, and was expensed as an additional cost of
F-12.
<PAGE>
FVC.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
financing in 1998. The Company also paid a $100,000 fee to Guaranty Finance
in consideration for entering into the Loan. This financing agreement expired
on December 31, 1998.
In connection with the ICAST acquisition, the Company assumed various
notes payable aggregating $1.3 million. The notes bear interest at 6% per annum
and are due on September 24, 1999.
NOTE 6 - LONG-TERM DEBT
Long-term debt comprises:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
12% subordinated debt due in monthly installments of
$41,000 through May 2000 $ - $ 965
12% subordinated debt due in monthly installments of
$34,000 through October 2000 - 917
Capitalized lease obligations 365 278
----------- -----------
365 2,160
Less current portion 137 848
----------- -----------
$ 228 $ 1,312
----------- -----------
----------- -----------
</TABLE>
In 1997, the Company entered into subordinated debt agreements pursuant
to which the Company borrowed $2,250,000. The debt was secured by certain assets
of the Company. The Company used part of the net proceeds from its initial
public offering to repay the 12% subordinated debt.
NOTE 7 - INCOME TAXES
No provision or benefit for income taxes has been recognized for any
of the periods presented as the Company has incurred net operating losses for
income tax purposes and had no carryback potential.
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Net operating loss carryforwards $ 4,394 $ 4,589
Tax credits 1,072 753
Accruals and reserves 2,652 431
----------- -----------
Total deferred tax assets 8,118 5,773
Less valuation allowance (8,118) (5,773)
----------- -----------
Net deferred tax assets $ - $ -
----------- -----------
----------- -----------
</TABLE>
Based on a number of factors, including the lack of a history of
profits and the fact that the Company competes in a developing market that is
characterized by rapidly changing technology, management believes that
F-13.
<PAGE>
FVC.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the weight of available evidence indicates that it is more likely than not
that the company will not be able to realize its deferred tax assets and thus
a full valuation allowance has been provided at December 31, 1998 and 1997.
At December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $9.0 million available to reduce future
taxable income. Approximately $1.8 million of the federal net operating loss
carryforwards resulted from the Company's acquisition of ICAST Corporation.
The federal net operating loss carryforwards expire from 2010 through 2012
and the state net operating loss carryforwards expire from 2000 to 2002.
Under the Tax Reform Act of 1986, the amount of the benefit from net
operating losses that can be carried forward may be limited in certain
circumstances including, but not limited to, a cumulative stock ownership change
of more than 50% over a three-year period, as defined. As a result of the
ownership change that occurred upon the Company's acquisition of ICAST,
utilization of the net operating loss carryforwards related to ICAST is limited
to approximately $350,000 per year.
NOTE 8 - COMMITMENTS
LEASES
The Company leases its facility under noncancelable operating lease
agreements that expire in 2005. In addition, the Company leases certain
equipment under long-term lease agreements that are classified as capital
leases. These capital leases terminate at various dates through 2001. Future
minimum lease payments under all noncancelable operating and capital leases as
of December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
----------- ---------
<S> <C> <C>
Year ending December 31,
1999 $ 1,190 $ 160
2000 1,248 152
2001 1,306 83
2002 1,363 10
2003 1,421 -
Thereafter 2,884 -
----------- ---------
Total minimum payments $ 9,412 405
Less amount representing interest ----------- (40)
----------- ---------
Present value of capital lease obligations 365
Less current portion (137)
---------
Lease obligations, long-term $ 228
---------
---------
</TABLE>
Rent expense for the years ended December 31, 1998, 1997 and 1996, was
approximately $583,000, $266,000 and 320,000, respectively.
NOTE 9 - CONVERTIBLE PREFERRED STOCK
At December 31, 1998, the Company had authorized 5,000,000 shares of
undesignated preferred stock. Prior to completion of the Company's initial
public offering, the Company had authorized 10,000,000 shares of preferred
stock, of which 4,000,000 shares had been designated Series A convertible
preferred stock ("Series A"), 2,200,000 shares had been designated Series B
convertible preferred stock ("Series B"), 1,375,000 shares had been
designated Series C convertible preferred stock (`Series C") and 687,500
shares had been designated Series D
F-14.
<PAGE>
FVC.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
convertible preferred stock ("Series D") (collectively "Preferred Shares").
Holders of Series A, B, C and D were entitled to receive noncumulative,
preferential dividends of $0.05, $0.15, $0.40 and $0.80, respectively, per
annum, when and if declared by the Board of Directors. No such dividends were
declared. An aggregate of 8,040,153 Preferred Shares were outstanding at
December 31, 1997. Each outstanding share of preferred stock was converted
into one share of common stock upon completion of the Company's initial
public offering in May 1998.
SERIES D PREFERRED STOCK WARRANTS
In 1997, the Company issued warrants to purchase 60,936 shares of its
Series D preferred stock at $8.00 per share in conjunction with certain
financing arrangements. The warrants were exercisable immediately and were to
expire at various times from 3 to 4.3 years following the closing of the
Company's initial public offering. Upon closing of the offering in May 1998, the
warrants converted to warrants to purchase the same number of shares of the
Company's common stock at an exercise price of $8.00 per share. As of December
31, 1998, no warrants had been exercised. The aggregate value of these warrants
was estimated by the Company, using the Black-Scholes model, at approximately
$233,000 and is being expensed as additional cost of financing over the term of
the related outstanding borrowings.
NOTE 10 - STOCK PLANS
1997 EQUITY INCENTIVE PLAN
In October 1997, the Board of Directors and stockholders approved the
consolidation and restatement of the Company's 1993 Employee, Consultant and
Director Stock Purchase Plan (the "1993 Plan") and the 1996 Stock Option Plans
(the "1996 Plans") into the 1997 Equity Incentive Plan (the "1997 Plan") which
became effective upon the closing of the Company's initial public offering. The
1997 Plan is intended to serve as the successor equity incentive program to the
1993 Plan and the 1996 Plans (the "Predecessor Plans"). Outstanding options and
stock purchase awards under the Predecessor Plans were incorporated into the
1997 Plan upon effectiveness of the initial public offering. The incorporated
options and stock purchase awards will continue to be governed by their existing
terms which are essentially the same as similar awards granted under the 1997
Plan described below. Under the 1997 Plan, an aggregate of 4,625,000 shares of
common stock may be issued pursuant to stock awards.
The 1997 Plan provides for the grant of stock options, stock purchase
awards and stock bonuses to employees, directors and consultants. Options
granted under the 1997 Plan are for periods not to exceed ten years, and must be
issued at prices not less than 100% and 85%, for incentive and nonqualified
stock options, respectively, of the fair market value of the stock on the date
of grant. Incentive stock options granted to stockholders who own greater than
10% of the outstanding stock are for periods not to exceed five years and must
be issued at prices not less than 110% of the fair market value of the stock on
the date of grant. Options granted under the 1997 Plan are exercisable at such
time and under such conditions as determined by the Board of Directors, and
generally vest over four years.
Restricted stock purchase awards under the 1997 Plan are to be issued
at a price not less than 85% of the fair market value of the stock on the date
of grant. Restricted stock purchase awards may be accompanied by a repurchase
option in favor of the Company in accordance with a vesting schedule and at a
price determined by the Board of Directors. Shares subject to stock awards that
have expired or otherwise terminated shall again become available for the grant
of awards under the 1997 Plan, including shares subject to currently outstanding
options and restricted stock issued under the 1993 Plan and the 1996 Plans. As
of December 31, 1998, a total of 492,144 unvested shares of common stock issued
under the 1993 Plan were subject to repurchase by the Company at a repurchase
price equal to the original issuance price of such shares.
F-15.
<PAGE>
FVC.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In September 1997, the Company's Board of Directors approved the 1997
Non-Employee Director's Stock Option Plan (the "Directors' Plan") and reserved
250,000 shares of the Company's common stock for issuance thereunder.
The Directors' Plan provides for the grant of options to purchase
30,000 shares of common stock to each director upon initial election to the
Board of Directors and subsequent automatic grants of options to purchase 10,000
shares of common stock on each anniversary of a previous grant.
Option activity under the 1997 Plan and the Directors' Plan is summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES SUBJECT AVERAGE
TO OPTIONS EXERCISE
OUTSTANDING PRICE
-------------- ------------
in thousands
<S> <C> <C>
Granted 928 $ 2.60
--------------
Balance at December 31, 1996 928 $ 2.60
Granted 1,285 $ 7.79
Exercised (33) $ 2.73
Cancelled (51) $ 4.00
--------------
Balance at December 31, 1997 2,129 $ 5.71
Granted 2,449 $ 11.03
Exercised (194) $ 4.20
Cancelled (1,062) $ 10.12
--------------
Balance at December 31, 1998 3,322 $ 8.30
--------------
--------------
Options available for future grant at December 31, 1998 1,603
--------------
--------------
</TABLE>
With respect to certain options and restricted stock granted in 1996
and 1997, the Company is recognizing a compensation charge of approximately $2.1
million. Further, in early February 1998, after considering various factors
including the input provided by the Company's investment bankers, the Board of
Directors of the Company approved a plan under which 499,500 options previously
granted at prices of $10.20 and $11.00 to employees (excluding officers) were
exchanged for options at $8.50 per share, which the Board concluded was the fair
value of the Company's common stock at that time. The Company is recognizing a
compensation charge of approximately $1.3 million with respect to the 499,500
repriced stock options and 278,000 additional stock options granted in early
February 1998 at $8.50 per share, computed based on a deemed value of $10.20 per
share of common stock. The charges referred to above are being amortized over
the vesting period of the awards, which is generally five years. The Company
recognized $1,065,000, $1,137,000 and $339,000 of said charges as compensation
expense during the years ended December 31, 1998, 1997 and 1996 respectively.
The future compensation charges are subject to reduction for any employee who
terminates employment prior to the expiration of such employee's option vesting
period and aggregated $902,000 at December 31, 1998.
F-16.
<PAGE>
FVC.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant option groups outstanding at December 31, 1998 and related
weighted average exercise price and contractual life information are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- --------------------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE EXERCISE
EXERCISE PRICES (IN THOUSANDS) CONTRACTUAL LIFE EXERCISE PRICE (IN THOUSANDS) PRICE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.34-$2.75 768 5.67 $ 2.60 381 2.62
$3.40-$4.00 332 8.24 $ 3.98 115 3.98
$8.25-$9.88 694 9.01 $ 8.59 143 8.50
$10.00-$11.00 876 9.30 $ 10.25 106 10.51
$12.38-$16.75 653 9.64 $ 14.29 64 13.69
- -------------------------------------------------------------------------------------------------------------------------
$0.34-$16.75 3,322 8.36 $ 8.30 809 5.76
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
PRO FORMA DISCLOSURES
Had compensation cost for the Company's Stock Option Plans been
determined based on the value of such options at the grant dates as prescribed
by FAS 123, the Company's pro forma net loss and net loss per share would have
been as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996
- ------------------------------------------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
As reported:
Net loss $ (8,016) $ (4,328) $ (2,243)
Net loss per share (basic and diluted) $ (0.69) $ (1.44) $ (1.14)
Pro forma:
Net loss $ (10,247) $ (4,912) $ (2,395)
Net loss per share (basic and diluted) $ (0.89) $ (1.63) $ (1.21)
</TABLE>
The weighted-average estimated grant-date fair value of options
granted under the Company's various stock option plans during 1998, 1997 and
1996 was $4.03, $1.56 and $0.64, respectively. For the year ended December
31, 1998, the fair value of each option on the date of grant was determined
using the Black-Scholes model with the following assumptions: annual dividend
yield of 0.0%; expected volatility of 50%; risk-free annual interest rates of
4.17% to 5.57%; and an expected option term of 2.98 years. For the years
ended December 31, 1997 and 1996 the value of each option was estimated on
the date of grant using the minimum-value method with the following
assumptions: annual dividend yield of 0.0% for both periods; risk-free annual
interest rates of 5.84% to 6.61% and 5.97% to 6.64%, respectively; and an
expected option term of five years for both periods.
1997 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1997 Stock Purchase Plan (the "Purchase Plan") was
approved by the Board of Directors and stockholders in October 1997 and became
effective upon the closing of the initial public offering. Under the Purchase
Plan a total of 150,000 shares of common stock have been reserved for issuance
to participating employees who meet eligibility requirements.
F-17.
<PAGE>
FVC.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Purchase Plan permits eligible employees to purchase common
stock through payroll deductions, which may not exceed 15% of an employee's
base compensation, including commissions, bonuses and overtime, at a price
equal to 85% of the fair value of the common stock at the beginning of each
offering period or the end of the purchase period, whichever is lower. The
initial purchase period commenced on April 29, 1998. As of December 31, 1998,
no shares had been issued under the Purchase Plan. During January 1999, the
Company issued 26,025 shares of common stock under the Purchase Plan for
aggregate proceeds of approximately $288,000. Compensation cost (included in
pro forma net loss and net loss per share amounts only) for the grant date
fair value, as defined by SFAS 123, of the purchase rights granted under the
Purchase Plan was calculated using the Black-Scholes model with the following
assumptions: annual dividend yield of 0.0%; expected volatility of 50%;
risk-free annual interest rates of 5.38% and an expected term of 0.67 years.
Pro forma net income includes compensation expense for purchase rights
granted during the period from April 29, 1998 through December 31, 1998. The
weighted average estimated grant date fair value for purchase rights granted
under the Purchase Plan during 1998 was $4.26.
NOTE 11 - RELATED PARTY TRANSACTIONS
During the period from January 1994 through October 1996, the Company
made full recourse loans to certain executives and employees pursuant to the
Company's 1993 Plan. The loans bear interest at rates ranging from 4.92% to
7.96% per annum and interest on the notes accrues monthly. The loans are due on
the earlier of various dates through 2001 or termination of employment.
In August 1998, the Company made a loan to an executive of the Company
totaling $1,289,000 of which $940,000 was repaid during the year. The remaining
balance of $349,000 is due on June 30, 1999. The loan is secured by 50,000
shares of the Company's common stock held by the executive and bears interest at
7% per annum.
NOTE 12 - SUBSEQUENT EVENT
On or about April 9, 1999, several purported class action suits were
filed in the U.S. District Court for the Northern District of California
alleging violations of the federal securities laws against the Company and
certain of its officers and directors in connection with the Company's
reporting of its financial results for the period ended December 31, 1998.
These actions have just been commenced, and no trial dates have been set.
Accordingly, management cannot predict with certainty the ultimate resolution
of these lawsuits. However, management believes that the Company has
meritorious defenses to these actions, and the Company intends to defend
itself vigorously. In addition, the Company maintains directors and officers
liability insurance coverage that management believes is applicable to the
claims contained in these lawsuits.
F-18.
<PAGE>
EXHIBIT 10.7
FVC.COM, INC.
1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION
_________________________________, Optionee:
On ______________________, 19__, an option was automatically granted to
you (the "Optionee") pursuant to the FVC.COM, Inc. (the "Company") 1997
Non-Employee Directors' Stock Option Plan (the "Plan") to purchase shares of
the Company's common stock ("Common Stock"). This option is NOT intended to
qualify and will not be treated as an "incentive stock option" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's
non-employee directors. Defined terms not explicitly defined in this
agreement but defined in the Plan shall have the same definitions as in the
Plan.
The details of your option are as follows:
1. The total number of shares of Common Stock subject to this option
is _________ thousand (_0,000).
2. The exercise price of this option is _____________________($______)
per share, such amount being equal to the Fair Market Value (as defined in the
Plan) of the Common Stock on the date of grant of this option.
3. Subject to the limitations contained herein, ten percent (10%) of
the shares will vest (become exercisable) on ____________________, 19__ (which
shall be the date six months following the grant date) and .0548% of the shares
will then vest each day thereafter until either (i) you cease to provide
services to the Company for any reason, or (ii) this option becomes fully
vested.
4. (a) This option may be exercised, to the extent specified
above, by delivering a Notice of Exercise (in the form provided by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require
pursuant to Section 6 of the Plan. This option may only be exercised for
whole shares.
(b) You may elect to pay the exercise price under one of the
following alternatives:
(i) Payment of the exercise price per share in cash at
the time of exercise;
1.
<PAGE>
(ii) Provided that at the time of the exercise the Common
Stock is publicly traded and quoted regularly in The Wall Street Journal,
payment by delivery of shares of Common Stock already owned by you, held for
the period required to avoid a charge to the Company's reported earnings, and
owned free and clear of any liens, claims, encumbrances or security interest,
which Common Stock shall be valued at its Fair Market Value on the date
preceding the date of exercise; or
(iii) Payment by a combination of the methods of payment
specified in subparagraphs (i) and (ii) above.
Notwithstanding the foregoing, this option may be exercised
pursuant to a program developed under Regulation T as promulgated by the Federal
Reserve Board which results in the receipt of cash (or check) by the Company
either prior to the issuance of shares of the Common Stock or pursuant to the
terms of irrevocable instructions issued by you prior to the issuance of shares
of the Common Stock.
(c) By exercising this option you agree that the Company may
require you to enter an arrangement providing for the cash payment by you to
the Company of any tax withholding obligation of the Company arising by reason
of the exercise of this option.
5. Notwithstanding anything to the contrary contained herein, this
option may not be exercised unless the shares issuable upon exercise of this
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.
6. The term of this option is ten (10) years measured from the grant
date, subject, however, to earlier termination upon your termination of
service, as set forth in Section 6 of the Plan.
7. Any notices provided for in this 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 address
specified below or at such other address as you hereafter designate by
written notice to the Company.
8. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto, and its provisions are hereby made a part of this
option, including without limitation the provisions of Section 6 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 this option and those of the Plan, the provisions of the Plan
shall control.
2.
<PAGE>
Dated the ____ day of ______________________________________, 19__.
Very truly yours,
FVC.COM, INC.
By: _________________________________
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS:
1997 Non-Employee Directors' Stock Option Plan
3.
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan;
(b) Acknowledges that as of the date of grant of this option, it
sets forth the entire understanding between the undersigned optionee and the
Company and its Affiliates regarding the acquisition of Common Stock in the
Company and supersedes all prior oral and written agreements on that subject
with the exception of (i) the options and any other stock awards previously
granted and delivered to the undersigned under stock award plans of the
Company, and (ii) the following agreements only:
NONE: ____________________________________
(Initial)
OTHER: ___________________________________
___________________________________
___________________________________
______________________________________
OPTIONEE
Address: _____________________________
______________________________________
______________________________________
4.
<PAGE>
EXHIBIT 10.8
FVC.COM, INC.
EXECUTIVE OFFICERS' CHANGE OF CONTROL PLAN
ADOPTED BY THE BOARD OF DIRECTORS ON FEBRUARY 17, 1999
1. INTRODUCTION; PURPOSES.
(a) The purpose of this Plan is to provide certain executive officers of
the Company with protection of certain benefits in case of a termination of his
or her employment with the Company in connection with a Change of Control of the
Company.
(b) The Company, by means of the Plan, seeks (i) to retain the services of
certain current executive officers of the Company, (ii) to secure and retain the
services of new Section 16 Officers and (iii) to provide incentives for such
officers to exert maximum efforts for the success of the Company even in the
face of a potential Change of Control of the Company.
2. COVERAGE OF THE PLAN.
(a) Ralph Ungermann, Allwyn Sequeira and Alan McMillan, each of whom is a
Section 16 Officer, shall be covered by this Plan as of the Effective Date.
(b) Each person who, after the Effective Date, is appointed a Section 16
Officer of the Company, if and as of the date the officer is confirmed as a
Section 16 Officer by action of the Board shall be covered by this Plan.
(c) Notwithstanding Section 2(b), the benefits of this Plan do not extend
to persons who are Section 16 Officers of the Company on the Effective Date
unless such person is listed in Section 2(a).
3. DEFINITIONS.
(a) "ACCOUNTANTS" has the meaning given thereto in Section 6(b).
(b) "ADEA" has the meaning given thereto in Section 7(c).
(c) "BOARD" means the Board of Directors of the Company.
(d) "CAUSE" means Executive's: (i) gross negligence or willful misconduct
in connection with the performance of Executive's duties to the Company that in
the written determination of a majority of the Board has not been cured within
thirty (30) days following receipt by Executive of written notice from the Board
identifying such acts of gross negligence or willful misconduct; (ii) commission
of a felony (other than a traffic-related offense) that in the written
determination of a majority of the Board has caused material injury to the
Company's business; (iii) dishonesty with respect to a significant matter
relating to the Company's business and intended to result in personal enrichment
of Executive or his or her family at the expense of
1.
<PAGE>
the Company; or (iv) material breach of any agreement by and between
Executive and the Company, which material breach has not been cured within
thirty (30) days following receipt by Executive of written notice from the
Board identifying such material breach.
(e) "CHANGE OF CONTROL" means: (i) a dissolution or liquidation of the
Company; (ii) a sale of all or substantially all the assets of the Company;
(iii) a merger or consolidation in which the Company is not the surviving
corporation and in which beneficial ownership of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors has changed; (iv) a reverse merger in which
the Company is the surviving corporation but the shares of the common stock of
the Company outstanding immediately before the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, and in which beneficial ownership of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors has changed; (v) an acquisition by any
person, entity or group within the meaning of Section 13(d) or 14(d) of the
Exchange Act, or any comparable successor provisions (excluding any employee
benefit plan, or related trust, sponsored or maintained by the Company or
subsidiary of the Company or other entity controlled by the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors; or, (vi) in the event that the individuals
who are members of the Incumbent Board cease for any reason to constitute at
least fifty percent (50%) of the Board.
(f) "CODE" means the Internal Revenue Code of 1986, as amended.
(g) "COMMITTEE" means a committee appointed by the Board in accordance
with Section 4(c).
(h) "COMPANY" means FVC.COM, Inc., a Delaware corporation.
(i) "COMPANY-PAID COVERAGE" has the meaning given thereto in Section 5.
(j) "DISABILITY" means Executive's death, or physical or mental disability
that prevents Executive from satisfactorily performing the normal duties and
responsibilities of Executive's office in the good faith determination of the
Board for a period of more than one hundred twenty (120) consecutive days.
(k) "EFFECTIVE DATE" means February 17, 1999.
(l) "EMPLOYEE AGREEMENT AND RELEASE" has the meaning given thereto in
Section 7(c).
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(n) "EXCISE TAX" has the meaning given thereto in Section 6.
(o) "EXECUTIVE" means a person covered by this Plan pursuant to Section
2(a) or
2.
<PAGE>
Section 2(b).
(p) "GOOD REASON" means: (i) any material reduction of Executive's duties,
authority or responsibilities relative to Executive's duties, authority, or
responsibilities as in effect immediately before such reduction, except if
agreed to in writing by Executive; (ii) a reduction by the Company in the base
salary or Target Bonus opportunity of Executive as in effect immediately before
such reduction; (iii) the relocation of Executive to a facility or a location
more than thirty-five (35) miles from Executive's then present location, without
Executive's written consent; or (iv) any failure of the Company to obtain the
assumption of this Plan by any successor or assign of the Company.
(q) "INCUMBENT BOARD" means the individuals who, as of the Effective
Date, are members of the Board. If the election, or nomination for election by
the Company's stockholders, of any new director is approved by a vote of at
least fifty percent (50%) of the Incumbent Board, such new director shall be
considered as a member of the Incumbent Board.
(r) "PLAN" means this Executive Officers' Change of Control Plan.
(s) "PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT" has the meaning
given thereto in Section 7(b).
(t) "SECTION 16 OFFICER" means an "officer" of the Company, as defined in
Rule 16a-1(f) promulgated under the Exchange Act, provided such officer is
designated as such by action of the Board.
(u) "TARGET BONUS" means Executive's target bonus for the then current
fiscal year, as set by the compensation committee of the Board.
4. ADMINISTRATION
(a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in Section 4(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To construe and interpret the Plan and the rights covered 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, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(ii) To amend or terminate the Plan as provided in Section 11.
(iii) 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 that are not in conflict with the provisions of the Plan.
3.
<PAGE>
(c) The Board may delegate administration of the Plan to a committee of
the Board composed of not fewer than two (2) members, all of the members of
which committee shall be, 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, including the power
to delegate to a subcommittee of two (2) or more members of the Board any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such a
subcommittee), 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.
5. SEVERANCE BENEFITS IN THE EVENT OF A CHANGE OF CONTROL. If within eighteen
(18) months following the date of a Change of Control of the Company Executive's
employment with the Company terminates involuntarily other than for Cause, death
or Disability, or if within such eighteen (18) month period, Executive
terminates his or her employment with the Company voluntarily with Good Reason,
then, subject to Section 6 and Section 7: (i) Executive shall be entitled to
receive base salary continuation payments at Executive's base salary rate in
effect on the date of termination, paid on a monthly basis, for twelve (12)
months after the date of termination, in addition to any accrued but unpaid base
salary, bonus payments, and/or accrued and unused vacation; (ii) each of
Executive's outstanding stock options, restricted stock awards and restricted
stock purchases, and any options, awards or purchases held in the name of an
estate planning vehicle for the benefit of Executive or his or her immediate
family, shall have their vesting and exercisability schedules accelerated by
eighteen (18) months as of the date of termination; (iii) Executive shall be
entitled to receive bonus continuation payments totaling the Target Bonus in
effect on the date of termination, paid on a monthly basis, for twelve (12)
months after the date of termination; and (iv) if at the time of termination
Executive is covered by the Company's group health plan, the Company shall
provide to Executive, subject to Executive and his or her eligible spouse and/or
dependents electing continuation coverage under COBRA, one hundred percent
(100%) Company-paid group health coverage at the same level of coverage as was
provided to Executive immediately prior to the date of termination (the
"COMPANY-PAID COVERAGE"). If such coverage included Executive's spouse and/or
dependents immediately prior to the date of termination, such spouse and/or
dependents shall also be covered at Company expense. Company-Paid Coverage shall
continue until the earlier of (x) twelve (12) months from the date of
termination, or (y) the date that Executive and his or her spouse and/or
dependents become covered under another employer's group health plan that
provides Executive and his or her spouse and/or dependents with comparable
benefits and levels of coverage. In no event shall Executive be obligated to
seek other employment or take any other action to mitigate the amounts payable
to Executive hereunder.
6. PARACHUTE PAYMENTS; EXCISE TAX. In the event that the severance,
acceleration of stock options and other benefits payable to Executive as a
result of a Change of Control of the Company (i) constitute "parachute payments"
within the meaning of Section 280G (as it may be amended or replaced) of the
Code and (ii) but for this Section 6, would be subject to the excise tax imposed
by Section 4999 (as it may be amended or replaced) of the Code (the "EXCISE
TAX"), then Executive's benefits payable in connection therewith shall be either
(a) delivered in full, or
4.
<PAGE>
(b) delivered as to such lesser extent that would result in no portion of
such benefits being subject to the Excise Tax, whichever of the foregoing
amounts, taking into account the applicable federal, state and local income
taxes and the Excise Tax, results in the receipt by Executive on an after-tax
basis, of the greatest amount of benefits, notwithstanding that all or some
portion of such benefits may be taxable under the Excise Tax. Unless the
Company and Executive otherwise agree in writing, any determination required
under this Section 6 shall be made in writing in good faith by the outside
accounting firm responsible for auditing the Company's financial records (the
"ACCOUNTANTS"). In the event of a reduction in benefits hereunder, Executive
shall be given the choice of which benefits to reduce. For purposes of making
the calculations required by this Section 6, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of the Code.
The Company and Executive shall furnish to the Accountants such information and
documents as the Accountants may reasonably request in order to make a
determination under this Section 6. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section hereunder.
7. LIMITATIONS AND CONDITIONS ON BENEFITS. The benefits and payments provided
under this Plan shall be subject to the following terms and limitations:
(a) WITHHOLDING TAXES. The Company shall withhold appropriate federal,
state and local income and employment taxes from any payments hereunder.
(b) PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT PRIOR TO RECEIPT OF
BENEFITS. Executive shall have executed and delivered to the Company a standard
form of the Company's proprietary information and inventions agreement, a copy
of the current form of which is attached hereto as Exhibit A (the "PROPRIETARY
INFORMATION AND INVENTIONS AGREEMENT"), prior to the receipt or provision of any
benefits (including the acceleration benefits) under this Plan. Additionally,
Executive agrees that all documents, records, apparatus, equipment and other
physical property that is furnished to or obtained by Executive in the course of
his or her employment with the Company shall be and shall remain the sole
property of the Company. Executive agrees not to make or retain copies,
reproductions or summaries of any such property, except as otherwise necessary
while acting in the normal course of business. In the event of any breach by
Executive of the Proprietary Information and Inventions Agreement, all benefits
payable under Section 5 of this Plan shall immediately terminate.
(c) EMPLOYEE AGREEMENT AND RELEASE PRIOR TO RECEIPT OF BENEFITS. If,
pursuant to Section 5, Executive's employment with the Company terminates
involuntarily other than for Cause, death or Disability, or Executive terminates
his or her employment with the Company voluntarily with Good Reason, then prior
to, and as a condition of the receipt of any benefits (including the
acceleration benefits) under this Plan on account of such termination, Executive
shall, as of the date of such termination, execute an employee agreement and
release in the form attached hereto as Exhibit B (the "EMPLOYEE AGREEMENT AND
RELEASE"). Such Employee Agreement and Release shall specifically relate to all
of Executive's rights and claims in existence at the time of such execution and
shall confirm Executive's obligations under the Company's standard form of
Proprietary Information and Inventions Agreement. If and only if Executive is
covered by the federal Age Discrimination in Employment Act of 1967, as amended
5.
<PAGE>
("ADEA") (currently all those 40 years of age or over on the date of
termination), Executive has twenty-one (21) days to consider whether to execute
such Employee Agreement and Release and Executive may revoke such Employee
Agreement and Release within seven (7) days after execution of such Employee
Agreement and Release. In the event Executive is covered by ADEA and does not
execute such Employee Agreement and Release within the twenty-one (21) days
specified above, or if Executive revokes such Employee Agreement and Release
within the seven (7) day period specified above, no benefits (including the
acceleration benefits) shall be payable or made available to Executive on
account of a termination under Section 5 of this Plan.
8. TERMINATION. Prior to a Change of Control of the Company, the right to
receive benefits under this Plan shall automatically terminate on the date
Executive ceases to be a Section 16 Officer, for any reason or no reason, as
evidenced by the written resignation of Executive, by action of the Board
removing Executive as a Section 16 Officer or otherwise.
9. NOTICES. Any notices provided for in this 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 Executive, five (5) days after deposit in the United
States mail, postage prepaid, addressed to Executive at the address specified in
the corporate records of the Company or at such other address as Executive
hereafter designates by written notice to the Company.
10. AMENDMENT OR TERMINATION OF THE PLAN.
(a) The Board at any time, and from time to time, may amend or terminate
the Plan; PROVIDED, HOWEVER, that any such termination must occur prior to the
occurrence of a Change of Control of the Company.
(b) Rights and obligations under this Plan of persons covered by this Plan
before any amendment of the Plan made at or after the time of the occurrence of
a Change of Control of the Company shall not be impaired by any amendment of the
Plan unless (i) the Company requests the consent of the person covered by the
Plan and (ii) such person consents in writing.
11. GOVERNING LAW. This Plan shall be governed by, and construed in accordance
with, the laws of the State of California, regardless of the law that might be
applied under applicable principles of conflicts of law.
6.
<PAGE>
Exhibit A
to Executive Officers'
Change of Control Plan
FVC.COM, INC.
FORM OF PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
In consideration of my employment or continued employment by FVC.COM, Inc.
(the "Company"), and the compensation now and hereafter paid to me, I hereby
agree as follows:
1. RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. At all times
during the term of my employment and thereafter, I will hold in strictest
confidence and will not disclose, use, lecture upon or publish any of the
Company's Proprietary Information (defined below), except as such disclosure,
use or publication may be required in connection with my work for the Company
and an officer of the Company expressly authorizes such in writing. I hereby
assign to the Company any rights I may have or acquire in such Proprietary
Information and recognize that all Proprietary Information shall be the sole
property of the Company and its assigns and the Company and its assigns shall
be the sole owner of all trade secret rights, patent rights, copyrights, mask
work rights, trade secret rights and all other rights throughout the world
(collectively, "Proprietary Rights") in connection therewith.
The term "Proprietary Information" shall mean trade secrets,
confidential knowledge, data or any other proprietary information of the
Company. By way of illustration but not limitation, "Proprietary
Information" includes (a) trade secrets, inventions, mask works, ideas,
processes, formulas, source and object codes, data, programs, other works of
authorship, cell lines, know-how, improvements, discoveries, developments,
designs and techniques (hereinafter collectively referred to as
"Inventions"); and (b) information regarding plans for research, development,
new products, marketing and selling, business plans, budgets and unpublished
financial statements, licenses, prices and costs, suppliers and customers;
and information regarding the skills and compensation of other employees of
the Company.
2. THIRD PARTY INFORMATION. I understand, in addition, that the
Company has received and in the future will receive from third parties
confidential or proprietary information ("Third Party Information") subject
to a duty on the Company's part to maintain the confidentiality of such
information and to use it only for certain limited purposes. During the term
of my employment and thereafter, I will hold Third Party Information in the
strictest confidence and will not disclose (to anyone other than Company
personnel who need to know such information in connection with their work for
the Company) or use, except in connection with my work for the Company, Third
Party Information unless expressly authorized by an officer of the Company in
writing.
3. ASSIGNMENT OF INVENTIONS.
3.1 ASSIGNMENT. I hereby assign to the Company all my right,
title and interest in and to any and all Inventions (and all Proprietary
Rights with respect thereto) whether or not patentable or registrable under
copyright or similar statutes, made or conceived or reduced
<PAGE>
to practice or learned by me, either alone or jointly with others, during the
period of my employment with the Company. Inventions assigned to or as
directed by the Company by this paragraph 3 are hereinafter referred to as
"Company Inventions." I recognize that this Agreement does not require
assignment of any invention that qualifies fully for protection under Section
2870 of the California Labor Code (hereinafter "Section 2870"), which
provides as follows:
(1) Any provision in an employment agreement that provides that
an employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the
employer's equipment, supplies, facilities, or trade secret information
except for those inventions that either:
(A) Relate at the time of conception or reduction to practice
of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer.
(B) Result from any work performed by the employee for the
employer.
(2) To the extent a provision in an employment agreement purports
to require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (i), the provision is against the
public policy of this state and is unenforceable.
3.2 GOVERNMENT. I also assign to or as directed by the Company
all my right, title and interest in and to any and all Inventions, full title
to which is required to be in the United States by a contract between the
Company and the United States or any of its agencies.
3.3 WORKS FOR HIRE. I acknowledge that all original works of
authorship that are made by me (solely or jointly with others) within the
scope of my employment and that are protectable by copyright are "works made
for hire," as that term is defined in the United States Copyright Act (17
U.S.C., Section 101).
4. ENFORCEMENT OF PROPRIETARY RIGHTS. I will assist the Company in
every proper way to obtain and from time to time enforce United States and
foreign Proprietary Rights relating to Company Inventions in any and all
countries. To that end I will execute, verify and deliver such documents and
perform such other acts (including appearances as a witness) as the Company
may reasonably request for use in applying for, obtaining, perfecting,
evidencing, sustaining and enforcing such Proprietary Rights and the
assignment thereof. In addition, I will execute, verify and deliver
assignments of such Proprietary Rights to the Company or its designee. My
obligation to assist the Company with respect to Proprietary Rights relating
to such Company Inventions in any and all countries shall continue beyond the
termination of my employment, but the Company shall compensate me at a
reasonable rate after my termination for the time actually spent by me at the
Company's request on such assistance.
In the event the Company is unable for any reason, after reasonable
effort, to secure my signature on any document needed in connection with the
actions specified in the preceding paragraph, I hereby irrevocably designate
and appoint the Company and its duly authorized
2.
<PAGE>
officers and agents as my agent and attorney in fact, which appointment is
coupled with an interest, to act for and in my behalf to execute, verify and
file any such documents and to do all other lawfully permitted acts to
further the purposes of the preceding paragraph thereon with the same legal
force and effect as if executed by me. I hereby waive and quitclaim to the
Company any and all claims, of any nature whatsoever, that I now or may
hereafter have for infringement of any Proprietary Rights assigned hereunder
to the Company.
5. OBLIGATION TO KEEP COMPANY INFORMED. During the period of my
employment and for six (6) months after termination of my employment with the
Company, I will promptly disclose to the Company fully and in writing and
will hold in trust for the sole right and benefit of the Company any and all
Inventions authored, conceived or reduced to practice by me, either alone or
jointly with others. In addition, after termination of my employment, I will
promptly disclose to the Company all patent applications filed by me or on my
behalf within a year after termination of employment. At the time of each
such disclosure, I will advise the Company in writing of any Inventions that
I believe fully qualify for protection under Section 2870; and I will at that
time provide to the Company in writing all evidence necessary to substantiate
that belief. I understand that the Company will keep in confidence and will
not disclose to third parties without my consent any proprietary information
disclosed in writing to the Company pursuant to this Agreement relating to
Inventions that qualify fully for protection under the provisions of Section
2870. I will preserve the confidentiality of any Invention that does not
fully qualify for protection under Section 2870. I agree to keep and
maintain adequate and current records (in the form of notes, sketches,
drawings and in any other form that may be required by the Company) of all
Proprietary Information developed by me and all Inventions made by me during
the period of my employment at the Company, which records shall be available
to and remain the sole property of the Company at all times.
6. PRIOR INVENTIONS. Inventions, if any, patented or unpatented, that
I made prior to the commencement of my employment with the Company are
excluded from the scope of this Agreement. To preclude any possible
uncertainty, I have set forth on Exhibit A attached hereto a complete
disclosure of all Inventions that I have, alone or jointly with others,
conceived, developed or reduced to practice or caused to be conceived,
developed or reduced to practice prior to the commencement of my employment
with the Company, that I consider to be my property or the property of third
parties and that I wish to have excluded from the scope of this Agreement.
If disclosure of any such Invention on Exhibit A would cause me to violate
any prior confidentiality agreement, I understand that I am not to disclose
such Inventions on Exhibit A. Instead, I am to disclose in the applicable
space on Exhibit A, only a cursory name for each such Invention, a listing of
the party(s) to whom it belongs and the fact that full disclosure as to such
Invention has not been made for that reason.
7. ADDITIONAL ACTIVITIES. I agree that during the period of my
employment by the Company I will not, without the Company's express written
consent, engage in any employment or business activity other than for the
Company. As further assurance that I will not improperly use or disclose any
Proprietary Information of the Company, I agree that, for the period of my
employment by the Company and for one (l) year after the date of termination of
my employment by the Company, I will not (i) solicit or induce any employee of
the Company to leave the employ of the Company or (ii) solicit the business of
any customer of the Company (other than, prior to termination of my employment,
on behalf of the Company and, after
3.
<PAGE>
termination of my employment, with respect to products or services of a type
not supplied by the Company).
If any restriction set forth in this Section is found by any court
of competent jurisdiction to be unenforceable because it extends for too long
a period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend only over the maximum
period of time, range of activities or geographic area as to which it may be
enforceable.
8. NO IMPROPER USE OF MATERIALS. During my employment by the Company
I will not improperly use or disclose any confidential information or trade
secrets, if any, of any former employer or any other person to whom I have an
obligation of confidentiality, and I will not bring onto the premises of the
Company any unpublished documents or any property belonging to any former
employer or any other person to whom I have an obligation of confidentiality
unless previously and specifically consented to in writing by that former
employer or person. I will use in the performance of my duties only
information which is generally known and used by persons with training and
experience comparable to my own, which is common knowledge in the industry or
otherwise legally in the public domain, or which is otherwise provided or
developed by the Company or by me while employed by the Company.
9. NO CONFLICTING OBLIGATION. I represent that my performance of all
the terms of this Agreement and as an employee of the Company does not and
will not breach any agreement or obligation of mine relating to any time
prior to my employment by the Company. I have not entered into, and I agree
I will not enter into, any agreement either written or oral in conflict
herewith.
10. RETURN OF COMPANY DOCUMENTS. When I leave the employ of the
Company, I will deliver to the Company any and all drawings, notes,
memoranda, specifications, devices, formulas, molecules, cells and documents,
together with all copies thereof, and any other material containing or
disclosing any Company Inventions, Third Party Information or Proprietary
Information of the Company, whether kept at the Company, home or elsewhere.
I further agree that any property situated on the Company's premises and
owned by the Company, including disks and other storage media, filing
cabinets or other work areas, is subject to inspection by Company personnel
at any time with or without notice. Prior to leaving, I will cooperate with
the Company in completing and signing the Company's termination statement for
technical and management personnel confirming the above and my obligations
under this Agreement.
11. LAW AND REMEDIES. I understand that the unauthorized taking of the
Company's trade secrets (i) could result in civil liability under California
Civil Code Section 3426, and that, if willful, could result in an award for
triple the amount of the Company's damages and attorneys' fees; and (ii) is a
crime under California Penal Code Section 499(c), punishable by imprisonment
for a time not exceeding one year, or by a fine not exceeding five thousand
dollars ($5,000), or by both. Because my services are personal and unique
and because I may have access to and become acquainted with the Proprietary
Information of the Company, the Company shall have the right to enforce this
Agreement and any of its provisions by injunction,
4.
<PAGE>
specific performance or other equitable relief,
without bond and without prejudice to any other rights and remedies that the
Company may have for a breach of this Agreement.
12. NOTICES. Any notices required or permitted hereunder shall be
given to the appropriate party at the address specified below or at such
other address as the party shall specify in writing. Such notice shall be
deemed given upon personal delivery to the appropriate address or if sent by
certified or registered mail, three days after the date of mailing.
13. GENERAL PROVISIONS.
13.1 GOVERNING LAW. This Agreement will be governed by and
construed according to the laws of the State of California without respect to
its choice of law provisions.
13.2 ENTIRE AGREEMENT. This Agreement is the final, complete and
exclusive agreement of the parties with respect to the subject matter hereof
and supersedes and merges all prior discussions between us. No modification
of or amendment to this Agreement, nor any waiver of any rights under this
Agreement, will be effective unless in writing and signed by the party to be
charged therewith. Any subsequent change or changes in my duties, salary or
compensation will not affect the validity or scope of this Agreement. As
used in this Agreement, the period of my employment includes any time during
which I may be retained by the Company as a consultant.
13.3 SEVERABILITY. If one or more of the provisions in this
Agreement are deemed unenforceable by law, then such provision will be deemed
stricken from this Agreement and the remaining provisions will continue in
full force and effect.
13.4 SUCCESSORS AND ASSIGNS. This Agreement will be binding upon
my heirs, executors, administrators and other legal representatives and will
be for the benefit of the Company, its successors, and its assigns.
13.5 SURVIVAL. The provisions of this Agreement shall survive the
termination of my employment and the assignment of this Agreement by the
Company to any successor in interest or other assignee.
13.6 EMPLOYMENT. I agree and understand that nothing in this
Agreement shall confer any right with respect to continuation of my
employment by the Company, nor shall it interfere in any way with my right or
the Company's right to terminate my employment at any time, with or without
cause.
13.7 WAIVER. No waiver by the Company of any breach of this
Agreement shall be a waiver of any preceding or succeeding breach. No waiver
by the Company of any right under this Agreement shall be construed as a
waiver of any other right. The Company shall not be required to give notice
to enforce strict adherence to all terms of this Agreement.
This Agreement shall be effective as of the first day of my employment
with the Company, namely _____________.
5.
<PAGE>
I UNDERSTAND THAT THIS AGREEMENT AFFECTS MY RIGHTS TO INVENTIONS I MAKE
DURING MY EMPLOYMENT, AND RESTRICTS MY RIGHT TO DISCLOSE OR USE THE COMPANY'S
CONFIDENTIAL INFORMATION DURING OR SUBSEQUENT TO MY EMPLOYMENT.
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE
COMPLETELY FILLED OUT EXHIBIT A TO THIS AGREEMENT.
_____________________________________
EXECUTIVE
Address:
___________________
___________________
ACCEPTED AND AGREED TO:
FVC.COM, INC.
By: ___________________________________
Name:
Title:
Address: FVC.COM, Inc.
3393 Octavius Drive, Suite 102
Santa Clara, CA 95054
6.
<PAGE>
Exhibit A
to Proprietary Information
and Inventions Agreement
None.
<PAGE>
Exhibit B
to Executive Officers'
Change of Control Plan
FVC.COM, INC.
EMPLOYEE AGREEMENT AND RELEASE
I hereby confirm my obligations under the Company's standard form of
proprietary information agreement.
I acknowledge that I have read and understand Section 1542 of the
California Civil Code that reads as follows: "A GENERAL RELEASE DOES NOT
EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS
FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby expressly waive
and relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to my release of any claims I may
have against the Company.
Except as otherwise set forth in the Company's Executive Officers'
Change of Control Plan and this Agreement, I hereby release, acquit and
forever discharge the Company, its parents and subsidiaries, and their
officers, directors, agents, servants, employees, shareholders, successors,
assigns and affiliates, of and from any and all claims, liabilities, demands,
causes of action, costs, expenses, attorneys fees, damages, indemnities and
obligations of every kind and nature, in law, equity, or otherwise, known and
unknown, suspected and unsuspected, disclosed and undisclosed (other than any
claim for indemnification I may have as a result of any third party action
against me based on my employment with the Company), arising out of or in any
way related to agreements, events, acts or conduct at any time prior to and
including the Effective Date of this Agreement, including but not limited to:
all such claims and demands directly or indirectly arising out of or in any
way connected with my employment with the Company or the termination of that
employment, including but not limited to, claims of intentional and negligent
infliction of emotional distress, any and all tort claims for personal
injury, claims or demands related to salary, bonuses, commissions, stock,
stock options, or any other ownership interests in the Company, vacation pay,
fringe benefits, expense reimbursements, severance pay, or any other form of
compensation; claims pursuant to any federal, state or local law or cause of
action including, but not limited to, the federal Civil Rights Act of 1964,
as amended; the federal Age Discrimination in Employment Act of 1967, as
amended ("ADEA"); the federal Americans with Disabilities Act of 1990; the
California Fair Employment and Housing Act, as amended; tort law; contract
law; wrongful discharge; discrimination; fraud; defamation; emotional
distress; and breach of the implied covenant of good faith and fair dealing;
provided, however, that nothing in this paragraph shall be construed in any
way to release the Company from its obligation to indemnify you pursuant to
any applicable indemnification agreement and to provide you with continued
coverage under the Company's directors and officers liability insurance
policy to the same extent that it has provided such coverage to previously
departed officers and directors of the Company.
<PAGE>
I acknowledge that I am knowingly and voluntarily waiving and releasing
any rights I may have under ADEA. I also acknowledge that the consideration
given for the waiver and release in the preceding paragraph hereof is in
addition to anything of value to which I was already entitled. If and only
if I am covered by ADEA, I further acknowledge that I have been advised by
this writing, as required by the ADEA, that: (A) my waiver and release do not
apply to any rights or claims that may arise after the Effective Date of this
Agreement; (B) I have the right to consult with an attorney prior to
executing this Agreement; (c) I have twenty-one (21) days to consider this
Agreement (although I may choose to voluntarily execute this Agreement
earlier); (D) I have seven (7) days following the execution of this Agreement
to revoke the Agreement; and (E) this Agreement shall not be effective until
the date upon which the revocation period has expired, which shall be the
eighth day after this Agreement is executed by me (the "Effective Date"). If
I am not covered by ADEA, I acknowledge that this Agreement shall be
effective as of the date upon which this Agreement has been executed by me
(the "Effective Date").
By: ________________________________________
EXECUTIVE
Date: ______________________________________
2.
<PAGE>
FVC.COM, INC.
EXECUTIVE OFFICERS' CHANGE OF CONTROL PLAN
_____________________, Executive:
FVC.COM, Inc. (the "Company") acknowledges that you are covered by its
Executive Officers' Change of Control Plan (the "Plan").
Dated the _____ day of ____________, 19__.
Very truly yours,
FVC.COM, INC.
By_________________________________
ATTACHMENTS:
FVC.COM, Inc. Executive Officers' Change of Control Plan
Proprietary Information and Inventions Agreement
Employee Agreement and Release
The undersigned acknowledges that he or she is covered by the Plan and
has received a copy of the attachments referenced above. Furthermore, the
undersigned agrees to be bound by the obligations of an Executive described
in the Plan, including, without limitation, the obligations described in
Sections 6 and 7 of the Plan.
_____________________________
EXECUTIVE
Address
__________________
__________________
<PAGE>
EXHIBIT 10.9
FVC.COM, INC.
NON-EMPLOYEE DIRECTORS' CHANGE OF CONTROL PLAN
ADOPTED BY THE BOARD OF DIRECTORS ON FEBRUARY 17, 1999
1. INTRODUCTION; PURPOSES.
(a) The purpose of this Plan is to provide directors of the Company
with protection of certain benefits in case of a termination of his or her
status as a director of the Company in connection with a Change of Control of
the Company.
(b) The Company, by means of the Plan, seeks (i) to retain the services
of the current directors of the Company, (ii) to secure and retain the
services of new directors and (iii) to provide incentives for its directors
to exert maximum efforts for the success of the Company even in the face of a
potential Change of Control of the Company.
2. COVERAGE OF THE PLAN.
(a) Each person who on the Effective Date is a director of the Company
and is not an employee of the Company shall be covered by the Plan.
(b) Each person who becomes a director of the Company but is not at
such time an employee of the Company shall automatically be covered by the
Plan as of the date of the person's election or appointment to the Board.
(c) Any director of the Company who was previously an employee of the
Company and thus not eligible to be covered by this Plan shall be
automatically covered by this Plan if and when (i) he or she ceases to be an
employee of the Company and (ii) remains as a director of the Company. The
effective time of such coverage shall be the date upon which the person
ceases to be an employee of the Company.
3. DEFINITIONS.
(a) "ACCOUNTANTS" has the meaning given thereto in Section 6(b).
(b) "BOARD" means the Board of Directors of the Company.
(c) "CHANGE OF CONTROL" means: (i) a dissolution or liquidation of the
Company; (ii) a sale of all or substantially all the assets of the Company;
(iii) a merger or consolidation in which the Company is not the surviving
corporation and in which beneficial ownership of securities of the Company
representing at least fifty percent (50%) of the combined voting power
entitled to vote in the election of directors has changed; (iv) a reverse
merger in which the Company is the surviving corporation but the shares of
the common stock of the Company outstanding immediately before the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, and in which beneficial ownership
<PAGE>
of securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of directors has
changed; (v) an acquisition by any person, entity or group within the meaning
of Section 13(d) or 14(d) of the Exchange Act, or any comparable successor
provisions (excluding any employee benefit plan, or related trust, sponsored
or maintained by the Company or subsidiary of the Company or other entity
controlled by the Company) of the beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule)
of securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of directors; or, (vi)
in the event that the individuals who are members of the Incumbent Board
cease for any reason to constitute at least fifty percent (50%) of the Board.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee appointed by the Board in accordance
with Section 4(c).
(f) "COMPANY" means FVC.COM, Inc., a Delaware corporation.
(g) "DIRECTOR" means a Company director who is covered by this Plan
pursuant to Section 2.
(h) "EFFECTIVE DATE" means February 17, 1999.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(j) "EXCISE TAX" has the meaning given thereto in Section 6.
(k) "INCUMBENT BOARD" means the individuals who, as of the Effective
Date are members of the Board. If the election, or nomination for election
by the Company's stockholders, of any new director is approved by a vote of
at least fifty percent (50%) of the Incumbent Board, such new director shall
be considered as a member of the Incumbent Board.
(l) "PLAN" means this Non-Employee Directors' Change of Control Plan.
4. ADMINISTRATION
(a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in Section 4(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To construe and interpret the Plan and the rights covered
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, in a manner and to the extent
it shall deem necessary or expedient to make the Plan fully effective.
2.
<PAGE>
(ii) To amend or terminate the Plan as provided in Section 9.
(iii) 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 that are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee of
the Board composed of not fewer than two (2) members, all of the members of
which committee shall be, 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,
including the power to delegate to a subcommittee of two (2) or more members
of the Board any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or such a subcommittee), 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.
5. ACCELERATION IN THE EVENT OF A CHANGE OF CONTROL. As of the date of a
Change of Control of the Company, then, subject to Section 6, each of
Director's outstanding stock options, restricted stock awards and restricted
stock purchases and any options, awards or purchases held in the name of an
estate planning vehicle for the benefit of Director or his or her immediate
family, shall have their vesting and exercisability schedules accelerated in
full.
6. PARACHUTE PAYMENTS; EXCISE TAX. In the event that the severance,
acceleration of stock options and other benefits payable to Director as a
result of a Change of Control of the Company (i) constitute "parachute
payments" within the meaning of Section 280G (as it may be amended or
replaced) of the Code and (ii) but for this Section 6, would be subject to
the excise tax imposed by Section 4999 (as it may be amended or replaced) of
the Code (the "EXCISE TAX"), then Director's benefits payable in connection
therewith shall be either
(a) delivered in full, or
(b) delivered as to such lesser extent that would result in no portion
of such benefits being subject to the Excise Tax, whichever of the foregoing
amounts, taking into account the applicable federal, state and local income
taxes and the Excise Tax, results in the receipt by Director on an after-tax
basis, of the greatest amount of benefits, notwithstanding that all or some
portion of such benefits may be taxable under the Excise Tax. Unless the
Company and Director otherwise agree in writing, any determination required
under this Section 6 shall be made in writing in good faith by the outside
accounting firm responsible for auditing the Company's financial records (the
"ACCOUNTANTS"). In the event of a reduction in benefits hereunder, Director
shall be given the choice of which benefits to reduce. For purposes of
making the calculations required by this Section 6, the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of
the Code. The Company and Director shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order
to make a determination under this Section 6. The Company shall bear all
costs the Accountants may reasonably incur in connection with any
calculations contemplated by this
3.
<PAGE>
Section 6.
7. TERMINATION. Prior to a Change of Control of the Company, the right to
receive benefits under this Plan shall automatically terminate on the date
upon which Director's status as a director of the Company terminates, as
evidenced by the written resignation of Director, by action of the Board or
of the stockholders of the Company removing Director as a director or
otherwise.
8. NOTICES. Any notices provided for in this 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 Director, five (5) days after deposit in
the United States mail, postage prepaid, addressed to Director at the address
specified in the corporate records of the Company or at such other address as
Director hereafter designates by written notice to the Company.
9. AMENDMENT OR TERMINATION OF THE PLAN.
(a) The Board at any time, and from time to time, may amend or
terminate the Plan; PROVIDED, HOWEVER, that any such termination must occur
prior to the occurrence of a Change of Control of the Company.
(b) Rights and obligations under this Plan of persons covered by this
Plan before any amendment of the Plan made at or after the time of the
occurrence of a Change of Control of the Company shall not be impaired by any
amendment of the Plan unless (i) the Company requests the consent of the
person covered by the Plan and (ii) such person consents in writing.
10. GOVERNING LAW. This Plan shall be governed by, and construed in
accordance with, the laws of the State of California, regardless of the law
that might be applied under applicable principles of conflicts of law.
4.
<PAGE>
FVC.COM, INC.
NON-EMPLOYEE DIRECTORS' CHANGE OF CONTROL PLAN
_____________________, Director:
FVC.COM, Inc. (the "Company") acknowledges that you are covered by its
Non-Employee Directors' Change of Control Plan (the "Plan").
Dated the _____ day of ____________, 19__.
Very truly yours,
FVC.COM, INC.
By_________________________________
ATTACHMENT:
FVC.COM, Inc. Non-Employee Directors' Change of Control Plan
The undersigned acknowledges that he or she is covered by the Plan and
has received a copy of the attachment referenced above. Furthermore, the
undersigned agrees to be bound by the obligations of a Director described in
the Plan, including, without limitation, the obligations described in Section
6 of the Plan.
_____________________________
DIRECTOR
Address
__________________
__________________
<PAGE>
Exhibit 10.14
AMENDMENT NO. 4
TO LEASE
THIS AMENDMENT NO. 4 is made and entered into this 4th day of February,
1999, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA
dated July 20, 1977 (JOHN ARRILLAGA SURVIVOR'S TRUST) (previously known as
the "John Arrillaga Separate Property Trust") as amended, and RICHARD T.
PEERY, Trustee, or his Successor Trustee UTA dated July 20, 1977 (RICHARD T.
PEERY SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and
FVC.COM, Inc., a Delaware corporation, as TENANT.
RECITALS
A. WHEREAS, by Lease Agreement dated July 19, 1995 Landlord leased to
Tenant approximately 12,690 +/- square feet of that certain 48,000 +/- square
foot building located at 3393 Octavius Drive, Suite 202, Santa Clara,
California, the details of which are more particularly set forth in said July
19, 1995 Lease Agreement, and
B. WHEREAS, said Lease was amended by Letter Agreement dated November 6,
1997, whereby Landlord consented to Tenant's assignment of said Lease from
First Virtual Corporation, a California corporation to First Virtual
Corporation, a Delaware corporation, and,
C. WHEREAS, said Lease was amended by Amendment No. 1 dated November 7,
1997 which added a Co-terminous paragraph and a Cross-default paragraph as
related to premises leased by Tenant from Landlord at 3233 Scott Blvd., Santa
Clara, California, and
D. WHEREAS, said Lease was amended by Amendment No. 2 dated April 2,
1998 which (i) increased the square footage of the Leased Premises by 9,696 +/-
square feet effective May 1, 1998 ("Phase I Increased Premises"), (ii)
increased the square footage of the Leased Premises by 2,561 +/- square feet
effective December 1, 1998 ("Phase II Increased Premises"), (iii) extended
the Lease Term for a period of four years and eight months, (iv) amended the
Basic Rent schedule and Aggregate Rent accordingly, (v) increased the
Security Deposit required under the Lease, (vi) increased Tenant's
non-exclusive parking spaces, (vii) amended the Management Fee charged to
Tenant, (viii) amended Lease Paragraph 19 ("Assignment and Subletting"), (ix)
replaced Lease Paragraphs 39 ("Limitation of Liability") and 47 ("Hazardous
Materials"), (x) deleted Paragraphs I ("Lease Terms Co-terminous") and 2
("Cross Default") to Amendment No. 1 dated November 7, 1997, and (xi) added a
paragraph ("Authority to Execute") to said Lease, and
E. WHEREAS, said Lease was amended by Amendment No. 3 dated May 27, 1998
which (i) deleted Paragraph 1.B. of Amendment No. 2 and increased the former
"Phase II Increased Premises" by increased the square footage of the Leased
Premises by a total of 25,614 +/- square feet effective December 1, 1998 to
reflect Tenant leasing one hundred percent of the Building, (ii) extended the
Lease Term for a period of two years and seven months, (iii) amended the
Basic Rent schedule and Aggregate Rent accordingly, (iv) increased the
Security Deposit required under the Lease, (v) increased Tenants
non-exclusive parking spaces, (vi) amended Lease Paragraph 19 ("Assignment
and Subletting"), and (vii) replaced Lease Paragraphs 7 ("Expenses of
Operation, Management, and Maintenance of the Common Areas of the Complex and
<PAGE>
Building in which the Premises are Located"), 10 ("Tenant Maintenance") and
11 ("Utilities of the Building in which the Premises are Located"), and
F. Whereas, it is now the desire of the parties hereto to amend the
Lease by (i) acknowledging Tenant's name change from First Virtual
Corporation, a Delaware corporation to FVC.COM, Inc., a Delaware corporation,
effective July 31, 1998, (ii) reducing the Basic Rent due under the Lease for
a six month period commencing January 1, 1999 and ending June 30, 1999, (iii)
extending the Lease Term by three years and seven months, and (iv) amending
the Basic Rent Schedule and Aggregate Rent under said Lease Agreement as
hereinafter set forth.
AGREEMENT
Now Therefore, for valuable consideration, receipt of which is hereby
acknowledged, and in consideration of the hereafter mutual promises, the
parties hereto do agree as follows:
1. TENANT NAME CHANGE: Pursuant to information provided to
Landlord by Tenant, it is acknowledged by Landlord that effective on or about
July 31, 1998, Tenant "First Virtual Corporation", a Delaware corporation,
has changed its' name by Corporate Resolution to "FVC.COM, Inc."), a Delaware
corporation; the change in name did not result in a change in ownership
structure and for all intents and purposes all the assets and liabilities of
First Virtual Corporation are now the assets and liabilities of FVC.COM, Inc.
and FVC.COM, Inc. will be responsible for the full performance of all terms,
covenants, and conditions of said Lease Agreement from the date of the Lease
(July 19, 1995) through the effective Termination Date of said Lease. In the
event there was a change in ownership or there is not a complete transfer of
100% of the assets and liabilities from First Virtual Corporation to FVC.COM,
Inc. both companies agree to be jointly and severally liable for the full
terms and conditions of the Lease Agreement from through the Termination Date
of said Lease.
2. TERM OF LEASE: It is agreed between the parties that the Term
of said Lease Agreement shall be extended for an additional three (3) year
seven (7) month period, and the Lease Termination Date shall be changed from
November 30, 2005 to June 30, 2009.
3. BASIC RENT SCHEDULE: As an accommodation to Tenant and in
consideration of Tenant extending the Term of the Lease, Landlord has agreed
to reduce the Basic Rent due under the Lease for the period of January 1,
1999 through June 30, 1999 by $40,000.00 per month. The Basic Rent schedule,
as shown in Paragraph 4(A) of the Lease Agreement , shall be amended as
follows:
On January 1, 1999, the sum of Fifty Six Thousand and No/100
Dollars ($56,000.00) shall be due, and a like sum due on the first day of
each month thereafter, through and including April 1, 1999.
On May 1, 1999, the sum of Sixty Thousand Eight Hundred and No/100
Dollars ($60,800.00) shall be due, and a like sum due on the first day of
each month thereafter, through and including June 1, 1999.
2.
<PAGE>
On July 1, 1999, the sum of One Hundred Five Thousand Six Hundred
and No/100 Dollars ($105,600.00) shall be due, and a like sum due on the
first day of each month thereafter, through and including April 1, 2000.
On May 1, 2000, the sum of One Hundred Thirteen Thousand Two
Hundred and No/100 Dollars ($113,200.00) shall be due, and a like sum due on
the first day of each month thereafter, through and including April 1, 2001.
On May 1, 2001, the sum of One Hundred Twenty Four Thousand Eight
Hundred and No/100 Dollars ($124,800.00) shall be due, and a like sum due on
the first day of each month theeafter, through and including April 1, 2003.
On May 1, 2003, the sum of One Hundred Twenty Seven Thousand Two
Hundred and No/100 Dollars ($127,200.00) shall be due, and a like sum due on
the first day of each month thereafter, through and including April 1, 2004.
On May 1, 2004, the sum of One Hundred Twenty Nine Thousand Six
Hundred and No/100 Dollars ($129,600.00) shall be due, and a like sum due on
the first day of each month thereafter, through and including April 1, 2005.
On May 1, 2005, the sum of One Hundred Thirty Two Thousand and
No/100 Dollars ($132,000.00) shal be due, and a like sum due on the first day
of each month theeafter, through and including April 1, 2006.
On May 1, 2006 the sum of One Hundred Thirty Six Thousand Eight
Hundred and No/100 Dollars ($136,800.000) shall be due, and a like sum due on
the first day of each month therafter, though and including April 1, 2007.
On May 1, 2007, the sum of One Hundred Forty One Thousand Six
Hundred and No/100 Dollars ($141,600.00) shall be due, and a like sum due on
the first day of each month thereafter, through and including April 1, 2008.
On May 1, 2008, the sum of One Hundred Forty Six Thousand Four
Hundred and No/100 Dollars (141,400.00) shall be due, and a like sum due on
the first day of each month thereafter, through and including April 1, 2009.
On May 1, 2009, the sum of One Hundred Fifty One Thousand Two
Hundred and No/100 Dollars ($151,200.00) shall be due, and a like sum due on
the first day of each month thereafter, through and including April 1, 2009.
The Aggregate Rental shall be increased by $6,408,000.00, or from
$10,207,325.03 to $16,615,325.03.
4. SECURITY DEPOSIT. Tenant's Security Deposit shall remain
$259,200.00.
EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of
said July 19, 1995 Lease Agreement shall remain in full force and effect.
3.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No.
4 to Lease as the day oand your last written below.
LANDLORD: TENANT:
JOHN ARRILLAGA, FVC.COM, INC.
Survivor's Trust a Delaware corporation
/s/ John Arrillaga /s/ Ralph Ungermann
- ---------------------------------- -----------------------------------
John Arrillaga, Trustee Ralph Ungermann, Chairman
Date: 2/24/99 Date 2/23/99
---------------------------- ------------------------------
RICHARD T. PEERY SEPARATE
PROPERTY TRUST
By: /s/ Richard T. Peery
-------------------------------
Richard T. Peery, Trustee
Date: 2/24/99
----------------------------
4.
<PAGE>
EXHIBIT 10.37
AMENDMENT NO. 1 TO INCENTIVE STOCK OPTIONS
DATED OCTOBER 18, 1996, MARCH 17, 1997, MARCH 17, 1997,
NOVEMBER 19, 1997 AND APRIL 20, 1998
WHEREAS, FVC.COM, Inc. (the "Company"), by agreements dated October 18,
1996, March 17, 1997, March 17, 1997, November 19, 1997 and April 20, 1998
(each, an "Option Agreement"), granted to James M. Nielsen (the "Optionee"),
options to purchase (the "Options") up to 100,000 shares, 34,000 shares,
16,000 shares, 25,000 shares and 2,500 shares of Common Stock, respectively,
of the Company.
WHEREAS, the Company and the Optionee desire to amend the terms of each
Option Agreement to accelerate the option vesting schedule.
NOW, THEREFORE, the Company and the Optionee agree as follows.
RESOLVED, that Section 2 of each Option Agreement is hereby amended to
add the following two paragraphs:
"Notwithstanding the above paragraph, for that portion of the
option that is not vested and exercisable on November 1, 1998, such
unvested shares shall become vested and exercisable in equal daily
installments (rounded to the nearest whole share) during the period
beginning on November 1, 1998 and ending on June 15, 1999. On and
after June 15, 1999, all of the shares subject to the option shall be
vested and exercisable. The provisions of this accelerated option
vesting schedule shall be subject to the same limitations as was the
original vesting schedule.
To the extent that the terms of this agreement, as amended, cause
the aggregate fair market value (determined in accordance with the
applicable provisions of the Internal Revenue Code) of stock with
respect to which your option plus all other incentive stock options
granted to you by the Company or its Affiliates that first become
exercisable in a single calendar year to exceed one hundred thousand
dollars ($100,000), the options or portions thereof that exceed such
limit (according to the order in which they were granted) shall be
treated as nonstatutory stock options."
1.
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Amendment No. 1 to the Option Agreements as of December 1, 1998.
FVC.COM, INC.
By: /s/ Ralph Ungermann
---------------------------------
Ralph Ungermann
Chief Executive Officer
OPTIONEE
By: /s/ James M. Nielsen
---------------------------------
James M. Nielsen
2.
<PAGE>
EXHIBIT 10.38
FVC.COM, INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated as of December 14,
1998, is made by and between FVC.COM, INC. (the "COMPANY"), and RICHARD M.
BEYER ("EXECUTIVE").
1. DUTIES AND SCOPE OF EMPLOYMENT.
(a) POSITION. The Company shall employ Executive as the Chief
Executive Officer of the Company reporting to the Board of Directors of the
Company (the "Board") and shall appoint Executive as a member of the Board.
The Board agrees to nominate Executive for re-election to the Board so long
as Executive is the Company's Chief Executive Officer. As Chief Executive
Officer of the Company, Executive shall have the duties and responsibilities
customarily associated with such position, including senior management powers
and responsibilities for the Company's business and affairs.
(b) OBLIGATIONS. Executive shall devote his full business efforts
and time to the Company. Executive agrees not to engage actively in any other
employment, occupation or consulting activity for any direct or indirect
remuneration without the prior approval of the Board; provided, however, that
Executive may serve in any capacity with any civic, educational or charitable
organization, or as a member of corporate boards of directors or committees
thereof, including those upon which Executive currently serves, without the
approval of the Board, so long as such activities do not interfere with his
duties and obligations under this Agreement. It is expressly understood and
agreed that to the extent that any such activities have been conducted by
Executive prior to the date of this Agreement, the continued conduct of such
activities (or the conduct of activities similar in scope or nature thereto)
shall not be deemed to interfere with the performance of Executive's
responsibilities to the Company. Notwithstanding anything to the contrary set
forth herein, nothing herein shall be deemed to restrict Executive's right to
continue to manage his personal investments, provided that Executive may not
own more than two percent (2%) of the outstanding securities of any other
corporation or entity that is or may be competitive with the Company or with
any corporation or entity that directly or indirectly controls, is controlled
by, or is under common control with the Company..
2. TERM. Executive's employment with the Company pursuant to this
Agreement shall commence on January 7, 1999 (the "Effective Date") and shall
continue, subject to the terms and conditions herein set forth, until
terminated by either or both parties.
3. EMPLOYEE BENEFITS. During his employment hereunder, Executive
shall be eligible to participate in: (i) all employee pension and retirement
benefit plans currently and hereafter maintained by the Company, including,
without limitation, incentive, profit-sharing, savings, deferred compensation
and retirement plans, practices, policies and programs according to their
terms; (ii) all employee health and welfare benefit plans currently and
hereinafter maintained by the Company, including, without limitation, life,
group health and disability insurance, plans, policies and programs according
to their terms; and (iii) such other employee benefits as are set forth in
this Agreement.
1
<PAGE>
4. COMPENSATION.
(a) BASE SALARY. The Company shall pay Executive as compensation
for his services a base salary at the annualized rate of three hundred
thousand dollars ($300,000) (the "Base Salary"). The Base Salary shall be
paid periodically in accordance with normal Company payroll practices and
subject to the usual required withholding, and shall be reviewed annually for
possible adjustment in light of Executive's performance of his duties and the
Company's profitability and other relevant factors, as determined by the
Board or the Compensation Committee of the Board (the "Compensation
Committee"). Executive understands and agrees that neither his job
performance nor promotions, commendations, bonuses or the like from the
Company give rise to or in any way serve as the basis for modification or
amendment, by implication or otherwise, of this Agreement.
(b) ANNUAL BONUS. For each of the Company's fiscal years,
commencing with the Company's 1999 fiscal year and for each fiscal year
thereafter as long as this Agreement is in effect, Executive shall be
eligible for an annual bonus (the "Annual Bonus"), provided that certain
personal and corporate performance targets to be set by the Compensation
Committee are met or exceeded. Such performance targets shall be adopted by
the Compensation Committee after discussion with Executive within ninety (90)
days after the start of the Company's fiscal year, and a copy shall be
delivered in writing to Executive within fifteen (15) days thereafter. The
Compensation Committee, in its sole discretion, shall determine whether such
goals have been achieved. Executive's target bonus ("Target Bonus") for each
year shall be no less than one-third of Executive's Base Salary for such
year. The Annual Bonus shall be paid in accordance with normal company
executive bonus payment practice and subject to the usual required
withholding, and, subject to Sections 6 and 7 below, the payment of any
portion of the Annual Bonus shall also be contingent on Executive still being
employed by the Company as of the regular date of payment for such portion of
the Annual Bonus.
(c) STOCK OPTION. Upon commencement of employment, Executive
shall be granted a compensatory stock option with a term of ten (10) years to
purchase six hundred thousand (600,000) shares of the common stock of the
Company (the "Option"), which shall be issued under the Company's 1997 Equity
Incentive Plan. To the maximum extent possible the Option shall be an
incentive stock option as such term is defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). The shares covered by the
Option shall vest and become exercisable over a period of sixty (60) months:
ten percent (10%) of the shares covered by the Option shall vest six (6)
months after the date of grant of the Option and the remaining shares covered
by the Option shall vest and become exercisable on a daily basis thereafter.
The exercise price per share for the shares covered by the Option shall be
the exercise price per share of the common stock of the Company determined as
of the date of the grant. All other terms and conditions of the Option shall
be the standard terms and conditions used in the standard form of stock
option agreement used by the Company.
5. EXPENSES. The Company shall pay or reimburse Executive for
reasonable travel, entertainment or other expenses incurred by Executive in
the furtherance of or in connection with the performance of Executive's
duties hereunder in accordance with the Company's established policies.
2
<PAGE>
6. SEVERANCE BENEFITS.
(a) CERTAIN INVOLUNTARY TERMINATIONS OR TERMINATIONS WITH GOOD
REASON. If Executive's employment with the Company terminates involuntarily
other than for Cause (as defined below), death, or physical or mental
disability which prevents Executive from satisfactorily performing the normal
duties and responsibilities of his office in the good faith determination of
the Board for a period of more than one hundred twenty (120) consecutive days
("Disability")), or if Executive terminates his employment with the Company
voluntarily with Good Reason (as defined below), then, subject to the
limitations and conditions of Section 8 below: (i) Executive shall be
entitled to receive Base Salary continuation payments at the Base Salary rate
in effect on the date of termination, paid on a monthly basis, for twelve
(12) months after the date of termination, in addition to any accrued but
unpaid Base Salary, bonus payments, and/or accrued and unused vacation; (ii)
each of Executive's outstanding stock options and restricted stock awards
shall have their vesting and exercisability schedules accelerated by a period
of one (1) year as of the date of termination; (iii) Executive shall be
entitled to receive bonus continuation payments totaling the Target Bonus in
effect on the date of termination, paid on a monthly basis, for twelve (12)
months after the date of termination; and (iv) if at the time of termination
Executive is covered by the Company's group health plan, the Company shall
provide to Executive, subject to Executive and his eligible spouse and/or
dependents electing continuation coverage under COBRA, one hundred percent
(100%) Company-paid group health coverage at the same level of coverage as
was provided to Executive immediately prior to the date of termination (the
"Company-Paid Coverage"). If such coverage included Executive's spouse and/or
dependents immediately prior to the date of termination, such spouse and/or
dependents shall also be covered at Company expense. Company-Paid Coverage
shall continue until the earlier of (x) twelve (12) months from the date of
termination, or (y) the date that Executive and his spouse and/or dependents
become covered under another employer's group health plan that provides
Executive and his spouse and/or dependents with comparable benefits and
levels of coverage. In no event shall Executive be obligated to seek other
employment or take any other action to mitigate the amounts payable to
Executive hereunder.
For purposes of this Agreement, "Cause" is defined as Executive's: (i)
gross negligence or willful misconduct in connection with the performance of
his duties hereunder which in the written determination of a majority of the
Board has not been cured within thirty (30) days following receipt by
Executive of written notice from the Board identifying such acts of gross
negligence or willful misconduct; (ii) commission of a felony (other than a
traffic-related offense) which in the written determination of a majority of
the Board has caused material injury to the Company's business; (iii)
dishonesty with respect to a significant matter relating to the Company's
business and intended to result in personal enrichment of Executive or his
family at the expense of the Company; or (iv) material breach of this
Agreement or any agreement by and between Executive and the Company, which
material breach has not been cured within thirty (30) days following receipt
by Executive of written notice from the Board identifying such willful
material breach.
For purposes of this Agreement, "Good Reason" is defined as: (i) any
material reduction of Executive's duties, authority or responsibilities
relative to Executive's duties, authority, or responsibilities as in effect
immediately prior to such reduction (including, without limitation, Executive
ceasing to be Chief Executive Officer of the Company and/or ceasing to report
to the
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Board), except if agreed to in writing by Executive; (ii) a reduction by the
Company in the Base Salary or Target Bonus opportunity of Executive as in
effect immediately prior to such reduction; (iii) the relocation of Executive
to a facility or a location more than thirty-five (35) miles from Executive's
then present location, without Executive's written consent; (iv) any material
breach of this Agreement by the Company, which material breach has not been
cured within thirty (30) days following receipt by the Company's Chief
Financial Officer of written notice from the Executive identifying such
material breach; (v) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company; or (vi) if, after
any Change in Control (as defined below), Executive is not, or does not
become, Chief Executive Officer of the combined or acquiring entity,
reporting to its Board of Directors; and
(b) CERTAIN TERMINATIONS ON DEATH OR DISABILITY. If Executive's
employment with the Company terminates involuntarily for death or Disability
on or prior to January 1, 2001, each of Executive's outstanding stock options
and restricted stock awards shall have their vesting and exercisability
schedules accelerated by one (1) year as of the date of termination.
7. SEVERANCE BENEFITS IN THE EVENT OF A CHANGE OF CONTROL.
Notwithstanding any provisions of the preceding Section 6 of this Agreement,
if within eighteen (18) months following the date of a Change of Control (as
defined below) of the Company, Executive's employment with the Company
terminates involuntarily other than for Cause, death or Disability, or if
within such eighteen (18) month period, Executive terminates his employment
with the Company voluntarily with Good Reason, then, subject to the
limitations and conditions of Section 8 below: (i) Executive shall be
entitled to receive Base Salary continuation payments at the Base Salary rate
in effect on the date of termination, paid on a monthly basis, for twelve
(12) months after the date of termination, in addition to any accrued but
unpaid Base Salary, bonus payments, and/or accrued and unused vacation; (ii)
each of Executive's outstanding stock options and restricted stock awards
shall have their vesting and exercisability schedules accelerated by eighteen
(18) months as of the date of termination; (iii) Executive shall be entitled
to receive bonus continuation payments totaling the Target Bonus in effect on
the date of termination, paid on a monthly basis, for twelve (12) months
after the date of termination; and (iv) if at the time of termination
Executive is covered by the Company's group health plan, the Company shall
provide to Executive, subject to Executive and his eligible spouse and/or
dependents electing continuation coverage under COBRA, one hundred percent
(100%) Company-paid group health coverage at the same level of coverage as
was provided to Executive immediately prior to the date of termination (the
"Company-Paid Coverage"). If such coverage included Executive's spouse and/or
dependents immediately prior to the date of termination, such spouse and/or
dependents shall also be covered at Company expense. Company-Paid Coverage
shall continue until the earlier of (x) twelve (12) months from the date of
termination, or (y) the date that Executive and his spouse and/or dependents
become covered under another employer's group health plan that provides
Executive and his spouse and/or dependents with comparable benefits and
levels of coverage. In no event shall Executive be obligated to seek other
employment or take any other action to mitigate the amounts payable to
Executive hereunder.
If Executive receives benefits under this Section 7, Executive shall not
receive any additional benefits under the preceding Section 6 of this
Agreement.
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For purposes of this Agreement, "Change of Control" means: (i) a
dissolution or liquidation of the Company; (ii) a sale of all or
substantially all of the assets of the Company; (iii) a merger or
consolidation in which the Company is not the surviving corporation and in
which beneficial ownership of securities of the Company representing at least
fifty percent (50%) of the combined voting power entitled to vote in the
election of directors has changed; (iv) a reverse merger in which the Company
is the surviving corporation but the shares of the common stock of the
Company outstanding immediately preceding the merger are converted by virtue
of the merger into other property, whether in the form of securities, cash or
otherwise, and in which beneficial ownership of securities of the Company
representing at least fifty percent (50%) of the combined voting power
entitled to vote in the election of directors has changed; (v) an acquisition
by any person, entity or group within the meaning of Section 13(d) or 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any comparable successor provisions (excluding any employee benefit plan, or
related trust, sponsored or maintained by the Company or subsidiary of the
Company or other entity controlled by the Company) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act, or comparable successor rule) of securities of the Company representing
at least fifty percent (50%) of the combined voting power entitled to vote in
the election of directors; or, (vi) in the event that the individuals who, as
of the date of the execution of this Agreement, are members of the Company's
Board (the "Incumbent Board"), cease for any reason to constitute at least
fifty percent (50%) of the Board. (If the election, or nomination for
election by the Company's stockholders, of any new director is approved by a
vote of at least fifty percent (50%) of the Incumbent Board, such new
director shall be considered as a member of the Incumbent Board.)
In the event that the severance, acceleration of stock options and other
benefits provided for in this Agreement or otherwise payable to Executive (i)
constitute "parachute payments" within the meaning of Section 280G (as it may
be amended or replaced) of the Code and (ii) but for this paragraph, would be
subject to the excise tax imposed by Section 4999 (as it may be amended or
replaced) of the Code (the "Excise Tax"), then Executive's benefits hereunder
shall be either
(a) delivered in full, or
(b) delivered as to such lesser extent which would result in no
portion of such benefits being subject to the Excise Tax, whichever of the
foregoing amounts, taking into account the applicable federal, state and
local income taxes and the Excise Tax, results in the receipt by Executive on
an after-tax basis, of the greatest amount of benefits, notwithstanding that
all or some portion of such benefits may be taxable under the Excise Tax.
Unless the Company and Executive otherwise agree in writing, any
determination required under this paragraph shall be made in writing in good
faith by the outside accounting firm responsible for auditing the Company's
financial records (the "Accountants"). In the event of a reduction in
benefits hereunder, Executive shall be given the choice of which benefits to
reduce. For purposes of making the calculations required by this paragraph,
the Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of the Code. The Company and Executive shall
furnish to the Accountants such information and documents as the Accountants
may reasonably request in order to make a determination under this paragraph.
The Company shall bear all costs
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the Accountants may reasonably incur in connection with any calculations
contemplated by this paragraph.
8. LIMITATIONS AND CONDITIONS ON BENEFITS. The benefits and payments
provided under this Agreement shall be subject to the following terms and
limitations:
(a) WITHHOLDING TAXES. The Company shall withhold appropriate
federal, state and local income and employment taxes from any payments
hereunder.
(b) PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT PRIOR TO
RECEIPT OF EMPLOYMENT BENEFITS. Executive shall execute and deliver to the
Company a form of the Company's proprietary information and inventions
agreement, a copy of which is attached hereto as Exhibit A (the "Proprietary
Information and Inventions Agreement"), prior to the Effective Date and prior
to the receipt of any benefits under this Agreement. Additionally, Executive
agrees that all documents, records, apparatus, equipment and other physical
property which is furnished to or obtained by Executive in the course of his
employment with the Company shall be and shall remain the sole property of
the Company. Executive agrees not to make or retain copies, reproductions or
summaries of any such property, except as otherwise necessary while acting in
the normal course of business. In the event of any breach by Executive of
the Proprietary Information and Inventions Agreement, all severance benefits
payable under Sections 6 and 7 of this Agreement shall immediately terminate.
(c) EMPLOYEE AGREEMENT AND RELEASE PRIOR TO RECEIPT OF SEVERANCE
BENEFITS. If, pursuant to either Section 6 or Section 7 above, Executive's
employment with the Company terminates involuntarily other than for Cause,
death or Disability, or Executive terminates his employment with the Company
voluntarily with Good Reason, then prior to, and as a condition of the
receipt of any benefits under this Agreement on account of such termination,
Executive shall, as of the date of such termination, execute an employee
agreement and release in the form attached hereto as Exhibit B (the "Employee
Agreement and Release"). Such Employee Agreement and Release shall
specifically relate to all of Executive's rights and claims in existence at
the time of such execution and shall confirm Executive's obligations under
the Company's standard form of Proprietary Information and Inventions
Agreement. Executive has twenty-one (21) days to consider whether to execute
such Employee Agreement and Release and Executive may revoke such Employee
Agreement and Release within seven (7) days after execution of such Employee
Agreement and Release. In the event Executive does not execute such Employee
Agreement and Release with the twenty-one (21) days specified above, or if
Executive revokes such Employee Agreement and Release within the seven (7)
day period specified above, no benefits shall be payable to Executive on
account of a termination under Sections 6 or 7 of this Agreement.
9. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of (i) the heirs, executors and legal representatives of Executive
upon Executive's death and (ii) any successor of the Company. Any such
successor of the Company shall be deemed substituted for the Company under
the terms of this Agreement for all purposes. As used herein, "successor"
shall include any firm, corporation or other business entity which at any
time, whether by purchase, merger or otherwise, directly or indirectly
acquires all or substantially all of the assets
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or business of the Company or fifty percent (50%) or more of the total voting
power represented by the Company's then outstanding voting securities.
10. NOTICES. All notices, requests, demands and other communications
called for hereunder shall be in writing and shall be deemed given (i) when
delivered personally, (ii) three (3) days after being mailed by certified
mail, (iii) one (1) business day after being sent by Federal Express or a
similar private next-business-day delivery company, or (iv) when sent by
facsimile (fax), provided that a copy is sent by certified mail on the same
day; in each case addressed to the parties or their successors in interest at
the following addresses, or at such other addresses as the parties may
designate by written notice in the manner aforesaid:
If to the Company: FVC.COM, Inc.
3393 Octavius Drive, Suite 102
Santa Clara, CA 95054
Attn: Chairman of the Board
Fax: 408/988-7077
If to Executive: Richard M. Beyer
13503 Fremont Road
Los Altos Hills, CA 94022
Home Fax: (650) 949-5246
11. SEVERABILITY. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
12. ENTIRE AGREEMENT. This Agreement represents the entire agreement
and understanding between the Company and Executive concerning Executive's
employment relationship with the Company, and supersedes and replaces any and
all prior agreements and understandings concerning Executive's employment
relationship with the Company.
13. NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE. This Agreement
may only be amended, canceled or discharged in writing signed by Executive
and the Company.
14. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California.
15. DISPUTE RESOLUTION. Unless otherwise prohibited by law or
specified below, all disputes, claims, and causes of action (including but
not limited to any claims of statutory discrimination of any type), in law or
equity, arising from or relating to this Agreement or its enforcement,
performance, breach, or interpretation, shall be resolved solely and
exclusively by final, binding and confidential arbitration through Judicial
Arbitration & Mediation Services/Endispute, Inc. ("JAMS") under the then
existing JAMS arbitration rules. This arbitration shall be held in the San
Francisco Bay area. Nothing in this section is intended to prevent either
party from obtaining injunctive relief in court to prevent irreparable harm
pending the conclusion of any such arbitration. The prevailing party in any
such arbitration proceedings
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shall be entitled to reimbursement of all reasonable costs incurred in the
course of such proceedings.
16. EFFECTIVENESS. This Agreement is effective immediately after it has
been signed by both parties.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below
FVC.COM, INC.
By: /s/ Ralph K. Ungermann
----------------------------------
Ralph K. Ungermann
Chairman and Chief Executive Officer
RICHARD BEYER
/s/ Richard Beyer
-------------------------------------
Signature
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EXHIBIT A
FVC.COM, INC.
FORM OF PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
In consideration of my employment or continued employment by FVC.COM,
INC. (the "Company"), and the compensation now and hereafter paid to me, I
hereby agree as follows:
1. RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. At all times
during the term of my employment and thereafter, I will hold in strictest
confidence and will not disclose, use, lecture upon or publish any of the
Company's Proprietary Information (defined below), except as such disclosure,
use or publication may be required in connection with my work for the Company
and an officer of the Company expressly authorizes such in writing. I hereby
assign to the Company any rights I may have or acquire in such Proprietary
Information and recognize that all Proprietary Information shall be the sole
property of the Company and its assigns and the Company and its assigns shall
be the sole owner of all trade secret rights, patent rights, copyrights, mask
work rights, trade secret rights and all other rights throughout the world
(collectively, "Proprietary Rights") in connection therewith.
The term "Proprietary Information" shall mean trade secrets,
confidential knowledge, data or any other proprietary information of the
Company. By way of illustration but not limitation, "Proprietary
Information" includes (a) trade secrets, inventions, mask works, ideas,
processes, formulas, source and object codes, data, programs, other works of
authorship, cell lines, know-how, improvements, discoveries, developments,
designs and techniques (hereinafter collectively referred to as
"Inventions"); and (b) information regarding plans for research, development,
new products, marketing and selling, business plans, budgets and unpublished
financial statements, licenses, prices and costs, suppliers and customers;
and information regarding the skills and compensation of other employees of
the Company.
2. THIRD PARTY INFORMATION. I understand, in addition, that the
Company has received and in the future will receive from third parties
confidential or proprietary information ("Third Party Information") subject
to a duty on the Company's part to maintain the confidentiality of such
information and to use it only for certain limited purposes. During the term
of my employment and thereafter, I will hold Third Party Information in the
strictest confidence and will not disclose (to anyone other than Company
personnel who need to know such information in connection with their work for
the Company) or use, except in connection with my work for the Company, Third
Party Information unless expressly authorized by an officer of the Company in
writing.
3. ASSIGNMENT OF INVENTIONS.
3.1 ASSIGNMENT. I hereby assign to the Company all my right,
title and interest in and to any and all Inventions (and all Proprietary
Rights with respect thereto) whether or not patentable or registrable under
copyright or similar statutes, made or conceived or reduced to practice or
learned by me, either alone or jointly with others, during the period of my
employment with the Company. Inventions assigned to or as directed by the
Company by this
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paragraph 3 are hereinafter referred to as "Company Inventions." I recognize
that this Agreement does not require assignment of any invention which
qualifies fully for protection under Section 2870 of the California Labor
Code (hereinafter "Section 2870"), which provides as follows:
(1) Any provision in an employment agreement which provides that
an employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the
employer's equipment, supplies, facilities, or trade secret information
except for those inventions that either:
(A) Relate at the time of conception or reduction to practice
of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer.
(B) Result from any work performed by the employee for the
employer.
(2) To the extent a provision in an employment agreement purports
to require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (i), the provision is against the
public policy of this state and is unenforceable.
3.2 GOVERNMENT. I also assign to or as directed by the Company
all my right, title and interest in and to any and all Inventions, full title
to which is required to be in the United States by a contract between the
Company and the United States or any of its agencies.
3.3 WORKS FOR HIRE. I acknowledge that all original works of
authorship which are made by me (solely or jointly with others) within the
scope of my employment and which are protectable by copyright are "works made
for hire," as that term is defined in the United States Copyright Act (17
U.S.C., Section 101).
4. ENFORCEMENT OF PROPRIETARY RIGHTS. I will assist the Company in
every proper way to obtain and from time to time enforce United States and
foreign Proprietary Rights relating to Company Inventions in any and all
countries. To that end I will execute, verify and deliver such documents and
perform such other acts (including appearances as a witness) as the Company
may reasonably request for use in applying for, obtaining, perfecting,
evidencing, sustaining and enforcing such Proprietary Rights and the
assignment thereof. In addition, I will execute, verify and deliver
assignments of such Proprietary Rights to the Company or its designee. My
obligation to assist the Company with respect to Proprietary Rights relating
to such Company Inventions in any and all countries shall continue beyond the
termination of my employment, but the Company shall compensate me at a
reasonable rate after my termination for the time actually spent by me at the
Company's request on such assistance.
In the event the Company is unable for any reason, after reasonable
effort, to secure my signature on any document needed in connection with the
actions specified in the preceding paragraph, I hereby irrevocably designate
and appoint the Company and its duly authorized officers and agents as my
agent and attorney in fact, which appointment is coupled with an interest, to
act for and in my behalf to execute, verify and file any such documents and
to do all
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other lawfully permitted acts to further the purposes of the preceding
paragraph thereon with the same legal force and effect as if executed by me.
I hereby waive and quitclaim to the Company any and all claims, of any nature
whatsoever, which I now or may hereafter have for infringement of any
Proprietary Rights assigned hereunder to the Company.
5. OBLIGATION TO KEEP COMPANY INFORMED. During the period of my
employment and for six (6) months after termination of my employment with the
Company, I will promptly disclose to the Company fully and in writing and
will hold in trust for the sole right and benefit of the Company any and all
Inventions authored, conceived or reduced to practice by me, either alone or
jointly with others. In addition, after termination of my employment, I will
promptly disclose to the Company all patent applications filed by me or on my
behalf within a year after termination of employment. At the time of each
such disclosure, I will advise the Company in writing of any Inventions that
I believe fully qualify for protection under Section 2870; and I will at that
time provide to the Company in writing all evidence necessary to substantiate
that belief. I understand that the Company will keep in confidence and will
not disclose to third parties without my consent any proprietary information
disclosed in writing to the Company pursuant to this Agreement relating to
Inventions that qualify fully for protection under the provisions of Section
2870. I will preserve the confidentiality of any Invention that does not
fully qualify for protection under Section 2870. I agree to keep and
maintain adequate and current records (in the form of notes, sketches,
drawings and in any other form that may be required by the Company) of all
Proprietary Information developed by me and all Inventions made by me during
the period of my employment at the Company, which records shall be available
to an remain the sole property of the Company at all times.
6. PRIOR INVENTIONS. Inventions, if any, patented or unpatented,
which I made prior to the commencement of my employment with the Company are
excluded from the scope of this Agreement. To preclude any possible
uncertainty, I have set forth on Exhibit A attached hereto a complete
disclosure of all Inventions that I have, alone or jointly with others,
conceived, developed or reduced to practice or caused to be conceived,
developed or reduced to practice prior to the commencement of my employment
with the Company, that I consider to be my property or the property of third
parties and that I wish to have excluded from the scope of this Agreement.
If disclosure of any such Invention on Exhibit A would cause me to violate
any prior confidentiality agreement, I understand that I am not to disclose
such Inventions on Exhibit A. Instead, I am to disclose in the applicable
space on Exhibit A, only a cursory name for each such Invention, a listing of
the party(s) to whom it belongs and the fact that full disclosure as to such
Invention has not been made for that reason.
7. ADDITIONAL ACTIVITIES. I agree that during the period of my
employment by the Company I will not, without the Company's express written
consent, engage in any employment or business activity other than for the
Company. As further assurance that I will not improperly use or disclose any
Proprietary Information of the Company, I agree that, for the period of my
employment by the Company and for one (l) year after the date of termination
of my employment by the Company, I will not (i) solicit or induce any
employee of the Company to leave the employ of the Company or (ii) solicit
the business of any customer of the Company (other than, prior to termination
of my employment, on behalf of the Company and, after termination of my
employment, with respect to products or services of a type not supplied by
the Company).
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If any restriction set forth in this Section is found by any court
of competent jurisdiction to be unenforceable because it extends for too long
a period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend only over the maximum
period of time, range of activities or geographic area as to which it may be
enforceable.
8. NO IMPROPER USE OF MATERIALS. During my employment by the Company
I will not improperly use or disclose any confidential information or trade
secrets, if any, of any former employer or any other person to whom I have an
obligation of confidentiality, and I will not bring onto the premises of the
Company any unpublished documents or any property belonging to any former
employer or any other person to whom I have an obligation of confidentiality
unless previously and specifically consented to in writing by that former
employer or person. I will use in the performance of my duties only
information which is generally known and used by persons with training and
experience comparable to my own, which is common knowledge in the industry or
otherwise legally in the public domain, or which is otherwise provided or
developed by the Company or by me while employed by the Company.
9. NO CONFLICTING OBLIGATION. I represent that my performance of all
the terms of this Agreement and as an employee of the Company does not and
will not breach any agreement or obligation of mine relating to any time
prior to my employment by the Company. I have not entered into, and I agree
I will not enter into, any agreement either written or oral in conflict
herewith.
10. RETURN OF COMPANY DOCUMENTS. When I leave the employ of the
Company, I will deliver to the Company any and all drawings, notes,
memoranda, specifications, devices, formulas, molecules, cells and documents,
together with all copies thereof, and any other material containing or
disclosing any Company Inventions, Third Party Information or Proprietary
Information of the Company, whether kept at the Company, home or elsewhere.
I further agree that any property situated on the Company's premises and
owned by the Company, including disks and other storage media, filing
cabinets or other work areas, is subject to inspection by Company personnel
at any time with or without notice. Prior to leaving, I will cooperate with
the Company in completing and signing the Company's termination statement for
technical and management personnel confirming the above and my obligations
under this Agreement.
11. LAW AND REMEDIES. I understand that the unauthorized taking of the
Company's trade secrets (i) could result in civil liability under California
Civil Code Section 3426, and that, if willful, could result in an award for
triple the amount of the Company's damages and attorneys' fees; and (ii) is a
crime under California Penal Code Section 499(c), punishable by imprisonment
for a time not exceeding one year, or by a fine not exceeding five thousand
dollars ($5,000), or by both. Because my services are personal and unique
and because I may have access to and become acquainted with the Proprietary
Information of the Company, the Company shall have the right to enforce this
Agreement and any of its provisions by injunction, specific performance or
other equitable relief, without bond and without prejudice to any other
rights and remedies that the Company may have for a breach of this Agreement.
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12. NOTICES. Any notices required or permitted hereunder shall be
given to the appropriate party at the address specified below or at such
other address as the party shall specify in writing. Such notice shall be
deemed given upon personal delivery to the appropriate address or if sent by
certified or registered mail, three days after the date of mailing.
13 GENERAL PROVISIONS.
13.1 GOVERNING LAW. This Agreement will be governed by and
construed according to the laws of the State of California without respect to
its choice of law provisions.
13.2 ENTIRE AGREEMENT. This Agreement is the final, complete and
exclusive agreement of the parties with respect to the subject matter hereof
and supersedes and merges all prior discussions between us. No modification
of or amendment to this Agreement, nor any waiver of any rights under this
Agreement, will be effective unless in writing and signed by the party to be
charged therewith. Any subsequent change or changes in my duties, salary or
compensation will not affect the validity or scope of this Agreement. As
used in this Agreement, the period of my employment includes any time during
which I may be retained by the Company as a consultant.
13.3 SEVERABILITY. If one or more of the provisions in this
Agreement are deemed unenforceable by law, then such provision will be deemed
stricken from this Agreement and the remaining provisions will continue in
full force and effect.
13.4 SUCCESSORS AND ASSIGNS. This Agreement will be binding upon
my heirs, executors, administrators and other legal representatives and will
be for the benefit of the Company, its successors, and its assigns.
13.5 SURVIVAL. The provisions of this Agreement shall survive the
termination of my employment and the assignment of this Agreement by the
Company to any successor in interest or other assignee.
13.6 EMPLOYMENT. I agree and understand that nothing in this
Agreement shall confer any right with respect to continuation of my
employment by the Company, nor shall it interfere in any way with my right or
the Company's right to terminate my employment at any time, with or without
cause.
13.7 WAIVER. No waiver by the Company of any breach of this
Agreement shall be a waiver of any preceding or succeeding breach. No waiver
by the Company of any right under this Agreement shall be construed as a
waiver of any other right. The Company shall not be required to give notice
to enforce strict adherence to all terms of this Agreement.
This Agreement shall be effective as of the first day of my employment
with the Company, namely: January 7, 1999.
I UNDERSTAND THAT THIS AGREEMENT AFFECTS MY RIGHTS TO INVENTIONS I MAKE
DURING MY EMPLOYMENT, AND RESTRICTS MY RIGHT TO DISCLOSE OR USE THE COMPANY'S
CONFIDENTIAL INFORMATION DURING OR SUBSEQUENT TO MY EMPLOYMENT.
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I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE
COMPLETELY FILLED OUT EXHIBIT A TO THIS AGREEMENT.
/s/ Richard M. Beyer
-------------------------------------
RICHARD M. BEYER
Address:
13503 Fremont Road
Los Altos Hills, CA 94022
ACCEPTED AND AGREED TO:
FVC.COM, INC.
By: /s/ Ralph K. Ungermann
------------------------------
RALPH K. UNGERMANN,
Chairman of the Board
Address: FVC.COM, Inc.
3393 Octavius Drive, Suite 102
Santa Clara, CA 95054
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EXHIBIT A.2
FVC.COM, Inc.
3393 Octavius Drive, Suite 102
Santa Clara, CA 95054
Gentlemen:
1. Except as noted in Section 2 below, the following is a complete
disclosure of all inventions or improvements relevant to the subject matter
of my employment by FVC.COM, Inc. (the "Company") that have been made or
conceived or first reduced to practice by me alone or jointly with others
prior to my engagement by the Company:
No inventions or improvements.
See below:
----------------------------------------------------------------------
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Additional sheets attached.
2. Due to a prior confidentiality agreement, I cannot complete the
disclosure under Section 1 above with respect to inventions or improvements
generally listed below, the proprietary rights and duty of confidentiality
with respect to which I owe to the following party(s):
INVENTION OR IMPROVEMENT PARTY(S) RELATIONSHIP
1. ------------------------------ ----------- ----------------------
2. ------------------------------ ----------- ----------------------
3. ------------------------------ ----------- ----------------------
Additional sheets attached.
3. I propose to bring to my employment the following devices,
materials and documents of a former employer or other person to whom I have
an obligation of confidentiality that are not generally available to the
public, which materials and documents may be used in my employment pursuant
to the express written authorization of my former employer or such other
person (a copy of which is attached hereto):
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No material.
See below:
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----------------------------------------------------------------------
Additional sheets attached.
Effective as of January 7, 1999.
Very truly yours,
/s/ Richard M. Beyer
---------------------------------------
Richard M. Beyer
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EXHIBIT B
FVC.COM, INC.
EMPLOYEE AGREEMENT AND RELEASE
I UNDERSTAND AND AGREE COMPLETELY TO THE TERMS SET FORTH IN THE
FOREGOING AGREEMENT.
I hereby confirm my obligations under the Company's standard form of
proprietary information agreement.
I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A general release does not
extend to claims which the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if known by him must have
materially affected his settlement with the debtor." I hereby expressly waive
and relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to my release of any claims I may
have against the Company.
Except as otherwise set forth in this Agreement, I hereby release,
acquit and forever discharge the Company, its parents and subsidiaries, and
their officers, directors, agents, servants, employees, shareholders,
successors, assigns and affiliates, of and from any and all claims,
liabilities, demands, causes of action, costs, expenses, attorneys fees,
damages, indemnities and obligations of every kind and nature, in law,
equity, or otherwise, known and unknown, suspected and unsuspected, disclosed
and undisclosed (other than any claim for indemnification I may have as a
result of any third party action against me based on my employment with the
Company), arising out of or in any way related to agreements, events, acts or
conduct at any time prior to and including the Effective Date of this
Agreement, including but not limited to: all such claims and demands directly
or indirectly arising out of or in any way connected with my employment with
the Company or the termination of that employment, including but not limited
to, claims of intentional and negligent infliction of emotional distress, any
and all tort claims for personal injury, claims or demands related to salary,
bonuses, commissions, stock, stock options, or any other ownership interests
in the Company, vacation pay, fringe benefits, expense reimbursements,
severance pay, or any other form of compensation; claims pursuant to any
federal, state or local law or cause of action including, but not limited to,
the federal Civil Rights Act of 1964, as amended; the federal Age
Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal
Americans with Disabilities Act of 1990; the California Fair Employment and
Housing Act, as amended; tort law; contract law; wrongful discharge;
discrimination; fraud; defamation; emotional distress; and breach of the
implied covenant of good faith and fair dealing; provided, however, that
nothing in this paragraph shall be construed in any way to release the
Company from its obligation to indemnify you pursuant to the Company's
Indemnification Agreement and to provide you with continued coverage under
the Company's directors and officers liability insurance policy to the same
extent that it has provided such coverage to previously departed officers and
directors of the Company.
I acknowledge that I am knowingly and voluntarily waiving and releasing
any rights I may have under ADEA. I also acknowledge that the consideration
given for the waiver and release in the preceding paragraph hereof is in
addition to anything of value to which I was
1
<PAGE>
already entitled. I further acknowledge that I have been advised by this
writing, as required by the ADEA, that: (A) my waiver and release do not
apply to any rights or claims that may arise after the Effective Date of this
Agreement; (B) I have the right to consult with an attorney prior to
executing this Agreement; (c) I have twenty-one (21) days to consider this
Agreement (although I may choose to voluntarily execute this Agreement
earlier); (D) I have seven (7) days following the execution of this Agreement
by the parties to revoke the Agreement; and (E) this Agreement shall not be
effective until the date upon which the revocation period has expired, which
shall be the eighth day after this Agreement is executed by me, provided that
the Company has also executed this Agreement by that date ("Effective Date").
By: /s/ Richard M. Beyer
----------------------------------
Richard M. Beyer
Date: December 14, 1998
---------------------------------
2
<PAGE>
EXHIBIT 10.39
AMENDED AND RESTATED PROMISSORY NOTE
$349,124.66 DECEMBER 16, 1998
THIS AMENDED AND RESTATED PROMISSORY NOTE dated as of December 16, 1998,
is entered into by and between FVC.COM, INC., a Delaware corporation (the
"COMPANY"), and Allwyn Sequeira (the "MAKER") ("NOTE").
The Company and the Maker have entered into promissory notes dated
August 25, 1998, in the original principal amount of $1,239,124.66, dated
August 25, 1998, in the original principal amount of $940,000 and dated
August 26, 1998, in the original principal amount of $299,124.66, pursuant to
which the Company extended to the Maker certain sums of money (the "ORIGINAL
NOTES"). The Company and the Maker desire to amend and restate the Original
Notes in accordance with the terms of this Note.
FOR VALUE RECEIVED, the Maker hereby unconditionally promises to pay to
the order of the Company, at Santa Clara, California, or at such other place
as the holder hereof may designate in writing, in lawful money of the United
States of America and in immediately available funds, the principal sum of
Three Hundred Forty-Nine Thousand One Hundred Twenty-Four Dollars and
Sixty-Six Cents ($349,124.66) together with interest accrued from August 26,
1998 on the unpaid principal at the rate of 7.0% per annum, or the maximum
rate permissible by law (which under the laws of the State of California
shall be deemed to be the laws relating to permissible rates of interest on
commercial loans), whichever is less, as follows:
The outstanding principal and interest hereunder shall be due and
payable in full on June 30, 1999, and interest shall be calculated on the
basis of a 360-day year for the actual number of days elapsed.
If the undersigned fails to pay any of the principal and accrued
interest when due, the Company, at its sole option, shall have the right to
accelerate this Note, in which event the entire principal balance and all
accrued interest shall become immediately due and payable, and immediately
collectible by the Company pursuant to applicable law.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the repayment of the principal.
The full amount of this Note is secured by a pledge of shares of Common
Stock of the Company, and is subject to all of the terms and provisions of
the Pledge Agreement dated of even date herewith between the undersigned and
the Company.
The undersigned hereby waives presentment, protest and notice of
protest, demand for payment, notice of dishonor and all other notices or
demands in connection with the delivery, acceptance, performance, default or
endorsement of this Note.
1.
<PAGE>
The holder hereof shall be entitled to recover, and the undersigned
agrees to pay when incurred, all costs and expenses of collection of this
Note, including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of California, excluding conflict
of laws principles that would cause the application of laws of any other
jurisdiction.
THE MAKER
/s/ Allwyn Sequeira
--------------------------------------
Allwyn Sequeira
FORM 2274
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (Nos. 333-51799, 333-62417 and 333-72533)
of FVC.COM, Inc. of our report dated April 5, 1999, except as to Note 12,
which is as of April 9, 1999, which appears on page F-1 of this Form 10-K.
PricewaterhouseCoopers LLP
San Jose, California
April 12, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF FVC.COM, INC. FOR THE YEAR ENDED DECEMBER
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 10,315
<SECURITIES> 16,433
<RECEIVABLES> 11,389
<ALLOWANCES> 168
<INVENTORY> 6,053
<CURRENT-ASSETS> 45,263
<PP&E> 4,436
<DEPRECIATION> 2,036
<TOTAL-ASSETS> 51,165
<CURRENT-LIABILITIES> 12,324
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 38,597
<TOTAL-LIABILITY-AND-EQUITY> 51,165
<SALES> 37,251
<TOTAL-REVENUES> 37,251
<CGS> 19,220
<TOTAL-COSTS> 45,225
<OTHER-EXPENSES> 26,005
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,057
<INCOME-PRETAX> (8,016)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,016)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,016)
<EPS-PRIMARY> (0.69)
<EPS-DILUTED> (0.69)
</TABLE>
