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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 18, 1998
REGISTRATION NO. 333-48107
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
COM21, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7370 94-3201698
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (INTERNAL REVENUE SERVICE
CLASSIFICATION CODE NUMBER) EMPLOYER IDENTIFICATION NUMBER)
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750 TASMAN DRIVE
MILPITAS, CALIFORNIA 95035
(408) 953-9100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PETER D. FENNER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
COM21, INC.
750 TASMAN DRIVE
MILPITAS, CALIFORNIA 95035
(408) 953-9100
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
COPIES TO:
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THOMAS W. KELLERMAN, ESQ. JEFFREY D. SAPER, ESQ.
ARMANDO CASTRO, ESQ. PATRICK J. SCHULTHEIS, ESQ.
ELIZABETH A. R. YEE, ESQ. ROBERT G. DAY, ESQ.
PETER S. BUCKLAND, ESQ. ANIL P. PATEL, ESQ.
BROBECK, PHLEGER & HARRISON LLP WILSON SONSINI GOODRICH & ROSATI
TWO EMBARCADERO PLACE PROFESSIONAL CORPORATION
2200 GENG ROAD 650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94303 PALO ALTO, CALIFORNIA 94304
(650) 424-0160 (650) 493-9300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, please check the
following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A) MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MAY 18, 1998
COM21 LOGO
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4,000,000 SHARES
COMMON STOCK
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All of the 4,000,000 shares of Common Stock, par value $0.001 per share ("Common
Stock"), offered hereby (the "Offering") are being sold by Com21, Inc. (the
"Company"). Prior to this Offering, there has been no public market for the
Common Stock. It is currently estimated that the initial public offering price
will be between $9.00 and $11.00 per share. See "Underwriting" for a discussion
of the factors considered in determining the initial public offering price. The
Company has applied to have the Common Stock approved for quotation on the
Nasdaq National Market under the symbol "CMTO."
FOR INFORMATION CONCERNING CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" COMMENCING ON PAGE 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share $ $ $
Total(3) $ $ $
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses estimated at $1,050,000, payable by the Company.
(3) The Company has granted the Underwriters an option, exercisable within
thirty (30) days of the date hereof, to purchase up to 600,000 additional
shares of Common Stock solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
The shares of Common Stock offered hereby are offered by the Underwriters,
subject to prior sale, when, as and if delivered to and accepted by them, and
subject to approval of certain legal matters by counsel and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. Delivery of the shares of
Common Stock offered hereby to the Underwriters is expected to be made in New
York, New York on or about , 1998.
DEUTSCHE MORGAN GRENFELL
MERRILL LYNCH & CO.
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
The date of this Prospectus is , 1998.
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COM21 LOGO
Except as set forth in the financial statements or as otherwise specified
herein, all information in this Prospectus (i) assumes no exercise of the
Underwriters' over-allotment option, (ii) reflects the 1-for-2 reverse split of
the outstanding shares of Common Stock and Preferred Stock, effected May 13,
1998 and (iii) reflects the conversion of all of the Company's outstanding
shares of Preferred Stock into shares of Common Stock upon the effectiveness of
the registration statement related to the Offering made hereby. See
"Underwriting" and "Description of Capital Stock."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS OR OTHERWISE. SUCH ACTIVITIES, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
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PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and Financial Statements and
Notes thereto appearing elsewhere in this Prospectus.
THE COMPANY
Com21, Inc. designs, develops, markets and sells value-added, high-speed
communications solutions for the broadband access market. The Company's ComUNITY
Access system enables cable operators to provide high-speed, cost-effective
Internet access to corporate telecommuter, small office/home office ("SOHO") and
residential users in the U.S. and internationally, and enables them to address
the distinct price, performance, security and other needs of these different
end-user groups. Com21's products include headend equipment, subscriber cable
modems, network management software and noise containment technologies. Cable
operators can use the Company's ComUNITY Access system to increase revenue
opportunities by offering up to 16 different operator-defined transmission rates
at varying price points to multiple markets. The Company's system is designed to
be deployed on a limited capital budget and can be upgraded and scaled as
subscriber penetration grows. The Company's system enables cable operators to
lower their ongoing cost of ownership through cost-effective noise management
and remote cable modem upgrades. The ComUNITY Access system also supports future
features and service offerings, such as desktop video conferencing and cable
telephony applications. The Company is developing an MCNS-compliant modem for
the North American cable market intended primarily to address the basic
requirements of the residential end-user base, which typically tolerates lower
performance and security than the business user. The Company is working with
Cisco to develop interoperable MCNS-compliant products that are expected to be
commercially available in the second half of 1998. In 1997, the Company shipped
approximately 170 ComCONTROLLER headends and more than 12,000 ComPORT modems for
use in 61 locations worldwide. In the North American market, the Company sells
directly to cable operators and has sold systems to major operators such as
Charter Communications, Prime Cable and TCI. Internationally, the Company sells
to systems integrators, including Philips and Siemens, which in turn sell to
cable operators.
The Company was incorporated in Delaware on June 29, 1992. The Company's
principal executive offices are located at 750 Tasman Drive, Milpitas,
California 95035, and its telephone number at that address is (408) 953-9100.
THE OFFERING
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Common Stock offered........................................ 4,000,000 shares
Common Stock to be outstanding after the Offering(1)........ 16,764,512 shares
Use of proceeds............................................. For general corporate purposes, including
working capital, product development and
capital expenditures. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol...................... CMTO
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SUMMARY FINANCIAL DATA
(In thousands)
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THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
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1995 1996 1997 1997 1998
------- -------- ------- ------- --------
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STATEMENTS OF OPERATIONS DATA:
Total revenues...................................... $ -- $ 1,000 $15,649 $ 500 $ 7,020
Gross profit........................................ -- 1,000 7,277 500 2,344
Total operating expenses............................ 6,922 15,913 20,540 4,365 6,661
Loss from operations................................ (6,922) (14,913) (13,263) (3,865) (4,317)
Net loss............................................ (6,666) (14,471) (13,055) (3,828) (4,232)
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MARCH 31, 1998
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ACTUAL AS ADJUSTED(2)
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BALANCE SHEETS DATA:
Cash and cash equivalents................................... $14,082 $50,232
Working capital............................................. 15,508 51,658
Total assets................................................ 28,377 64,527
Long-term obligations....................................... 1,441 1,441
Total stockholders' equity.................................. 19,121 55,271
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(1) Based on the number of shares outstanding as of March 31, 1998 and the
automatic conversion of all outstanding shares of Convertible Preferred
Stock into Common Stock. Excludes: (i) 1,420,967 shares of Common Stock
issuable upon exercise of stock options outstanding under the Company's 1998
Stock Incentive Plan at a weighted average exercise price of $2.64 per
share; (ii) 1,102,543 shares of Common Stock reserved for future issuance
under the 1998 Stock Incentive Plan (which includes a 500,000-share increase
in the 1998 Plan approved on April 22, 1998 and from which reserve options
to purchase 505,250 shares at $9.00 per share were granted on April 22,
1998); (iii) 250,000 shares of Common Stock reserved for future issuance
under the 1998 Employee Stock Purchase Plan; and (iv) 46,286 shares of
Common Stock issuable upon the exercise of outstanding warrants at a
weighted average exercise price of $7.76 per share. See "Capitalization,"
"Management -- Option Grants Under the 1998 Stock Incentive Plan,"
"Management -- Benefit Plans" and Notes 6 and 11 of Notes to Financial
Statements.
(2) Adjusted to reflect the sale of 4,000,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $10.00 per
share and after deducting the estimated underwriting discount and the
estimated offering expenses. See "Use of Proceeds" and "Capitalization."
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THE COMPANY
Com21, Inc. (the "Company" or "Com21") designs, develops, markets and sells
value-added, high-speed communications solutions for the broadband access
market. The Company's ComUNITY Access system enables cable operators to provide
high-speed, cost-effective Internet access to corporate telecommuter, small
office/home office ("SOHO") and residential users in the U.S. and
internationally, and enables them to address the distinct price, performance,
security and other needs of these different end-user groups. Com21's products
include headend equipment, subscriber cable modems, network management software
and noise containment technologies.
The volume of data traffic across communications networks has increased
significantly over the last several years with the growth of network-based
communications and electronic commerce. Corporate telecommuters, SOHO and
residential consumer users are increasingly accessing data networks, primarily
the Internet, to communicate, collect and publish information and conduct
business. With the increased dependence on communications networks and the
growing demand for multimedia and other bandwidth-intensive information, slow
transmission speeds have become less tolerable and can negatively affect
business productivity.
Typically, the limiting factor in overall data transmission performance is
the "last mile" of the communications infrastructure. Today there are multiple
technologies that attempt to address the need for digital high-speed last mile
connections, and while each of these technologies has certain advantages, the
cable infrastructure currently provides the highest-available absolute speed,
with peak data transmission speeds of 30 megabits per second ("Mbps") and
"always on" availability providing instant access. Cable operators have already
begun to address the burgeoning market for cable modem Internet service.
Industry sources estimate that there are currently more than 100 commercial
deployments worldwide, including sites in the U.S., Argentina, Australia,
Canada, France, The Netherlands and Switzerland. In the North American cable
market, leading cable operators have developed the Multimedia Cable Network
System ("MCNS") specification to define interoperability standards and to
accelerate the mass market residential adoption of cable modems.
The Company's principal strategy is to provide products that enhance the
value of cable operators' cable modem deployments over the life of the
investment. Cable operators can use the Company's ComUNITY Access system to
increase revenue opportunities by offering up to 16 different operator-defined
transmission rates at varying price points to multiple markets. In a typical
flat-rate cable modem system, all subscribers are charged the same price,
regardless of individual bandwidth service and pricing requirements, which
results in lost revenue to the cable operators. The Company's system is designed
to be deployed on a limited capital budget and can be upgraded and scaled as
subscriber penetration grows. The Company's system enables cable operators to
lower their ongoing cost of ownership through cost-effective noise management
and remote cable modem upgrades.
In addition to the high-speed, always-on and cost advantages of the
ComUNITY Access system, the system also supports future features and service
offerings, such as desktop video conferencing, cable telephony applications and
parallel port modem connectivity. The Company is developing an interoperable
MCNS-compliant modem for the North American cable market. The MCNS specification
is intended to address the basic requirements of the residential end-user base,
which typically tolerates lower performance and security than the business user.
The Company is leveraging its expertise in radio frequency ("RF") and noise
management technology in its MCNS-compliant cable modem and is working with
Cisco Systems, Inc. ("Cisco") to develop interoperable MCNS products that are
expected to be commercially available in the second half of 1998.
In 1997, the Company shipped approximately 170 ComCONTROLLER headends and
more than 12,000 ComPORT modems for use in 61 locations worldwide. In the North
American market, the Company sells directly to cable operators and has sold
systems to major operators such as Charter Communications, Inc. ("Charter"),
Prime Cable and TCI.Net, a subsidiary of Tele-Communications, Inc. ("TCI").
Internationally, the Company sells to systems integrators, including Philips
Broadband Networks ("Philips"), a division of Philips Electronics N.V. , and
Siemens AG ("Siemens"), which in turn sell to cable operators.
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RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. The following factors, in addition to the other information
contained in this Prospectus, should be carefully considered in evaluating the
Company and its business before purchasing the Common Stock offered hereby. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed below and in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as those discussed elsewhere in this
Prospectus.
LIMITED OPERATING HISTORY; HISTORY OF LOSSES; NO ASSURANCE OF
PROFITABILITY. The Company did not commence product shipments until April 1997,
and, as a result, has a limited operating history upon which investors may
evaluate the Company and its prospects. The Company has incurred net losses
since its inception and expects to continue to operate at a loss through at
least fiscal 1999. As of March 31, 1998, the Company had an accumulated deficit
of approximately $39.6 million. Because the market for the Company's products is
new and evolving, the Company cannot accurately predict the future growth rate,
if any, or the ultimate size of the data-over-cable market. To achieve
profitable operations on a continuing basis, the Company must successfully
design, develop, test, manufacture, introduce, market and distribute its
products on a broad commercial basis. There can be no assurance that the Company
will ever achieve profitability. The Company's ability to generate future
revenues will depend on a number of factors, many of which are beyond the
Company's control. Such factors include the rate at which cable operators
upgrade their cable infrastructures, the ability of the Company and cable
operators to coordinate timely and effective marketing campaigns with the
availability of such upgrades, the success of the cable operators in marketing
data-over-cable services and the Company's modems to subscribers, the prices
that the cable operators set for data transmission installation service and the
installation of subscriber site equipment, and the rate at which the cable
operators can complete the installations required to initiate service for new
subscribers. As a result of the foregoing factors, the Company is unable to
forecast its revenues or the rate at which the Company's systems will be adopted
by cable operators with any degree of accuracy. Accordingly, there can be no
assurance that the Company will ever achieve, or be able to sustain,
profitability. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS. The Company's operating
results are likely to fluctuate significantly in the future on a quarterly and
annual basis as a result of a variety of factors, many of which are beyond the
Company's control. Factors that will influence the Company's operating results
include: (i) the Company's ability to retain existing cable operator customers,
to attract new customers at a steady rate, to maintain customer satisfaction and
to obtain significant orders; (ii) the timing of upgrades of cable plants to
hybrid fiber-coaxial ("HFC") and the ability and willingness of cable operators
to deploy cable modems and offer either one-way or two-way data transmission
service; (iii) the Company's ability to manage inventory and fulfillment
operations; (iv) the announcement or introduction of new services and products
by the Company and its competitors and the timely introduction of MCNS-compliant
products by the Company; (v) the Company's product mix; (vi) price competition
or pricing changes in the Internet, cable and telecommunication industries,
pricing of the Company's products and its ability to reduce to the costs of its
products over time; (vii) the level of use of the Internet as a replacement for
private wide area networks; (viii) the Company's ability to develop new products
in a timely and cost-effective manner; (ix) the amount and timing of operating
costs and capital expenditures relating to expansion of the Company's business;
operating results and infrastructure; (x) governmental regulation; and (xi)
general economic conditions and economic conditions specific to the cable and
electronic data transmission industries. In recent quarters the Company has
recognized a substantial portion of its revenues in the last month of each
quarter, and, in particular, within the last two weeks of that month. A
significant portion of the Company's expenses are fixed in advance based in
large part on future revenue forecasts. If revenues are below expectations in
any given period, the adverse impact of such a shortfall may be magnified by
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the Company's inability to adjust spending to compensate for the shortfall.
Therefore, a shortfall in revenues from those expected would have a material
adverse effect on the Company's business, operating results and financial
condition. In addition, the Company plans to increase operating expenses to fund
additional research and development, sales and marketing and general and
administrative activities. To the extent that these expenses are not accompanied
by an increase in revenues, the Company's business, operating results and
financial condition would be materially adversely affected.
The Company anticipates that it will experience decreases in the average
selling price of its cable modem products and that it may experience declines in
the average selling prices of its other products. Any price decline that is not
offset by a decline in the cost of the product could have an adverse effect on
the Company's gross margin. The sales mix of the Company's headend equipment and
modems also affects its gross margin. The Company's modems have a lower gross
margin than does the Company's headend equipment. The Company anticipates that
its sales mix will be increasingly weighted toward lower margin modems in the
foreseeable future, as headends become more broadly deployed and as
MCNS-compliant products are deployed by cable operators. As a result, the
Company expects to experience continued downward pressure on its gross margin.
Due to all of the foregoing factors, it is likely that the Company's operating
results in one or more future periods will fail to meet or exceed the
expectations of securities analysts or investors. In such event, the trading
price of the Common Stock would likely be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
EARLY STAGE OF MARKET FOR CABLE MODEMS; UNPROVEN ACCEPTANCE OF THE
COMPANY'S PRODUCTS. The Company's success will depend on the timely adoption of
its products by cable operators and end-users. The market for the Company's
products has only recently begun to develop, is rapidly evolving and is
characterized by an increasing number of market entrants that have introduced or
developed, or are in the process of introducing or developing, cable modem
systems, including headend equipment, cable modems and system management
software, that compete with the Company's products. The Company did not commence
product shipments until April 1997. The Company shipped its ComUNITY Access
System for commercial deployment to nine cable operator customers in the second
quarter of 1997, seven cable operator customers in the third quarter of 1997 and
two cable operator customers in the first quarter of 1998. Critical issues
concerning the use of cable modems, including security, reliability, cost, ease
of deployment and administration, and quality of service, remain largely
unresolved and may adversely affect the Company's growth and the market
acceptance of its products. Because the market for the Company's products is new
and evolving, the Company cannot accurately predict the future growth rate, if
any, or the ultimate size of the cable modem market. If the market fails to
develop, or develops more slowly than expected, the Company's business,
operating results and financial condition would be materially adversely
affected. Some cable operators will, prior to purchasing the Company's products,
require that their internal technical personnel certify the Company's products
for integration into their systems. There can be no assurance that any cable
operator will certify the Company's products in a timely manner, if at all, or
that the Company, in order for its products to be certified by any cable
operator, will not have to make significant modifications to its products.
Failure to become certified could render the Company unable to deploy its
products in timely manner, or at all, with one or more cable operators. Any or
all of these possibilities could have a material adverse effect on the Company's
business, operating results and financial condition. There can be no assurance
that the market for cable modems will develop as the Company anticipates, or
that the Company will be able to compete with new entrants to the market should
the market develop. There can be no assurance that the Company's products will
achieve acceptance in their markets, and the failure of the Company's products
to achieve such market acceptance would have a material adverse effect upon the
Company's business, operating results and financial condition.
DEPENDENCE ON CABLE OPERATORS. The Company depends on cable operators to
purchase its headend equipment and cable modems and to market data transmission
service to end-users. Cable
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operators have a limited number of programming channels over which they can
offer services, and there can be no assurance that they will choose to provide
data transmission services to their subscribers. Even if a cable operator
chooses to provide data transmission services, there can be no assurance that it
would choose the Company's products. The future success of services providing
data transmission over cable will depend, in large part, upon the ability of
cable systems to support two-way communications. While many cable operators are
in the process of upgrading, or have announced their intention to upgrade, their
cable infrastructures to HFC to provide increased quality and speed of
transmission and, in certain cases, two-way transmission capabilities, many
cable operators, particularly cable operators in the U.S., have delayed their
planned upgrades. Cable operators have limited experience with such upgrades,
and investments in upgrades place a significant strain on the financial,
managerial, operational and other resources of the cable operators, most of
which are already highly leveraged and face intense competition from telephone
companies, satellite television and broadband wireless system operators. Cable
operators may not have the capital required to upgrade their infrastructure or
to offer new services that require substantial start-up costs. As a result, it
is uncertain whether cable operators will upgrade to HFC or whether they will
offer additional services, such as Internet access in the near term, or at all.
After installation, the Company will be highly dependent on cable operators to
continue to maintain their cable infrastructure in such a manner that the
Company's products will operate at a consistently high performance level and
reliable environment. Accordingly, the success and future growth of the
Company's business will be subject to economic and other factors affecting the
cable television industry generally, particularly the industry's ability to
continue to finance the substantial capital expenditures necessary to use the
Company's products effectively.
Whenever cable operators wish to upgrade their cable plants from coaxial
cable to HFC, they are required to obtain certain city and county permits. There
can be no assurance that such permits will be obtained, or even if they are
obtained, that they will be obtained in a timely and cost-effective manner.
Further, cable operators must periodically renew their franchises with city or
county governments. As a condition of obtaining such renewal, the cable operator
may have to meet certain conditions imposed by the issuing jurisdiction. Meeting
such conditions may cause the cable operator to delay upgrades or the
implementation of data over cable services. The failure of cable operators to
complete these upgrades or implement these services in a timely and satisfactory
manner, or at all, would adversely affect the market for the Company's products.
Although the Company's commercial success depends on the successful and timely
completion of these infrastructure upgrades, cable operators are under no
obligation to upgrade systems or to roll out, market or promote the Company's
products. Any failure to upgrade or delay in upgrading could have a material
adverse effect on the Company's business, operating results and financial
condition.
COMPETING TECHNOLOGIES AND EVOLVING INDUSTRY STANDARDS. The market for
high-speed data transmission services is characterized by several competing
technologies that offer alternative solutions. Competitive technologies include
telco-related wireline technologies that utilize telephone copper twisted-pair
wiring, such as Integrated Services Digital Network ("ISDN") and digital
subscriber line ("DSL") implementations, as well as wireless technologies such
as local multipoint distribution service ("LMDS"), multichannel multipoint
distribution service ("MMDS") and direct broadcast satellite ("DBS"). In
addition, new modulation technologies, such as the synchronous code division
multiple access ("S-CDMA") technology being developed by one of the Company's
competitors, may become commercially available to address upstream noise in
cable plants. Significant market acceptance of alternative solutions for
high-speed data transmission could decrease the demand for the Company's
products if such alternatives are viewed as providing faster access, greater
reliability, increased cost-effectiveness or other advantages over cable
solutions. Because of the ubiquity of the telephone network infrastructure,
competition from telco-related solutions is expected to be intense. There can be
no assurance that cable modem technology will compete effectively against
wireline or wireless technologies in the market for high bandwidth access in the
local loop.
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The Company's headend equipment and cable modem products currently are not
interoperable with the headend equipment and modems of other suppliers of
broadband Internet access products, other than certain cable modems manufactured
by 3Com Corporation ("3Com"). As a result, potential customers who wish to
purchase broadband Internet access products from multiple suppliers may be
reluctant to purchase the Company's products. The emergence or evolution of
industry standards, either through adoption by official standards committees or
widespread use by cable operators or telcos, could require the Company to
redesign its products. The Company's products are not currently in full
compliance with the standards and developing specifications proposed by Digital
Audio Video Interactive Council ("DAVIC"), MCNS, Institute of Electrical and
Electronics Engineers, Inc. ("IEEE") or Internet Engineering Task Force
("IETF"), and other relevant standards bodies. The Company expects the MCNS
standard to achieve substantial market acceptance, and the Company is currently
developing MCNS-compliant products. If such standards become widespread and the
Company's products are not in compliance, the Company's customers and potential
customers may refuse to purchase the Company's products, which would materially
adversely affect its business, operating results and financial condition.
Moreover, different implementations of the same specification could potentially
slow deployment of the Company's products if such different implementations
cause the Company's products to fail to become interoperable with other
companies' products. The anticipated widespread adoption of the MCNS standard is
likely to cause increased price competition in the North American market.
Further, such adoption could result in lower sales of headend products by the
Company in the North American market. Any such increased price competition or
reduction in sales of headend products would result in downward pressure on the
Company's gross margin, which could have a material adverse effect on the
Company's business, operating results and financial condition.
The rapid development of new competing technologies and standards increases
the risk that current or new competitors could develop products that would
reduce the competitiveness of the Company's products. Market acceptance of new
technologies or the failure of the Company to develop and introduce new products
or enhancements directed at new industry standards could have a material adverse
effect on the Company's business, operating results and financial condition.
COMPETITION. The markets for the Company's products are intensely
competitive, rapidly evolving and subject to rapid technological change. The
principal competitive factors in this market include, or are likely to include,
product performance and features, reliability, technical support and service,
relationships with cable system operators and systems integrators, compliance
with industry standards, compatibility with the products of other suppliers,
sales and distribution interoperability, strength of brand name, price,
long-term cost of ownership to cable operators and general industry and economic
conditions. Many of the Company's current and potential competitors have longer
operating histories, greater name recognition and significantly greater
financial, technical, marketing and distribution resources than the Company.
Such competitors may undertake more extensive marketing campaigns, adopt more
aggressive pricing policies and devote substantially more resources to
developing new products than the Company. There can be no assurance that the
Company will be able to compete successfully against current or future
competitors or that competitive pressures faced by the Company will not
materially adversely affect the Company's business, operating results and
financial condition. In response to changes in the competitive environment, the
Company may make certain pricing, service, marketing or other strategic
decisions that could have a material adverse effect on the Company's business,
operating results or financial condition. There can be no assurance that the
Company's competitors will not develop enhancements to, or future generations
of, products that will offer price or performance superior to that of the
Company's products. The Company believes that the broad adoption of MCNS will
cause increased competition in the North American market, which is likely to
negatively affect the Company's gross margin. There can be no assurance that
competitors will not more quickly develop MCNS-compliant products than the
Company. Current customers of the Company that move to the MCNS platform could
choose alternative cable modem suppliers or choose to purchase MCNS-compliant
cable modems from multiple suppliers. Such competition could materially
adversely affect the Company's business, operating results and financial
condition.
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The Company's current and potential competitors include 3Com, Cisco, the
LANcity division of Bay Networks, Inc., Hybrid Networks, Inc. ("Hybrid"),
General Instrument Corporation, Motorola, Inc., Terayon Communication Systems
and Zenith Electronics Corporation. Some of these competitors have existing
relationships with many of the Company's prospective customers. There can be no
assurance that the Company will establish relationships with cable operators who
have existing relationships with those competitors, and failure to establish
such relationships could have a material adverse effect on the Company's
business, operating results and financial condition. In addition, the Company
anticipates that some large consumer electronics companies, such as Matsushita
Electronic Industrial Co., Ltd. (which markets products under the brand name
Panasonic)("Matsushita"), Sony Corp., Thomson Consumer Electronics International
S.A. ("Thomson") and Toshiba America, Inc., will likely introduce competitive
cable modem products in the future. As the MCNS specification is adopted for the
North American market, the distribution of cable modems may move into the retail
channel. If this occurs, the large consumer electronics companies could gain a
competitive advantage, due to their well-established retail distribution
capabilities. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competitive pressures
faced by the Company will not have a material adverse effect on the Company's
business, operating results and financial condition. See
"Business -- Competition."
LENGTHY SALES CYCLE. The sale of the Company's products typically involves
a significant technical evaluation and commitment of capital and other resources
by cable operators, with delays frequently associated with cable operators'
internal procedures to approve large capital expenditures, to engineer
deployment of new technologies within their networks and to test and accept new
technologies that affect key operations. For these and other reasons, the sales
cycle associated with the Company's products is typically lengthy, generally
lasting six to twelve months, and is subject to a number of significant risks,
including cable operators' budgetary constraints and internal acceptance
reviews, that are beyond the Company's control. The announcement and project
product introduction of MCNS-compliant products have already affected sales
cycles, as most domestic cable operators have chosen to delay large scale
deployment of cable modems until MCNS-compliant products are available. Because
of the lengthy sales cycle, if deployments forecasted for a specific cable
operator for a particular period are not realized in that period, the Company's
operating results for that period could be materially adversely affected.
NEED TO REDUCE COST OF MODEMS. Certain of the Company's competitors
currently offer modems at prices lower than those of the Company's modems.
Market acceptance of the Company's products, and the Company's future success,
will depend in significant part on the cost of its modems. The Company expects
that as headend equipment becomes more widely deployed, the price of modems and
other products will decline. In particular, Company believes that the adoption
of industry standards such as MCNS will cause increased price competition for
cable modems. However, there can be no assurance that the Company will be able
to reduce the cost of its modems sufficiently to enable it to compete with other
cable modem suppliers. If the Company is unable to reduce the cost of its cable
modems, its gross margin and profitability would be adversely affected. In order
to address ongoing competitive and pricing pressures, the Company will have to
reduce the cost of manufacturing its cable modems. The Company is dependent on
its manufacturers to secure components at favorable prices, and there can be no
assurance that additional volume purchase or manufacturing arrangements will be
available to the Company on terms that the Company considers acceptable, if at
all. To the extent that the Company enters into a high-volume or long-term
purchase or supply arrangement and subsequently decides that it cannot use the
products or services provided for in the agreement, the Company's business,
operating results and financial condition could be materially adversely
affected.
PATENTS AND PROPRIETARY RIGHTS; PATENT LITIGATION. The Company relies on a
combination of patent, copyright and trademark laws, and on trade secrets and
confidentiality provisions and other contractual provisions to protect its
proprietary rights. These measures afford only limited protection. The Company
currently has five issued U.S. patents and several pending patent applications.
There
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can be no assurance that the Company's means of protecting its proprietary
rights in the U.S. or abroad will be adequate or that competitors will not
independently develop similar technologies. The Company's future success will
depend in part on its ability to protect its proprietary rights to the
technologies used in its principal products. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy aspects
of the Company's products or to obtain and use trade secrets or other
information that the Company regards as proprietary. In addition, the laws of
some foreign countries do not protect the Company's proprietary rights as fully
as do the laws of the U.S. There can be no assurance that any issued patent will
preserve the Company's proprietary position, or that competitors or others will
not develop technologies similar to or superior to the Company's technology.
Failure of the Company to enforce and protect its intellectual property rights
could have a material adverse effect on the Company's business, operating
results and financial condition.
From time to time, third parties, including competitors of the Company,
have asserted patent, copyright and other intellectual property rights to
technologies that are important to the Company. The Company expects that it will
increasingly be subject to infringement claims as the number of products and
competitors in the cable modem market grows and the functionality of products
overlaps. In this regard, in 1997 the Company received a written notice from
Hybrid in which Hybrid claimed to have patent rights in certain cable modem
technology and requested that the Company review its own products in light of
Hybrid's alleged patent rights to U.S. Patent No. 5,586,121 (the "121 patent")
issued on December 17, 1996 and entitled "Asymmetric Hybrid Access System and
Method" and U.S. Patent No. 5,347,304 (the "304 patent") issued on September 13,
1994 and entitled "Remote Link Adapter for Use in TV Broadcast Data Transmission
Systems" (collectively, the "Hybrid patents"). The Company informed Hybrid that
it believes that the Company's products do not infringe any valid claim of the
Hybrid patents. In January 1998, Hybrid filed an action against the Company in
the U.S. District Court for the Eastern District of Virginia, accusing the
Company of willfully infringing the Hybrid patents, among other claims.
Subsequently, the Company filed suit for declaratory relief against Hybrid in
the U.S. District Court for the Northern District of California asserting that
it does not infringe the Hybrid patents and that the Hybrid patents are invalid.
The Company then filed a motion in the Virginia District Court to transfer the
action filed by Hybrid to the Northern District of California, and that motion
has been granted. Hybrid's complaint seeks injunctive relief and unspecified
damages, among other relief. Hybrid's complaint also identifies a pending
application for reissuance of the 304 patent to broaden the scope of its claims,
which the U.S. Patent and Trademark Office has allowed for reissuance with
respect to certain claims, and states that once the reissue application is
issued, it will be substituted for the 304 patent in the action. The Company has
received opinions of its patent counsel that the claims of the Hybrid patents,
including the claims currently set forth in Hybrid's 304 reissue patent
application, are either invalid or not infringed by the Company's products.
However, there can be no assurance that some or all of the Company's products
will not ultimately be determined to infringe the Hybrid patents, including the
304 patent as reissued, and the Company anticipates that Hybrid will continue to
pursue litigation with respect to these claims. The results of any litigation
matter are inherently uncertain. In the event of an adverse result in the Hybrid
litigation, or in any other litigation with third parties that could arise in
the future with respect to intellectual property rights relevant to the
Company's products, the Company could be required to pay substantial damages,
including treble damages if the Company is held to have willfully infringed, to
cease the manufacture, use and sale of infringing products, to expend
significant resources to develop non-infringing technology, or to obtain
licenses to the infringing technology. There can be no assurance that licenses
will be available from Hybrid, or any other third party that asserts
intellectual property claims against the Company, on commercially reasonable
terms, or at all. In addition, litigation frequently involves substantial
expenditures and can require significant management attention, even if the
Company ultimately prevails. Accordingly, there can be no assurance that the
Hybrid matter, or any other infringement claim or litigation against or by the
Company, will not have a material adverse effect on the Company's business,
operating results and financial condition.
Because of the early stage of this litigation, and because Hybrid has
sought unspecified damages, neither the ultimate outcome of this litigation nor
any costs and payments resulting from the litigation
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or any settlement can presently be determined. Accordingly, no provision for any
loss which may result from the Hybrid litigation has been recorded in the
accompanying financial statements. "See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business -- Intellectual
Property; Patent Litigation" and Note 11 to Notes to Financial Statements.
MANAGEMENT OF GROWTH. To fully exploit the market for its products and
services, the Company must rapidly execute its sales strategy and develop new
and enhanced products while managing anticipated growth by implementing
effective planning and operating processes. To manage its anticipated growth,
the Company must, among other things, continue to implement and improve its
operational, financial and management information systems, hire and train
additional qualified personnel, continue to expand and upgrade core technologies
and effectively manage multiple relationships with various customers, suppliers
and other third parties. The Company may in the future experience difficulties
meeting the demand for its products and services. The installation and use of
the Company's products requires training. If the Company is unable to provide
training and support for its products, the implementation process will be longer
and customer satisfaction may be lower. There can be no assurance that the
Company's systems, procedures or controls will be adequate to support the
Company's operations or that the Company's management will be able to achieve
the rapid execution necessary to exploit fully the market for the Company's
products and services. Any failure of the Company to manage its growth
effectively could have a material adverse effect on the Company's business,
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and Note 6 to Notes
to Financial Statements.
DEPENDENCE ON KEY PERSONNEL AND HIRING OF ADDITIONAL PERSONNEL. The
Company's future success will depend to a significant extent on the ability of
its management to operate effectively, both individually and as a group. Given
the Company's early stage of development, the Company is dependent on its
ability to retain and motivate high quality personnel, in addition to attracting
new personnel. Competition for qualified personnel in the cable networking
equipment and telecommunications industries is intense, and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel. The Company believes that there may be only a limited number of
persons with the requisite skills to serve in those positions and it may become
increasingly difficult to hire such persons. The Company is seeking to hire
additional skilled engineers for research and development, who are in short
supply. The Company's business, operating results and financial condition could
be adversely affected if it encounters delays in hiring additional engineers.
Competitors and others have in the past and may in the future attempt to recruit
the Company's employees. The Company does not have employment contracts with any
of its key personnel, nor does it maintain key person life insurance on its key
personnel. The loss of the services of any of the key personnel, the inability
to attract or retain qualified personnel in the future or delays in hiring
required personnel, particularly engineers, could have a material adverse effect
on the Company's business, operating results and financial condition.
DEPENDENCE UPON STRATEGIC RELATIONSHIPS. The Company's business strategy
relies to a significant extent on its strategic relationships with other
companies. These relationships include software license arrangements with third
party vendors pursuant to which the Company incorporates software into its
network management system, as well as marketing arrangements with Philips and
Siemens. Further, in developing an MCNS-compliant modem the Company is working
with Cisco to ensure the interoperability of this modem with Cisco's previously
announced MCNS-compliant Universal Broadband Router. There can be no assurance
that these relationships will be successful or that the Company will continue to
maintain or develop strategic relationships or to replace strategic partners in
the event any such relationships were terminated or that licenses between the
Company and any third party will be renewed or extended at their expiration
dates. The Company's failure to renew or extend a key license or maintain any
strategic relationship could materially and adversely affect the Company's
business, operating results and financial condition.
LIMITED MANUFACTURING EXPERIENCE; DEPENDENCE ON THIRD-PARTY
MANUFACTURING. The Company relies on contract manufacturers for the manufacture
of certain of its products. In particular, the Company relies upon CMC
Industries, Inc. ("CMC") for the manufacture of printed circuit
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assemblies for its headend products and upon Celestica, Inc. ("Celestica") for
the manufacture of its modems. The Company maintains only a limited in-house
manufacturing capability for final assembly, testing and integration of headend
products. The Company's future success will depend, in significant part, on its
ability to manufacture, or have others manufacture, cost-effectively and in
volumes sufficient to meet customer demand. There are a number of risks
associated with the Company's dependence upon third party manufacturers,
including, but not limited to, reduced control over delivery schedules, quality
assurance, manufacturing yields and costs, the potential lack of adequate
capacity during periods of excess demand, limited warranties on products
supplied to the Company, increases in prices and the potential misappropriation
of the Company's intellectual property. A manufacturing disruption could impact
the production of the Company's products for a substantial period of time, which
could have a material adverse effect on the Company's business, operating
results and financial condition. The Company has no long-term contracts or
arrangements with any of its vendors that guarantee the availability of product,
the continuation of particular payment terms or the extension of credit limits.
There can be no assurance that the Company will not experience manufacturing or
supply problems in the future from any of its manufacturers. While to date the
Company has not experienced any such manufacturing supply problems, any such
difficulties, if experienced in the future, could have a material adverse effect
on the Company's business, operating results and financial condition.
In addition, Celestica is a foreign corporation, and the Company may
increase its use of foreign manufacturers in the future. Any foreign or domestic
regulations regarding foreign exports and imports, trade barriers and tariffs
currently in place or imposed in the future could materially and adversely
affect the Company's ability to obtain modems. Because lead times for materials
needed to produce modems and headend equipment can be between eight and 26
weeks, the Company may not be able to meet the demand for its products, which
could adversely affect the Company's ability to support cable operators'
expansion of cable modem service to cable operators' customers. The Company has
had only limited experience manufacturing and arranging for the manufacture of
its products, and there can be no assurance that the Company or any manufacturer
of the Company's products will be successful in increasing its manufacturing
volume. The Company may need to procure additional manufacturing facilities and
equipment, adopt new inventory controls and procedures, substantially increase
its personnel and revise its quality assurance and testing practices, and there
can be no assurance that any of these efforts will be successful. See
"Business -- Manufacturing."
SOLE-SOURCED COMPONENTS AND DEPENDENCY ON KEY SUPPLIERS. Certain parts,
components and equipment used in the Company's products are obtained from sole
sources of supply. The Company has designed its headend equipment to incorporate
a radio frequency modulation chip from one specific vendor, transmit/receive
components from another and the Asynchronous Transfer Mode ("ATM") headend
switch from still another. Additional sole-sourced parts may be incorporated
into the Company's headend equipment in the future. The Company anticipates
entering into long-term supply contracts to ensure sources of supply for various
components necessary to manufacture the Company's products. However, if the
Company fails to able to obtain components in sufficient quantities when
required, this failure could have an adverse impact on the Company's operating
results and financial condition. The Company's suppliers also sell products to
the Company's competitors. There can be no assurance that the Company's
suppliers will not enter into exclusive arrangements with the Company's
competitors, stop selling their products or components to the Company at
commercially reasonable prices or refuse to sell their products or components to
the Company at any price. The Company's inability to obtain sufficient
quantities of sole-sourced components, or to develop alternative sources for
components and/or products would have a material adverse effect on the Company's
business, operating result and financial condition. The Company relies on
Stanford Telecommunications, Inc. and Broadcom Corp., suppliers of demodulation
components; Atmel Corporation, the fabricator of the Company's semiconductor
devices; Virata Limited, formerly Advanced Telecommunications Modules Limited
(ATML), a supplier of ATM switches; and Hewlett-Packard Company, Wind River
Systems, Objectivity, Inc. and Vertex Software Corp., suppliers of embedded
software. If any of these manufacturers delay or halt production of any of the
Company's
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products such failure could have a material adverse effect on the Company's
business, operating results and financial condition.
CUSTOMER CONCENTRATION. The Company's customer base is highly concentrated.
A relatively small number of customers has accounted for a significant portion
of the Company's revenues to date, and the Company expects that this trend will
continue for the foreseeable future. In 1997 and the three months ended March
31, 1998, the top six customers comprised 66% and 85% of the Company's total
revenues, respectively. Further, in 1997, revenues attributable to Philips, 3Com
and Siemens accounted for 21%, 16% and 12% of total revenues, respectively. In
the three months ended March 31, 1998, revenues attributable to TCI, Philips,
Siemens, Prime Cable and Cablecom Holding AG ("Cablecom") accounted for 31%,
13%, 13%, 11% and 10% of total revenues, respectively. The Company expects that
its largest customers in future periods could be different from its largest
customers in prior periods due to a variety of factors, including customers'
deployment schedules and budget considerations. Because a limited number of
cable operators account for a majority of the Company's prospective customers,
the Company's future success will depend upon its ability to establish and
maintain relationships with these companies. Any reduction or delay in sales of
the Company's products to any of these current significant customers could have
a material adverse effect on the Company's business, operating results and
financial condition. There can be no assurance that the Company will retain
these current accounts or that it will be able to obtain additional accounts.
Both in the U.S. and internationally, a substantial majority of homes passed are
controlled by a relatively small number of cable operators. The loss of one or
more of the Company's customers or the inability of the Company to successfully
develop relationships with additional significant cable operators could have a
material adverse effect on the Company's business, operating results and
financial condition.
RISKS ASSOCIATED WITH NEW PRODUCT DEVELOPMENT. The market for cable modem
systems and products is characterized by rapidly changing technologies and short
product life cycles. The Company's future success will depend in large part upon
the Company's ability to identify and respond to emerging technological trends
in the market, develop and maintain competitive products, enhance its products
by adding innovative features that differentiate its products from those of its
competitors, bring products to market on a timely basis at competitive prices
and respond effectively to new technological changes or new product
announcements by others. There can be no assurance that product development and
enhancements will not take longer than planned, or that having to rework
portions of the effort will not delay the date of the targeted delivery of
future products. There can be no assurance that the Company's design and
introduction schedules for new products or additions or enhancements to its
existing and future products will be met. The Company's future success will
depend in part upon its ability to enhance its existing products and to develop
and introduce, on a timely basis, new products and features that meet changing
customer requirements and emerging industry standards. In particular, as the
MCNS specification is emerging for the North American market and the Company's
success in penetrating this market will depend on its ability to successfully
develop, introduce in a timely manner and market MCNS-compliant products. In
making new product decisions, the Company must anticipate well in advance future
demand for product features and performance characteristics, as well as
available supporting technologies, manufacturing capacity, industry standards
and competitive product offerings. The technical innovations required for the
Company to remain competitive are inherently complex and require long
development cycles. The Company will be required to continue to invest in
research and development in order to attempt to maintain and enhance its
existing technologies and products, and there can be no assurance that it will
have the funds available to do so, or that such investments will serve the needs
of customers or be compatible with changing technological requirements or
standards. Much of such expenses must be incurred before the technical
feasibility or commercial viability can be ascertained. There can be no
assurance that revenues from future products or product enhancements will be
sufficient to recover the development costs associated with such products or
enhancements.
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NEED TO DEVELOP ADDITIONAL DISTRIBUTION CHANNELS. The Company presently
focuses on selling its products to cable operators and systems integrators. The
Company believes that much of the North American cable modem market may shift to
a retail distribution model. Accordingly, the Company anticipates that it will
shift a greater amount of focus to selling its modems directly to retail
distributors and end users. Thus, it will need to focus its efforts on
developing new distribution channels for its products. There can be no assurance
that the Company will be able to develop such additional distribution channels,
or that, if the Company does establish additional channels, it will have the
capital required or the ability to hire the additional personnel necessary to
foster and enhance such distribution channels. In addition, there can be no
assurance that the Company can form relationships with retail distributors to
establish such a channel. Failure by the Company to establish such channels
could have a material adverse affect on the Company's business, operating
results and financial condition. To the extent that large consumer electronics
companies enter the cable modem market, their well established retail
distribution capabilities would provide them with a significant competitive
advantage.
RISKS ASSOCIATED WITH INTERNATIONAL MARKETS. In 1997 and the three months
ended March 31, 1998, revenues attributable to international customers accounted
for 64% and 50% of total revenues, respectively. The Company expects that a
significant portion of its sales will continue to be concentrated in
international markets for the foreseeable future. The Company intends to expand
operations in the international markets that it serves currently and to enter
new international markets, which will demand significant management attention
and financial commitment. There can be no assurance that the Company will
successfully expand its international operations. In addition, a successful
expansion by the Company of its international operations and sales in certain
markets will require the Company to develop relationships with international
systems integrators and distributors. There can be no assurance that the Company
will identify, attract or retain suitable international systems integrators or
distributors or, that if such parties are identified, that successful
relationships will result. Further, to increase revenues in international
markets, the Company will need to continue to establish foreign operations, to
hire additional personnel to run such operations and maintain good relations
with its foreign systems integrators and distributors. To the extent that the
Company is unable to successfully do so, the Company's growth in international
sales will be limited. The failure to expand international sales could have a
material adverse effect on the Company's business, operating results and
financial condition.
If other countries begin to regulate the cable modem industry more heavily
or introduce standards or specifications with which the Company's products do
not comply, the Company will be unable to offer products in those countries
until its products comply with such standards or specifications and the Company
may have to incur substantial cost in order to comply with such standards or
specifications. For instance, should the DAVIC standards for ATM-based digital
video be established internationally, the Company will be required to conform
its cable modems in order to compete. Further, many countries do not have
regulations for installation of cable modem systems or for upgrading existing
cable operating systems to accommodate the Company's products. Whether the
Company currently operates in such a country or enters into the market in a
country where no such regulations exist, there can be no assurance that such
regulations will not be proposed at any time, and if imposed, that they would
not place limitations on that country's cable operators' ability to upgrade to
support the Company's products. There can be no assurance that the cable
operators in such countries would be able to comply with such regulations, or
that compliance with such regulations would not require a long, costly process.
The Company's international sales to date have been denominated in U.S.
dollars. The Company does not currently engage in any foreign currency hedging
transactions. A decrease in the value of foreign currencies relative to the U.S.
dollar could make the Company's products more expensive in international
markets. In addition to currency fluctuation risks, international operations
entail a number of risks not typically present in domestic operations. Such
risks include: changes in regulatory requirements; costs and risks of deploying
systems in foreign countries; availability of suitable export
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financing; timing and availability of export licenses; tariffs and other
trade-barriers; political and economic instability; difficulties in staffing and
managing foreign operations; potentially adverse tax consequences; the burden of
complying with a wide variety of complex foreign laws and treaties; difficulties
in managing distributors; difficulties in obtaining governmental approvals for
products; and the possibility of difficult accounts receivable collections.
Distributors' customer purchase agreements may be governed by foreign laws which
may differ significantly from laws of the U.S. The Company is also subject to
the risks associated with the imposition of legislation and regulations relating
to the import or export of high technology products. The Company cannot predict
whether quotas, duties, taxes or other charges or restrictions upon the
importation or exportation of the Company's products will be implemented by the
U.S. or other countries, leading to a reduction in sales and profitability in
that country. Future international activity may result in sales dominated by
foreign currencies. Gains and losses on the conversion to U.S. dollars of
accounts receivable, accounts payable and other monetary assets and liabilities
arising from international operations may contribute to fluctuations in the
Company's operating results. Any of these factors could materially and adversely
affect the Company's business, operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS ASSOCIATED WITH REGULATION OF INFORMATION SECURITY PRODUCTS. The
Company's products make use of encryption, and are therefore subject to export
restrictions administered by the U.S. Department of Commerce, which permit the
export of encryption products only with the required level of export license.
The Company may therefore be at a disadvantage in competing for international
sales compared to companies located outside the U.S. that are not subject to
such restrictions. International customers may be unwilling to purchase the
Company's products that are eligible for export due to perceptions that such
products are inferior to those marketed within the U.S., may contain
undocumented features which undermine the products' security architecture, or
are required to incorporate security features which are unacceptable to the
customer. Although the Company has been granted all currently required U.S.
export licenses, there can be no assurance that the Company will continue to be
able to secure such licenses in a timely manner in the future, or at all. In
certain foreign countries, the Company's distributors are required to secure
licenses or formal permission before products that incorporate encryption
features can be imported. There can be no assurance the Company's distributors
will make the effort, or be successful in the effort, to obtain the necessary
licenses or permission to import the Company's products into certain countries.
The regime of export administration, and resulting regulations in the U.S. are
in a stage of transition due to political controversy concerning their purposes
and legality. Consequently, the uncertainty concerning the interpretation and
application of such regulations may unduly delay or prevent the export of
Company's products, leading to a loss of revenues and market position.
Recent legislative proposals have indicated the possibility that the
Company's products sold for use within the U.S. may be required to incorporate
certain features to assist law enforcement agencies in recovering suspect
communications. If such proposals are enacted into law, the Company may be
obligated to incur significant expense in complying with such regulations. In
addition, the market opportunities and customer acceptance of the Company's
products could be adversely affected by the Company's compliance with such laws,
leading to a commensurate loss of revenues and market share.
YEAR 2000 COMPLIANCE. Many existing computer systems and applications, and
other control devices, use only two digits to identify a year in the date code
field, and were not designed to account for the upcoming change in the century.
As a result, such systems and applications could fail or create erroneous
results unless corrected so that they can process data related to the year 2000.
The Company relies on its systems, applications and devices in operating and
monitoring all major aspects of its business, including financial systems (such
as general ledger, accounts payable and accounts receivable modules), customer
services, infrastructure, embedded computer chips, networks and
telecommunications equipment and end products. The Company also relies, directly
and indirectly, on external systems of business enterprises such as customers,
suppliers, creditors, financial organiza-
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tions, and of governmental entities, both domestic and international, for
accurate exchange of data. Despite the Company's efforts to address the year
2000 impact on its internal systems, the Company has not fully identified such
impact or whether it can resolve such impact without disruption of its business
or without incurring significant expense. Based on the information currently
available, the Company believes that the costs associated with the year 2000
issue, and the consequences of incomplete or untimely resolution of the year
2000 issue, will not have a material adverse effect on its business, operating
results and financial condition in any given year. In addition, even if the
internal systems of the Company are not materially affected by the year 2000
issue, the Company could be materially adversely affected through disruption in
the operation of the enterprises with which the Company interacts.
RISKS OF PRODUCT DEFECTS, PRODUCT RETURNS AND PRODUCT LIABILITY. Products
as complex as those offered by the Company frequently contain undetected errors,
defects or failures, especially when first introduced or when new products are
released. In the past, such errors have occurred in the Company's products and
there can be no assurance that errors will not be found in the Company's current
and future products. The occurrence of such errors, defects or failures could
result in delays in installation, product returns and other losses to the
Company or to its cable operators or end-users. Such occurrence could also
result in the loss of or delay in market acceptance of the Company's products,
which could have a material adverse effect on the Company's business, operating
results and financial condition. With respect to any new products introduced,
the Company would have limited experience with the problems that could arise
with such products. Although the Company has not experienced any product
liability claims to date, the sale and support of the Company's products entails
the risk of such claims. A successful product liability claim brought against
the Company could have a material adverse effect on the Company's business,
operating results and financial condition.
GOVERNMENT REGULATIONS. The Company's products are subject to the
regulations of the Federal Communications Commission (the "FCC") and other
federal and state communications regulatory agencies. Changes in the regulatory
environment relating to the Internet connectivity market, including regulatory
changes that, directly or indirectly, affect telecommunications costs, limit
usage of subscriber-related information or increase the likelihood or scope of
competition from telecommunications companies, could affect the prices at which
cable operators sell their services and thus indirectly impact the Company. In
addition, the Company cannot predict the impact, if any, that future regulation
or regulatory changes might have on its business. Regulation of cable television
rates may affect the speed at which the cable operators upgrade their cable
infrastructures to two-way HFC.
Changes in current or future laws or regulations which negatively impact
the Company's products and technologies, in the U.S. or elsewhere, could
materially and adversely affect the Company's business, operating results and
financial condition.
DEPENDENCE ON THE INTERNET. The Company's products will depend in part upon
the increased use of the Internet by corporate telecommuters, SOHOs and
residential consumer users. Businesses are increasingly using the Internet,
intranets and extranets, not only for communication within and outside the firm,
but also to create cost-effective, secure data connections known as virtual
private networks ("VPNs") between corporate sites or remote locations. Critical
issues concerning the commercial use of the Internet, such as ease of access,
security, reliability, cost and quality of service, remain unresolved and may
affect the growth of Internet use, especially in the business and consumer
markets targeted by the Company. Despite growing interest in the commercial
possibilities for the Internet, many businesses have been deterred from adopting
Internet-based data communications systems for a number of reasons, including
inconsistent quality of service, lack of availability of cost-effective,
high-speed service, a limited number of local access points for corporate users,
inability to integrate business applications on the Internet, the need to deal
with multiple and frequently incompatible vendors, inadequate protection of the
confidentiality of stored data and information moving across the Internet and a
lack of tools to simplify Internet access and use. There can be no assurance
that such issues can be resolved and that such concerns can be alleviated.
Failure of the Internet community to address and resolve such problems, to
develop or to develop more slowly than
16
<PAGE> 18
expected could have a material adverse affect on the Company's business,
operating results and financial condition.
POTENTIAL NEED FOR ADDITIONAL CAPITAL. The Company currently anticipates
that the proceeds of the Offering, together with its existing cash balances and
available line of credit and cash flow expected to be generated from future
operations, will be sufficient to meet the Company's liquidity needs for at
least the next twelve months. However, the Company may need to raise additional
funds if its estimates of revenues, working capital and/or capital expenditure
requirements change or prove inaccurate or in order for the Company to respond
to unforeseen technological or marketing hurdles or to take advantage of
unanticipated opportunities. In addition, the Company expects to review
potential acquisitions that would complement its existing product offerings or
enhance its technical capabilities. While the Company has no current agreements
or negotiations underway with respect to any such acquisition, any future
transaction of this nature could require potentially significant amounts of
capital. There can be no assurance that any such funds will be available at the
time or times needed, or available on terms acceptable to the Company. If
adequate funds are not available, or are not available on acceptable terms, the
Company may not be able to take advantage of market opportunities, to develop
new products or otherwise respond to competitive pressures. Such inability could
have a material adverse effect on the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
CONTROL BY PRINCIPAL STOCKHOLDERS; CERTAIN ANTI-TAKEOVER PROVISIONS. A
substantial majority of the Company's capital stock is held by a limited number
of stockholders. After completion of this Offering, the Company's officers,
directors, five percent or greater stockholders and parties affiliated or
related to such persons, will own approximately 42.6% of the outstanding shares
of Common Stock. Accordingly, such stockholders are likely, for the foreseeable
future, to continue to be able to control major decisions of corporate policy
and determine the outcome of any major transaction or other matter submitted to
the Company's stockholders or Board of Directors, including potential mergers or
acquisitions involving the Company, amendments to the Company's Articles of
Incorporation and other similar transactions. Stockholders other than such
principal stockholders are therefore likely to have little or no influence on
decisions regarding such matters.
Upon completion of this Offering, the Company's Board of Directors will
have the authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions, including
voting rights, of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. The issuance of Preferred Stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no current plans to issue shares of Preferred Stock.
The Company is also subject to certain provisions of Delaware law which could
have the effect of delaying, deterring or preventing a change in control of the
Company, including Section 203 of the Delaware General Corporation Law, which
prohibits a Delaware corporation from engaging in any business combination with
any interested stockholder for a period of three years from the date the person
became an interested stockholder unless certain conditions are met. In addition,
the Company's certificate of incorporation and bylaws contain certain provisions
that, together with the ownership position of the officers, directors and their
affiliates, could discourage potential takeover attempts and make more difficult
attempts by stockholders to change management, which could adversely affect the
market price of the Company's Common Stock. See "Principal Stockholders" and
"Description of Capital Stock."
BENEFITS OF THE OFFERING TO CURRENT STOCKHOLDERS. As of March 31, 1998, and
including the conversion of all outstanding shares of Preferred Stock into
Common Stock, there were outstanding 12,764,512 shares of Common Stock held of
record by approximately 176 stockholders. The Offering will provide substantial
benefits to existing stockholders of the Company, particularly the present
directors, executive officers, principal stockholders and their affiliates and
related persons. These
17
<PAGE> 19
benefits include the creation of a public market for the Company's Common Stock,
which will afford them the ability to liquidate their investments, subject in
certain cases to volume limitations and other limitations and restrictions upon
the sale of their Common Stock. See "Risk Factors -- Shares Eligible for Future
Sale." Based upon a public offering price of $10.00 per share and a weighted
average price per share of $4.68 paid by the Company's existing stockholders,
upon the closing of the Offering, the present directors, executive officers,
principal stockholders and their affiliates and related persons will realize an
increase in the aggregate market value of the Common Stock held by them equal to
approximately $39,084,316. See "Principal Stockholders."
MANAGEMENT'S BROAD DISCRETION OVER ALLOCATION OF PROCEEDS OF THE
OFFERING. The net proceeds to the Company from the sale and issuance of the
4,000,000 shares of Common Stock offered hereby are estimated to be
approximately $36.15 million at an assumed initial public offering price of
$10.00 per share after deducting the estimated underwriting discount and the
estimated offering expenses. The primary purposes of this Offering are to obtain
additional capital, create a public market for the Common Stock and facilitate
future access to public markets. The Company expects to use the net proceeds
primarily for general corporate purposes, including working capital, product
development and capital expenditures. A portion of the net proceeds also may be
used to acquire or invest in complementary business or products or to obtain the
right to use complementary technologies. Accordingly, the Company's management
will retain broad discretion as to the allocation of the proceeds of this
Offering. The failure of management to apply such funds effectively could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Use of Proceeds."
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of the
Company's Common Stock in the public market after this Offering could adversely
affect the prevailing market price of the Common Stock from time to time and
could impair the Company's ability to raise capital through the sale of equity
or debt securities. In addition to the 4,000,000 shares of Common Stock offered
hereby (assuming no exercise of the Underwriters' over-allotment option), as of
the date of this Prospectus, there will be 12,764,512 shares of Common Stock
outstanding, all of which are restricted shares ("Restricted Shares") under the
Securities Act of 1933, as amended (the "Securities Act"). As of such date, no
Restricted Shares will be eligible for sale in the public market. All 12,764,512
Restricted Shares will be available for sale in the public market following the
expiration of one hundred eighty (180)-day lock-up agreements. In addition, the
holders of warrants for 46,286 shares of Preferred Stock can exercise such
warrants at any time, but such shares cannot be sold until the expiration of the
180-day lock-up period following the date of the Prospectus. Beginning six
months after the date of this Prospectus the holders of 9,957,604 Restricted
Shares and the holders of warrants for 46,286 shares of Common Stock are
entitled to certain rights with respect to registrations of such shares for sale
in the public market, assuming no exercise of the Underwriters' over-allotment
option. If such holders sell in the public market, such sales could have a
material adverse effect on the market price of the Company's Common Stock.
Immediately after this Offering, the Company intends to file a registration
statement on Form S-8 which would allow shares issuable upon exercise of options
under the Company's 1998 Stock Option Plan to be freely tradeable, subject to
compliance with Rule 144 in the case of Affiliates of the Company and except to
the extent that such shares are subject to a market stand-off provision in each
optionee's stock purchase agreement whereby such optionee has agreed not to sell
or otherwise dispose of any shares of Common Stock for a period of one hundred
eighty (180) days after the date of the Prospectus. Such registration would
cover approximately 3,045,080 shares which includes all shares reserved under
the Company's 1998 Stock Incentive Plan and the 1998 Employee Stock Purchase
Plan. All officers and directors and certain stockholders and certain option
holders of the Company have entered into lock-up agreements generally providing
that they will not offer, pledge, sell, contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly (or enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of),
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for shares of Common Stock, for a period of one hundred eighty
(180) days after the date of this Prospectus,
18
<PAGE> 20
without the prior written consent of Deutsche Morgan Grenfell Inc. Deutsche
Morgan Grenfell Inc. also may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements. See "Management -- Benefit Plans," "Shares Eligible for Future Sale"
and "Underwriting."
NO PRIOR TRADING MARKET; EXPECTED VOLATILITY OF STOCK PRICE. In recent
years the stock market in general, and the market for shares of high technology
companies in particular, have experienced extreme price fluctuations, which have
often been unrelated to the operating performance of affected companies. The
trading price of the Company's Common Stock is expected to be subject to extreme
fluctuations in response to both business-related issues, such as quarterly
variations in operating results, announcements of new products by the Company or
its competitors and the gain or loss of subscribers, and stock market-related
influences, such as changes in analysts' estimates, the presence or absence of
short-selling of the Company's Common Stock and events affecting other companies
that the market deems to be comparable to the Company. In addition, technology
stocks have from time to time experienced extreme price and volume fluctuations
that often have been unrelated or disproportionate to the operating performance
of these companies. These broad market fluctuations may adversely affect the
trading price of the Company's Common Stock. There can be no assurance that the
trading price of the Company's Common Stock will not decline below its initial
offering price to the public. See "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Common Stock in this
Offering will suffer immediate and substantial dilution of $6.70 per share based
upon an assumed public offering price of $10.00 per share. To the extent that
outstanding options or warrants to purchase the Company's Common Stock are
exercised, there may be further dilution. See "Dilution."
19
<PAGE> 21
USE OF PROCEEDS
The net proceeds to the Company from the sale and issuance of the 4,000,000
shares of Common Stock offered hereby are estimated to be approximately $36.15
million (approximately $41.7 million if the Underwriters' over-allotment option
is exercised in full), at an assumed initial public offering price of $10.00 per
share and after deducting the estimated underwriting discount and the estimated
offering expenses. The Company intends to use the net proceeds for general
corporate purposes, including working capital, product development and capital
expenditures. A portion of the net proceeds may also be used to acquire or
invest in complementary businesses or products or to obtain the right to use
complementary technologies. The Company has no agreements or commitments with
respect to any such acquisition or investment, and the Company is not currently
engaged in any material negotiations with respect to any such transaction.
Pending such uses, the net proceeds of this Offering will be invested in
short-term, interest-bearing, investment grade securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying any cash dividends on its capital stock in
the foreseeable future. The Company currently intends to retain earnings, if
any, for use in its business. The Company's line of credit arrangement prohibits
the payment of dividends by the Company without the lender's prior consent.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998 (i) on an actual basis, (ii) on a pro forma basis to reflect the
conversion of the Preferred Stock into 9,957,604 shares of Common Stock upon the
effectiveness of the registration statement related to this Offering and (iii)
as adjusted to reflect the receipt by the Company of the estimated net proceeds
from the sale of the 4,000,000 shares of Common Stock offered by the Company
hereby at an assumed initial public offering price of $10.00 per share and after
deducting the estimated underwriting discount and the estimated offering
expenses:
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Current portion of long-term obligations.................... $ 1,219 $ 1,219 $ 1,219
-------- -------- ----------
Long-term obligations....................................... $ 1,441 $ 1,441 $ 1,441
-------- -------- ----------
Stockholders' equity:
Preferred Stock, $0.001 par value per share; 22,000,000
shares authorized, actual and pro forma, 5,000,000
shares authorized, as adjusted; 9,957,604 shares issued
and outstanding, actual, no shares issued and
outstanding, pro forma and as adjusted.................. 10 -- --
Common Stock, $0.001 par value per share; 35,000,000
shares authorized, actual and pro forma, 40,000,000
shares authorized, as adjusted; 2,806,908 shares issued
and outstanding, actual, 12,764,512 shares issued and
outstanding, pro forma and 16,764,512 shares issued and
outstanding, as adjusted(1)............................. 3 13 53
Additional paid-in capital................................ 58,784 58,784 94,894
Deferred stock compensation............................... (108) (108) (108)
Accumulated deficit....................................... (39,568) (39,568) (39,568)
-------- -------- ----------
Total stockholders' equity.............................. 19,121 19,121 55,271
-------- -------- ----------
Total capitalization............................... $ 21,781 $ 21,781 $ 57,931
======== ======== ==========
</TABLE>
- ---------------
(1) Excludes: (i) 1,420,967 shares of Common Stock issuable upon exercise of
stock options outstanding under the Company's 1998 Stock Incentive Plan at a
weighted average exercise price of $2.64 per share; (ii) 1,102,543 shares of
Common Stock reserved for future issuance under the Company's 1998 Stock
Incentive Plan (which includes a 500,000-share increase in the 1998 Plan
approved on April 22, 1998 and from which reserve options to purchase
505,250 shares at $9.00 per share were granted on April 22, 1998); (iii)
250,000 shares of Common Stock reserved for future issuance under the 1998
Employee Stock Purchase Plan; and (iv) 46,286 shares of Common Stock
issuable upon the exercise of outstanding warrants at a weighted average
exercise price of $7.76 per share. See "Management -- Option Grants Under
the 1998 Stock Incentive Plan," "Management -- Benefit Plans" and Notes 6
and 11 of Notes to Financial Statements.
20
<PAGE> 22
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1998
was approximately $19,121,000, or $1.50 per share of Common Stock. "Pro forma
net tangible book value per share" represents the amount of total tangible
assets less total liabilities, divided by the number of shares of Common Stock
then outstanding, assuming the conversion of all outstanding shares of Preferred
Stock into shares of Common Stock upon the effectiveness of the registration
statement related to this Offering. After giving effect to the sale by the
Company of the 4,000,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $10.00 per share (after deducting the estimated
underwriting discount and the estimated offering expenses), the Company's pro
forma net tangible book value as of March 31, 1998 would have been $55,271,000,
or $3.30 per share of Common Stock. This represents an immediate increase in pro
forma net tangible book value of $1.80 per share to existing stockholders and an
immediate dilution of $6.70 per share to new public investors. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Pro forma net tangible book value per share as of March
31, 1998............................................... $1.50
Increase per share attributable to new investors.......... 1.80
-----
Pro forma net tangible book value per share after the
Offering.................................................. 3.30
------
Dilution per share to new investors......................... $ 6.70
======
</TABLE>
The following table summarizes, as of March 31, 1998, on the pro forma
basis described above, the difference between the number of shares of Common
Stock purchased from the Company, the total consideration paid and the average
price per share paid by the existing stockholders and by new public investors
purchasing shares of Common Stock in this Offering (before deducting the
estimated underwriting discount and the estimated offering expenses):
<TABLE>
<CAPTION>
WEIGHTED
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 12,764,512 76.1% $59,765,634 59.9% $4.68
New investors.................. 4,000,000 23.9% 40,000,000 40.1% 10.00
---------- ----- ----------- -----
Total................ 16,764,512 100.0% $99,765,634 100.0%
========== ===== =========== =====
</TABLE>
The foregoing computations are based on the number of shares of Common
Stock outstanding as of March 31, 1998 and exclude 1,420,967 shares of Common
Stock issuable upon exercise of stock options outstanding under the Company's
1998 Stock Incentive Plan at a weighted average exercise price of $2.64 per
share, 1,102,543 shares of Common Stock reserved for future issuance under the
Company's 1998 Stock Incentive Plan (which includes a 500,000-share increase in
the 1998 Plan approved on April 22, 1998 from which reserve options to purchase
505,250 shares at $9.00 per share were granted on April 22, 1998), 250,000
shares of Common Stock reserved for future issuance under the 1998 Employee
Stock Purchase Plan, and 46,286 shares of Common Stock issuable upon the
exercise of outstanding warrants at an average exercise price of $7.76 per
share. To the extent that any of these options or warrants are exercised, there
could be further dilution to new investors. See "Capitalization,"
"Management -- Option Grants Under the 1998 Stock Incentive Plan,"
"Management -- Benefit Plans," "Description of Capital Stock" and Notes 6 and 11
of Notes to Financial Statements.
21
<PAGE> 23
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Company's financial statements and related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus. The statements of operations data for
each of the years in the three-year period ended December 31, 1997, and the
balance sheets data at December 31, 1996 and 1997, are derived from financial
statements of the Company which have been audited by Deloitte & Touche LLP,
independent auditors, and are included herein. The statements of operations data
for the years ended December 31, 1993 and 1994 and the balance sheets data at
December 31, 1993, 1994 and 1995 are derived from audited financial statements
not included herein. The statements of operations data for the three-month
periods ended March 31, 1997 and 1998 and the balance sheet data at March 31,
1998 are derived from unaudited interim financial statements included elsewhere
in this Prospectus and include, in the opinion of the Company, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's results of operations for those periods and
financial position at that date. The historical results are not necessarily
indicative of the operating results to be expected in the future.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
----- ------ ------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues........................... $ -- $ -- $ -- $ 1,000 $ 15,649 $ 500 $ 7,020
Cost of total revenues................... -- -- -- -- 8,372 -- 4,676
----- ------ ------- -------- -------- ------- -------
Gross profit......................... -- -- -- 1,000 7,277 500 2,344
Operating expenses:
Research and development............... 79 545 5,233 12,395 13,481 3,128 4,278
Sales and marketing.................... -- -- 770 1,970 5,277 870 1,803
General and administrative............. 60 349 919 1,548 1,782 367 580
----- ------ ------- -------- -------- ------- -------
Total operating expenses................. 139 894 6,922 15,913 20,540 4,365 6,661
Loss from operations..................... (139) (894) (6,922) (14,913) (13,263) (3,865) (4,317)
Total other income....................... -- 58 257 447 229 37 94
----- ------ ------- -------- -------- ------- -------
Loss before income taxes................. (139) (836) (6,665) (14,466) (13,034) (3,828) (4,223)
Income taxes............................. -- 1 1 5 21 -- 9
----- ------ ------- -------- -------- ------- -------
Net loss........................ $(139) $ (837) $(6,666) $(14,471) $(13,055) $(3,828) $(4,232)
===== ====== ======= ======== ======== ======= =======
Net loss per share, basic and
diluted(1)............................. $ -- $(0.54) $ (3.53) $ (7.64) $ (6.15) $ (1.95) $ (1.69)
===== ====== ======= ======== ======== ======= =======
Shares used in computation,
basic and diluted(1)................... -- 1,562 1,887 1,894 2,124 1,968 2,497
===== ====== ======= ======== ======== ======= =======
Pro forma net loss per share, basic and
diluted(2)............................. $ (1.27) $ (0.43) $ (0.34)
======== ======= =======
Shares used in pro forma computation,
basic and diluted(2)................... 10,279 8,909 12,455
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
----- ------ ------- -------- -------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEETS DATA:
Cash and cash equivalents................ $ 7 $2,082 $ 3,273 $ 12,427 $ 17,950 $14,082
Working capital (deficit)................ (321) 2,023 2,328 9,097 19,523 15,508
Total assets............................. 21 2,308 4,606 17,036 31,573 28,377
Long-term obligations.................... -- -- 275 1,292 1,508 1,441
Total stockholders' equity (deficit)..... (307) 2,222 3,288 12,056 23,283 19,121
</TABLE>
- ---------------
(1) The diluted net loss per share computation excludes potential shares of
Common Stock (Convertible Preferred Stock, warrants to purchase Convertible
Preferred Stock, options to purchase Common Stock and Common Stock subject
to repurchase rights held by the Company), as their effect would be
antidilutive. See Note 1 of Notes to Financial Statements for a detailed
explanation of the determination of the shares used in computing basic and
diluted net loss per share.
(2) Includes the weighted average number of shares resulting from the assumed
conversion of all outstanding shares of Convertible Preferred Stock upon the
effectiveness of the registration statement related to this Offering. See
Note 1 of Notes to Financial Statements for a detailed explanation of the
determination of the shares used in computing pro forma net loss per share.
The diluted pro forma net loss per share computation excludes potential
shares of Common Stock (warrants to purchase Convertible Preferred Stock,
options to purchase Common Stock and Common Stock subject to repurchase
rights by the Company).
22
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's financial statements and notes
thereto included elsewhere in this Prospectus. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from the results discussed in such
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed below and in "Risk Factors" and
"Business," as well as those discussed elsewhere in this Prospectus.
OVERVIEW
Com21, Inc. ("the Company" or "Com21") designs, develops, markets and sells
value-added, high-speed communications solutions for the broadband access
market. The Company's ComUNITY Access system enables cable operators to provide
high-speed, cost-effective Internet access to corporate telecommuter, small
office/home office ("SOHO") and residential users in the U.S. and
internationally, and enables them to address the distinct price, performance,
security and other needs of these different end-user groups. Com21's products
include headend equipment, subscriber cable modems, network management software
and noise containment technologies.
The Company was incorporated in June 1992. From inception through April
1997, the Company's operating activities related primarily to establishing a
research and development organization, testing prototype designs, building
application-specific integrated circuit ("ASIC") design infrastructure,
commencing the staffing of marketing, sales and field service and technical
support organizations and establishing manufacturing relationships. Since the
Company's first customer shipment in April 1997, the Company has also focused on
commencing trials with cable operators, developing customer relationships,
marketing the Com21 brand, investing in field service and customer support,
continuing to develop new products and technologies and to enhance existing
products. Since inception, the Company has incurred significant losses and, as
of March 31, 1998, had an accumulated deficit of $39.6 million. See "Risk
Factors -- Limited Operating History; History of Losses; No Assurance of
Profitability."
The Company's revenues consist primarily of sales of headend equipment,
cable modems and, to a lesser extent, the licensing of network management
software. The Company recognizes revenue upon commercial shipment of its
products. As the cable operators that purchase the Company's products make
data-over-cable services broadly available to their customers, the Company
expects its product mix to shift more heavily toward sales of cable modems.
Pursuant to a Technology License and Reseller Agreement with 3Com (the "3Com
Agreement"), the Company received certain non-refundable technology fees in the
quarters ended June 30, 1996 and March 31, 1997. In addition, the terms of the
3Com Agreement provide that, until December 31, 1998, 3Com is obligated to pay a
per unit royalty fee on sales by 3Com of the first 100,000 cable modems
incorporating the Company's technology. 3Com prepaid $1.0 million of this
obligation in April 1996, and the Company recorded this payment as deferred
revenue. The Company will earn such revenues on the earlier of (i) the sale of
the Company's cable modems by 3Com or (ii) at the expiration of the royalty
period on December 31, 1998. Through March 31, 1998 an aggregate of
approximately $1.5 million has been recognized as technology licensing fees and
royalties pursuant to this agreement. See "Certain Transactions," and Note 9 of
Notes to Financial Statements.
To date, gross margin on sales of headend and related equipment and
software licenses has been significantly higher than gross margin on sales of
cable modems. The Company expects to experience decreasing average selling
prices of its cable modems due to greater competition and price sensitivity of
cable modem sales particularly as interoperable MCNS-compliant products become
widely available from multiple vendors. The Company expects that gross margin on
sales of headend equipment will continue to be higher than gross margin on sales
of cable modems for the foreseeable future. As a result, the Company expects
that gross margin will decline in 1998 as sales of cable modems increase as a
percentage of total product revenues.
Com21 tests and assembles the ComCONTROLLER headend equipment in the
Company's facility in Milpitas, California. Com21 outsources turnkey
manufacturing of the ComPORT cable modem to Celestica, a contract manufacturer
located in Toronto, Canada. The Company has taken, and continues to take, steps
to reduce the manufacturing costs of its cable modem products by consolidating
functionality and
23
<PAGE> 25
component parts into ASICs, making them easier to manufacture, using parts the
Company believes will be sold in high volume by a number of vendors. The Company
is also working with Celestica to facilitate more efficient manufacturing of the
Company's cable modems and to enable Com21 to benefit from Celestica's volume
purchasing capability. However, there can be no assurance that such
cost-reduction efforts will be successful. See "Risk Factors -- Need to Reduce
Cost of Modems" and "-- Limited Manufacturing Experience; Dependence on Third
Party Manufacturing."
Research and development expenses consist principally of salaries and
related personnel expenses, consultant fees and prototype expenses related to
the design, development, testing and enhancement of headend equipment, cable
modems and network management software. As of March 31, 1998, all research and
development costs had been expensed as incurred. The Company believes that
continued investment in research and development is critical to attaining its
strategic product and cost reduction objectives and, as a result, expects these
expenses to increase significantly in absolute dollars in the future. Sales and
marketing expenses consist of salaries and related expenses for personnel
engaged in marketing, sales and field service support functions, as well as
trade show and promotional expenditures. The Company intends to pursue sales and
marketing campaigns aggressively and therefore expects these expenses to
increase significantly in absolute dollars in the future. In addition, the
Company expects that it may be required to devote resources to the development
of a retail or other end user sales channel, which would also result in an
increase in sales and marketing expenses. General and administrative expenses
consist primarily of salaries and related expenses for executive, accounting and
administrative personnel, recruiting expenses, professional fees and other
general corporate expenses. The Company expects general and administrative
expenses to increase in absolute dollars as the Company adds personnel and
incurs additional costs related to the growth of its business and operation as a
public company. One of the Company's challenges to future success is its ability
to attract and retain qualified personnel which is partly dependent on the
compensation package the Company can offer these personnel. An important
component of the compensation package offered by the Company is the grant of
stock options. The Board of Directors in granting stock options determines fair
market value of the Common Stock underlying such options on the date of grant
after taking into consideration many factors applicable to the Company's
business environment. See "Risk Factors -- Dependence on Key Personnel and
Hiring of Additional Personnel" and Note 6 of Notes to Financial Statements.
The Company relies on its systems, applications and devices in operating
and monitoring all major aspects of its business, including its financial
systems. The Company also relies, directly or indirectly, on the external
systems of business enterprises such as customers and suppliers. Despite the
Company's efforts to address the year 2000 impact on its internal systems, the
Company has not fully identified such impact or whether it can resolve such
impact without disruption of its business or without incurring significant
expense. Based on the information currently available, the Company believes that
the costs associated with the year 2000 issue, and the consequences of
incomplete or untimely resolution of the year 2000 issue, will not have a
material adverse effect on the Company's business, operating results and
financial condition in any given year. In addition, even if the internal systems
of the Company are not materially affected by the year 2000 issue, the Company's
business, operating results and financial condition could be materially
adversely affected through disruption in the operation of the enterprises with
which the Company interacts. See "Risk Factors -- Year 2000 Compliance."
The Company did not commence product shipments until April 1997, and, as a
result, has a limited operating history upon which investors may evaluate the
Company and its prospects. The Company has incurred net losses since its
inception and expects to continue to operate at a loss through at least fiscal
1999. As of March 31, 1998, the Company had an accumulated deficit of
approximately $39.6 million. Because the market for the Company's products is
new and evolving, the Company cannot accurately predict the future growth rate,
if any, or the ultimate size of the data-over-cable market. To achieve
profitable operations on a continuing basis, the Company must successfully
design, develop, test, manufacture, introduce, market and distribute its
products on a broad commercial basis. There can be no assurance that the Company
will ever achieve profitability. The Company's ability to generate future
revenues will depend on a number of factors, many of which are beyond the
Company's control. Such factors include the rate at which cable operators
upgrade their cable infrastructures, the ability of the Company and cable
operators to coordinate timely and effective marketing campaigns with the
availability of such upgrades, the success of the cable operators in marketing
data-over-cable services and the Company's modems to subscribers, the prices
that the
24
<PAGE> 26
cable operators set for data transmission installation service and the
installation of subscriber site equipment, and the rate at which the cable
operators can complete the installations required to initiate service for new
subscribers. As a result of the foregoing factors, the Company is unable to
forecast its revenues or the rate at which the Company's systems will be adopted
by cable operators with any degree of accuracy. Accordingly, there can be no
assurance that the Company will ever achieve, or be able to sustain,
profitability. See "Risk Factors -- Limited Operating History; History of
Losses; No Assurance of Profitability."
From time to time, third parties, including competitors of the Company,
have asserted patent, copyright and other intellectual property rights to
technologies that are important to the Company. In 1997 the Company received a
written notice from Hybrid in which Hybrid claimed to have patent rights in
certain cable modem technology and requested that the Company review its own
products in light of Hybrid's alleged patent rights. In January 1998, Hybrid
filed an action against the Company in the U.S. District Court for the Eastern
District of Virginia, accusing the Company of willfully infringing the Hybrid
patents, among other claims. Subsequently, the Company filed suit for
declaratory relief against Hybrid in the U.S. District Court for the Northern
District of California asserting that it does not infringe the Hybrid patents
and that the Hybrid patents are invalid. The Company then filed a motion in the
Virginia District Court to transfer the action filed by Hybrid to the Northern
District of California, and that motion has been granted. The Company has
received opinions of its patent counsel that the claims of the Hybrid patents
are either invalid or not infringed by the Company's products. However, there
can be no assurance that some or all of the Company's products will not
ultimately be determined to infringe the Hybrid patents, and the Company
anticipates that Hybrid will continue to pursue litigation with respect to these
claims. The results of any litigation matter are inherently uncertain. In the
event of an adverse result in the Hybrid litigation, the Company could be
required to pay substantial damages, including treble damages if the Company is
held to have willfully infringed, to cease the manufacture, use and sale of
infringing products, to expend significant resources to develop non-infringing
technology, or to obtain licenses to the infringing technology. There can be no
assurance that licenses will be available from Hybrid on commercially reasonable
terms, or at all. In addition, litigation frequently involves substantial
expenditures and can require significant management attention, even if the
Company ultimately prevails. Accordingly, there can be no assurance that the
Hybrid matter will not have a material adverse effect on the Company's business,
operating results and financial condition.
Because of the early stage of this litigation and because Hybrid has sought
unspecified damages, neither the ultimate outcome of this litigation nor any
costs and payments resulting from the litigation or any settlement can presently
be determined. Accordingly, no provision for any loss which may result from the
Hybrid litigation has been recorded in the accompanying financial statements.
See "Risk Factors -- Patents and Proprietary Rights," "Business -- Intellectual
Property, Patent Litigation" and Note 11 to Notes to Financial Statements.
On May 13, 1998, the Company filed an amendment to its Amended and Restated
Certificate of Incorporation to effect a one-for-two reverse split of the
outstanding shares of common and convertible preferred stock. All share and per
share amounts in this Prospectus have been adjusted to give effect to the
reverse stock split.
RESULTS OF OPERATIONS -- THREE MONTHS ENDED MARCH 31, 1997 AND 1998
Total Revenues. Total revenues increased from $500,000 in the first quarter
of 1997 to $7.0 million in the first quarter of 1998. Total revenues for the
first quarter of 1997 consisted entirely of a technology licensing fee of
$500,000 pursuant to the 3Com Agreement. Total revenues for the first quarter of
1998 consisted primarily of sales of headend and related equipment and cable
modems and, to a lesser extent, network management software fees. Total revenues
attributable to international customers accounted for 50% of total revenues for
the first quarter of 1998.
Cost of Total Revenues. The Company did not record product sales in the
first quarter of 1997. Cost of total revenues was $4.7 million in the first
quarter of 1998 and consisted primarily of materials and software technology
fees paid to third parties. For the first quarter of 1998, gross margin was
25
<PAGE> 27
33.4% as compared to 42.2% in the quarter ended December 31, 1997. The decrease
in gross margin was attributable to the decrease in license fees from network
management software and increased sale of cable modems as a percentage of sales.
Research and Development. Research and development expenses increased from
$3.1 million in the first quarter of 1997 to $4.3 million in the first quarter
of 1998. The increase was attributable to higher costs related to increased
personnel, greater consulting costs and higher depreciation as more equipment
was purchased to support added development.
Sales and Marketing. Sales and marketing expenses increased from $870,000
in the first quarter of 1997 to $1.8 million for the same quarter of 1998. The
increase was attributable to higher costs associated with increased personnel,
commissions on sales, consulting and more trade advertising and promotion.
General and Administrative. General and administrative expenses increased
from $367,000 in the first quarter of 1997 to $580,000 for the same quarter of
1998. The increase was attributable to higher legal expenses, higher consulting
costs and increased salary costs.
Total Other Income. Total other income increased from $37,000 in the first
quarter of 1997 to $94,000 for the same quarter of 1998. The increase was
attributable to higher earnings on cash balances available during the first
quarter of 1998.
RESULTS OF OPERATIONS -- YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
Total Revenues. Total revenues increased from $1.0 million in 1996 to $15.6
million in 1997. During 1995, the Company was primarily engaged in product
development and, accordingly, did not record any revenues. Total revenues in
1996 consisted entirely of technology licensing fees from the 3Com Agreement.
Total revenues in 1997 consisted of an additional technology licensing fee of
$500,000 pursuant to the 3Com Agreement and $15.1 million from the sale of
products that commenced in April 1997. A majority of revenues attributable to
product sales during 1997 resulted from sales of headend and related equipment,
cable modems and network management software fees. Revenues attributable to
international customers were 64% of total revenues in 1997. The Company expects
to derive a significant portion of its revenues from international markets for
the foreseeable future. The Company intends to expand operations in the
international markets that it serves currently and to enter new international
markets, which will demand significant management attention and financial
commitment. To date, revenues attributable to international customers have been
denominated in U.S. dollars. The Company does not currently engage in any
foreign currency hedging transactions. A decrease in the value of foreign
currencies relative to the U.S. dollar could make the Company's products more
expensive in international markets. See "Risk Factors -- Risks Associated with
International Markets" and Note 8 of Notes to Financial Statements.
Cost of Total Revenues. Cost of total revenues was $8.4 million in 1997.
The Company commenced product shipments in April 1997 and therefore did not
incur any costs associated with the sale of products in 1995 or 1996. Cost of
total revenues in 1997 consisted primarily of materials cost and software
technology license fees paid to third parties. In 1997 the Company's gross
margin was 46.5%. The Company expects that gross margin will decline in 1998 as
sales of cable modems increase as a percentage of total product revenues.
Research and Development. Research and development expenses increased from
$5.2 million in 1995 to $12.4 million in 1996 and $13.5 million in 1997. The
increases for both 1996 and 1997 were primarily the result of increased
personnel in the Company's research and development organization associated with
product development.
Sales and Marketing. Sales and marketing expenses increased from $770,000
in 1995 to $2.0 million in 1996 and $5.3 million in 1997. The increases for both
1996 and 1997 were primarily due to higher costs associated with increased
personnel in the Company's sales and marketing organizations. The increase in
1997 also reflects the significant costs associated with the increased
26
<PAGE> 28
selling efforts resulting from the commencement of the commercial shipment of
the Company's products in April 1997. These costs include travel expenses, trade
shows, print advertising, public relations and other promotional costs. The
Company expects sales and marketing expenses to increase on both an absolute
dollar basis and as a percentage of sales in 1998 primarily because the Company
will incur selling expenses for twelve months of commercial selling efforts, as
opposed to nine months in 1997.
General and Administrative. General and administrative expenses increased
from $919,000 in 1995 to $1.5 million in 1996 and $1.8 million in 1997. The
increases in both 1996 and 1997 were primarily attributable to increased
personnel in the Company's finance and administrative organization, as well as
increased professional fees.
Total Other Income. Total other income increased from $257,000 in 1995 to
$447,000 in 1996 and decreased to $229,000 in 1997. The increase in 1996 was
primarily attributable to higher earnings on cash balances as a result of higher
average cash and cash equivalents balances in 1996. The decrease in 1997 was
primarily attributable to interest expense associated with capital leases as
well as a charge for the issuance of warrants in connection with establishing a
line of credit, offset in part by higher earnings on increased average cash
balances.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited statements of operations
data in dollars and as a percentage of total revenues for the Company's five
most recent quarters. In management's opinion, this unaudited information has
been prepared on the same basis as the annual financial statements and includes
all adjustments necessary (consisting only of normal recurring adjustments) to
present fairly the unaudited quarterly results. This information should be read
in conjunction with the financial statements and related notes thereto included
elsewhere in this Prospectus. The operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1997 1997 1997 1997 1998
--------- -------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues..................... $ 500 $ 2,878 $ 5,577 $ 6,694 $ 7,020
Cost of total revenues............. -- 1,520 2,986 3,866 4,676
------- ------- ------- ------- ---------
Gross profit....................... 500 1,358 2,591 2,828 2,344
Operating expenses:
Research and development......... 3,128 3,041 3,309 4,003 4,278
Sales and marketing.............. 870 1,145 1,363 1,899 1,803
General and administrative....... 367 405 432 578 580
------- ------- ------- ------- ---------
Total operating expenses...... 4,365 4,591 5,104 6,480 6,661
------- ------- ------- ------- ---------
Loss from operations............... (3,865) (3,233) (2,513) (3,652) (4,317)
Total other income (expense)....... 37 (18) 34 176 94
------- ------- ------- ------- ---------
Loss before income taxes........... (3,828) (3,251) (2,479) (3,476) (4,223)
Income taxes....................... -- 12 2 7 9
------- ------- ------- ------- ---------
Net loss........................... $(3,828) $(3,263) $(2,481) $(3,483) $ (4,232)
======= ======= ======= ======= =========
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1997 1997 1997 1997 1998
--------- -------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Total revenues..................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of total revenues............. -- 52.8 53.5 57.8 66.6
------- ------- ------- ------- ---------
Gross margin....................... 100.0 47.2 46.5 42.2 33.4
Operating expenses:
Research and development......... 625.6 105.6 59.4 59.8 60.9
Sales and marketing.............. 174.0 39.8 24.4 28.4 25.7
General and administrative....... 73.4 14.1 7.8 8.6 8.3
------- ------- ------- ------- ---------
Total operating expenses...... 873.0 159.5 91.6 96.8 94.9
------- ------- ------- ------- ---------
Loss from operations............... (773.0) (112.3) (45.1) (54.6) (61.5)
Total other income (expense)....... 7.4 (0.7) 0.6 2.7 1.3
------- ------- ------- ------- ---------
Loss before income taxes........... (765.6) (113.0) (44.5) (51.9) (60.2)
Income taxes....................... -- 0.4 -- 0.1 0.1
------- ------- ------- ------- ---------
Net loss........................... (765.6)% (113.4)% (44.5)% (52.0)% (60.3)%
======= ======= ======= ======= =========
</TABLE>
Total revenues from inception through March 31, 1997 were limited to
technology licensing fees earned under the 3Com Agreement. The Company commenced
product sales in April 1997, and in the quarters ended June 30, 1997, September
30, 1997, December 31, 1997 and March 31, 1998 recorded total revenues of $2.9
million, $5.6 million, $6.7 million and $7.0 million, respectively. During 1997
and in the three months ended March 31, 1998, revenues attributable to
international customers constituted 64% and 50% of total revenues, respectively.
During 1997 and in the three months ended March 31, 1998, approximately 97% and
100% of the Company's total revenues, respectively, were derived from sales of
headend and related equipment, cable modems and network management software
fees. Cost of total revenues increased sequentially for each quarter presented
on an absolute dollar basis as a result of increased revenues in each period.
Cost of total revenues also increased as a percentage of revenues primarily due
to an increase in sales of cable modems as a percentage of product revenues.
Over the past five quarters, total operating expenses increased in dollar
amount. The Company incurred significant research and development expenses from
inception through March 31, 1997 associated with prototype development and
testing in connection with the headend and cable modem products that were
commercially introduced in April 1997. Research and development expenses
declined in dollar amount in the second quarter of 1997 due to completion of the
Company's initial products but increased in dollar amount in the subsequent two
fiscal quarters due to the development efforts related to new products and the
enhancement of existing products. Sales and marketing expenses increased in
dollar amount in each quarter of 1997 and as a percentage of revenues in the
quarter ended December 31, 1997, as compared to the prior quarter, as a result
of increased personnel and spending on trade shows, print advertising, public
relations and other promotional expenditures to build brand awareness. General
and administrative expenses increased in dollar amount in each quarter presented
as a result of increased salaries, recruiting costs associated with the hiring
of additional personnel and increased professional fees.
The Company's operating results are likely to fluctuate significantly in
the future on a quarterly and annual basis as a result of a variety of factors,
many of which are beyond the Company's control. Factors that will influence the
Company's operating results include: (i) the Company's ability to retain
existing cable operator customers, to attract new customers at a steady rate, to
maintain customer satisfaction and to obtain significant orders; (ii) the timing
of upgrades of cable systems to HFC and the ability and willingness of cable
operators to deploy cable modems and offer either one-way or two-
28
<PAGE> 30
way data transmission service; (iii) the Company's ability to manage inventory
and fulfillment operations; (iv) the announcement or introduction of new
services and products by the Company and its competitors and the timely
introduction of MCNS-compliant products by the Company; (v) the Company's
product mix; (vi) price competition or pricing changes in the Internet, cable
and telecommunications industries, pricing of the Company's products and its
ability to reduce to the costs of its products over time; (vii) the level of use
of the Internet as a replacement for private wide area networks; (viii) the
Company's ability to develop new products in a timely and cost-effective manner;
(ix) the amount and timing of operating costs and capital expenditures relating
to expansion of the Company's business, operating results and infrastructure;
(x) governmental regulation; and (xi) general economic conditions and economic
conditions specific to the cable and electronic data transmission industries. In
recent quarters the Company has recognized a substantial portion of its revenues
in the last month of each quarter, and, in particular, within the last two weeks
of that month. A significant portion of the Company's expenses are fixed in
advance based in large part on future revenue forecasts. If revenues are below
expectations in any given period, the adverse impact of the shortfall on the
Company's operating results may be magnified by the Company's inability to
adjust spending to compensate for the shortfall. Therefore, a shortfall in
revenues from those expected would have a material adverse effect on the
Company's business, operating results and financial condition. In addition, the
Company plans to increase operating expenses to fund additional research and
development, sales and marketing and general and administrative activities. To
the extent that these expenses are not accompanied by an increase in revenues,
the Company's business, operating results and financial condition would be
materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private sales of Common Stock and Preferred Stock which, through March 31, 1998,
provided net cash proceeds of approximately $58.6 million. Net cash used in
operating activities in 1996 was $11.6 million and was primarily attributable to
a net loss of $14.5 million, partially offset by $1.0 million in deferred
revenue from the 3Com Agreement, an increase in accounts payable and accrued
expenses, and depreciation and amortization expenses. Cash used in investing
activities in 1996 consisted of $2.3 million in capital expenditures primarily
to support its engineering activities. Cash flows from financing activities were
$23.1 million in 1996 and consisted primarily of $23.2 million of net proceeds
from the issuance of Series F Preferred Stock partially offset by the net
repayment on borrowing arrangements.
Net cash used in operating activities in 1997 was $16.1 million and
resulted primarily from a net loss of $13.1 million and the increase of $5.0
million and $2.6 million in total accounts receivable and inventories,
respectively, offset in part by a total increase of $2.4 million in accounts
payable, accrued expenses and other current liabilities and $2.2 million in
depreciation and amortization expenses. Cash used in investing activities in
1997 consisted of $2.1 million in capital expenditures primarily to support
product development and manufacturing activities. Cash flows from financing
activities in 1997 consisted primarily of net proceeds of $23.7 million from the
issuance of Series E Preferred Stock and Series G Preferred Stock and $530,000
from the sale of Common Stock upon exercise of stock options.
Net cash used in operating activities in the three months ended March 31,
1998 was $3.3 million and resulted primarily from a net loss of $4.2 million and
an increase in total accounts receivable of $1.4 million offset primarily by a
decrease of $974,000 in inventories and an increase of $830,000 in accounts
payable. Cash used in investing activities in the three months ended March 31,
1998 consisted of $389,000 in capital expenditures primarily to support product
development and manufacturing activities. Net cash used in financing activities
in the three months ended March 31, 1998 was $199,000 and consisted primarily of
repayments on debt and capital lease obligations.
In future periods, the Company anticipates significant increases in working
capital on a period-to-period basis primarily as a result of planned increased
product sales and higher relative levels of inventory. The Company contracts for
the manufacture of cable modems and integrated circuit boards
29
<PAGE> 31
on a turnkey basis. The Company has no long-term contracts or arrangements with
any of its vendors that guarantee the availability of product, the continuation
of particular payment terms or the extension of credit limits. The Company's
future success will depend, in significant part, on its ability to manufacture,
or have others manufacture, its products successfully, cost-effectively and in
volumes sufficient to meet customer demand. The Company's dependence upon third
party manufacturers involves a number of risks. See "Risk Factors -- Limited
Manufacturing Experience; Dependence on Third Party Manufacturing."
At March 31, 1998, the Company had $14.1 million of cash and cash
equivalents. In addition, the Company had a $5.0 million line of credit subject
to borrowing base requirements. To date, the Company has not drawn upon its line
of credit. Other than capital lease commitments, the Company has no material
commitments for capital expenditures. However, the Company anticipates it will
increase its capital expenditures and lease commitments consistent with
anticipated growth in operations, infrastructure and personnel. The Company may
establish sales offices and lease additional space, which will require it to
commit to additional lease obligations, purchase equipment and install leasehold
improvements.
The Company believes that the net proceeds from this Offering, together
with its current cash and cash equivalents, will be sufficient to meet its
anticipated cash requirements for at least twelve months, although the Company
may seek to raise additional capital during that time period. The sale of
additional equity or convertible debt securities could result in additional
dilution to the Company's stockholders. There can be no assurance that financing
will be available in amounts or on terms acceptable to the Company, if at all.
See "Risk Factors -- Potential Need for Additional Capital."
30
<PAGE> 32
BUSINESS
Com21, Inc. designs, develops, markets and sells value-added, high-speed
communications solutions for the broadband access market. The Company's ComUNITY
Access system enables cable operators to provide high-speed, cost-effective
Internet access to corporate telecommuter, small office/home office ("SOHO") and
residential users in the U.S. and internationally, and enables them to address
the distinct price, performance, security and other needs of these different
end-user groups. Com21's products include headend equipment, subscriber cable
modems, network management software and noise containment technologies. Cable
operators can use the Company's ComUNITY Access system to increase revenue
opportunities by offering up to 16 different operator-defined transmission rates
at varying price points to multiple markets. The Company's system is designed to
be deployed on a limited capital budget and can be upgraded and scaled as
subscriber penetration grows. The Company's system enables cable operators to
lower their ongoing cost of ownership through cost-effective noise management
and remote cable modem upgrades. The ComUNITY Access system also supports future
features and service offerings, such as desktop video conferencing and cable
telephony applications. The Company is developing an MCNS-compliant modem for
the North American cable market intended primarily to address the basic
requirements of the residential end-user base, which typically tolerates lower
performance and security than the business user. The Company is working with
Cisco to develop interoperable MCNS-compliant products that are expected to be
commercially available in the second half of 1998. In 1997, the Company shipped
approximately 170 ComCONTROLLER headends and more than 12,000 ComPORT modems for
use in 61 locations worldwide. In the North American market, the Company sells
directly to cable operators and has sold systems to major operators such as
Charter Communications, Prime Cable and TCI. Internationally, the Company sells
to systems integrators, including Philips and Siemens, which in turn sell to
cable operators.
INDUSTRY BACKGROUND
The volume of data traffic across communications networks has increased
significantly over the last several years due to the proliferation of
network-based communications and electronic commerce. Businesses, ranging from
large corporate enterprises to SOHOs, are increasingly using the Internet,
intranets and extranets, not only for communication within and outside the firm,
but also to create cost-effective secure data connections known as virtual
private networks ("VPNs") between corporate sites or remote locations. VPNs
extend corporate network access to remote employees and external organizations,
including business partners, suppliers and customers. Consumers are increasingly
accessing data networks, primarily the Internet, to communicate, collect and
publish information and conduct retail purchases. Because of its global reach,
accessibility, use of open standards and ability to enable real-time
interaction, the Internet has become a valuable communications medium for both
businesses and consumers.
The Internet and devices used to access it are expected to continue their
rapid growth. International Data Corporation ("IDC") estimates that between 1995
and 1997 the number of devices that had access to the Internet grew from
approximately 15 million to 64 million and anticipates that the number of such
devices will grow to more than 232 million by 2000. Similarly, the available
content and number of users on the Internet is increasing rapidly. IDC estimates
that the number of World Wide Web ("Web") pages grew from approximately 18
million in 1995 to 250 million in 1997 and is expected to increase to 2.3
billion by 2000. The number of Web users in the U.S. is expected to increase
from approximately 29 million in 1997 to 72 million in 2000. A substantial
percentage of worldwide growth is expected to come from Western Europe and Asia,
which is projected to grow from approximately 18 million users in 1997 to 50
million users in 2000. In addition to the substantial increase in the number of
users in recent years, demand has increased among business and consumer users
for high-speed Internet access to multimedia and other bandwidth-intensive
information, consisting of data, voice and video in the form of value-added
services and applications. This has resulted in a growing need for higher
transmission performance
31
<PAGE> 33
throughout the Internet. With the increasing dependence on communications
networks and the growing demand for bandwidth-intensive information, existing
transmission speeds have become less tolerable and can negatively affect
business productivity.
Typically, the limiting factor in overall data transmission performance is
the "last mile" of the communications infrastructure. Consisting primarily of
copper twisted-pair wire or coaxial cable, this infrastructure was originally
designed for analog transmission, such as analog voice or one-way analog video
signals, rather than high-speed two-way broadband digital transmission. Today,
there are multiple technologies that attempt to address the need for high-speed
last mile connections, including (i) wireline telephone infrastructure
technologies, such as 56 kilobits per second ("Kbps") dial-up modem
technologies, Integrated Services Digital Network ("ISDN") and asymmetric
digital subscriber line ("ADSL") and other digital subscriber line ("xDSL")
technologies; (ii) wireless infrastructure technologies, such as direct
broadcast satellite ("DBS"), multichannel multipoint distribution service
("MMDS") and local multipoint distribution service ("LMDS"); and (iii) hybrid
fiber-coaxial ("HFC") cable infrastructure technologies such as cable modems.
While each of these technologies has certain advantages, the cable
infrastructure currently provides the highest available transmission speed, with
peak data transmission speeds of 30 megabits per second ("Mbps") and "always-on"
availability providing instant access. In addition, cable infrastructure is
widely available. Paul Kagan Associates, Inc. estimates that at the end of 1997,
cable infrastructure passed approximately 95 million U.S. homes and more than
185 million homes in Western Europe and Asia. Recognizing the opportunity to
capture additional revenues by offering data-over-cable services, cable
operators have begun to address the burgeoning market for cable modem Internet
access. Industry sources estimate that there are currently in excess of 100
initial commercial deployments of cable modem systems worldwide, including sites
in the U.S., Argentina, Australia, Canada, France, The Netherlands and
Switzerland.
To fully realize the benefits of two-way data-over-cable communications,
cable operators must activate a data transmission return path that travels from
subscriber sites upstream to the cable operator through the cable plant.
Previously, cable operators have not been required to activate an upstream
return path because television broadcast only requires downstream transmission.
A critical factor related to two-way cable modem service involves the reduction,
containment and management of "noise" in the upstream return path. Noise
accumulates from subscriber sites on the upstream channel and interferes with
transmission throughout the entire cable plant. Excessive noise impairs the
quality of upstream transmissions and, in certain cases, results in significant
performance degradation. Cable plant noise consists of ambient background noise
in the cable plant itself and specific ingress noise introduced through
subscriber sites as a result of loose fittings and connectors, cracks in coaxial
cable shielding and other physical plant imperfections. Common sources of
ingress noise at subscriber sites include electronic motors in appliances,
consumer electronics devices and office equipment. One approach to dealing with
excessive noise involves signal encoding or modulation techniques that
compensate for higher noise levels. Such techniques, however, typically result
in decreased data transmission rates. Other approaches for identifying and
containing ingress noise, such as the installation of high pass filters at
subscriber sites, are expensive and inefficient because they block upstream
transmission entirely and must be physically removed prior to enabling two-way
cable modem service. Once the high pass filter is removed, ingress noise can
re-enter the system from that site. As a result, reducing noise to the low
tolerance level required by most two-way cable modem systems involves
significant cost and time for the cable operator, often delaying the
commencement of service and the consequent generation of revenue from
subscribers.
Recently, cable operators have begun upgrading their plants to an HFC cable
infrastructure that enables them to offer more channels, to add greater services
and consequently to compete better with DBS television providers' digital video
offerings. HFC cable infrastructure also facilitates reliable upstream data
transmission and contains noise by isolating portions of the network into
smaller distinct nodes. Each node typically serves 500 to 2,000 homes and has a
separate return path. In order to enable data service over HFC, cable operators
must install return path receivers at the headend based
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on the number of nodes to be activated rather than on the number of potential
cable modem subscribers. To reduce the number of return path receivers that
cable operators would otherwise have to purchase, cable operators can recombine
separate return paths. However, the number of return paths that can be combined
is limited by the accumulated noise from each path. As a result, early
deployment costs can be significant compared to the revenues generated by
initial cable modem subscribers.
In order to accelerate time-to-market and revenue generation, and to reduce
initial deployment costs, some cable modem Internet access systems offer one-way
"telephone return" service, with cable transmission downstream and slower
dial-up modem transmission upstream. This approach enables earlier deployment of
cable modem systems by postponing the need to address upstream noise issues and
enables cost-effective determination of which markets are most likely to be
economically feasible for larger-scale, two-way installations. However, with
most currently available cable modems, the eventual upgrade from one-way to
two-way service requires the purchase of a new two-way modem and generally
requires a field service visit to replace and install the dedicated one-way
modem with a two-way modem.
Cable operators are seeking to accelerate the acceptance of cable modem
service by their subscribers. Many major domestic cable operators have
established or invested in value-added data-over-cable services such as @Home
Network ("@Home"), Time Warner Cable's Roadrunner service and US West Media
Group's MediaOne Express service. In addition, several domestic cable operators
have recently cooperated to create the Multimedia Cable Network System ("MCNS")
specification to define multi-vendor interoperable cable modems. This
specification is expected to be widely adopted for the North American consumer
market. While a number of suppliers are developing MCNS-compliant two-way cable
modems, no such modems are currently commercially available.
Beyond the challenges of deploying cable modem Internet services, most
cable modem systems enable operators to offer only a single level of service at
a single monthly rate and do not enable customized features that meet the
special requirements of distinct market segments. Offering a single service and
rate to all subscribers does not permit cable operators to maximize revenue
opportunities. For example, a residential subscriber with only limited access
and speed requirements such as sending and receiving e-mail, may elect not to
subscribe to a 256 Kbps service at $50 per month. In contrast, a business
subscriber who would be willing to pay significantly more for enhanced service,
would pay only the fixed $50 per month rate. The lost revenue opportunity is
particularly acute in business markets, where telecommuting and SOHO users are
generally willing to pay more for the additional speed, security and VPN
features they require.
In addition to data-over-cable service, telephony-over-cable service has
recently been made possible for cable operators due to regulatory changes both
in the U.S. and internationally. Such deregulation has allowed cable operators
to compete in the local telephone market.
The Company believes that there is a significant opportunity for a provider
of a cable modem system solution that would reduce the total cost of deployment
and ownership of a cable modem system and enable different tiers of data
transmission service and other value-added features for distinct market
segments. To reduce the total cost of deployment and ownership, there is a need
for a cable modem system that provides reliable two-way data service on noisy
cable plants without significantly reducing data transmission rates, enables
cable operators to remotely identify sources of ingress noise and manages system
noise in a manner that permits equipment purchases to more closely scale with
subscriber penetration. In order to accelerate time-to-market, such a system
would also provide for cost-effective remote software-based migration of cable
modems from one-way to two-way service. By enabling higher noise tolerance with
a software-based migration path from one-way to two-way service, cable operators
could more rapidly deploy data service and observe penetration patterns in order
to identify prime markets for the service. In addition, the ability to offer
different tiers of service and value-added features such as VPNs and enhanced
security for distinct business and consumer market segments would enable cable
operators to more fully exploit the cable
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modem opportunity. The Company believes that such a system solution would be
attractive to cable operators because it would allow cable operators to increase
revenues and profitability, while lowering deployment cost and risk and
accelerating time-to-market.
THE COM21 SOLUTION
Com21 designs, develops, markets and sells value-added, high-speed
communications solutions for the broadband access market. The Company's ComUNITY
Access system enables cable operators to provide high-speed, cost-effective
Internet access to corporate telecommuter, SOHO and residential users in the
U.S. and internationally, and enables them to address the distinct price,
performance, security and other needs of these different end-user groups.
Com21's products include headend equipment, subscriber cable modems, network
management software and noise containment technologies. The Company's cable
modem systems provide the following key benefits:
Increase Service Revenues. The Company's ComUNITY Access system enables
cable operators to increase revenues by offering up to 16 different cable
operator-defined transmission rates at varying price points to multiple markets.
In a typical flat-rate cable modem system, all subscribers are charged the same
price, regardless of individual bandwidth service and pricing requirements (see
Figure 1), which results in lost revenue opportunities for cable operators. In
addition, the ComUNITY Access system enables cable operators to provide
value-added services, such as multiple VPNs and enhanced security, targeted to
business users. To accommodate future value-added broadband applications, the
Company's underlying ATM-based technology can also enable integrated services
such as toll-quality voice and desktop video.
FIGURE 1.
LOGO
LOGO
Reduce Deployment Costs. The ComUNITY Access system was designed to lower
deployment costs by providing a flexible solution to address the needs of cable
operators and their subscribers at each step of cable modem system deployment.
The Company believes its radio frequency ("RF") technology tolerates a higher
level of background and ingress noise than do other commercially available RF
technologies, thereby avoiding the costs otherwise necessary to limit noise
before deploying two-way cable modem service. The Company is developing a Return
Path Multiplexer ("RPM"), which is expected to be commercially available in
mid-1998, that is designed to reduce the number of return path receivers
required in a cable operator's headend equipment. The RPM will enable cable
operators to purchase less headend equipment initially and then cost-effectively
scale the system over time as subscriber penetration grows.
Accelerate Time-to-Market. The ComUNITY Access system provides a
comprehensive solution that enables cable operators to bring broadband services
to market quickly. In the initial stage of deployment, the ComUNITY Access
system can be implemented as a one-way telephone return system. Upon
implementation of a two-way service, a cable operator can upgrade to a two-way
system with a simple software download to the end-user's existing ComPORT cable
modem. The
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Company is also developing the capability to enable ComPORT cable modems to
communicate to PCs through parallel port interfaces, which will reduce the time
and resources needed to connect modems at subscribers' locations.
Mitigate Deployment Risks. The ComUNITY Access system's comprehensive
solution mitigates deployment risks by enabling cable operators to rapidly
implement data-over-cable service using telephone return service and observe
service penetration patterns. Cable operators can then deploy the capital
necessary to upgrade the plant, and build a larger-scale two-way cable modem
system, only in those markets where they observe sufficient penetration to
warrant such investment.
Reduce Long-Term Cost of Ownership. The ComUNITY Access system reduces the
long-term cost of ownership for cable operators. Because a cable modem system's
operational and maintenance expenses typically exceed the costs of the capital
equipment over the expected life of the system, a system that requires less
plant maintenance will reduce the long-term cost of ownership for cable
operators. The Company's Network Management Provisioning System ("NMAPS") lowers
ongoing operating costs by enabling cable operators to remotely detect, diagnose
and manage network problems from a single workstation. In addition, ComPORT
cable modems can be remotely upgraded with software downloads. The ComUNITY
Access system can be deployed with lower operational overhead because the cable
operator can use the Company's Ingress Noise Blocker ("INB") as an intelligent
filter to prevent ingress noise from contaminating the upstream return path. The
INB opens only to allow data to be transmitted upstream, and is closed
otherwise, preventing aggregation of noise in the upstream return path. The INB
also enables a cable operator to more quickly identify ingress noise sources,
which reduces maintenance costs because a cable operator need not devote
substantial amounts of personnel and resources to the identification of the
source and site of intermittent ingress noise.
Offer Significant Benefits to End-Users. In addition to high-speed,
always-on and cost advantages, the ComUNITY Access system enables cable
operators to offer differentiated services with significant benefits to their
subscriber end users. In addition to value-added services such as VPNs and
enhanced security, each ComPORT cable modem can support up to eight PCs. The
ComUNITY Access system supports multiple protocols, including IP, IPX, AppleTalk
and NETBEUI. ComPORT modems have an expansion slot to accommodate Application
Interface Modules ("AIMs") which can support future features and service
offerings such as desktop video conferencing, cable telephony applications and
parallel port modem connectivity.
THE COM21 STRATEGY
Com21's business strategy includes the following key elements:
Enhance Value to Cable Operators. The Company's principal strategy is to
provide products that enhance the value of cable operators' cable modem
deployments over the life of the investment. Cable operators assess the
viability, and ultimately the success, of an investment in a cable modem system
by considering the cost of initial investment in cable modem equipment, service
reliability, overall operating and maintenance expenses and the service revenues
that can be generated. The Company's ComUNITY Access system is designed to be
deployed on a limited capital budget and can be upgraded and scaled as
subscriber penetration grows. The Company's system enables cable operators to
lower their ongoing cost of ownership through cost-effective noise management
and remote cable modem upgrades. Cable operators can use the Company's system to
increase revenues by offering multiple tiers of service at varying prices to
multiple market segments. As a result of the value provided by its products, the
Company believes it will continue to be able to successfully differentiate and
sell its products based upon tangible benefits delivered to the cable operator.
Leverage Technology Leadership. The Company's ATM cell-based architecture
is the foundation upon which the Company has built an end-to-end Ethernet
broadband communications system with networking advantages. Technological
developments in multi-service scheduling optimization, protocol simulation and
application specific integrated circuit ("ASIC") integration enable the Company
to
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offer a scalable system to deliver tiered service levels, VPNs and low-latency
voice and video applications. Moreover, the Company's internal development of a
network management system, high performance, cost-effective RF
transmitters/receivers and fast RF switching systems lowers the cost to cable
operators of deploying and operating the Company's equipment. The Company
focuses on the development of new value-added features for its products,
including its recently announced RPM, which will enable cable operators to
purchase less headend equipment initially and then scale their systems as
subscriber penetration grows. In addition, the Company is leveraging its RF and
noise management technology in its MCNS-compliant cable modem for the North
American consumer market and is working with Cisco Systems, Inc. ("Cisco") to
develop interoperable MCNS-compliant products.
Aggressively Penetrate Global Markets. The Company believes the market for
cable modem systems is global and has developed strategies to sell its products
in regions where cable is widely available, such as the U.S., Canada, Europe and
Japan, and in regions where cable is being aggressively deployed, such as China
and Latin America. In 1997, the Company shipped approximately 170 ComCONTROLLER
headends and more than 12,000 ComPORT modems for use in 61 locations worldwide.
In the North American market, the Company sells directly to cable operators and
has sold systems to major operators such as Charter Communications, Prime Cable
and TCI. Internationally, the Company sells primarily to systems integrators,
including Philips and Siemens, which in turn sell to cable operators.
Lower Product Costs. While the Company intends to continue to seek premium
prices for its products, it anticipates that the cable modem market will be
characterized by declining prices. As a result, the Company seeks to decrease
product costs, particularly with respect to its end-user modem products. The
Company recently improved its tuner design to decrease manufacturing costs,
integrated its modem design to one printed circuit board and increased its use
of standard components. The Company is working to achieve a higher level of ASIC
integration and improve the design of its products to increase manufacturing
efficiencies. In addition, because product design and manufacturing quality
affect product costs, the Company is working to further enhance its internal
engineering and manufacturing processes and expects to obtain ISO 9001
certification in 1998.
Integrate Toll-Quality Voice. The Company intends to integrate toll-quality
voice capability with the current data capability of the ComUNITY Access system.
The Company's existing products have been designed with the Quality of Service
("QoS") capability to support a toll-quality voice transmission across the
broadband cable plant. Recently, the Company entered into an agreement to
license certain digital telephony technology from e-Net, Inc. ("e-Net"). In the
future, the Company intends to introduce telephony-over-cable capability as an
integrated component of its existing ComUNITY Access system product line.
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PRODUCTS
The Company's product offerings are depicted in the following diagram.
The ComUNITY Access System
The ComUNITY Access system consists of three parts: (i) the ComCONTROLLER,
which is the channel switch located at the cable operator's headend; (ii) the
ComPORT, which is the cable modem located at the subscriber's site; and (iii)
NMAPS, which is the integrated network management software. Additionally, the
Company offers the INB, an intelligent filter used to block noise in the
upstream channel.
The ComCONTROLLER Headend Switch. The ComCONTROLLER controls the flow of
data communications between the ComPORT modems located at a subscriber's site
and an external network, such as the Internet or a corporate network, typically
through routers. The ComCONTROLLER is designed with multiple expansion slots
that can accommodate 10 Ethernet interfaces. The ComCONTROLLER transmits data
downstream at 30 Mbps (using 64 quadrature amplitude modulation ("64QAM")). The
expansion slots enable the addition of up to twelve 2.56 Mbps (using quadrature
phase shift key ("QPSK")) upstream channel modules, scaling the upstream path to
an aggregate throughput of 30 Mbps. The upstream channels can be added on an
incremental, hot-insertion basis, enabling a cable operator to respond rapidly
to system faults. A single ComCONTROLLER is designed to support up to 2,000
ComPORT modems.
ComPORT Cable Modem. The ComPORT cable modem is deployed within a
subscriber's home or office. In addition to its cable connection, the ComPORT is
designed with a 10BaseT Ethernet port for direct connection to the subscriber's
PC Ethernet card or an Ethernet hub for interconnecting up to eight PCs. Each
ComPORT can be used either on a one-way or two-way cable plant and can be
remotely configured for either plant by the Company's NMAPS software. The
ComPORT features an expansion port for the insertion of future modules that will
support applications such as secure IP communications and toll-quality voice.
Network Management and Provisioning System. NMAPS is a network management
software package that facilitates subscriber provisioning, fault isolation,
network configuration, field inventory, auto-discovery and performance for the
ComUNITY Access system. NMAPS enables the cable operator to remotely monitor and
manage the ComUNITY Access system through a graphical user
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interface and to remotely upgrade ComPORT cable modems. NMAPS is a Simple
Network Management Protocol ("SNMP") manager running on a UNIX workstation
connected to the ComCONTROLLER via a separate out-of-band 10BaseT Ethernet
channel. The Company believes that the ability of NMAPS to manage the network
elements of the ComUNITY Access system from a remote site will further reduce
cable operators' long-term cost of ownership by reducing the number of visits
cable operator technicians will need to make to headend and subscriber sites. A
standard PC Web browser can be used to monitor and manage cable modems via an
Internet server application on the NMAPS station. A single NMAPS station can
manage up to 50 ComCONTROLLERs and 100,000 ComPORTs.
The ComUNITY Access system incorporates the following features:
- Multiple Service Levels. The ATM-based architecture provides up to 16
levels of service that can be configured by the cable operator, each with
specified upstream and downstream data rates. This feature enables the
cable operator to tailor data-over-cable service and pricing to different
end-user demands, thereby increasing the ability to capture additional
subscriber revenues by matching supply with demand.
- Robust, High-Speed Architecture. The ComUNITY Access system transmits
downstream traffic at a rate of up to 30 Mbps in one 6 MHz channel. Each
1.8 MHz channel of the upstream spectrum can transmit traffic at a rate
of 2.56 Mbps, and the system enables the cable operator to aggregate up
to twelve upstream channels, permitting total upstream throughput of 30
Mbps.
- One-Way and Two-Way Cable. The ComUNITY Access system can be configured
to support both one-way and two-way cable plants. The ComPORT modem works
with the subscriber's personal computer and a dial-up Internet access
service operated either by the cable operator or an Internet service
provider ("ISP") to enable a one-way system. The ComPORT can be
reconfigured remotely from one-way mode to two-way mode through a
software download without replacing a subscriber's modem.
- Superior Noise Technology. The Company's has developed noise containment
technology which allows the system to tolerate higher levels of noise,
thereby enabling cable operators to install the system on noisy cable
plants that could not otherwise be used for two-way data transmission.
- Multiple Protocols. The ComUNITY Access system supports multiple
protocols include IP, IPX, AppleTalk and NETBEUI.
- Privacy from Other Subscribers. The ComPORT can be configured by the
cable operator to block all non-IP protocols, preventing subscribers on
the same cable network from accidentally gaining access to others' files.
- Data Security. Data Encryption Standard ("DES") encryption and public key
management enable secure upstream and downstream data communications
between the ComCONTROLLER and the ComPORT.
- Enables High-Value Business Networking. The Company's ComUNITY Access
system enables cable operators to establish private, secure sub-networks
within a ComCONTROLLER while providing dedicated bandwidth. These
sub-networks are known as virtual local area networks ("VLANs"). Using
NMAPS, the cable operator can configure secure VPNs for the business
connectivity markets by partitioning the transmission channels into
several VLANs, then assigning cable modems to each VLAN.
- Early Fault Detection. NMAPS offers high network visibility and control
via a suite of configurable alarms, diagnostic tools and performance
monitoring features.
The Ingress Noise Blocker. The INB is an external noise filter designed to
meet the needs of cable operators whose cable networks have excessive ingress
noise and who want to deploy two-way data
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service prior to solving costly overall system noise issues. The INB works with
both two-way HFC and coaxial-only cable plants and attaches to the cable tap
outside the subscriber's site. The INB, which is remotely controlled by the
ComPORT, opens to allow upstream transmission of traffic and closes at all other
times, which limits the ability of noise to enter the system. Because noise
passes through the INB only when data is being transmitted from a subscriber's
site, the INB allows NMAPS to rapidly detect and isolate sources of noise.
Although it is currently necessary for the subscriber to have a ComPORT modem to
control the INB, the Company plans to license the INB control circuitry to other
cable equipment vendors.
Products Under Development
MCNS-Compliant Cable Modem. The Company is leveraging its RF and noise
management technology to develop an MCNS-compliant ComPORT modem for the North
American consumer market. The Company is working with Cisco to ensure the
interoperability of this new modem with Cisco's previously announced
MCNS-compliant Universal Broadband Router. The MCNS-compliant ComPORT is
expected to be commercially available in the second half of 1998.
Return Path Multiplexer. The Company is currently developing the Return
Path Multiplexer ("RPM"), a high-speed, multiport analog switching device which
will allow up to eight upstream return paths to be connected to a single
ComCONTROLLER RF receiver without electrically combining the accumulated noise
from the return paths. The RPM is designed to solve the problem of accumulated
noise inherent in HFC cable installations configured with large numbers of
return paths from distributed fiber nodes. The RPM utilizes a high-speed RF
switching technology that enables it to pass one upstream return path at a time
to the ComCONTROLLER. This technology prevents the noise accumulation that would
otherwise occur if multiple upstream returns were combined at the ComCONTROLLER.
Since the RPM will allow eight upstream connections, the Company believes that
the installation of RPMs on a cable operator's network will reduce the number of
return path receivers required in the cable operator's headend equipment and
therefore reduce the capital costs for a large-scale HFC cable modem deployment.
The RPM is expected to be available in mid-1998.
Mini ComCONTROLLER. The Company is developing a smaller version of the
ComCONTROLLER which will have only three expansion slots for upstream receiver
and Ethernet modules. The Company believes that this smaller headend product
will address the requirements of smaller cable operators and specialized
applications (such as cable systems within a hotel) that cannot justify the
additional expense of the larger ComCONTROLLER. The Mini ComCONTROLLER is
expected to be available in mid-1998.
Parallel Port and Secure IP Modules. The Company is developing a parallel
port interface module and a secure IP module to be inserted in the ComPORT's AIM
expansion slot. The Company believes that the parallel port interface module
will reduce cable operators' long-term cost of ownership by eliminating the time
needed to install a 10BaseT Ethernet card in a subscriber's PC. The Company
believes that the secure IP module will increase cable operators' service
revenues by providing them with an advanced security feature to sell to their
subscribers. The secure IP module is expected to become available in mid-1998,
and the parallel port module is expected to become available by the end of 1998.
Toll-Quality Voice Module and Telephony Gateway. The Company is developing
an AIM module for the ComPORT to allow cable operators to provide toll quality
voice-over-cable through a standard RJ11 telephone interface. In addition, the
Company is developing a telephony gateway for the ComCONTROLLER. The Company
also recently entered into an agreement to license e-Net's digital telephony
technology. In the future, the Company intends to introduce telephony-over-cable
capability as an integrated component of its existing ComUNITY Access system
product line.
The market for cable modem systems and products is characterized by rapidly
changing technologies and short product life cycles. The Company's future
success will depend in part upon its ability to enhance its existing products
and to develop and introduce, on a timely basis, new products
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and features that meet changing customer requirements and emerging industry
standards. The Company's product development efforts are subject to a number of
risks and there can be no assurance that such efforts will result in the
introduction of any new products that achieve market acceptance. See "Risk
Factors -- Risks Associated with New Product Development."
TECHNOLOGY
The Company invests in technology development to enable scalable, reliable
broadband data communications that can accommodate a wide range of applications.
Key technologies include: (i) ATM architecture and ComUNITY Media Access Control
("MAC") and Physical ("PHY") layer protocols, all of which provide the
flexibility and scalability to allow cable operators to build multi-tiered
services and VPNs; (ii) application-specific integrated circuit ("ASIC") based
modem design that allows the Company to provide high-speed, cost-effective,
highly functional products; (iii) high performance RF modulators and
demodulators which allow the cable operator to use the Company's products in a
wider range of cable systems; and (iv) noise mitigation technology, which
addresses many of the cable plant upstream noise problems and reduces the cable
operator's ongoing maintenance and operational costs.
ATM Architecture and ComUNITY Protocols. The ComUNITY Access system has
been designed using a high-performance cell-switching broadband data transport
architecture that optimizes system performance for multiple simultaneous
applications with a variety of requirements for data rates and latency,
including Internet data, toll-quality voice and desktop video. In order to
transport and manage data flows for latency-sensitive applications such as
telephony, video conferencing or interactive games, the ComUNITY Access system
implements an ATM virtual circuit-based data transport protocol upon shared
broadband downstream and upstream channels.
The ComUNITY Protocols are specifically designed to efficiently manage the
ATM cell traffic on the broadband cable television network, taking into account
topological and physical constraints of the two-way cable transmission systems.
For example, the protocol must:(i) provide secure point-to-point communications
in physical media that are inherently insecure broadcast channels; (ii) provide
reliable data delivery in a noisy communications channel; (iii) automatically
calibrate for variations in phase delay and signal attenuation arising from the
condition of the physical cable plant; (iv) minimize simultaneous transmission
from multiple modems to prevent return amplifier saturation and distortion; (v)
efficiently adapt to the traffic load among a large subscriber base so that the
system can grow and still provide high service levels with low overhead costs;
and (vi) provide stable performance under increasing traffic loads and various
traffic types with different QoS requirements. The protocols also provide
flexibility to handle a telephone return capability for applications in a
one-way system. As a result of the work to develop robust low-level protocols,
the ComUNITY Access system can reliably perform in both coaxial systems as well
as modern HFC cable plants.
In addition, the ComUNITY Access system has been designed so that each
cable modem can enable multiple virtual circuits for separate applications,
allowing simultaneous, independent data flows with different performance
requirements. Specifically, a single ComUNITY-based cable modem can
simultaneously provide a high-speed, latency-insensitive 10 Mbps IP-based
Internet connection and a low-speed, short delay, latency-sensitive 64 Kbps link
for a toll-quality voice connection, with both data and voice applications
operating independently.
ASIC-Based Modems. The Company has internally developed a custom ASIC to
implement the major portions of the cable modem functionality, including
ComUNITY protocol control, DES encryption, ATM segmentation and reassembly
("SAR"), packet switching and filtering and multicast control. Because these
functions are integrated into the ASIC, the cable modem can operate at high
speeds without requiring an expensive external processor or ATM SAR components.
As a result, the material cost of the additional ATM and networking
functionality is insignificant, and the Company has been able to decrease the
size of the electronics design and reduce the implementation to a single-sided
printed circuit board.
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High Performance RF Modulator and Demodulator Design. The ComUNITY Access
system's downstream and upstream channels occupy a small portion of the HFC
spectrum and must coexist with existing signals occupied by entertainment
television channels in the 54-750 MHz band as well as other upstream services
such as pay-per-view or cable telephony in the 5-40 MHz band. The RF modulator
design must be accurate enough to convert multi-bit symbols into a multi-level
phase/amplitude signal without creating interference into adjacent channels and
robust enough to perform in noisy upstream environments. The RF demodulator
implementations must be sensitive enough to detect and synchronize a complex QAM
signal in cable systems that induce signal distortions and are susceptible to
spurious environmental noise. QAM encoding is a digital transmission technique
which combines multi-level phase and amplitude modulation to increase the
effective data transmission rate in a communications channel, trading off higher
noise immunity for higher information content. Additionally, these designs must
be cost-effective and self-tuning without the need for expensive, precision
components for manual parametric adjustments during the manufacturing process.
The Company has designed its own RF modem technology that is less sensitive
to operating temperature fluctuations, has higher sensitivity to low signal
levels, has improved tolerance to adjacent TV signals, adapts to channel phase
and noise impairments, and cleanly transmits signals with low spurious noise and
harmonic distortion. The Company expects to continue to enhance its proprietary
RF technology as new 256QAM and 16QAM components become available. This
technology has enabled the Company to sell its internally developed RF modulator
as an integrated component of its ComCONTROLLER product family, whereas most
other commercially available cable modem systems require cable operators to
purchase an external IF-to-RF converter from third-party cable equipment
suppliers.
Noise Mitigation Technology. Reliable system performance in the presence of
a significant level of noise in the upstream channel is a key issue for any
cable modem system. There are two basic ways to minimize the effect of noise on
upstream data transmission: (i) reduce or eliminate noise from the upstream
channel; or (ii) compensate for errors caused by high noise levels using
upstream protocols, modulation schemes or encoding techniques. The Company
utilizes a combination of these techniques.
The Company has developed technology specifically designed to reduce
upstream noise observed by the ComCONTROLLER headend receiver. The INB is a
modem-activated filter attached to the cable tap outside the subscriber's house.
Using the Company's signal-powered dynamic RF filter technology, the INB blocks
upstream noise and only allows return signals when the ComPORT is transmitting
upstream. An industry source has stated that most of the upstream ingress noise
on cable plants originates from sources which inject noise into the cabling
system from the cable tap to a subscriber's television set. A cable plant with
INB technology installed will have a lower level of ingress noise in the
upstream return path, resulting in reduced plant maintenance costs related to
identifying, minimizing and correcting ingress noise problems.
The Company is developing an RPM, which is a high-speed, multiport analog
switching device which allows up to eight upstream return paths to be connected
to a single ComCONTROLLER RF receiver without electrically combining the
accumulated noise from the return paths. The Company has developed high-speed RF
switching technology in the RPM which will allow a control signal from the
ComCONTROLLER to electrically switch from one return path to another to enable a
specified modem using a specific return path to transmit to the ComCONTROLLER.
The Company has also developed control mechanisms and management protocols to
efficiently manage traffic switching through the RPM. To illustrate an RPM
application, an HFC system serving 100,000 homes would require 25 separate
return paths (assuming 500 home fiber nodes and eight return nodes combined).
Without the Company's RPM, the cable operator would have to purchase several
headend units to enable data service for the entire HFC network. Instead, the
cable operator will be able to purchase a single ComCONTROLLER and several RPMs
at a significantly lower cost. The Company's product
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<PAGE> 43
development efforts are subject to a number of risks, and there can be no
assurance that such efforts will result in the successful introduction of the
RPM or any other new products, or that such products will achieve market
acceptance. See "Risk Factors -- Risks Associated with New Product Development."
The ComUNITY Access system incorporates an encoding technique called
Forward Error Correction ("FEC") on upstream, as well as downstream, channels.
FEC is a technique that inserts redundant information into the data stream so
that a certain number of data errors can be detected and corrected. This
technique, coupled with the Company's high performance RF modem design, allows
the Company's cable modems to operate at high data rates with nominal Bit Error
Rate ("BER") of 10(-9) in a cable plant with a Carrier-to-Noise-Ratio ("CNR") of
16dB. This BER performance is substantially better than the MCNS specification
of 10(-9) BER at 25dB CNR. As a result, the Company's products can provide more
reliable data service in noisier cable plants than a modem built to that
specification. More specifically, the 9dB difference in performance lowers noise
sensitivity by a factor of eight.
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<PAGE> 44
CUSTOMERS AND MARKETS
Customers. The Company began commercial shipments of its cable modem
products in April 1997 and in 1997 shipped approximately 170 headend systems
with more than 12,000 cable modems for use in 61 locations worldwide. Fourteen
of these customers have commercially deployed the Company's products while the
remainder are running trials or performing evaluation tests with the products.
In the U.S., the Company sells directly to cable operators. Internationally, the
Company sells primarily to systems integrators, including Philips and Siemens,
who in turn sell to cable operators.
The following table depicts commercial deployments of the ComUNITY Access
system as of March 31, 1998. The Company considers a sale as a commercial
deployment if the cable operator to whom the sale was made has begun offering
data-over-cable services to paying subscribers. "Homes passed" is defined as the
number of homes currently passed by a cable system, as represented to the
Company by each respective cable operator in the chart below, regardless of
whether each such home is currently receiving data-over-cable.
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------
COM21 COMMERCIAL DEPLOYMENTS
- -----------------------------------------------------------------------------------
CUSTOMER LOCATION HOMES PASSED
- -----------------------------------------------------------------------------------
Baerum Kabel-TV Oslo, Norway 36,000
- -----------------------------------------------------------------------------------
Cablecom Holding AG Zurich, Switzerland 200,000
- -----------------------------------------------------------------------------------
CableVision TCI-International Buenos Aires, Argentina 1,200,000
- -----------------------------------------------------------------------------------
Halifax Cable Halifax, Nova Scotia 205,000
- -----------------------------------------------------------------------------------
NV Eneco Rotterdam, The Netherlands 600,000
- -----------------------------------------------------------------------------------
Palo Alto Cable Co-op Palo Alto, California 56,000
- -----------------------------------------------------------------------------------
Spie Trindel Colmar, France 25,000
- -----------------------------------------------------------------------------------
Telindus NV/SA Nyon, Switzerland 80,000
- -----------------------------------------------------------------------------------
Videopole Meudon, France 23,000
- -----------------------------------------------------------------------------------
Cablecom Holding AG Geneva, Switzerland 450,000
- -----------------------------------------------------------------------------------
Charter Communications Pasadena, California 110,000
- -----------------------------------------------------------------------------------
Prime Cable Las Vegas, Nevada 480,000
- -----------------------------------------------------------------------------------
Super Canal Holding Mendoza, Argentina 50,000
- -----------------------------------------------------------------------------------
Telekabel Leeuwarden, The Netherlands 120,000
- -----------------------------------------------------------------------------------
Telia Stofa A/S Horsens, Denmark 200,000
- -----------------------------------------------------------------------------------
Telindus NV/SA Lausanne, Switzerland 200,000
- -----------------------------------------------------------------------------------
Charter Communications Newtown, Connecticut 63,400
- -----------------------------------------------------------------------------------
Prime Cable Chicago, Illinois 460,000
- -----------------------------------------------------------------------------------
TOTAL 4,558,400
=========
- -----------------------------------------------------------------------------------
</TABLE>
The Company did not commence product shipments until April 1997. The
Company's success will depend on the timely adoption of its products by cable
operators and end users. The market for the Company's products has only recently
begun to develop, is rapidly evolving and is characterized by an increasing
number of market entrants that compete or intend to compete with the Company.
The Company shipped its ComUNITY Access System for commercial deployment to nine
cable operator customers in the second quarter of 1997, seven cable operator
customers in the third quarter of 1997 and two cable operator customers in the
first quarter of 1998. There can be no assurance that the market for cable
modems will develop as the Company anticipates or that the Company will be able
to
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<PAGE> 45
compete with new market entrants should the market develop. See "Risk
Factors -- Limited Operating History; History of Losses; No Assurance of
Profitability," "-- Potential Fluctuations in Operating Results," "-- Early
Stage of the Market for Cable Modems; Unproven Acceptance of the Company's
Products" and "Competition."
In 1997, revenues attributable to Philips, 3Com and Siemens accounted for
21%, 16% and 12% of total revenues, respectively. In the three months ended
March 31, 1998, revenues attributable to TCI, Philips, Siemens, Prime Cable and
Cablecom accounted for 31%, 13%, 13%, 11% and 10% of total revenues,
respectively. See "Risk Factors -- Customer Concentration" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
In 1997 and the three months ended March 31, 1998, revenues attributable to
international customers constituted 64% and 50% of total revenues, respectively.
The Company believes that its ATM-based system has been adopted more rapidly in
Europe and other international markets because of the greater acceptance of the
benefits of ATM-based technology as well as the more recently upgraded and
installed cable plants. See "Risk Factors -- Risks Associated with International
Markets" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The following customer examples illustrate how certain of the Company's
customers have deployed its products:
Cablevision/TCI-International, Argentina ("Cablevision") is a cable
operator with approximately 1,200,000 homes passed in Buenos Aires. Cablevision
offers a single Internet service priced at $125 per month for two-way service.
Because Cablevision's cable system is not yet completely two-way enabled, it is
also planning to offer one-way (telephone return) service using Com21's
products. Cablevision is marketing a private corporate networking service that
uses Com21's VLAN capability and selling dedicated line connections for business
applications using Com21's QoS capability to provision constant-bit-rate service
per modem. Cablevision uses various features of the ComUNITY Access system to
provide different service products for different subscribers' needs.
Charter, one of the largest cable television operators in the U.S. with
approximately 1.1 million subscribers, has deployed service in the Pasadena,
California area, which passes approximately 300,000 homes. Charter offers
Charter Pipeline, its general Internet service, at prices ranging from $50 per
month to $500 per month with five service tiers, with the following service
levels (upstream/ downstream data rates): (i) "diamond service" (2 Mbps/1 Mbps);
(ii) "platinum service" (1 Mbps/512 Kbps); (iii) "gold service" (768 Kbps/384
Kbps); (iv) "silver service" (512 Kbps/128 Kbps); and (v) "bronze service" (256
Kbps/56 Kbps). In addition to its general Internet access service, Charter has
established a campus local area network ("LAN") extension on its cable network
using the ComUNITY Access system's VLAN capability and provides off-campus
connections to the students and staff of the California Institute of Technology.
Charter also plans to use the ComUNITY Access system's telephone return feature
to provide access for subscribers who are not yet two-way enabled.
Telia Stofa A/S is the second largest cable operator in Denmark with more
than 200,000 homes passed. Telia Stofa is using the ComUNITY Access system to
deliver high-speed data-over-cable service, along with other integrated
services, to residential and business customers, allocating varying levels of
bandwidth to address different subscriber requirements. Telia Stofa gives
residential and business users the option of choosing from three different tiers
of service: StofaNet Private, StofaNet Study and StofaNet Business. This allows
Telia Stofa to charge subscribers according to the bandwidth used, versus a flat
fee, and results in increased revenues. Telia Stofa has indicated that one of
the primary reasons that Telia Stofa selected Com21 was because of the Company's
ability to offer QoS, VLANs and other future integrated services.
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<PAGE> 46
Markets. Com21's products enable cable operators to serve three primary
end-user markets each of which has widely varying speed, service and pricing
requirements. The table below divides these markets by user segment and outlines
their typical access requirements and attributes:
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
TYPICAL ACCESS
SOLUTION
USER SEGMENT ACCESS REQUIREMENT POTENTIAL USED TODAY
APPLICATIONS
- ----------------------------------------------------------------------------------------------
Corporate - Remote access to - Remote LAN access - Analog modem
Telecommuter and corporate LANs and - VPN provisioning (28.8 - 56 Kbps)
Remote Office Intranets - File transfer - ISDN (128 Kbps)
Users - High speed Internet - "Always on" - T-1 (1.54 Mbps)
access Internet access
- High security
- Telephony
enhancements, e.g.,
PBX extension
- Desktop video
conferencing
- ----------------------------------------------------------------------------------------------
SOHO Users - Remote access to - "Always on" - Analog modem
LANs Internet access (28.8 - 56 Kbps)
- High speed Internet - Connectivity to - ISDN (128 Kbps)
access several businesses - Fractional T-1 (384
- Alternate telephone Kbps)
service
- Desktop video
conferencing
- ----------------------------------------------------------------------------------------------
Residential - Low to high speed - Internet access - Analog modem
Consumer Internet Internet access - Web-based (28.8 - 56 Kbps)
Users (Occasional multimedia content, - ISDN (128 Kbps)
and Frequent) e.g. on-line
services
- E-mail, file
transfer
- ----------------------------------------------------------------------------------------------
</TABLE>
Corporate Telecommuter and Remote Office Users. The needs of corporate
telecommuter and remote office business users include high availability,
high-speed access to corporate intranets and corporate LANs. These users also
must interconnect the LANs among their various offices. Such offices may be
co-located, as in the case of a large campus, or remotely located, as in the
case of a sales office or a telecommuter's home. A parallel application for this
business market is the interconnection of remote workers to a central telephone
PBX, distributing voice traffic to users throughout a campus or to a remote
office. Security and reliability are of utmost importance for corporate users.
Other applications which business users may require include desktop video
conferencing and rapid two-way transfer of large data files. Corporate
telecommuters and remote office users are generally willing to pay a premium for
highly reliable, high-speed service with advanced features.
SOHO Users. SOHO businesses increasingly find the Internet an efficient and
cost-effective means to communicate and transact with their customers and
suppliers. The Company believes these businesses require medium-to-high speed
Internet access that is reliable and always available. SOHO users may have a LAN
to connect to cable modem services and may require routing in order to connect
multiple terminals. These businesses may also require desktop video conferencing
capability and connectivity with other businesses. Because these requirements
may be critical to running their business, certain SOHO users are willing to pay
more for higher-quality, secure, reliable service than are residential consumer
Internet users.
Residential Consumer Internet Users. Residential consumer Internet users
generally only require a connection to their ISP, without the same level of
security and reliability required by business users. Frequent users desire
medium-to-high speed access to the Internet for Web browsing and downloading of
multimedia applications and files. Occasional users require low-to-medium speed
access to the Internet on a limited basis for Web browsing, e-mail and on-line
services. Occasional users generally prefer low-cost service, whereas more
frequent users are generally willing to pay a slight premium for higher speed.
45
<PAGE> 47
MANUFACTURING
Com21 tests and assembles its ComCONTROLLER headend equipment in the
Company's facility in Milpitas, California. The Company outsources ComCONTROLLER
printed circuit board assemblies on a turnkey basis to CMC, and performs final
integration and burn-in on-site. The Company configures the headend equipment
and the network management and provisioning software prior to customer shipment.
Com21 outsources turnkey manufacturing of the ComPORT cable modem to
Celestica, a contract manufacturer located in Toronto, Canada. The Company
believes that employing a turnkey manufacturer will enable it to meet
anticipated manufacturing needs and reduce the cost of product procurement.
Together with Celestica, Com21 has developed and implemented a series of product
test methodologies, quality standards and process control parameters.
The Company's engineering team designs ASICs and performs simulation
testing. When the fundamental design is stable, the Company's contract foundry
fabricates the ASIC for prototype testing and upon completion of these tests the
ASIC is manufactured in volume by Atmel. The Company believes its current
manufacturing capabilities can accommodate its requirements through the end of
1999. Warranty and repair support is performed at the Company's Milpitas
facility.
The Company maintains only a limited in-house manufacturing capability for
final assembly, testing and integration of headend products. The Company's
future success will depend, in significant part, on its ability to manufacture,
or have others manufacture, its products cost-effectively and in volumes
sufficient to meet customer demand. There are a number of risks associated with
the Company's dependence upon third party manufacturers, including but not
limited to, reduced control over delivery schedules, quality assurance,
manufacturing yields and costs, the potential lack of adequate capacity during
periods of excess demand, limited warranties on products supplied to the
Company, increases in prices and the potential misappropriation of the Company's
intellectual property. A manufacturing disruption could impact the production of
the Company's products for a substantial period of time, which could have a
material adverse effect on the Company's business, operating results and
financial condition. The Company has no long-term contracts or arrangements with
any of its vendors that guarantee the availability of product, the continuation
of particular payment terms or the extension of credit limits. There can be no
assurance that the Company will not experience supply problems in the future
from any of its manufacturers. Any such difficulties could have a material
adverse effect on the Company's business, operating results and financial
condition.
In addition, Celestica is a foreign corporation, and the Company may
increase its use of foreign manufacturers in the future. Any foreign or domestic
regulations regarding foreign exports and imports, trade barriers and tariffs
currently in place or imposed in the future could materially and adversely
affect the Company's ability to obtain modems. Because lead times for materials
needed to produce modems and headend equipment can be between eight and 26
weeks, the Company may not be able to meet the demand for its products, which
could adversely affect the Company's ability to support cable operators'
expansion of cable modem service to cable operators' customers. The Company has
had only limited experience manufacturing and arranging for the manufacture of
its products, and there can be no assurance that the Company or any manufacturer
of the Company's products will be successful in increasing its manufacturing
volume. The Company may need to procure additional manufacturing facilities and
equipment, adopt new inventory controls and procedures, substantially increase
its personnel and revise its quality assurance and testing practices, and there
can be no assurance that any of these efforts will be successful. See "Risk
Factors -- Limited Manufacturing Experience; Dependence on Third-Party
Manufacturing" and "-- Risks Associated with International Markets."
MARKETING AND SALES
Marketing. Domestically, the Company targets its marketing efforts
primarily at cable operators. The domestic cable industry is comprised of a
limited number of cable operators, and purchase decisions by each cable operator
are typically influenced by the cable operator's technical experts. Direct
marketing activities focus on reaching these technical experts and creating
product awareness and credibility for
46
<PAGE> 48
Com21's systems within the cable operator community. Internationally, the
Company focuses its marketing efforts on supporting its systems integration
partners' marketing programs.
A key factor to building global brand awareness for Com21 products is
promoting the success of the Company's commercial cable modem system
deployments. Com21 also educates cable operators regarding the benefits of
providing tiered services to a diverse subscriber base, ranging from residential
consumers to business users. Com21 is also building its brand name through
continued publicity and referral efforts in both media and industry-centered
activities. Com21 markets its systems through several promotional programs,
including direct mail campaigns to the larger cable operators, editorial
presence in various trade magazines, public speaking opportunities, national
cable trade show participation, Web site-based communication and promotion,
media sponsorships and participation in standards activities.
Sales. The Company has a sales force of nine people in three domestic
locations and The Netherlands. Com21 sells its products in North America
primarily through direct sales efforts to cable operators. Internationally, the
Company sells its products primarily to systems integrators, who sell to cable
operators. The Company's two largest systems integrators are Philips and
Siemens, both of whom have a strong presence in numerous markets. The Company's
systems integrators have established customer bases and relationships with cable
operators. These relationships allow the Company to market and create brand
awareness within each region by selling locally into their respective markets,
and the local presence of the systems integrators bridges cultural and
communication gaps. As of March 31, 1998, the Company had agreements with
systems integrators in Europe, Asia, Latin America and the Pacific Rim.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are focused on increasing
the scalability and performance of its current products, reducing the cable
operator's cost of ownership, enhancing value-added services for subscribers,
reducing costs and supporting emerging cable modem standards. In addition to
enhancements of the current ComUNITY Access system products, the Company has
also focused research and development efforts on new products, including the
MCNS-compliant cable modem, the RPM, the mini ComCONTROLLER, the parallel port
and secure IP AIM modules and the toll-quality voice module and telephony
gateway. See "Products -- Products Under Development." Other developments
underway include a 100BaseT interface with support for spanning tree and
standards-based Institute of Electrical and Electronics Engineering, Inc.
("IEEE") 802.3 VLANs and a 155 Mbps OC-3 ATM interface to provide an integrated
connection to the cable operator's fiber SONET distribution network.
The Company's research and development expenditures were $4.3 million for
the three months ended March 31, 1998, $13.5 million in 1997 and $12.4 million
in 1996. Research and development expenses primarily consist of salaries and
related costs of employees engaged in ongoing research, design and development
of the Company's products and technology.
As of March 31, 1998, Com21 had a team of 73 engineers with expertise in RF
design and electronics, encryption, modulation and demodulation, digital
electronics design, networking, embedded software, ASIC design, and network
management. The engineering team includes three engineers with Ph.D.s and 37
with advanced degrees. The Company is seeking to hire additional skilled
engineers for research and development. The Company's business, operating
results and financial condition could be adversely affected if it encounters
delays in hiring additional engineers. See "Risk Factors -- Dependence on Key
Personnel and Hiring of Additional Personnel."
The Company's future performance depends on a number of factors, including
its ability to identify emerging technological trends in its target markets,
develop and maintain competitive products, enhance its products by adding
innovative features that differentiate its products from those of competitors,
bring products to market on a timely basis at competitive prices, properly
identify target markets and respond effectively to new technological changes or
new product announcements by others. No assurance can be given that the
Company's design and introduction schedules for any additions and enhancements
to its existing and future products will be met, that these products will
achieve market acceptance, or that these
47
<PAGE> 49
products will be able to be sold at average selling prices ("ASPs") that are
favorable to the Company. In evaluating new product decisions, the Company must
anticipate well in advance the future demand for product features and
performance characteristics, as well as available supporting technologies,
manufacturing capacity, industry standards and competitive product offerings.
The Company must also continue to make significant investments in research and
development in order to continually enhance the performance and functionality of
its products to keep pace with competitive products and customer demands for
improved performance, features and functionality. The technical innovations
required for the Company to remain competitive are inherently complex and
require long development cycles. Such innovations must be completed before
developments in networking technologies or standards render them obsolete and
must be sufficiently compelling to induce network equipment vendors to favor
them over alternative technologies. Moreover, the Company must generally incur
substantial research and development costs before the technical feasibility and
commercial viability of a product line can be ascertained. There can be no
assurance that revenues from future products or product enhancements will be
sufficient to recover the development costs associated with such products or
enhancements or that the Company will be able to secure the financial resources
necessary to fund future development. The failure to successfully develop new
products on a timely basis could have a material adverse effect on the Company's
business, operating results and financial condition. See "Risk Factors -- Risks
Associated with New Product Development."
CUSTOMER SERVICE AND TECHNICAL SUPPORT
The Company believes that successful long-term relations with its customers
require a service organization committed to customer satisfaction. As of March
31, 1998, the Company had eleven technical support employees at its
headquarters. The Company requires all new customers to attend a five day
training course prior to receiving and installing a system. Customer personnel
are trained in the installation, maintenance and operation of the ComUNITY
Access system.
In North America, the Company provides direct support by telephone and at
the customers' locations. The Company supplies support 24 hours a day, seven
days a week. Internationally, systems integrators provide first level support,
and the Company provides second level support. The Company maintains a customer
call tracking system that captures and monitors service activities. The Company
is able to identify problems with a customer's ComUNITY Access system via a
dialup analog modem connection or a Web-based management interface to assist
with diagnostics.
COMPETITION
The markets for the Company's products are intensely competitive, rapidly
evolving and subject to rapid technological change. The principal competitive
factors in this market include, or are likely to include, product performance
and features, reliability, technical support and service, relationships with
cable system operators and systems integrators, compliance with industry
standards, compatibility with the products of other suppliers, sales and
distribution interoperability, strength of brand name, price, long-term cost of
ownership to cable operators and general industry and economic conditions. Many
of the Company's current and potential competitors have longer operating
histories, greater name recognition and significantly greater financial,
technical, marketing and distribution resources than the Company. Such
competitors may undertake more extensive marketing campaigns, adopt more
aggressive pricing policies and devote substantially more resources to
developing new products than the Company. There can be no assurance that the
Company will be able to compete successfully against current or future
competitors or that competitive pressures faced by the Company will not
materially adversely affect the Company's business, operating results and
financial condition. In response to changes in the competitive environment, the
Company may make certain pricing, service, marketing or other strategic
decisions that could have a material adverse effect on the Company's business,
operating results and financial condition. There can be no assurance that the
Company's competitors will not develop enhancements to, or future generations
of, products that will offer prices or performance superior to that of the
Company's products. The Company believes that the broad adoption of MCNS will
cause increased competition in the North American market, which is likely to
negatively affect the Company's gross margin. There can be no assurance that
competitors will not more quickly develop MCNS-compliant products than the
Company. Current customers of the Company that move to the MCNS platform could
choose alternative cable modem
48
<PAGE> 50
suppliers or choose to purchase MCNS-compliant cable modems from multiple
suppliers. Such competition could materially adversely affect the Company's
business, operating results and financial condition.
The Company's current and potential competitors include 3Com, Cisco, the
LANcity Division of Bay Networks, Inc., Hybrid, General Instrument Corporation,
Motorola, Inc., Terayon Communication Systems and Zenith Electronics
Corporation. Some of these competitors have existing relationships with many of
the Company's prospective customers. There can be no assurance that the Company
will establish relationships with cable operators who have existing
relationships with those competitors, and failure to establish such
relationships could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, the Company anticipates
that some large consumer electronics companies, such as Matsushita, Sony Corp.,
Thomson and Toshiba America, Inc., will likely introduce competitive cable modem
products in the future. As the MCNS specification is adopted for the North
American market, the distribution of cable modems may move into the retail
channel. If this occurs, the large consumer electronics companies could gain a
competitive advantage, due to their well established retail distribution
capabilities. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competitive pressures
faced by the Company will not have a material adverse effect on the Company's
business, operating results and financial condition. See "Risk
Factors -- Competition".
In addition to competitive cable modem offerings, the Company also expects
to face intense competition from wireline telco-related and wireless
technologies that provide high bandwidth access in the local loop. Competing
technologies include telco-related xDSL implementations, such as ADSL and high
bit rate digital subscriber line ("HDSL"), wireless offerings such as LMDS, MMDS
and DBS. Because of the ubiquity of the telephone infrastructure, competition
from telco-related wireline solutions is expected to be intense. There can be no
assurance that cable modem technology will compete effectively against wireline
and wireless technologies in the market for high bandwidth access in the local
loop.
INTELLECTUAL PROPERTY; PATENT LITIGATION
The Company relies on a combination of patent, copyright and trademark
laws, and on trade secrets, confidentiality provisions and other contractual
provisions to protect its proprietary rights. These measures afford only limited
protection. The Company currently has five issued U.S. patents and several
pending patent applications. There can be no assurance that the Company's means
of protecting its proprietary rights in the U.S. or abroad will be adequate or
that competitors will not independently develop similar technologies. The
Company's future success will depend in part on its ability to protect its
proprietary rights to the technologies used in its principal products. Despite
the Company's efforts to protect its proprietary rights, unauthorized parties
may attempt to copy aspects of the Company's products or to obtain and use trade
secrets or other information that the Company regards as proprietary. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights as fully as do the laws of the U.S. There can be no assurance
that any issued patent will preserve the Company's proprietary position, or that
competitors or others will not develop technologies similar to or superior to
the Company's technology. Failure of the Company to enforce and protect its
intellectual property rights could have a material adverse effect on the
Company's business, operating results and financial condition.
From time to time, third parties, including competitors of the Company,
have asserted patent, copyright and other intellectual property rights to
technologies that are important to the Company. The Company expects that it will
increasingly be subject to infringement claims as the number of products and
competitors in the cable modem market grows and the functionality of products
overlaps. In this regard, in 1997 the Company received a written notice from
Hybrid in which Hybrid claimed to have patent rights in certain cable modem
technology and requested that the Company review its own products in light of
Hybrid's alleged patent rights to U.S. Patent No. 5,586,121 (the "121 patent")
issued on December 17, 1996 and entitled "Asymmetric Hybrid Access System and
Method" and U.S. Patent No. 5,347,304 (the "304 patent") issued on September 13,
1994 and entitled "Remote Link Adapter for Use in TV Broadcast Data Transmission
Systems" (collectively, the "Hybrid patents"). The Company informed Hybrid that
it believes that the Company's products do not infringe
49
<PAGE> 51
any valid claim of the Hybrid patents. In January 1998, Hybrid filed an action
against the Company in the U.S. District Court for the Eastern District of
Virginia, accusing the Company of willfully infringing the Hybrid patents, among
other claims. Subsequently, the Company filed suit for declaratory relief
against Hybrid in the U.S. District Court for the Northern District of
California asserting that it does not infringe the Hybrid patents and that the
Hybrid patents are invalid. The Company then filed a motion in the Virginia
District Court to transfer the action filed by Hybrid to the Northern District
of California, and that motion has been granted. Hybrid's complaint seeks
injunctive relief and unspecified damages, among other relief. Hybrid's
complaint also identifies a pending application for reissuance of the 304 patent
to broaden the scope of its claims, which the U.S. Patent and Trademark Office
has allowed for reissuance with respect to certain claims, and states that once
the reissue application is issued, it will be substituted for the 304 patent in
the action. The Company has received opinions of its patent counsel that the
claims of the Hybrid patents, including the claims currently set forth in
Hybrid's 304 reissue patent application, are either invalid or not infringed by
the Company's products. However, there can be no assurance that some or all of
the Company's products will not ultimately be determined to infringe the Hybrid
patents, including the 304 patent as reissued, and the Company anticipates that
Hybrid will continue to pursue litigation with respect to these claims. The
results of any litigation matter are inherently uncertain. In the event of an
adverse result in the Hybrid litigation, or in any other litigation with third
parties that could arise in the future with respect to intellectual property
rights relevant to the Company's products, the Company could be required to pay
substantial damages, including treble damages if the Company is held to have
willfully infringed, to cease the manufacture, use and sale of infringing
products, to expend significant resources to develop non-infringing technology,
or to obtain licenses to the infringing technology. There can be no assurance
that licenses will be available from Hybrid, or any other third party that
asserts intellectual property claims against the Company, on commercially
reasonable terms, or at all. In addition, litigation frequently involves
substantial expenditures and can require significant management attention, even
if the Company ultimately prevails. Accordingly, there can be no assurance that
the Hybrid matter will not have a material adverse effect on the Company's
business, operating results and financial condition.
Because of the early stage of this litigation, and because Hybrid has
sought unspecified damages, neither the ultimate outcome of this litigation nor
any costs and payments resulting from the litigation or any settlement can
presently be determined. Accordingly, no provision for any loss which may result
from the Hybrid litigation has been recorded in the accompanying financial
statements. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business -- Intellectual Property; Patent Litigation"
and Note 11 to Notes to Financial Statements.
EMPLOYEES
As of March 31, 1998, the Company had a total of 136 full-time employees
and eleven full-time contractors. Of the total number of employees, 73 were in
research and development, 25 in marketing and technical support, 18 in
operations, nine in sales and eleven in administration. The Company's employees
are not represented by any collective bargaining agreement with respect to their
employment by the Company, and the Company has never experienced an organized
work stoppage.
The Company's future success is heavily dependent upon its ability to hire
and retain qualified technical, marketing and management personnel. The
competition for such personnel is intense, particularly for engineering
personnel with related networking and integrated circuit design expertise and
for technical support personnel with networking engineering expertise. See "Risk
Factors -- Dependence on Key Personnel and Hiring of Additional Personnel."
FACILITIES
The Company leases approximately 44,600 square feet of administrative,
research and development, and manufacturing facilities in Milpitas, California.
The Company believes that its current facilities are sufficient to handle the
Company's operations for at least the next nine months. The Company believes
that future growth can be accommodated by obtaining the necessary additional
space. The Company also leases two sales offices, in Denver, Colorado and
Atlanta, Georgia.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company as of March 31, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- ---- --------
<S> <C> <C>
Peter D. Fenner................... 62 President, Chief Executive Officer and Director
Paul Baran........................ 71 Chairman of the Board of Directors
David L. Robertson................ 56 Chief Financial Officer, Vice President, Finance and
Secretary
William J. Gallagher.............. 54 Vice President, Sales
Buck J. Gee....................... 48 Vice President, Marketing
Michael F. Gordon................. 48 Vice President, Field Services and Customer Support
Kenneth C. Gorman................. 53 Vice President, Engineering
Mark Laubach...................... 42 Chief Technical Officer and Vice President, Technology
Timothy I. Miller................. 43 Vice President, Manufacturing
C. Richard Kramlich............... 62 Director
Scott J. Loftesness............... 50 Director
Robert C. Hawk.................... 58 Director
William R. Hearst III............. 48 Director
Robert A. Hoff.................... 45 Director
Robert W. Wilmot.................. 53 Director
</TABLE>
- ---------------
PETER D. FENNER. Mr. Fenner has been President, Chief Executive Officer and
a Director of the Company since February 1996. From January 1989 through April
1992, he served as President of the Transmission Systems Business Unit of AT&T
Network Systems (Lucent) and Corporate Officer at AT&T. From April 1992 to
February 1996, Mr. Fenner was an independent consultant. From February 1986
through December 1988, Mr. Fenner was Vice President, Product Planning for
AT&T's Network Systems Division. Mr. Fenner is Director of CorNet Information
Ltd. Mr. Fenner received an S.M. from the Sloan School of Management at the
Massachusetts Institute of Technology, where he was a Sloan Fellow, and a B.S.
in Industrial Engineering from Lehigh University.
PAUL BARAN. Mr. Baran has been the Chairman of the Board of Directors since
the Company's inception in June 1992. He is presently retired and is also a
Director of ALOHA Networks, Inc. Mr. Baran was chosen by Communications Week and
Data Communications as one of the top 25 visionaries in the data communications
industry and was recipient of the Electronic Frontier Foundation Pioneer Award
(1993), the Marconi International Fellowship Award (1991), the Institute of
Electronics and Electrical Engineering, Inc. ("IEEE") Alexander Graham Bell
Medal (1990), the ACM SIG/Communications Award (1989) and the IEEE
Communications Society Edwin Armstrong Award (1987). He co-founded Equatorial
Communications, Packet Technologies, Telebit Corporation and Metricom, Inc. Mr.
Baran is a Fellow of the IEEE and a Fellow of the AAAS. Mr. Baran received an
M.S. in both Electrical Engineering and Computers from the University of
California, Los Angeles, and a B.S. in Electrical Engineering from Drexel
University.
DAVID L. ROBERTSON. Mr. Robertson has been Chief Financial Officer and Vice
President, Finance of the Company since April 1995. From March 1993 through
April 1995, Mr. Robertson was the Vice President of Finance and Chief Financial
Officer at Endosonics Corporation, a medical device company. From December 1992
to March 1993, Mr. Robertson was an independent consultant. From November 1990
through December 1992, Mr. Robertson was the Vice President and Chief Financial
Officer at Circadian, Inc., a medical device company. He also participated in
the founding of StrataCom, Inc. and served as a Director of StrataCom for two
years during its early stages.
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<PAGE> 53
Mr. Robertson is a Certified Public Accountant, and received an M.B.A. from the
University of California, Berkeley and a B.A. in economics from the University
of Washington.
WILLIAM J. GALLAGHER. Mr. Gallagher has been Vice President of Sales since
August 1995. From October 1994 to July 1995 he was Vice President of Marketing
at Pacific Gas & Electric Company ("PG&E"), a utility company. From October 1993
to September 1994, Mr. Gallagher was with MCI Telecommunications Corp. as Vice
President, Carrier Services. From August 1991 to September 1994, Mr. Gallagher
was a Vice President and Consultant at San Francisco Consulting Group. He
received a B.A. from the University of New Mexico.
BUCK J. GEE. Mr. Gee has been Vice President of Marketing since November
1994. From September 1993 through October 1994, Mr. Gee was the Manager of the
FDDI Adapters Group at Cisco. From December 1990 through September 1993 he was
Director of Marketing and Director of Business Development for Crescendo
Communications, Inc., a computer networking company. Mr. Gee has also held
engineering and marketing positions at Hewlett-Packard Company, 3Com and
National Semiconductor Corp. He received an M.B.A. from Harvard Business School
and both a B.S. and a M.S. in Electrical Engineering from Stanford University.
MICHAEL F. GORDON. Mr. Gordon has been Vice President of Field Services and
Customer Support since July 1997. From December 1995 through June 1997, he was
an independent technical and management consultant. From February 1992 through
December 1997, Mr. Gordon was the President and Chief Operating Officer of
Telecoupon Network, Inc. a coupon delivery kiosk company. Mr. Gordon received a
B.S. in Computer Science from the University of Michigan.
KENNETH C. GORMAN. Mr. Gorman has been Vice President of Engineering since
July 1995. From April 1992 through June 1995, he was employed at Resound, Inc.,
a consumer health company where he served in various capacities including Vice
President, Engineering. From April 1989 to April 1992 Mr. Gorman was employed at
Sun Microsystems, Inc. ("Sun"). Mr. Gorman received an S.M.E. in Electrical
Engineering from the Massachusetts Institute of Technology and a B.S. in
Electrical Engineering from the University of Kansas.
MARK LAUBACH. Mr. Laubach has been Vice President of Technology and Chief
Technical Officer of the Company since June 1996. He is a co-founder of the
Company and has also been Chief Architect since June 1994. From November 1979 to
June 1994, Mr. Laubach was an engineer at Hewlett-Packard Laboratories, where he
was directly responsible for impacting the international IP over ATM networking
standards. He is a member of the Internet Engineering Task Force ("IETF") and
past chair of the IP over ATM Working Group. Mr. Laubach participates in the ATM
Forum's Residential Broadband working group and is the past liaison to the IEEE
802.14 working group. He participates in the IEEE 802.14 working group and the
SCTE High-Speed Digital Communications standards working group. Mr. Laubach
received both a M.S.C.S. in Computer Engineering and a B.S. in Electrical
Engineering from the University of Delaware.
TIMOTHY I. MILLER. Mr. Miller has been Vice President of Manufacturing
since November 1996 and has been employed by the Company since October 1994.
From November 1990 to September 1994, he was Director of Manufacturing and
Materials at Coactive Computers, a computer software company, where he was
responsible for scheduling and production. Mr. Miller received both a B.S. in
Business Administration and a B.A. from San Jose State University.
C. RICHARD KRAMLICH. Mr. Kramlich has been a Director of the Company since
May 1994. Mr. Kramlich is the co-founder and has been General Partner of New
Enterprise Associates since 1978. He is a Director of Ascend Communications,
Inc., Chalone, Inc., Lumisys, Inc., Macromedia, Inc., Silicon Graphics, Inc.,
and SyQuest Technology. Mr. Kramlich received an M.B.A. from Harvard Business
School and a B.S. from Northwestern University.
SCOTT J. LOFTESNESS. Mr. Loftesness has been a Director of the Company
since its inception in 1992 and is a co-founder of the Company. Mr. Loftesness
is Group Executive of Merchant Systems, First Data Corporation, a credit card
processing and payment system company, where he has been
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<PAGE> 54
employed since June 1994. From September 1991 through June 1994, he was Group
Executive at Visa International. His other prior experience includes senior
management positions with FMR Corp. (a parent of Fidelity Investments) and
International Business Machines Corporation. He is a Director of First Virtual
Holdings and Consensus Development, Inc. Mr. Loftesness attended the University
of California, Berkeley.
ROBERT C. HAWK. Mr. Hawk has been a Director of the Company since January
1997. Mr. Hawk has been an independent business consultant since April 1997.
From April 1996 through March 1997, he was President of U.S. West Multimedia, a
cable Company. From April 1986 through March 1996, he was the President of
Carrier Division, U.S. West Communications, a telecommunications Company. He is
a Director of PairGain Technologies, Premisys Communications, Inc., Xylan Corp.,
Concord Corp., and RADCom Corp. Mr. Hawk received an M.B.A. from the University
of San Francisco and a B.B.A. from the University of Iowa.
WILLIAM R. HEARST III. Mr. Hearst has been a Director of the Company since
April 1998. Mr. Hearst has also been a Director of @Home Corporation ("@Home")
since August 1995 and has served as Vice Chairman of the Board of Directors of
@Home since July 1996. He has been a general partner of KPCB, a venture capital
firm, since January 1995. From May 1995 to July 1996, he was the founding Chief
Executive Officer of @Home. Before joining KPCB, Mr. Hearst was editor and
publisher of the San Francisco Examiner for ten years. He is a Fellow of the
AAAS and a Trustee of the Carnegie Institute of Washington and the California
Academy of Sciences. Mr. Hearst holds an A.B. in mathematics from Harvard
University.
ROBERT A. HOFF. Mr. Hoff has been a Director since the Company's inception
in May 1994. He has been a general partner at CrossPoint Venture Partners
("CrossPoint") since 1983. Mr. Hoff serves as a Director of PairGain Inc., Onyx
Acceptance Corp. and US Web Corporation. Mr. Hoff received an M.B.A. from
Harvard Business School and a B.S. in Business Administration from Bucknell
University.
ROBERT W. WILMOT. Dr. Wilmot has been a Director of the Company since April
1995. Dr. Wilmot has been Chairman at Wilmot Consulting Inc. since May 1995.
From April 1994 to May 1995, Mr. Wilmot was an independent consultant and
investor. From May 1985 through April 1994, he was Chairman at Wilmot
Enterprises Ltd. His other prior positions include Vice President and Managing
Director of Texas Instruments and CEO of International Computers PLC, a computer
company. Dr. Wilmot is a founder of a number of companies including ES2 SA, the
OASiS Group Plc, CMI Ltd., MOVID Technology Inc., Poqet Computer Inc., Vxtreme,
Inc. and Integrity Arts, Inc. He is a Director of Sequent Computer Systems. Dr.
Wilmot received a B.S. in Electrical Engineering from Nottingham University.
The Company has authorized eight directors. Each director is elected for a
period of one year at the Company's annual meeting of stockholders and serves
until the next annual meeting or until his successor is duly elected and
qualified. The executive officers serve at the discretion of the Board of
Directors. There are no family relationships among any of the Company's
directors or executive officers.
COMMITTEES OF THE BOARD OF DIRECTORS
Compensation Committee. The Compensation Committee is primarily responsible
for reviewing and approving the Company's general compensation policies and
setting compensation levels for the Company's executive officers. The committee
also administers the Company's incentive compensation plans. The committee
currently consists of two directors, Mr. Loftesness and Mr. Hoff.
Audit Committee. The Audit Committee is primarily responsible for approving
the services performed by the Company's independent auditors and reviewing the
auditor's reports regarding the Company's accounting practices and systems of
internal accounting controls. The committee currently consists of two directors,
Mr. Wilmot and Mr. Kramlich.
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<PAGE> 55
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Company's Board of
Directors are Mr. Loftesness and Mr. Hoff. No executive officer of the Company
serves on the board of directors or compensation committee of any entity which
has one or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
DIRECTOR COMPENSATION
The Company currently does not compensate any member of the Company's Board
of Directors. Members of the Board of Directors will be eligible to receive
discretionary option grants and stock issuances under the 1998 Stock Incentive
Plan. In addition, under the 1998 Stock Incentive Plan non-employee directors
will receive automatic option grants upon becoming directors and on the date of
each annual meeting of stockholders. The 1998 Stock Incentive Plan also contains
a director fee option grant program. Should this program be activated in the
future, each non-employee Board member will have the opportunity to apply all or
a portion of any annual retainer fee otherwise payable in cash to the
acquisition of a below-market option grant. See "Management -- Benefit Plans."
EXECUTIVE COMPENSATION
The following table sets forth for the fiscal year ended December 31, 1997
(the "Last Fiscal Year") certain information with respect to the compensation of
the Company's Chief Executive Officer and each of the four other executive
officers of the Company who were serving as executive officers of the Company at
the end of the Last Fiscal Year and whose total annual salary and bonus during
such fiscal year exceeded $100,000 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION($)
NAME AND ----------------------
PRINCIPAL POSITION YEAR SALARY BONUS
- ----------------------------------------------------------- ----- ----------- -------
<S> <C> <C> <C>
Peter D. Fenner............................................ 1997 $300,040 --
President and Chief Executive Officer
Buck J. Gee................................................ 1997 $144,585 --
Vice President, Marketing
David L. Robertson......................................... 1997 $144,585 --
Chief Financial Officer, Vice President, Finance and
Secretary
William J. Gallagher....................................... 1997 $150,020 $78,065
Vice President, Sales
Kenneth C. Gorman.......................................... 1997 $152,790 $25,000
Vice President, Engineering
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No stock options or stock appreciation rights were granted to the Named
Executive Officers during fiscal 1997.
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<PAGE> 56
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND LAST FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning option exercises and
option holdings for the last Fiscal Year with respect to the Named Executive
Officers. Except as set forth below, no options or stock appreciation rights
were exercised by any such individual during such year, and no stock
appreciation rights were outstanding on December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL
SHARES YEAR-END(#)(2) YEAR-END($)(4)
ACQUIRED ON VALUE --------------------------- -----------------------------
NAME EXERCISE(#)(1)(2) REALIZED($)(3) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------------- -------------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Peter D. Fenner...... 115,500 $147,450 371,500 -- $2,414,750 --
Buck J. Gee.......... 25,000 $ 62,500 -- -- -- --
David L. Robertson... 39,168 $109,587 15,000 -- $ 91,500 --
William J.
Gallagher.......... -- -- 97,500 -- $ 624,750 --
Kenneth C. Gorman.... 50,000 $ 10,000 -- -- -- --
</TABLE>
- ---------------
(1) As of December 31, 1997, Mr. Fenner was vested in 115,500 of the shares
exercised, Mr. Gee was vested in 7,917 of the shares exercised, Mr.
Robertson was vested in 16,667 of the shares exercised and Mr. Gorman was
vested in 13,125 of the shares exercised.
(2) Each of the Options was granted under the Company's 1995 Stock Option Plan.
Each of the options is immediately exercisable, but any shares purchased
under the options are subject to vesting requirements and may be repurchased
by the Company at the original exercise price paid per share upon the
optionee's cessation of service prior to vesting in such shares. The
repurchase right lapses with respect to 25% of the option shares upon
completion of one year of service from the vesting commencement date and the
balance in a series of equal monthly installments over the next 36 months of
service thereafter. Each option has a maximum term of ten years, subject to
earlier termination in the event of the optionee's cessation of service with
the Company. As of December 31, 1997, Mr. Fenner was vested in 100,665
shares of his outstanding options, Mr. Robertson was vested in 3,750 of his
outstanding options and Mr. Gallagher was vested in 52,187 shares of his
outstanding options.
(3) Based on the fair market value of the purchased option shares at the time of
exercise less the option exercise price paid for those shares.
(4) Based on the fair market value of the option shares at the end of 1997
($6.90 per share) less the option exercise price payable for those shares.
OPTION GRANTS UNDER THE 1998 STOCK INCENTIVE PLAN
Effective April 22, 1998 the Board of Directors authorized the Compensation
Committee to grant options to purchase an aggregate of 505,250 shares of Common
Stock, at a price of $9.00 per share, to certain of the Company's employees,
including executive officers.
BENEFIT PLANS
1998 Stock Incentive Plan. The Company's 1998 Stock Incentive Plan (the
"1998 Plan") is intended to serve as the successor equity incentive program to
the Company's 1995 Stock Option Plan, as amended (the "Predecessor Plan"). The
1998 Plan was adopted by the Board on March 10, 1998 and was subsequently
approved by the stockholders in March 1998. The 1998 Plan became effective on
April 1, 1998 (the "Plan Effective Date").
2,523,510 shares of Common Stock have been authorized for issuance under
the 1998 Plan. Such share reserve consists of the number of shares available for
issuance under the Predecessor Plan on the date the Underwriting Agreement for
this offering is executed (the "Underwriting Date"), including the shares
subject to outstanding options and an increase of 500,000 shares approved by the
Board and the Stockholders on April 22, 1998. This initial reserve may be
increased to the extent any unvested shares of Common Stock issued under the
Predecessor Plan are repurchased by the Company after the Underwriting Date, at
the exercise price paid per share, in connection with the holder's termination
of service, but in no event shall the number of such repurchased shares added to
the reserve exceed 271,570. In addition, the number of shares of Common Stock
reserved for
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<PAGE> 57
issuance under the 1998 Plan will automatically be increased on the first
trading day of each calendar year, beginning in calendar year 1999, by an amount
equal to the lesser of five percent (5%) of the total number of shares of Common
Stock outstanding on the last trading day of the preceding calendar year or
1,500,000 shares. In no event, however, may any one participant in the 1998 Plan
receive option grants, separately exercisable stock appreciation rights or
direct stock issuances for more than 500,000 shares of Common Stock in the
aggregate per calendar year.
On the Underwriting Date, outstanding options and unvested shares issued
under the Predecessor Plan will be incorporated into the 1998 Plan, and no
further option grants will be made under the Predecessor Plan. The incorporated
options and unvested shares will continue to be governed by their existing
terms, unless the Plan Administrator elects to extend one or more features of
the 1998 Plan to those options or unvested shares. Except as otherwise noted
below, the incorporated options have substantially the same terms as will be in
effect for grants made under the Discretionary Option Grant Program of the 1998
Plan.
The 1998 Plan is divided into five separate components: (i) the
Discretionary Option Grant Program under which eligible individuals in the
Company's employ or service (including officers, non-employee Board members and
consultants) may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock at an exercise price not less than
100% of their fair market value on the grant date, (ii) the Stock Issuance
Program under which such individuals may, in the Plan Administrator's
discretion, be issued shares of Common Stock directly, through the purchase of
such shares at a price not less than 100% of their fair market value at the time
of issuance or as a bonus tied to the performance of services, (iii) the Salary
Investment Option Grant Program which may, at the Plan Administrator's sole
discretion, be activated for one or more calendar years and, if so activated,
will allow executive officers and other highly compensated employees the
opportunity to apply a portion of their base salary to the acquisition of
special below-market stock option grants, (iv) the Automatic Option Grant
Program under which option grants will automatically be made at periodic
intervals to eligible non-employee Board members to purchase shares of Common
Stock at an exercise price equal to 100% of their fair market value on the grant
date and (v) the Director Fee Option Grant Program which may, in the Plan
Administrator's sole discretion, be activated for one or more calendar years
and, if so activated, will allow non-employee Board members the opportunity to
apply a portion of the annual retainer fee otherwise payable to them in cash
each year to the acquisition of special below-market option grants.
The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Compensation Committee. The Compensation Committee as
Plan Administrator will have complete discretion to determine which eligible
individuals are to receive option grants or stock issuances under those
programs, the time or times when such option grants or stock issuances are to be
made, the number of shares subject to each such grant or issuance, the status of
any granted option as either an incentive stock option or a non-statutory stock
option under the Federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum term for which any granted option
is to remain outstanding. However, any discretionary option grants or stock
issuances to members of the Compensation Committee shall be made by a
disinterested majority of the Board. The Compensation Committee will also have
the exclusive authority to select the executive officers and other highly
compensated employees who may participate in the Salary Investment Option Grant
Program in the event that program is activated for one or more calendar years,
but neither the Compensation Committee nor the Board will exercise any
administrative discretion with respect to option grants under the Salary
Investment Option Grant Program or under the Automatic Option Grant or Director
Fee Option Grant Program for the non-employee Board members. All grants under
those three latter programs will be made in strict compliance with the express
provisions of each such program.
The exercise price for the shares of Common Stock subject to option grants
made under the 1998 Plan may be paid in cash or in shares of Common Stock held
for the requisite period to avoid an accounting charge and valued at fair market
value on the exercise date. The option may also be
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<PAGE> 58
exercised through a same-day sale program without any cash outlay by the
optionee. In addition, the Plan Administrator may provide financial assistance
to one or more optionees in the exercise of their outstanding options or the
purchase of their unvested shares by allowing such individuals to deliver a
full-recourse, interest-bearing promissory note in payment of the exercise price
and any associated withholding taxes incurred in connection with such exercise
or purchase.
The Plan Administrator will have the authority to effect the cancellation
of outstanding options under the Discretionary Option Grant Program (including
options incorporated from the Predecessor Plan) in return for the grant of new
options for the same or different number of option shares with an exercise price
per share based upon the fair market value of the Common Stock on the new grant
date.
Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from the
Company equal to the excess of (i) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (ii) the aggregate exercise
price payable for such shares. Such appreciation distribution may be made in
cash or in shares of Common Stock. None of the incorporated options from the
Predecessor Plan contain any stock appreciation rights.
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation will automatically accelerate in full,
and all unvested shares under the Discretionary Option Grant and Stock Issuance
Programs will immediately vest, except to the extent the Company's repurchase
rights with respect to those shares are to be assigned to the successor
corporation. The Plan Administrator will have complete discretion to grant one
or more options under the Discretionary Option Grant Program which will become
fully exercisable for all the option shares in the event those options are
assumed in the acquisition and the optionee's service with the Company or the
acquiring entity involuntarily terminates within a designated period (not to
exceed eighteen months) following such acquisition. The vesting of outstanding
shares under the Stock Issuance Program may be accelerated upon similar terms
and conditions. The Plan Administrator will also have the authority to grant
options which will immediately vest upon an acquisition of the Company, whether
or not those options are assumed by the successor corporation. The Plan
Administrator is also authorized under the Discretionary Option Grant and Stock
Issuance Programs to grant options and to structure repurchase rights so that
the shares subject to those options or repurchase rights will immediately vest
in connection with a change in control of the Company (whether by successful
tender offer for more than fifty percent (50%) of the outstanding voting stock
or by a change in the majority of the Board by reason of one or more contested
elections for Board membership), with such vesting to occur either at the time
of such change in control or upon the subsequent involuntary termination of the
individual's service within a designated period (not to exceed eighteen months)
following such change in control. The options incorporated from the Predecessor
Plan will immediately vest upon an acquisition of the Company by merger or asset
sale, unless those options are assumed or replaced by, and the Company's
repurchase rights assigned to, the successor entity. In addition, certain option
grants to executive officers provide that if the options are assumed in an
acquisition and the Optionee's service is involuntarily terminated within
eighteen months following such acquisition, the option shares will vest in full
and the Company's repurchase rights will lapse. The Plan Administrator will have
the discretion to extend the acceleration provisions of the 1998 Plan to options
outstanding under the Predecessor Plan.
In the event the Plan Administrator elects to activate the Salary
Investment Option Grant Program for one or more calendar years, each executive
officer and other highly compensated employee of the Company selected for
participation may elect, prior to the start of the calendar year, to reduce his
or her base salary for that calendar year by a specified dollar amount not less
than $10,000 nor more than $50,000. If such election is approved by the Plan
Administrator, the individual will automatically be granted, on the first
trading day in January of the calendar year for which that salary reduction is
to be in effect, a non-statutory option to purchase that number of shares of
Common Stock determined
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<PAGE> 59
by dividing the salary reduction amount by two-thirds of the fair market value
per share of Common Stock on the grant date. The option will be exercisable at a
price per share equal to one-third of the fair market value of the option shares
on the grant date. As a result, the total spread on the option shares at the
time of grant (the fair market value of the option shares on the grant date less
the aggregate exercise price payable for those shares) will be equal to the
amount of salary invested in that option. The option will vest and become
exercisable in a series of twelve (12) equal monthly installments over the
calendar year for which the salary reduction is to be in effect and will be
subject to full and immediate vesting upon certain changes in the ownership or
control of the Company.
Under the Automatic Option Grant Program, each individual who first becomes
a non-employee Board member at any time after the completion of this offering
will automatically receive an option grant for 15,000 shares as of the date such
individual joins the Board, provided such individual has not been in the prior
employ of the Company. In addition, on the date of each Annual Stockholders
Meeting held after the Plan Effective Date, each non-employee Board member who
is to continue to serve as a non-employee Board member will automatically be
granted an option to purchase 5,000 shares of Common Stock, provided such
individual has served on the Board for at least six months.
Each automatic grant for the non-employee Board members will have a term of
10 years, subject to earlier termination following the optionee's cessation of
Board service. Each automatic option will be immediately exercisable for all of
the option shares; however, any unvested shares purchased under the option will
be subject to repurchase by the Company, at the exercise price paid per share,
should the optionee cease Board service prior to vesting in those shares. The
shares subject to each initial 15,000-share automatic option grant will vest
over a four-year period in successive equal annual installments upon the
individual's completion of each year of Board service measured from the option
grant date. Each 5,000-share automatic option grant will vest over a two-year
period in successive equal annual installments upon the individual's completion
of each year of Board service measured from the option grant date. However, the
shares subject to each automatic grant will immediately vest in full upon
certain changes in control or ownership of the Company or upon the optionee's
death or disability while a Board member.
Should the Director Fee Option Grant Program be activated in the future,
each non-employee Board member will have the opportunity to apply all or a
portion of any annual retainer fee otherwise payable in cash to the acquisition
of a below-market option grant. The option grant will automatically be made on
the first trading day in January in the year for which the retainer fee would
otherwise be payable in cash. The option will have an exercise price per share
equal to one-third of the fair market value of the option shares on the grant
date, and the number of shares subject to the option will be determined by
dividing the amount of the retainer fee applied to the program by two-thirds of
the fair market value per share of Common Stock on the grant date. As a result,
the total spread on the option (the fair market value of the option shares on
the grant date less the aggregate exercise price payable for those shares) will
be equal to the portion of the retainer fee invested in that option. The option
will vest and become exercisable for the option shares in a series of twelve
(12) equal monthly installments over the calendar year for which the election is
to be in effect. However, the option will become immediately exercisable and
vested for all the option shares upon (i) certain changes in the ownership or
control of the Company or (ii) the death or disability of the optionee while
serving as a Board member.
The shares subject to each option under the Salary Investment Option Grant,
Automatic Option Grant and Director Fee Option Grant Programs will immediately
vest upon (i) an acquisition of the Company by merger or asset sale or (ii) the
successful completion of a tender offer for more than 50% of the Company's
outstanding voting stock or a change in the majority of the Board effected
through one or more contested elections for Board membership.
Limited stock appreciation rights will automatically be included as part of
each grant made under the Automatic Option Grant, Salary Investment Option Grant
and Director Fee Option Grant Programs and may be granted to one or more
officers of the Company as part of their option grants under the
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<PAGE> 60
Discretionary Option Grant Program. Options with such a limited stock
appreciation right may be surrendered to the Company upon the successful
completion of a hostile tender offer for more than 50% of the Company's
outstanding voting stock. In return for the surrendered option, the optionee
will be entitled to a cash distribution from the Company in an amount per
surrendered option share equal to the excess of (i) the highest price per share
of Common Stock paid in connection with the tender offer over (ii) the exercise
price payable for such share.
The Board may amend or modify the 1998 Plan at any time, subject to any
required stockholder approval. The 1998 Plan will terminate on the earliest of
(i) March 9, 2008, (ii) the date on which all shares available for issuance
under the 1998 Plan have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with certain changes in
control or ownership of the Company.
1998 Employee Stock Purchase Plan. The Company's 1998 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board on March 10, 1998
and approved by the stockholders in March 1998 and will become effective
immediately upon the execution of the Underwriting Agreement for this offering.
The Purchase Plan is designed to allow eligible employees of the Company and
participating subsidiaries to purchase shares of Common Stock, at semi-annual
intervals, through their periodic payroll deductions under the Purchase Plan,
and a reserve of 250,000 shares of Common Stock has been established for this
purpose.
The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration for 24 months. However, the initial
offering period will begin on the execution date of the Underwriting Agreement
and will end on the last business day in April 2000. The next offering period
will commence on the first business day in May 2000, and subsequent offering
periods will commence as designated by the Plan Administrator.
Individuals who are eligible employees (scheduled to work more than 20
hours per week for more than 5 calendar months per year) on the start date of
any offering period may enter the Purchase Plan on that start date or on any
subsequent semi-annual entry date (the first business day of May or November
each year). Individuals who become eligible employees after the start date of
the offering period may join the Purchase Plan on any subsequent semi-annual
entry date within that offering period.
Payroll deductions may not exceed 10% of base salary and the accumulated
payroll deductions of each participant will be applied to the purchase of shares
on his or her behalf on each semi-annual purchase date (the last business day in
April and October each year) at a purchase price per share equal to 85% of the
lower of (i) the fair market value of the Common Stock on the participant's
entry date into the offering period or (ii) the fair market value on the
semi-annual purchase date. In no event, however, may any one participant
purchase more than 1,500 shares, nor may all participants in the aggregate
purchase more than 60,000 shares on any one semi-annual purchase date.
Should the fair market value per share of Common Stock on any purchase date
be less than the fair market value per share on the start date of the two-year
offering period, then that offering period will automatically terminate, and a
new two-year offering period will begin on the next business day, with all
participants in the terminated offering to be automatically transferred to the
new offering period.
In the event the Company is acquired by merger or asset sale, all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of such acquisition. The purchase price will be equal to 85%
of the lower of (i) the fair market value per share of Common Stock on the
participant's entry date into the offering period in which such acquisition
occurs or (ii) the fair market value per share of Common Stock immediately prior
to such acquisition.
The Purchase Plan will terminate on the earlier of (i) the last business
day of April 2008 (ii) the date on which all shares available for issuance under
the Purchase Plan shall have been sold pursuant to purchase rights exercised
thereunder or (iii) the date on which all purchase rights are exercised in
connection with an acquisition of the Company by merger or asset sale.
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<PAGE> 61
The Board may at any time alter, suspend or discontinue the Purchase Plan.
However, certain amendments to the Purchase Plan may require stockholder
approval.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company does not presently have any employment contracts in effect with
the Chief Executive Officer or any other Named Executive Officers. The Company
provides incentives such as salary, benefits and option grants to attract and
retain qualified employees.
In the event that the Company is acquired by merger or asset sale, each
outstanding option held by the Chief Executive Officer or any Named Executive
Officer under the 1998 Plan will automatically accelerate in full, and all
unvested shares held by such individuals under such Plan will immediately vest
in full, except to the extent such options are to be assumed by, and the
Company's repurchase rights with respect to those shares are to be assigned to,
the successor corporation. The Plan Administrator will have the authority to
grant options which will immediately vest upon an acquisition of the Company,
whether or not those options are assumed by the successor corporation. The Plan
Administrator is also authorized under the Discretionary Option Grant and Stock
Issuance Programs to grant options and to structure repurchase rights so that
the shares subject to those options or repurchase rights will immediately vest
in connection with a change in control of the Company (whether by merger or
asset sale, or successful tender offer for more than fifty percent (50%) of the
outstanding voting stock or a change in the majority of the Board by reason of
one or more contested elections for Board membership), with such vesting to
occur either at the time of such change in control or upon the subsequent
termination of the individual's service within a designated period (not to
exceed eighteen months) following such change in control. The options
incorporated from the Predecessor Plan will immediately vest upon an acquisition
of the Company by merger or asset sale, unless those options are assumed by, and
the Company's repurchase rights are assigned to, the successor entity. In
addition, certain options granted to executive officers provide that if the
options are assumed in an acquisition and the Optionee's service is
involuntarily terminated within eighteen months following such acquisition the
option shares will vest in full and the Company's repurchase rights will lapse.
The Plan Administrator will have the discretion to extend the acceleration
provisions of the 1998 Plan to options outstanding under the Predecessor Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of the
Company's directors for monetary damages arising from a breach of their
fiduciary duty as directors, except to the extent otherwise required by the
Delaware General Corporation Law. Such limitation of liability does not affect
the availability of equitable remedies such as injunctive relief or recision.
The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by Delaware law, including in
circumstances in which indemnification is otherwise discretionary under Delaware
law. The Company has entered into indemnification agreements with its officers
and directors containing provisions that may require the Company, among other
things, to indemnify such officers and directors against certain liabilities
that may arise by reason of their status or service as directors or officers
(other than liabilities arising from willful misconduct of a culpable nature),
to advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified, and to obtain directors' and officers'
insurance if available on reasonable terms.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company where indemnification is required or
permitted.
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<PAGE> 62
CERTAIN TRANSACTIONS
TRANSACTIONS WITH DIRECTORS, OFFICERS AND 5% STOCKHOLDERS
Since the Company's inception, the Company has raised capital primarily
through the sale of its Preferred Stock. In June 1994, the Company sold
1,805,674 shares of Series A Preferred Stock at a price of $1.58 per share. In
September 1994, the Company sold 250,000 shares of Series B Preferred Stock at a
price of $2.00 per share, each share of Series B Preferred Stock was accompanied
by the right to purchase 0.667 shares of Series C Preferred Stock at a price
$3.00 per share. In May 1995, upon the exercise of the Series C Preferred Stock
Warrants, the Company issued 166,667 shares of Series C Preferred Stock for
aggregate consideration of $500,000. In May 1995, the Company sold 1,812,500
shares of Series D Preferred Stock at a price of $4.00 per share, each share of
Series D Preferred Stock was accompanied by the right to purchase 0.20 shares of
Series E Preferred Stock at a price of $4.50 per share. From August 1997 through
December 1997, upon exercise of the Series E Preferred Stock Warrants, the
Company issued 361,908 shares of Series E Preferred Stock for aggregate
consideration of $1.63 million. From April 1996 through July 1996 the Company
sold 2,905,730 shares of Series F Preferred Stock at a price of $8.00 per share.
From July 1997 through September 1997, the Company sold 2,655,125 shares of
Series G Preferred stock at a price of $8.70 per share.
The following table summarizes the shares of Preferred Stock purchased by
executive officers, directors, and 5% stockholders of the Company and persons
associated with them since June 1994. All share numbers reflect the number of
shares purchased by the respective party on an as-converted basis, and includes
292,070 shares of Series F Preferred Stock and 81,339 shares of Series G
Preferred Stock sold by 3Com Corporation to each of the entities affiliated with
CrossPoint Venture Partners LS 1997, Kleiner Perkins Caufield Byers and New
Enterprise Associates for an aggregate of 1,120,222 shares at a per share price
of $9.00 for an aggregate purchase price of $10,082,043.
<TABLE>
<CAPTION>
PREFERRED STOCK
EXECUTIVE OFFICERS, --------------------------------------------------------------------------------
DIRECTORS AND 5% STOCKHOLDERS SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F SERIES G
- ----------------------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Entities affiliated with
CrossPoint Venture
Partners(1)................. 632,910 -- -- 295,888 59,178 386,952 196,282
Entities affiliated with
Kleiner Perkins Caufield and
Byers(2).................... -- -- -- 750,000 150,000 349,135 99,826
Entities affiliated with Paul
and Evelyn Baran Trust
Agreement(3)................ 235,441 -- -- 110,070 22,014 12,500 --
Entities affiliated with New
Enterprise Associates(4).... 632,912 -- -- 295,888 59,178 386,951 541,109
Paul Baran(5)................. 235,441 -- -- 110,070 22,014 12,500 --
Robert C. Hawk................ -- -- -- -- -- 6,250 7,453
Robert A. Hoff(6)............. 632,910 -- -- 295,888 59,178 94,882 114,943
C. Richard Kramlich(7)........ 632,912 -- -- 295,888 59,178 94,881 459,770
Scott J. Loftesness........... 6,329 -- -- 2,960 592 -- 22,989
Robert W. Wilmot(8)........... -- -- -- 62,500 12,500 -- --
</TABLE>
- ---------------
(1) Represents shares purchased by CrossPoint Venture Partners 1993, CrossPoint
Entrepreneurs Fund and CrossPoint Venture Partners LS 1997. Mr. Hoff, a
General Partner of CrossPoint Venture Partners, is a Director of the
Company.
(2) Represents shares purchased by Kleiner Perkins Caufield & Byers VII and KPCB
Information Sciences Zaibatsu Fund II.
(3) Represents shares held by the Paul and Evelyn Baran Trust Agreement dated
May 23, 1984. Mr. Baran is Chairman of the Board of Directors of the
Company.
(4) Represents shares held by New Enterprise Associates VI, Limited Partnership,
New Enterprise Associates VI, L.P. New Enterprise Associates VII, NEA
Venture 1998 L.P. and NEA Presidents Fund L.P. Mr. Kramlich, a Managing
Partner of New Enterprise Associates, is a Director of the Company. Mr.
Kramlich disclaims beneficial ownership of all such shares.
(5) Mr. Baran is co-trustee of the Paul or Evelyn Baran Trust Agreement dated
May 23, 1984 and serves as Chairman of the Company's Board of Directors. Mr.
Baran disclaims beneficial ownership of 500,000 of such shares.
(6) Mr. Hoff, a General Partner of CrossPoint Venture Partners, is a Director of
the Company.
(7) Mr. Kramlich, a General Partner of New Enterprise Associates VI, L.P., is a
Director of the Company. Mr. Kramlich disclaims beneficial ownership of such
shares.
(8) Represents shares purchased by Dr. Wilmot as trustee of a living trust. Dr.
Wilmot is a Director of the Company.
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<PAGE> 63
In February 1996, in connection with the acceptance of his employment
offer, Peter D. Fenner, the Company's President and Chief Executive Officer, was
granted an option to purchase 500,000 shares of Common Stock at an exercise
price of $0.40 per share. The Company also has granted additional options to
certain of its executive officers. Such options are described further in
"Management -- Executive Compensation."
The Company has entered into a Technology License and Reseller Agreement
with 3Com to license certain technology on a nonexclusive basis to 3Com. Under
the terms of this agreement: (i) the Company received a nonrefundable license
fee of $1.0 million in 1996, and (ii) if the Company met certain conditions in
1997, it would be entitled to an additional $500,000 of nonrefundable license
fees. In March 1997, the Company met such conditions and received additional
nonrefundable license fees of $500,000 from 3Com. Such license fees were
recognized as revenue in 1997. In addition, the Company received prepaid
royalties pursuant to the licensing agreement of $1.0 million which have been
deferred and will be recognized ratably upon sale of the first 100,000 units of
product sold by 3Com incorporating the Company's technology. The prepaid
royalties will be earned at the earlier of the sale of the 100,000 cable modems
or the expiration of the royalty period at December 31, 1998. See "Management's
Discussion and Analysis of Financial Conditions and Results of
Operations -- Overview" and Note 9 of Notes to Financial Statements. 3Com was a
greater than five percent stockholder in the Company until it sold all of its
stock to three existing stockholders of the Company on April 21, 1998. See
"-- Transaction Among Stockholders."
The Company believes that all of the transactions set forth herein were
made on terms no less favorable to the Company than could have been obtained
from unaffiliated third parties. All future transactions, including loans (if
any), between the Company and its officers, directors, and principal
stockholders and their affiliates will be approved by a majority of the Board of
Directors, including a majority of the independent and disinterested outside
directors of the Board of Directors, and will be on terms no less favorable to
the Company than could be obtained from unaffiliated third parties.
TRANSACTION AMONG STOCKHOLDERS
On April 21, 1998, 3Com Corporation sold 292,070 shares of Series F
Preferred Stock and 81,339 shares of Series G Preferred Stock to each of the
entities affiliated with CrossPoint Venture Partners, Kleiner Perkins Caufield &
Byers and New Enterprises Associates for an aggregate of 1,120,227 shares at a
per share price of $9.00 per share for an aggregate purchase price of
$10,082,043.
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<PAGE> 64
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's Common Stock as of
March 31, 1998 except as noted in the footnotes below by (i) all persons who are
beneficial owners of five percent (5%) or more of the Company's Common Stock,
(ii) each director and nominee for director, (iii) the Company's Named Executive
Officers, and (iv) all directors and executive officers as a group. Unless
otherwise indicated, each of the stockholders has sole voting and investment
power with respect to the shares beneficially owned, subject to community
property laws, where applicable.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
BENEFICIALLY
OWNED(2)
NUMBER OF ----------------------
SHARES AFTER
BENEFICIALLY PRIOR TO THE
NAMES AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) OFFERING OFFERING
---------------------------------------- ------------ --------- ---------
<S> <C> <C> <C>
C. Richard Kramlich(3).................................... 1,916,038 15.0% 11.4%
New Enterprise Associates VI, L.P.
2490 Sand Hill Road
Menlo Park, CA 94025
Robert A. Hoff(4)......................................... 1,571,212 12.3 9.4
CrossPoint Venture Partners 1993
18552 MacArthur Boulevard, Suite 400
Irvine, CA 92715
William R. Hearst III(5).................................. 1,349,863 10.6 8.1
Kleiner Perkins Caufield and Byers
2750 Sand Hill Road
Menlo Park, CA 94025
Peter D. Fenner(6)........................................ 506,000 3.9 3.0
Paul and Evelyn Baran Trust Agreement(7).................. 980,025 7.7 5.8
Paul Baran(8)............................................. 980,025 7.7 5.8
David L. Robertson(9)..................................... 90,000 * *
William J. Gallagher(10).................................. 97,500 * *
Buck J. Gee(11)........................................... 90,000 * *
Kenneth C. Gorman(12)..................................... 90,000 * *
Scott J. Loftesness....................................... 287,870 2.3 1.7
Robert C. Hawk(13)........................................ 34,703 * *
Robert W. Wilmot(14)...................................... 112,500 * *
All directors and officers as a group (15 persons)(15).... 7,346,676 55.1 42.6
</TABLE>
- ---------------
* Less than one percent.
(1) Except as otherwise noted below, the address of each person listed on the
table is c/o Com21, Inc. 750 Tasman Drive, Milpitas, California 95035.
(2) Number of shares beneficially owned and the percentage of shares
beneficially owned are based on 12,764,512 shares outstanding as of March
31, 1998. Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission, and includes voting and
investment power with respect to such shares. All shares of Common Stock
subject to options currently exercisable or exercisable within 60 days
after March 31, 1998 are deemed to be outstanding and to be beneficially
owned by the person holding such options for the purpose of computing the
number of shares beneficially owned and the percentage ownership of such
person, but are not deemed to be outstanding and to be beneficially owned
for the purpose of computing the percentage ownership of any other person.
Except as indicated in the footnotes to the table and subject to applicable
community property laws, based on information provided by the persons named
in the table, such persons have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
(3) Includes 1,542,629 shares held by New Enterprise Associates VI, L.P. Also
includes 369,521 shares held by New Enterprise Associates VII, 556 shares
held by NEA Venture 1998 L.P. and 3,333 shares held by NEA Presidents Fund
L.P. which were purchased from 3Com on April 21, 1998. Voting and
dispositive power over the shares is held among all the general partners of
New Enterprise Associates. Mr. Kramlich is a General Partner at New
Enterprise Associates, the General Partner of New Enterprise Associates VI,
L.P., and as such he may be deemed to share voting and investment power
with respect to such shares. However, Mr. Kramlich disclaims beneficial
ownership of all such shares.
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<PAGE> 65
(4) Includes 1,161,579 shares held by CrossPoint Venture Partners 1993 and
36,224 shares held by CrossPoint 1993 Entrepreneurs Fund. Also includes
373,409 shares held by CrossPoint Venture Partners LS 1997 which were
purchased from 3Com on April 21, 1998. Voting and dispositive power over
the shares is held by all the general partners of CrossPoint Venture
Partners. Mr. Hoff is a General Partner at CrossPoint Venture Partners and
as such he may be deemed to share voting and investment power with respect
to such shares. However, Mr. Hoff disclaims beneficial ownership of all
such shares.
(5) Includes 1,316,116 shares held by Kleiner Perkins Caufield & Byers VII and
33,747 shares held by KPCB Information Sciences Zaibatsu Fund II. Also
includes 364,075 shares held by Kleiner Perkins Caufield & Byers VII and
9,336 shares held by KPCB Information Sciences Zaibatsu Fund II which were
purchased from 3Com on April 21, 1998. Voting and dispositive power over
the shares is held by all the general partners of Kleiner Perkins Caufield
& Byers. Mr. Hearst is a General Partner of Kleiner Perkins Caufield &
Byers, and as such he may be deemed to share voting and investment power
with respect to such shares. However, Mr. Hearst disclaims beneficial
ownership of all such shares.
(6) Includes 326,500 shares of Common Stock issuable upon exercise of
immediately exercisable options, 239,583 shares of which are subject to the
Company's right of repurchase.
(7) Includes 600,000 shares held by the Baran Family Limited Partnership and
380,025 shares held under the Paul and Evelyn Baran Trust Agreement dated
May 23, 1984.
(8) Represents 380,025 shares held in the name of the Paul or Evelyn Baran
Trust Agreement dated May 23, 1984 and 600,000 shares held by the Baran
Family Limited Partnership. Mr. Baran is a General Partner of the Baran
Family Limited Partnership, and as such, he may be deemed to share voting
and investment power with respect to such shares. However, Mr. Baran
disclaims beneficial ownership of 500,000 of such shares.
(9) Includes 30,000 shares of Common Stock issuable upon exercise of
immediately exercisable options, 25,313 shares of which are subject to the
Company's right of repurchase. Also includes 60,000 shares acquired
pursuant to the exercise, of which 18,750 shares are subject to the
Company's right of repurchase.
(10) Includes 97,500 shares of Common Stock issuable upon exercise of
immediately exercisable options, 39,219 shares of which are subject to the
Company's right of repurchase.
(11) Includes 15,000 shares of Common Stock issuable upon exercise of
immediately exercisable options, all of which are subject to the Company's
right of repurchase. Also includes 75,000 shares of Common Stock acquired
pursuant to a stock option exercise, of which 15,522 shares are subject to
the Company's right of repurchase.
(12) Includes 15,000 shares of Common Stock issuable upon exercise of
immediately exercisable options, all which are subject to the Company's
right of repurchase. Also includes 75,000 shares of Common Stock were
acquired pursuant to a stock option exercise, 32,188 of which shares are
subject to the Company's right of repurchase.
(13) Includes 15,000 shares of Common Stock acquired pursuant to the exercise,
of which 10,625 are subject to the Company's right of repurchase.
(14) Includes 4,536 shares of the Company's Common Stock subject to the
Company's right of repurchase.
(15) Includes 577,895 shares of Common Stock issuable upon exercise of
immediately exercisable options, of which 495,425 shares are subject to the
Company's right of repurchase.
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<PAGE> 66
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this Offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, $0.001 par value per
share and 5,000,000 shares of undesignated Preferred Stock, $0.001 par value per
share. Immediately after completion of this Offering, the Company estimates
there will be an aggregate of 16,764,512 shares of Common Stock issued and
outstanding and approximately 1,926,217 shares of Common Stock issuable upon
exercise of outstanding options. Upon completion of this offering, there will be
no shares of Preferred Stock issued or outstanding.
The following description of the Company's capital stock does not purport
to be complete and is subject to and qualified in its entirety by the Company's
Amended and Restated Certificate of Incorporation and Bylaws and by the
provisions of the applicable Delaware law.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock that may come into existence, the
holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Board of Directors out of funds
legally available therefor. See "Dividend Policy." In the event of liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior distribution rights of Preferred Stock, if any, then
outstanding. The Common Stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable, and the shares of Common Stock to be outstanding upon
completion of this Offering will be fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue the Preferred Stock in
one or more series and to fix the price, rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting a series or the designation of
such series, without any further vote or action by the Company's stockholders.
The issuance of Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders and may adversely affect the
market price, and the voting and other rights, of the holders of Common Stock.
The issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others. The Company has no current plans to issue any shares
of Preferred Stock.
WARRANTS
As of March 31, 1998 the Company had outstanding, warrants to purchase
5,154 shares of Series D Preferred Stock at an exercise price of $5.82 per share
and warrants to purchase 41,132 shares of Series F Preferred Stock at an
exercise price of $8.00 per share. Upon the effectiveness of the registration
statement related to this Offering, these outstanding warrants will
automatically convert into warrants to purchase an aggregate of 46,286 shares of
Common Stock at a weighted average exercise price of $7.76 per share.
REGISTRATION RIGHTS
Under the terms of a registration rights agreement, subject to certain
exceptions, if the Company proposes to register any of its shares of Common
Stock under the Securities Act, either for its own account or the account of any
shareholder, in any public offering, certain investors holding Common Stock of
the Company issued or issuable upon conversion of the Company's convertible
securities (the "Registrable Securities") are entitled to notice of such
registration and are entitled to include their Registrable Securities therein.
In addition, the holder or holders of an aggregate of at least 33% of the then
outstanding Registrable Securities shall have the right to require the Company
to file a registration statement on a form, other than Form S-3 under the
Securities Act, in order to register the
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<PAGE> 67
Registrable Securities then held by such holder or holders, provided that, (i)
at least three months have passed since the Company's initial public offering of
shares of Common Stock under a registration statement and (ii) the anticipated
aggregate offering price to the public is at least $7,500,000. Further, a holder
or holders may require the Company to use all reasonable efforts to file
additional registration statements on Form S-3, provided that the Company shall
not be required to file more than two such registration statements in any twelve
month period. The right to include any of the above described Registrable
Securities in any registration is subject to certain limitations and conditions,
including the underwriters' right to limit the number of shares being registered
by all holders. The Company is required to indemnify holders of Registrable
Securities and the underwriters, if any, for such holders under certain
circumstances. In general, the Company is required to bear the expenses of two
requested demand and all piggyback registrations, except for the selling
shareholders' pro rata portion of the underwriting discounts and commissions.
LISTING
The Company's Common Stock has been approved for quotation on the Nasdaq
National Market under the trading symbol "CMTO" upon notice of the effectiveness
of the offering.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar of the Common Stock will be Boston
EquiServe.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Certificate of Incorporation and Bylaws. The Company's Certificate of
Incorporation and Bylaws contain certain provisions that, together with the
ownership position of the officers, directors and their affiliates, could
discourage potential takeover attempts and make more difficult, attempts by
stockholders to change management, which could adversely affect the market price
of the Company's Common Stock. Furthermore, the Company's Board of Directors has
the authority to impose various procedural and other requirements that could
make it more difficult for stockholders to effect certain corporate actions. Any
vacancy on the Board of Directors may be filled only by vote of the majority of
directors then in office.
Upon completion of this Offering, the Company's Board of Directors will
have the authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions, including
voting rights, of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. The issuance of Preferred Stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the Company
See "Risk Factors -- Control by Principal Stockholders; Certain Anti-Takeover
Provisions."
Section 203 of the Delaware General Corporation Law. Upon the closing of
the Offering, the Company will be subject to Section 203 of the DGCL which
imposes restrictions on business combinations (which include a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder) with interested stockholders (being any person who acquired 15% or
more of the Company's outstanding voting stock). In general, the Company is
prohibited from engaging in business combinations with an interested
stockholder, unless (i) before such person became an interested stockholder, the
Board of Directors of the Company approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination; (ii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the Company outstanding at the time the
transaction commenced (excluding for purposes of determining the number of
shares outstanding stock held by directors who are also officers of the Company
and by employee stock plans that do not provide employees with the rights to
determine confidentiality
66
<PAGE> 68
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (iii) at or subsequent to the time which such person became an
interested stockholder, the business combination is approved by the Board of
Directors of the Company and authorized at a meeting of stockholders by the
affirmative vote of the holders of two-thirds of the outstanding voting stock of
the Company not owned by the interested stockholder. Under Section 203, the
restrictions described above also do not apply to certain business combinations
proposed by an interested stockholder following the earlier of the announcement
or notification of one of certain extraordinary transactions involving the
Company and a person who had not been an interested stockholder during the
previous three years or who became an interested stockholder with the approval
of the Company's Board of Directors, if such extraordinary transaction is
approved or not opposed by a majority of the directors who are directors prior
to any person becoming an interested stockholder during the previous three years
or who were recommended for election or elected to succeed such directors by a
majority of such directors. By restricting the ability of the Company to engage
in business combinations with an interested person, the application of Section
203 to the Company may provide a barrier to hostile or unwanted takeovers.
67
<PAGE> 69
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the shares of
Common Stock of the Company. Future sales of substantial amounts of shares of
Common Stock in the public market could adversely affect prevailing market
prices. Furthermore, since only a limited number of shares will be available for
sale shortly after this offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock in the public market after the restrictions lapse could adversely
affect the prevailing market price.
Upon completion of this offering, the Company will have outstanding an
aggregate of 16,764,512 shares of Common Stock assuming the issuance of the
4,000,000 shares of Common Stock offered hereby and no exercise of the
Underwriters' over-allotment option. Of the total outstanding shares of Common
Stock, all 4,000,000 shares of Common Stock sold in this offering will be freely
tradeable without restriction or further registration under the Act, unless
purchased by "affiliates" of the Company, as that term is defined in Rule 144
under the Act. The remaining 12,764,512 shares will be "restricted securities"
as defined in Rule 144 (the "Restricted Shares"). The Restricted Shares will be
available for sale in the public market following the expiration of one hundred
eighty (180)-day lock-up agreements. In addition, the holders of warrants for
46,286 shares of Preferred Stock can exercise such warrants at any time, but
such shares cannot be sold until the expiration of the 180-day lock-up period
following the date of the Prospectus. Beginning six months after the date of
this Prospectus the holders of 9,957,604 Restricted Shares and the holders of
warrants for 46,286 shares of Common Stock are entitled to certain rights with
respect to registrations of such shares for sale in the public market, assuming
no exercise of the Underwriters' over-allotment option. If such holders sell in
the public market, such sales could have a material adverse effect on the market
price of the Company's Common Stock.
All of the officers and Directors and certain stockholders and
optionholders of the Company have entered into lock-up agreements generally
providing that they will not offer, pledge, sell, offer to sell, contract to
sell, sell any option or contract to purchase, purchase any option to sell,
grant any option, right or warrant to purchase, or otherwise transfer or dispose
of, directly or indirectly, any of the shares of Common Stock or any securities
convertible into, or exercisable or exchangeable for, Common Stock owned by
them, or enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, for a period of 180 days after the date of this Prospectus, without the
prior written consent of Deutsche Morgan Grenfell Inc., subject to certain
limited exceptions. Deutsche Morgan Grenfell Inc. may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to lock-up agreements. Deutsche Morgan Grenfell Inc. currently has no
plans to release any portion of the securities subject to lock-up agreements.
When determining whether or not to release shares from the lock-up agreements,
Deutsche Morgan Grenfell Inc. will consider, among other factors, the
stockholder's reasons for requesting the release, the number of shares for which
the release is being requested and market conditions at the time. Following the
expiration of the 180 day lock-up period, all 12,764,512 shares of Common Stock
will be available for sale in the public market subject to compliance with Rule
144 or Rule 701.
In general, under Rule 144 as currently in effect, an affiliate of the
Company or a person (or persons whose shares are aggregated) who has
beneficially owned restricted securities for at least one (1) year, including
the holding period of any prior owner except an affiliate, would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of one percent (1%) of the then outstanding shares of the Company's
Common Stock or the average weekly trading volume of the Company's Common Stock
on the Nasdaq National Market during the four (4) calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the ninety (90) days preceding a sale, and who has beneficially
owned shares for at least two (2) years (including any period of ownership of
preceding non-affiliated
68
<PAGE> 70
holders), would be entitled to sell such shares under Rule 144(k) without regard
to the volume limitations, manner of sale provisions, public information
requirements or notice requirements.
The Company plans to file, after the consummation of the offering made
hereby, a registration statement under the Act covering the 3,045,080 shares of
Common Stock reserved for issuance under its 1998 Stock Incentive Plan and the
1998 Employee Stock Purchase Plan. See "Management -- Benefit Plans." Shares
registered under such registration statement would be available for sale in the
open market in the future unless such shares are subject to vesting restrictions
with the Company or the contractual restrictions described above.
The Company has also agreed not to offer, sell, contract to sell or
otherwise dispose of shares of Common Stock or any securities convertible into
Common Stock for a period of one hundred eighty (180) days after the date of
this Prospectus, without the prior written consent of Deutsche Morgan Grenfell
Inc., subject to certain limited exceptions.
69
<PAGE> 71
UNDERWRITING
Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof (the Underwriting Agreement), the Underwriters
named below (the Underwriters), for whom Deutsche Morgan Grenfell Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Dain Rauscher Wessels, a division
of Dain Rauscher Incorporated ("Dain Rauscher Wessels") are acting as
Representatives, (the Representatives), have severally agreed to purchase, and
the Company has agreed to sell to them, severally, the respective number of
shares of Common Stock set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Deutsche Morgan Grenfell Inc. ..............................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ..................................
Dain Rauscher Wessels ......................................
---------
Total............................................. 4,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions.
The Underwriters initially propose to offer a portion of the shares of
Common Stock directly to the public on the terms set forth on the cover page
hereof and a portion to certain dealers at a price that represents a concession
not in excess of $ per share. Any Underwriter may allow, and such dealers may
re-allow, a concession not in excess of $ per share to certain other dealers.
After the initial offering of the shares of Common Stock, the offering price and
other selling terms may from time to time be varied by the Representatives.
The Company has granted to the Underwriters an option, exercisable for
thirty (30) days from the date of this Prospectus, to purchase up to an
aggregate of 600,000 additional shares of Common Stock at the initial public
offering price set forth on the cover page hereof, less underwriting discounts
and commissions. The Underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, made in connection with the
offering of the shares of Common Stock offered hereby. To the extent such option
is exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of Common Stock as the number set forth next to such Underwriter's name
in the preceding table bears to the total number of shares of Common Stock set
forth next to the names of all Underwriters in the preceding table.
The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend sales to discretionary accounts to exceed five
percent of the total number of shares of Common Stock offered by them.
See "Shares Eligible for Future Sale" for a description of certain
arrangements by which all officers and Directors and certain stockholders and
optionholders of the Company have agreed not to sell or otherwise dispose of
Common Stock or convertible securities of the Company for a period of 180 days
after the date of the final Prospectus without the prior consent of Deutsche
Morgan Grenfell Inc. The Company has agreed in the Underwriting Agreement that
it will not, directly or indirectly, without the prior written consent of
Deutsche Morgan Grenfell Inc., offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of any shares of
Common Stock or any securities convertible into or exchangeable for Common
Stock, for a period of 180 days after the date of the final
70
<PAGE> 72
Prospectus without the consent of Deutsche Morgan Grenfell Inc., except under
certain circumstances.
In order to facilitate the Offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the Offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an Underwriter or a dealer for distributing the
Common Stock in the Offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
At the request of the Company, the Underwriters have reserved for sale at
the initial public offering price to persons designated by the Company a number
of shares of Common Stock not to exceed five percent of the total number of
shares of Common Stock in this Offering. The number of shares available for sale
to the general public will be reduced to the extent such persons purchase these
shares.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including civil liabilities
under the Securities Act, as amended, or will contribute to payments the
Underwriters may be required to make in respect thereof.
Deutsche Morgan Grenfell Inc. acted as the placement agent of a private
placement of Series G Convertible Preferred Stock of the Company and, in
connection with that placement received cash compensation.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiation
between the Company and the Representatives. The principal factors to be
considered in determining the initial public offering price will include the
information set forth in this Prospectus and otherwise available to the
Representatives; the history and the prospects for the industry in which the
Company will compete; the ability of the Company's management; the prospects for
future earnings of the Company; the present state of the Company's development
and its current financial condition; the general condition of the securities
market at the time of the Offering; and the recent market prices of, and the
demand for, publicly traded common stock of generally comparable companies. Each
of the Representatives has informed the Company that it currently intends to
make a market in the shares subsequent to the effectiveness of this Offering,
but there can be no assurance that the Representatives will take any action to
make a market in any securities of the Company.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Brobeck, Phleger & Harrison LLP, Palo
Alto, California. Members of the firm Brobeck, Phleger & Harrison LLP
beneficially own an aggregate of 2,161 shares of the Company's Common Stock.
Certain legal matters in connection with this offering will be passed upon for
the Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California.
71
<PAGE> 73
EXPERTS
The financial statements as of December 31, 1996 and 1997, and for each of
the three years in the period ended December 31, 1997, included in this
Prospectus and Registration Statement have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report appearing herein and have
been so included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
CHANGE IN INDEPENDENT AUDITORS
In November 1997, the Company's Board of Directors retained Deloitte &
Touche LLP as its independent auditors and dismissed the Company's former
auditors, KPMG Peat Marwick LLP ("KPMG"). The decision to change independent
auditors was approved by resolution of the Board of Directors. The former
independent auditors' report on the Company's financial statements as of and for
the years ended December 31, 1995 and 1996 did not contain an adverse opinion, a
disclaimer of opinion or any qualifications or modifications related to
uncertainty, limitation of audit scope or application of accounting principles.
The former independent auditors' report does not cover any of the financial
statements of the Company included in this Prospectus. There were no
disagreements with the former independent auditors on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure with respect to the Company's financial statements up through the time
of dismissal that, if not resolved to the former independent auditors'
satisfaction, would have caused them to make reference to the subject matter of
the disagreement in connection with their report. Prior to retaining Deloitte &
Touche LLP, the Company had not consulted with Deloitte & Touche LLP regarding
accounting principles.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement (of which this
Prospectus is a part and which term shall encompass any amendments thereto) on
Form S-1 pursuant to the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain portions
of which are omitted as permitted by the rules and regulations of the SEC.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to any
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matters involved, and each such statement shall be deemed
qualified in its entirety by such reference.
Upon completion of this offering, the Company will be subject to the
information requirements of the Exchange Act, and, in accordance therewith, will
file reports and other information with the SEC. The Registration Statement, the
exhibits and schedules forming a part thereof and the report and other
information filed by the Company with the SEC in accordance with the Exchange
Act may be inspected and copied at the public reference facilities maintained by
the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549; 7 World Trade Center, 13th Floor, New York, New York 10048; and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can also be obtained at prescribed
rates from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such material may also be accessed electronically by
means of the SEC's home page on the World Wide Web at http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and to make available quarterly reports
containing unaudited summary financial information for the first three fiscal
quarters of each fiscal year.
72
<PAGE> 74
GLOSSARY OF TECHNICAL TERMS
10BASET....................... Ethernet standard which applies to the physical
layer of the OSI Reference Model for 10 Mbps
Ethernet over two pairs of category 3, 4 or 5
Unshielded Twisted Pair (UTP) wire.
56-KBPS....................... Equivalent to a single high-speed telephone
service line, capable of transmitting one voice
call or 56 Kbps of data.
ANALOG........................ A from of transmission employing a continuous
electrical signal (rather than a pulsed or
digital system) that varies in frequency and
amplitude.
ADSL.......................... Asymmetric Digital Subscriber Line. A
high-speed technology that enables the transfer
of data over existing copper line.
ASYNCHRONOUS.................. A form of concurrent input and output
communication transmission with no timing
relationship between the two signals.
Slower-speed asynchronous transmission requires
start and stop bits to avoid a dependency on
timing clocks (10 bits to send an 8-bit byte).
ATM........................... Asynchronous Transfer Mode. A fixed length
53-byte packet-based transmission technology
that may be used to transmit data, voice and
video traffic; ATM utilizes cell switching.
BANDWIDTH..................... A range of signal frequencies, measured in
cycles per second or Hertz (Hz). Also refers to
the speed at which data is transmitted,
measured in bits per second (bps).
BER........................... Bit Error Rate. Percentage of received bits in
error compared to the total number of bits
received. Usually expressed as a number to a
power of 10.
BROADBAND COMMUNICATIONS...... A transmission that has a bandwidth greater
than a voice-grade line of 3KHz, usually at
transmission speeds of greater than 1.5 Mbps
(T-1).
CNR........................... Carrier-to-Noise Ratio.
CATV-CABLE TELEVISION......... Community Antenna Television. A community
television system, served by cable and
connected to a common (set of) antenna(s).
CENTRAL OFFICE................ A facility that provides switching services for
telephone calls. A local exchange central
office can switch calls within exchange
groupings that are identified by an area code
and the first three digits of a phone number. A
long-distance carrier central office switches
calls between the long-distance network and the
local exchange central office.
COAXIAL CABLE................. A large-capacity data transmission medium
consisting of insulated wires grouped together
inside an insulated cable. Used for broadband
and baseband communications networks and cable
TV; usually free from most external
interferences and capable of high transmission
rates over long-distances.
DAVIC......................... Digital Audio Video Interactive Council. A
European standards-setting committee.
DES........................... Data Encryption Standard.
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<PAGE> 75
DSL........................... Digital Subscriber Line. Point-to-point public
network access technologies that allow multiple
forms of data, voice and video to be carried
over twisted-pair copper wire on the local loop
between a network service provider's central
office and the customer site at limited
distances.
DBS........................... Direct Broadcast Satellite. A broadband
communications technology that broadcasts
digital television programming from satellites
directly to dish antennas.
DOWNSTREAM.................... The data path from service provider to
customer.
ETHERNET (10BASET)............ Networking standard for the access method
widely used in LANs for connecting devices by
means of copper twisted pair wiring at speeds
of 10 Mbps.
FAST ETHERNET (100BASET)...... An extension to the 10BaseT Ethernet network
access method which operates at 100 Mbps.
FEC........................... Forward Error Correction. A receiver technique
for correcting errors in the received data.
FREQUENCY..................... The number of identical cycles per second,
measured in hertz, of a periodic oscillation or
wave in radio propagation.
GBPS.......................... Gigabits per second. Billion bits per second.
HEADEND....................... The central distribution point in a cable
television system. Typically serves tens to
hundreds of thousands of homes.
HDSL.......................... High Bit Rate Digital Subscriber Line. A
technology that enables high speed transmission
of data over copper wires.
HFC........................... Hybrid Fiber Coax. Upgraded cable plant which
uses a combination of fiber optic cable in the
backbone and coaxial cable in the subscriber
feeder plant.
IC............................ Integrated Circuit.
IEEE.......................... Institute of Electrical and Electronics
Engineers, Inc.
IETF.......................... Internet Engineering Task Force.
ISDN.......................... Integrated Services Digital Network. An
internationally accepted standard for voice,
data and signaling that makes all transmission
circuits end-to end digital and defines a
standard out-of-band signaling system.
KBPS.......................... Kilobits per second. Thousand bits per second.
LAN........................... Local Area Network. A private data
communications network linking a variety of
data services such as computers and printers
within an office or home environment.
LOCAL LOOP.................... A term used to describe the copper cables that
connect a customer's phone to the Central
Office.
LMDS.......................... Local Multipoint Distribution Service. A
broadband wireless communications network that
uses millimeter wave frequencies around 28 to
38 GHz to transmit video and data to residences
over a cellular-like network at distances under
a few miles.
MBPS.......................... Megabits per second.
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<PAGE> 76
MMDS.......................... Multichannel Multipoint Distribution Service. A
broadband wireless communications network that
uses microwave frequencies around 2.5 GHz to
transmit video to residences at distances up to
tens of miles.
MCNS.......................... Multimedia Cable Network System. Industry
specification that defines the technical
requirement for interoperability of high-speed
cable modem and headend equipment.
QAM........................... Quadrature Amplitude Modulation. A digital
modulation technique that allows very efficient
transmission of data over media with limited
available bandwidth.
QPSK.......................... Quadrature Phase Shift Keying. A digital
modulation technique which is widely employed
in direct broadcast satellite transmission
systems.
RF............................ Radio Frequency. The range of electro-magnetic
frequencies above the audio range and below
visible light.
RF MODULATION................. The transmission of a signal through a carrier
frequency.
ROUTER........................ A device for interconnecting local area
networks that have dissimilar operating
protocols but which share a common network
interconnection protocol. A router receives and
transmits data packs between segments in a
network or different networks.
SYNCHRONOUS................... A form of communication transmission with a
direct timing relationship between input and
output signals. The transmitter and receiver
are in sync and signals sent at a fixed rate.
Information is sent in multibyte packets.
S-CDMA........................ Synchronous Code Division Multiple Access. A
digital spectrum technology that codes signals
over the airwaves to accommodate more
transmission streams over a single frequency
band.
T1 LINES...................... Telecommunications lines that operate in North
America at speeds of 1.544 Mbps.
UPSTREAM...................... The data path from the customer to the service
provider.
VLAN.......................... Virtual Local Area Network. The use of a
selected group of computers that are permitted
to communicate directly with each other,
irrespective of their physical location within
a network.
VPN........................... Virtual Private Network. A public data network
that transports private data reliably, securely
and seamlessly to the end user.
XDSL.......................... Other Digital Subscriber Line. Generic
representation of entire family of Digital
Subscriber Line technology spanning data rates
from 128 Kbps to 52 Mbps depending on the
distance between the central office and the
subscriber.
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COM21, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of December 31, 1996 and 1997 and March
31, 1998 (Unaudited)...................................... F-3
Statements of Operations for the Years Ended December 31,
1995, 1996 and 1997 and the Three Months Ended March 31,
1997 and 1998 (Unaudited)................................. F-4
Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997 and the Three Months
Ended March 31, 1998 (Unaudited).......................... F-5
Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997 and the Three Months Ended March 31,
1997 and 1998 (Unaudited)................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 78
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Com21, Inc.:
We have audited the accompanying balance sheets of Com21, Inc. as of December
31, 1996 and 1997, and the related statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Com21, Inc. as of December 31, 1996 and
1997, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
January 16, 1998
(March 10, 1998 as to the first through fifth paragraphs of Note 11; April 22,
1998 as to the last two paragraphs of Note 11; and May 13, 1998 as to the
sixth paragraph of Note 11)
F-2
<PAGE> 79
COM21, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, (NOTE 1)
------------------- MARCH 31, MARCH 31,
1996 1997 1998 1998
-------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $12,427.. $ 17,950 $ 14,082 $ 14,082
Accounts receivable:
Trade (net of allowances of $121 and $232 at December 5,657
1997 and March 1998, respectively).................... -- 3,984 5,657
Related parties......................................... -- 1,052 810 810
Inventories............................................... -- 2,643 1,669 1,669
Prepaid expenses and other................................ 281 430 847 847
-------- -------- -------- --------
Total current assets............................... 12,708 26,059 23,065 23,065
Property and Equipment -- Net............................... 4,223 5,311 5,110 5,110
Other Assets................................................ 105 203 202 202
-------- -------- -------- --------
Total Assets....................................... $ 17,036 $ 31,573 $ 28,377 $ 28,377
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 1,220 $ 2,832 $ 3,662 $ 3,662
Accrued compensation and related benefits................. 581 871 913 913
Deferred revenue (principally related party).............. 1,000 1,004 1,088 1,088
Other current liabilities................................. 93 619 675 675
Current portion of capital lease and debt obligations..... 717 1,210 1,219 1,219
-------- -------- -------- --------
Total current liabilities.......................... 3,611 6,536 7,557 7,557
Deferred Rent............................................... 77 246 258 258
Capital Lease Obligations................................... 1,089 1,320 1,292 1,292
Debt Obligations............................................ 203 188 149 149
-------- -------- -------- --------
Total liabilities.................................. 4,980 8,290 9,256 9,256
-------- -------- -------- --------
Commitments and Contingencies(Notes 5 and 11)
Stockholders' Equity:
Convertible preferred stock, none issued and outstanding
on a pro forma basis:
Series A; $0.001 par value; 1,805,674 shares authorized, 2
issued and outstanding; liquidation preference
$2,853................................................ 2 2 --
Series B; $0.001 par value; 250,000 shares authorized, --
issued and outstanding; liquidation preference $500... -- -- --
Series C; $0.001 par value; 166,667 shares authorized, --
issued and outstanding; liquidation preference $500... -- -- --
Series D; $0.001 par value; 1,817,655 shares authorized; 2
1,812,500 shares issued and outstanding; liquidation
preference $7,250..................................... 2 2 --
Series E; $0.001 par value; 362,500 shares authorized; --
361,908 shares issued and outstanding; liquidation
preference $1,629..................................... -- -- --
Series F; $0.001 par value; 3,125,000 shares authorized; 3
2,905,730 shares issued and outstanding; liquidation
preference $23,246.................................... 3 3 --
Series G; $0.001 par value; 3,000,000 shares authorized; 3
2,655,125 shares issued and outstanding; liquidation
preference $23,100.................................... -- 3 --
Common stock, $0.001 par value; 35,000,000 shares 3
authorized; shares issued and outstanding: 1996,
1,998,097; 1997, 2,772,139; March 31, 1998: actual,
2,806,908; pro forma, 12,764,512........................ 2 3 13
Additional paid-in capital................................ 34,328 58,722 58,784 58,784
Deferred stock compensation............................... -- (116) (108) (108)
Accumulated deficit....................................... (22,281) (35,336) (39,568) (39,568)
-------- -------- -------- --------
Total stockholders' equity......................... 12,056 23,283 19,121 19,121
-------- -------- -------- --------
Total Liabilities and Stockholders' Equity......... $ 17,036 $ 31,573 $ 28,377 $ 28,377
======== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 80
COM21, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------- ------------------
1995 1996 1997 1997 1998
------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product ($4,021 and $953 in
1997 and the three months
ended March 31, 1998,
respectively, from
related parties)......... $ -- $ -- $ 15,149 $ -- $ 7,020
License fees -- related
party.................... -- 1,000 500 500 --
------- -------- -------- ------- -------
Total revenues...... -- 1,000 15,649 500 7,020
Cost of Product Revenues
($2,024 and $787 in 1997 and
the three months ended March
31, 1998, respectively, for
related parties)............ -- -- 8,372 -- 4,676
------- -------- -------- ------- -------
Gross Profit.................. -- 1,000 7,277 500 2,344
------- -------- -------- ------- -------
Operating Expenses:
Research and development.... 5,233 12,395 13,481 3,128 4,278
Sales and marketing......... 770 1,970 5,277 870 1,803
General and
administrative........... 919 1,548 1,782 367 580
------- -------- -------- ------- -------
Total operating
expenses.......... 6,922 15,913 20,540 4,365 6,661
------- -------- -------- ------- -------
Loss From Operations.......... (6,922) (14,913) (13,263) (3,865) (4,317)
------- -------- -------- ------- -------
Other Income (Expense):
Interest income............. 264 629 679 125 194
Interest expense............ (5) (185) (396) (88) (85)
Other income (expense) --
net...................... (2) 3 (54) -- (15)
------- -------- -------- ------- -------
Total other
income............ 257 447 229 37 94
------- -------- -------- ------- -------
Loss Before Income Taxes...... (6,665) (14,466) (13,034) (3,828) (4,223)
Income Taxes.................. 1 5 21 -- 9
------- -------- -------- ------- -------
Net Loss...................... $(6,666) $(14,471) $(13,055) $(3,828) $(4,232)
======= ======== ======== ======= =======
Net Loss Per Share, Basic and
Diluted..................... $ (3.53) $ (7.64) $ (6.15) $ (1.95) $ (1.69)
======= ======== ======== ======= =======
Shares Used in Computation,
Basic and Diluted........... 1,887 1,894 2,124 1,968 2,497
======= ======== ======== ======= =======
Pro Forma Net Loss Per Share,
Basic and Diluted (Note 1).. $ (1.27) $ (0.43) $ (0.34)
======== ======= =======
Shares Used in Pro Forma
Computation, Basic and
Diluted (Note 1)............ 10,279 8,909 12,455
======== ======= =======
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 81
COM21, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE DEFERRED
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCK TOTAL
----------------- ------------------ PAID-IN COMPEN- ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL SATION DEFICIT EQUITY
--------- ------ --------- ------ ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1,
1995.................... 2,055,674 $ 2 1,890,542 $2 $ 3,362 $ -- $ (1,144) $ 2,222
Exercise of stock
options................. -- --.. 25,000 -- 10 -- -- 10
Repurchase of shares...... -- --.. (5,500) -- (1) -- -- (1)
Exercise of Series C
preferred warrants...... 166,667 --.. -- -- 500 -- -- 500
Sale of Series D
convertible preferred
stock (net of issuance
costs of $27)........... 1,812,500 2... -- -- 7,221 -- -- 7,223
Net loss.................. -- --.. -- -- -- -- (6,666) (6,666)
--------- --- --------- -- ------- ----- -------- --------
Balances, December 31,
1995.................... 4,034,841 4... 1,910,042 2 11,092 -- (7,810) 3,288
Exercise of stock
options................. -- --.. 102,639 -- 46 -- -- 46
Repurchase of shares...... -- --.. (14,584) -- (3) -- -- (3)
Sale of Series F
convertible preferred
stock (net of issuance
costs of $50)........... 2,905,730 3... -- -- 23,193 -- -- 23,196
Net loss.................. -- --.. -- -- -- -- (14,471) (14,471)
--------- --- --------- -- ------- ----- -------- --------
Balances, December 31,
1996.................... 6,940,571 7... 1,998,097 2 34,328 -- (22,281) 12,056
Exercise of stock
options................. -- --.. 774,042 1 529 -- -- 530
Exercise of Series E
preferred warrants...... 361,908.. -- -- -- 1,629 -- -- 1,629
Issuance of Series F
preferred warrants...... -- --.. -- -- 72 -- -- 72
Sale of Series G
convertible preferred
stock (net of issuance
costs of $1,069)........ 2,655,125 3... -- -- 22,028 -- -- 22,031
Deferred stock
compensation............ -- --.. -- -- 136 (136) -- --
Amortization of deferred
stock compensation...... -- --.. -- -- -- 20 -- 20
Net loss.................. -- --.. -- -- -- -- (13,055) (13,055)
--------- --- --------- -- ------- ----- -------- --------
Balances, December 31,
1997.................... 9,957,604 10.. 2,772,139 3 58,722 (116) (35,336) 23,283
Exercise of stock
options*................ -- --.. 74,810 -- 72 -- -- 72
Repurchase of shares*..... -- --.. (40,041) -- (10) -- -- (10)
Amortization of deferred
stock compensation*..... -- --.. -- -- -- 8 -- 8
Net loss*................. -- --.. -- -- -- -- (4,232) (4,232)
--------- --- --------- -- ------- ----- -------- --------
Balances, March 31,
1998*................... 9,957,604 $10 2,806,908 $3 $58,784 $(108) $(39,568) $ 19,121
========= === ========= == ======= ===== ======== ========
</TABLE>
- ---------------------------
* Unaudited
See Notes to Financial Statements.
F-5
<PAGE> 82
COM21, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED
----------------------------- MARCH 31,
1995 1996 1997 -------------------
------- -------- -------- 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss................................... $(6,666) $(14,471) $(13,055) $(3,828) $(4,232)
Adjustments to reconcile net loss to net
cash used in operating activities:
Interest expense (Note 6)............... -- -- 72 -- --
Depreciation and amortization........... 137 1,042 2,163 398 801
Deferred rent........................... -- 77 169 57 12
Changes in operating assets and
liabilities:
Accounts receivable -- trade.......... -- -- (3,984) -- (1,673)
Accounts receivable -- related
parties............................ -- -- (1,052) (500) 242
Inventories........................... -- -- (2,643) (685) 974
Prepaid expenses and other............ (71) (183) (149) 55 (417)
Other assets.......................... (30) (68) (98) 1 1
Accounts payable...................... 782 379 1,612 28 830
Accrued compensation and related
benefits........................... 49 518 290 (168) 42
Deferred revenue (principally related
party)............................. -- 1,000 4 -- 84
Other current liabilities............. 13 68 526 (20) 56
------- -------- -------- ------- -------
Net Cash Used in Operating Activities... (5,786) (11,638) (16,145) (4,662) (3,280)
------- -------- -------- ------- -------
Cash Used in Investing Activities:
Purchases of property and equipment........ (987) (2,345) (2,085) (300) (389)
------- -------- -------- ------- -------
Cash Flows From Financing Activities:
Net proceeds from issuance of common
stock................................... 9 43 530 49 62
Net proceeds from issuance of preferred
stock................................... 7,723 23,196 23,660 -- --
Proceeds from issuance of debt
obligations............................. 241 250 2,440 340 --
Repayments under capital lease
obligations............................. (8) (232) (607) (167) (182)
Repayments on debt obligations............. -- (120) (2,270) (69) (79)
------- -------- -------- ------- -------
Net Cash Provided by (Used in) Financing
Activities............................ 7,965 23,137 23,753 153 (199)
------- -------- -------- ------- -------
Net Change in Cash and Cash Equivalents...... 1,192 9,154 5,523 (4,809) (3,868)
Cash and Cash Equivalents, Beginning of
period..................................... 2,081 3,273 12,427 12,427 17,950
------- -------- -------- ------- -------
Cash and Cash Equivalents, End of period..... $ 3,273 $ 12,427 $ 17,950 $ 7,618 $14,082
======= ======== ======== ======= =======
Noncash Investing and Financing Activities:
Property and equipment acquired under
capital leases.......................... $ 156 $ 1,722 $ 1,146 $ -- $ 203
======= ======== ======== ======= =======
Deferred stock compensation................ $ -- $ -- $ 136 $ -- $ --
======= ======== ======== ======= =======
Issuance of preferred stock warrants in
connection with debt obligations........ $ -- $ -- $ 72 $ -- $ --
======= ======== ======== ======= =======
Supplemental Cash Flow Information:
Cash paid for income taxes................. $ 1 $ 5 $ 14 $ -- $ 9
======= ======== ======== ======= =======
Cash paid for interest..................... $ 5 $ 182 $ 324 $ 96 $ 85
======= ======== ======== ======= =======
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE> 83
COM21, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business -- Com21, Inc. (the "Company") was incorporated in Delaware in
June 1992. The Company designs, develops, markets and sells value-added,
high-speed communications solutions for the broadband access market. During
1997, the Company exited the development stage for financial reporting purposes
as it completed its initial product development activities and commenced
shipping product.
Financial Statements 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. Such estimates include allowances for potentially
uncollectible accounts receivable, lower of cost or market inventory valuation
reserves, warranty costs, sales returns and a valuation allowance for deferred
tax assets. Actual results could differ from those estimates.
Fiscal Period -- Although for presentation purposes the Company has
indicated that its year end is December 31, its fiscal year actually ends on the
last business day of the year. The Company's fiscal years for 1995, 1996 and
1997 ended on December 29, 1995, December 31, 1996, and December 31, 1997,
respectively.
Cash Equivalents -- The Company considers all highly liquid debt
instruments with maturities at the date of purchase of three months or less to
be cash equivalents.
Inventories -- Inventories consist of computer products and sub-assemblies
stated at the lower of cost (first-in, first-out method) or market.
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 to seven years. Amortization of
leasehold improvements and assets recorded under capital lease agreements are
computed using the straight-line method over the shorter of the lease term or
the estimated useful lives of the related assets.
Long-Lived Assets -- On January 1, 1996, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
requires long-lived assets to be evaluated for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Adoption of SFAS No. 121 did not have a material effect on the
Company's financial position, results of operations or cash flows.
Income Taxes -- The Company accounts for income taxes under an asset and
liability approach. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
operating loss and tax credit carryforwards measured by applying currently
enacted tax laws. Valuation allowances are provided when necessary to reduce net
deferred tax assets to an amount that is more likely than not to be realized.
Certain Significant Risks and Uncertainties -- Financial instruments which
potentially subject the Company to concentrations of credit risk consist
primarily of cash and cash equivalents and accounts receivable. Cash and cash
equivalents are held primarily with one financial institution and consist
primarily of commercial paper and cash in bank accounts. The Company sells its
products primarily to cable operators in North America and primarily to systems
integrators in Europe, and generally does not require its customers to provide
collateral or other security to support accounts receivable. To reduce credit
risk, management performs ongoing credit evaluations of its customers' financial
F-7
<PAGE> 84
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
condition. The Company maintains allowances for estimated potential bad debt
losses. The recorded carrying amount of cash and cash equivalents, accounts
receivable, accounts payable and debt obligations approximate fair value.
The Company's customer base is highly concentrated. A relatively small
number of customers have accounted for a significant portion of the Company's
revenues, and the Company expects that this trend will continue for the
foreseeable future. In 1997 and the three months ended March 31, 1998, the top
six customers comprised 66% and 85%, respectively of the Company's total
revenues.
The Company participates in a dynamic high technology industry and believes
that changes in any of the following areas could have a material adverse effect
on the Company's future financial position, results of operations or cash flows:
advances and trends in new technologies and industry standards; competitive
pressures in the form of new products or price reductions on current products;
changes in product mix; changes in the overall demand for products offered by
the Company; changes in certain strategic relationships or customer
relationships; litigation or claims against the Company based on intellectual
property (Note 11), patent, product, regulatory or other factors; risk
associated with changes in domestic and international economic and/or political
conditions or regulations; availability of necessary components; risks
associated with Year 2000 compliance; and the Company's ability to attract and
retain employees necessary to support its growth.
Revenue Recognition -- The Company recognizes product revenue upon
shipment. Estimated sales returns and warranty costs, based on historical
experience by product, are recorded at the time the product revenue is
recognized. Revenue for software licenses is recognized upon delivery provided
that any remaining obligations are insignificant and collection is probable.
Software support and maintenance revenue are deferred and amortized over the
maintenance period on a straight-line basis. Installation and training revenue
are recognized as services are provided.
Software Development Costs -- Development costs incurred in the research
and development of new software products and enhancements to existing software
products are expensed as incurred until technological feasibility has been
established, at which time certain development costs required to attain general
production release would be capitalized. To date, the Company's software
development has essentially been completed concurrent with the establishment of
technological feasibility, and, accordingly, no costs have been capitalized.
Stock-Based Compensation -- The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees."
Net Loss Per Share -- In the fourth quarter of 1997, the Company adopted
SFAS No. 128, "Earnings Per Share" which requires a dual presentation of basic
and diluted earnings per share ("EPS"). Basic EPS excludes dilution and is
computed by dividing net income attributable to common stockholders by the
weighted average of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock (convertible preferred stock, warrants to
purchase convertible preferred stock and common stock options using the treasury
stock method) were exercised or converted into common stock. Potential common
shares in the diluted EPS computation are excluded in net loss periods as their
effect would be antidilutive. EPS for all periods have been computed in
accordance with SFAS No. 128.
Pro Forma Net Loss Per Share -- Pro forma net loss per share, basic and
diluted, is computed by dividing net loss attributable to common stockholders by
the weighted average number of common
F-8
<PAGE> 85
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
shares outstanding for the period and the weighted average number of shares
resulting from the assumed conversion of all outstanding shares of convertible
preferred stock.
Unaudited Pro Forma Information -- The unaudited pro forma information in
the accompanying balance sheet reflects the conversion of the outstanding shares
of convertible preferred stock into 9,957,604 shares of common stock upon the
effectiveness of the registration statement relating to the initial public
offering.
Unaudited Interim Financial Information -- The interim financial
information as of March 31, 1998 and for the three months ended March 31, 1997
and 1998 is unaudited and has been prepared on the same basis as the audited
financial statements. In the opinion of management, such unaudited information
includes all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the interim information. Operating results
for the three months ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.
Recently Adopted Accounting Standards -- In the first quarter of 1998, the
Company adopted SFAS No. 130, "Reporting Comprehensive Income" and Statement of
Position ("SOP") 97-2, "Software Revenue Recognition."
SFAS No. 130 requires an enterprise to report, by major components and as a
single total, the change in net assets during the period from nonowner sources.
For the periods presented, net loss and comprehensive loss were the same.
SOP 97-2 requires revenue earned on software arrangements involving
multiple elements to be allocated to each element based on the relative fair
values of the elements. Adoption of this statement did not have a material
impact on the Company's financial position, results of operations and cash
flows.
Recently Issued Accounting Standard -- In June 1997, the Financial
Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes annual and interim
reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major customers.
This statement is effective for fiscal year 1998 and adoption will not impact
the Company's financial position, results of operations or cash flows.
2. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and sub-assemblies................. $ 633 $ 476
Work-in-process.................................. 980 588
Finished goods................................... 1,030 605
------ ------
$2,643 $1,669
====== ======
</TABLE>
F-9
<PAGE> 86
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Equipment under capital lease........ $ 1,953 $ 3,367 $ 3,644
Computer equipment and software...... 1,997 2,904 3,047
Production equipment................. 1,066 1,931 2,071
Leasehold improvements............... 181 208 230
Furniture and fixtures............... 171 189 199
------- ------- -------
5,368 8,599 9,191
Accumulated depreciation and
amortization....................... (1,145) (3,288) (4,081)
------- ------- -------
$ 4,223 $ 5,311 $ 5,110
======= ======= =======
</TABLE>
Accumulated amortization on capital leases as of December 31, 1996 and 1997
and March 31, 1998 was approximately $376,000, $1,167,000 and $1,445,000,
respectively.
4. DEBT OBLIGATIONS
Debt obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
----- -----
(IN THOUSANDS)
<S> <C> <C>
Unsecured borrowings due July 1, 1998............ $ 169 $ 84
Unsecured borrowings due October 1, 1998......... 202 119
Unsecured borrowings due August 1, 1999.......... -- 257
Unsecured borrowings due November 1, 1999........ -- 81
----- -----
371 541
Current portion.................................. (168) (353)
----- -----
Long-term portion................................ $ 203 $ 188
===== =====
</TABLE>
Notes Payable
The unsecured borrowings were obtained from notes payable issued to a
financing company for the purchase of computer software and equipment.
Borrowings bear interest at an effective interest rate of 16.94% per annum and
are payable in monthly installments with the remaining unpaid principal and
interest due upon the maturity date. There are no debt covenants associated with
the notes payable.
In consideration for the unsecured borrowings due on October 1, 1998 and
August 1, 1999 the Company issued the financing company warrants to purchase
4,688 and 2,125 shares of Series F convertible preferred stock, respectively, at
a price of $8.00 per share. The fair values of the warrants were insignificant
(Note 6).
Future annual maturities on the notes payable at December 31, 1997 are as
follows for the years ending 1998 - $353,000; 1999 - $188,000.
F-10
<PAGE> 87
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
Revolving Line of Credit
In May 1997, the Company entered into a revolving line of credit
arrangement for working capital purposes. Under the arrangement, the Company may
borrow up to the lesser of $5,000,000 or 80% of the Company's eligible domestic
and foreign accounts receivable. Borrowings bear interest at the LIBOR rate
(5.94% at December 31, 1997) plus 4.875% per annum. The arrangement
automatically renews for successive one-year periods until terminated at the
option of either party. Dividends may not be declared by the Company without the
lender's prior consent. As of December 31, 1997, no amounts were outstanding
under the arrangement.
Concurrent with executing the revolving line of credit arrangement, the
Company borrowed an additional $2,000,000 on a note which was repaid in full in
1997.
In consideration for these financing arrangements, the Company issued
warrants to purchase 25,000 shares of Series F convertible preferred stock at a
price of $8.00 per share (Note 6). As described in Note 6, the fair value of
such warrants was $72,000 which was recorded as additional interest expense in
the accompanying statement of operations for 1997.
5. COMMITMENTS
The Company leases its facilities and certain equipment under noncancelable
operating and capital leases. Future minimum lease payments under the Company's
capital and operating leases and the present value of minimum lease payments
under capital leases as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------ ------- ---------
(IN THOUSANDS)
<S> <C> <C>
1998......................................... $1,088 $ 763
1999......................................... 878 785
2000......................................... 424 812
2001......................................... 150 839
2002......................................... -- 866
Thereafter..................................... -- 1,499
------ ------
Future minimum lease payments.................. 2,540 $5,564
======
Amounts representing interest (15.0%).......... (363)
------
Present value of future minimum lease
payments..................................... $2,177
======
</TABLE>
In consideration for providing capital lease financing in 1996, the Company
issued warrants to purchase 2,505 shares and 6,814 shares of Series F
convertible preferred stock at a price of $8.00 per share to two financing
companies. The fair values of the warrants were insignificant (Note 6).
Rent expense incurred under the operating leases was approximately
$174,000, $501,000 and $843,000 for the years ended December 31, 1995, 1996 and
1997, respectively. Rent expense under the facilities lease is recognized on a
straight-line basis over the term of the lease. The difference between the
amounts paid and the amounts expensed is classified as deferred rent in the
accompanying balance sheets.
F-11
<PAGE> 88
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
6. STOCKHOLDERS' EQUITY
Convertible Preferred Stock
As of December 31, 1997, the Company was authorized to issue 22,000,000
shares of convertible preferred stock, with a par value of $0.001 per share. The
Company has designated 1,805,674 shares as Series A, 250,000 shares as Series B,
166,667 shares as Series C, 1,817,655 as Series D, 362,500 shares as Series E,
3,125,000 shares as Series F and 3,000,000 shares as Series G.
Significant terms of the convertible preferred stock are as follows:
- Holders of convertible preferred stock are entitled to noncumulative
dividends when and as declared by the Board of Directors. Holders of
outstanding Series A, B, C, D, E, F and G convertible preferred stock are
entitled to a dividend rate of $0.10, $0.12, $0.14, $0.40, $0.44, $0.80
and $0.86 per share per annum, respectively. Preferred stock dividends
are payable before any cash dividend is paid on the common stock.
- Holders of Series A, B, C, D, E, F and G convertible preferred stock have
a liquidation preference of $1.58, $2.00, $3.00, $4.00, $4.50, $8.00 and
$8.70 per share, respectively, plus any declared but unpaid dividends.
The holders of Series D, E, F and G convertible preferred stock have a
priority liquidation preference over Series A, B and C convertible
preferred stock.
- Each share is convertible into one share of common stock, subject to
adjustments for events of dilution, at the option of the holder any time
after the date of issuance.
- Each share has the right to vote equal to the number of shares of common
stock into which it is convertible.
- Shares of Series A, B and C convertible preferred stock will
automatically be converted into common stock either (i) upon completion
of a public offering of common stock with aggregate proceeds greater than
$7,000,000 and at a price per share of not less than $5.00 or (ii) at
such time as the holders of more than 50% of the Series A, B and C
convertible preferred stock, voting as a single class, consent solely to
the conversion of Series A, B and C convertible preferred stock.
- Shares of Series D, E, F and G convertible preferred stock will
automatically be converted into common stock either (i) upon completion
of a public offering of common stock with aggregate proceeds greater than
$10,000,000 and at a price per share of not less than $20.00; (ii) at
such time as the holders of more than 50% of the Series D, E, F and G
convertible preferred stock, voting as a single class, consent solely to
the conversion of Series D, E, F and G convertible preferred stock; or
(iii) at such time as the holders of more than 50% of the Series F
convertible preferred stock consents solely to the conversion of Series F
convertible preferred stock.
F-12
<PAGE> 89
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
Preferred Stock Warrants
At December 31, 1996 and 1997, warrants to purchase 381,661 and 46,286
shares, respectively, of various series of convertible preferred stock were
outstanding and consist of the following:
- In April 1995, in connection with the sale of 1,812,500 shares of Series
D convertible preferred stock at $4.00 per share, purchasers of the
Series D convertible preferred stock were issued warrants to purchase
362,500 shares of Series E convertible preferred stock at $4.50 per
share. In 1997, warrants to purchase 361,908 shares of Series E preferred
stock were exercised, and the remaining warrants expired in November
1997.
- In December 1995, in consideration of capital lease financing provided by
a financing company, the Company issued warrants to purchase 5,154 shares
of Series D convertible preferred stock at a price of $5.82 per share.
The warrants expire in December 2005. All warrants issued were
outstanding at December 31, 1996 and 1997.
- During 1996, in consideration of debt and capital lease financing
provided by two financing companies, the Company issued warrants to
purchase 14,007 shares of Series F convertible preferred stock at a price
of $8.00 per share. The warrants expire in 2006. All warrants issued were
outstanding at December 31, 1996 and 1997.
- During 1997, in consideration of financing arrangements provided, the
Company issued warrants to purchase 27,125 shares of Series F convertible
preferred stock at a price of $8.00 per share. The warrants will expire
in May 2002 (25,000 warrants) and February 2007 (2,125 warrants). All
warrants issued were outstanding at December 31, 1997.
The fair values of the warrants issued in 1995 and 1996, in connection with
debt financing, were insignificant. The fair value of the warrants issued in
1997, in connection with debt financing, was approximately $72,000. Accordingly,
the fair value was recognized as additional interest expense in the accompanying
statement of operations for 1997.
Common Stock
At December 31, 1996 and 1997 and March 31, 1998, the Company had the right
to repurchase 44,301, 320,311 and 271,570 shares of common stock outstanding,
respectively. The number of shares subject to repurchase is reduced over a two-
to four-year vesting period. The Company has the right to repurchase these
shares at the original issuance price.
F-13
<PAGE> 90
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
Net Loss Per Share
The following is a reconciliation of the numerators and denominators of the
basic and diluted net loss per share computations (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------- -------------------
1995 1996 1997 1997 1998
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Loss (Numerator):
Net loss, basic and
diluted.......... $(6,666) $(14,471) $(13,055) $(3,828) $(4,232)
------- -------- -------- ------- -------
Shares (Denominator):
Weighted average
common shares
outstanding...... 1,888 1,910 2,244 2,010 2,796
Weighted average
common shares
outstanding
subject to
repurchase....... (1) (16) (120) (42) (299)
------- -------- -------- ------- -------
Shares used in
computation,
basic and
diluted.......... 1,887 1,894 2,124 1,968 2,497
------- -------- -------- ------- -------
Net Loss Per Share,
Basic and Diluted... $ (3.53) $ (7.64) $ (6.15) $ (1.95) $ (1.69)
======= ======== ======== ======= =======
</TABLE>
During 1995, 1996, 1997 and the three-month periods ended March 31, 1997
and 1998, the Company had securities outstanding which could potentially dilute
basic EPS in the future, but were excluded in the computation of diluted EPS in
such periods, as their effect would have been antidilutive due to the net loss
reported in such periods. Such outstanding securities consist of the following
at March 31, 1998: 9,957,604 shares of convertible preferred stock; warrants to
purchase 46,286 shares of convertible preferred stock; 271,570 outstanding
shares of common stock subject to repurchase; and options to purchase 1,420,967
shares of common stock.
Stock Option Plan
Under the Company's 1995 Stock Option Plan (the "1995 Plan"), as restated
and amended in January 1998, the Company may grant options to purchase up to
3,750,000 shares of common stock to employees, directors and consultants at
prices not less than the fair market value (as determined by the Board of
Directors) at the date of grant for incentive stock options and not less than
85% of fair market value at the date of grant for nonstatutory stock options.
These options generally expire ten years from the date of grant and are
immediately exercisable. The Company has a right of repurchase (at the option
exercise price) of common stock issued from option exercises for unvested
shares. The right of repurchase generally expires 25% after the first 12 months
from the date of grant and then ratably over a 36-month period. The Board of
Directors in their determination of fair market value takes into consideration
many factors including, but not limited to, the Company's financial performance,
current economic trends, actions by competitors, market maturity, emerging
technologies, near-term backlog and, in certain circumstances, valuation
analyses performed by independent appraisers. These valuation analyses utilize
generally accepted valuation methodologies such as the income and market
approaches to valuing the Company's business.
F-14
<PAGE> 91
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
Stock option activity under the 1995 Plan was as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
SHARES -------------------------------
AVAILABLE NUMBER WEIGHTED AVERAGE
FOR GRANT OF SHARES EXERCISE PRICE
----------- ----------- ----------------
<S> <C> <C> <C>
Balances, January 1, 1995......... -- -- $ --
Reserved.......................... 750,000 -- --
Granted (weighted average fair
value of $0.11)................. (598,250) 598,250 0.39
Canceled.......................... 7,000 (7,000) 0.40
Exercised......................... -- (25,000) 0.40
----------- -----------
Balances, December 31, 1995 (3,130
vested at a weighted average
price of $0.40)................. 158,750 566,250 0.39
Reserved.......................... 1,000,000 -- --
Granted (weighted average fair
value of $0.16)................. (1,171,315) 1,171,315 0.58
Canceled.......................... 44,698 (44,697) 0.62
Exercised......................... -- (102,639) 0.45
----------- -----------
Balances, December 31, 1996
(205,706 vested at a weighted
average price of $0.44)......... 32,133 1,590,229 0.52
Reserved.......................... 500,000 -- --
Granted (weighted average fair
value of $1.29)................. (587,990) 587,990 3.66
Canceled.......................... 75,266 (75,266) 0.64
Exercised......................... -- (774,042) 0.68
----------- -----------
Balances, December 31, 1997....... 19,409 1,328,911 1.80
Reserved.......................... 750,000 -- --
Granted........................... (218,440) 218,440 7.02
Canceled.......................... 51,574 (51,574) 2.08
Exercised......................... -- (74,810) 0.97
----------- -----------
Balances, March 31, 1998.......... 602,543 1,420,967 $2.64
=========== ===========
</TABLE>
Additional information regarding options outstanding at December 31, 1997
is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING VESTED OPTIONS
------------------------------------- -------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE VESTED PRICE
- ----------- ----------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
$0.20-$0.40 628,065 7.9 $0.40 212,821 $0.40
$0.80-$0.88 393,875 8.9 0.81 70,112 0.80
$3.30-$6.90 306,971 9.8 5.96 3,197 6.89
---------- --------
$0.20-$6.90 1,328,911 8.6 $1.80 286,130 $0.57
========== ========
</TABLE>
F-15
<PAGE> 92
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
Deferred Stock Compensation
As discussed in Note 1, the Company accounts for its stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25.
Accordingly, the Company recorded deferred compensation expense equal to the
difference between the grant price and deemed fair value of the Company's common
stock for options granted prior to December 31, 1997. Such deferred compensation
expense aggregated $136,000 and is being amortized to expense over the four-year
vesting period of the options.
Additional Stock Plan Information
Since the Company continues to account for its stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25, SFAS
No. 123, "Accounting for Stock-Based Compensation," requires the disclosure of
pro forma net income (loss) and earnings (loss) per share had the Company
adopted the fair value method as of the beginning of 1995. The Company's
calculations were made using the minimum value pricing model which requires
subjective assumptions, including expected time to exercise, which affects the
calculated values. The following weighted average assumptions were used for
1995, 1996 and 1997: expected life, 5 years; risk-free interest rate, 6.75%; and
no dividends during the expected term. The Company's calculations are based on a
single option award valuation approach, and forfeitures are recognized as they
occur. If the computed fair values of the 1995, 1996 and 1997 awards had been
amortized to expense over the vesting period of the awards, pro forma net loss
would have been approximately $(6,676,000)($(3.54) per share, basic and diluted)
in 1995, $(14,522,000)($(7.67) per share, basic and diluted) in 1996 and
$(13,153,000)($(6.19) per share, basic and diluted) in 1997.
7. INCOME TAXES
Income tax expense for the years ended December 31, 1995, 1996 and 1997
consisted solely of state franchise taxes.
The components of deferred income tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accruals and reserves not currently
deductible........................... $ 133 $ 827
Capitalized start-up costs.............. 966 765
Capitalized research and development
costs................................ -- 890
Net operating loss carryforwards........ 7,930 11,272
Tax credit carryforwards................ 1,181 2,998
Depreciation............................ 162 500
-------- --------
Total gross deferred tax assets........... 10,372 17,252
Valuation allowance....................... (10,372) (17,252)
-------- --------
Total deferred tax assets................. $ -- $ --
======== ========
</TABLE>
The net change in the total valuation allowance for the year ended December
31, 1997 was a net increase of $6,880,000. The increase in the valuation
allowance was primarily a result of increased
F-16
<PAGE> 93
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
net operating loss and tax credit carryforwards generated in 1997 which the
Company provided a full valuation allowance against based on the Company's
evaluation of the likelihood of realization of future tax benefits resulting
from the deferred tax assets.
As of December 31, 1997, the Company had available for carryforward net
operating losses for federal and state income tax purposes of approximately
$28,344,000 and $18,495,000, respectively. Federal net operating loss
carryforwards will expire if not utilized beginning in the years 2009 through
2012. State net operating loss carryforwards will expire if not utilized
beginning in the years 1999 through 2001.
As of December 31, 1997, the Company had available for carryforward
research and experimental tax credits for federal and state income tax purposes
of approximately $1,531,000 and $1,300,000, respectively. Federal research and
experimentation tax credit carryforwards expire from 2009 through 2012. The
Company also had approximately $170,000 in California manufacturers investment
credits.
Current Federal and California tax laws include substantial restrictions on
the utilization of net operating losses and tax credits in the event of an
"ownership change" of a corporation. Accordingly, the Company's ability to
utilize net operating loss and tax credit carryforwards may be limited as a
result of such "ownership change" as defined. Such a limitation could result in
the expiration of carryforwards before they are utilized.
8. MAJOR CUSTOMERS AND EXPORT SALES
Revenues for 1996 resulted from license fee revenue from one preferred
stockholder.
As of December 31, 1997, one unaffiliated customer and one preferred
stockholder represented 24% and 14%, respectively, of total accounts receivable.
Sales to these customers in 1997 represented 21% and 12% of total 1997 revenues,
respectively. In addition, 1997 sales to another preferred stockholder
represented 16% of total 1997 revenues.
Revenues for the three months ended March 31, 1997 resulted from license
fee revenue from one preferred stockholder.
As of March 31, 1998, four unaffiliated customers and one preferred
stockholder represented 34%, 11%, 10%, 10% and 12%, respectively, of total
accounts receivable. Sales to these customers for the three months ended March
31, 1998 represented 31%, 10%, 13%, 11% and 13%, respectively, of total revenues
for the quarter.
Export sales attributable to international customers accounted for 64% and
50% of total revenues for the year ended December 31, 1997 and the three months
ended March 31, 1998, respectively.
9. RELATED PARTY TRANSACTIONS
In March 1996, a preferred stockholder entered into a five-year licensing
agreement with the Company to license certain technology on a nonexclusive
basis. Under the terms of this agreement: (i) the Company received a
nonrefundable license fee of $1,000,000 in 1996 (which accounted for all of 1996
revenues), and (ii) if the Company met certain conditions in 1997, it would be
entitled to an additional $500,000 of nonrefundable license fees. In March 1997,
the Company met such conditions and received additional nonrefundable license
fees of $500,000 from this preferred stockholder. Such license fees were
recognized as revenue in 1997. In addition, the Company received prepaid
royalties pursuant to the licensing agreement of $1,000,000, which have been
F-17
<PAGE> 94
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
deferred and will be recognized ratably upon sale of the first 100,000 units of
product sold by the preferred stockholder incorporating the Company's
technology. The prepaid royalties will be earned at the earlier of the sale of
the 100,000 units of product or the expiration of the royalty period at December
31, 1998. As of December 31, 1997, approximately $993,000 of prepaid royalties
was unrecognized. In addition, this preferred stockholder purchased 876,261
shares of Series F preferred stock for $8.00 per share in 1996.
In 1996, the Company paid a director $22,000 in consulting fees.
For the year ended December 31, 1997, total revenues included sales to
three preferred stockholders of approximately $2,509,000, $1,889,000 and
$123,000 (with related cost of revenues of approximately $999,000, $951,000 and
$74,000, respectively). As of December 31, 1997, accounts receivable included
amounts due from the same three preferred stockholders of approximately
$364,000, $688,000, and $0, respectively.
For the three months ended March 31, 1998, total revenues included sales to
two preferred stockholders of approximately $922,000 and $31,000 (with related
cost of revenues of approximately $772,000 and $15,000, respectively). As of
March 31, 1998, accounts receivable included amounts due from the same two
preferred stockholders of approximately $746,000 and $64,000, respectively.
10. EMPLOYEE BENEFIT PLAN
In 1995, the Company adopted a defined contribution retirement plan (the
"Retirement Plan"), which has been determined by the Internal Revenue Service to
be qualified under Section 401(k) of the Internal Revenue Code of 1986. The
Retirement Plan covers essentially all full-time employees. Eligible employees
may make voluntary contributions to the Retirement Plan up to 15% of their
annual compensation. The Company has not made any employer contributions to the
Retirement Plan.
11. SUBSEQUENT EVENTS
Litigation
In 1997 the Company received a written notice from Hybrid Networks, Inc.
("Hybrid") in which Hybrid claimed to have patent rights in certain cable modem
technology and requested that the Company review its own products in light of
Hybrid's alleged patent rights to U.S. Patent No. 5,586,121 (the "121 patent")
issued on December 17, 1996 and entitled "Asymmetric Hybrid Access System and
Method" and U.S. Patent No. 5,347,304 (the "304 patent") issued on September 13,
1994 and entitled "Remote Link Adapter for Use in TV Broadcast Data Transmission
Systems" (collectively, the "Hybrid patents"). The Company informed Hybrid that
it believes that the Company's products do not infringe any valid claim of the
Hybrid patents. In January 1998, Hybrid filed an action against the Company in
the U.S. District Court for the Eastern District of Virginia, accusing the
Company of willfully infringing the Hybrid patents, among other claims.
Subsequently, the Company filed suit for declaratory relief against Hybrid in
the U.S. District Court for the Northern District of California asserting that
it does not infringe the Hybrid patents and that the Hybrid patents are invalid.
The Company then filed a motion in the Virginia District Court to transfer the
action filed by Hybrid to the Northern District of California, and that motion
has been granted. Hybrid's complaint seeks injunctive relief and unspecified
damages, among other relief. Hybrid's complaint also identifies a pending
application for reissuance of the 304 patent to broaden the scope of its claims,
which the U.S. Patent and Trademark Office has allowed for reissuance with
respect to certain claims, and states
F-18
<PAGE> 95
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
that once the reissue application is issued, it will be substituted for the 304
patent in the action. The Company has received opinions of its patent counsel
that the claims of the Hybrid patents, including the claims currently set forth
in Hybrid's 304 reissue patent application, are either invalid or not infringed
by the Company's products. However, there can be no assurance that some or all
of the Company's products will not ultimately be determined to infringe the
Hybrid patents, including the 304 patent as reissued, and the Company
anticipates that Hybrid will continue to pursue litigation with respect to these
claims. The results of any litigation matter are inherently uncertain. In the
event of an adverse result in the Hybrid litigation, or in any other litigation
with third parties that could arise in the future with respect to intellectual
property rights relevant to the Company's products, the Company could be
required to pay substantial damages, including treble damages if the Company is
held to have willfully infringed, to cease the manufacture, use and sale of
infringing products, to expend significant resources to develop non-infringing
technology, or to obtain licenses to the infringing technology. There can be no
assurance that licenses will be available from Hybrid, or any other third party
that asserts intellectual property claims against the Company, on commercially
reasonable terms, or at all. In addition, litigation frequently involves
substantial expenditures and can require significant management attention, even
if the Company ultimately prevails. Accordingly, there can be no assurance that
the Hybrid matter will not have a material adverse effect on the Company's
business, operating results and financial condition. Because of the early stage
of this litigation, and because Hybrid has sought unspecified damages, neither
the ultimate outcome of this litigation nor any costs and payments resulting
from the litigation or any settlement can presently be determined. Accordingly,
no provision for any loss which may result from the Hybrid litigation has been
recorded in the accompanying financial statements.
1998 Equity Plans
On March 10, 1998, the Board of Directors adopted, subject to stockholder
approval, the 1998 Stock Incentive Plan (the "1998 Stock Plan") and the 1998
Employee Stock Purchase Plan (the "1998 Purchase Plan").
The 1998 Stock Plan will serve as the successor equity incentive program to
the Company's existing 1995 Plan effective April 1, 1998. A total of 2,023,510
shares of Common Stock have been reserved for issuance under the 1998 Stock
Plan. In addition, the share reserve may be increased up to 271,570 shares for
repurchases of unvested common shares issued under the 1995 Plan. Options
outstanding under the 1995 Plan on the date of execution and final pricing of
the underwriting agreement for the initial public offering will be incorporated
into the 1998 Stock Plan. Such incorporated options will continue to be governed
by their existing terms. Under the 1998 Stock Plan, the Company is authorized to
issue shares of common stock to employees, directors and consultants under five
separate programs: Discretionary Option, Stock Issuance, Salary Investment
Option Grant, Automatic Option Grant and Director Fee Option Grant. The number
of shares reserved for issuance under the 1998 Stock Plan will automatically
increase at the beginning of each calendar year, beginning in 1999, by an amount
equal to 5% of the total number of shares of common stock outstanding at the end
of the preceding year. The Discretionary Option Program of the 1998 Stock Plan
provides for the grant of options under terms comparable to those provided on
options granted under the 1995 Plan except that all options are to be granted at
a price not less than fair market value on the date of grant.
Under the 1998 Purchase Plan, eligible employees are allowed to have salary
withholdings of up to 10% of their base compensation to purchase shares of
common stock at a price equal to 85% of the lower of the market value of the
stock at the beginning or end of defined purchase periods. The
F-19
<PAGE> 96
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
initial purchase period commences upon the execution and final pricing of the
underwriting agreement for the initial public offering of the Company's common
stock. The Company has reserved 250,000 shares of common stock for issuance
under this plan.
Board Resolutions
On March 10, 1998, the Board of Directors adopted, subject to stockholder
approval, a change in the authorized number of shares of the Common and
Convertible Preferred stock to 40,000,000 and 5,000,000, respectively. An
Amended and Restated Certificate of Incorporation will be filed following the
effectiveness of the registration statement relating to the initial public
offering.
On March 10, 1998, the Board of Directors adopted, subject to stockholder
approval (which was received April 21, 1998), a one-for-two reverse split of the
outstanding shares of common and convertible preferred stock. On May 13, 1998,
the Company filed an amendment to its Amended and Restated Certificate of
Incorporation to effect the reverse stock split. All share and per share amounts
in these financial statements have been adjusted to give effect to the reverse
stock split.
On April 22, 1998, the Board of Directors approved an amendment to the 1998
Stock Plan to reserve an additional 500,000 shares for issuance under the 1998
Stock Plan. In addition, the Board of Directors authorized the grant of options
to purchase 505,250 shares of common stock at $9.00 per share. Such grants were
made to employees and officers under the 1998 Stock Plan.
Stockholder Consent
On April 22, 1998, holders of more than 50% of the Series D, E, F and G
convertible preferred stock, voting as a single class, consented to the
automatic conversion of all outstanding shares of Series D, E, F and G
convertible preferred stock into common stock upon the completion of the initial
public offering regardless of the offering price per share.
F-20
<PAGE> 97
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON US
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 4
Risk Factors.......................... 5
Use of Proceeds....................... 20
Dividend Policy....................... 20
Capitalization........................ 20
Dilution.............................. 21
Selected Financial Data............... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 31
Management............................ 51
Certain Transactions.................. 61
Principal Stockholders................ 63
Description of Capital Stock.......... 65
Shares Eligible for Future Sale....... 68
Underwriting.......................... 70
Legal Matters......................... 71
Experts............................... 72
Change in Independent Auditors........ 72
Additional Information................ 72
Glossary of Technical Terms........... 73
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1998 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
COM21 LOGO
4,000,000 SHARES
COMMON STOCK
DEUTSCHE MORGAN GRENFELL
MERRILL LYNCH & CO.
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
PROSPECTUS
, 1998
<PAGE> 98
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 14,927
NASD Filing Fee............................................. 5,560
Nasdaq National Market Listing Fee.......................... 71,875
Printing and Engraving Expenses............................. 150,000
Legal Fees and Expenses of the Company...................... 375,000
Accounting Fees and Expenses................................ 400,000
Blue Sky Fees and Expenses.................................. 5,000
Transfer Agent Fees......................................... 15,000
Miscellaneous............................................... 12,638
----------
Total............................................. $1,050,000
==========
</TABLE>
- ---------------
* To be completed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). The Company's Bylaws provides for mandatory
indemnification of its directors and officers and permissible indemnification of
employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. The Company's Certificate of Incorporation provides
that, subject to Delaware law, its directors shall not be personally liable for
monetary damages for breach of the directors' fiduciary duty as directors to the
Company and its stockholders. This provision in the Certificate of Incorporation
does not eliminate the directors' fiduciary duty, and in appropriate
circumstances equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Company or its stockholders for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
unlawful under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The Company has entered into
indemnification agreements with its officers and directors, a form of which is
filed as Exhibit 10.8 to this Registration Statement (the "Indemnification
Agreements"). The Indemnification Agreements provide the Company's officers and
directors with further indemnification to the maximum extent permitted by the
Delaware General Corporation Law. Reference is also made to Section 6 of the
Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying officers
and directors of the Company against certain liabilities, and Section 13 of the
Amended and Restated Registration Rights Agreement contained in Exhibit 4.2
hereto, indemnifying certain of the Company's stockholders, including
controlling stockholders, against certain liabilities.
II-1
<PAGE> 99
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1995, the Company has issued and sold the following
securities:
1. The Company issued and sold 916,366 shares of its Common Stock to
employees and consultants for an aggregate purchase price of $644,154
pursuant to the exercise of options under its 1995 Stock Option Plan
(Exhibit 10.5).
2. On May 2, 1995, the Company issued 166,667 shares of its Series C
Preferred Stock upon exercise of certain warrants, for an aggregate
exercise price of $500,000 to several investors.
3. On May 1, 1995, the Company issued and sold an aggregate of 1,812,500
shares of its Series D Preferred Stock and Warrants to purchase an
aggregate of 362,500 shares of its Series E Preferred Stock for an
aggregate purchase price of $7,250,000 to several investors.
4. On December 11, 1995, in connection with an equipment leasing
transaction, the Company issued Warrants to purchase 5,154 shares of
its Series D Preferred Stock, at an exercise price of $5.82 per share,
to Comdisco, Inc.
5. During the period from September 4, 1997 to November 1, 1997, the
Company issued 361,908 shares of its Series E Preferred Stock upon the
exercise of certain warrants, at an aggregate purchase price of
$1,628,586 to several investors.
6. On April 4, 1996, April 22, 1996, May 7, 1996, June 28, 1996, and July
11, 1996, the Company issued and sold an aggregate of 2,905,730 shares
of its Series F Preferred Stock for an aggregate purchase price of
$23,245,840 to several investors.
7. During the period from April 11, 1996 to May 5, 1997, in connection
with an equipment leasing transaction, the Company issued Warrants to
purchase 9,318 shares of its Series F Preferred Stock, at an exercise
price of $8.00 per share, to Comdisco, Inc.
8. On August 30, 1996, in connection with an office equipment lease, the
Company issued Warrants to purchase 6,814 shares of its Series F
Preferred Stock, at an exercise price of $8.00 per share, to
Lindsay-Ferrari.
9. On May 30, 1997, in connection with a credit agreement, the Company
issued Warrants to purchase 25,000 shares of its Series F Preferred
Stock, at an aggregate exercise price of $8.00 per share, to GreyRock
Business Credit, a division of NationsCredit Commercial Corporation.
10. On July 22, 1997, August 11, 1997 and September 12, 1997, the Company
issued and sold an aggregate of 2,655,125 shares of its Series G
Preferred Stock for an aggregate purchase price of $23,099,587 to
several investors. Deutsche Morgan Grenfell Inc. acted as the placement
agent for this transaction and in connection with that placement
received cash compensation.
The issuances described in paragraph 1 were deemed exempt from registration
under the Securities Act in reliance upon Rule 701 promulgated under the
Securities Act. The issuances of the securities described in paragraphs 2
through 10 were deemed to be exempt from registration under the Act in reliance
on Section 4(2) of the Act as transactions by an issuer not involving any public
offering. In addition, the recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates issued in such
transactions. All recipients had adequate access, through their relationships
with the Company, to information about the Company.
II-2
<PAGE> 100
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits listed in the Exhibit Index as filed as part of this
Registration Statement.
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
1.1* Form of Underwriting Agreement among the Registrant,
Deutsche Morgan Grenfell Inc., Merrill Lynch, Pierce, Fenner
and Smith Incorporated and Wessels, Arnold & Henderson,
L.L.C..
3.1* Registrant's Amended and Restated Certificate of
Incorporation.
3.2* Registrant's Amended and Restated Bylaws.
4.1* Form of Registrant's Specimen Common Stock Certificate.
4.2* Amended and Restated Information and Registration Rights
Agreement, among the Registrant and the investors and
founders named therein, dated July 22, 1997.
5.1* Legal Opinion of Brobeck, Phleger & Harrison LLP, counsel
for the Registrant.
10.1* Lease Agreement between the Company, John Arrillaga and
Richard T. Peery, dated May 10, 1996.
10.2+ Technology License and Reseller Agreement between the
Company and 3Com Corporation, dated March 22, 1996.
10.3+ Reseller Agreement between the Company and 3Com Corporation,
dated July 30, 1997.
10.4+ Hardware and Software Technology License Agreement between
the Company, Advanced Telecommunications Modules, Limited
and Advanced Telecommunications Modules, Inc., dated
February 1, 1996.
10.5* Registrant's 1995 Stock Option Plan.
10.6* Registrant's 1998 Stock Incentive Plan.
10.7* Registrant's 1998 Employee Stock Purchase Plan.
10.8* Form of Indemnity Agreement entered into by Registrant with
each of its executive officers and directors.
10.9* Loan and Security Agreement between Registrant and Greyrock
Business Credit, dated May 30, 1997.
10.10+ International OEM Agreement between the Company, Advanced
Telecommunications Modules, Inc. and Advanced
Telecommunications Modules, Limited, dated March 7, 1996.
10.11+ Agreement for Manufacturing Services between the Company and
Celestica, Inc., dated October 25, 1996.
10.12*+ Wind River Systems, Inc. VxWorks License Agreement.
10.13*+ Purchase and License Agreement by and between the Company
and Siemens AG, dated December 2, 1997.
10.14+ Distribution Agreement by and between the Company and
Philips Public Telecommunication Systems, dated November 26,
1997.
16.1* Letter from KPMG Peat Marwick LLP regarding Change in
Certifying Accountant.
23.1* Consent of Independent Auditors.
23.2* Consent of Counsel (see Exhibit 5.1).
24.1* Power of Attorney.
27.1* Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
+ Confidential treatment has been requested as to a portion of this Agreement.
II-3
<PAGE> 101
ITEM 17. UNDERTAKINGS
The Company hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of the Company, Indemnification Agreements entered
into between the Company and its officers and directors, the Underwriting
Agreement, or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer, or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of Prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-1 and has duly caused this Amendment No. 3
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Milpitas, State of California, on this
18th day of May, 1998.
COM21, INC.
By: /s/ DAVID L. ROBERTSON
------------------------------------
David L. Robertson
Chief Financial Officer, Vice
President, Finance and Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the persons whose signatures
appear below, which persons have signed such Registration Statement in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President, Chief Executive May 18, 1998
- -------------------------------------------------------- Officer (Principal
(Peter D. Fenner) Executive Officer and
Director)
/s/ David L. Robertson Vice President, Finance, May 18, 1998
- -------------------------------------------------------- Chief Financial Officer
(David L. Robertson) (Principal Financial and
Accounting Officer) and
Secretary
* Director May 18, 1998
- --------------------------------------------------------
(Paul Baran)
* Director May 18, 1998
- --------------------------------------------------------
(Robert A. Hoff)
* Director May 18, 1998
- --------------------------------------------------------
(C. Richard Kramlich)
* Director May 18, 1998
- --------------------------------------------------------
(Scott J. Loftesness)
* Director May 18, 1998
- --------------------------------------------------------
(William R. Hearst, III)
* Director May 18, 1998
- --------------------------------------------------------
(Robert C. Hawk)
* Director May 18, 1998
- --------------------------------------------------------
(Robert W. Wilmot)
*By: /s/ DAVID L. ROBERTSON
---------------------------------------------------
David L. Robertson
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 103
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
1.1* Form of Underwriting Agreement among the Registrant,
Deutsche Morgan Grenfell Inc., Merrill Lynch, Pierce, Fenner
and Smith Incorporated and Wessels, Arnold & Henderson,
L.L.C.
3.1* Registrant's Amended and Restated Certificate of
Incorporation.
3.2* Registrant's Amended and Restated Bylaws.
4.1* Form of Registrant's Specimen Common Stock Certificate.
4.2* Amended and Restated Information and Registration Rights
Agreement, among the Registrant and the investors and
founders named therein, dated July 22, 1997.
5.1* Legal Opinion of Brobeck, Phleger & Harrison LLP, counsel
for the Registrant.
10.1* Lease Agreement between the Company, John Arrillaga and
Richard T. Peery, dated May 10, 1996.
10.2+ Technology License and Reseller Agreement between the
Company and 3Com Corporation, dated March 22, 1996.
10.3+ Reseller Agreement between the Company and 3Com Corporation,
dated July 30, 1997.
10.4+ Hardware and Software Technology License Agreement between
the Company, Advanced Telecommunications Modules, Limited
and Advanced Telecommunications Modules, Inc., dated
February 1, 1996.
10.5* Registrant's 1995 Stock Option Plan.
10.6* Registrant's 1998 Stock Incentive Plan.
10.7* Registrant's 1998 Employee Stock Purchase Plan.
10.8* Form of Indemnity Agreement entered into by Registrant with
each of its executive officers and directors.
10.9* Loan and Security Agreement between Registrant and Greyrock
Business Credit, dated May 30, 1997.
10.10+ International OEM Agreement between the Company, Advanced
Telecommunications Modules, Inc. and Advanced
Telecommunications Modules, Limited, dated March 7, 1996.
10.11+ Agreement for Manufacturing Services between the Company and
Celestica, Inc., dated October 25, 1996.
10.12*+ Wind River Systems, Inc. VxWorks License Agreement.
10.13*+ Purchase and License Agreement by and between the Company
and Siemens AG, dated December 2, 1997.
10.14+ Distribution Agreement by and between the Company and
Philips Public Telecommunication Systems, dated November 26,
1997.
16.1* Letter from KPMG Peat Marwick LLP regarding Change in
Certifying Accountant.
23.1* Consent of Independent Auditors.
23.2* Consent of Counsel (see Exhibit 5.1).
24.1* Power of Attorney.
27.1* Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
+ Confidential treatment has been requested as to a portion of this Agreement.
<PAGE> 1
Exhibit 10.2
TECHNOLOGY LICENSE AND RESELLER AGREEMENT
This Technology License and Reseller Agreement is entered into by and
between 3Com Corporation, a California corporation with a principal place of
business at 5400 Bayfront Plaza, Santa Clara, California 95052 ("3Com"), and
Com21, Inc., a Delaware corporation with a principal place of business at 1991
Landings Drive, Mountain View, California 94043 ("Com2l"). The effective date of
this Agreement shall be the date last executed below ("Effective Date").
RECITALS
A. Com2l and 3Com intend to enable and drive deployment of broadband
services over Hybrid Fiber Coax (HFC) networks. The companies believe that
combining the parties' respective core competencies will enable the faster
introduction of HFC communications products to the market. Com2l's HFC
experience coupled with 3Com networking experience and broad product offering
will result in a more robust solution.
B. Com2l or its suppliers are the owners of certain subscriber equipment
technology related to broadband services over Hybrid Fiber Coax (HFC) networks,
as more particularly described in Exhibit A (Com2l Technology).
C. 3Com wishes to obtain a non-exclusive license for such technology in
order to develop, manufacture and market cable modems based on the Com2l
Technology. Com2l is willing to grant 3Com a technology license upon the terms
and conditions set forth below.
D. Com2l intends to develop a data over cable headend distribution
system with assistance from 3Com. The first generation of such headend will
comply with the Specifications (as defined below) attached to this Agreement as
Exhibit B (Specifications). Com2l will permit 3Com to resell such headend on the
terms and conditions set forth herein.
E. The parties also envision that 3Com will make an equity investment in
Com2l, under terms and conditions to be negotiated and documented in agreements
separate from this Agreement.
AGREEMENT
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS
1.1 "Com2l Technology" means the Com2l first generation cable modem
technology (known as "P3" and to be defined in the Design Package) (excluding
use of the expansion bus for optional plug-in modules) including, without
limitation, system design, behavioral code,
1
<PAGE> 2
ASICs and firmware, know-how, trade secrets rights, copyright rights, mask work
rights and, if any, rights under Com21 Patents owned, acquired, developed by or
licensed to Com21 and embodied in a cable modem product meeting the
Specifications. Com21 Technology also includes the technology necessary to
interface the 3Com Products to the Com21 Headend, and such other technology as
described on Exhibit A (Com21 Technology).
1.2 "Com21 Headend" means the headend controller unit to be developed by
Com21, and all enhancements, upgrades and new versions thereof. The first
generation Com21 Headend shall implement the Specifications as they exist as of
the Effective Date together with such changes to the Specifications as the
parties mutually agree in writing.
1.3 "Specifications" means the document entitled "The Com21 Community
Protocol for HFC Networks, Revision 1.04 Branch 01 (V1.04.01), attached hereto
as Exhibit B (Specifications) and to be included in the Design Package. Updates
and revisions to the Specifications will be identified by a new branch index.
3Com shall be provided reasonable notice of and be permitted to attend Com21's
meetings regarding updates and/or revisions to the Specifications.
1.4 "Com21 Mongoose Product" means Com21's modem ASIC (currently known
as Mongoose) implementing the media access control and other modem functions,
but excluding use of the expansion bus for optional plug-in modules, (i) as
described in the Com21 modem design specification attached as Exhibit C (Com21
Mongoose Product Specification), which specification may be changed from time to
time by Com21, in its sole discretion, with written notice to 3Com and (ii)
meeting certain criteria to determine the acceptability of the Com21 Mongoose
Product to be agreed to by the parties, which criteria shall be set forth in a
description attached to this Agreement as Exhibit D (Com21 Mongoose Product
Acceptance Criteria). The Com21 Mongoose Product Specification shall be provided
by Com21 within sixty (60) days of the Effective Date. The Com21 Mongoose
Product Acceptance Criteria shall be mutually agreed to by the parties within
sixty (60) days of the Effective Date.
1.5 "Com21 P4 Product" means Com21's second generation modem ASIC
(currently known as P4) implementing the media access control and other modem
functions to be developed with AMD pursuant to a strategic partner relationship.
1.6 "Com21 Patents" means all U.S. patents (and any foreign
counterparts), pending patent applications and any reissues, continuations,
divisions or extensions of such patents or applications, as to which Com21 is
the patentee or as to which Com21 has the right to grant the license herein and
which are necessary to practice the rights to the Com21 Technology, Com21
Mongoose Product and Com21 Headend interfaces which are granted herein.
1.7 "Confidential Information" means that information of either party
("Disclosing Party") which is disclosed to the other party ("Receiving Party")
pursuant to this Agreement,
2
<PAGE> 3
in written form and marked "Confidential" or if disclosed orally, the Disclosing
Party shall indicate that such information is confidential at the time of
disclosure and send a written summary of such information to the Receiving Party
within thirty (30) days of disclosure and mark such summary "Confidential."
Confidential Information shall include, but not be limited to, trade secrets,
know-how, inventions, techniques, processes, algorithms, software programs,
schematics, designs, contracts, customer lists, financial information, sales and
marketing plans and business information. References to 3Com as a Receiving
Party or a Disclosing Party shall also include all present and future subsidiary
and parent companies of 3Com.
1.8 "Design Package" means the information and materials necessary to
develop cable modem products compatible with the Com21 Headend and the
Specifications. As set forth in detail in Section 5 (Design Package), the
description of the Design Package shall be attached to this Agreement as Exhibit
E (Design Package) when it is completed.
1.9 "3Com Patents" means all U.S. patents (and any foreign
counterparts), pending patent applications and any reissues, continuations,
divisions or extensions of such patents or applications, as to which 3Com is the
patentee or as to which 3Com has the right to grant the license herein and which
are necessary to practice the rights to the 3Com Technology which are granted
herein.
1.10 "3Com Product" means the cable modem products developed by 3Com
under the terms of this Agreement. "First Generation 3Com Product" means the
first version of the commercially available low-cost data over cable 3Com
Product developed by 3Com as described in Section 2.3(a)(iii), "Derivative 3Com
Products" means all 3Com Products other than the First Generation 3Com Product.
1.11 "3Com Technology" shall mean the technology, including know-how,
trade secrets, copyrights and, if any, 3Com Patents, owned, acquired or
developed by or licensed to 3Com and embodied in the First Generation 3Com
Product.
2. LICENSES
2.1 Development and Manufacturing License. Subject to the terms and
conditions of this Agreement, Com21 hereby grants to 3Com a non-exclusive,
non-transferable, worldwide, royalty bearing license under the Com21 Technology
and Com21 Mongoose Product to (a) design, develop, make or have made, use,
market, sell, modify, lease and support 3Com Products, (b) design, develop, make
or have made, use, market, sell, modify, lease and support derivative cable
modem products based upon the 3Com Products, (c) sublicense its rights in the
Com21 Technology embodied in the Com21 Mongoose Product only granted in (a)
above, subject to the restrictions set forth in Section 2.3 (3Com Restrictions)
below and (d) reproduce and translate the materials in the Design Package
pursuant to the terms hereof as necessary for the exercise of the rights granted
in clauses (a) and (b) of this Section 2.1 (Development and Manufacturing
License).
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
3
<PAGE> 4
2.2 Trademark License. Com21 hereby grants to 3Com a worldwide,
nonexclusive, limited license to use the Com21 trademarks, and the respective
stylistic marks, listed on Exhibit F (Com21 Trademarks) and such other mutually
agreeable Com21 marks (collectively, the "Com21 Trademarks") in conjunction with
the distribution of the 3Com Products and in 3Com advertising, promotional and
printed materials for the 3Com Products. 3Com has provided to Com21 a copy of
the 3Com Trademark Guidelines. 3Com shall use the Com21 Trademarks in the manner
specified in the 3Com Trademark Guidelines for proper usage of 3Com trademarks.
The 3Com Trademark Guidelines may be modified from time to time by 3Com, in its
sole discretion, with written notice of such modification to Com21. in the event
Com21 implements its own trademark guidelines or policies, 3Com agrees to comply
with such guidelines or policies. If compliance with a Com21 policy or guideline
is not reasonably feasible, 3Com shall notify Com21 in writing and propose an
alternative procedure for Com21's approval, which will not be unreasonably
denied. Upon Com21's request, 3Com shall provide Com21 with free samples of the
3Com advertising and promotional materials and reasonable numbers of the 3Com
Product manufactured and distributed by 3Com on which such trademarks are used
to ensure that Com21's quality standards are maintained.
2.3 3Com Restrictions.
(a) Notwithstanding the foregoing licenses granted to 3Com in
this Section 2 (Licenses), (i) 3Com shall not have the right to sublicense to
any third party (except to 3Com present and future subsidiaries) the Com21
Technology licensed from Com21 before the second anniversary of the Effective
Date or until the Com21 P4 Product is available, provided, however, Com21 agrees
to support 3Com's discussions with third party manufacturers or vendors of
physical layer semiconductors regarding the inclusion of the Com21 Technology,
or any portion thereof, into such third party's products, (ii) until the third
anniversary of the Effective Date, 3Com shall not sell or make available for
sale as stand-alone products (i.e., not integrated into a card or system level
product) semiconductor chips designed by or on behalf of 3Com based on the Com21
Technology and (iii) 3Com will constrain the development and design of the First
Generation 3Com Product to low-cost, data over cable modems based on the Com21
Technology using RF technology compatible with the Com21 Headend.
(b) As of the Effective Date, 3Com currently does not intend to
enter the market for Headend Controller Units for the future foreseeable (no
more than two years from the Effective Date). 3Com agrees to notify Com21 in
writing within a reasonable time in the event 3Com decides (which decision shall
be in 3Com's sole discretion) to begin development of a Headend Controller Unit.
For purposes of this Section 2.3(b) only, "Headend Controller Unit"
shall mean that piece of equipment that physically connects the cable modem to
the Headend via a hybrid fiber/coax or all coax network and is comprised of the
following: Upstream and downstream physical layer connections, Media Access
Controller (MAC), management interface that manages the MAC and physical layers
and provides application management and traffic scheduling and interface to
other equipment in the Headend.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
4
<PAGE> 5
For purposes of this Section 2.3(b) only, a "Headend" shall mean the
office/wiring equipment that is directly connected to the cable modem via a
hybrid fiber/coax or all coax network. A Headend that is capable of offering
data services can be comprised of the following equipment: Headend Controller
Unit, switches, routers, network management, servers and other equipment that
may be necessary or desirable to offer data services (such as hubs, adapters,
and CSU/DSUs). The equipment outlined above may be in the form of separate
systems connected together via standard or proprietary interfaces. Alternatively
the functions may be contained in a single system or chassis comprised of cards
or plug-in-modules.
2.4 Com21 Restriction. Com21 currently intends for 3Com to be its
primary cable modem Partner. As of the Effective Date, Com21 currently does not
intend to enter into an agreement containing technology rights similar to the
Com21 Technology rights granted in this Agreement with any other company for the
future foreseeable (no more than two years from the Effective Date). Com21
agrees to notify 3Com in writing within a reasonable time in the event 3Com
decides (which decision shall be in Com21's sole discretion) to enter into such
an agreement.
2.5 3Com License to Com21. If Com21 desires, 3Com will grant to Com21 a
non-exclusive, non-transferable, worldwide, royalty-bearing license under the
3Com Technology to (a) make or have made, use, market, sell, modify, lease and
support the First Generation 3Com Products and (b) design, develop, make or have
made use, market, sell, modify, lease and support derivative cable modem
products based upon the First Generation 3Com Products. Com21 shall pay to 3Com
a reasonable royalty to be negotiated, and Sections 3.4 (Reports) and 4 (Payment
Terms) shall apply to Com21 on a reciprocal basis. If Com21 desires, 3Com agrees
to negotiate in good faith terms and conditions favorable to Com21 for Com21 to
OEM the First Generation 3Com Product. Upon Com21's election of the license
granted under this Section 2.5 (3Com License to Com21) and finalization of the
terms of such license, 3Com shall provide to Com21 a design package comprising
the information and materials necessary to develop the First Generation 3Com
Product (the "3Com Design Package") and the parties shall work together in good
faith to develop criteria to determine if such materials and information shall
be deemed acceptable.
2.6 No Other Licenses. Except as specifically and unambiguously set
forth in this Agreement, no other licenses are granted by Com21 or 3Com to the
other party.
3. LICENSE FEES, ROYALTIES AND REPORTS
3.1 License Fee and Royalties. 3Com shall pay to Com21 the license fees
and royalties as set forth in this Section 3.1 (License Fee and Royalties).
(a) Provided Com21 delivers to 3Com the existing portions of the
Design Package pursuant to Section 5.2 (Delivery) below, within thirty (30) days
of the Effective Date, 3Com shall pay to Com21 a one-time license fee of One
Million Dollars ($1,000,000).
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
5
<PAGE> 6
(b) Concurrent with the payment described in Section 3.1(a), 3Com
shall also pay to Com21 a pre-paid, non-refundable (except in the event of a
refund pursuant to Section 5.4 (Remedies for Rejection and Termination) below)
royalty of One Million Dollars ($1,000,000) for the first 100,000 units of the
3Com Products to be sold by 3Com.
(c) Until the earlier to occur of (i) the public availability of
the Com21 P4 Product in production quantities or (ii) December 31, 1998, 3Com
shall pay to Com21 a per unit royalty of [*] for units of 3Com Products for
which royalties are due in excess of one hundred thousand (100,000) sold by
3Com. Thereafter, no further royalties on 3Com Products shall be owed by 3Com to
Com21.
(d) Notwithstanding clauses (b) and (c) above, no royalty shall
be due with respect to units of the 3Com Products for 3Com internal use, alpha
or beta units, demonstration units, consigned units, repair or replacement of
any 3Com Products, or the sale of spare parts on the performance of warranty
work for any 3Com Products.
3.2 Mongoose Availability. If, on or before August 31, 1996, the Com21
Mongoose Product meeting the criteria to be agreed to by the parties and
described in Exhibit C (Com21 Mongoose Product Specification) and Exhibit D
(Com21 Mongoose Product Acceptance Criteria) is delivered by Com21 and which
meets or is later found to meet the Com21 Mongoose Product Acceptance Criteria
described in Exhibit D (Com21 Mongoose Product Acceptance Criteria), 3Com shall
pay to Com21 within thirty (30) days of acceptance by 3Com an additional
extended license fee of One Million Dollars ($1,000,000). If, after August 31,
1996 but on or before December 31, 1996, the Com21 Mongoose Product meeting the
criteria to be agreed to by the parties and described in Exhibit C (Com21
Mongoose Product Specification) and Exhibit D (Com21 Mongoose Product Acceptance
Criteria) is delivered by Com21 and which meets or is later found to meet the
Com21 Mongoose Product Acceptance Criteria described in Exhibit D (Com21
Mongoose Product Acceptance Criteria), said license fee shall be Five Hundred
Thousand Dollars ($500,000). If said Com21 Mongoose Product meeting said
criteria is not delivered by Com21 until January 1, 1997 or later, 3Com shall
not be obligated to make any license fee pursuant to this Section 3.2 (Mongoose
Availability); however, Com21 shall remain obligated to provide the Com21
Mongoose Product as provided this Agreement. Com21 shall provide 3Com a
reasonable number of samples of the Com21 Mongoose Product (including but not
limited to behavioral code) as it exists as of August 31, 1996 (regardless of
whether the Com21 Mongoose Product meets said criteria) and as it exists as of
the other dates set forth in this Section 3.2 (Mongoose Availability) until it
meets said criteria. 3Com agrees that COM 21 shall have no obligation to make
any modification or enhancement to the Com21 Mongoose Product to accommodate any
change in the 3Com Product.
3.3 Most Favored Customer. Com21 represents and warrants that at the
date of this Agreement the license fees set forth herein do not exceed those
charged to any other customer of Com21 licensing the Com21 Technology or
technology similar or equivalent thereto. If at any time, Com21 offers lower
prices to any other customer for such similar or equivalent technology on
similar terms or on terms less favorable to Com21, taken as whole, Com21 shall
immediately
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
6
<PAGE> 7
notify 3Com and offer such more favorable license fees to 3Com effective as of
the date such prices were offered to such other customer.
3.4 Reports. 3Com shall keep adequate records to verify all reports and
payments to be made to Com21 pursuant to this Agreement for a period of three
(3) years following the date of such reports and payments. Com21 shall have the
right to select an independent certified public accountant mutually agreeable to
the parties, whose fees are not contingent on the results of the inspection and
who agrees in writing to maintain the confidentiality of the information
provided to it, to inspect no more frequently than annually the records of 3Com
on reasonable notice and during regular business hours to verify the reports and
payments required hereunder. If such inspection should disclose any
underpayment, 3Com shall promptly pay Com21 such amount. The entire cost of such
inspection shall be borne by Com21; provided, however, that if 3Com is
determined by such audit to have underpaid royalties by five percent (5%) or
more, then the reasonable cost of such audit shall be home by 3Com.
4. PAYMENT TERMS
4.1 Payment. Per-unit royalties under Section 3.1(c) above shall accrue
upon shipment to a customer of 3Com Products by 3Com and shall be payable
quarterly, within thirty (30) days after the first day of the month following
the 3Com fiscal quarter in which royalties accrued. Each royalty payment shall
be accompanied by a statement of all units shipped during the relevant period
for which a royalty is due. Payments and statements shall be sent to Com21 at
the address set forth at the beginning of this Agreement or such other address
as Com21 may designate in writing.
4.2 Taxes. In addition to any other payments due under this Agreement,
3Com agrees to pay, indemnify and hold Com21 harmless from any sales, use,
excise, import or export, value added or similar tax or duty, any other tax not
based on Com21's net income, and all governmental permit fees, license fees,
customs fees and similar fees which Com21 may incur in respect of this
Agreement.
5. DESIGN PACKAGE
5.1 Definition of Design Package. Promptly following the Effective Date,
the parties shall work together to determine and describe the materials and
information necessary to develop cable modem products compatible with the Com21
Headend and the Specifications, and the criteria to determine if such materials
and information shall be deemed acceptable. The description of the Design
Package shall be attached to this Agreement as Exhibit E (Design Package) when
it is completed. Com21 shall provide 3Com with updated versions of the Design
Package as it evolves during the course of design reviews by the parties.
5.2 Delivery. On the Effective Date, Com21 shall deliver to 3Com all
then existing portions of the Design Package. In addition, Com21 shall use
commercially reasonable efforts to provide 3Com with the deliverables described
in the Design Package in accordance with the
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milestone schedule set forth therein. Because Com21's performance is dependent
in part on 3Com's performance, any dates or time periods relevant to performance
by Com21 hereunder shall be appropriately and equitably extended to account for
any delays due to 3Com.
5.3 Acceptance. 3Com shall have twenty (20) days after receipt of each
deliverable in the Design Package (the "Acceptance Period") to examine such
deliverable to determine that it substantially conforms with the Specifications
in Exhibit B (Specifications) and as described in Exhibit A (Com21 Technology).
3Com may reject a deliverable only if the deliverable fails in some material
respect to meet the Specifications in Exhibit B (Specifications) and as
described in Exhibit A (Com21 Technology). 3Com shall promptly notify Com21 if
it rejects such deliverable with a written summary of the reason for rejection.
If no written rejection is received by Com21 within the Acceptance Period, such
deliverable shall be deemed accepted. Should the delivery of the deliverable be
rejected by 3Com, Com21 shall use commercially reasonable efforts to correct the
deliverable to conform with the associated specifications and redeliver such
corrected deliverable to 3Com within twenty (20) days of receipt of rejection.
3Com will have twenty (20) days after receipt of the redelivered deliverable to
accept the deliverable. The foregoing acceptance/rejection/correction provisions
shall apply to a redelivered deliverable, provided, however, that upon the third
or any subsequent rejection, either party may terminate this Agreement by thirty
(30) days notice unless the deliverable is accepted during the notice period.
Com21 shall not be obligated to correct any failure caused by something other
than the deliverable.
5.4 Remedies for Rejection and Termination. If this Agreement is
terminated pursuant to Section 5.3 (Acceptance) above, the parties agree to
negotiate in good faith the effect of such termination with respect to the
refund by Com21 of any amounts already paid by 3Com under Section 3 (License
Fees, Royalties and Reports) above, the portions of the Design Package, if any,
to be retained by 3Com and 3Com's right, if any, in such Design Package portions
and license fees in connection therewith. If the parties fail to agree on such
terms within thirty (30) days of the effective date of termination, Com21 shall
refund all amounts already paid by 3Com under Section 3 (License Fees, Royalties
and Reports) and 3Com shall have no rights in the Com21 Technology, the Com21
Mongoose Product or the Design Package.
6. SUPPORT
6.1 Design Support. Com21 will provide 3Com with a reasonable number of
man-hours of Com21 R&D, manufacturing and quality assurance engineers for
support by telephone, fax or if requested by 3Com, at 3Com Santa Clara site,
provided Com21's current timetable for commercialization is not adversely
impacted. Com21 and 3Com shall designate representatives to serve as contacts
for such support. If additional support is requested by 3Com, Com21 shall
provide, at Com21's sole discretion, such service at reasonable times and places
and at a rate equal to Com21's then current standard fee therefor (currently
[$150]/hour at Com21 facilities). Com21 shall provide 3Com with reasonable
advance notice of Com21 design reviews relating to Com21 cable modem products
and permit a 3Com representative to attend.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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6.2 Customer Support. The parties agree to work together to develop and
facilitate the call handling processes to provide seamless customer support and
technical service to end users and service providers. Each party shall be solely
responsible for support of its products.
6.3 3Com Support.
3Com shall provide Com21 with a reasonable number of man-hours of the
following types of assistance:
(a) Chip design expertise;
(b) DVT facilities;
(c) Physical layer certification assistance;
(d) ATM switching technology;
(e) Network management;
(f) Low-cost volume manufacturing expertise; and
(g) Other consulting advice.
Com21 shall provide to 3Com all the necessary technology to interface the 3Com
Products to the Com21 Headend.
7. MARKETING
3Com and Com21 intend to jointly develop a marketing campaign to successfully
promote communication over HFC and remove adoption barriers for both MSOs and
end users. 3Com and Com21 shall jointly promote the Specifications to drive
industry standards. The parties envision that they initially would both market
the 3Com Product. The parties will work together to leverage their respective
relationships with MSOs to establish the superiority of the system solution they
jointly develop. The parties will work together to include each other products,
as appropriate and applicable, in their respective advertising, public relations
activities, tradeshows, product literature and manuals, and World Wide Web
sites.
8. STANDARDS
The parties acknowledge and agree that it is in their mutual interests to
promote the "The UPSTREAMS Protocol for HFC Networks" proposal, based on IEEE
802 contribution IEEE P802.14/95-152R1 (the "Proposal") including subsequent
revisions, generated as required to promote acceptance in the standards bodies,
and ATM Forum contribution ATMF/95-1435R1, for acceptance in industry standards
with relevant standards bodies. The parties shall use
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reasonable efforts to collaborate on such promotion.
The parties further agree that other companies or consortia may participate in
efforts to promote the Proposal, as needed to build consensus within the
relevant standards bodies, and that additional contributors shall not be
precluded from being added to The Proposal in the future.
The Proposal shall be made freely available, but intellectual property rights
(including, without limitation, patent rights) included or referenced in the
Proposal shall be released or licensed in accordance with the policies of the
relevant standards body. Each shall retain all ownership of and title to
intellectual property rights in contributions it makes to the Proposal.
9. COM21 HEADEND DEVELOPMENT AND RESALE BY 3COM
9.1 Development. Com21 shall use commercially reasonable efforts to
design and develop the first generation Com21 Headend in accordance with a
mutually agreeable schedule. The parties agree to meet to discuss the status and
direction of Com21's design and development of the Com21 Headend and to assess
how 3Com could assist to accelerate and enhance such design and development.
9.2 Resale by 3Com. The parties agree that 3Com shall be permitted to
resell the Com21 Headend pursuant to the terms and conditions of a reseller
agreement, entitled "Headend Distribution Agreement", to be agreed upon and
entered into by the parties. Com21 shall escrow the designs for the Com21
Headend for release to enable 3Com to manufacture the Com21 Headend under
certain conditions as more specifically set forth in the Technology Escrow and
Manufacturing License, attached hereto as Exhibit G, (Technology Escrow and
Manufacturing License), to be incorporated into and made a part of the Headend
Distribution Agreement.
9.3 Com21 Headend Integration within 3Com Platform. The parties agree to
work together to develop by December 31, 1996 a mutually agreeable plan (a) to
make the Com21 Headend compatible for integration within a 3Com platform such as
the Trinity or ONcore architectures (which architecture shall be designated by
3Com) or (b) to provide the necessary technology and specifications for such
integration. The parties agree that they shall perform such plan.
10.0 3COM NIC TECHNOLOGY
3Com shall develop certain network interface card (NIC) technology and
make products incorporating such technology available to Com21 on mutually
agreeable terms as follows:
10.1 Low-Cost NICS. 3Com shall provide a low cost network interface card
(NIC) to be independently resold by Com21 and 3Com. This NIC would enable PC
users to connect a cable modem to their PCs. 3Com intends to develop the needed
software to make the installation relatively easy and user friendly.
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10.2 NIC Drivers. 3Com shall develop NIC PC drivers to enable high
performance and efficient communication between the 3Com Products and the PC.
This could utilize 3Com technology such as the PACE technology.
10.3 Management Software. 3Com shall develop software to enable remote
configuration and management of PC parameters over the HFC infrastructure such
as AMP and DRMON.
11. PROPRIETARY RIGHTS
11.1 Title. Com21 shall be the sole and exclusive owner of the Design
Package, Com21 Technology, Com21 Headend, Com21 Mongoose Product, all
modifications and derivative works (produced by Com21) thereof, the Com21
Trademarks and all proprietary and intellectual property rights therein
throughout the world. Except for the Design Package, Com21 Technology, Com21
Headend and Com21 Mongoose Product, modifications and derivative works (produced
by Com21) thereof and the Com21 Trademarks embodied in the First Generation 3Com
Product, 3Com shall be the sole and exclusive owner of the 3Com Technology and
other technology embodied in the 3Com Products. 3Com agrees to sell to Com21 for
resale as a Com21 branded product any 3Com Product embodying a modification or
derivative work (produced by 3Com) of the Design Package, Com21 Technology or
Com21 Mongoose Product at prices that are not higher than those 3Com charges any
other customer of such product or product containing similar or equivalent
technology at similar volumes. Technology that is made, conceived of or reduced
to practice by the parties jointly in the course of development under this
Agreement shall be jointly owned, without accounting to each other, both parties
having the right to design, develop, make or have made, use, market, sell,
modify, sublicense, lease and support products using the technology arising out
of or obtained with respect to such joint development. To the extent necessary
to bring about the joint ownership of the jointly developed technology, each
party hereby assigns to the other party an undivided ownership interest in their
respective technology in the jointly developed technology. Each party shall use
reasonable efforts to enable the other to use third party technology
incorporated into the Com21 Technology and/or the Com21 Mongoose Product (in the
case of Com21) or the 3Com Technology (in the case of 3Com) under terms and
conditions similar to the terms and conditions such party has received from said
third parties, whether by means of a sublicense or directly from the third
party.
11.2 Patents. Except as otherwise provided below, 3Com agrees at its
election and own expense (i) to file in the United States Patent and Trademark
Office (the "PTO") applications ("Applications") for Letters Patents covering
the jointly developed technology, (ii) to diligently prosecute the Applications
and (iii) to maintain in force any patents issuing therefrom. 3Com agrees to
promptly supply Com21 with a complete copy of each Application and all
communications received from, or sent to, the PTO concerning the Applications.
3Com agrees to submit to Com21 for consideration and advice all responses to PTO
communications before filing them, and to give due consideration to Com21's
advice with respect to such responses. The filing and prosecution of foreign
patent applications shall be subject to mutual agreement of the
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<PAGE> 12
parties. If, 3Com elects not to seek patent protection for any invention of the
jointly developed technology, 3Com shall so notify Com21 in writing and Com21
may, in its sole discretion and at its sole expense, file an Application for
Letters Patent covering such invention and Com21 agrees to diligently prosecute
all such Applications it elects to file. If, at any time, 3Com intends to allow
any Application or any patent lapse, become abandoned or forfeited without
having first filed a substitute, 3Com shall (a) notify Com21 in writing of its
intention at least sixty (60) days before the date on which the application or
patent is due to lapse or become abandoned or forfeited and (b) if requested by
Com21, promptly assign the entire right, title and interest in and to that
application or patent to Com21. Com21 shall be under no obligation to prosecute
or maintain in force any application or patent assigned to it, provided Com21
shall notify 3Com in writing of its intention not to prosecute or maintain any
such application or patent at least sixty (60) days before the date on which the
application or patent is due to lapse or become abandoned or forfeited.
11.3 Notices. Each party agrees that it will cause to appear on the
container or label for each unit of the products manufactured hereunder
appropriate patent and copyright notices and proprietary data legends as
contained in the Design Package or Com21 Technology delivered by Com21 or First
Generation 3Com Product or 3Com Technology delivered by 3Com, as the case may
be, pursuant to this Agreement or as otherwise reasonably required by the other
party.
12. WARRANTY
12.1 Com21 Warrant. Com21 warrants to 3Com that for a period of ninety
(90) days after receipt by 3Com of the Design Package (the "Warranty Period")
the media on which Com21 delivers the Design Package to 3Com shall be free of
defects in material and workmanship. Com21 shall replace any such defective
media promptly following receipt of written notice from 3Com of such defects
during the Warranty Period. Com21 further represents and warrants to 3Com that
the Com21 Technology and materials contained in the Design Package provided to
3Com will be sufficient to permit 3Com (assuming 3Com has R&D and manufacturing
skill and know-how typical of manufacturers of computer products similar to
cable modem products) to develop the 3Com Product to be compatible with the
Com21 Headend and to conform in all material respects to the Specifications.
EXCEPT FOR THE FOREGOING LIMITED WARRANTIES AND AS SET FORTH IN SECTION 13
(INDEMNIFICATION), COM21 MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS
TO ANY MATTER WHATSOEVER. IN PARTICULAR, ANY AND ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED.
12.2 3Com Warranty to Com21. 3Com warrants to Com21 that for a period of
ninety (90)days after receipt by Com21 of the 3Com Design Package (the "3Com
Warranty Period") the media on which 3Com delivers the 3Com Design Package to
Com21 shall be free from defects in material and workmanship. 3Com shall replace
any such defective media promptly following receipt of written notice from Com21
of such defects during the 3Com Warranty Period. 3Com further represents and
warrants to Com21 that the 3Com Technology and materials contained in
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the 3Com Design Package provided to Com21 will be sufficient to permit Com21
(assuming Com21 has R&D and manufacturing skill and know-how typical of
manufacturers of computer products similar to cable modem products) to develop
the First Generation 3Com Product. EXCEPT FOR THE FOREGOING LIMITED WARRANTIES
AND AS SET FORTH IN SECTION 13 (INDEMNIFICATION), 3COM MAKES NO WARRANTIES,
EXPRESS, IMPLIED OR STATUTORY, TO COM21 AS TO ANY MATTER WHATSOEVER. IN
PARTICULAR, ANY AND ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED.
12.3 Customer Warranty . Each party shall be solely responsible for
customer warranty of any and all products manufactured by such party pursuant to
this Agreement.
13. INDEMNIFICATION
13.1 Com21 Indemnification of 3Com. Com21 shall indemnify and hold
harmless 3Com, its officers, directors, employees and agents against any claims,
actions or demands alleging that the Com21 Technology, Com21 Mongoose Product or
Design Package, including all updates thereto (if any) provided to 3Com by
Com21, infringe on any U.S. copyrights, U.S. patents, trade secrets or other
proprietary rights of any third parties.
(a) This obligation is contingent upon (i) 3Com giving prompt
written notice to Com21 of any such claim, action or demand, (ii) 3Com
allowing Com21 to control the defense and related settlement
negotiations and (iii) 3Com fully assisting, at Com21 expense, in the
defense.
(b) Com21 shall have no obligation hereunder for any such claims,
actions or demands to the extent such claims, actions or demands result
from:
(1) The 3Com Product, or portions or components thereof, made in
accordance with 3Com's specifications; or
(2) Com21 Technology, Com21 Mongoose Product or Design Package
combined with processes, materials or products not supplied, created, developed
licensed by Com21; or
(3) The modification or attempted modification of the Com21
Technology, Com21 Mongoose Product or Design Package by parties other than Com21
or the use or distribution of such modified Com21 Technology, Com21 Mongoose
Product or Design Package or
(4) 3Com's continued alleged infringing activity after being
notified thereof or after being informed of modifications that would have
avoided the infringement.
THE FOREGOING STATES 3COMS SOLE AND EXCLUSIVE REMEDY WITH
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RESPECT TO CLAIMS OF INFRINGEMENT OF PROPRIETARY RIGHTS OF ANY KIND.
13.2 3Com Indemnification of Com21. 3Com shall indemnify and hold
harmless Com21, its officers, directors, employees and agents against any
claims, actions or demands alleging that the First Generation 3Com Products or
3Com Technology infringe on any U.S. copyrights, U.S. patents, trade secrets or
other proprietary rights of any third parties.
(a) This obligation is contingent upon (i) Com21 giving prompt
written notice to 3Com of any such claim, action or demand, (ii) Com21 allowing
3Com to control the defense and related settlement negotiations and (iii) Com21
fully assisting, at 3Com expense, in the defense.
(b) 3Com shall have no obligation hereunder for any such claims,
actions or demands to the extent such claims, actions or demands result from:
(1) The Com21 Technology, Com21 Mongoose Product or Design
Package, unless (i) the 3Com Product, or portion or component thereof,
is made in whole or in part in accordance with 3Com's specifications or
(ii) Com21 technology, Com21 Mongoose Product or Design Package is
combined with materials, processes or products not supplied, created,
developed or licensed by Com21;
or
(2) The modification or attempted modification of the
First Generation 3Com Product or 3Com Technology by parties other
than 3Com or the use or distribution of such modified First
Generation 3Com Product or 3Com Technology
or
(3) Com21's continued alleged infringing activity after
being notified thereof or after being informed of modifications
that would have avoided the infringement.
THE FOREGOING STATES COM21'S SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO CLAIMS OF
INFRINGEMENT OF PROPRIETARY RIGHTS OF ANY KIND.
14. CONFIDENTIALITY
14.1 Confidential Information. Each party acknowledges that in the
course of the performance of this Agreement, it may obtain the Confidential
Information of the other party. The Receiving Party (as defined in Section 1.7
(Confidential Information)) shall, at all times, both during the term of this
Agreement and thereafter for a period of [*], keep in confidence and trust all
of the Disclosing Party's (as defined in Section 1.7 (Confidential Information))
Confidential Information received by it. The Receiving Party shall not use the
14
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 15
Confidential Information of the Disclosing Party other than as expressly
permitted under the terms of this Agreement or by a separate written agreement.
The Receiving Party shall take all reasonable steps to prevent unauthorized
disclosure or use of the Disclosing Party's Confidential Information and to
prevent it from failing into the public domain or into the possession of
unauthorized persons. The Receiving Party shall not disclose Confidential
Information of the Disclosing Party to any person or entity other than its
officers, employees, consultants and subsidiaries who need access to such
Confidential Information in order to effect the intent of this Agreement and who
have entered into written confidentiality agreements which protect the
Confidential Information of the Disclosing Party. The Receiving Party shall
immediately give notice to the Disclosing Party of any unauthorized use or
disclosure of Disclosing Party's Confidential Information. The Receiving Party
agrees to assist the Disclosing Party to remedy such unauthorized use or
disclosure of its Confidential Information.
14.2 Exceptions to Confidential Information. The obligations set forth
in Section 14.1 (Confidential Information) shall not apply to the extent that
Confidential Information includes information which (a) is already known to the
Receiving Party at the time of disclosure, which knowledge the Receiving Party
shall have the burden of proving; (b) is, or, through no act or failure to act
of the Receiving Party, becomes publicly known; (c) is received by the Receiving
Party from a third party without restriction on disclosure; (d) is independently
developed by the Receiving Party without reference to the Confidential
Information of the Disclosing Party, which independent development the Receiving
Party will have the burden of proving; (e) is approved for release by written
authorization of the Disclosing Party; or (f) is required to be disclosed by a
government agency to further the objectives of this Agreement or by a proper
order of a court of competent jurisdiction; provided, however that the Receiving
Party will use its reasonable efforts to minimize such disclosure and will
consult with and assist the Disclosing Party in obtaining a protective order
prior to such disclosure.
14.3 Remedies. Each party acknowledges and agrees that any breach of
this Section 14 (Confidentiality) by a party's unauthorized use or disclosure of
the Com21 Technology, the 3Com Technology or the Design Package, as the case may
be, would cause irreparable injury to the other party for which monetary damages
are not an adequate remedy. Accordingly, in addition to other available
remedies, the non-breaching party will be entitled to obtain appropriate
injunctive relief and other equitable remedies in the event of such breach.
15. LIMITATION OF LIABILITY
EXCEPT FOR A BREACH OF SECTION 14 (CONFIDENTIALITY), NEITHER PARTY SHALL
HAVE ANY LIABILITY FOR INCIDENTAL, CONSEQUENTIAL, INDIRECT, SPECIAL OR PUNITIVE
DAMAGES OR LIABILITIES OF ANY KIND OR FOR LOSS OF REVENUE, LOSS OF BUSINESS OR
OTHER FINANCIAL LOSS OR FOR ANY COST OF PROCUREMENT OF SUBSTITUTE GOODS,
SERVICES OR TECHNOLOGY ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT,
INCLUDING WITHOUT LIMITATION IN CONNECTION WITH THE MANUFACTURE, SALE,
INSTALLATION, USE, PERFORMANCE, FAILURE OR
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INTERRUPTION OF THE PRODUCT(S) LICENSED HEREUNDER, REGARDLESS OF THE FORM OF THE
ACTION, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE) STRICT PRODUCT
LIABILITY OR OTHERWISE, EVEN IF ANY REPRESENTATIVE OF A PARTY HERETO HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
16. EXPORT CONTROLS
Each party agrees that it will not knowingly, without prior
authorization, if required, of the Office of Export Administration, U.S.
Department of Commerce 14th and Constitution Ave., N.W., Washington, D.C. 20230,
export or reexport (as defined in Section 779.1(b)-(c) of the Export
Administration Regulations - "Regulations" - and any amendments thereto) the
technical data relating to the Com21 Mongoose Product, Com21 Headend, 3Com
Product, Com21 Technology or 3Com Technology or the direct products of such
technical data to Afghanistan, the People's Republic of China or to any Group Q,
S, W, Y or Z country specified in Supplement No. 1 to Section 770 of the
Regulations as amended from time to time.
17. TERM AND TERMINATION
17.1 Term. This Agreement shall be effective from the Effective Date for
a period of five (5) years, unless earlier terminated in accordance with its
terms. Thereafter, this Agreement shall automatically be renewed on its
anniversary dates for successive one (1) year terms subject to a party providing
written notice to the other party no later than sixty (60) days prior to any
such anniversary date of such party's intent not to renew in which event this
Agreement shall terminate at the end of the then current term; provided that, in
the event of Com21's failure to renew, the Licenses granted to 3Com under
Section 2 (Licenses) above shall continue in full force in perpetuity.
17.2 Termination Due to Bankruptcy, etc. In the event a party (i)
becomes insolvent; (ii) voluntarily files a petition under applicable bankruptcy
or insolvency laws which such party fails to have released within thirty (30)
days after filing, (iii) has filed against it a petition under applicable
bankruptcy or insolvency laws which such party fails to have released within
ninety (90) days (thirty (30) days if such party fails to contest the petition
in good faith) after filing; (iv) proposes any dissolution, composition or
financial reorganization with creditors or if a receiver, trustee, custodian or
similar agent is appointed or takes possession with respect to all or
substantially all property or business of such party; or (v) such party makes a
general assignment for the benefit of creditors, the other party may terminate
this Agreement by giving a termination notice, which termination shall become
effective ten (10) days after mailing.
17.3 Right to Terminate. Either party shall have the right to terminate
this Agreement if the other party is in material breach of any term or condition
of this Agreement and fails to remedy such breach within thirty (30) days
(twenty (20) days in the case of a
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breach of a payment obligation) after receipt of written notice of such breach
given by the non-breaching party; provided, however, that a breach of the
obligations set forth in Section 14 (Confidentiality) shall be grounds for
immediate termination by the non-breaching party of this Agreement.
17.4 Obligations Upon Termination caused by 3Com Breach. Upon the
termination of this Agreement caused by 3Com's material breach of this
Agreement:
(a) 3Com's obligations to pay all sums due hereunder shall be
accelerated and all such sums shall be due and payable on the date of
termination or expiration;
(b) The licenses granted to 3Com hereunder shall terminate and
3Com shall discontinue the use, manufacture, reproduction, distribution and
sublicensing (as applicable of the Com21 Technology, Com21 Mongoose Product and
Design Package licensed from Com21;
(c) 3Com may keep one (1) copy of the Com21 Technology, Com21
Mongoose Product and Design Package to be used solely for support of its
installed base of 3Com Products and 3Com shall have a limited license to the
extent necessary for 3Com to support the installed base of 3Com Products.
17.5 Obligations Upon Termination caused by Com21 Breach. Upon the
termination of this Agreement caused by Com21's material breach of this
Agreement:
(a) Com21's obligations to pay all sums due hereunder shall be
accelerated and all such sums shall be due and payable on the date of
termination or expiration;
(b) The licenses granted to Com21 hereunder shall terminate and
Com21 shall discontinue the use, manufacture, reproduction, distribution and
sublicensing (as applicable) of the 3Com Technology and First Generation 3Com
Product licensed from 3Com;
(c) Com21 may keep one (1) copy of the 3Com Technology and First
Generation 3Com Product to be used solely for support of its installed base of
First Generation 3Com Products and Com21 shall have a limited license to the
extent necessary for Com21 to support the installed base of First Generation
3Com Products.
17.6 Other Obligations Upon Termination. Except as otherwise provided in
Sections 17.4(c) and 17.5(c) above, upon the expiration or earlier termination
of the Agreement, the Receiving Party shall, within fifteen (15) days of any
termination or expiration of this Agreement, return to the Disclosing Party or
destroy all full or partial copies, in whatever media, of any and all materials
in the Receiving Party's possession which had been furnished to the Receiving
Party by the Disclosing Party pursuant to this Agreement, and the Receiving
Party shall warrant in writing to the Disclosing Party within thirty (30) days
after termination or expiration that all such materials have been returned to
the Disclosing Party or destroyed.
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17.7 Survival. Neither the termination or expiration of this Agreement
shall relieve either party from its obligations to pay the other any sums
accrued hereunder. The parties agree that their respective rights, obligations
and duties under Sections 2 (Licenses) (except as otherwise set forth in this
Section 17 (Term and Termination)), II (Proprietary Rights), 13
(Indemnification), 14 (Confidentiality), 15 (Limitation of Liability), and 17
(Term and Termination), as well as any rights, obligations and duties which by
their nature extend beyond the termination or expiration of this Agreement shall
survive any termination or expiration and remain in effect for a period of five
(5) years thereafter or the period specified in this Agreement, if longer.
18. MISCELLANEOUS
18.1 Notices. Any notice provided for or permitted under this Agreement
will be treated as having been given when (a) delivered personally, (b) sent by
confirmed telex or telecopy, (c) sent by commercial overnight courier with
written verification of receipt, or (d) mailed postage prepaid by certified or
registered mail, return receipt requested, to the party to be notified, at the
address set forth below, or at such other place of which the other party has
been notified in accordance with the provisions of this Section 18.1 (Notices).
If to 3Com: 3Com Corporation
5400 Bayfront Plaza
Santa Clara, CA 95052
Telecopy: (408) 764-8955
Attention: PCOps Purchasing Manager
with a copy to the attention of 3Com's General Counsel at the address
above, and a telecopy number of (408) 764-6434.
If to Com21: Com21, Inc.
1991 Landings Drive
Mountain View, CA 94043
Telecopy: (415) 254-5883
Attention: President
and copy to: Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Telecopy: (415) 496-2885
Attention: Edward M. Leonard, Esq.
Such notice will be treated as having been received upon the earlier of actual
receipt or five (5) days after posting.
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18.2 Amendment: Waiver. This Agreement may be amended or supplemented
only by a writing that is signed by duly authorized representatives of both
parties. No term or provision hereof will be considered waived by either party,
and no breach excused by either party, unless such waiver or consent is in
writing signed on behalf of the party against whom the waiver is asserted. No
consent by either party to, or waiver of, a breach by either party, whether
express or implied, will constitute a consent to, waiver of, or excuse of any
other, different, or subsequent breach by either party.
18.3 Severability. If any provision of this Agreement is held invalid or
unenforceable for any reason, the remainder of the provision shall be amended to
achieve as closely as possible the economic effect of the original term and all
other provision shall continue in full force and effect.
18.4 Governing Law. This Agreement shall be governed by and construed
under the laws of the United States and the State of California as applied to
agreements entered into and to be performed entirely within California between
California residents. The parties agree that the United Nations Convention on
Contracts for the International Sale of Goods is specifically excluded from
application to this Agreement.
18.5 Choice of Forum. The parties hereby submit to the jurisdiction of,
and waive any venue objections against, the United States District Court for the
Northern District of California, San Jose Branch and the Superior and Municipal
Courts of the State of California, Santa Clara County, in any litigation arising
out of the Agreement.
18.6 Injunctive Relief. It is expressly agreed that a material breach of
this Agreement (except Section 14 (Confidentiality)) by a party could cause
irreparable harm to the non-breaching party and that a remedy at law would be
inadequate. Therefore, in addition to any and all remedies available at law, the
non-breaching party shall be entitled to seek an injunction or other equitable
remedies in all legal proceedings in the event of any threatened or actual
violation of any or all of the provisions hereof.
18.7 Attorneys' Fees. In any action to enforce this Agreement, the
prevailing party shall be awarded all court costs and reasonable attorneys' fees
incurred, including such costs and attorneys' fees incurred in enforcing and
collecting any judgment.
18.8 Force Majeure. Except for the payment of money, neither party will
be liable for any failure or delay in performance beyond its control under this
Agreement due to fire, explosion, earthquake, storm, flood or other weather,
unavailability of necessary utilities or raw materials, war, insurrection, riot,
act of God or the public enemy, law, act, order, export control regulation,
proclamation, decree, regulation, ordinance, or instructions of Government or
other public authorities, strikes, lockouts or other labor disputes or shortages
or inability to obtain material or equipment, compliance with laws or regulation
(including, without limitation, those related to infringement) or judgment or
decree of a court of competent jurisdiction (not arising out of breach by such
party of this Agreement). In the event of the happening of such a cause,
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the party whose performance is so affected will give prompt, written notice to
the other party, stating the period of time the same is expected to continue and
will use its best efforts to mitigate the effect of the event giving rise to the
failure or delay in performance.
18.9 Assignment. 3Com may assign this Agreement to any person to whom it
transfers all or substantially all of its proprietary rights in the 3Com Product
and 3Com Technology. Otherwise, neither party may assign, voluntarily, by
operation of law, or otherwise, any rights or delegate any duties under this
Agreement (other than the right to receive payments) without the other party
prior written consent and any attempt to do so without such consent will be void
except that an assignment to an acquiror of all or substantially all of a
party's stock, assets or business shall not require prior written consent of the
other party. This Agreement will bind and inure to the benefit of the parties
and their respective successors and permitted assigns.
18.10 Relationship of the Parties. The parties to this Agreement are
independent contractors. There is no relationship of agency, partnership, joint
venture, employment, or franchise between the parties. Neither party has the
authority to bind the other or to incur any obligation on its behalf.
18.11 Allocation of Risk. The sections on limitation of liability,
warranties and disclaimer of warranties allocate the risks in the Agreement
between the parties. This allocation is an essential element of the basis of the
bargain between the parties.
18.12 Publicity. Neither party shall disclose the terms of this
Agreement without the prior approval of the other party, except that a party may
disclose the terms of this Agreement where required by law, provided that such
party makes every reasonable effort to obtain confidential treatment or similar
protection to the fullest extent available to avoid public disclosure of the
terms of this Agreement. A party required by law to make disclosure of the terms
of this Agreement will promptly notify the other party and permit the other
party to review and participate in the application process seeking confidential
treatment.
18.13 Construction of Agreement. This Agreement has been negotiated by
the respective parties hereto and their attorneys and the language hereof shall
not be construed for or against any party. The titles and headings herein are
for reference purposes only and shall not in any manner limit the construction
of this Agreement, which shall be considered as a whole.
18.14 Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, but both of which together shall
constitute one and the same instrument. If this Agreement is executed in
counterparts, no signatory hereto shall be bound until both the parties named
below have duly executed or caused to be duly executed a counterpart of this
Agreement.
18.15 Entire Agreement. This Agreement, including all Exhibits to this
Agreement, constitutes the entire agreement between the parties relating to this
subject matter and supersedes all prior or simultaneous representations,
discussions, negotiations, and agreements, whether
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written or oral.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the dates set forth below effective as of the Effective Date.
3COM CORPORATION COM21, INC.
By: By:
------------------------------- -------------------------------
Name: Name:
----------------------------- -----------------------------
Title: Title:
---------------------------- ----------------------------
Date: March 22, 1996 Date: March 22, 1996
----------------------------- -----------------------------
List of Exhibits:
A - Com21 Technology
B - Specifications
C - Com21 Mongoose Product Specification
D - Com21 Mongoose Product Acceptance Criteria
E - Design Package
F - Com21 Trademarks
G - Technology Escrow and Manufacturing License
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EXHIBIT A
COM21TECHNOLOGY
[to be prepared and delivered consistent with Section 5.2]
Cable modem CATV MAC and PHY interface specifications
Cable modem management message protocol
Cable modem system design
Cable modem circuit design
Cable modem printed circuit board design
Cable modem diagnostic firmware
Cable modem operational firmware
Cable modem ASIC source code (RTL)
Cable modem specifications and test criteria
Cable modem mechanical design
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EXHIBIT B
SPECIFICATIONS
[to be attached at the time of execution]
23
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EXHIBIT C
COM21 MONGOOSE PRODUCT SPECIFICATION
[Product Specification to be attached at the time of execution]
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EXHIBIT D
COM21 MONGOOSE PRODUCT ACCEPTANCE CRITERIA
[Acceptance criteria to be prepared
and attached within 60 days after execution]
COM21 Mongoose Product Acceptance Criteria
Contract Exhibit D
Revision 1.0, 6/07/96
Ed Boyd
John Griesing
The following will be used to determine the acceptance of the Mongoose product.
All of the items listed in the document will be required to accept the Mongoose
product at meeting the Acceptance Criteria.
1. Design Package
The following is the design package that 3Com expects to receive
relative to the Mongoose product. It is expected that this package will
be available in it's entirety at the time of fabrication of the final
Mongoose product.
- - RTL Verilog Code that compiles without errors and with all warnings
messages investigated.
- - Verilog simulation environment with self checking test cases. A self
checking test case will report an error when the feature to be tested
fails.
- - Behavioral, minimum delay netlist, typical delay netlist, and maximum
delay netlist simulations passing in Verilog simulation environment.
- - Set of test vectors with 90% or greater test coverage.
- - Simulate vectors using minimum, typical, and maximum delays.
- - Simulate vectors using dynamic timing analyzer (i.e. Epilog) (optional).
- - Synopsys scripts for synthesis and complete set of timing constraints
for synopsys.
- - Synopsys static timing analysis completed without violations.
2. Environmental Conditions
The following conditions will be tested on the device.
- - Temperature testing over operating range (0C-70C)
- - Voltage margining (4.75 - 5.25 V)
- - Timing Verification (per specification)
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- - 29K Bus
- - Modulator/Demodulator
- - SRAM
- - MACE
- - Mongoose BER (Bit Error Rate) Less than IOE-9
3. Mongoose Scenarios to be verified with final silicon.
- - Ethernet Packet Bridging.
- Send packets to learn source addresses. Verify bridging based on
learned addresses. Verify aging of old addresses and replacement
of oldest entries.
- Send broadcast packets. Verify bridging based on ethertype table
and broadcast rate count.
- Send packets directed to processor. Verify bridging based on
local MAC enable switch, MAC address table, and multicast
address table.
- Send multicast packets. Verify bridging based on multicast
address table.
- - MACE Interface.
- Transmit packets with MACE underruns, max collisions, and late
collisions. Verify detection and recovery.
- Receive packets that had late collisions, CRC errors, alignment
errors, and overruns. Verify detection and recovery.
- - Determine cell and frame boundaries.
- Verify Cell delination detection.
- Verify Frame delination detection.
- Generate T7EI errors. Verify detection and recovery.
- Corrupt/change both frame and cell boundaries. Verify detection
of loss, reestablishment or connection, and graceful termination
to upstream transmission.
- - Decryption of packet.
- Decrypt OAM, AAL5 and raw ATM cells using all 10 keys based on
the VPI. Verify cell contents.
- - Downstream packet routing.
- Send OAM's packet and verify reception into queue 0.
- Send good and bad CRC-10 in OAM packets. Verify mongoose
detection.
- Send Raw ATM cells to queues I and 2. Verify cell contents.
- Send AAL5 cells to queues 3, 4, & 5. Verify cells contents.
- Send good and bad CRC-32's with AAL5 packets. Verify mongoose
detection.
- - Downstream grant queuing.
- Send Acquisition grants. Verify detection, queuing, and random
backoff.
- Send Contention grants. Verify detection, queuing and random
backoff. Verify transition for Acquisition to Active state.
- Verify transition from Active to Idle state.
- Send Directed grants. Verify state changes and proper queuing.
- Overflow grant queue. Verify recovery.
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- Send grants with bad CRC-10's. Verify removal from queue.
- - Encryption of packet.
- Encrypt OAM, AAL5 and raw ATM cells using all 4 keys. Verify
cell contents.
- Encrypt packet with decryption occurring on downstream channel.
- - FEC Generation.
- Verify FEC on upstream data. Generate bit errors and verify
reception at head end.
- - Upstream Queues.
- Upload multiple packets into all queues. Verify priority
ordering and packet boundaries.
- - Upstream Cell Generation.
- Send AAL5 Packets upstream. Verify header information, HEC,
CRC-32, and reassembled packet at head end.
- Send OAM packets. Verify header information, HEC, CRC-10, and
payload data.
- Send raw ATM cells. Verify data.
- - Upstream traffic.
- Verify IDLE cell Generation.
- Verify start of frame delay.
- - Ability to gracefully reset queues, MACE, and cable modem interface.
- - Generate and acknowledge all interrupts.
- - Read and write all processor accessible registers.
4. Test Equipment
The above testing requires the following equipment from Com21
- - Latest version HCX and associated SW
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EXHIBIT E
DESIGN PACKAGE
[description of materials to be delivered consistent with Section 5.2]
28
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EXHIBIT F
COM21 TRADEMARKS
[to be determined]
29
<PAGE> 30
EXHIBIT G
TECHNOLOGY ESCROW AND MANUFACTURING LICENSE
Definitions
"Products" means the Com21 Headend products to be sold by Com21 to 3Com
under the Headend Distribution Agreement, and shall include all enhancements,
fixes, Updates, Upgrades and modifications to the Products made by or for Com21.
"Update" shall mean a replacement of all or a portion of a Product that is
primarily intended to Fix an error or deficiency in the Product. "Upgrade" shall
mean a replacement of all or a portion of a Product that is primarily intended
to add functionality or performance to the Product and for which a separate or
additional charge is made to the end user.
"Technology Documentation" means all designs, drawings, specifications, test
information, vendor lists, source and object code versions of the software
incorporated into or used by Com21 to design, manufacture or maintain the
Products and all other data and information owned by Com21 or to which Com21 has
the right to grant sublicenses with respect to the design, manufacture and use
of the Products. The Technology Documentation will include a list of third party
technology, if any, in the Products to which Com21 cannot sublicense the rights
envisioned by the manufacturing license below, and persons at such third parties
to contact regarding obtaining licenses. The Technology Documentation will
further include a list of consultants, if any, whom Com21 reasonably believes
could provide technical support to 3Com in connection with 3Com's exercising of
the rights under the manufacturing license below. Prior to the date of first
shipment of the Product by Com21 to 3Com, the parties will attach an exhibit to
the Headend Distribution Agreement that sets forth a complete list of the
Technology Documentation that exists as of such date. Com21 shall update such
Technology Documentation if it updates its own archival copy of the Technology
Documentation.
Technology Escrow and Manufacturing License
Within ten (10) days after the first shipment of Products from Com21 to
3Com, Com21 shall place the Technology Documentation for all versions of the
Products initially agreed to be sold by Com21 to 3Com under the Headend
Distribution Agreement in a mutually agreed upon escrow account pursuant to the
form of escrow agreement previously provided by 3Com to Com21. Thereafter,
within ten (10) days after the execution of any amendments to the Headend
Distribution Agreement to add additional updates or versions of the Products or
to add new Products, Com21 shall place the Technology Documentation for such
Products into such escrow account. 3Com shall pay any and all annual fees,
deposit fees, reporting fees and costs associated with such escrow, however,
Com21 will bear its own cost of creating the deposit and all updates thereto.
Com21 hereby grants to 3Com a worldwide, nonexclusive, fully-paid, royalty-free,
perpetual, irrevocable license to manufacture, have manufactured, sell, repair,
use, develop, modify, reproduce, and distribute the Products under all
registered and unregistered copyrights, patents, trade secrets, mask works,
designs,
G-1
<PAGE> 31
drawings, specifications, vendor lists and all other data and other information
owned by Com21 or to which Com21 has the right to grant sublicenses with respect
to the design, manufacture, maintenance and use of the Products and any other
intellectual property rights associated therewith, and to prepare and have
prepared derivative works based thereon, and to use source code for the software
contained in or associated with the Products to make and have made, use,
develop, modify, reproduce, distribute and sell the Products and prepare and
have prepared derivative works based on the Products, and to grant sublicenses
to third parties as to any or all of the rights granted to 3Com under this
license, only in the event Com21 becomes insolvent, generally fails to pay or
admits in writing its inability to pay its debts as they become due, (ii)
applies for or consents to the appointment of a trustee, receiver or other
custodian or makes a general assignment for the benefit of its creditors, (iii)
any bankruptcy, reorganization, debt arrangement or other case or proceeding
under any bankruptcy or insolvency law or other dissolutions or liquidation
proceedings are commenced by or against Com21 and, if such case is not commenced
by Com21, it is acquiesced in or remains undismissed for ninety (90) days, (iv)
Com21 takes any corporate or other action to authorize, or in furtherance of,
any of the foregoing, (v) any event occurs which would permit 3Com to terminate
the Headend Distribution Agreement or the Technology License and Reseller
Agreement to which this exhibit is attached as Exhibit G (Technology Escrow and
Manufacturing License) (except as described in Section 5.3 (Acceptance) or if
3Com elects not to renew in accordance with Section 17.1 (Term) of the
Technology License and Reseller Agreement), (vi) Com21 ceases, or gives notice
that it intends to cease, manufacturing and distributing the Products or (vii)
Com21 is unable to meet the reasonable supply requirements of 3Com's customers.
The occurrence of any of the foregoing shall constitute an "Event of Escrow
Release" for purposes of the Headend Distribution Agreement.
G-2
<PAGE> 1
Exhibit 10.3
RESELLER AGREEMENT
THIS AGREEMENT is by and between Com21, Inc. a Delaware corporation with
principal offices at 750 Tasman Drive, Milpitas, California 95035 ("Company"),
and 3Com Corporation, a Delaware corporation located at 5400 Bayfront Plaza,
Santa Clara, CA 95052-8145 ("3Com"). The effective date of this Agreement shall
be the date last executed below ("Effective Date").
A. Company and 3Com have entered into a Technology License and Reseller
Agreement dated as of March 22, 1996.
B. Company and 3Com mutually desire 3Com to market and sell certain cable
headend products and cable modem products developed by Company.
C. Company and 3Com mutually desire for Company to deposit into escrow
the designs and other materials relating to such headend products, and to permit
the release of said designs and other materials relating to such headend
products to 3Com upon the occurrence of certain conditions, as more specifically
set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties agree as follows:
1. DEFINITIONS.
1.1 "Affiliate" means with respect to any person, any other person
controlling, controlled by or under direct or indirect common control with such
person (for the purposes of this definition "control," when used with respect to
any specified person, shall mean the power to control the vote of fifty percent
(50%) or more of the voting securities of such person).
1.2 "Authorized Reseller" means a reseller or distributor
authorized by 3Com to distribute any of Company's Products within the Territory.
1.3 "Compatibility" or "Compatible" for the Com21 Headend initially
means material compliance with the Ethernet standard interface and,
approximately six (6) months from the effective date of the Technology License
and Reseller Agreement, material compliance with the Fast Ethernet standard
interface. "Compatibility" or "Compatible" for the Com21 Modem initially means
material compliance with the Ethernet standard interface. "Material compliance"
with the Ethernet or Fast Ethernet standard interface means that the Com21
Headend or Com21 Modem, as the case may be, can properly pass data with
equipment that complies with such standard interface. In all instances
"Compatibility" will also include compliance with the specifications entitled
"The Com21 Community Protocol for HFC Networks version 1.04.05 dated January 28,
1997", as well as any other specifications mutually agreed to by the parties
from time to time. Furthermore, with respect to the interoperability of the
Com21 Headend Product with the 3Com Product, Compatibility shall mean the
criteria used by Company (in Company's sole discretion) to determine whether the
initial generation of the Com21 Modem Product properly interoperates with the
initial generation of the Com21 Headend Product (including but not limited
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<PAGE> 2
to functionality and performance criteria).
1.4 "Com21 Headend" means the headend controller unit to be
developed by Company and all enhancements, upgrades and new versions thereof
that are compliant with the Com21 Community Protocol specification referenced in
Section 1.3 above.
1.5 "Com21 Headend Product" shall mean the Com21 Headend and the
Com21 Headend Software.
1.6 "Com21 Headend Software" means the Company network management
applications programs and other Com21 Headend software in object code form
described in the Design Specifications, and related documentation provided by
Company and all enhancements, Upgrades, Updates and new versions thereof made
available by the Company.
1.7 "Com21 Modem" means the cable modem unit to be developed by
Company and all enhancements, upgrades and new versions thereof.
1.8 "Com21 Modem Product" means the Com21 Modem and the Com21 Modem
Software.
1.9 "Com21 Modem Software" means the Com21 Modem image software and
other Com21 Modem software in object code form described in the Design
Specifications, and related documentation provided by Company and all
enhancements, Upgrades, Updates and new versions thereof made available by the
Company.
1.10 "Com21 Software" shall mean the Com21 Headend Software and the
Com21 Modem Software.
1.11 "Confidential Information" means that information of either
party ("Disclosing Party") which is disclosed to the other party ("Receiving
Party") pursuant to this Agreement, in written form and marked "Confidential" or
if disclosed orally, the Disclosing Party shall indicate that such information
is confidential at the time of disclosure and send a written summary of such
information to the Receiving Party within thirty (30) days of disclosure and
mark such summary "Confidential." Confidential Information shall include, but
not be limited to, trade secrets, know-how, inventions, techniques, processes,
algorithms, software programs, schematics, designs, contracts, customer lists,
financial information, sales and marketing plans and business information.
References to 3Com as a Receiving Party or a Disclosing Party shall also include
all present and future subsidiary and parent companies of 3Com.
1.12 "Design Specifications" means the final design specifications
for the Products that, prior to the date of first shipment of the Products by
Company to 3Com, will be incorporated into Exhibit A (Design Specifications).
The Design Specifications will specify that the Com21 Headend will have the
capability to recognize, load, configure and associate the appropriate modem
image with the most current Version of the initial Generation and each future
Generation of the 3Com Product and at least the two most recent prior Versions
of each Generation of the 3Com Product, provided that the 3Com Product is
compliant with the
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<PAGE> 3
specifications entitled "The Com21 Community Protocol for HFC Networks version
1.04.05 dated January 28, 1997", as well as any other specifications mutually
agreed to by the parties from time to time. The Design Specifications will also
specify that 3Com will have the ability to distribute patches, updates, upgrades
and new versions of the Com21 Software and the software for the 3Com Products by
making such patches, updates, upgrades and new versions available for
downloading into units of the Products and the 3Com Products, as applicable.
1.13 "3Com" means 3Com Corporation and all its present and future
subsidiaries and Affiliates.
1.14 "End User" means an end user who acquires a Product from 3Com
or an Authorized Reseller.
1.15 "End User License Agreement" has the meaning given it in
Section 3.3.
1.16 "Generation" means a substantial change in the form, fit or
function of the 3Com Product, as determined by 3Com in its sole discretion.
1.17 "Inventory" means all Products which are: (a) in 3Com's
custody, whether or not consigned to, or paid for by, any customer; (b) ordered
by 3Com but not yet shipped by Company; (c) in transit to 3Com or from 3Com to
3Com's buyer; or (d) returned to 3Com from any customer of 3Com.
1.18 "Large Multiple System Operators" means customers or potential
customers which purchase the Products and/or the 3Com Product and for which the
number of homes passed exceeds one million (1,000,000) homes.
1.19 "Multiple System Operators" means customers or potential
customers which purchase the Products and/or the 3Com Products and for which the
number of homes passed is below one million (1,000,000) homes.
1.20 "MLOP Cost" means the materials, labor, overhead and period
costs associated with supplying units of the Product.
1.21 "NFR" means "not for resale" copies of the Product, that is,
the Product is used for purposes which do not directly produce revenue for 3Com
(e.g., testing, evaluation, sales, marketing, engineering and demonstration
purposes).
1.22 "Products" means the Com21 Headend Products and the Com21
Modem Products set forth in Exhibit B hereto, and any additional amendments
thereto that may be signed by the parties and attached to this Agreement, and
shall include all enhancements, fixes, Updates, Upgrades, modifications to and
with respect to the Com21 Headend Products only, future versions of the Com21
Headend Products made by or for Company.
1.23 "Technology Documentation" means all designs, drawings,
specifications, test information, vendor lists, source and object code versions
of the software incorporated into or
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<PAGE> 4
used by Company to design, manufacture or maintain the Com21 Headend Products
and all other data and information owned by Company or to which Company has the
right to grant sublicenses with respect to the design, manufacture and use of
the Com21 Headend Products. The Technology Documentation will include a list of
third party technology, if any, in the Com21 Headend Products to which Company
cannot sublicense the rights envisioned by the manufacturing license below, and
persons at such third parties to contact regarding obtaining licenses. The
Technology Documentation will further include a list of consultants, if any,
whom Company reasonably believes could provide technical support to 3Com in
connection with 3Com's exercising of the fights under the manufacturing license
below. Attached as Exhibit F to this Agreement is a complete list of the
Technology Documentation that exists as of such date. Company shall update such
Technology Documentation if it updates its own archival copy of the Technology
Documentation.
1.24 "Technology License and Reseller Agreement" means the
Technology License and Reseller Agreement between the parties dated March 22,
1996.
1.25 "Territory" means the United States and the rest of the world.
1.26 "Update" shall mean a replacement of all or a portion of a
Product that is primarily intended to fix an error or deficiency in the Product.
1.27 "Upgrade" means a replacement of all or a portion of a Product
that is primarily intended to add functionality or performance to the Product
and for which a separate or additional charge can be made to the End User.
1.28 "Version" means a basic change in the form, fit or function of
the 3Com Product, as determined by 3Com in its sole discretion.
1.29 "3Com Product" means the initial Generation and each future
Generation of the cable modem products developed by 3Com under the terms of the
Technology License and Reseller Agreement and all updates, up-grades and new
versions thereto.
2. APPOINTMENT.
2.1 Subject to the terms and conditions of this Agreement, Company
hereby appoints 3Com as a non-exclusive reseller and distributor of Products in
the Territory, and grants 3Com a non-exclusive license to use, demonstrate,
sell, market, publicly perform and publicly display for marketing purposes, and
distribute the Products directly or through Authorized Resellers. Said license
shall include a license under all presently existing and future copyrights,
patents, trade secrets and other rights necessary for 3Com and its Authorized
Resellers to perform all acts contemplated herein. 3Com accepts such appointment
and license and agrees to acquire the Products from Company under the terms and
conditions of this Agreement.
2.2 Subject to the terms of this Agreement, 3Com shall have
complete freedom to determine the manner by which it wishes to market and sell
the Products.
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2.3 3Com may sell the Products in the Territory directly to End
Users or through Authorized Resellers. 3Com shall have sole authority to
authorize Authorized Resellers in accordance with criteria determined by 3Com.
2.4 No ownership of any intellectual property rights to the
Products is transferred to 3Com hereunder, all of which rights shall remain with
Company or the applicable third party owner. As between the parties, Company
retains all title to, and except as expressly and unambiguously licensed herein,
all rights and interest in the Com21 Software and all intellectual property and
proprietary rights throughout the world protecting the Products.
2.5 This Agreement shall not be construed as restricting in any way
3Com's freedom to make, use or distribute any other products, including any
products which may compete with the Products. Nothing in this Agreement shall be
construed as limiting in any manner Company's marketing or distribution
activities or its appointment of other dealers, distributors, licensees or
agents.
2.6 Subject to Section 8.12 below, Company reserves the right to
change, modify or discontinue any Product at any time.
3. DUTIES AND OBLIGATIONS OF 3COM.
3.1 3Com agrees to use reasonable commercial efforts to encourage
and develop the sales potential for the Products, to employ competent sales
personnel to meet the demands and needs for marketing of the Products, and to
encourage the purchase of the Products by Authorized Resellers and End Users.
3.2 Except as otherwise contemplated in this Agreement or the
Technology License and Reseller Agreement, and except to the extent expressly
prohibited by applicable law, 3Com shall not modify or reverse engineer any
Product without the prior written consent of Company.
3.3 This Section 3.3 shall apply only if Company has provided an
end user license agreement to be distributed with the Com21 Software. No
distribution or license of the Com21 Software by 3Com shall be made except
pursuant to a written agreement, whether distributed in printed or electronic
form (an "End User License Agreement") that is at least as protective of Company
and its rights as Company's end user software license agreement, set forth in
Exhibit E (Com21 End User Software License Agreement) attached hereto. Company
agrees that if it licenses Com21 Software on terms more favorable to the end
user than the terms set forth in Exhibit E (Com21 End User Software License
Agreement), then such more favorable terms shall automatically apply.
3.4 3Com agrees to use commercially reasonable efforts to keep
Company informed as to any problems encountered with the Products and any
resolutions arrived at for those problems, and to communicate promptly to
Company any and all modifications, design changes or improvements of the
Products suggested by any customer.
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4. DUTIES AND OBLIGATIONS OF COMPANY.
4.1 With respect to each Product, Company shall provide 3Com within
a mutually agreeable time, at no cost, an electronic copy of the Company's
Product specifications and Product sales literature for use in 3Com's sales
efforts. 3Com will be permitted to incorporate such materials into its own
materials. 3Com may purchase from Company hard copies of such Company
specifications and sales literature at the prices set forth in Exhibit B
(Product and Price List). In its distribution efforts, 3Com will use the then
current names (the "Marks") used by Company for the Products. However, all
advertisements, promotional materials, packaging and anything else bearing a
Mark shall identify Company as the Mark owner and unless used in substantially a
form previously approved by Company, shall be subject to prior approval of
Company, which approval shall not be unreasonably withheld or delayed. 3Com also
agrees not to contest during or after the term of this Agreement any Mark used
by Company anywhere in the world (or any name, mark or designation similar
thereto) and to reasonably cooperate with Company (at Company's expense) in
Company's efforts to register the Marks. 3Com shall not apply to register any of
the Marks without Company's prior written consent, which consent shall not be
unreasonably withheld or delayed. If Company so consents, 3Com may promptly
register at its expense such Marks in the name of and for the sole benefit and
ownership of Company. Company shall provide 3Com one copy of each maintenance
manual, operator's manual, any other manuals for the Products and field change
orders and technical bulletins incorporating engineering changes for Products.
3Com may copy and distribute such materials internally and to its Authorized
Resellers.
4.2 Company shall provide 3Com within a mutually agreeable time, at
Company's MLOP Cost, (a) [*] Com21 Modem Product, for use by 3Com and its
Authorized Resellers.
4.3 Company shall use commercially reasonable efforts to make
available, at no cost to 3Com, a reasonable number of man hours of appropriate
members of Company's technical personnel to assist 3Com to keep current with the
latest technological developments in the Products. Each party shall designate an
appropriately trained employee as a technical liaison and apprise the other
party of the liaison's name.
4.4 Company represents and warrants to 3Com that upon and after the
Effective Date of this Agreement, Company will not provide any Product to 3Com
which has come into physical contact with: (i) a Class I substance, as defined
in Section 611 of the Federal Clean Air Act (the "Act"), during any portion of
the manufacturing process; or (ii) a Class II substance, as defined in the Act
and Title 40, Code of Federal Regulations, Section 82 (the "Code"), during any
portion of the manufacturing process, where there has been a determination by
the U.S. Environmental Protection Agency that there is a substitute product or
manufacturing process for such Product which does not rely on the use of such
Class II substance, that reduces overall risk to human health and the
environment, and that is currently or potentially available, in accordance with
the Code.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 7
Company further represents and warrants that 3Com shall not be subjected
to any warning or labeling requirements regarding a Class I substance or a Class
II substance pursuant to the Act or any regulation promulgated under the Act, as
a result of any Product provided by Company to 3Com under this Agreement.
Without limitation to the foregoing, Company represents and warrants that
in all respects, the manufacture and sale of the Products comply and will
throughout the term of this Agreement comply with all applicable environmental
laws, regulations and other regulatory requirements.
If Company discovers a breach of any of the representations and
warranties in this Section 4.4. it shall immediately notify 3Com of such breach
in writing, explaining the circumstances constituting the breach and identifying
the Product(s) involved. Further, Company shall defend, indemnify and hold
harmless 3Com and its officers, directors, employees, agents, representatives,
successors and assigns from any liabilities, losses, demands, claims or
judgments arising from the breach of any of Company's representations and
warranties set forth in this Section 4.4.
4.5 Company shall give 3Com written notice of Product Updates,
Upgrades and new versions as soon as reasonably possible, but in any event at
least sixty (60) days prior to their availability to Company's customers. Such
notices shall contain detail of the changes to the form, fit or function of the
Product. Company shall use reasonable efforts to provide 3Com with six (6)
months notice of new Products that Company elects to make available for
distribution by 3Com under this Agreement. Company shall also provide 3Com at
Company's MLOP Cost with NFR units of the affected Product modules so that 3Com
has [*] new versions of Com21 Headend Products and future Com21 Headend Product
Upgrades, one [*] Com21 Modem Products and future Com21 Modem Product Upgrades,
concurrent with the providing of such notice or at the earliest possible date
thereafter (but always prior to their general availability) for purposes of
evaluation and testing of Compatibility with 3Com Products.
4.6 Company agrees to give sixty (60) days prior written notice to
3Com of any product being considered by Company for distribution to customers
through channels other than this Agreement, which is functionally similar to any
of the Products or which is designed or will be marketed as compatible with any
version of the Product ("Similar Product").
4.7 For a period of twelve (12) months after delivery of each unit
of the Com21 Headend or Com21 Modem, as the case may be, to the End User,
Company warrants to 3Com that such Com21 Headend or Com21 Modem, as the case may
be, will substantially conform to the Design Specifications and to any
performance or other specifications for the Com21 Headend or Com21 Modem, as the
case may be, published or made generally available by Company. For a period of
ninety (90) days after installation of the Com21 Software by the End User,
Company warrants that the media on which the Com21 Software is supplied will be
free from defects in materials or workmanship. 3Com shall notify Company of any
nonconformance during the applicable warranty period. The parties shall follow
the RMA procedures set forth in Section 3.5
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 8
(Return Material Authorization) of Exhibit C (Support Services). Company's
exclusive obligation with respect to nonconforming Product shall be, at
Company's option, to repair or replace such Product within the turnaround time
described in Section 3.5(ii) (Turn-Around Time) of Exhibit C (Support Services),
or to refund to 3Com the purchase price paid for said Product. In the event a
Product completely fails to function within the first forty-eight (48) hours of
installation (dead- on-arrival or DOA) and is verified as such by Company,
Company shall waive any charges to 3Com in order to effect the earliest
reasonable repair or replacement of such defective Product. Replacement and
repaired Products shall be warranted for the remainder of the warranty period or
ninety (90) days, whichever is longer. Company will upgrade repaired Product to
the most recent revision level of such Product at no cost to 3Com. THE FOREGOING
WARRANTIES ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, STATUTORY OR OTHERWISE,
INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
The above warranty does not extend to any Product that is modified or altered by
any party other than Company or other than pursuant to Company's
recommendations, is not maintained to Company's maintenance recommendations, is
operated in a manner other than that specified by Company or is treated with
abuse, negligence or other improper treatment (including, without limitation,
use outside the recommended environment). 3Com's sole remedy with respect to any
warranty or defect is as stated in this Section 4.7.
4.8 Company shall provide statistics on Product no problem found
(NPF) returns on a quarterly basis. During the Warranty Period, Company shall
waive any NPF charges on in- warranty Products returned for repair. In the event
that (a) NPF returns of a Com21 Headend Product exceeds twenty-five percent
(25%) of the calendar quarter in-warranty returns of such Com21 Headend Product
or (b) NPF returns of a Com21 Modem Product exceeds ten percent (10%) of the
calendar quarter in-warranty returns of such Com21 Modem Product, both parties
agree to work together to reduce the frequency of NPF returns of such Product.
4.9 "Epidemic Failure" shall mean substantial deviations in a
Product not modified by the Company or with the Company's authorization from the
Design Specifications which significantly impair the use of such Product
existing at the time of delivery but which are not reasonably discernible at
that time and which are evidenced by an identical. repetitive defect due to the
same cause and occurring in the same series of the Products.
In the case of an Epidemic Failure, Company's obligations shall be, as
soon as practical, to propose an action plan to fix the failure of any affected
Products and to implement this action plan upon 3Com's acceptance thereof. If
the action plan is not acceptable to 3Com, 3Com can require Company to repair or
replace, at Company's option, the affected Products. The repair or replacement
shall be done at mutually agreed-upon location(s); provided, however, that costs
of repair or replacement together with the shipping, transportation and other
costs of gathering and redisseminating the Products shall be borne by Company.
The parties agree to make commercially reasonable efforts to complete the repair
or replacement of all of the affected Products within four (4) weeks after
written notice of Epidemic Failure by 3Com to Company.
4.10 Company shall provide Authorized Resellers and End Users of
the Products with warranty, maintenance and support services as provided herein.
8
<PAGE> 9
5. SOFTWARE LICENSE
5.1 Subject to the terms and conditions of this Agreement, Company
grants to 3Com a nonexclusive, nontransferable, worldwide, royalty-free license
to reproduce and distribute to 3Com's customers object code versions of the
Com21 Software for the Products and any patches, Updates, Upgrades and new
versions thereto.
5.2 Company will deliver each patch, Update, Upgrade or new version
of the Com21 Software for the Product to 3Com in a mutually agreed upon format
no later than the date that Company first makes such patch, Update, Upgrade or
new version available to Company's own customers, subject to the terms and
conditions of Section 4.5.
6. TESTING AND MODIFICATION OF THE PRODUCTS.
6.1 As soon as reasonably possible after receipt of 3Com's written
request, Company shall submit [*] to 3Com at Company's MLOP Cost for
Compatibility testing as provided in Section 6.2 below. At 3Com's request,
Company shall provide 3Com with up to [*] NFR receive modules for each sample at
Company's MLOP Cost.
6.2 3Com shall test such samples and notify Company in writing
within sixty (60) days after receipt of the samples if the samples fail to
materially comply with the Design Specifications or fail to be Compatible (each,
a "Nonconformity"). Failure to so notify Company within said sixty (60) days
shall be deemed to be acceptance of such samples. Such notice shall describe the
Nonconformity in enough detail for the Company to reproduce such Nonconformity.
Within thirty (30) days after receipt of such notice of Nonconformity, Company
shall modify the Products to correct such Nonconformity and shall promptly
resubmit four (4) samples of the redesigned Product (if such modified Product is
a Com21 Headend Product, one (1) unit will have a fully-loaded configuration
(i.e., all optional slots are filled with a combination of receive modules or
10Base-T modules, as determined by 3Com) and three (3) units will have a
configuration containing at least one (1) receive module) to 3Com at no cost for
re-testing. If 3Com rejects such redesigned Products due to a Nonconformity, the
parties shall repeat the procedures set forth up to two more times, if
necessary.
If after the third delivery of samples to 3Com as set forth above,
the samples contain a Nonconformity, then within ten (10) days of 3Com's written
request, the parties will choose in -good faith an independent consulting firm
acceptable to both parties (which acceptance will not be unreasonably withheld)
to determine whether it is feasible to correct such Nonconformity. If the
parties are unable to agree upon such independent consulting firm within such
ten (10) day period, Company shall choose an independent consulting firm
reasonably acceptable to it within ten (10) days after the expiration of such
ten (10) day period. The parties agree that time is of the essence in the
selection of such independent consulting firm. Unless otherwise agreed by the
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 10
parties, the consultant shall be certified as a professional engineer in
electrical engineering. Such consulting firm shall agree in writing to keep
confidential the information disclosed to it by Company and 3Com. For purposes
of this Section 6.2, a consulting firm will be deemed to be "Independent" if it
does not have a material interest (financial or otherwise) in either party, it
does not have any ongoing work with either party and its fees are not contingent
on the results of such feasibility determination.
Such firm will be instructed to make its decision in writing within
thirty (30) days of being retained. Each party will fully cooperate with the
consulting firm, will equally bear such firm's fees and expenses and will not
take any action against such firm relating to its review or decision. If the
consulting firm decides that the correction of the Nonconformity is feasible,
then 3Com may immediately terminate this Agreement for Company's default and
declare that an Event of Escrow Release (as defined in Section 16.1 (Technology
Escrow and Manufacturing License)) has occurred. If the consulting firm decides
that the correction of the Nonconformity is commercially not reasonably
feasible, then 3Com may terminate this Agreement but such termination shall not
constitute an Event of Escrow Release.
6.3 The parties agree to meet quarterly to discuss the states and
direction of Company's design and development of the Products and to assess how
3Com could assist to accelerate and enhance such design and development. During
such status meetings, 3Com shall report to Company regarding changes to the
design and functionality of the Products requested or suggested by Large
Multiple System Operators and Multiple System Operators. For any given change so
requested or suggested, if such change is requested or suggested by (i) one (1)
Large Multiple System Operator, or (ii) by a combined total of any five (5)
Large Multiple System Operators and/or Multiple System Operators, Company and
3Com will meet to discuss in good faith whether such change is reasonably
feasible to implement and when such change could be implemented. Each Product
developed as a result of such discussion shall be subject to Compatibility
testing as provided in Section 6.2 above.
6.4 Company at its expense shall implement any modifications
necessary to maintain the Compatibility of the Products. The design and manner
of implementation of such modifications shall be in Company's sole discretion.
Company shall implement such modifications and [*] case may be, to 3Com at
Company's MLOP Cost for testing within sixty (60) days after making any mutually
agreeable changes to the Design Specifications, or such other time frame as may
be mutually agreed in writing. Section 6.2 above shall apply to such modified
Products, or the applicable module of such modified Products.
6.5 Subject to Company's agreements with its subcontract
manufacturers, 3Com shall have the right to perform vendor audits of
manufacturing processes at Company's manufacturing and subcontract manufacturing
facilities upon reasonable advance written notice, and Company shall reasonably
cooperate with 3Com in that regard. If an inspection or test is
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 11
made on Company's premises, Company shall provide 3Com's inspectors with
reasonable facilities and assistance. Each party will bear its own expenses with
respect to such audits.
7. PRICE AND PAYMENT.
7.1 The price to 3Com for the Products are set forth in Exhibit B
(Product and Price List). The prices for additional Products to be covered by
the Agreement shall be set forth in amendments to Exhibit B (Product and Price
List). Company represents and warrants that, at the date of this Agreement, the
prices set forth herein will not exceed those charged to any other customer of
the Company purchasing the Products or products similar or equivalent thereto in
similar channels and in similar quantities. If at any time, Company offers lower
prices to any other customer for such similar or equivalent products on similar
terms or on terms less favorable to Company, taken as a whole, Company shall
immediately notify 3Com and offer such more favorable terms to 3Com effective as
of the date such prices were offered to such other customer (provided 3Com
adopts any and all minimum purchase commitments imposed upon such other
customer). Any consideration provided to Company hereunder for Products
delivered to 3Com prior to such date shall be non-refundable and non-creditable.
Any other changes to the price paid by 3Com for the Products and prices for
Upgrades shall be mutually agreed upon in writing.
7.2 Payment for Products ordered pursuant to this Agreement shall
be net thirty (30) days after the last to occur of (a) receipt of the Product by
3Com at the point of delivery, or (b) receipt by 3Com of Company's correct
invoice.
7.3 Company shall provide 3Com with thirty (30) days prior written
notice of any price increases. In the event of a price decrease, all 3Com orders
not yet shipped or in transit will be invoiced at the decreased price. Orders
issued by 3Com after the date of the price decrease will be invoiced at the
decreased price. Company shall also provide price protection on Products in
3Com's inventory purchased within the then current leadtime for such Products.
In the event of a price increase, the new prices will apply to all orders
accepted by Company after the notice period. In the event of a price increase,
upon 3Com's request, Company shall furnish 3Com with Company's written
cost-based justification for the Products documenting the reason for such price
increase.
7.4 The prices for the Products are exclusive of all federal, state
or local sales, use, excise, ad valorem, export, import or value-added taxes.
3Com agrees to pay such taxes unless 3Com has provided Company with a valid
exemption resale certificate, or unless 3Com is otherwise exempt. In addition,
3Com shall pay all duties, import licenses, fees, tariffs and other similar
expenses incurred by Company in making international shipments hereunder.
7.5 Notwithstanding any provision of this Agreement, 3Com is free,
in 3Com's sole discretion, to distribute the Products at any price.
8. ORDERS AND RETURNS.
8.1 3Com shall provide Company with a twelve (12) month nonbinding,
forward looking, rolling unit order forecast and update such forecast on a
monthly basis. Company shall
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 12
use such forecast for internal planning requirements only. Such forecast does
not represent any commitment by 3Com to purchase Products. Further, Company
shall treat all such forecasts as Confidential Information in accordance with
Section 13 (Confidential Information) below.
8.2 Orders for Products must be in the form of written or
electronically transmitted purchase orders. Neither party shall have any
obligation to the other based on an orally transmitted order. In the event of a
conflict between the terms of this Agreement and the terms of a purchase order
or purchase acknowledgment, the terms of this Agreement shall govern. No minimum
order quantities shall be required. Invoices by Company shall be in duplicate
and shall include purchase order number, line item number, part number,
description of items, quantities, unit price, and extended totals. Payment shall
not be deemed to constitute acceptance.
8.3 3Com shall submit binding purchase orders to Company at least
ninety (90) days prior to the requested delivery date. ne parties agree to meet
quarterly to discuss Company's efforts to reduce leadtimes for Products. 3Com's
order shall automatically be deemed accepted upon receipt by Company. Company
shall notify 3Com within two (2) business days after receipt of an order if
Company anticipates any problem in shipping the quantity of Product ordered on
the time schedule set forth below or in the order. Company shall ship all Com21
Modem Products ordered by 3Com within ninety (90) days of receipt of the order
or as otherwise specified in the order. Company shall ship all Com21 Headend
Products ordered by 3Com within ninety (90) days of receipt of the order or as
otherwise specified in the order; provided however that if (a) the number of
units of Com21 Headend Products ordered for delivery in the month for which
delivery has been requested is greater than [*] the number of units of such
Products forecasted by 3Com for the month in which delivery has been requested
and (b) such number of units ordered over the forecasted number is greater than
[*], then Company shall be obligated only to use commercially reasonable efforts
to ship such Com21 Headend Products ordered by 3Com within ninety (90) days of
receipt of order or as otherwise specified in the order.
8.4 The quantity of goods on the face of the purchase order must
not be exceeded without written approval from 3Com. 3Com will pay for maximum
quantities ordered. Overshipments will be held at Company's risk and expense for
a reasonable time awaiting shipping instructions. Return shipping charges for
excess quantities will be at Company's expense.
8.5 3Com shall have right to defer the shipment of all or part of
any order prior to the estimated shipping date by giving Company written notice
of the revised planned shipment date, subject to the following conditions:
(a) 3Com may delay delivery of any order, provided that the
rescheduled delivery date occurs during the term of this Agreement. At 3Com's
election, 3Com may reschedule such order (i) at no charge to 3Com, in which case
such rescheduled order may not be further rescheduled or canceled, or (ii) pay a
rescheduling fee equal to the percentage of the purchase price of the
rescheduled Products corresponding with the notice given before the scheduled
delivery date in accordance with the table set forth below, in which case such
rescheduled order may be further rescheduled or canceled in accordance with this
Section 8.5:
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<TABLE>
<CAPTION>
Notice Before Scheduled Delivery Date Rescheduling Charge
------------------------------------- -------------------
<S> <C>
0 to 30 days 12%
31 to 60 days 6%
61 to 90 days 2%
</TABLE>
(b) 3Com may cancel the delivery of any order. 3Com shall pay
a cancellation charge equal to the percentage of the net purchase price of the
canceled Product(s) corresponding with the notice given before the scheduled
delivery date in accordance with the table set forth below.
<TABLE>
Notice Before Scheduled Delivery Date Cancellation Charge
------------------------------------- -------------------
<S> <C>
0 to 30 days 20%
31 to 60 days 10%
61 to 90 days 2%
</TABLE>
8.6 3Com shall have the right to request Company to expedite the
shipping date of any order. Company shall use reasonable efforts to meet 3Com's
new expected shipping dates.
8.7 Company shall ship Products Ex Works [OPEN ISSUE - AWAITING
COM21 INPUT] Company's manufacturing facility and shall invoice upon shipment
(provided however that 3Com shall not be required to bear any additional costs
or fees associated with shipment from a non-domestic location). Payment shall be
in U.S. Dollars. Any invoiced amount not paid when due shall be subject to a
service charge of one and one-half per-cent (1.5)% per month or if lower,the
maximum amount permitted by law, provided however, that Company shall allow 3Com
twenty (20) days after giving written notice of nonpayment to pay such amount
before imposing a service charge.
8.8 All Products delivered shall be suitably packed, depending on
the method of shipment, in Company's standard shipping cartons, marked for
shipment as specified in 3Com's purchase order, and delivered to 3Com or its
carrier agent Ex Works [OPEN ISSUE] Company's manufacturing plant, at which time
title to such Products and risk of loss shall pass to 3Com (provided however
that 3Com shall not be required to bear any additional costs or fees associated
with shipment from a non-domestic location). All Product units shall be marked
with the Product's rev/version and a 3Com-supplied label of 3Com part numbers on
the exterior in a visible location. 3Com shall select the carrier, unless
otherwise agreed to in writing by 3Com. All freight, insurance and other
shipping expenses, including special packing expenses shall be paid by 3Com from
the Ex Works point (provided however that 3Com shall not be required to bear any
additional costs or fees associated with shipment from a nondomestic location).
8.9 3Com shall inspect all Products promptly upon the receipt
thereof and may reject any Product that fails to conform to the specifications
set forth in the Company's current brochure and specifications for the Product.
Any Product not rejected within thirty (30) days after receipt of that Product
by 3Com ("Rejection Period") shall be deemed accepted. To reject a Product, 3Com
shall notify the Company within the Rejection Period in writing or fax of its
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 14
rejection and request a RMA number. The parties shall follow the RMA procedures
set forth in Section 3.5 (Return Material Authorization) of Exhibit C (Support
Services). 3Com shall pay the shipping charges for return of any Products found
not to be defective, otherwise Company shall be responsible for all shipping
charges associated with the return of defective Products.
8.10 Unless a Product is returned in accordance with the provisions
of Company's warranty for the Product as set forth in Section 4.7, after the
Rejection Period 3Com may not return a Product to the Company for any reason
without the Company's prior written consent. For any Product for which Company
gives such consent, Company shall charge 3Com a restocking fee not to exceed
fifteen percent (15%) of 3Com's purchase price for that Product and shall credit
the balance of the purchase price to 3Com's account. 3Com shall be responsible
for all shipping charges associated with the return of any Product pursuant to
this Section 8.10.
8.11 In the event of expiration or termination of this Agreement
for any reason except for cause by Company based on the material breach of this
Agreement by 3Com, Company shall repurchase from 3Com within thirty (30) days
all unsold Products in 3Com's Inventory purchased by 3Com within four (4) months
prior to said expiration or termination for the price paid by 3Com for each
unit. Except when this Agreement is terminated for cause by Company based on
material breach of this Agreement by 3Com, 3Com may at its election sell all or
a portion of the remaining Inventory in lieu of returning same to Company.
8.12 Company shall provide 3Com with at least six (6) months prior
notice prior to ceasing production of the Products. Within ninety (90) days
after the receipt of such notice, 3Com may place last time purchase orders with
Company for the Products, which orders may be scheduled for delivery in
accordance with the terms of this Agreement for up to six (6) months following
the date production of the Products actually ceases. The foregoing shall not
effect the ability of 3Com to continue to place regular orders in accordance
with the terms of this Agreement until the production of the Products has
ceased.
9. TRADEMARKS.
9.1 Company hereby grants to 3Com a worldwide, nonexclusive,
limited license to use the Company trademarks, and the respective stylistic
marks listed on Exhibit F (Com21 Trademarks) to the Technology License and
Reseller Agreement and such other mutually agreeable Company marks
(collectively, the "Company Trademarks) in conjunction with the distribution of
the Products and in 3Com's advertising promotional and printed materials for the
Products. 3Com has provided to Company a copy of 3Com's Trademark Guidelines.
3Com shall use the Company Trademarks in the manner specified in 3Com's
Trademark Guidelines for proper usage of 3Com trademarks. 3Com's Trademark
Guidelines may be modified from time to time by 3Com, in its sole discretion,
with written notice of such modification to Company. In the event Company
implements its own trademark Guidelines or policies, 3Com agrees to comply with
such guidelines or policies. If compliance with a Company policy or guideline is
not reasonably feasible, 3Com shall notify Company in writing and propose an
alternative procedure for Company's approval, which will not be unreasonably
denied. Upon Company's request, 3Com shall provide Company with free samples of
3Com advertising, promotional and packaging materials for the Products for which
such trademarks are used to ensure that
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<PAGE> 15
Company's quality standards are maintained.
10. REPRESENTATIONS AND WARRANTIES.
10.1 Noninfringement. Company represents and warrants that it has
full power and authority to grant the fights granted hereunder. Company further
represents and warrants to the best of its knowledge that at the time of initial
shipment of the Products to 3Com neither the Products nor their content,
promotion, advertisement, sale, distribution or other disposition will infringe
or violate any copyright, patent, trade secret, trademark, right of publicity or
privacy or other personal or proprietary right of any third party. Company
represents that, during the term of this Agreement, it will do all things
necessary to maintain its copyright protection in the Products. 3Com's sole
remedy for a breach of the foregoing representations and warranties shall be the
indemnity set forth in Section 12.1 below.
10.2 End User Warranty. Company shall include with each Product
Company's standard license agreement for such Product ("End User License").
Company warrants that each Product conforms to the End User License. Company
shall provide 3Com with complete, packaged Products with documentation
containing the Company End User License and all warranties, disclosures and
representations concerning the Products and their use. Company agrees that such
warranties, disclosures and representations of Company are extended to 3Com and
3Com's Authorized Resellers and End Users.
11. TECHNICAL SUPPORT.
11.1 Training and support services for the Products shall be
provided as set forth in Exhibit C (Support Services).
12. INDEMNITY.
12.1 Company shall indemnify and hold harmless 3Com and its
directors, officers, employees and agents against any and all claims, actions or
demands, alleging that the Products infringe any U.S., Canadian, European
Community (EC) or Japanese copyrights, U.S., Canadian, EC or Japanese patents,
trade secrets or other proprietary rights of any third parties.
(a) This obligation is contingent upon (i) 3Com giving prompt
written notice to Company of any such claim, action or demand, (ii) 3Com
allowing Company to control the defense and related settlement negotiations, and
(iii) 3Com fully assisting, at Company's expense, in the defense and/or
settlement.
(b) Company shall have no obligation hereunder for any such
claims, actions or demands to the extent such claims, actions or demands result
from:
(i) the use of the Product combined with processes,
materials, or products not supplied, created, developed or licensed by Company;
or
(ii) the modification or attempted modification of the
Product by parties
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<PAGE> 16
other than Company or the use or distribution of such modified Product; or
(iii) 3Com's continued alleged infringing activity after
being notified thereof or after being informed of modifications that would have
avoided the infringement (but only if Company completely ceases the manufacture,
use and sales of the applicable Product(s), and the costs of implementing such
modifications shall be borne by Company);
3Com will indemnify and hold Company and its directors, officers, employees and
agents harmless against any claim, action or demand excluded from Company's
indemnity obligation under this Section 12.1 (b). This obligation is contingent
upon (i) Company giving prompt written notice to 3Com of any such claim, action
or demand, (ii) Company allowing 3Com to control the defense and related
settlement negotiations, and (iii) Company fully assisting, at 3Com's expense,
in the defense and/or settlement.
Each party's obligation of indemnification under this Section 12.1 with
respect to each claim, action or demand of infringement of any third party EC or
Japanese copyright, patent, trade secret or other proprietary right ("Foreign
Indemnity") shall not exceed the greater of (a) [*] or (b) the amount in
aggregate paid to Com21 by 3Com hereunder during the twelve (12) month period
prior to the date the notice of the claim, action or demand subject to such
Foreign Indemnity was tendered to the indemnifying party. If it reasonably
appears that the total liability of the indemnifying party under the Foreign
Indemnity may exceed or has exceeded the limit specified above or if the
indemnifying party fails to honor its obligations hereunder for such Foreign
Indemnity, then the indemnifying party shall relinquish the sole control of the
defense and/or settlement with respect to the claims, actions or demands covered
by such Foreign Indemnity and the other party shall have the right to obtain
sole control, except that the indemnifying party may retain some partial control
as reasonably agreed by the parties, to the extent the indemnifying party has
honored its obligations and still has liability under the Foreign Indemnity.
Subject always to the limit set forth in the first sentence of this paragraph,
the indemnifying party shall continue to have the obligation to promptly pay the
costs and expenses of the defense of such a claim, including but not limited to
reasonable attorneys' fees and all other related costs and expenses reasonably
incurred by the other party in assuming and maintaining the defense. In such
event the other party shall not have the right to effect a settlement involving
a liability of the indemnifying party in excess of the liability limit described
above or involving a non-monetary settlement on the part of the indemnifying
party, without the prior written consent of the indemnifying party.
Relinquishment of control shall in no event release the indemnifying party from
any liability hereunder, subject always to the limit set forth in the first
sentence of this paragraph. If the indemnifying party fails to so relinquish
control then the parties agree that the limits on the indemnifying party's
liability under the Foreign Indemnity to the other party under this paragraph
shall cease.
EXCEPT AS SET FORTH IN SECTION 10.1, THE FOREGOING IS IN LIEU OF ANY
WARRANTIES OF NON-INFRINGEMENT, WHICH ARE HEREBY DISCLAIMED, AND STATES 3COM'S
SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO CLAIMS DESCRIBED IN THIS SECTION 12.1.
THE FOREGOING IS IN LIEU OF ANY WARRANTIES OF NON-INFRINGEMENT, WHICH ARE HEREBY
DISCLAIMED AND STATES COMPANY'S SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO THE
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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CLAIMS DESCRIBED IN THIS SECTION 12.1(B).
12.2 3Com shall indemnify and hold Company and its directors,
officers, employees and agents harmless against any and all claims, actions and
demands to the extent arising under this Agreement on account of 3Com's
activities. or those of its employees and agents (including, without limitation,
Authorized Resellers and systems integrators) including, without limitation,
liabilities arising from acts (or omissions to act) of negligence or willful
misconduct or providing unauthorized representations or warranties (or failing
to disclose all limitations on warranties and liabilities as set forth in
Company's End User Software License Agreement) to its customers. 3Com's
obligation under this Section 12.2 is contingent upon (i) Company giving prompt
written notice to 3Com of any such claim, action or demand, (ii) Company
allowing 3Com to control the defense and related settlement negotiations and
(iii) Company fully assisting, at 3Com's expense, in the defense and/or
settlement.
Company shall indemnify and hold 3Com and its directors, officers,
employees and agents harmless against any and all claims, actions and demands to
the extent arising under this Agreement on account of Company's activities, or
those of its employees and agents (including, without limitation, Company's
suppliers) including, without limitation, liabilities arising from acts (or
omissions to act) of negligence or willful misconduct. Company's obligation
under this Section 12.2 is contingent upon (i) 3Com giving prompt written notice
to Company of any such claim, action or demand, (ii) 3Com allowing- Company to
control the defense and related settlement negotiations and (iii) 3Com fully
assisting, at Company's expense, in the defense and/or settlement.
13. CONFIDENTIAL INFORMATION.
13.1 Confidential Information. Each party acknowledges that in the
course of the performance of this Agreement, it may obtain the Confidential
Information of the other party. The Receiving Party (as defined in Section 1.11
(Confidential Information)) shall, at all times, both during the term of this
Agreement and thereafter for a period of [*], keep in confidence and trust all
of the Disclosing Party's (as defined in Section 1.11 (Confidential
Information)) Confidential Information received by it. The Receiving Party shall
not use the Confidential Information of the Disclosing Party other than as
expressly permitted under the terms of this Agreement or by a separate written
agreement. The Receiving Party shall take all reasonable steps to prevent
unauthorized disclosure or use of the Disclosing Party's Confidential
Information and to prevent it from failing into the public domain or into the
possession of unauthorized persons. The Receiving Party shall not disclose
Confidential Information of the Disclosing Party to any person or entity other
than its officers, employees, consultants and subsidiaries who need access to
such Confidential Information in order to effect the intent of this Agreement
and who have entered into written confidentiality agreements which protect the
Confidential Information of the Disclosing Party. The Receiving Party shall
immediately give notice to the Disclosing Party of any unauthorized use or
disclosure of Disclosing Party's Confidential Information. The Receiving Party
agrees to assist the Disclosing Party to remedy such unauthorized use or
disclosure of its Confidential Information.
13.2 Exceptions to Confidential Information. The obligations set
forth in Section
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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13.1 (Confidential Information) shall not apply to the extent that Confidential
Information includes information which (a) is already known to the Receiving
Party at the time of disclosure, which knowledge the Receiving Party shall have
the burden of proving; (b) is, or, through no act or failure to act of the
Receiving Party, becomes publicly known; (c) is received by the Receiving Party
from a third party without restriction on disclosure; (d) is independently
developed by the Receiving Party without reference to the Confidential
Information of the Disclosing Party, which independent development the Receiving
Party will have the burden of proving; (e) is approved for release by written
authorization of the Disclosing Party; or (f) is required to be disclosed by a
government agency to further the objectives of this Agreement or by a proper
order of a court of competent jurisdiction; provided, however, that the
Receiving Party will use its reasonable efforts to minimize such disclosure and
will consult with and assist the Disclosing Party in obtaining a protective
order prior to such disclosure.
13.3 Remedies. Each party acknowledges and agrees that any breach
of this Section 13 (Confidential Information) by a party's unauthorized use or
disclosure of the Disclosing Party's Confidential Information would cause
irreparable injury to the other party for which monetary damages are not an
adequate remedy. Accordingly, in addition to other available remedies, the
non-breaching party will be entitled to obtain appropriate injunctive relief and
other equitable remedies in the event of such breach.
14. PUBLICITY. Neither party shall disclose the terms of this Agreement
without the prior approval of the other party, except that a party may disclose
the terms of this Agreement where required by law, provided that such party
makes every reasonable effort to obtain confidential treatment or similar
protection to the fullest extent available to avoid public disclosure of the
terms of this Agreement. A party required by law to make disclosure of the terms
of this Agreement will promptly notify the other party and permit the other
party to review and participate in the application process seeking confidential
treatment.
15. TERM AND TERMINATION.
15.1 Term. The Agreement shall commence on the Effective Date and
shall continue for five (5) years thereafter unless terminated sooner under the
provisions set forth herein. Thereafter, this Agreement shall automatically be
renewed for successive one (1) year terms, unless 3Com requests in writing at
least thirty (30) days prior to the end of the then current term that this
Agreement not be so renewed; provided, however, that upon the occurrence of an
event of Escrow Release (as defined in Section 16 (Technology Escrow and
Manufacturing License), Company may not object to the renewal of this Agreement
as provided above.
15.2 Termination for Cause. This Agreement may be terminated by
either party for cause immediately by written notice to the other upon the
occurrence of any of the following events:
(a) if the other party ceases to do business or otherwise
terminates its business operations for more than thirty (30) consecutive days;
or
(b) if the other party materially breaches any material
provision of this
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Agreement and fails to substantially cure such breach within thirty (30) days of
written notice describing the breach (twenty (20) days in the case of a breach
of a payment obligation); provided however that a breach of the obligations set
forth in Section 13 (Confidentiality) or Section 3.2 shall be grounds for
immediate termination by the non-breaching party; or
(c) if the other becomes insolvent or seeks protection under
any bankruptcy, receivership, creditors arrangement or comparable proceeding, or
if such proceeding is instituted against the other and is not dismissed within
ninety (90) days; or
(d) if Company ceases the manufacture and distribution of the
Products.
15.3 Survival. The parties' obligations under Section 2.4, Section
4.7, Section 7 (Price and Payment), Section 8.9, Section 8.11, Section 10
(Representations and Warranties), Section 11 (Support Services), Section 12
(Indemnity), Section 13 (Confidential Information), Section 15.5, Section 18
(Limitation of Liability), Section 19 (Miscellaneous) and obligations accrued
during the term of this Agreement to make payments shall survive the termination
of the Agreement.
15.4 Upon expiration or termination of this Agreement by Company
pursuant to Section 15.2 (Termination for Cause) above, all licenses granted to
3Com hereunder shall immediately terminate and 3Com shall discontinue all
distribution of the Products and use of the Marks; provided, 3Com may retain a
reasonable number of copies of the Com21 Software in object code form to be used
solely for support of its installed base of Products as of the date of
termination and 3Com shall have a limited license only to the extent necessary
for 3Com to support the installed base of Products.
15.5 Each party shall, within fifteen (15) days of the effective
date of any termination of this Agreement, return to the other or destroy all
full or partial copies, in whatever media, of all the other party's Confidential
Information and any and all other materials in such party's possession which had
been furnished to it by the other party pursuant to this Agreement, and such
party shall warrant in writing to the other within thirty (30) days after
termination or expiration that all such materials have been returned or
destroyed pursuant to this Section 15.5.
15.6 Upon an End User acquiring a copy of the Com21 Software
pursuant to an End User License Agreement, the End User shall be entitled to use
that copy of the Com21 Software. subject to the terms and conditions of the End
User License Agreement. The rights of End Users are independent of this
Agreement and will survive any termination of this Agreement for any reason
whatsoever.
16. TECHNOLOGY ESCROW AND MANUFACTURING LICENSE.
16.1 Technology Escrow and Manufacturing License. Within ten (10)
days after the first shipment of Products from Company to 3Com, Company shall
place the Technology Documentation for all versions of the Com21 Headend
Products initially listed on Exhibit B (Product and Price List) in a mutually
agreed upon escrow account pursuant to the Escrow Agreement attached hereto as
Exhibit D (Escrow Agreement). Thereafter, within ten (10) days
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<PAGE> 20
after the execution of any amendments to Exhibit B (Product and Price List) to
add additional updates or versions of the Com21 Headend Products or to add new
Com21 Headend Products. Company shall place the Technology Documentation for
such Com21 Headend Products into such escrow account. 3Com shall pay any and all
annual fees, deposit fees, reporting fees and costs associated with such escrow,
however, Company will bear its own cost of creating the deposit and all updates
thereto. Company hereby grants to 3Com a worldwide, non-exclusive,
non-transferable, non-sublicensable, perpetual, irrevocable license to
manufacture, have manufactured, import. sell, repair, use, modify (but only to
make error corrections or make Compatible) reproduce and, with respect to Com21
Headend Software, distribute error corrections and modifications made by 3Com in
object code form only, of the Com21 Headend Products under all registered and
unregistered copyrights, patents, trade secrets, mask works, designs, drawings,
specifications, vendor lists and all other data and other information owned by
Company or to which Company has the right to grant sublicenses with respect to
the design, manufacture, maintenance and use of the Com21 Headend Products and
any other intellectual property rights associated therewith, and to prepare and
have prepared derivative works based thereon (but only to make error corrections
or make Compatible), and to use source code for the software contained in or
associated with the Com21 Headend Products to make and have made, use. sell,
modify (but only to make error corrections or make Compatible), reproduce, and
with respect to Com21 Headend Software, distribute error corrections and
modifications made by 3Com in object code form only and prepare and have
prepared derivative works based on the Com21 Headend Products (but only to make
error corrections or make Compatible), and to grant sublicenses to third parties
as to any or all of the rights granted to 3Com under this license and to have
immediate and complete access to all embodiments of the Seller Technology
otherwise held by Company, only in the event (i) Company becomes insolvent,
generally fails to pay or admits in writing its inability to pay its debts as
they become due, (ii) Company applies for or consents to the appointment of a
trustee, receiver or other custodian or makes a general assignment for the
benefit of its creditors, (iii) this Agreement is not assumed in its entirety
pursuant to Section 365 of Title 11 of the United States Bankruptcy Code and not
dismissed within ninety (90) days of the date of the filing of any bankruptcy
proceeding or if the bankruptcy trustee rejects this Agreement prior to the
expiration of said ninety (90) day period, (iv) Company takes any corporate or
other action to authorize, or in furtherance of, any of the foregoing, (v) any
event occurs which would permit 3Com to terminate this Agreement pursuant to
Section 15.2 (Termination for Cause) except as described in Section 2.4
(Sustaining Engineering/Error Correction) of Exhibit C (Support Services) of
this Agreement or to terminate the Technology License and Reseller Agreement
(except as described in Section 5.3 of such agreement (Acceptance) or if 3Com
elects not to renew such agreement in accordance with Section 17.1 (Term) of the
Technology License and Reseller Agreement), (vi) Company ceases, or gives notice
that it intends to cease manufacturing and distributing the Com21 Headend
Products or (vii) the Company is unable to meet the reasonable supply
requirements of Com21 Headend Products of 3Com's customers. For purposes of this
Section 16.1 (Technology Escrow and Manufacturing License), Company shall be
deemed to be unable to meet the reasonable supply requirements of 3Com's
customers if [*]; provided that such delays in shipment are not the
result of the occurrence of a force majeure condition as specified in Section 17
(Force Majeure) that has lasted for less than one hundred thirty-five (135) days
or is not due to any delay, failure to perform or interference by 3Com. In
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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order for Company not to be deemed unable to meet such reasonable supply
requirements, Company must fulfill orders on a "first-in first-out" (FIFO) basis
(e.g., orders from Company's customers are fulfilled in the order they are
received) The occurrence of any of the foregoing shall constitute an "Event of
Escrow Release" for purposes of this Agreement.
16.2 Royalties. In the event that, pursuant to an Event of Escrow
Release, the manufacturing license granted by Com21 to 3Com pursuant to Section
16.1 (Technology Escrow and Manufacturing License) (the "Manufacturing License")
becomes effective 3Com shall pay Com21 a royalty of [*] of 3Com's MLOP Cost of
the units of the Com21 Headend Products manufactured by or for 3Com pursuant to
the Manufacturing License, provided, however, that 3Com shall not owe any
royalties on (a) demonstration units (up to eight (8) units), beta units,
internal use test units, returned units or for Updates to units for which a
royalty has already been paid or (b) the first seventy-five (75) units of the
Com21 Headend Products manufactured by or for 3Com not included within the units
described in clause (a).
Royalties shall be paid on a quarterly basis and shall be payable within
forty-five (45) days from the end of each 3Com fiscal quarter, Such payments
shall be accompanied by quarterly reports listing the quantity of Com21 Headend
Product units manufactured by or for 3Com and 3Com's MLOP cost of such units
during the applicable fiscal quarter.
17. FORCE MAJEURE.
17.1 Except of the payment of money and the obligation of
confidentiality described in Section 13 (Confidential Information), neither
party will be liable for any failure or delay beyond its control in performance
under this Agreement due to fire, explosion, earthquake, storm, flood or other
weather, unavailability of necessary utilities or raw materials, war,
insurrection, riot, act of God or the public enemy, law, act, order, export
control regulation, proclamation, decree, regulation, ordinance, or instructions
of Government or other public authorities, strikes, lockouts or other labor
disputes or shortages or inability to obtain material or equipment, compliance
with laws or regulation (including, without limitation, those related to
infringement) or judgment or decree of a court of competent jurisdiction (not
arising out of breach by such party of this Agreement). In the event of the
happening of such a cause, the party whose performance is so affected will give
prompt, written notice to the other party, stating the period of time the same
is expected to continue. The affected party will use its reasonable efforts to
mitigate the effect of the event giving rise to the failure or delay in
performance.
18. LIMITATION OF LIABILITY,
18.1 EXCEPT FOR A BREACH OF SECTION 13 (CONFIDENTIALITY) AND EXCEPT
AS OTHERWISE PROVIDED IN SECTION 12.1 ABOVE, NEITHER PARTY SHALL HAVE ANY
LIABILITY OF ANY KIND OR FOR LOSS OF REVENUE OR LOSS OF BUSINESS OR OTHER
FINANCIAL LOSS OR FOR ANY COST OF PROCUREMENT OF SUBSTITUTE GOODS, SERVICES OR
TECHNOLOGY ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, INCLUDING
WITHOUT LIMITATION IN CONNECTION WITH THE MANUFACTURE, SALE, INSTALLATION, USE,
PERFORMANCE, FAILURE OR CORRUPTION OF THE COM21 PRODUCT(S) LICENSED
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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HEREUNDER, REGARDLESS OF THE FORM OF THE ACTION, WHETHER IN CONTRACT, TORT
(INCLUDING NEGLIGENCE) STRICT PRODUCT LIABILITY OR OTHERWISE, EVEN IF ANY
REPRESENTATIVE OF A PARTY HERETO HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
18.2 Notwithstanding Section 18.1, in the event Company breaches
its obligations to sell Products to 3Com under this Agreement, Company agrees
that it shall use its best efforts to have its other authorized resellers of
such Products sell to 3Com such number of units of the Products that Company
failed to sell to 3Com. Company agrees that the limitation of cover remedy
described in Section 18.1 shall not apply in the event 3Com procures substitute
Products from such other resellers.
19. MISCELLANEOUS.
19.1 Notices. Any notice provided for or permitted under this
Agreement will be treated as having been given when (a) delivered personally,
(b) sent by confirmed telex or telecopy, (c) sent by commercial overnight
courier with written verification of receipt, or (d) mailed postage prepaid by
certified or registered mail, return receipt requested, to the party to be
notified, at the address set forth below, or at such other place of which the
other party has been notified in accordance with the provisions of this Section
19.1 (Notices).
If to 3Com:3Com Corporation
5400 Bayfront Plaza
Santa Clara, CA 95052
Telecopy: (408) 764-8955
Attention: Interface Products Group Purchasing Manager
with a copy to the attention of 3Com's General Counsel at the address
above, and a telecopy number of (408) 764-6434.
If to Company: Com21, Inc.
750 Tasman Drive
Milpitas, CA 95035
Telecopy: (408) 953-9299
Attention: President
with a copy to: Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Telecopy: (415) 496-2885
Attention: Edward M. Leonard, Esq.
Such notice will be treated as having been received upon the earlier of actual
receipt or five (5) days after posting.
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19.2 Assignment. Neither party may assign, voluntarily, by
operation of law or otherwise, any rights or delegate any duties under this
Agreement (other than the right to receive payments) without the other party's
prior written consent, and any attempt to do so without such consent will be
void, except that an assignment to an acquiror of all or substantially all of a
party's stock, assets or business shall not require the prior written consent of
the other party. This Agreement will bind and inure to the benefit of the
parties and their respective successors and permitted assigns.
19.3 Modification. This Agreement cannot be amended or modified,
except by written instrument executed by the duly authorized representatives of
both parties.
19.4 Independent Contractors. The parties are independent
contractors of each other and neither has nor shall have any power, right or
authority to bind the other, or to assume or to create any obligation or
responsibility, express or implied, on behalf of the other. Nothing contained in
this Agreement shall be construed as establishing 3Com and Company as partners
or joint venturers, or as creating the relationship of employer and employee,
master and servant, or principal and agent between them.
19.5 Headings. The printed titles given to the clauses of this
Agreement are inserted for convenience only and do not form part of this
Agreement and shall not affect its interpretation.
19.6 Waiver. A waiver of any default hereunder or of any of the
terms and conditions of this Agreement shall not be deemed to be a continuing
waiver or a waiver of any other default or of any other term or condition, but
shall apply solely to the instance to which such waiver is directed. The
exercise of any right or remedy provided in this Agreement shall be without
prejudice to the right to exercise any other fight or remedy provided by law or
equity, except as expressly limited by this Agreement.
19.7 Severability. If any provision of this Agreement shall be held
to be invalid, illegal or unenforceable, then. to the extent permitted by law,
the validity, legality and enforceability of the remaining provisions hereof
shall not in any way be affected or impaired thereby.
19.8 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH, AND ALL DISPUTES HEREUNDER SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF
CALIFORNIA, EXCEPT ITS CONFLICT OF LAW RULES. THE PARTIES EXCLUDE IN ITS
ENTIRETY THE APPLICATION TO THIS AGREEMENT OF THE UNITED NATIONS CONVENTION ON
CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS.
19.9 Choice of Forum. The sole jurisdiction and venue for actions
related to the subject matter of this Agreement shall be the United States
District Court and the Courts for the State of California, Santa Clara County
and the parties hereby submit to the jurisdiction of such courts and waive any
and all venue objections.
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19.10 Export Controls. 3Com shall comply with afl applicable
export laws, restrictions, national security controls and regulations of the
United States and all other applicable foreign agencies and authorities, and
shall not export or re-export, or allow the export or re-export of any Com21
Product or any copy, portion or direct Product thereof (i) in violation of any
such restrictions, laws or regulations, or (ii) without all required
authorizations to Cuba. Libya, North Korea, Iran, Iraq or Rwanda or to any Group
D:1 or E:2 country (or any national of such country) specified in the then
current Supplement No. I to part 740 of the U.S. Export Administration
Regulations (or any successor supplement or regulations); 3Com shall obtain any
necessary licenses and/or exemptions with respect from the U.S. of all materials
or items deliverable by Company and upon request by Company shall demonstrate to
Company compliance with all such applicable laws and regulations prior to
delivery thereof by Company.
19.11 Attorneys' Fees. Any action to enforce this Agreement, the
prevailing party shall be awarded all court costs and reasonable attorneys' fees
incurred, including such costs and attorneys' fees incurred in enforcing and
collecting the judgment.
19.12 Entire Agreement. This Agreement, the Technology License and
Reseller Agreement and the Exhibits attached hereto and thereto (except for
Exhibit G (Technology Escrow and Manufacturing License) of the Technology
License and Reseller Agreement) constitute the entire agreement between the
parties with respect to the subject matter hereof and supersede all previous or
simultaneous proposals, negotiations, representations, commitments, writings and
all other communications between the parties, both oral and written. This
Agreement may not be released, discharged, changed or modified except by an
instrument in writing signed by a duly authorized representative of each of the
parties. The terms of this Agreement shall prevail in the event that there shall
be any variance with the terms and conditions of any invoice, acknowledgment or
other such document submitted by Company or any purchase order, acknowledgment
or any other such document submitted by 3Com.
19.13 Allocation of Risk. The sections on limitation of liability,
warranty and warranty disclaimer allocate the risks in the Agreement between the
parties. This allocation is an essential element of the basis of bargain between
the parties.
19.14 Construction of Agreement. This Agreement has been negotiated
by the respective parties hereto and their attorneys and the language hereof
shall not be construed for or against any party.
19.15 Counterparts. This Agreement may be signed in two
counterparts which together shall form a single agreement as if both parties had
executed the same document.
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IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Agreement.
COMPANY: 3COM:
COM21, INC. 3COM CORPORATION
- ------------------------------- -------------------------------
Name Name
- ------------------------------- -------------------------------
Title Title
July 30, 1997 July 30, 1997
- ------------------------------- -------------------------------
Date Date
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EXHIBIT A
DESIGN SPECIFICATIONS
[to be attached prior to date of first shipment of Products by Company to
3Com; Specs for Products shipped already to be provided by Com21 prior
to execution]
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EXHIBIT B
PRODUCT AND PRICE LIST
CHANNEL PARTNER DISCOUNTS
SECTION FOUR
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Confidential
3COM ADDITIONS TO EXHIBIT B
COM21 PRODUCTS EXTENDED WARRANTY
Service Agreement Packages:
Annual (Standalone) Software Maintenance Agreement
Software Maintenance
The annual service agreement can also be bundled with a software
maintenance agreement which provides upgrades to major and maintenance
software releases: Price:First Year SW maintenance at time of NMAPS
purchase: [*]
If purchased within 12 months of time of NMAPS purchase:
[*]
If purchased after 12 months of NMAPS purchase and the release
of the Com21 Software held by the End User is the then current
release or the immediately preceding release: [*]
If, however after 12 months, the End User has an older version
of the Com21 Software that is two or greater versions behind
the then current release, the End User must also purchase the
then current release at full price.
PRODUCTS COVERED:
NMAPS
System Software
TYPICAL SCENARIOS:SCENARIOS:
Maintenance Release (3.X to 3.X+1)
Software Maintenance contract customers automatically receive upgrade at
no additional charge. New customers pay list price of software and
receive current rev (3.X + 1)
Major Release (3.X to 4.0)
New customers pay full list price for and are offered the choice of
purchasing a software maintenance contract.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Confidential
NOTE: Customer Service will always be able to upgrade a customer for free
if they deem necessary.
Duration of Contract
Maintenance contracts last for 12 months from the time of purchase. These
will not be dependent on the calendar year. Renewal notification shall be
generated by order administration sixty (60) days notice and sent to
sales for their follow-up.
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EXHIBIT C
SUPPORT SERVICES
1. Definitions
Authorized Caller. "Authorized Caller" means a person or persons
designated by 3Com as the technical support interface for the Products.
Designated Support Engineer. "Designated Support Engineer" means a person
or persons designated by Company as the technical support interface for
after-hour assistance, if different from "Primary and Secondary Contacts."
Error. "Error" means a defect in the Product which is reproducible and
which causes such Product not to function substantially in conformance with the
Company's Design Specifications, End User documentation, or other related
documentation, including without limitation any functional specifications or
other engineering documentation for the Product, or commonly accepted operating
principles as defined by industry standards. Errors are classified as follows:
Severity 1: Major Service Interruption. The problem causes
significant loss of user data or work time. Performance degradation is such that
Major Functions cannot be completed. The customer cannot accomplish meaningful
work and there is no customer acceptable Workaround available.
Severity 2: Significant Service Interruption. The problem causes
difficulty in the execution of a Minor Function. Perceptible performance
degradation may occur but the function completes after a period of time
acceptable to the customer. Customer acceptable Workaround available.
Severity 3: Other Non-Conformance to Specification. No loss of
function, but impairs some operations. Problem causes a minor inconveniences
such as cosmetic problem, awkward interface, or minor syntax discrepancy. This
includes documentation errors.
Major Function. "Major Function" means a function that is
frequently used or represents the essential functions for which Product is
purchased or used by a customer or is necessary for approval or sale by
Government agencies or applicable standards.
Minor Function. "Minor Function" means a function that is not
frequently used or does not represent the essential functions for which the
Product is purchased or used by a customer or is not necessary for approval or
sale by government agencies or applicable standards.
Primary and Secondary Contacts. "Primary and Secondary Contacts"
means the persons assigned by Company as the technical support interface for the
Products.
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Problem Priorities. "Problem Priorities" classify the criticality
of a problem at a customer site. Problem Priorities are assigned at the time of
3Com's initial contact with Company. Problem Priorities may be changed based
upon new information or customer situation. Problem Priorities are defined the
same as Errors, but refer the classification of the incident, not any resulting
Error which may be identified during the resolution of the incident.
Severity 1: Major Service Interruption. The problem causes
significant loss of user data or work time. Performance degradation is such that
major functions cannot be completed. The customer cannot accomplish meaningful
work and there is no customer acceptable workaround available.
Severity 2: Significant Service Interruption. The problem causes
difficulty in the execution of a minor function. Perceptible performance
degradation may occur but the function completes after a period of time
acceptable to the customer. Customer acceptable workaround available.
Severity 3: Other Non-Conformance to Specification. No loss of
function, but impairs some operations. Problem causes a minor inconveniences
such as cosmetic problem, awkward interface, or minor syntax discrepancy.
Documentation errors are classified as Severity 3 incidents.
Technical Support Levels. "Level" means a certain class of service
provided to Authorized Resellers and End Users. Definitions are as follows:
Level One: Technical support staff is competent to answer technical
inquiries regarding Products, perform remedial hardware determination, and
Product installation and configuration support.
Level Two: Technical support staff is competent to identify the
cause of a problem, replicate the problem at either the end-user site or 3Com
test facility, and implement a solution for a problem which is not the result of
a Product Error. In the case of a Product Error, the technical staff is
competent to identify the source of the Error, create a reproducible test case,
and document the details of the Error for escalation to Company.
Level Three: Staff is competent to identify a Product Error and
implement a solution through a Product change in either hardware or software.
Workaround. A "Workaround" is a feasible change in operating
procedures whereby an End User can avoid any deleterious effects of an Error.
2. Technical Support
2.1 Support Issues. 3Com is responsible for providing Level One and
Level Two pre-sales and post-sales support services to its Authorized Resellers
and End Users. Company shall provide Level Three back-up technical support to
3Com, and shall make available to 3Com support via telephone, FAX or E-Mail to
3Com's Authorized Caller(s).
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Company's support will provide telephone acknowledgment of 3Com's support calls
within (1) hour on a twenty-four (24) hour per day, seven (7) days per week,
three hundred and sixty-five (365) days per year basis provided that 3Com calls
the Primary or Secondary Contact or Designated Support Engineer. 3Com will
receive most favored class of priority from Company, and will be assigned
Primary and Secondary Contacts. This support shall be provided at 3Com's
FCS/First Customer Ship for one (1) year at no cost to 3Com. Thereafter, 3Com
has the option to renew such support services on a quarterly basis during the
term of this Agreement and for each of the next four (4) years thereafter, at a
quarterly cost to be set forth in Exhibit B (Product and Price List), which cost
shall not exceed Company's price to other customers for such maintenance and
support, less Company's most favored discount therefor. 3Com is under no
obligation to renew all or any portion of such support and may cancel all or any
portion of such support at any time and receive a prorated refund of any prepaid
fees. Such support shall be automatically renewed unless 3Com gives written
notice of termination of support at least thirty (30) days prior to the end of
the current quarter.
The Authorized Callers will be the primary contacts between 3Com's
and Company's technical support centers. 3Com will be permitted to register up
to six Authorized Callers. 3Com will provide a list of Authorized Callers
including names, address, phone numbers, and internet e-mail address. This list
will be reviewed quarterly and updated as required. All Authorized Callers shall
receive training as set forth in section 4.
Company will provide a list of Designated Support Engineers; this
list will be reviewed quarterly and updated as required.
The Primary and Secondary Contacts will be the contacts between Company's
and 3Com's Authorized Callers. Company will provide a list of Primary and
Secondary Contacts; this list will be reviewed quarterly and updated as
required.
2.2 Resolution of Support Issues. 3Com shall reasonably attempt to
resolve Level One and Level Two customer support requirements for the Products
prior to contacting Company. Company will provide Level Three support to 3Com.
In the event that 3Com cannot successfully resolve customer issues within a
reasonable period of time, upon request from 3Com Company shall use commercially
reasonable efforts to provide Level Two technical support to ensure that 3Com
provides prompt resolution of issues regarding Products. Company will not,
regarding the Products, contact or provide direct support to 3Com's customers
pursuant to this Agreement without 3Com's prior approval. Company will use
commercially reasonable efforts to provide an initial response acknowledging
receipt of the support request to all 3Com support requires within one (1) hour
and 3Com and Company will agree, in good faith, what additional information
and/or documentation will be required for resolution. If a particular problem is
not resolved or identified as an "Error" within two (2) business days following
the initial call to Company, technical support managers and engineers for each
party will work in good faith to devise and carry out a plan that will provide a
timely and satisfactory resolution. Company shall work with 3Com in attempting
to reproduce any such problem.
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2.3 Emergency Technical Support. For End User or Authorized
Reseller problems deemed by 3Com to be a Severity I emergency, Company will use
its commercially reasonable efforts to address and resolve the problems as
quickly as possible.
Except as set forth in this Exhibit C (Support Services), Company shall
have no responsibility pursuant to this Agreement for providing technical
support directly to 3Com's Authorized Resellers and End Users. Such technical
support shall be provided by 3Com and/or its Authorized Resellers in accordance
with 3Com's usual customer support procedures. However, in the event that an End
User requires emergency, on-site support that would be significantly facilitated
by Company's assistance and such support is requested by 3Com, Company agrees to
use its commercially reasonable efforts to provide such emergency support. 3Com
will attempt to manage the situation, such that Company's assistance will be
transparent to the customer and shall reimburse Company for its time at the
price set forth in Exhibit B (Product List and Prices), plus other reasonable
expenses. In situations where the site visit was precipitated by a known (but
unresolved) or acknowledged Company problem, 3Com will not reimburse for labor
or expenses. Problems regarded as emergencies include, but shall not be limited
to, problems resulting from Errors. Problem resolution shall be governed by the
Sustaining Engineering/ Error Correction section below.
2.4 Sustaining Engineering/Error Correction. 3Com and Company shall
promptly agree in good faith to provide any information and/or documentation
which may be required to permit Company to identify and resolve Product Errors.
The Error correction period begins after Company (a) has enough information to
profile the Error and (b) can recreate the Error or has access to a facility
where the Error can be recreated. Company agrees to respond to identified Errors
based on the following time-table:
Severity 1 Errors. Company shall use its commercially reasonable efforts
to resolve or reduce the severity via workaround and/or patch within
forty-eight (48) hours of receipt of notice of such Error. Company shall
provide its action plan within twenty-four (24) hours, and regular status
updates. Final resolution shall be identified per action plan. 3Com and
Company problem managers shall review Error status after forty-eight (48)
hours.
Severity 2 Errors. Company shall use its commercially reasonable efforts
to resolve or reduce the severity via workaround and/or patch within five
(5) working days of receipt of notice of such Error. Company shall
provide an action plan within seventy-two (72) hours, and regular status
updates. 3Com and Company problem managers shall review after five (5)
working days. When required, a final engineering solution shall be
identified per action plan.
Severity 3 Errors. Company shall use its commercially reasonable efforts
to acknowledge the Error within fifteen (15) working days of receipt of
notice. Acknowledgment will convey entry into Company's Error or Product
Requirements Database. Final engineering resolution will be determined
and scheduled through mutual agreement between 3Com and Company's
Engineering and Marketing management.
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The prescribed Error correction periods above may be extended as mutually
agreed, e.g., if resolution of problem requires timely hardware certification or
test, or if resolution represents significant risk to the Major Functions.
Provided that Company is using its commercially reasonable efforts to
resolve any such Error, 3Com agrees that a breach of this provision by Company
is insufficient to allow 3Com to terminate the Agreement and shall not be an
Event of Escrow Release; provided, however, 3Com shall be entitled to pursue any
other remedy available to 3Com, including, but not limited to seeking damages
for Company's breach.
Company shall provide 3Com, as a common business practice, a mechanism by
which 3Com may receive a monthly detail list of the status of all Errors
reported and/or resolved. This list shall contain known problems, Workarounds
list and open Error/Bug report.
2.5 Support Tools. At no charge to 3Com, Company shall provide
diagnostic tools which Company has the right to provide to 3Com and procedures
and a list/description of test equipment reasonably necessary and used by
Company to troubleshoot problems and assist in problem identification, isolation
and resolution.
Company shall also provide the following additional support tools, if
available: (i) compatibility/inter-operability matrix and (ii) supported and not
supported configurations statement. Company shall further promptly provide to
3Com when available, all modifications or other revisions to such support tools.
2.6 Support Evaluation. From time to time following acceptance by
3Com of the Products, but no less frequently than once each calendar quarter,
management-level support representatives from each party will meet to review the
performance of, and recommend improvements regarding, the technical support and
warranty assistance offered to End Users and Authorized Resellers under this
Agreement.
3. Hardware Support
3.1 Repair Services. 3Com shall have the right to purchase Product
repair services, spare parts and upgrade kits as applicable for a period of
seven (7) years after the last shipment of the affected Product hereunder,
notwithstanding the expiration of the Agreement. Such purchases shall be
governed by the applicable terms and conditions set forth herein. The prices
charged for such Product repair services, spare parts and upgrade kits shall be
at the lowest prices then charged by Company to any other Customer for similar
quantities of the same or comparable items. Should Company fail to provide
exchange or repair obligations, then Company will provide suitable and form,
fit, and function compatible replacement products at no additional charge to
3Com.
3.2 Inventory Requirements. Company will provide failure analysis
reports for the Product. The reports shall include predicted, demonstrated and
field data for the whole unit assembly and individual subassemblies (FRUs/Field
Replaceable Units), including MTBF/Mean Time Between Failure data, and how MTBF
is computed. The reports will also
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include the sparing/inventory rationale used by the Company. Company will
provide to 3Com product and spares inventory recommendations, based on the
failure analysis data.
3.3 Test and Repair Procedures. At no charge to 3Com, Company shall
provide test specifications, test equipment specifications, and written test
procedures necessary to enable 3Com personnel to verify functional failures,
perform adjustments and alignments, as required, and verify functional
performance.
3.4 Out-of-Warranty Repairs. Company will repair or replace a
defective Product and forward the same back to 3Com. Company will repair
defective Product to 3Com standards, including cosmetic standards (i.e., proper
labeling, no scratches or dents, all feet). Company will upgrade repaired
Product to the most recent revision level for such Product at no additional
cost. Company shall charge its standard repair rates less the largest discount
offered to Company's other customers. Any out-of-warranty repaired Products
carry a ninety (90) day warranty from shipment by Company. 3Com reserves the
option to perform out-of-warranty repairs at the 3Com repair facilities. In the
event 3Com exercises the option to perform repairs at the 3Com facilities,
Company shall provide all required product specifications, engineering
documentation, test and repair procedures. Out-of-warranty repair charges for a
Product shall not exceed twenty percent (20%) of the discounted price paid by
3Com for such Product.
3.5 Return Material Authorization (RMA). Company shall provide 3Com
with RMA procedures. The following procedure shall apply to Company's repair of
both in- warranty and out-of-warranty Products, except as otherwise noted.
(i) Management. Company will use its commercially reasonable
efforts to provide 3Com with RMA number within twenty-four (24) hours after
receipt of request. 3Com Repair RMA returns of Products will be managed through
a 3Com Repair center. 3Com shall notify Company if it opens more than five such
repair centers. Company will provide domestic and international interfaces to
manage 3Com returns. 3Com shall return Product to Company's closest geographic
repair center.
(ii) Turn-Around Time. Company will use commercially
reasonable efforts to repair or replace the defective Product and forward the
same back to 3Com within ten (10) business days after receipt, but in all
instances Company shall repair or replace the defective Product and forward the
same back to 3Com within fifteen (15) business days. Company will provide
expedited repair service to accommodate 3Com emergency requirements with an
expedite cost equal to ten percent (10%) of the repair charge described in the
last sentence of section 3.4 above; provided however that if the Product for
which expedited repair service has been requested is not repaired or replaced
and forwarded back to 3Com within ten (10) business days, such expedite cost
shall be waived.
(iii) Reporting. 3Com Repair RMA returns of Products will be
returned with an itemized repair report for each unit. Company will provide a
monthly report of: (i) RMAs processed, including failure analysis and (ii)
physical inventory of 3Com owned material. Upon special request, Company will
provide inventory status within two (2)
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business days.
(iv) Shipping charges. 3Com will pay shipping charges on
out-of-warranty Products shipped to Company for repair. Company will pay
shipping charges on Products returned to 3Com.
(v) Packaging requirements. Company and 3Com will jointly
develop a repair shipping process prior to FCS/First Customer Ship of a Product
by 3Com that satisfies packaging requirements for both parties.
3.6 No Problem Found (NPF). Company shall provide statistics on
Product NPF returns on a quarterly basis. Company shall waive any NPF charges on
Com21 Headend Products returned for repair to the extent such Com21 Headend
Products represent less than twenty-five percent (25%) of the out-of-warranty
Com21 Headend Products returned for repair during that calendar quarter. 3Com
may be subject to charges associated with Company's handling and shipping of NPF
returns in excess of twenty-five percent (25%) of the out-of-warranty Com21
Headend Product returns, not to exceed twenty-five percent (25%) of the repair
charge. Company shall waive any NPF charges on Com21 Modem Products returned for
repair to the extent such Com21 Modem Products represent less than ten percent
(10%) of the out-of-warranty Com21 Modem Products returned for repair during
that calendar quarter. 3Com may be subject to charges associated with Company's
handling and shipping of NPF returns in excess of ten percent (10%) of the
out-of-warranty Com21 Modem Product returns, not to exceed twenty-five percent
(25%) of the repair charge. Further, both parties agree to work together to
reduce the frequency of NPF returns.
4. Training
4.1 Technical Training. During the term of this Agreement, Company
shall, at its expense, provide 3Com with one (1) course per Product of basic and
advanced training for up to six (6) 3Com employees (including the Authorized
Callers) engaged in the technical support of the Product. Company shall further
provide to 3Com, at Company's expense, similar training for modifications or
other revisions to the Product(s). Training will be conducted at Com21's
facilities in Milpitas, California or such other mutually agreeable facility.
Each training course shall commence on a mutually agreed upon date. Such
training shall cover in detail, the installation, configuration, operation,
trouble shooting, adjustment, test and maintenance of the Product. When training
is held at Company's training facilities, Company shall provide a reasonable
quantity of appropriate Product units as training aids. When such classes are
conducted at 3Com's facilities, 3Com shall provide a reasonable quantity of
Products, and other required equipment as training aides. Company shall provide
copies of the student training guides, and all other necessary materials to each
trainee and to 3Com. 3Com may record any or all training courses on video tape
and may reproduce and distribute such recordings, for internal use only, under
3Com's name.
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Company also shall provide at no cost to 3Com, continuing training to
3Com employees and independent contractors, as follows:
(a) After the first year of the Agreement, Company shall
provide annually to 3Com, without cost, complete technical training relating to
its Products for up to six (6) qualified individuals;
(b) Upon the release of each new Product or new version of
existing Product with substantial functional changes, Company shall provide to
3Com, without cost, complete technical training relating to such new Product or
version for six (6) qualified individuals.
Company shall offer additional training throughout the term of this
Agreement at Company's standard rates that are listed in Exhibit B (Product and
Price List). If conducted at other than 3Com's Santa Clara or San Jose facility
or Company's facility, 3Com shall pay all reasonable costs incurred by Company's
instructor(s) for travel and living expenses during the period of such training.
Company shall pay for the salary of its instructor(s) and all other costs and
expenses related to such training. Company shall submit invoices to 3Com after
the conclusion of such training classes which itemize all expenses incurred and
shall include copies of all receipts therefor. Payment terms shall be net thirty
(30) days from receipt of invoice.
4.2 Training Courses and Materials. During the term of this
Agreement, Company shall provide 3Com with all materials utilized to provide
training in connection with the Products. Training shall include, but is not
limited to, customer reseller and end-user courses. Training materials shall
also include, but are not limited to, instructor guides, overheads, student
workbooks, and manual/guides. Company shall provide masters of such training
materials in both hard copy and electronic media. Company shall further provide
copies of all modifications or other revisions to such training materials as
they become available. 3Com is permitted to use such material for its internal
use only in training 3Com's sales and support staff on the Products.
Company hereby grants to 3Com a royalty-free non-exclusive, worldwide
license to use, modify, create derivative works based upon, reproduce and
distribute the training materials (whether modified or unmodified but excepting
proprietary technical information relating to the products) for use by its
Authorized Resellers and End Users and its/their employees and consultants in
connection with the Products distributed under the terms of the Agreement.
3Com hereby grants to Company a royalty-free non-exclusive, worldwide
license to use, modify, create derivative works based upon, reproduce and
distribute the 3Com training materials (whether modified or unmodified but
excepting proprietary technical information relating to 3Com products) based
upon the Company training materials and created in accordance with the license
granted in the immediately preceding paragraph, for use by Company's authorized
resellers and End Users and its/their employees and consultants in connection
with the Products distributed under the terms of the Agreement.
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Escrow # 1267-7
EXHIBIT D
ESCROW AGREEMENT
This Escrow Agreement ("Escrow Agreement") is executed this 18th day of
September 1997 by and among Com21, Inc., a Delaware corporation ("Company"),
with an office at 750 Tasman Drive, Milpitas, California 95053, 3Com
Corporation, a Delaware corporation ("3Com "), with an office at 5400 Bayfront
Plaza, Santa Clara, CA 95052-8145, and Brambles NSD, Inc., a Delaware
corporation ("Escrow Agent"), as Escrow Agent.
RECITALS
A. Company and 3Com have entered into a Reseller Agreement ("Reseller
Agreement") pursuant to which Company shall distribute the Products, as defined
in the Reseller Agreement, to 3Com.
B. The Reseller Agreement requires Company and 3Com to enter into an
Escrow Agreement with Escrow Agent in the form hereof.
C. The purpose of this Escrow Agreement is to provide for Company's
periodic deposit of the Technology Documentation, as defined below, with Escrow
Agent and, under certain circumstances specified below, to permit 3Com to obtain
the Technology Documentation from the Escrow Agent solely for the purposes set
forth herein.
D. Escrow Agent is in the business of providing third party technical
escrow protection by storing, retaining and allowing limited access to
proprietary technology, including computer software, related media,
documentation, and materials.
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein, the parties agree as follows:
1. DEPOSIT OF DOCUMENTATION.
a. The term "Technology Documentation" as used in this Escrow
Agreement has the same meaning as set forth in Section 1.23 of the Reseller
Agreement.
b. The term "Deposit" as used in this Escrow Agreement means the
Technology Documentation, including updates, deposited with Escrow Agent by
Company pursuant to this Escrow Agreement.
c. Company agrees to deposit with Escrow Agent, a complete copy of
the Technology Documentation, within ten (10) days after the date of first
shipment by Company of the Products to 3Com. Any deposit with the Escrow Agent
shall consist of a sealed package certified by an authorized officer of Company
to contain a complete set of the
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Technology Documentation as defined in Paragraph 1(a) above.
2. REVISIONS AND MAINTENANCE.
a. Company agrees to deposit with Escrow Agent a copy of all
revisions of and additions to the Technology Documentation ("Updates") if
Company updates its own archival copy of the Technology Documentation. Such
revisions and additions shall be deposited in a sealed package certified by an
authorized officer of Company to contain a complete Update.
b. Escrow Agent shall acknowledge receipt of all Deposits by
sending written acknowledgment thereof to both Company and 3Com within ten (10)
days of acceptance of a Deposit by Escrow Agent.
3. VERIFICATION.
a. At 3Com's option and expense, 3Com may select an independent,
disinterested consultant, reasonably acceptable to Company, to verify that any
Deposit delivered to the Escrow Agent contains a complete version of the
Technology Documentation. For purposes of this Agreement, the consultant may,
among other things, compile any source code into object code and test and
compare such object code version against Company's version. As a condition to
permitting the consultant to perform verification under this Escrow Agreement,
the consultant will be required to execute an appropriate confidentiality
agreement in a form reasonably acceptable to Company for the protection of
Company's proprietary rights in the Technology Documentation.
b. The consultant has permission to remove the Deposit or any
portion thereof from the Escrow Agent's site location to verify that the Deposit
contains the Technology Documentation and as part of such verification, to test
the Deposit accordingly to determine if the Deposit is sufficient to permit 3Com
to exercise its fights under Section 10 (Manufacturing License Grant Including
the Use of Source Code) hereof, when and if such rights become exercisable. The
consultant will not be permitted to communicate to 3Com any information
concerning the documentation, including design, structure, sequence or other
internal aspects of the source code contained in the Deposit, but will merely
verify for 3Com that the source code contained in the Deposit is complete,
accessible, and contains the materials it should contain in accordance with this
Escrow Agreement.
4. STORAGE AND SECURITY.
a. Escrow Agent shall act as custodian of the Deposit until the
escrow is terminated pursuant to Section 12 (Termination) of this Escrow
Agreement. Escrow Agent shall establish, under its control, a secure receptacle
for the purpose of storing the Deposit and shall put the receptacle under the
control of one or more of its officers, selected by Escrow Agent, whose identity
shall be available to Company and 3Com at all times. Escrow Agent shall exercise
a professional level of care in carrying out the terms of this Escrow Agreement.
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b. The Deposit shall remain the exclusive property of the Company,
subject only to the licenses provided in this Escrow Agreement.
c. Escrow Agent shall not divulge, disclose or otherwise make
available the Deposit to any parties other than those persons duly authorized in
writing by an officer of Company or make any use whatsoever of the Deposit or of
any information provided to it by Company in connection with this Escrow
Agreement, except as provided in this Escrow Agreement.
d. Escrow Agent shall not permit any person access to the Deposit
except in accordance with Section 3 (Verification) and as may be necessary for
Escrow Agent's authorized representatives to perform under this Escrow
Agreement. This obligation will continue indefinitely notwithstanding
termination of this Escrow Agreement.
e. Access to the Deposit shall not be granted without compliance
with all security and identification procedures instituted by Escrow Agent.
f. Escrow Agent shall have no obligation or responsibility to
verify or determine that the Deposit does, in fact, consist of those items which
Company is obligated to deliver, under any agreement, and Escrow Agent shall
bear no responsibility whatsoever to determine the existence, relevance,
completeness, currency, or accuracy of the Deposit.
g. Escrow Agent's sole responsibility shall be to accept, store and
deliver the Deposit, in accordance with the terms and conditions of this Escrow
Agreement.
h. If any of the Deposit shall be attached, garnished or levied
upon pursuant to an order of court, or the delivery thereof shall be stayed or
enjoyed by an order of court, or any other order, judgment or decree shall be
made or entered by any court affecting the Deposit or any part thereof, Escrow
Agent is hereby expressly authorized in its sole discretion to obey and comply
with all orders, judgments or decrees so entered or issued by any court, without
the necessity of inquiring whether such court had jurisdiction, and in case
Escrow Agent obeys or complies with any such order, judgment or decree, Escrow
Agent shall not be liable to any 3Com of Record, Company or any third party by
reason of such compliance, notwithstanding that such order, judgment or decree
may subsequently be reversed, modified or vacated.
5. RELEASE OF DEPOSIT.
a. Upon the occurrence of any Event of Default (as defined in
Section 8 (Events of Default), 3Com may deliver to Escrow Agent a written notice
of such Event of Default ("Notice"), and Escrow Agent shall provide a copy of
such Notice to Company by certified mail. Unless Company shall have provided
Contrary Instructions (as defined below) to Escrow Agent within ten (10) days
after receipt of 3Com's Notice, the Deposit shall be delivered to 3Com by Escrow
Agent within the next five (5) business days following the end of such ten (10)
day period.
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b. "Contrary Instructions" for the purpose of this Escrow Agreement
means a notarized affidavit executed by an official of Company stating that the
Event or Events of Default specified in 3Com's Notice have not occurred, or have
been cured.
c. Upon timely receipt of such Contrary Instructions, Escrow Agent
shall not release the Deposit, but shall continue to store the Deposit until
otherwise directed by 3Com and Company jointly, or until resolution of the
dispute pursuant to Section 6 (Dispute Resolution) of this Escrow Agreement, or
by a court of competent jurisdiction.
d. Notwithstanding any Deposit release hereunder, the obligations
of Company to continue making Deposits and the obligations of Escrow Agent to
receive and maintain such Deposits shall continue throughout the term of this
Escrow Agreement.
6. DISPUTE RESOLUTION. Company and 3Com agree that if Contrary
Instructions are timely given by Company pursuant to Section 5 (Release of
Deposit) hereof, then Company and 3Com shall submit their dispute regarding
3Com's Notice to arbitration by a single arbitrator who is a member of the
American Arbitration Association, according to its rules and regulations then in
effect. Said arbitration shall take place in the city and state where the
Deposit is stored by Escrow Agent. The decision of the arbitrator shall be final
and binding upon the parties and enforceable in any court of competent
jurisdiction, and a copy of such decision shall be delivered immediately to
Company, 3Com and Escrow Agent. The parties shall use their reasonable efforts
to commence the arbitration proceeding within ten (10) business days following
delivery of the Contrary Instructions. 'Me sole questions to be determined by
the arbitrator shall be whether or not 3Com has the right to receive the Deposit
under the terms of this Escrow Agreement. If the arbitrator finds that 3Com has
the right to receive the Deposit, Escrow Agent shall promptly deliver the
Deposit to 3Com . Depositions may be taken and discovery obtained in any such
arbitration proceedings in accordance with California Code of Civil Procedure
("CCP") Section 1283.05 and 1283.1. All fees and charges by the American
Arbitration Association and the reasonable attorneys' fees and costs incurred by
the prevailing party in the arbitration shall be paid by the non-prevailing
party. Judgment upon the award rendered by the arbitrator may be entered into
any court having jurisdiction thereof. Notwithstanding the foregoing, either
party shall have the right to obtain a preliminary judgment on any equitable
claim in any court of competent jurisdiction, where such judgment is necessary
to preserve property or proprietary rights under this Escrow Agreement. Such
judgment shall remain effective as long as the terms of the judgment so provide
or until specifically superseded by the action of the arbitrator as provided
above.
7. BANKRUPTCY. Company and 3Com acknowledge that this Escrow Agreement is
an "agreement supplemental to" the Reseller Agreement as provided in Section
365(n) of Title 11, United States Code ("Bankruptcy Code"). Company acknowledges
that if Company (as a debtor in possession) or a trustee in bankruptcy rejects
the Reseller Agreement or this Escrow Agreement in a case under the Bankruptcy
Code, 3Com may elect to retain its rights under the Reseller Agreement and this
Escrow Agreement as provided in Section 365(n) of the Bankruptcy Code. Upon
written request of 3Com to Company or the Bankruptcy Trustee, Company or such
Bankruptcy Trustee shall not interfere with the rights of 3Com as provided
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in the Reseller Agreement and this Escrow Agreement. including the right to
obtain the Deposit from Escrow Agent.
8. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" for purposes of this Escrow Agreement.
a. Company becomes insolvent, generally fails to pay or admits in
writing its inability to pay its debts as they become due;
b. Company applies for or consents to the appointment of a trustee,
receiver or other custodian or makes a general assignment for the benefit of its
creditors;
c. The Reseller Agreement is not assumed in its entirety pursuant
to Section 365 of Title 11 of the United States Bankruptcy Code and not
dismissed within ninety (90) days of the date of the filing of any bankruptcy
proceeding or if the bankruptcy trustee rejects the Reseller Agreement prior to
the expiration of said ninety (90) day period;
d. Company takes any corporate or other action to authorize, or in
furtherance of, any of the foregoing;
e. Any event occurs which would permit 3Com to terminate the
Reseller Agreement pursuant to Section 15.2 (Termination for Cause) thereof
except as described in Section 2.4 (Sustaining Engineering/Error Correction) of
Exhibit C (Support Services) of the Reseller Agreement or to terminate the
Technology License and Reseller Agreement dated March 22, 1996 (except as
described in Section 5.3 of such agreement (Acceptance) or if 3Com elects not to
renew such agreement in accordance with Section 17.1 (Term) of the Technology
License and Reseller Agreement);
f. Company ceases, or gives notice that it intends to cease
manufacturing and distributing the Com21 Headend Products (as such term is
defined in the Reseller Agreement); or
g. Company is unable to meet the reasonable supply requirements of
Com21 Headend Products of 3Com's customers. For purposes of this Section 8(d),
Company shall be deemed to be unable to meet the reasonable supply requirements
of 3Com's customers if Company is more than thirty (30) days late in shipping
fifty percent (50%) or more of scheduled orders of Com21 Headend Products for
any three (3) consecutive months; provided that such delays in shipment are not
the result of the occurrence of a force majeure condition as specified in
Section 17 (Force Majeure) of the Reseller Agreement that has lasted for less
than one hundred thirty-five (135) days or is not due to any delay, failure to
perform or interference by 3Com. In order for Company not to be deemed unable to
meet such reasonable supply requirements, Company must fulfill orders on a
"first-in first-out" (FIFO) basis (e.g., orders from Company's customers are
fulfilled in the order they are received).
9. INDEMNIFICATION. Company and 3Com jointly and severally agree to
indemnify, defend and hold Escrow Agent harmless from and against any and all
claims,
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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actions and suits, whether groundless or otherwise, and from and against any and
all liabilities, losses, damages, costs, charges, penalties, counsel fees, and
any other expense of any other nature, including, without limitations,
settlement costs incurred by Escrow Agent on account of any act or omission of
Escrow Agent, in respect of or with regard to this Escrow Agreement, except
insofar as such liabilities arise by reason of Escrow Agent's gross negligence
or willful misconduct.
10. MANUFACTURING LICENSE GRANT INCLUDING THE USE OF SOURCE CODE. If any
or all of the Technology Documentation is released to 3Com pursuant to Section 5
(Release of Deposit), Company hereby grants 3Com the rights in and to the
Technology Documentation as provided in Section 16 (Technology Escrow and
Manufacturing License) of the Reseller Agreement.
11. RECORDS. Escrow Agent agrees to keep complete written records of the
activities undertaken and materials prepared and delivered to Escrow Agent
pursuant to this Escrow Agreement. Company and 3Com shall be entitled at
reasonable times during normal business hours and upon reasonable notice to
Escrow Agent during the term of this Escrow Agreement to inspect the records of
Escrow Agent with respect to the Technology Documentation. Company shall be
entitled upon reasonable notice to Escrow Agent and during normal business hours
to inspect the facilities of Escrow Agent with respect to the physical status
and condition of the Technology Documentation.
12. TERMINATION.
a. This Escrow Agreement shall terminate ninety (90) days after
termination of the Reseller Agreement. Upon such termination, except for
termination as a result of rejection of the Reseller Agreement in a bankruptcy
case of Company, Escrow Agent shall return the Deposit to Company.
b. 3Com may unilaterally terminate this Escrow Agreement upon sixty
(60) days written notice to Escrow Agent. Upon such termination, Escrow Agent
shall return the Deposit to Company.
c. Escrow Agent reserves the fight to resign as Escrow Agent upon
sixty (60) days prior written notice to Company and 3Com. Escrow Agent shall,
upon such termination, transfer the Deposit to such substitute Escrow Agent as
is specified in Company's and 3Com's joint notice to Escrow Agent after having
received payment of its fees and costs pursuant to Section 14 (Fees) of this
Escrow Agreement.
d. In the event that the sixty (60) day notice period in Section
12.b elapses without Escrow Agent having received payment from either Company or
3Com of the remaining fees due, Escrow Agent shall then have the option, without
further notice of either party, to terminate this Escrow Agreement and to
destroy the Deposit.
13. GOOD FAITH RELIANCE. Escrow Agent may rely and act upon any
instruction, instrument, or signature believed in good faith to be genuine, and
may assume that
43
<PAGE> 44
any person purporting to give any writing, notice, respect, advise or
instruction in connection with or relating to this Escrow Agreement has been
duly authorized to do so.
14. FEES.
a. In consideration of performing its functions as Escrow Agent,
Escrow Agent shall be compensated by 3Com as set forth in Schedule I hereto (Fee
Schedule). The fees set forth in Fee Schedule will be billed periodically by
Escrow Agent to 3Com.
b. The fees set forth in Fee Schedule are for Escrow Agent's
ordinary services as Escrow Agent. In the event Escrow Agent is required to
perform any additional or extraordinary services as a result of being Escrow
Agent, including intervention in any litigation or proceeding, Escrow Agent
shall receive reasonable compensation for such services and be reimbursed for
such costs incurred, including reasonable attorney's fees.
c. Escrow Agent shall be entitled to receive payment of all costs,
fees and expenses due it, prior to any release or return of the Deposit.
15. ENTIRE AGREEMENT. This Escrow Agreement and the Reseller Agreement,
including the Exhibits hereto and thereto, constitute the entire agreement among
the parties regarding the subject matter hereof, and shall supersede all
previous and contemporaneous communications, representations, understandings and
agreement, either oral or written between the parties.
16. NOTICE. All notices required or permitted by this Escrow Agreement
shall be in writing and shall be deemed to have been received upon the earlier
of receipt or one (1) day after dispatch, if sent by (i) personal same or next
day delivery, (ii) facsimile with confirmation of transmission or (iii)
commercial overnight carrier with written verification of receipt, to the other
parties at the address or facsimile number set forth below. The parties may
change their address or facsimile number by written notice to the other parties.
a. Escrow Agent:
Brambles NSD, Inc.
2109 Bering Drive
San Jose, CA 95117-2014
Attn: Escrow Officer
Fax: (408) 441-6826
b. Company:
Com21, Inc.
750 Tasman Drive
Milpitas, CA 95035
Telecopy: (408) 953-9299
Attn: President
44
<PAGE> 45
with copies to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Telecopy: (415) 496-2885
Attention: Edward M. Leonard, Esq.
c. 3Com:
3Com Corporation
5400 Bayfront Plaza
Santa Clara, CA 95052
Telecopy: (408) 764-8955
Attention: Interface Products Group Purchasing Manager
With a copy to the attention of 3Com's General Counsel at the address above, and
a telecopy number of (408) 764-6434.
17. COUNTERPARTS. This Escrow Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.
18. GOVERNING LAW. This Escrow Agreement shall be governed by and
construed according to the internal laws of the State of California without
application of the principles of choice of law or conflict of laws.
19. SEVERABILITY. In the event any of the provisions of this Escrow
Agreement shall be held by a court of competent jurisdiction to be contrary to
any state or federal law, the remaining provisions of this Escrow Agreement will
remain in full force and effect.
20. HEADINGS. The section headings in this Escrow Agreement do not form a
part of it, but are for convenience only and shall not limit or affect the
meaning of the provisions.
45
<PAGE> 46
IN WITNESS WHEREOF, the parties have executed this Escrow Agreement on
the date first above written.
COM21 3COM
By: By:
------------------------------- -------------------------------
Printed Name: Printed Name:
--------------------- ---------------------
Title: Title:
---------------------------- ----------------------------
Date: Date:
----------------------------- -----------------------------
ESCROW AGENT: Brambles NSD, Inc.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
46
<PAGE> 47
SCHEDULE 1
FEE SCHEDULE
47
<PAGE> 48
SCHEDULE 1
FEE SCHEDULE
Escrow Agent: BRAMBLES NSD, INC.
2109 Bering Drive
San Jose, CA 95131-2014
Re: Escrow Agreement # 1267-7, dated September 18, 1997
<TABLE>
<S> <C>
1. Initial Acceptance Fee (One Time Only) $1,125.00
2. Custom Escrow Agreements
Priced by Proposal
3. Annual Storage Fee
Standard Storage Unit 10" X 10" X 24" $ 425.00
(Larger Units Available)
(Total start-up and first year's fees = $1,550.00)
4. Account Administration/Maintenance
Clerical (One hour minimum per year) $ 30.00/Hr.
Officer Level (As required) $ 70.00/Hr.
Termination Fee (Minimum) $150.00
Shipping additional
5. Registration of Additional Licensees To
Multiple Licensee Escrow
First Licensee No Charge
Additional Licensees - Initial Registration $110.00 ea.
Annual Fee Per Licensee Thereafter $ 25.00 ea.
6. Outside Costs
Cost Plus 10%, as Incurred
</TABLE>
Prices subject to change without notice.
Effective 12/15/92
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
48
<PAGE> 49
EXHIBIT E
COM21 END USER SOFTWARE LICENSE AGREEMENT
IMPORTANT: Read Before Opening or Using This Product
COM21 END USER SOFTWARE LICENSE AGREEMENT
YOU SHOULD CAREFULLY READ THE FOLLOWING TERMS AND CONDITIONS BEFORE OPENING OR
USING THIS PRODUCT. IT CONTAINS SOFTWARE, THE USE OF WHICH IS LICENSED BY COM21,
INC. ("COM21") TO ITS CUSTOMERS FOR THEIR USE ONLY AS SET FORTH BELOW. IF YOU DO
NOT AGREE TO THE TERMS AND CONDITIONS OF THIS AGREEMENT, RETURN THIS ENTIRE
PACKAGE UNOPENED OR WITH THE SOFTWARE UNUSED TO COM21 OR THE LOCATION WHERE YOU
OBTAINED IT.
LICENSE: Com21 grants you a nonexclusive license to use the accompanying
software program(s) (the "Software") subject to the terms and restrictions set
forth in this License Agreement. Except as provided below, this License
Agreement does not grant you any rights to patents, copyrights, trade secrets,
trademarks, or any other rights in respect to the Software.
The Software is licensed to be installed and used on any appropriate Com21
products owned by or leased to you. You may reproduce and provide one (1) copy
of the Software and supporting documentation for each such product on which the
Software is used as permitted hereunder. Otherwise, the Software and supporting
documentation may be copied only as essential for backup or archive purposes in
support of your use of the Software as permitted hereunder. You must reproduce
and include all copyright notice(s) and any other proprietary rights notices
appearing on the Software and the supporting documentation on any copies that
you make.
ASSIGNMENT; NO REVERSE ENGINEERING: You may transfer the Software and
license to another party in the same country in which you obtained the Software
if the other party agrees in writing to accept the terms and conditions of this
License Agreement. If you transfer the Software, you must at the same time
either transfer any copies of the Software as well as the supporting
documentation to the same party or destroy any such materials not transferred.
Except as set forth above, you may not assign your rights under this License
Agreement.
Modification, reverse engineering, reverse compiling, or disassembly of the
Software is expressly prohibited. However, if you are a European Community
("EC") resident, information necessary to achieve interoperability of the
Software with other programs within the meaning of the U.K. Copyright [Computer
Program] Regulations 1992 implementing the EC Directive on the Legal Protection
of Computer Programs is available to you from Com21 upon written request.
49
<PAGE> 50
EXPORT RESTRICTIONS: You agree that you will not export or re-export the
Software or accompanying documentation (or any copies thereof) or any products
utilizing the Software or such documentation in violation of any applicable laws
or regulations of the United States or the country in which you obtained them.
TRADE SECRETS; TITLE: You acknowledge and agree that the structure, sequence and
organization of the Software are the valuable trade secrets of Com21 and its
suppliers. You agree to hold such trade secrets in confidence. You further
acknowledge and agree that ownership of, and title to, the Software and all
subsequent copies thereof regardless of the form or media are held by Com21 and
its suppliers.
UNITED STATES GOVERNMENT LEGENDS:
For units of the Department of Defense:
The Software is commercial computer software as defined in 48 C.F.R. 21 1 and
therefore is provided to units of the Department of Defense under the terms of
this License Agreement, which is Com21's standard commercial agreement for the
Software. In the alternative, if 48 C.F.R. 211 is not invoked, the Software is
licensed as follows:
Restricted Rights Legend: Use, duplication or disclosure by the United States
Government is subject to restrictions as set forth in subparagraph (c)(1)(ii) of
the Rights in Technical Data and Computer Software Clause at 48 C.F.R.
52.227-7013. Com21, Inc., 750 Tasman Drive, Milpitas, California 95035.
For civilian agencies:
Restricted Rights Legend: Use, reproduction or disclosure is subject to
restrictions set forth in subparagraph (a) through (d) of the Commercial
Computer Software - Restricted Rights clause at 48 C.F.R. 52.227-19 and the
limitations set forth in Com21's standard commercial agreement for the Software.
Unpublished rights reserved under the copyright laws of the United States.
TERM AND TERMINATION: This license will expire fifty (50) years from the date
that you first use the Software, if it is not earlier terminated. You may
terminate it at any time by destroying the Software and documentation together
with all copies and merged portions in any form. It will also terminate
immediately if you fail to comply with any term or condition of this License
Agreement. Upon such termination you agree to destroy the Software and
documentation, together with all copies and merged portions in any form.
GOVERNING LAW: This License Agreement shall be governed by the laws of the State
of California as such laws are applied to agreements entered into and to be
performed entirely within California between California residents and by the
laws of the United States. You agree that the United Nations Convention on
Contracts for the International Sale of Goods (1980) is hereby excluded.
50
<PAGE> 51
LIMITED WARRANTY; LIMITATION OF LIABILITY: All warranties and limitations of
liability applicable to the Software are as stated on the Limited Warranty Card
or in the product manual accompanying the Software. Such warranties and
limitations of liability are incorporated herein in their entirety by this
reference.
SEVERABILITY: In the event any provision of this License Agreement is found to
be invalid, illegal or unenforceable, the validity, legality and enforceability
of any of the remaining provisions shall not in any way be affected or impaired
and a valid, legal and enforceable provision of similar intent and economic
impact shall be substituted therefor.
ENTIRE AGREEMENT: This License Agreement sets forth the entire understanding and
agreement between you and Com21 and may be amended only in a writing signed by
both parties.
51
<PAGE> 52
COM21, INC.
LIMITED WARRANTY
HARDWARE: Com21 warrants its hardware products to be free from defects in
workmanship and materials, under normal use and service, for the following
lengths of time from the date of purchase from Com21 or its Authorized Reseller:
Hardware products One year
Spare parts and spares kits 90 days
If a product does not operate as warranted above during the applicable warranty
period, Com21 shall, at its option and expense, repair the defective product or
part, deliver to Customer an equivalent product or part to replace the defective
item, or refund to Customer the purchase price paid for the defective product.
All products that are replaced will become the property of Com21. Replacement
products may be new or reconditioned. Any replaced or repaired product or part
has a ninety (90) day warranty or the remainder of the initial warranty period,
whichever is longer.
Com21 shall not be responsible for any software, firmware, information, or
memory data of Customer contained in, stored on, or integrated with any products
returned to Com21 for repair, whether under warranty or not.
SOFTWARE: Com21 warrants that the software programs licensed from it will
perform in substantial conformance to the program specifications therefor for a
period of ninety (90) days from the date of purchase from Com21 or its
Authorized Reseller. Com21 warrants the media containing software against
failure during the warranty period. No updates are provided. Com21's sole
obligation with respect to this express warranty shall be (at Com21's
discretion) to refund the purchase price paid by Customer for any defective
software products, or to replace any defective media with software which
substantially conforms to Com21's applicable published specifications. Customer
assumes responsibility for the selection of the appropriate applications program
and associated reference materials. Com21 makes no warranty or representation
that its software products will work in combination with any hardware or
applications software products provided by third parties. that the operation of
the software products will be uninterrupted or error free, or that all defects
in the software products will be corrected. For any third party products listed
in the Com21 software product documentation or specifications as being
compatible, Com21 will make reasonable efforts to provide compatibility, except
where the non- compatibility is caused by a "bug" or defect in the third party's
product.
STANDARD WARRANTY SERVICE: Standard warranty service for hardware products may
be obtained by delivering the defective product, accompanied by a copy of the
dated proof of purchase, to Com21's Corporate Service Center or to an Authorized
Com21 Service Center during the applicable warranty period. Standard warranty
service for software products may be obtained by telephoning Com21's Corporate
Service Center or an Authorized Com21 Service Center, within the warranty
period. Products returned to Com21's Corporate Service Center must be
pre-authorized by Com21 with a Return Material Authorization (RMA) number marked
52
<PAGE> 53
on the outside of the package, and sent prepaid, insured, and packaged
appropriately for safe shipment. The repaired or replaced item will be shipped
to Customer, at Com21's expense, not later than thirty (30) days after receipt
of the defective product by Com21.
WARRANTIES EXCLUSIVE: IF A COM21 PRODUCT DOES NOT OPERATE AS WARRANTED ABOVE,
CUSTOMER'S SOLE REMEDY FOR BREACH OF THAT WARRANTY SHALL BE REPAIR, REPLACEMENT.
OR REFUND OF THE PURCHASE PRICE PAID, AT COM21'S OPTION. TO THE FULL EXTENT
ALLOWED BY LAW, THE FOREGOING WARRANTIES AND REMEDIES ARE EXCLUSIVE AND ARE IN
LIEU OF ALL OTHER WARRANTIES, TERMS, OR CONDITIONS, EXPRESS OR IMPLIED, EITHER
IN FACT OR BY OPERATION OF LAW, STATUTORY OR OTHERWISE. INCLUDING WARRANTIES,
TERMS, OR CONDITIONS OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND
SATISFACTORY QUALITY. COM21 NEITHER ASSUMES NOR AUTHORIZES ANY OTHER PERSON TO
ASSUME FOR IT ANY OTHER LIABILITY IN CONNECTION WITH THE SALE, INSTALLATION,
MAINTENANCE OR USE OF ITS PRODUCTS.
COM21 SHALL NOT BE LIABLE UNDER THIS WARRANTY IF ITS TESTING AND EXAMINATION
DISCLOSE THAT THE ALLEGED DEFECT IN THE PRODUCT DOES NOT EXIST OR WAS CAUSED BY
CUSTOMER'S OR ANY THIRD PERSON'S MISUSE, NEGLECT, IMPROPER INSTALLATION OR
TESTING, UNAUTHORIZED ATTEMPTS TO REPAIR OR MODIFY, OR ANY OTHER CAUSE BEYOND
THE RANGE OF THE INTENDED USE, OR BY ACCIDENT, FIRE, LIGHTNING, OR OTHER HAZARD.
LIMITATION OF LIABILITY. TO THE FULL EXTENT ALLOWED BY LAW COM21 ALSO EXCLUDES
FOR ITSELF AND ITS SUPPLIERS ANY LIABILITY, WHETHER BASED IN CONTRACT OR TORT
(INCLUDING NEGLIGENCE), FOR INCIDENTAL, CONSEQUENTIAL, INDIRECT, SPECIAL, OR
PUNITIVE DAMAGES OF ANY KIND, OR FOR LOSS OF REVENUE OR PROFITS, LOSS OF
BUSINESS, LOSS OF INFORMATION OR DATA, OR OTHER FINANCIAL LOSS ARISING OUT OF OR
IN CONNECTION WITH THE SALE, INSTALLATION, MAINTENANCE, USE, PERFORMANCE,
FAILURE, OR CORRUPTION OF ITS PRODUCTS, EVEN IF COM21 OR ITS AUTHORIZED RESELLER
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND LIMITS ITS LIABILITY TO
REPAIR, REPLACEMENT, OR REFUND OF THE PURCHASE PRICE PAID, AT COM21'S OPTION.
THIS DISCLAIMER OF LIABILITY FOR DAMAGES WILL NOT BE AFFECTED IF ANY REMEDY
PROVIDED HEREIN SHALL FAIL OF ITS ESSENTIAL PURPOSE.
Some countries, states, or provinces do not allow the exclusion or limitation of
implied warranties or the limitation of incidental or consequential damages for
certain products supplied to consumers or the limitation of liability for
personal injury, so the above limitations and exclusions may be limited in their
application to you. This warranty gives you specific legal rights which may vary
depending on local law.
GOVERNING LAW: This Limited Warranty shall be governed by the laws of the state
of California.
53
<PAGE> 54
EXHIBIT F
TECHNOLOGY DOCUMENTATION
[to be prepared and attached by Com21 prior to execution]
54
<PAGE> 55
SUPPLEMENT TO COM21/3COM TECHNOLOGY LICENSE
AND RESELLER AGREEMENT DATED MARCH 26, 1996
3Com shall pay Com21 the $500,000 extended license fee related to the Mongoose
ASIC. This fee is described in the Technology License And Reseller Agreement
between 3Com and Com21 dated March 22, 1996.
As part of the 3Com's acceptance of the Mongoose ASIC and upon payment of the
$500,000 fee, 3Com will receive the right to buy the next generation ASIC,
currently known as Jasmine, being developed to replace the Mongoose ASIC. The
Jasmine ASIC must be 100% backwards compatible with the Mongoose ASIC. 3Com
agrees not to implement the new Jasmine features in 3Com products. No hardware
changes will be required to implement Jasmine and if any firmware changes are
required, they will be provided by Com21 to 3Com pursuant to Sec. 6.1 of the
original Technology License And Reseller Agreement.
The Jasmine ASIC will be made available to 3Com under the same pricing, terms,
and conditions contained in the March 22, 1996 Technology License And Reseller
Agreement that applied to the Mongoose ASIC.
In the event Com21 is no longer able to support the Jasmine ASIC if a
significant defect is discovered for which no workaround is available which
complies with the last sentence of paragraph two above, or if Atmel is no longer
willing to do business with 3Com on mutually agreeable terms, Com21 will provide
a complete Jasmine Design Package to 3Com, similar to the design package
described in the March 22, 1996 agreement, to enable 3Com to correct the defect
or find an alternate source for the device.
<TABLE>
<S> <C>
3COM CORPORATION COM21, INC.
Signed: Signed:
--------------------------------- ---------------------------------
Name: Jef T. Graham Name: Peter D. Fenner
----------------------------------- -----------------------------------
Title: Vice President & General Manager Title: President and CEO
---------------------------------- ----------------------------------
Date: Date:
----------------------------------- -----------------------------------
</TABLE>
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
55
<PAGE> 56
June 11, 1996
Com21, Inc.
1991 Landings Drive
Mountain View, CA 94043
Re: Com21 Mongoose Product Acceptance Criteria
Ladies and Gentlemen:
This letter will confirm that the attached Com21 Mongoose Product Acceptance
Criteria (rev. 1.0, 6/07/96) is mutually agreeable to the parties and shall be
deemed to be Exhibit D for purposes of the Technology License and Reseller
Agreement dated March 22, 1996 between the parties.
To confirm your agreement with the foregoing, please execute both copies of this
letter and return one to the undersigned.
Very truly yours,
3Com Corporation
By:
-------------------------------
Printed:
--------------------------
Title:
----------------------------
AGREED
Com21, Inc.
By:
-------------------------------
Printed:
--------------------------
Title:
----------------------------
Date:
-----------------------------
56
<PAGE> 57
COM21 Mongoose Product Acceptance Criteria
Contract Exhibit D
Revision 1.0, 6/07/96
Ed Boyd
John Griesing
The following will be used to determine the acceptance of the Mongoose product.
All of the items listed in the document will be required to accept the Mongoose
product at meeting the Acceptance Criteria.
1. Design Package
The following is the design package that 3Com expects to receive relative
to the Mongoose product. It is expected that this package will be
available in it's entirety at the time of fabrication of the final
Mongoose product.
- - RTL Verilog Code that compiles without errors and with all warnings
messages investigated.
- - Verilog simulation environment with self checking test cases. A self
checking test case will report an error when the feature to be tested
fails.
- - Behavioral, minimum delay netlist, typical delay netlist, and maximum
delay netlist simulations passing in Verilog simulation environment.
- - Set of test vectors with 90% or greater test coverage.
- - Simulate vectors using minimum, typical, and maximum delays.
- - Simulate vectors using dynamic timing analyzer (i.e. Epilog) (optional).
- - Synopsys scripts for synthesis and complete set of timing constraints for
synopsys.
- - Synopsys static timing analysis completed without violations.
2. Environmental Conditions
The following conditions will be tested on the device.
- - Temperature testing over operating range (0C-70C)
- - Voltage margining (4.75 - 5.25 V)
- - Timing Verification (per specification)
- - 29K Bus
- - Modulator/Demodulator
- - SRAM
- - MACE
- - Mongoose BER (Bit Error Rate) < IOE-9
3. Mongoose Scenarios to be verified with final silicon.
57
<PAGE> 58
- - Ethernet Packet Bridging.
- Send packets to learn source addresses. Verify bridging based on
learned addresses. Verify aging of old addresses and replacement
of oldest entries.
- Send broadcast packets. Verify bridging based on ethertype table
and broadcast rate count.
- Send packets directed to processor. Verify bridging based on local
MAC enable switch, MAC address table, and multicast address table.
- Send multicast packets. Verify bridging based on multicast address
table.
- - MACE Interface.
- Transmit packets with MACE underruns, max collisions, and late
collisions. Verify detection and recovery.
- Receive packets that had late collisions, CRC errors, alignment
errors, and overruns. Verify detection and recovery.
- - Determine cell and frame boundaries.
- Verify Cell delination detection.
- Verify Frame delination detection.
- Generate T7EI errors. Verify detection and recovery.
- Corrupt/change both frame and cell boundaries. Verify detection of
loss, reestablishment or connection, and graceful termination to
upstream transmission.
- - Decryption of packet.
- Decrypt OAM, AAL5 and raw ATM cells using all 10 keys based on the
VPI. Verify cell contents.
- - Downstream packet routing.
- Send OAM's packet and verify reception into queue 0.
- Send good and bad CRC-10 in OAM packets. Verify mongoose
detection.
- Send Raw ATM cells to queues I and 2. Verify cell contents.
- Send AAL5 cells to queues 3, 4, & 5. Verify cells contents.
- Send good and bad CRC-32's with AAL5 packets. Verify mongoose
detection.
- - Downstream grant queuing.
- Send Acquisition grants. Verify detection, queuing, and random
backoff.
- Send Contention grants. Verify detection, queuing and random
backoff. Verify transition for Acquisition to Active state.
- Verify transition from Active to Idle state.
- Send Directed grants. Verify state changes and proper queuing.
- Overflow grant queue. Verify recovery.
- Send grants with bad CRC-10's. Verify removal from queue.
- - Encryption of packet.
- Encrypt OAM, AAL5 and raw ATM cells using all 4 keys. Verify cell
contents.
- Encrypt packet with decryption occurring on downstream channel.
- - FEC Generation.
- Verify FEC on upstream data. Generate bit errors and verify
reception at head end.
- - Upstream Queues.
- Upload multiple packets into all queues. Verify priority ordering
and packet boundaries.
58
<PAGE> 59
- - Upstream Cell Generation.
- Send AAL5 Packets upstream. Verify header information, HEC,
CRC-32, and reassembled packet at head end.
- Send OAM packets. Verify header information, HEC, CRC-10, and
payload data.
- Send raw ATM cells. Verify data.
- - Upstream traffic.
- Verify IDLE cell Generation.
- Verify start of frame delay.
- - Ability to gracefully reset queues, MACE, and cable modem interface.
- - Generate and acknowledge all interrupts.
- - Read and write all processor accessible registers.
4. Test Equipment
The above testing requires the following equipment from Com21
- - Latest version HCX and associated SW
59
<PAGE> 1
Exhibit 10.4
ORIGINAL
HARDWARE AND SOFTWARE TECHNOLOGY LICENSING AGREEMENT
This agreement is made as February 1, 1996 by and between Advanced
Telecommunications Modules Limited whose registered office is at Mount Pleasant
House, 2 Mount Pleasant, Cambridge CB3 0BL ("ATML") and its affiliate Advanced
Telecommunications Modules, Inc.; and Com21, Inc. at 1991 Landings Drive,
Mountain View, California USA 94043 ("Licensee")
WHEREAS:
ATML develops and markets computer communications software and hardware and
Licensee wishes to license such technology on the terms of this license.
NOW IT IS AGREED:
1. INTERPRETATION
1.1 In this Agreement, save where the context otherwise requires, the
following words and phrases shall have the following meanings:
"Affiliate" any Holding or Subsidiary company of any
company and any Subsidiary or Holding
company of any such Holding company of
such company
"Agreement" this agreement together with all of its
Schedules
"Designated Equipment" the equipment specified in Schedule 2 as
amended from time to time by the written
agreement of the parties
"Documentation" any documentation supplied to Licensee by
ATML from time to time during the
continuation of this Agreement and which
relates to the Licensed Technology
"Generated Technology" all software programs
generated from, or in connection with, or
by the use of, the Licensed Software and
all hardware generated from or in
connection with or by the use of the
Licensed Hardware and all modified,
enhanced, updated, revised or additional
versions and releases (including new
releases) thereof
"Intellectual Property Rights" patents, trade marks,
service marks, registered designs and
applications for any of the foregoing,
copyright, know-how confidential
information, trade or business names,
design rights and any other similar rights
protected in any country
"Licensed Hardware" the hardware specified in Part 2 of
Schedule 1, as amended from time to time
"Licensed Software" the software specified in Part I of
Schedule I as amended from time to time
"Licensed Technology" together the Licensed Hardware and the
Licensed Software
"Maintenance Services" the maintenance services to be provided by
ATML to Licensee in
<PAGE> 2
accordance with Schedule 3 and clause 3
"Maintenance Services Fee" the fee for the Maintenance Services set
out in Clause 5 of this agreement and as
amended from time to time by ATML
"Object Code" the directly executable program in binary
code derived from Source Code using a
compiler or otherwise
"Price" the license fee specified in Clause 5
"Royalty" the royalty payable by Licensee to ATML in
accordance with the terms of Schedule 4
and Clause 5
"Source Code" all material necessary to enable a
programmer of reasonable skill and
experience to maintain and enhance
software, including but not limited to,
logic, logic diagrams, flow charts,
orthographic representations, algorithms,
routines, sub-routines, utilities,
modules, file structures, coding sheets,
specifications and the program
instructions
"Territory" the territory specified in Schedule 5
1.2 The headings to the clauses of this Agreement are for ease of
reference only and shall not affect the interpretation or
construction thereof.
1.3 Reference to any statute or statutory provision includes a reference
to that statute or statutory provision as from time to time amended
extended or re-enacted.
1.4 Words importing the singular number shall include the plural and vice
versa, words importing any gender shall include all other genders,
words importing persons shall include bodies corporate,
unincorporated associations and partnerships and vice versa and
references to the whole shall include the part and vice versa.
2. EXTENT OF LICENSE
2.1 ATML grants to Licensee for the term of this Agreement a
non-exclusive, non-transferable and royalty bearing license under all
applicable patents, copyrights, and trade secrets in the Territory,
to:
2.1.1 use, copy and modify the Source Code and Object Code of the
Licensed Technology and create derivative works of the
Licensed Technology for use on or in the course of the
operation of the Designated Equipment only; and
2.1.2 grant non-exclusive, non-assignable sub-licenses of the
Object Code of the Licensed Technology and the Object Code
of the Generated Technology to any third party for such
third party to use on or in the course of the operation of
the Designated Equipment; and
2.1.3 use and copy the Documentation for its own internal use;
2.1.4 sub-license the Object Code of the Licensed Technology and
the Object Code of the Generated Technology to U.S.
Government agencies PROVIDED THAT if a sub-license is
granted to any unit or agency of the United States
Government the sub-license shall contain legends in the
form or substantially similar to the following provisions:
<PAGE> 3
2.1.4.1 For units of the Department of Defense:
The Licensed [Software] is commercial computer
software as defined in 48 C.F.R.211 and therefore
is provided to units of the Department of Defense
under the terms of this agreement for the
Licensed [Software]. In the alternative, if 48
C.F.R.211 is not invoked, the Licensed [Software]
is licensed as follows: Restricted rights Legend:
Use, duplication, or disclosure by the United
States Government is subject to restrictions as
set forth in subparagraph (c)(1)(ii) of the
Rights in Technical Data and Computer Software
Clause at 48 C.F.R.52.227-7013, LICENSEE's name
and address.
2.1.4.2 For civilian agencies:
Restricted Rights Legend: Use, reproduction, or
disclosure is subject to restrictions set forth
in subparagraph (a) through (d) of the Commercial
Computer Software Restricted Rights clause at 48
C.F.R.52.227-19 and the limitations set forth in
LICENSEE's standard commercial agreement for the
software. Unpublished rights reserved under the
copyright laws of the United States.
2.1.5 use, copy and modify the Licensed Technology listed in
Schedule 1, which include all related firmware software,
hardware drawings, schematics, bills of material, parts and
component specifications, manufacturing processes and
procedures, internal design drawings, and design and
manufacturing drawings. As part of the maintenance
contract, ATML will timely provide the same information
regarding updates, changes, modifications and enhancements
to this Licensed Hardware.
2.2 This License permits use of the Licensed Technology only to the
extent that such use is necessary for the purposes specified in
sub-clause 2.1 but is subject to Licensee satisfying the following
conditions:
Licensee shall:
2.2.1 include all such copyright and other proprietary rights
notices on any products incorporating any Licensed
Technology as ATML shall from time to time specify in
writing that provides sufficient notice necessary to
protect ATML's intellectual property; and
2.2.2 not, and shall contract with its sub-licensees of the
Licensed Technology or the Generated Technology that they
shall not, copy the Licensed Technology or the Generated
Technology other than in accordance with the express terms
of this Agreement; and
2.2.3 exclude liability of ATML and its Affiliates in respect of
the Licensed Technology and the Generated Technology to the
full extent legally possible in all its dealings with or
exploitation of the same and contract with its
sub-licensees; and
2.2.4 reasonably notify ATML of all geographical areas where the
Licensed Technology and/or the Generated Technology (or any
part thereof) will be licensed, or otherwise released by or
through or on behalf of it, to enable ATML to consider
local legal requirements for the protection of the
Intellectual Property Rights in the Licensed Technology, in
those jurisdictions; and
2.2.5 include in all sub-licenses and other agreements in respect
of the Licensed Technology and/or Generated Technology (or
any of them) a provision to make it clear that ATML does
not accept any liability for the supply of any upgrades or
maintenance of any kind in relation to the Licensed
Technology or the Generated Technology; and
2.2.6 where the Licensed Technology and/or the Generated
Technology is sub-licensed within the European Union the
Licensee shall include in all sub-licenses and other
agreements a clause in the
<PAGE> 4
following terms:
"[Sub-licensee] shall not modify, enhance, decompile,
disassemble or reverse engineer the [Licensed
Technology/Generated Technology]. Information necessary to
achieve inter-operability of the [Licensed
Technology/Generated Technology] with other programs is
available from [Licensee],"
2.2.7 not deface, remove, obliterate or otherwise interfere with
any copyright notice of ATML on the Licensed Technology and
Documentation and all copies thereof; and
2.2.8 pay all Royalties and the Price when they fall due; and
2.2.9 notify ATML forthwith on it becoming aware of any claim or
potential claim of infringement of third party Intellectual
Property Rights by the use or dealing with the Licensed
Technology or Generated Technology in accordance with this
Agreement or the terms of any sub-license or other fights
granted pursuant to the terms of this Agreement; and
2.2.10 not settle or compromise or negotiate the settlement of any
third party claim for breach of Intellectual Property
Rights in respect of the Licensed Technology without the
prior written consent of ATML and if requested by ATML pass
the conduct of any such claim to ATML.
2.3 Save as expressly specified in this clause 2, Licensee shall not copy
or disclose the Licensed Technology, the Generated Technology or the
Documentation for any purpose whatsoever without the prior written
consent of ATML. Licensee is authorized to make a maximum of 10
copies of the Licensed Technology for back up purposes only and shall
keep such back up copies at its Company locations.
2.4 Licensee:-
2.4.1 shall have the right to modify or enhance the Licensed
Technology as permitted in this document;
2.4.2 shall own the intellectual property in those elements of
the Generated Technology created by the Licensee;
2.4.3 hereby grants to ATML a world-wide, royalty free, perpetual
and irrevocable license to use, copy and modify any
modifications and enhancements of the Licensed Technology
made by the Licensee and/or its agents;
2.4.4 will negotiate in good faith a separate license agreement
with ATML on `most favored nation terms' which will provide
preferential access by ATML to the source code, object code
and intellectual property of those elements of the
Generated Technology created by the Licensee and
subsequently incorporated into products.
2.5 The relationship between the parties hereunder is of licenser and
licensee. ATML and Licensee (including their officers, employees or
agents):
2.5.1 shall not be deemed to be the agents or representatives,
legal or otherwise of the other for any purpose;
2.5.2 are not granted any express or implied right or authority
to assume or create an obligation or responsibility on
behalf of or in the name of the other or to the other in
any manner;
2.5.3 shall not act or purport to act as agents or
representatives of the other when endeavoring to make sales
of the Licensed Technology and/or the Generated Technology.
<PAGE> 5
3. SECURITY, INTELLECTUAL PROPERTY RIGHTS AND MAINTENANCE
3.1 Licensee agrees not to alter, remove, conceal or deface any
copyright, or other proprietary rights notice or identification which
indicates the ownership of the Licensed Technology or the
Documentation or any interest therein (including Intellectual
Property Rights) provided by ATML (and on all copies thereof) and
Licensee shall ensure that all copies of the Licensed Technology and
the Documentation and all derivatives thereof containing the Licensed
Technology, or any of it, or any derivative which provides materially
the same function as the Licensed Technology, or any of it, made by
or on behalf of Licensee shall bear the proprietary rights notice
contained on the Licensed Technology when received by Licensee.
Licensee shall ensure that the terms of contracts entered by it in
respect of the Licensed Technology or any of it contain terms the
same as this sub-clause 3.1 binding such third party.
3.2 ATML shall provide Licensee with Maintenance Services in accordance
with the following provisions during the period that Licensee
continuously maintains Maintenance Services:-
3.2.1 the Maintenance Services shall be provided by ATML for the
term of this Agreement;
3.2.2 ATML shall invoice Licensee with the Maintenance Services
Fee annually, in advance.
3.2.3 ATML will keep Licensee at the current level of revisions,
enhancements, bug fixes free of charge.
3.2.4 At all times ATML will keep Licensee current with all
modifications to the Licensed Technology such that
Licensee can make timely modifications to the Generated
Technology to interface with ATML's currently sold and
latest generation ATM switch and motherboard, where
applicable.
3.3 For the avoidance of doubt the obligation of ATML to provide
Maintenance Services shall be in respect of the Licensed Software and
Licensed Hardware only and shall not be extended to the Generated
Technology.
3.4 Licensee acknowledges that title to and all Intellectual Property
Rights in the Licensed Technology and all modifications, upgrades,
new releases and enhancements thereof and to all manuals and other
Documentation relating thereto are and shall remain vested in ATML,
or its Affiliates at all times. The provisions of this Agreement do
not grant any rights to Licensee in respect of the use of any trade
mark of ATML or any Affiliate of it, which is hereby specifically
excluded. However, this in no way limits or reduces the obligation of
Licensee to give full credit to ATML in respect of the Licensed
Technology and to apply all copyright notices of ATML thereto and to
the Documentation and to the packaging thereof.
3.5 Licensee shall notify ATML if it becomes aware of any unauthorized
use of the Licensed Technology or breach of ATML's Intellectual
Property Rights therein.
4. DELIVERY AND SERVICES
4.1 Within 10 days from the date hereof ATML shall deliver to Licensee:-
4.1.1 one copy of the Licensed Software in the media specified
in Schedule 1;
4.1.2 the Licensed Hardware in the quantities specified in
Schedule 1; and
4.1.3 a copy of the Documentation.
4.2 ATML shall not bear any liability resulting from any delay in the
delivery of the aforesaid Licensed Technology to Licensee.
4.3 Risk of loss or damage of the Licensed Technology shall pass to
Licensee on actual delivery.
<PAGE> 6
4.4 ATML shall as part of this Agreement provide the software and
hardware services as defined in Schedule 6. These services shall be
provided as part of the License Fee.
5. PAYMENTS
5.1 In consideration of the licenses and other granted to it in this
Agreement Licensee shall pay to ATML:
5.1.1 A one-time License fee of [*] for the Licensed
Technology payable in 2 parts, one-third upon the
execution of this agreement, and the remaining two-thirds
upon the delivery and acceptance by the Licensee of the
remaining software features listed in Schedule 1, Part 1.
Within 5 working days of delivery of the remaining
software features by ATML, Licensee must present in
writing to ATML notice of non-acceptance listing specific
items of non-performance or the Licensed Technology will
be considered as accepted.
5.1.2 Licensee will also pay a per unit royalty fee as specified
in Schedule 4.
5.1.3 The Maintenance Service Fee of [*] will be invoiced on
the date hereof and annually thereafter during the term of
this Agreement.
5.2 ATML shall have the right no more than once per year during the term
of this Agreement and for 12 months thereafter, directly or through
its representative, upon a minimum of 3 days written notice to the
Chief Financial Officer to review Licensee's books and records
relating only to this Agreement and products supplied within the
period of 2 years prior to the date of such notice, the Licensed
Technology, for the purpose of ascertaining compliance with the terms
of this Agreement. If the results of such review disclose a
deficiency in any royalty payable by Licensee to ATML in excess of 5
per cent of the amounts actually paid by Licensee during the period
under review, then Licensee shall promptly pay to ATML its entire
costs of such review including, but not limited to professional fees,
travelling and accommodation expenses. Licensee shall also forthwith
pay the shortfall in the Royalties ascertained to be due from such
review.
5.3 Any payments due to ATML under this Agreement and not paid on the due
date for payment shall bear annual interest at 5% above the then
prevailing prime rate from the date payment falls due to the date of
actual payment.
5.4 All payments hereunder are expressed net of any value added or sales
tax properly due thereon which shall be paid by Licensee in addition.
Licensee shall pay, collect and remit all sales, use, withholding and
other taxes and charges, including, without limitation, landing fees,
import duties and other charges imposed in respect of the Licensed
Technology and the Generated Technology (other than income taxes
imposed on ATML on its receipt of the Price and Royalties). Licensee
further agrees to indemnify and hold ATML harmless against any such
liabilities. The provisions of this clause shall continue following
termination of this Agreement.
5.5 Unless otherwise agreed in writing by ATML all payments under this
Agreement shall be made in US dollars.
6. WARRANTIES
6.1 ATML, warrants that it has the sufficient right, title and interest
in the Licensed Technology to enter this Agreement.
6.2 Licensee acknowledges that the Licensed Technology and the
Documentation have not been prepared to meet Licensee's individual
requirements and it is therefore the responsibility of Licensee to
ensure that the facilities and functions of the Licensed Technology
meet its requirements. The license herein operates as a permission
only and does not imply any obligation or liability on the part of
ATML in respect of quality, fitness for any particular purpose,
suitability, performance, maintenance or support of the Licensed
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 7
Technology except as expressly provided in this Agreement.
Notwithstanding the above, ATML agrees to provide the support as
defined in Schedule 6.
6.3 SAVE AS EXPRESSLY SET OUT HEREIN AND SUBJECT TO THE INDEMNITY IN
SUB-CLAUSE 6.1 ALL IMPLIED CONDITIONS AND WARRANTIES AS TO QUALITY,
FITNESS FOR ANY PARTICULAR PURPOSE, SUITABILITY OR PERFORMANCE OF THE
LICENSED SOFTWARE ARE HEREBY EXCLUDED AND LICENSEE SHALL USE THE
LICENSED SOFTWARE AT ITS OWN RISK. NOTHING IN THIS AGREEMENT SHALL
EXCLUDE OR LIMIT LIABILITY FOR DEATH OR PERSONAL INJURY RESULTING
FROM THE NEGLIGENCE OF ATML.
6.4 In the event any claim of infringement of third party Intellectual
Property Rights being made in respect of the Licensed Technology ATML
shall be entitled and at its sole discretion, at its cost to:
6.4.1 procure the right for Licensee to continue to use the
Licensed Technology or any part thereof the subject of the
infringement without change; and/or
6.4.2 make with equivalent functionality, performance and
characteristics such alterations, modifications or
adjustments to the Licensed Technology or any part thereof
subject of the breach to make it not infringe third party
Intellectual Property Rights; and/or
6.4.3 replace in kind the Licensed Technology or any part thereof
the subject of the infringement with substitutes with
equivalent functionality, performance and characteristics.
6.4.4 ATML shall reimburse Licensee for its actual costs
associated with modifying the Generated Technology because
of these changes limited to the actual Licensing Fees and
Royalties paid by Licensee.
6.5 In the event that there is an infringement of third party
Intellectual Property Rights resulting from changes made by the
Licensee to the Licensed Technology then ATML will not be held
liable.
6.5 The liability of ATML in contract, tort, negligence or otherwise
arising out of or in connection with this Agreement or the
performance or observance of its obligations under this Agreement and
every applicable part of it shall be limited in aggregate to a sum
equal to the aggregate of the Price and Royalties paid by Licensee to
ATML at the time such event occurs in respect of which the liability
arises.
6.6 In any event neither party shall be liable to the other under, or in
connection with this Agreement, in contract, tort, negligence or
otherwise for any loss of business, contracts, profits or anticipated
savings or for any other indirect or consequential or economic loss
whatsoever.
6.7 In any event ATML shall not be liable to Licensee under or in
connection with this Agreement, in contract, tort, negligence or
otherwise for any loss of business contracts, profits or anticipated
savings or for any other indirect or consequential or economic loss
whatsoever which results from Licensee's use of the Generated
Technology.
6.8 In any event ATML shall not be liable to Licensee under or in
connection with this Agreement, in contract, tort, negligence or
otherwise for any loss of business contracts, profits or anticipated
savings or for any other indirect or consequential or economic loss
whatsoever which results from any amendments, modifications or
alterations made to the Licensed Technology by the Licensee or its
agents.
6.9 Licensee and ATML warrant to each other that they have not relied on
any oral representation made by or on behalf of the other or upon any
financial projections, business plans or models, description,
illustration or specification contained in any catalogues or
publicity material or other documentation (except as expressly stated
in this Agreement) and acknowledges that such are only intended to
convey a general idea of the Licensed Technology and its use and the
services referred to therein or Licensee's plans to use the
<PAGE> 8
same. Notwithstanding the above, ATML warrants that Licensee can rely
on written representations signed by the designated ATML
representative specified in Schedule 7 which are expressly stated as
applying to this agreement, and the Documentation furnished pursuant
to this Agreement.
6.10 Each of the above provisions of this clause 6 shall be extended to
any licenser of software to ATML which is incorporated in the
Licensed Technology.
6.11 Each provision of this clause 6 excluding or limiting liability shall
be construed separately, applying and surviving even if for any
reason one or other of those provisions is held inapplicable or
unenforceable in any circumstances and shall remain in force
notwithstanding the termination of this Agreement.
7. UNDERTAKINGS OF LICENSEE
7.1 Licensee shall indemnify ATML forthwith on demand and hold it
harmless from any loss, claim or damage to persons or property
arising out of Licensee's use or possession of the Licensed
Technology, the Generated Technology or related material provided
that such loss, claim or damages was not caused by the fault or the
negligence of ATML, in which case ATML shall indemnify Licensee.
7.2 Licensee agrees as follows for itself and for all its Affiliates
during the term of this Agreement Licensee to submit to ATML for its
prior approval all references to ATML or the Licensed Technology
appearing on any of its literature and to make such amendments,
inclusions, deletions and variations thereto as ATML shall reasonably
and timely request.
7.3 ATML shall, at its own expense, obtain all necessary customs, import
and other governmental authorizations and approvals relating to this
Agreement, including transfer of technology approvals and
notifications.
7.4 During the term of this Agreement and for 6 months after its expiry
or termination Licensee shall maintain reasonably detailed records to
fulfill its obligations under this agreement.
7.5 Licensee shall notify ATML promptly of any "bugs" or other unresolved
technical problems arising in connection with the installation or use
of the Licensed Technology and/or the Generated Technology. ATML
agrees to use best commercial efforts to respond to bugs within 48
hours of notification. Bugs are defined as making the hardware or
software non operate.
7.6 Licensee shall not export or re-export the Licensed Technology and/or
the Generated Technology without the appropriate governmental
approvals necessary for such export or re-export and for the
avoidance of doubt it shall be the sole responsibility of the
Licensee to obtain such approvals.
8. TERM AND TERMINATION
8.1 This Agreement shall continue for an initial term of five (5) years
from the date hereof and thereafter shall continue unless terminated
at any time as follows:
8.1.1 forthwith by notice of termination given in writing by or
on behalf of ATML to Licensee in any of the following
circumstances:
8.1.1.1 if Licensee shall convene a meeting of its
creditors or if Licensee becomes unable to pay
its debts as and when they fall due or commits an
act of bankruptcy or if a trustee, receiver or
administrative receiver shall be appointed in
respect of all or part of Licensee's business or
assets or if any petition is presented or meeting
convened for the purpose of considering a
resolution or other steps are taken for the
winding up of Licensee.
8.1.1.2 if Licensee is in material breach of any of the
provisions of sub-clause 2.2 which are not
corrected with 30 days of written notice; and
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 9
8.1.1.3 pursuant to sub-clause 12.9;
8.1.2 forthwith by notice of termination given by Licensee to
ATML:
8.1.2.1 in the event of ATML's insolvency, which shall be
assessed as for Licensee's insolvency in
accordance with sub-clause 8.1.1.1;
8.1.2.2 pursuant to sub-clause 12.9.
8.1.3 Either party may terminate this Agreement
forthwith if the other party is in material
breach of this Agreement and fails to remedy such
breach within 30 days of receipt of a written
notice that it is in breach.
9. EFFECT OF TERMINATION/EXPIRY
9.1 On termination of this Agreement by Licensee or by a breach of the
terms and conditions of this Agreement Licensee shall:
9.1.1 pay to ATML forthwith the balance of the License Fee and
all Royalties which are due and which have not then been
paid;
9.1.2 cease to use the Licensed Technology;
9.1.3 promptly return to ATML all copies of the Source Code and
Object Code of the Licensed Technology and permanently
delete the same from all of its computer systems;
9.1.4 promptly return to ATML at such address as it may specify
all items of the Licensed Technology capable of being
delivered; and
9.1.5 within seven days of the date of termination or expiry of
this Agreement provide written confirmation to ATML that it
has complied with its obligations contained in clauses
9.1.3 and 9.1.4.
9.1.6 Licensee will however, have the right to retain and use
sufficient copies of the Licensed Technology to continue to
service and maintain its customers and to sell inventory
which is in process or on hand.
9.2 The provisions of clauses 2.4.2, 2.4.3, 2.4.4, 2.5, 3.4, 5, 6 (other
than clause 6.1), 7.4, 7.6, 9, 11 and 12 shall survive the
termination of this Agreement.
10. PERSONAL LICENSE
10.1 The license herein granted is personal to Licensee and Licensee shall
not assign, part with or sublet any interest in it or grant any right
under it to any third party without ATML's prior written consent,
provided that Licensee assignment to an acquirer of substantially all
of Licensee's assets, stock or business shall not require ATML's
consent, except to Licensee's assignment to a direct competitor of
ATML. In the event of a sale or merger of the Licensee to a direct
competitor of ATML, ATML will in principal be prepared to negotiate a
license with the acquiring company under similar terms and conditions
as in this agreement, provided that the use of such Licensed
Technology is in the core business market of the Licensee as defined
in Schedule 2. Such agreement with the acquiring company will not be
unreasonably withheld.
11. CONFIDENTIALITY
<PAGE> 10
11.1 Both Licensee and ATML agree with each other to keep all information
that they obtain about the other concerning the business, finances,
technology and affairs of the other, and in particular but not
limited to the Licensed Technology (including the Source Code) and
the Source Code of the Generated Technology, and regardless of its
nature, strictly confidential.
11.2 Licensee and ATML hereby agree with each other:
11.2.1 not to use such confidential information save as agreed in
writing with the disclosing party; and
11.2.2 to procure that all persons or entities (including
employees) to whom they do disclose the confidential
information keep it strictly confidential and that they are
bound by the terms of this Agreement; and
11.2.3 not to copy or reproduce such confidential information
without the prior written consent of the other party
hereto; and
11.2.4 that Licensee shall not disclose the Licensed Technology
(save in accordance with the terms of this Agreement) or
the Source Code of the Licensed Technology.
11.3 The provisions of this clause 11 shall cease to apply:
11.3.1 to information that has come into the public domain other
than by breach of this clause or any other duty of
confidence; and
11.3.2 to information that is obtained from a third party without
breach of this clause or any other duty of confidence; and
11.3.3 to information that is known by either party, in connection
with the other party, prior to entering into this
Agreement, and which has been disclosed to either party by
a third party, other than Licensee or ATML or any Affiliate
of them and not in breach of any duty of confidence; and
11.3.4 to information that is trivial or obvious.
12. GENERAL
12.1 No waiver of any breach of any provisions of this Agreement shall
constitute a waiver of a prior, concurrent or subsequent breach of
the same or any other provision hereof and no waiver shall be
effective unless made in writing.
12.2 No variation of the terms of this Agreement shall be binding on
either party unless it is made in writing and signed in the case of
ATML by a Director of ATML and in the case of Licensee by an officer
of Licensee.
12.3 ATML reserves the right to assign this Agreement or to delegate any
right or obligation of it hereunder in whole or in part to any other
company.
12.4 The provisions of this sub-clause 12-4 and of clauses 9 and 11 and
sub-clauses 6.2 to 6.8 and 12.8 of this Agreement shall remain in
full force and effect and binding between the parties following
termination or expiry of this Agreement for any reason whatsoever.
12.5 In respect of notices:
12.5.1 Any notice required to be given under the provisions of
this Agreement shall be in writing and shall be deemed to
have been duly served if hand delivered or sent by
facsimile or by first class
<PAGE> 11
registered or recorded delivery post within the United
Kingdom or by registered airmail post outside the United
Kingdom correctly addressed to the relevant party's address
specified in this Agreement or to such other person and
address as either party may designate from time to time in
accordance with this clause.
12.5.2 Any notice pursuant to sub-clause 12.5.1 shall be deemed
to have been served:
12.5.2.1 if hand delivered at the time of delivery;
12.5.2.2 if sent by facsimile at the completion of
transmission during business hours at its
destination or if not within business hours at
the opening of business hours at its destination
on the next business day but subject to (1) proof
by the sender that it holds a printed record
confirming despatch of the transmitted notice and
(2) despatch of the notice by post in accordance
with sub-clause 12-5.1 on the same day as its
transmission;
12.5.2.3 if sent by post within 48 hours of posting
(exclusive of the hours of Sunday) if posted to
an address within the country of posting and
seven days of posting if posted to an address
outside the country of posting.
12.5.3 For the purpose of clause 12.5.2 "business hours" means
between 09.00 and 17.30 and "business day" means a day
between Monday and Friday inclusive on which banks in the
country of the addressee are open for business.
12.6 This Agreement constitutes the entire Agreement between ATML and
Licensee with respect to the licensing of the Licensed Technology.
12.7 Neither party shall publicize the terms of this Agreement or the
discussions relating to it without the prior written consent of the
other (save as legally required).
12.8 In respect of termination payments:
12.8.1 Neither ATML nor Licensee shall be liable to the other as a
result of any termination of this Agreement in accordance
with its terms, and shall not otherwise have any obligation
(statutory or otherwise) to compensate or reimburse the
other for any claims or damages whatsoever, lost revenues
or profits, expenditures, investments, leasehold or
employment obligations or other continuing commitments of
the other;
12.8.2 Licensee and ATML agree:
12.8.2.1 to waive all compensation and damages, whether
direct, consequential or otherwise, to which it
may otherwise have a right under any applicable
law; and
12.8.2.2 to indemnify and hold each other harmless from
and against all claims of the employees and
agents of each other for compensation or
severance, disability, social security or similar
payments.
12.9 Neither ATML nor the Licensee shall, subject to the following
provisions of this clause, be liable for failure to perform any
obligation under this Agreement if the failure is caused by war,
insurrection, riot, fire, explosion, flood, strike, lock-out,
injunction, inability to obtain fuel, power, raw materials, labor,
containers or transportation, accident, malfunction of machinery or
apparatus, national defence requirements acts or regulations of
national or local governments, denial of export or import licenses,
earthquake, or act of God, or any other cause beyond the control of
the parties provided that:
<PAGE> 12
12.9.1 notwithstanding the above provisions, the occurrence of a
force majeure event or condition described above shall not
relieve Licensee in any manner whatsoever from its
obligations to pay to ATML any amounts then due and owing
to ATML pursuant to the terms of this Agreement;
12.9.2 the party claiming relief pursuant to the above provisions
shall promptly notify the other party in writing of the
facts indicating the existence of any force majeure event
or condition and the relief claimed and the parties agree
to use their best endeavors to overcome such conditions;
12.9.3 the above provisions shall not relieve either party of its
obligation to perform its part of this Agreement at such
time and to such extent as may be possible subsequent to
the occurrence of the events or conditions described above
and within reasonable time after such occurrence;
12.9.4 should such event or conditions continue unabated, despite
the parties' best endeavors to overcome them, for three
months from the date of notice given pursuant to sub-clause
12.9.3, the party receiving such notice shall have the
option to terminate this Agreement without liability to the
other party for the consequences of such termination by
giving written notice.
12.10 If any provision of this Agreement is determined by a court of
competent jurisdiction to be in violation of any applicable law or
otherwise invalid or unenforceable, such provision shall, to such
extent as it shall be determined to be illegal, invalid or
unenforceable under such law, be null and void but this Agreement
shall otherwise remain in full force and effect.
12.10 Each party agrees not to take any action that would or does adversely
affect the reputation or goodwill of either party or its products.
12-11 This Agreement shall be governed by the laws of the State of
California.
IN WITNESS the parties have executed this Agreement the date first above
written.
Signed for and on behalf of Advanced
Telecommunications Modules Limited
- -----------------------------------------
Print Name
- ----------------------------------------
Position
- ----------------------------------------
Date
- ----------------------------------------
Signed for and on behalf of Licensee
- ----------------------------------------
Print Name
- ----------------------------------------
Title
- ----------------------------------------
Date
<PAGE> 13
SCHEDULE I
PART 1
LICENSED SOFTWARE
The following software shall be supplied by ATML to Licensee in accordance with
the provisions of this Agreement.
PART NO. NAME
VT3000 [*]
VT5000 [*]
Interfaces to establish [*]
Software interfaces for telnet to allow [*].
PART 2
LICENSED HARDWARE
VT5100 [*]
Licensee will be granted the rights to use the following devices. The will be
supplied under the terms and conditions of a separate International OEM Supplier
agreement.
VT6000 [*]
VT6100 [*]
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 14
SCHEDULE 2
DESIGNATED EQUIPMENT
The Licensed Technology and Generated Technology may only be incorporated into
head-end or interface cards developed, manufactured and sold by the Licensee or
its agents to cable television operators or telephony companies for the delivery
of data using ATM protocols over coax or hybrid coax cable networks.
This Schedule may be amended from time to time by the written Agreement of the
parties.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 15
SCHEDULE 3
MAINTENANCE SERVICES
Maintenance service with respect to Licensed Technology entitles Licensee to
receive product updates, product upgrades, technical bulletins and documentation
updates as they become Public Updates. Maintenance service also entitles
Licensee to receive email, telephone or fax assistance in the correction of
problems. A Product Update occurs when ATML issues a public release of a product
which adds features or functionality which exceeds current specifications as set
forth in the product documentation.
1. Error Corrections. ATML shall provide efforts to correct any
documented reproducible errors in the Source Code of the Licensed
Technology within a reasonable time, and to use due diligence to
rectify such errors that have been notified in writing by Licensee,
provided, that such program errors have not been introduced through
modifications to the Licensed Technology made by or on behalf of the
Licensee.
2. Product Upgrade. Should ATML make any Product Upgrade, ATML will
undertake to:
2.1. Inform Licensee of such Product Upgrade; and
2.2 Supply Licensee with the said Product Upgrade; and
2.3. provide advance notification to Licensee of pending changes
such that Licensee can timely integrate its changes into
the Generated Technology.
3. Licensee shall be solely responsible for directly supporting and
providing maintenance of all or any part of the Licensed Technology,
Generated Technology and documentation as provided to Licensee's
customers. ATML shall have no obligation to provide any direct
consultation or maintenance support to Licensee's customers with
respect to all or any part of the Licensed Technology, Generated
Technology or other subject matter of this Agreement.
4. License Grants to Updates or Upgrades. Any rights and obligations of
Licensee to Source Form and Object Form of the Licensed Technology
shall extend to any updates or upgrades upon delivery from ATML to
Licensee.
5. Limitations. If ATML is requested, to correct an error and such error
is found to be caused by Licensee's negligence, modification by
Licensee, Licensee supplied data, operator error or misuse, or any
other cause not inherent in the Source Code of the Licensed
Technology, Licensee agrees to pay for such support services on a
time and material basis at ATML's then prevailing standard rates and
on ATML's standard terms of business at the time such service is
provided to Licensee by ATML.
<PAGE> 16
SCHEDULE 4
LICENSE AND ROYALTY FEES
The license and royalty fees for each use of the Licensed Technology
or the Generated Technology are:
<TABLE>
<CAPTION>
=================================================================================================================================
License
PART NO. Name Type License Fees Royalty
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VT5000 VM8100 Virata PCR as described in this See Below
Switch Ethernet Section 5 of this
Adapter Software agreement
Access Pack
- ---------------------------------------------------------------------------------------------------------------------------------
VT5100 VM8100 Virata PCR as described in See Below
Switch Ethernet Section 5 of this
Adapter Hardware agreement
Access Pack
=================================================================================================================================
</TABLE>
Per-unit Royalties will be payable on all products sold which contain
the Licensed Technology or Generated Technology as set forth below:
[*] of "Equivalent Sales Price" of the unit, whichever is less,
capped by a lifetime maximum of [*].
DEFINITIONS:
"Equivalent Sales Price" shall be the greater of the actual sales
price of the unit, or the complete manufactured cost of the unit with
the Licensee's standard markup applied.
Per-copy royalty ("PCR") - The license granted in accordance with the
terms of this Agreement are to provide and install object code
derived from the Licensed Technology on a specified number of
systems. The Licensee will prior to the grant of any such license
establish and operate procedures acceptable to ATML by which the
number of such installations can be recorded. Licensee will submit
such proposed procedures to ATML for approval prior to the grant of
any such license and will not grant any such license until the
procedures have been approved by ATML. Licensee will notify ATML on a
quarterly basis of the number of such installations and will pay the
appropriate Royalty to ATML in accordance with the provisions of
clause 5 of this Agreement. For the avoidance of doubt royalties
shall be paid on the Generated Technology mutatis mutandis to the
payment of royalties on the Licensed Technology from which it was
derived.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 17
SCHEDULE 5
THE TERRITORY
The world.
<PAGE> 18
SCHEDULE 6
SOFTWARE AND HARDWARE SERVICES TO BE PROVIDED
Com21 acknowledges that this Licensing Agreement and associated Maintenance
Services provide for only scheduled training, and phone and email support of a
consultation nature. All contacts with ATML engineering will be through a single
designated support person.
During the technology integration phase where Com21 modifies the Licensed
Technology and develops its Generated Technology, ATML may provide at its
convenience additional engineering review support for Com2 I's design and
modifications. This will only be on a scheduled basis, and will not include
design engineering or debugging assistance besides the support of a consultation
nature as provided in this agreement. ATML, at its discretion, may allow the use
of its facilities in a scheduled and pre-agreed manner to facilitate Com21's
development, debugging and bring-up of the Generated Technology. This does not
imply a commitment on ATML's part to engineering design or support beyond that
described in this agreement, nor does it imply a guarantee of operability of
Com2 I's generated technology.
ATML will make available sufficient engineering time to review Com21's schematic
(to occur in late March, 1996) and PCB layout (to occur in early April, 1997)
for the 10BaseT design modification being undertaken by Com21 personnel based on
ATML's Ethernet card. Such face to face joint working sessions would include
review of the CAM, new Ethernet chip, ATM425 interface additional UART, among
others. Licensee estimates this support would be over an elapsed period of
approximately 24 hours.
ATML will provide consulting engineering in assisting Licensee in making the
modified 10BaseT board operational (bringing it up). Licensee estimates that
this support would be over an elapsed period of approximately 40-60 hours (to
occur in late April, 1997).
ATML will provide consulting engineering to review the Ethernet and ATM driver
code changes, and provide standard consulting support as described in this
agreement for the initial SNMP and miscellaneous software integration for
Licensee's controller card that uses ATML's OS. This would be over an elapsed
period of approximately two (2) weeks (to occur in late February, 1997). ATML
may, at its sole discretion, permit the use of its facilities to assist Com21
during this debug and integration phase.
In addition, ATML will provide support for general questions regarding the
Licensed Technology as well as development environment on an ongoing basis as
described in this agreement.
Licensee shall provide ATML with a detailed schedule of support requests.
Licensee will use its best efforts to inform ATML of schedule changes at least 4
weeks in advance. ATML cannot guarantee the availability of specific engineering
resources without such advanced notice and prior agreement from ATML.
<PAGE> 19
SCHEDULE 7
ATML DESIGNATED REPRESENTATIVE
Fred Sammartino, Vice President of Business Development
The above stated contact may change from time to time with written notice to
Licensee.
<PAGE> 1
Exhibit 10.10
ORIGINAL
ADVANCED TELECOMMUNICATION MODULES
INTERNATIONAL OEM AGREEMENT
This International OEM Agreement (the "Agreement") is entered into as of March
7, 1996, ("Effective Date") between Advanced Telecommunications Modules, Inc.
("ATMI"), located at 1130 East Arques Ave., Sunnyvale, CA 94086
("Manufacturer"), its parent company, Advanced Telecommunications Modules,
Limited, and Com21, Inc. ("Com21"), located at 1991 Landings Dr., Mountain View,
CA 94043 ("Purchaser").
IN CONSIDERATION OF THE MUTUAL PROMISES CONTAINED HEREIN, THE
PARTIES AGREE AS FOLLOWS:
1. DEFINITIONS
1.1. "STANDARD PRODUCTS" shall mean the most current version of the
standard products manufactured by ATMI for general end-user
availability listed in Exhibit A attached hereto.
1.2. "SPECIAL PRODUCTS" shall mean the most current version of the
non-standard products manufactured by special use by Purchaser
listed in Exhibit A attached hereto.
1.3. "TERRITORY" shall mean that geographic area identified in Exhibit
G attached hereto.
1.4. "END-USER" shall mean any third party which obtains a Product
solely in order to fulfill its own internal needs.
1.5. "END-USER LICENSE" shall at any time during the term of
this Agreement, mean ATMI's then standard license
agreement pursuant to which End-Users are granted the right to
utilize software in or provided with ATMI products.
2. PRODUCTS AND PURCHASE COMMITMENT
2.1. PRODUCTS. The products covered by this Agreement shall be those
products listed in Exhibit A attached hereto ("Standard
Products" and "Special Products"). Products may be changed,
abandoned or added by Manufacturer, at its sole discretion,
provided that Manufacturer gives ninety (90) days' prior written
notice to Purchaser. Upon written notification of Manufacturer's
intent to change or abandon Products, Purchaser shall be granted
an option to place a one time "End of Life" Purchase Order in
addition to orders provided herein. "End of Life" purchase
orders will be accepted at any time within the ninety (90) day
notification period. If the "End of Life" purchase order is not
sufficient to satisfy Purchaser's ongoing requirements,
Manufacturer and Purchaser will negotiate with a third party
escrow company to place sufficient manufacturing specifications
to allow Purchaser to continue manufacture of the Products at
their expense. In all cases, uses of the Products will be
limited to those set forward in this document. Manufacturer
shall be under no obligation to continue the production of any
Product, except as provided herein.
2.2. MINIMUM PURCHASE COMMITMENT. During the term of this Agreement,
Purchaser shall purchase minimum lot quantities of Products as
set forth in Exhibit A attached hereto ("Minimum Purchase
Commitment").
3. LIMITATIONS ON PURCHASER'S RIGHTS TO THE PRODUCTS
3.1. OEM CERTIFICATION. Purchaser certifies that each and every
Product to be purchased under this Agreement will be purchased on
its behalf as an original equipment manufacturer and that each
and every Product will be incorporated by Purchaser or its
customers into another system that Purchaser assembles, for sale
or lease, in the regular course of Purchaser's business.
Purchaser further certifies that the system into which each and
every Product is incorporated will include the addition of
hardware and/or software supplied by Purchaser which, by an
objective examination of such
<PAGE> 2
factors as cost, product features, and pricing, represent a
significant enhancement and transformation of the Products (with
regard to both value and function) and result in a system
substantially different from any of Manufacturer's systems.
Purchaser agrees that Products intended for other purposes shall
not be purchased under this Agreement. Upon Manufacturer's
request, Purchaser shall furnish to Manufacturer evidence of
compliance with the provisions of this Subsection 3.1. Purchaser
acknowledges and agrees that its initial and continuing
qualification under this Subsection 3.1. is within the sole
discretion of Manufacturer.
3.2. PURCHASE OF PRODUCTS SUBJECT TO SOFTWARE LICENSE AND OTHER
RESTRICTIONS. The sale of each Product to Purchaser and the
transfer of title for each purchased Product to Purchaser shall
not include a sale of any software, computer programs, source
codes, object codes, listings or related materials in
machine-readable or printed form (including, firmware and all
types of media), or any updates and modifications thereto that
are included (collectively, "Software") or a transfer of Software
title to Purchaser. Instead, the sale of each Product shall
include a fully paid license for Purchaser to transfer the
Software to its customers upon execution of a Software license by
Purchaser's customers in accordance with the terms of Subsection
6.1. below. Manufacturer shall retain full title to the Software
and all copies thereof and Purchaser and its customers may use
the Software only in accordance with the provisions of their
executed Software licenses. Neither Purchaser nor its customers
shall have any access to or rights in the Software source codes.
Neither Purchaser nor its customers shall have the right to copy,
modify or remanufacture any Product or part thereof.
4. TERMS IS OF PURCHASE OF PRODUCTS BY PURCHASER
4.1. TERMS AND CONDITIONS. All purchases of Products by Purchaser from
Manufacturer during the term of this Agreement shall be subject
to the terms and conditions of this Agreement.
4.2. PRICES. All prices are F.O.B. (as defined in Section 2319 of the
California Uniform Commercial Code) Manufacturer's plant
currently located at the address listed in Exhibit H or the point
of arrival in the United States. Provided that Purchaser fulfills
its Minimum Purchase Commitment in Exhibit A attached hereto, the
purchase price to Purchaser for each of the Products ("Purchase
Price") shall be a fixed percentage of Manufacturer's list price
for that Product; the percentage for each Product is as set forth
in Exhibit B attached hereto, and the current list prices for the
Products are as set forth in Exhibit C attached hereto. The
Purchase Price to Purchaser for repair parts for the Products
shall be as set forth in Exhibit D attached hereto. Manufacturer
has the right at any time to revise the prices in Exhibits C and
D with thirty (30) days' advance written notice to Purchaser, but
such prices shall not be greater than those sold to another
customer in similar volumes. Such revisions shall only apply to
all orders received after the effective date of revision. Price
increases shall not affect unfulfilled purchase orders accepted
by Manufacturer prior to the effective date of the price
increase. Price decreases shall apply to pending purchase orders
accepted by Manufacturer prior to the effective date of the
decrease but not yet shipped.
4.3. BILLBACK PROVISIONS. Purchaser's Purchase Price for each Product
is based on the Minimum Purchase Commitment set forth in Exhibit
B attached hereto. If Purchaser fails to purchase at least the
minimum number of Products specified in Exhibit B for a given
time period, then Manufacturer shall invoice Purchaser for the
difference between Purchaser's Purchase Price and Manufacturer's
standard discounted price for the quantity of Products actually
purchased, and the full amount shall be due and payable to
Manufacturer within thirty (30) days after the invoice date. The
adjusted Purchase Price shall continue in effect for a given
Product until Purchaser fails in a given time period to purchase
the number of Products necessary for the adjusted Purchase Price,
at which time the Purchase Price shall be further adjusted in
accordance with the foregoing, procedure or until Purchaser again
purchases the minimum number of the Product specified in Exhibit
B in which case the Purchase Price shall apply.
4.4. TAXES. Purchaser's Purchase Price does not include any federal,
state or local taxes that may be applicable to the Products. When
Manufacturer has the legal obligation to collect such taxes, the
appropriate amount shall be added to Purchaser's invoice and paid
by Purchaser unless Purchaser
<PAGE> 3
provides Manufacturer with a valid tax exemption certificate
authorized by the appropriate taxing authority.
4.5. ORDER AND ACCEPTANCE. All orders for Products submitted by
Purchaser shall be initiated by written purchase orders sent to
Manufacturer and requesting a delivery date during the term of
this Agreement; provided, however, that an order may initially be
placed orally or by telex if a confirmational written purchase
order is received by Manufacturer within five (5) days after said
oral or telex order. To facilitate Manufacturer's production
scheduling Purchaser shall submit non- binding forecasts to
Manufacturer ninety (90) days prior to the requested month of
delivery. Purchaser shall submit binding purchase orders to
Manufacturer at least thirty (30) days prior to the first day of
the requested month of delivery. No order shall be binding upon
Manufacturer until accepted by Manufacturer in writing, and
Manufacturer shall have no liability to Purchaser with respect to
purchase orders that are not accepted. Manufacturer shall use its
reasonable best efforts to notify Purchaser of the acceptance or
rejection of an order and of the assigned delivery date for
accepted orders within fifteen (15) days after receipt of the
purchase order. No partial shipment of an order shall constitute
the acceptance of the entire order. absent the written acceptance
of such entire order. Manufacturer shall use its reasonable best
efforts to deliver Products at the times specified either in its
quotation or in its written acceptance of Purchaser's purchase
orders.
4.6. TERMS OF PURCHASE ORDERS. Purchaser's purchase orders submitted
to Manufacturer from time to time with respect to Products to be
purchased hereunder shall be governed by the terms of this
Agreement, and nothing contained in any such purchase order shall
in any way modify such terms of purchase or add any additional
terms or conditions.
4.7. INITIAL ORDER. Upon execution of this Agreement, Purchaser shall
deliver to Manufacturer a written purchase order for the
quantities of Products shown in Exhibit E attached hereto. The
order shall be non-cancelable and shall be shipped to Purchaser
based on Purchaser's delivery dates accepted by Manufacturer
based on its production schedule and receipt of an export
license.
4.8. CHANGE ORDERS. Purchaser may utilize written change orders
without penalty for orders that have not vet been accepted by
Manufacturer. For orders that have been accepted by Manufacturer
but have not yet been shipped (excluding the initial order under
Subsection 4.7. above), Purchaser may utilize written change
orders subject to the following conditions:
4.8.1. Purchaser may delay delivery of any accepted order,
provided that the rescheduled delivery date occurs
during the term of this Agreement and provided
further that Purchaser shall pay a rescheduling fee
equal to [*] of the Purchase Price (net of freight,
taxes, and other charges) of the rescheduled
Products if Purchaser's change order is received by
Manufacturer less than thirty (30) days before the
assigned delivery date. Unless Manufacturer
otherwise agrees, no change order shall be
effective unless accompanied by the rescheduling
fee. if any, required by this Subsection 4.8.1.
4.8.2. Purchaser may cancel any order that has been
accepted by Manufacturer, provided that, if the
written change order is received by Manufacturer
less than thirty (30) days before the assigned
delivery date or if the written change order
cancels an order that has been previously
rescheduled under Subsection 4.8.1. above, then
Purchaser shall pay a cancellation charge equal to
fifteen percent (15%) of the net Purchase Price of
the canceled Products.
<TABLE>
<CAPTION>
NOTICE PRIOR TO DELIVERY DATE RESCHEDULING CHARGE CANCELLATION CHARGE
----------------------------- ------------------- -------------------
<S> <C> <C>
Greater than 90 days [*] [*]
31-90 days (forecasting period) [*] [*]
0-30 days (confirmed orders) [*] [*]
</TABLE>
4.9. PAYMENT. Manufacturer shall ship Products FOB from their
manufacturing facility and shall
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 4
invoice upon shipment in U.S. dollars. Full payment of
Purchaser's Purchase Price for the Products and spare parts
(including any freight, taxes or other applicable costs initially
paid by Manufacturer but to be home by Purchaser) shall be made
by Purchaser to Manufacturer thirty (30) days from the date of
the invoice. Payment shall be in U.S. dollars. All exchange,
interest, banking, collection, and other charges shall be at
Purchaser's expense. At such time as Manufacturer may grant a
line of credit to Purchaser, payment terms shall be net thirty
(30) days after date of invoice, and payment shall be made by
wire transfer, check or other instrument approved by
Manufacturer. Any invoiced amount not paid when due shall be
subject to a service charge of one and one-half percent (1.5%)
per month. Purchaser shall pay all of Manufacturer's costs and
expenses (including reasonable attorneys' fees) to enforce and
preserve Manufacturer's rights under this Subsection 4.9.
4.10. SHIPPING. All Products delivered pursuant to the terms of this
Agreement shall be suitably packed depending on the method of
freight shipment in Manufacturer's standard shipping cartons,
marked for shipment at Purchaser's address set forth above, and
delivered to Purchaser or its carrier agent F.O.B. Manufacturer's
manufacturing plant, at which time (subject to Subsection 4.13.
below) title to such Products and risk of loss shall pass to
Purchaser. Unless otherwise instructed in writing by Purchaser,
Manufacturer shall select the carrier. All freight, insurance,
and other shipping expenses, as well as any special packing
expense, shall be paid by Purchaser from the FOB point. Purchaser
shall also bear all applicable taxes, duties, and similar charges
that may be assessed against the Products after delivery to the
carrier at Manufacturer's plant.
4.11. REJECTION OF PRODUCTS. Purchaser shall inspect all Products
promptly upon receipt thereof and may reject any Product that
fails in any material way to meet the specifications set forth in
Manufacturer's current brochure and specifications for that
Product. Any Product not properly rejected within thirty (30)
days after receipt of that Product by Purchaser ("Rejection
Period") shall be deemed accepted. If any unit of a Product is
shipped by Purchaser to its customer prior to the expiration of
the Rejection Period, then that unit shall be deemed accepted
upon shipment by Purchaser. To reject a Product, Purchaser shall,
within the Rejection Period, notify Manufacturer in writing or by
telex of its rejection and request a Return Material
Authorization ("RMA") number. Manufacturer shall use its best
efforts to provide the RMA number in writing or by telex to
Purchaser within three (3) business days after receipt of the
request. Within ten (10) days after receipt of the RMA number,
Purchaser shall return to Manufacturer the rejected Product,
freight prepaid, in its original shipping carton with the RMA
number displayed on the outside of the carton. Provided that
Manufacturer has complied with its obligations in this Subsection
4.11., Manufacturer reserves the right to refuse to accept any
rejected Products that do not bear an RMA number on the outside
of the carton. As promptly as possible but no later than thirty
(30) working days after receipt by Manufacturer of properly
rejected Products, Manufacturer shall, at its option and expense,
either repair or replace the Products. Manufacturer shall pay the
shipping charges back to Purchaser for properly rejected
Products; otherwise, Purchaser shall be responsible for the
shipping charges.
4.12. RETURN OF PRODUCTS AFTER REJECTION PERIOD. Unless a Product is
returned in accordance with the provisions of Manufacturer's
standard warranty for the Product described in Subsection 5.1.
below, after the Rejection Period Purchaser may not return a
Product to Manufacturer for any reason without Manufacturer's
prior written consent. For any Product for which Manufacturer
gives such consent, Manufacturer shall charge Purchaser a
restocking fee equal to fifteen percent (15%) of Purchaser's
Purchase Price for that Product and shall credit the balance of
the Purchase Price to Purchaser's account. Purchaser shall be
responsible for all shipping charges.
5. WARRANTY TO PURCHASER
5.1. STANDARD LIMITED WARRANTY. Manufacturer grants to Purchaser
Manufacturer's standard limited warranty for the Products,
including the limitations set forth in Subsections 5.2. and 5.3.
below. Specifically, Manufacturer warrants that the Product
hardware as delivered (except consumable items, such as fuses)
conform to published specifications and are free from defects in
materials and workmanship under normal use and service for the
period set forth in the applicable Product
<PAGE> 5
documentation. All Product warranty periods are Product specific
and may vary by Product. The End-User warranty specifically
disclaims all other warranties relating to the Products,
including all warranties with respect to the performance of the
Products. This warranty is contingent upon proper use of a
Product in the application for which it was intended and does not
cover Products that were modified without Manufacturer's approval
or that were subjected by the customer to unusual physical or
electrical stress. The Manufacturer's Standard Limited Warranty
including terms, conditions, and warranty periods in included in
Exhibit I attached hereto.
5.2. NO OTHER WARRANTY. EXCEPT FOR THE EXPRESS WARRANTY SET FORTH
ABOVE, MANUFACTURER GRANTS NO OTHER WARRANTIES, EXPRESS OR
IMPLIED, BY STATUTE OR OTHERWISE, REGARDING THE PRODUCTS, THEIR
FITNESS FOR ANY PURPOSE, THEIR QUALITY, THEIR MERCHANTABILITY, OR
OTHERWISE. MANUFACTURER GRANTS NO WARRANTIES TO PURCHASER'S
CUSTOMERS.
5.3. LIMITATION OF LIABILITY. MANUFACTURER'S LIABILITY UNDER THE
WARRANTY SHALL BE LIMITED TO A REFUND OF PURCHASER'S PURCHASE
PRICE. IN NO EVENT SHALL MANUFACTURER BE LIABLE FOR THE COST OF
PROCUREMENT OF SUBSTITUTE GOODS BY PURCHASER OR PURCHASER'S
CUSTOMER OR FOR ANY SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES
FOR BREACH OF WARRANTY.
6. SOFTWARE LICENSING AND SERVICES
6.1. LICENSE TO PURCHASER. Manufacturer hereby grants to Purchaser an
exclusive (except for usage rights reserved to Manufacturer),
royalty-free, fully paid license to use, distribute, demonstrate
and sublicense the object code of the Software in the Territory
specified in Exhibit H attached hereto in carrying out
Purchaser's obligations under the provisions of this Agreement.
The license shall terminate on the termination of this Agreement
for any reason.
6.2 SUBLICENSING. Purchaser shall require each of its customers to
execute a software End-User License for each Product purchased,
in the form attached hereto as Exhibit F, as a specific condition
to the purchase of that Product. Purchaser shall maintain a file
of these such license agreements for Manufacturer's review. The
End-User License fee for each Product is included in Purchaser's
Purchase Price for the Product.
6.3. SERVICES. To each licensee of the Software, Manufacturer shall
provide the software maintenance services that are set forth in
the License.
7. IMPORT AND EXPORT REQUIREMENTS
Purchaser shall, at its own expense, pay all import and export
licenses and permits, pay customs charges and duty fees, and take
all other actions required to accomplish the export and import of
the Products purchased by Purchaser from the point of delivery
into the United States. Purchaser understands that Manufacturer
is subject to regulation by agencies of the U.S. government,
including the U.S., Department of Commerce, which prohibit export
or diversion of certain technical products to certain countries.
Purchaser warrants that it will comply in all respects with the
export and reexport restrictions set forth in the export license
for every Product shipped to Purchaser.
8. TERMS AND TERMINATION
8.1. TERM. This Agreement shall continue in force for a fixed term of
five (5) years from the date hereof unless terminated earlier
under the provisions of this Section 8. At the end of the fixed
term, this Agreement shall terminate automatically without notice
unless prior to that time the term of the Agreement is extended
by mutual written consent of the parties.
8.2. TERMINATION FOR CONVENIENCE. This Agreement may be canceled by
either party for any reason or no reason, whether or not extended
beyond the initial term, by giving the other party written
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 6
notice one hundred eighty (180) in advance.
8.3. TERMINATION FOR CAUSE. Except as set forth in Subsection 8.4.
below, if either party defaults in the performance of any
provision of this Agreement, then the non-defaulting party may
give written notice to the defaulting party that if the default
is not cured within thirty (30) days the Agreement will be
terminated. If the non-defaulting party gives such notice and the
default is not cured during the thirty-day period, then the
Agreement shall automatically terminate at the end of that
period.
8.4. TERMINATION FOR FAILURE TO PURCHASE MINIMUM COMMITMENT. If
Purchaser during the term of the agreement to purchase the
minimum number of Products set forth in Subsection 2.2. above,
then Manufacturer may terminate this Agreement effective upon
delivery of a written notice to Purchaser, which is not cured in
sixty (60) days.
8.5. TERMINATION FOR INSOLVENCY. This Agreement shall terminate,
without notice, (i) upon the institution by or against Purchaser
of insolvency, receivership or bankruptcy proceedings or any
other proceedings for the settlement of Purchaser's debts, (ii)
upon Purchaser's making an assignment for the benefit of
creditors, or (iii) upon Purchaser's dissolution or ceasing to do
business.
8.6. FULFILLMENT OF ORDERS UPON TERMINATION. Upon termination of this
Agreement for other than Purchaser's breach, Manufacturer shall
continue to fulfill, subject to the terms of Section 4 above, all
orders accepted by Manufacturer prior to the date of termination.
8.7. LIMITATION ON LIABILITY. In the event of termination by either
party in accordance with any of the provisions of this Agreement,
neither party shall be liable to the other, because of such
termination, for compensation, reimbursement or damages on
account of the loss of prospective profits or anticipated sales
or on account of expenditures, inventory, investments, leases or
commitments in connection with the business or goodwill of
Manufacturer or Purchaser. Termination shall not, however,
relieve either party of obligations incurred prior to the
termination.
8.8. SURVIVAL OF CERTAIN TERMS. The provisions of Sections 3.2., 4.3.,
4.9., 4.13., 5, 7, 8, 9, 10, 11, 12, and 13 shall survive the
termination of this Agreement for any reason. All Licenses
executed under the provisions of Subsection 6.2. above prior to
termination of this Agreement shall survive the termination of
this Agreement for any reason. All other rights and obligations
of the parties shall cease upon termination of this Agreement.
9. LIMITED LIABILITY TO PURCHASER AND OTHERS
MANUFACTURER'S LIABILITY ARISING OUT OF THIS AGREEMENT AND/OR
SALE OF THE PRODUCTS SHALL BE LIMITED TO THE AMOUNT PAID BY
PURCHASER OR THE AMOUNT RECEIVED BY MANUFACTURER FOR THE
PRODUCTS. IN NO EVENT SHALL MANUFACTURER BE LIABLE FOR COSTS OF
PROCUREMENT OF SUBSTITUTE GOODS BY ANYONE. IN NO EVENT SHALL ANY
PARTY BE LIABLE TO THE OTHER OR ANY OTHER ENTITY FOR ANY SPECIAL,
CONSEQUENTIAL OR OTHER DAMAGES, HOWEVER CAUSED, WHETHER FOR
BREACH OF CONTRACT, NEGLIGENCE OR OTHERWISE, AND WHETHER OR NOT
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
10. PROPERTY RIGHTS AND CONFIDENTIALITY
10.1. PROPERTY RIGHTS. Purchaser agrees that Manufacturer owns all
right, title, and interest in the product lines that include the
Products and in all of Manufacturer's patents, trademarks, trade
names, inventions, copyrights, know-how, and trade secrets
relating to the design, manufacture, operation or service of the
Products.
10.2. SALE CONVEYS NO RIGHT TO MANUFACTURE OR COPY. The Products are
offered for sale and are sold
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 7
by Manufacturer subject in every case to the condition that such
sale does not convey any license. expressly or by implication, to
manufacture, duplicate or otherwise copy or reproduce any of the
Products except as provided by agreement between ATML and Com21
regarding, a Hardware and Software Technology License. Purchaser
shall take appropriate steps with its customers, as Manufacturer
may request, to inform them of and assure compliance with the
restrictions contained in this Subsection 10.2.
10.3. CONFIDENTIALITY. Purchaser acknowledges that by reason of its
relationship to Manufacturer hereunder it may have access to
certain information and materials concerning Manufacturer's
business, plans, customers, technology, and products that are
confidential and of substantial value to Manufacturer, which
value would be impaired if such information were disclosed to
third parties. Purchaser agrees that it will not use in any way
for its own account or the account of any third party, nor
disclose to any third party, any such confidential information
revealed to it by Manufacturer. Purchaser shall take every
reasonable precaution to protect the confidentiality of such
information. Upon request by Purchaser, Manufacturer shall advise
whether or not it considers any particular information or
materials to be confidential. Purchaser shall not publish any
technical description of the Products beyond the description
published by Manufacturer. In the event of termination of this
Agreement, there shall be no use or disclosure by Purchaser of
any confidential information of Manufacturer, and Purchaser shall
not manufacture or have manufactured any devices, components or
assemblies utilizing any of Manufacturer's confidential
information. Purchaser's obligations shall not apply to
information that: (i) is generally known to the public, or (ii)
was in Purchaser's possession or known by it prior to receipt
from Manufacturer, or (iii) was rightfully disclosed to Purchaser
by a third party without restriction, or (iv) was independently
developed by Purchaser without use of any confidential
information of Manufacturer.
11. TRADEMARKS AND TRADE NAMES
11.1 USE. During the term of this Agreement, Purchaser shall have
the right to indicate to the public that its systems contain
Manufacturer's Products and to designate such Products under the
trademarks, marks, and trade names that Manufacturer may adopt
from time to time ("Manufacturer's Trademarks"). Purchaser shall
not alter or remove any Manufacturer's Trademark applied to the
Products at the factory. Except as set forth in this Section 11,
nothing contained in this Agreement shall grant to Purchaser any
right, title or interest in Manufacturer's Trademarks. At no time
during or after the term of this Agreement shall Purchaser
challenge or assist others to challenge Manufacturer's Trademarks
or the registration thereof or attempt to register any
trademarks, marks or trade names confusingly similar to those of
Manufacturer.
11.2. APPROVAL OF REPRESENTATIONS. All representations of
Manufacturer's Trademarks that Purchaser intends to use shall
first be submitted to Manufacturer for approval (which shall not
be unreasonably withheld) of design, color, and other details or
shall be exact copies of those used by Manufacturer.
12. PATENT, COPYRIGHT, AND TRADEMARK INDEMNITY
12.1. INDEMNIFICATION. Purchaser agrees that Manufacturer has the right
to defend, or at its option to settle, and Manufacturer agrees,
at its own expense, to defend or at its option to settle, any
claim, suit or proceeding brought against Purchaser or its
customer on the issue of infringement of any United States
patent, copyright or trademark by the Products sold hereunder or
the use thereof, subject to the limitations hereinafter set
forth. Manufacturer shall have sole control of any such action or
settlement negotiations, and Manufacturer agrees to pay, subject
to the limitations hereinafter set forth, any final judgment or
settlement entered against Purchaser or its customer on such
issue in any such suit or proceeding defended by Manufacturer.
Purchaser agrees that Manufacturer at its sole option shall be
relieved of the foregoing obligations unless Purchaser or its
customer notifies Manufacturer promptly in writing of such claim,
suit or proceeding and gives Manufacturer authority to proceed as
contemplated herein, and, at Manufacturer's expense, gives
Manufacturer proper and full information and assistance to settle
and/or defend any such claim, suit or proceeding. If the
Products, or any part thereof, are, or in the opinion of
Manufacturer may
<PAGE> 8
become, the subject of any claim, suit or proceeding for
infringement of any United States patent, copyright or trademark,
or if it is adjudicatively determined that the Products, or any
part thereof, infringe any United States patent, copyright or
trademark, or if the sale or use of the Products, or any part
thereof, is, as a result, enjoined, then Manufacturer may, at its
option and expense either: (i) procure for Purchaser and its
customers the right under Such patent, copyright or trademark to
sell or use, as appropriate, the Products or such part thereof;
or (ii) replace the Products, or part thereof, with other
suitable Products or parts of equivalent performance or
functionality; or (iii) suitably modify the Products, or part
thereof while maintaining equivalent performance and
functionality; or (iv) if the use of the Products, or part
thereof, evented by injunction, remove the Products, or part
thereof, and refund the aggregate payments paid therefor by
Purchaser, less a reasonable sum for use and damage. Manufacturer
shall not be liable for any costs or expenses incurred without
its prior written authorization.
12.2. LIMITATION. Notwithstanding the provisions of Subsection 12.1.
above, Manufacturer assumes no liability for (i) infringements
covering completed equipment or any assembly, circuit,
combination, method or process in which any of the Products may
be used but not covering the Products when used alone; (ii)
trademark infringements involving any marking or branding not
applied by Manufacturer or involving any marking or branding
applied at the request of Purchaser; or (iii) infringements
involving the modification or servicing of the Products, or any
part thereof, unless such modification or servicing was done by
Manufacturer.
12.3. ENTIRE LIABILITY. The foregoing provisions of this Section 12
state the entire liability and obligations of Manufacturer and
the exclusive remedy of Purchaser and its customers, with respect
to any alleged infringement of patents, copyrights, trademarks or
other intellectual property rights by the Products or any part
thereof.
13. GENERAL PROVISIONS
13.1. INDEPENDENT CONTRACTORS. The relationship of Manufacturer and
Purchaser established by this Agreement is that of independent
contractors and nothing contained in this Agreement shall be
construed to (i) give either party the power to direct and
control the day-to-day activities of the other, (ii) constitute
the parties as partners, joint venturers, co-owners or otherwise
as participants in a joint or common undertaking, or (iii) allow
Purchaser to create or assume any obligation on behalf of
Manufacturer for any purpose whatsoever. All financial
obligations associated with Purchaser's business are the sole
responsibility of the Purchaser. All sales and other agreements
between Purchaser and its customers are Purchaser's exclusive
responsibility and shall have no effect on Purchaser's
obligations under this Agreement. Purchaser shall be solely
responsible for, and shall indemnify and hold Manufacturer free
and harmless from, any and all claims, damages or lawsuits
(including, Manufacturer attorneys' fees) arising out of the acts
of Purchaser, its employees or its agents.
13.2. GOVERNING LAW AND JURISDICTION. This Agreement shall be covered
by and construed under the laws of the State of California,
U.S.A., except that perfection of the title reserved by
Manufacturer in Subsection 4.13. above shall be governed by the
laws of Purchaser's jurisdiction. The federal and state courts
within the State of California, U.S.A., shall have exclusive
jurisdiction to adjudicate any dispute arising out of this
Agreement. Purchaser hereby expressly consents to (1) the
personal jurisdiction of the federal and state courts within
California, (ii) service of process being effected upon it by
registered mail sent to the address set forth at the beginning of
this Agreement, and (iii) the uncontested enforcement of a final
judgment from such court in any other jurisdiction wherein
Purchaser or any of its assets are present.
13.3. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding of the parties relating to the subject matter
herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of
any rights under this Agreement, shall be effective unless in
writing signed by the party to be charged.
13.4. NOTICES. Any notice required or permitted by this Agreement shall
be in writing and shall be sent
<PAGE> 9
by prepaid registered or certified mail, return receipt
requested, addressed to the other party at the address shown at
the beginning of this Agreement or at such other address for
which such party gives notice hereunder. Such notice shall be
deemed to have been given three (3) days after deposit in the
mail.
13.5. FORCE MAJEURE. Nonperformance of either party shall be excused to
the extent that performance is rendered impossible by strike,
fire, flood, governmental acts or orders or restrictions, failure
of suppliers, or any other reason where failure to perform is
beyond the reasonable control of and is not caused by the
negligence of the nonperforming party.
13.6. NONASSIGNABILITY AND BINDING EFFECT. A mutually agreed
consideration for Manufacturer's entering into this Agreement is
the reputation, business standing, and goodwill already honored
and enjoyed by Purchaser under its present ownership, and,
accordingly, Purchaser agrees that its rights and obligations
under this Agreement may not be transferred or assigned directly
or indirectly without the prior written consent of Manufacturer
provided that purchaser's assignment to an acquiror of all or
substantially all of Purchaser's stock, assets or business shall
not require Manufacturer's consent. Subject to the foregoing
sentence, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their successors and assigns.
13.7. LEGAL EXPENSES. The prevailing, party in any legal action brought
by one party against the other and arising out of this Agreement
shall be entitled, in addition to any other rights and remedies
it may have, to reimbursement for its expenses, including court
costs and reasonable attorneys' fees.
13.8. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all
of which together shall constitute one instrument.
Advanced Telecommunications Modules, Inc. Com21, Inc.
By: By:
Title: Title:
<PAGE> 10
EXHIBIT A
PRODUCT DESCRIPTION AND MINIMUM PURCHASE COMMITMENT
STANDARD PRODUCTS
PRODUCTION DESCRIPTION
VM1000 Virata Switch Base
VM2100 4XATM25 Switch Adapter
VM2200 2XATN155 UPT-5 Switch Adapter
VM3200 2XATMI55 MMF Switch Adapter
VM8100 Ethernet Switch Adapter
SPECIAL PRODUCTS
PRODUCT NO. DESCRIPTION
VM1000SP Virata Switch Base Motherboard
MINIMUM PURCHASE COMMITMENT
PRODUCT NO. MINIMUM PURCHASE
VM1000 [*]
VM1000SP [*]
VM2100 [*]
VM2200 [*]
VM3200 [*]
VM8100 [*]
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 11
EXHIBIT B
PRODUCT PURCHASE PRICE
STANDARD PRODUCTS
<TABLE>
<CAPTION>
PRODUCT NO. QUANTITY PURCHASER'S DISCOUNT OFF LIST PRICE
- ----------- -------- -----------------------------------
(OVER 360 DAY PERIOD)
<S> <C> <C>
VM1000 [*] [*]
[*]
VM2100 [*] [*]
[*]
VM2200 [*] [*]
[*]
VM3200 [*] [*]
[*]
VM8100 [*] [*]
</TABLE>
SPECIAL PRODUCTS
<TABLE>
<CAPTION>
PRODUCT NO. QUANTITY PURCHASER'S DISCOUNT
- ----------- -------- --------------------
<S> <C> <C>
VM1000SP [*] [*]
</TABLE>
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 12
EXHIBIT C
MANUFACTURER'S CURRENT LIST PRICES
<TABLE>
<CAPTION>
PRODUCT NO. DESCRIPTION LIST PRICE
- ----------- ----------- ----------
<S> <C> <C>
VL1000 Virata Link PC ISA, Adapter ATM25 $[*]
VL2000 Virata Link PC PCI Adapter, ATM 25 $[*]
VM1000 Virata Switch Base $[*]
VM2100 4XATM25 Switch Adapter $[*]
VM2200 2XATMI55 UPT-5 Switch Adapter $[*]
VM3200 2XATM155 MMF Switch Adapter $[*]
VM8100 Ethernet Switch Adapter $[*]
VS3200 Virata Store 8 GB 155mbs MNM Server $[*]
</TABLE>
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 13
EXHIBIT D
SPARE PARTS LIST AND PRICE SCHEDULE
<TABLE>
<CAPTION>
DESCRIPTION QUANTITY LIST PRICE
- ----------- -------- ----------
(PER DEVICE)
<S> <C> <C>
Quark Chip [*] [*]
[*] [*]
Gluon Chip [*] [*]
[*] [*]
</TABLE>
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 14
EXHIBIT E
INITIAL ORDER
Upon execution of this Agreement, Purchaser shall deliver to Manufacturer a
written, noncancelable purchase order for the following quantities of Products:
<TABLE>
<CAPTION>
Product Quantity
- ------- --------
<S> <C>
VM1000 - Virata Switch Base [*]
Quark Chip [*]
Gluon Chip [*]
</TABLE>
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 15
EXHIBIT F
SOFTWARE LICENSE
ADVANCED TELECOMMUNICATIONS MODULES LIMITED
END-USER SOFTWARE LICENSE
REVISION 1.0
PLEASE READ THIS LICENSE CAREFULLY BEFORE OPENING THE PACKAGE OR USING THE
SOFTWARE. BY OPENING THE PACKAGE OR USING THE SOFTWARE, YOU ARE AGREEING TO BE
BOUND BY THE TERMS OF THIS LICENSE. IF YOU DO NOT AGREE TO THE TERMS OF THIS
LICENSE, PROMPTLY RETURN THE UNUSED SOFTWARE TO THE PLACE WHERE YOU OBTAINED IT
AND YOUR MONEY WILL BE REFUNDED. ADVANCED TELECOMMUNICATIONS MODULES LIMITED
(ATML) SOFTWARE IS LICENSED NOT SOLD.
FOR THE LIMITED WARRANTY PERTAINING TO THIS PRODUCT, PLEASE REFER TO THE
WARRANTY LEAFLET INCLUDED WITH THIS PACKAGE.
1. LICENSE. The application, demonstration, system and other software
accompanying this License, whether on disk, in read-only memory, or on any other
media (the "ATML Software"), and the related documentation are licensed to you
by Advanced Telecommunications Modules Limited (ATML). You own the medium on
which the ATML Software are recorded, but ATML and/or ATML's licensor(s) retain
title to the ATML Software and related documentation. The License allows you to
use the ATML Software on a single ATML product and only make one copy of the
ATML Software in machine-readable form only for backup purposes. You must
reproduce, on such copy, the ATML copyright notice and any other proprietary
legends that were on the original copy of the ATML Software. You may also
transfer all your license rights in the ATML Software, the backup copy of the
ATML Software, the related documentation, and a copy of this License to another
party, provided the other party reads and agrees to accept the terms and
conditions of this License.
2. RESTRICTIONS. The ATML Software contains copyrighted material, trade secrets,
and other proprietary material. In order to protect them, and except as
permitted by applicable legislation, you may not decompile, reverse engineer,
disassemble, or otherwise reduce the ATML Software to a human-perceivable form:
copy, modify, network, rent, lease, loan, or distribute the ATML Software: or
create derivative works based upon the ATML Software in whole or part. You may
not electronically transmit the ATML Software from one computer to another or
over a network.
3. TERMINATIONS. This License is effective until terminated. You may terminate
the License at any time by destroying the ATML Software, related documentation
and all copies thereof. This License will terminate immediately without notice
from ATML if you fail to comply with any provision of this License. Upon
termination you must destroy the ATML Software, exclusions in this License
Agreement and shall have no right to any refund of any amount paid for the ATML
Software. No termination shall release you from liability for any breach of this
License Agreement.
4. EXPORT LAW ASSURANCE. You agree and certify that neither the ATML Software
nor any other technical data received from ATML, nor the direct product thereof,
will be shipped, transferred, or exported, directly or indirectly, to any
country in violation of any applicable law, including the United States Export
Administration Act and the regulations thereunder.
5. CONTROLLING LAW AND SEVERABILITY. This License shall be governed by and
construed in accordance with the laws of England. If for any reason a court of
competent jurisdictions finds any provision of this License, or portion thereof,
to be unenforceable, that provision of the License shall be enforced to the
maximum extent permissible so as to effect the intent of the parties, and the
remainder of this License shall continue in full force and effect.
6. ACKNOWLEDGMENT. You acknowledge that you have read this License Agreement,
understand it, and agree to be bound by its terms and conditions. You also agree
that the License agreement is the complete and exclusive statement of agreement
between the parties and supersedes all proposals or prior agreements, oral or
written, and any
<PAGE> 16
other communications between the parties relating to the subject matter of the
License Agreement. No amendment to or modification of this License will be
binding unless in writing and signed by a duly authorized representative of
ATML.
2.
<PAGE> 17
EXHIBIT G
TERRITORY
The World
<PAGE> 18
EXHIBIT H
F.O.B. POINT
GSS/Array Technology
6835 Via Del Oro
San Jose CA
95119-1315
408-229-6100 Phone
408-362-3111 Fax
<PAGE> 19
EXHIBIT I
MANUFACTURER'S STANDARD PRODUCT WARRANTY PERIOD
ATM Network Adapters [*]
ATM Switches [*]
Spare parts and spare kits [*]
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 20
EXHIBIT J
ADVANCE NOTIFICATION AGREEMENT
Manufacturer agrees to notify Purchaser in writing, ninety (90) days in advance
of shipments to Purchaser, any form, fit, or functional changes to products
procured by Purchaser. In the event a critical situation occurs which forces a
change to occur within the ninety (90) day notification period, Purchaser will
also be provided with immediate notification.
Furthermore, Manufacturer agrees to provide Purchaser with the option to
evaluate potential changes which affect form, fit, or function, in advance of
forecasted or requested shipments to Purchaser. If the changes are deemed
unacceptable to Purchaser, upon written notification, Manufacturer will supply
Purchaser with up to six months of the forecasted requirements at the previous
configuration before making the proposed change. If the Manufacturer is not able
to provide the previous configuration, manufacturer will
i. accommodate the requirements of the Purchaser in the changed
configuration, or
ii. collaborate with, and assist the Purchaser in making changes to
Purchaser's product to accommodate changes, or
iii. provide end of life products per agreement.
If Purchaser does not provide a written request to evaluate the potential
changes within ten (10) working days of notification by Manufacturer,
Manufacturer is not obligated to supply Purchaser with the previous
configuration.
1.
<PAGE> 21
ADVANCED TELECOMMUNICATION MODULES INC.
(HEREIN ATMI) STANDARD TERMS AND CONDITIONS OF SALE
1 TERMS OF SALE THE TERMS OF SALE CONTAINED HEREIN APPLY TO ALL QUOTATIONS
MADE AND PURCHASE ORDERS ENTERED INTO BY THE SELLER, WHETHER IN
DOCUMENTARY FORM OR TRANSMITTED BY ELECTRONIC MEANS. SOME OF THE TERMS
SET OUT HERE MAY DIFFER FROM THOSE IN BUYERS PURCHASE ORDER AND SOME MAY
BE NEW. SELLERS ACCEPTANCE IS CONDITIONAL ON BUYERS ASSENT TO THE TERMS
SET OUT HERE IN LIEU OF THOSE IN BUYER'S PURCHASE ORDER. SELLER'S
FAILURE TO OBJECT TO PROVISIONS CONTAINED IN ANY COMMUNICATION FROM
BUYER SHALL NOT BE DEEMED A WAIVER OF THE PROVISIONS OF THIS ACCEPTANCE.
ANY CHANGES IN THE TERMS CONTAINED HEREIN MUST SPECIFICALLY BE AGREED TO
IN WRITING BY AN OFFICER OR MANAGER OF THE SELLER BEFORE BECOMING
BINDING ON EITHER THE SELLER OR THE BUYER. All orders or contracts must
be approved and accepted by the seller at its home office. These terms
shall be applicable whether or not they are attached to or enclosed with
the product to be sold hereunder. No shipments will be made until a
signed Purchase Order or other appropriate document is received by
Seller. These terms do not apply to the licensing of software products
offered by the Seller. Such products are made available only under the
terms of Seller's standard software license terms.
2 TAXES Unless otherwise specifically provided herein, the amount of any
present or future sales, revenue, excise or other tax to the product
covered by this order or the manufacture or sale thereof, shall be added
to the purchase price and shall be paid by the Buyer, or in lieu thereof
the Buyer shall provide the Seller with a tax exemption certificate
acceptance to the taxing authorities. In the event Seller is required to
pay any such tax, fee or charge at the time of Sale or thereafter, the
Buyer shall reimburse Seller therefor.
3 ORDERS Buyers shall supply Seller with a letter or purchase order on
company letter head. Buyer's orders should state desired shipping date,
but Seller is under no obligation to meet Buyer's expected delivery date
Orders placed by Buyer and acknowledged by Seller will be subject to the
terms listed below in the payment section. No purchase order shall be
binding until accepted by Seller in writing
4 SHIPMENT Unless otherwise specified on the face hereof, shipments of
goods within and outside the U.S. shall be delivered FOB Seller's dock,
and title and liability for loss or damage thereto shall pass to Buyer
upon Seller's tender of delivery of the goods to carrier for shipment to
Buyer, and any loss or damage thereafter shall not retrieve Buyer of any
obligation hereunder. Buyer shall reimburse Seller for taxes and any
other expenses incurred for licenses for clearance required at port of
entry and destination. Seller may deliver the good in installments.
Unless otherwise agreed, all items shall be packed in accordance with
Seller's normal practices. Buyer shall pay the per unit carriage and
insurance amount attributable to each product, as specified in Seller's
Price List in effect at the time of this Acknowledgment.
5 PAYMENT
(a) Unless otherwise agreed all invoices are due and payable thirty
(30) days from date of invoice. No discounts are authorized.
Shipments, deliveries and performance of work shall at all times
be subject to the approval of the Seller's credit department and
the Seller may at any time decline to make any shipments or
deliveries or perform any work except upon receipt of payment or
upon terms and conditions or security satisfactory to such
department.
(b) If, in the judgment of the Seller, the financial condition of the
Buyer at any time does not justify continuation of production or
shipment on the terms of payment originally specified, the Seller
may require full or partial payment, in advance, and, in the
event of the bankruptcy or insolvency of the Buyer or in the
event any proceeding is brought by or against the Buyer under the
bankruptcy or insolvency laws, the Seller shall be entitled to
cancel any order then outstanding and shall receive reimbursement
for its cancellation charges.
2.
<PAGE> 22
(c) Each shipment shall be considered a separate and independent
transaction, and payment therefor shall be made accordingly. If
shipments are delayed by the Buyer, payment shall become due on
the date when the Seller is prepared to make shipment. If the
work covered by the purchase order is delayed by the Buyer,
payments shall be made based on the purchase price and the
percentage of completion. Products held for the Buyer shall be at
the risk and expense of the Buyer.
(d) Customer grants and ATMI retains a purchase money security
interest in each Product furnished hereunder and any proceeds
thereof, until the full purchase thereof shall have been paid in
full.
6 SHIPPING DATES All shipping dates are estimates only and are dependent upon
prompt receipt of the necessary information from Buyer. Shipments may be made in
installments. Seller shall be excused from performance and shall not be liable
for any delivery or for non delivery, in whole or in part, caused by the
occurrence of any contingency beyond the reasonable control of Seller, including
but not limited to war (whether an actual declaration thereof is made), sabotage
or other act or civil disobedience, judicial action, labor dispute, accident,
defaults of suppliers, fire, act of God, shortage of labor, fuel, raw materials
or machinery or technical or yield failure where Seller has exercised ordinary
care in the prevention thereof. Seller may at its sole discretion allocate
production and delivery among Seller's customers.
7 RESCHEDULING/CANCELLATION
(a) No delivery delay requested by Buyer on an order placed will be
effective unless covered by an amendment to the order that
provides for the payment of any agreed upon costs the delay
imposes on Seller and that it is signed by a duly authorized
representative of Seller.
(b) Products returned for convenience of Buyer if accepted by Seller
shall be subject to a restocking fee.
(c) Buyer may not cancel or reschedule any order scheduled for
delivery within thirty (30) days
(d) A cancellation charge shall be assessed to Buyer on order for
standard ATMI products which are canceled within sixty (60) days
of the scheduled delivery date. The amount of such charge shall
be based on the quantity canceled and the time remaining.
3.
<PAGE> 23
ADVANCED Advanced Telecommunications Modules Inc
TELECOMMUNICATIONS 1130 E. Arques Avenue
MODULES Sunnyvale, CA 94086
Ph 408 523 1400
Fx 408 523 1410
June 12, 1996
Com21, Inc
1991 Landings Drive
Mountain View, CA 94043
Dear Sir:
INTERNATIONAL OEM AGREEMENT
We refer to the above agreement entered into between us on 7th March 1996
("Agreement").
We have discussed certain provisions of the Agreement and agreed that certain
changes and additions, as set out in this letter will be made to the Agreement.
This letter sets out the terms of our agreement as follows:
1. Defined terms in the Agreement shall have the same meaning in this
letter.
2. Clause 6.1 of the Agreement shall be amended by:
2.1 the deletion of the words "an exclusive" in the first line of that
clause and the insertion, in the same place, of the words "a non
exclusive"; and
2.2 the deletion of the words "Exhibit H" in the fourth line of that clause
and the insertion in the same place, of the words "Exhibit G"
such that Clause 6.1 shall, from the date of the letter be deemed to
read:
6.1 License to purchaser. Manufacturer hereby grants to Purchaser a
non exclusive (except for the usage rights reserved to
Manufacturer),royalty-free, fully paid license to use,
distribute, demonstrate and sub-license the object code of the
Software in the Territory specified in Exhibit G attached hereto
in carrying out the Purchaser's obligations under the provisions
of this Agreement. The license shall terminate on the
termination of this Agreement for any reason.
3. COM21 hereby unconditionally and irrevocably waives any claim that it
has or which it may have as a result of any breach of Clause 6.1 which
may have occurred prior to the date of this letter.
4. ATM Inc. will not, for a period of two years from the date of this
letter manufacture for sale cable modem head-end devices.
5. ATM Inc. will not from the date of your acceptance of the terms of the
letter, convey to any other party COM21 technology information or COM21
product features that ATM Inc. learns during the course of doing
business with COM21 unless such information is or falls into the public
domain (other than in breach of the terms of this letter or any other
confidentiality agreement between us).
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
4.
<PAGE> 24
6. The remaining terms in the Agreement, including for the avoidance of
doubt Clause 10, shall remain in full force and effect and shall remain
binding obligations of ATM Inc. and COM21 in accordance with their
terms.
7. This letter shall be covered by and construed under the laws of the
State of California, USA. The federal and state courts within the State
of California shall have exclusive jurisdiction to adjudicate any
dispute arising out of this letter. COM21 expressly consents to (1) the
personal jurisdiction of the federal and state courts within California,
(ii) service of process being effected upon it by registered mail sent
to the address set forth at the beginning of this letter, and (iii) the
uncontested enforcement of a final judgement from such court in any
other jurisdiction wherein COM21 or any of its assets are present.
We should be grateful if you could indicate your acceptance of the above terms
by signing and returning the enclosed copy letter to us.
Yours faithfully
- ---------------------------------------
for and on behalf
ATM Inc.
We hereby and agree to and accept the terms of this letter.
- -----------------------------------
For and on behalf of COM21, Inc.
- ----------------------
Date
5.
<PAGE> 1
Exhibit 10.11
Agreement No:
AGREEMENT FOR MANUFACTURING SERVICES
This Agreement ("Agreement") is made as of this 25th day of
October, 1996 between: Celestica, Inc., 844 Don Mills Road, North York, Ontario,
Canada M3C 1V7 ("Celestica") and COM21, Inc., 1991 Landings Drive, Mountain
View, CA 94043 ("Customer")
1. DEFINITIONS.
a. "Days" means calendar days unless otherwise specified.
b. "Product(s)" means the Celestica part number(s) or
assembly(ies) identification numbers specified for the Customer.
c. "Services" means the manufacturing services to be provided by
Celestica and other services as may be agreed upon by the parties.
d. "NRE" means the non-recurring expenses including, but not
limited to, engineering effort, tooling, fixtures or other similar
appurtenances.
2. TERM.
2.1 This Agreement commences on July 1, 1996 and ends on December
31, 1998 unless ended earlier in accordance with this Agreement. Celestica will
inform Customer in advance of the expiry date of the initial term of this
Agreement.
2.2 This Agreement may be renewed for additional one year terms
upon ninety days written notice prior to the end of the initial term or renewed
term subject to mutually agreed upon modifications, if any.
3. SCOPE OF THE WORK.
3.1 Upon receipt of a purchase order from Customer, Celestica
will sell Products and provide Services to Customer in accordance with this
Agreement.
3.2 Each purchase order will specify the quantity of Product
required, the Services to be provided, if applicable, the prices agreed upon,
and the required delivery dates. Celestica will use its best efforts to
acknowledge Customer's purchaser order within five (5) business days and
indicate the ship date for Product(s).
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3.3 Customer will provide Celestica all required information
including all drawings, specifications, bills of material, and the Approved
Vendors List, if applicable, for use in performance of the Service. Celestica
shall not make or incorporate any change in the Products without the prior
written approval of Customer.
3.4 If Customer provides any test equipment or software,
Celestica will perform tests using such equipment or software according to
Customer's instructions. Celestica assumes no liability for defects in
Product(s) where failure to isolate the defect is attributable to such equipment
or software.
3.5 Customer may contract with Celestica to develop the required
unit functional test procedures and provide the necessary test equipment on
mutually agreed upon terms.
4. SHIPPING.
4.1 All Products will be shipped F.O.B. Celestica's plant, 844
Don Mills Road, North York, Ontario or other Celestica authorized locations.
Celestica will use its best efforts to meet Customer delivery requirements.
Celestica will not be liable for any costs or expenses which might be incurred
by Customer as a result of delays in delivery.
4.2 Title and risk of loss to Products will pass to Customer upon
delivery to the carrier for shipment to Customer, irrespective of whether or not
Celestica has arranged for transportation according to Customer instructions.
4.3 Celestica will accept purchaser orders for different ship
locations provided that each ship location is identified on the purchase order
and provided that a minimum quantity of Product as agreed to by the parties is
shipped to each designated location. Customer may change a ship location by
providing a minimum seven days prior notice to Celestica.
5. PRICING AND PAYMENT TERMS.
5.1 Customer agrees to pay Celestica for the Products and
Services at the prices identified in Schedule A. All prices refer to U.S.
dollars. Service charges will include one-time non-recurring expenses (NRE).
Payment of NRE charges do not confer any rights in or title to such tooling,
fixtures, or other appurtenances unless otherwise indicated in Schedule A.
Payment terms are net thirty days and are subject to a 18% annual late payment
charge.
5.2 Customer agrees to pay any taxes, duties or government levies
resulting from this Agreement excluding any taxes on Celestica's income.
2.
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5.3 Pricing will be reviewed and may be adjusted on a calendar
quarterly basis. Any pricing changes will be reflected in revised Schedule A
documents.
5.4 Cost reductions in material or manufacturing value-add or
assembly and test processes will be shared equally between Celestica and
Customer. Cost reviews will be conducted quarterly once Product shipments
commence with identified reductions to be implemented in the subsequent quarter
as reflected in revised Schedule A documents.
6. PURCHASER ORDER(S)/FORECAST.
6.1 Customer will provide to Celestica purchase orders for a
minimum of six months of order activity. Customer will also provide a forecast
for an additional twelve months of order activity which will be updated on a
monthly basis. Celestica will purchase material to fulfill purchase orders and
forecasts based on material lead time and pricing considerations.
6.2 Any increase in total quantity of Product ordered constitutes
an unplanned order to which normal lead times apply. If Customer requests and
Celestica accepts short lead time order(s), Customer is responsible for any
premium costs incurred by Celestica in fulfilling such orders.
7. PURCHASE ORDER CANCELLATION.
7.1 Customer may not cancel any order scheduled to be shipped
within thirty days. In addition, Customer may not cancel any orders for
prototypes, pre-production pilot orders, or one-time orders for products unless
otherwise agreed to in writing by Celestica.
7.2 Upon written notice to Celestica, Customer may cancel
purchase orders for Products in whole or in part. Cancellation charges apply to
orders scheduled to ship between 31 days and 90 days from date of the order.
Celestica will use reasonable efforts to cancel any components on order and use
non-cancelable components to fulfill other customer orders requiring the same
components in an attempt to mitigate charges to Customer. Following such
efforts, Celestica will advise Customer of the cancellation charges due. Any
cancellation charges would not exceed the maximum amounts stated below:
<TABLE>
<CAPTION>
Number of days written notice of Applicable payment for each product
cancellation received prior to cancelled (expressed as a % of the
scheduled ship date purchase order)
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<S> <C>
[*] [*]
</TABLE>
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
3.
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<TABLE>
<CAPTION>
Number of days written notice of Applicable payment for each product
cancellation received prior to cancelled (expressed as a % of the
scheduled ship date purchase order)
- -------------------------------- ----------------------------------
<S> <C>
[*] [*]
[*] [*]
</TABLE>
7.3 In the event of cancellation, in addition to the cancellation
charges stated in 7.2, Customer will be responsible for the costs of long lead
time components purchased on behalf of Customer which Celestica is unable to
mitigate. Celestica will provide a summary of such costs to Customer within
thirty (30) days of notice of cancellation.
8. PURCHASE ORDER RESCHEDULING.
8.1 Orders which are scheduled within thirty days of the
scheduled shipment date cannot be rescheduled.
8.2 For orders scheduled to ship within 31 to 60 days, [*] of the
total quantity of Product may be rescheduled once but not for more than 60 days
from the original scheduled ship date.
8.3 For orders scheduled to ship within 61 to 90 days, [*] of the
total quantity of Product may be rescheduled once but not for more than 60 days
from the original scheduled ship date.
8.4 For orders with multiple ship dates, rescheduling refers to
each date designed on the purchase order(s). Customer will be responsible for a
[*] per month carrying charge for material costs incurred by Celestica to meet
the original ship date and which Celestica is unable to mitigate.
8.5 If a reschedule represents an acceleration or increase.
Celestica will use its best efforts to meet the request subject to material and
capacity availability. Any extra costs incurred to meet the request will be the
responsibility of the Customer and will be mutually agreed to in writing prior
to Celestica taking any action concerning Customer's request.
8.6 In the event that Celestica is unable to supply the Product
due to conditions outside of Celestica's control and the scheduled shipment date
cannot be met, Celestica will reduce the quantities supplied to Customer
proportionately in relation to the quantities ordered by Customer and to the
reductions in quantities given to other Customers.
9. ENGINEERING CHANGES.
9.1 Either party may request an engineering change by submitting
a written request. The receiving party will review the request and advise on its
position within a reasonable time, but no more than five days after receiving
the written request. A written acknowledgment signed by both parties is required
to implement an engineering change.
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
4.
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Celestica will provide a response to any engineering change ("EC") issued by
Customer requiring a "Stop Build" or "Stop Ship" within one working day of
receiving the request.
9.2 Should Celestica encounter manufacturing problems which are
related to Customer's design, Celestica will notify Customer. Where such
problems are attributable to the design provided by Customer, Celestica will
review the problems with Customer and based on such explanation, Customer will
be responsible for the costs incurred by Celestica to correct such problems.
Celestica will not implement any changes to Customer's design without Customer's
prior written approval. Where such changes delay the scheduled shipment dates
for Product, Customer may not cancel any orders for Product affected by the
delay.
10. WARRANTY.
10.1 Prototypes and pre-production/pilot products are provided
"AS IS" without warranty of any kind.
10.2 For all other products, Celestica warrants that the
Product(s) sold under this Agreement will be free from defects in workmanship
for a period of thirty days or such longer period as may be stated in Schedule A
commencing from the date of shipment from Celestica provided that: (a) Customer
notifies Celestica in writing within thirty days after discovery of the defect;
or (b) the defective Product is returned to Celestica no later than ten days
following the last day of the warranty period. All Products require a Return
Material Authorization (RMA) from Celestica prior to their return which will be
issued within five (5) days from receipt of Customer's request. Customer will
advise Celestica prior to returning any Product for repair. Customer agrees to
provide its screen plan to Celestica and to test all products using the screen
plan prior to returning any Product to Celestica.
10.3 This warranty does not include defects as a result of, but
not limited to, errors in design, test data, diagnostics, application
specifications, lack of design margin, errors in specifications, or errors in
bills of materials as provided or directed by Customer.
10.4 This warranty is null and void if the Product is misused,
modified, damaged, placed in an unsuitable physical or operating environment,
maintained improperly or caused to fail by a product not provided by Celestica.
10.5 Celestica will include serial numbers on each Product to
facilitate the warranty tracking. All new Product will have a serial number
different from that of the replaced Product. Customer will forward the defective
Product to Celestica freight prepaid. Celestica will repair or replace the
Product and use its best efforts to ship Product freight prepaid to Customer no
later than thirty days from the date Celestica receives the defective Product.
In the case of replaced Product, title to the defective Product passes to
Celestica and title to the replaced Product passes to Customer.
5.
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10.6 Customer agrees to pay Celestica: (i) shipping charges and
duties, and (ii) a no defect found (NDF) charge as identified in Schedule A per
Product unit for each Product returned to Celestica for warranty repair or
replacement that are found by Celestica to conform to the product
specifications. Celestica's decision in such cases is binding and Products or
component parts will be returned to Customer F.O.B. origin, freight collect.
10.7 The foregoing warranty provisions set forth Celestica's sole
liability and Customer's exclusive remedies for claims based upon defects in, or
failure of any Product sold hereunder when the claim is based on warranty. Upon
the expiration of the warranty for a Product sold hereunder, all such liability
will terminate.
10.8 The above warranty periods shall not be extended by the
repair or replacement of Product.
THIS WARRANTY REPLACES ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OR CONDITIONS OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE IN NO EVENT SHALL A PARTY BE
LIABLE FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES INCLUDING LOSS OF
PROFITS, EVEN IF THAT PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
11. TERMINATION.
11.1 FOR CAUSE: This Agreement may be terminated by either party
at any time upon the occurrence of any one or more of the following events:
a. Failure of a party to perform pursuant to this
Agreement and to cure such failure within thirty days after receiving written
notice from the other party;
b. Any act of bankruptcy by a party, except an act of
bankruptcy arising from a proceeding instituted against a party and such
proceeding is dismissed within one hundred and twenty (120) days, appointment of
a receiver or receiver and manager of a party by a court or creditor, and an
order made or resolution passed to wind up the party; or
c. The insolvency of a party.
11.2 FOR CONVENIENCE: This Agreement may be terminated by either
party without cause upon one hundred and twenty (120) days written notice to the
other.
11.3 Upon termination, Customer shall be liable for any material
acquired plus handling charges pursuant to purchase orders and long lead time
items purchased in accordance with Section 6. Any such material will be shipped
to Customer upon receipt of payment for same by Customer. Customer will also be
liable for any unamortized investment
6.
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incurred specifically for Customer and for which prior written consent had
previously been obtained from Customer.
11.4 Upon the termination of this Agreement, Celestica shall (i)
cease all manufacture of Product(s) by Celestica, and (ii) return to Customer
all plans, documents, specifications and bills of material that Celestica
received from Customer, if so requested by Customer.
12. INSPECTION.
12.1 Upon request, Celestica agrees to allow Customer's source
inspector to inspect the work being performed under this Agreement, including
materials and supplies being used, subject to Celestica's then existing
confidentiality restrictions and security requirements.
12.2 Upon request, Customer agrees to allow Celestica's source
inspector to inspect processes using the Product being supplied under this
Agreement, subject to Customer's then existing confidentiality restrictions and
security requirements.
12.3 Customer shall have thirty days, after receipt of the goods,
within which to inspect and accept the goods and the inspection shall be based
upon Customer's standard test procedures established by Customer and agreed to
by Celestica. For Product rejected by Customer, Celestica shall, at its
discretion, replace such Product, issue a credit against other amounts owing, or
reimburse the amounts paid for such Product.
13. APPROVED MANUFACTURERS. In the course of purchasing component parts
on behalf of Customer, Celestica will follow Customer's approved vendors list.
To use other vendors, Celestica must obtain Customer's written consent. Customer
agrees to supply this approval or non-approval within ten working days of
receipt of a request from Celestica. Celestica will not be liable for any delays
in shipment or additional costs which may be incurred through the use of
Customer's approved vendors.
14. TRADEMARKS AND TRADE NAMES. Nothing in this Agreement gives either
party a right to use the other party's name, trademark(s), trade name(s) or
refer to this Agreement directly or indirectly, in connection with marketing
activities of any kind without the other party's prior written consent.
15. FREEDOM OF ACTION. Except for the confidentiality requirements, this
Agreement shall not prevent Celestica or its affiliates from marketing,
acquiring, or developing materials, products or services which are similar or
competitive to those of Customer. Celestica may pursue activities independently
with any third party, even if similar to the activities under this Agreement.
7.
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16. INTELLECTUAL PROPERTY RESPONSIBILITIES.
16.1 As Customer will be providing all of the design work,
Customer represents that there are no known rights of others that cover the
Products to be manufactured by Celestica, or the services that Celestica will be
requested to perform under this Agreement, for or under license from Customer.
Customer shall settle or defend, at Customer's expense, and shall
pay any damages, costs or fines resulting from all proceedings or claims against
Celestica and its affiliates for infringement or alleged infringement of
patents, trademarks, copyrights, trade secret rights of others and of any other
third party intellectual property rights in relation to (i) the Products
provided or the services performed by Celestica under this Agreement or any part
thereof, and (ii) the methods or processes of design, manufacture, assembly, or
testing of such Products, where such methods or processes are specified,
required or directed by Customer. Celestica agrees to notify Customer promptly
in writing of any such proceedings or claims.
Customer agrees that Celestica has the right to retain counsel
and participate at Celestica's expense in the defence of any such proceeding or
claim and to assist in any settlement negotiations.
16.2 Nothing contained in this Agreement will be deemed to grant
to either party either directly or by implication, estoppel or otherwise, any
license or other right under any patents, patent applications or non-patent
rights owned by or licensed by the other party. Nothing in this Agreement gives
Customer any right or license by implication, estoppel or otherwise to the items
resulting from the NRE charges to any design, information or manufacturing
processes of Celestica.
17. CONFIDENTIAL INFORMATION. If disclosure of confidential information
is required under this Agreement, it will be made pursuant to the
confidentiality agreement between the parties referenced as the Agreement for
Exchange of Confidential Information (Agreement 95051).
18. FORCE MAJEURE. Neither party shall be considered in default or
liable for any delay or failure to perform under this Agreement due to causes
beyond its control. Such causes may include, but not be limited to, an act of
nature, acts of the public enemy, freight embargoes, strikes, quarantine
restrictions, unusually severe weather conditions, insurrection, riot and other
causes beyond control.
19. INDEMNIFICATION. Each party shall indemnify and defend the other
party against all claims, suits, losses, expenses and liabilities for bodily
injury, personal injury, death and property damage caused by any Products or
through the willful acts or negligence of a party, its employees or agents. Both
parties shall maintain sufficient liability insurance to cover their obligations
under this Agreement.
8.
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20. EXPORT REGULATIONS. Customer agrees to comply with all applicable
export control laws and regulations and hereby gives its written assurance that
Products, in whole or in part, are not intended to be shipped, directly or
indirectly, to prohibited countries. Customer is responsible for obtaining any
government documents and approvals prior to export of Products.
21. MISCELLANEOUS.
a. Any rights or obligations under this Agreement, which by their
nature continue after it ends, will remain in effect until they are completed.
b. Changes to this Agreement must be signed by both parties.
Additional or different terms in any purchase orders or other written
communications will have no legal effect.
c. Notices can be:
(i) delivered personally
(ii) mailed to the other party at the address
indicated in this Agreement
(iii) delivered by electronic communication,
including facsimile.
Notices by mail will be effective five days after the postmark
date. Electronic notices will be effective when received. Any notices sent to
Celestica will be addressed to the Director of Marketing. Any notices sent to
Customer will be addressed to the President.
d. Neither party may bring an action under this Agreement more
than two years after the cause of action arose. If Customer does not meet its
payments, each time it does not pay will be considered a new cause for action.
e. Neither party may assign this Agreement, in whole or in part,
without the prior written consent of the other party.
f. A waiver signed by the waiving party is required to waive a
right under this Agreement.
g. If there is any conflict between this Agreement and the
confidentiality agreement, this Agreement will prevail.
h. This Agreement is governed by the laws of the State of New
York, exclusive of any provisions of the United Nations Convention on the
International Sale of Goods and without regards to principles of law.
9.
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i. This Agreement and the supplements (Schedule A and Schedule B)
constitute the entire agreement between the parties and supersede all prior oral
or written agreements, representations and communications between the parties
relating to the subject matter of this Agreement.
AGREED TO:
Celestica, Inc. COM21, Inc.
By: By:
------------------------------- -------------------------------
Name: Name:
----------------------------- -----------------------------
Title: Title:
---------------------------- ----------------------------
Date: October 25, 1996 Date: October 25, 1996
----------------------------- -----------------------------
10.
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SCHEDULE A TO THE AGREEMENT FOR
MANUFACTURING SERVICES
Pricing: First [*] units [*] per unit
Next [*] units [*] per unit
Order minimums: [*] per month
Customer is not obligated to place purchase orders for each
calendar month. However, any purchase orders issued will not
reflect a quantity of less than [*] units for shipment in a
particular month.
Warranty: [*] on workmanship from date of shipment
NDF charges: [*] To be reviewed when Celestica receives
Customer's screen plan.
AGREED TO:
Celestica, Inc. COM21, Inc.
By: By:
------------------------------- -------------------------------
Name: Name:
----------------------------- -----------------------------
Title: Title:
---------------------------- ----------------------------
Date: October 25, 1996 Date: October 25, 1996
----------------------------- -----------------------------
*Certain information on this page has been omitted and filed separately with the
Commission. Confidential treatment has been requested with respect to the
omitted portions.
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SCHEDULE B TO THE AGREEMENT FOR
MANUFACTURING SERVICES
In order to assist Celestica in meeting lead times, Customer authorizes
Celestica to purchase the long lead time components/parts listed below. Customer
agrees that if Celestica is unable to use such components/parts in Customer's
Product and is unable to mitigate its material, acquisition and inventory
carrying costs for same, Customer will reimburse Celestica for any such costs
not recovered by Celestica. This authorization forms a part of the
above-referenced Agreement.
AGREED TO:
Celestica, Inc. COM21, Inc.
By: By:
------------------------------- -------------------------------
Name: Name:
----------------------------- -----------------------------
Title: Title:
---------------------------- ----------------------------
Date: October 25, 1996 Date: October 25, 1996
----------------------------- -----------------------------
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Confidential
DISTRIBUTION AGREEMENT
This Distribution Agreement (the "Agreement") is entered as of
November 26, 1997 by and between Com21, Inc. ("Com21"), a Delaware corporation,
with its principal place of business at 750 Tasman Drive, Milpitas, California
95035 and Philips Public Telecommunication Systems ("Philips"), a division of
Philips Electronics Australia Ltd., an Australian corporation, with its
principal place of business at Monash Gateway, 745 Springvale Road, Mulgrave,
VIC 3170 Australia.
RECITALS
1. Com21 intends to enable and drive development of broadband
services through high speed delivery of information over Hybrid Fiber Coax
("HFC") cable networks.
2. Com21 is developing cable modems based on subscriber
equipment technology related to broadband services over HFC cable networks and a
headend distribution system for use in such cable networks.
3. Philips Broadband Networks, part of Philips Electronics,
N.V. is involved in the data over cable market, through its Affiliate (defined
below), Philips, as a systems integrator and distributor of an end-to-end
product solution.
4. Philips wishes to be a distributor of Com21 data cable
modems and Com21 headend distribution systems in the Territory (defined below)
and serve as the marketing and technical lead-house for such distribution with
involvement of other entities within the Philips Broadband Networks
organization, including Affiliates of Philips' national sales organizations and
value added resellers.
AGREEMENT
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS.
1.1 "Affiliate" means any entity directly or indirectly controlling,
controlled by or under common control with that party where control means the
ownership or control, directly or indirectly, of more than fifty percent (50%)
of all of the voting powers of the shares (or other securities or rights)
entitled to vote for the election of directors or other governing authority or
otherwise having power to control such entity's general activities, but only for
so long as such ownership or control shall continue.
1.2 "Com21 Cable Modem" means the Com21 subscriber-end data over cable
modem, as described in Exhibit A (Com21 Products) attached hereto.
1.3 "Com21 End User" means an End User who has purchased or been quoted
a Com21 Product directly from Com21.
Distribution Agreement
1
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Confidential
1.4 "Com21 Headend" means the headend controller unit developed by
Com21, as described in Exhibit A (Com21 Products).
1.5 "Com21 Products" means collectively the Com21 Cable Modem, Com21
Headend and Com21 Software.
1.6 "Com21 Software" means the Com21 Network Management Applications
Programs in object code form and related documentation provided by Com21, as
described in Exhibit A (Com21 Products) and firmware contained in the Com21
Products.
1.7 "Effective Date" means the date this Agreement is executed by the
last party to execute this Agreement as indicated below.
1.8 "End User" means a cable owner or operator, multiple systems
operator, program provider or any holding company or affiliate thereof.
1.9 "First Level Support" means the class of service provided to End
Users in which technical support staff is competent to answer technical
inquiries regarding the Com21 Products, perform remedial hardware determination
and installation and configuration support of the Com21 Products, identify the
cause of a problem, replicate the problem at either the End User site or
Phillips test facility, and implement a solution for a problem which is not the
result of an Error (as such term is defined in Exhibit D). In the case of an
Error, the technical staff is competent to identify the source of the Error and
create a reproducible test case and document the details of the Error for
escalation to Com21.
1.10 "Territory" means the world, excluding the Republic of South Korea
and the Democratic Peoples' Republic of Korea (North Korea).
2. APPOINTMENT; TERRITORY; COM21 PRODUCTS.
2.1 Appointment. Subject to all the terms and conditions of this
Agreement, Com21 hereby appoints Philips for the term of this Agreement as a
non-exclusive distributor of the Com21 Products only within the Territory. Com21
Products distributed by Philips for further distribution may be distributed only
through subdistributors who have been pre-approved in writing by Com21 and who
are bound in writing to all the restrictions on Philips contained in this
Agreement. Com21 agrees not to distribute Com21 Products directly to any End
User located outside of North America to whom Philips has previously supplied a
Com21 Product; provided that Com21 shall not be restricted from distributing
Com21 Products to (a) any original equipment manufacturer or (b) any End User
that objects to obtaining the Com21 Products from Philips for reasons relating
to service or support despite Com21's good faith efforts to encourage such End
User to purchase the Com21 Products from Philips. Nothing in this Agreement,
however, shall be construed as limiting in any manner Com21's marketing or
distribution activities within North America or its marketing activities or
appointment of other dealers, distributors, licensees or agents anywhere in the
world.
2.2 Territorial Restrictions. Philips may distribute Com21 Products
only to persons and entities located and taking delivery within the Territory.
Philips acknowledges and
Distribution Agreement
2
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Confidential
understands that Com21 has granted Dacom International and Dacom, Inc. exclusive
rights to distribute the Com21 Products in the Republic of South Korea and, when
distribution becomes legally permissible, in the Democratic Peoples' Republic of
Korea (North Korea) (the "Excluded Territory") pursuant to that certain
Distribution and Manufacturing License Agreement by and among Com21, Dacom
International and Dacom, Inc. dated June 26, 1996. No distribution of a Com21
Product shall be made by Philips, any Affiliate or subdistributor to any person
or entity where Philips knows or has reason to believe that the ultimate end
user of such Com21 Product is located within the Excluded Territory and any such
distribution will result in immediate termination of this Agreement.
2.3 Com21 Products. Com21 reserves the right to change, modify or
discontinue any Com21 Product in its sole discretion at any time. Com21 shall
have the right to discontinue any Com21 Product in its sole discretion, provided
that Com21 makes available to Philips a functionally similar product. Any such
modified, changed or functionally similar product shall be a Com21 Product
hereunder. Com21 will notify Philips as soon as practicable, but in no event
less than ninety (90) days, of any plans to discontinue a Com21 Product.
Following such notice, Com21 and Philips will discuss the customer and business
impact of such Com21 Product discontinuation. Com21 will use commercially
reasonable efforts to fulfill all orders by Philips, accepted by Com21, of the
discontinued Com21 Product.
2.3.1 New Com21 Products. Com21 will use commercially
reasonable efforts to notify Philips of the development of any update,
enhancement or improvement of a Com21 Product or a new Com21 Product (each, a
"New Com21 Product"). Com21 will, in its sole discretion, provide Philips beta
versions of New Com21 Products when Com21 first makes such beta versions
available for distribution. Each New Com21 Product will be made generally
available to Philips as a Com21 Product, subject to the terms and conditions
hereof, at the same time as such Com21 Product is made generally available in
the United States by Com21. The Com21 Product list as per Exhibit A will be
maintained with all New Com21 Products.
2.3.1.1 Test Products. Com21 agrees to provide to
Philips, for no longer than four (4) months, as a bailee, one (1) unit of each
New Com21 Product to perform qualification testing. All New Com21 Products
furnished by Com21 to Philips under this Section 2.3.1.1 (Test Products)
("Bailed Property") shall: (i) be clearly marked or tagged as Com21's property;
(ii) be and remain personal property and not become a fixture to real property;
(iii) be subject to inspection by Com21 at any time; (iv) be used only for
qualification testing by Philips; (v) be kept free of liens and encumbrances;
(vi) be kept separate from other materials, tools or property of or held by
Philips; (vii) not be modified in any manner by Philips; and (viii) shall be
stored in a safe place and environment. In the event Philips uses the Bailed
Property for any purpose other than to conduct qualification testing as
specified herein without Com21's prior written consent, Philips agrees to
purchase such Bailed Property at Com21's list price for such Bailed Property.
Com21 shall retain all rights, title and interest in and to the Bailed Property
and Philips agrees to treat and maintain the Bailed Property with at least the
same degree of care as Philips uses with respect to its own valuable equipment.
Philips shall bear all risk of loss or damage to the Bailed Property until it is
returned to Com21. Upon Com21's request, Philips shall promptly return and
deliver all Bailed Property to Com21 in good condition, normal wear and tear
excepted, without cost to Com21 (exclusive of freight costs); Com21 shall
determine the manner and procedure for returning the Bailed Property and
Distribution Agreement
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shall pay the corresponding freight costs. Philips waives any legal or equitable
right it may have to withhold the Bailed Property and Philips agrees to execute
all documents or instruments evidencing Com21's ownership of the Bailed Property
as Com21 may from time to time request.
2.4 Software License. The appointment granted in Section 2.1
(Appointment) above includes a non-exclusive, non-transferable,
non-sublicensable (except as provided in Section 2.4.1 below) license to (i) use
the Com21 Software solely to operate and support Com21 Cable Modems and Com21
Headends and (ii) distribute the Com21 Software, but only for use with Com21
Cable Modems and Com21 Headends, subject to the terms and conditions set forth
in this Agreement. All copies of the Com21 Software and of any software or
firmware contained in the Com21 Products are licensed for distribution only and
not sold.
2.4.1 Distribution Restrictions. No distribution or license of
the Com21 Software by Philips shall be made except pursuant to an enforceable
written agreement (an "End-User License Agreement") signed by the end-user
customer that is at least as protective of Com21 and its rights as Com21's
standard end-user software license agreement, set forth in Exhibit B (Com21
End-User Software License Agreement) attached hereto. Notwithstanding the
foregoing, Philips may include additional terms and/or conditions in an End-User
License Agreement, but has no obligation hereunder to do so, provided that such
additional terms or conditions do not diminish Com21's protections or rights as
provided under the Com21 End-User Software License Agreement.
3. INTEROPERABILITY OF OTHER PRODUCTS WITH COM21 SOFTWARE.
3.1 Development by Com21 of Open APIs. Com21 agrees to use commercially
reasonable efforts to undertake and complete development of open application
programming interfaces ("APIs") for the Com21 Software.
3.2 Development of Interoperable Products. Philips shall have the
unrestricted right to develop software that operates with the Com21 Software
through the APIs ("Philips Software Applications"). Notwithstanding the
foregoing, Philips is not entitled to receive any source code or source
documentation to the Com21 Software, except as expressly provided in this
Section 3.2. Com21 hereby grants Philips a non-exclusive right, subject to all
the terms and conditions of this Agreement, to reproduce and use the APIs to
develop Philips Software Applications. Com21 agrees to make available to Philips
specifications to facilitate development by Philips of external network
management systems, systems management systems and subscriber management
software that are interoperable with the Com21 Software ("Interoperable
Software"). If Com21 and Philips decide to undertake development of any
Interoperable Software or API jointly, then Com21 agrees to permit Philips to
use the Com21 Software source code solely for the limited purpose of such joint
development under terms and conditions to be set forth in a separate written
agreement and executed by the parties.
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4. OWNERSHIP.
4.1 Com21. As between the parties, Com21 retains and shall exclusively
own all title to, and except as expressly and unambiguously licensed herein, all
rights and interest in the Com21 Software, any and all APIs for the Com21
Software (by whomever produced, but excluding Philips Software Applications and
Interoperable Software developed solely by or on behalf of Philips), any other
software or firmware contained in the Com21 Products, documentation, all
modifications, improvements and derivative works (by whomever produced) of the
foregoing and all proprietary and intellectual property rights throughout the
world in the foregoing. Subject to Section 4.2, Philips hereby makes any
assignment necessary to accomplish the foregoing ownership provision. Com21 will
have the exclusive right to, and, at Com21's expense, Philips agrees to assist
Com21 in every proper way (including, without limitation, becoming a nominal
party) to, evidence, record and perfect the assignment and to apply for and
obtain recordation of, and from time to time enforce, maintain and defend, such
proprietary rights. Philips will execute all documents Com21 may reasonably
request for such purposes.
4.2 Philips. As between the parties, Philips shall own all right, title
and interest in and to its products (including, without limitation, software and
documentation), Interoperable Software and Philips Software Applications
developed solely by or on behalf of Philips, all modifications, improvements and
derivative works (by whomever produced) of the foregoing and all proprietary and
intellectual property rights throughout the world in the foregoing. Com21 shall
have no right nor acquire any right whatsoever under this Agreement in any
intellectual property of Philips. Subject to Section 4.1, Com21 hereby makes any
assignment necessary to accomplish the foregoing ownership provision. Philips
will have the exclusive right to, and, at Philips' expense, Com21 agrees to
assist Philips in every proper way (including, without limitation, becoming a
nominal party) to, evidence, record and perfect the assignment and to apply for
and obtain recordation of, and from time to time enforce, maintain and defend,
such proprietary rights. Com21 will execute all documents Philips may reasonably
request for such purposes.
5. SUPPLY TERMS.
5.1 Forecasts. Commencing as soon as practical, but in no event less
than sixty (60) days prior to the first date in which Philips' distribution of a
Com21 Product is projected to occur, Philips shall deliver to Com21 rolling
twelve (12) month forecasts, in writing and updated each calendar quarter, of
Philips' anticipated quantity requirements and shipment dates ("Shipment Dates")
for such Com21 Product. Com21 may reject any forecast submitted by Philips
hereunder in which the forecasted quantity of a Com21 Product exceeds by one
hundred fifty percent (150%) Philips' average forecasted quantity of such Com21
Product during the most recent six (6) month period. If a required forecast is
not submitted for a Com21 Product, the immediately preceding forecast for that
calendar quarter shall become the new forecast. Philips acknowledges that Com21
will use such forecasts to plan manufacturing output of the Com21 Products,
however, Com21 acknowledges that such forecasts are not binding and do not
commit Philips to purchase any quantity of Com21 Products.
5.2 Purchase Orders. Philips shall order Com21 Products from Com21 by
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submitting a written purchase order (an "Order"), at least ninety (90) days
prior to the applicable Shipment Date. Each Order shall identify the Com21
Products and model numbers in the quantities ordered, Shipment Date(s), shipping
instructions and any export/import information required to enable Com21 to fill
the order. Philips shall not submit any order in an amount less than TWO
THOUSAND DOLLARS (US$2,000); provided, however, Philips shall use its best
commercially reasonable efforts to ensure that each order submitted to Com21,
except orders of spare parts and emergency orders, is in an amount of not less
than TWENTY THOUSAND DOLLARS (US$20,000). Com21 shall accept or reject Orders
received from Philips within five (5) days of receipt of such order (the "Order
Acceptance Date"). Com21 shall have no liability to Philips with respect to any
Order which is not accepted by Com21, provided that Com21 shall not reject any
Order which is made in accordance with all of the terms of this Agreement, where
the quantity of units of a Com21 Product ordered does not exceed one hundred
fifty percent (150%) of Philips' average forecasted quantity of such Com21
Product during the most recent six (6) month period and Com21 has not rejected
such forecast.
5.3 Supply of Com21 Products. Notwithstanding the provisions of Section
5.2, during the term of this Agreement, subject to the other terms and
conditions hereof, Com21 shall use its commercially reasonable efforts, and
insofar as practical and consistent with Com21's then current lead time
schedule, shipping schedule, access to supplies on acceptable terms and
allocation of available products and capacity among Com21 customers, to fill (by
full or partial shipment), Philips' Orders accepted by Com21 (i) for forecasted
quantities of Com21 Products within eight (8) weeks following the Order
Acceptance Date and (ii) for unforecasted quantities of Com21 Products not more
than twelve (12) weeks following the Order Acceptance Date. Com21 will use its
commercially reasonable efforts to ship such Com21 Products in shorter intervals
and, whenever possible, Com21 will fill Philips' Orders with Com21 Products held
by Com21 in inventory, provided Com21 has no outstanding obligation to supply
such Com21 Products to a third party.
5.3.1 Supply of Common Components. Following the first
shipment of "commercial grade" Com21 Products, Com21 will use commercially
reasonable efforts to establish and maintain a reasonable quantity of Com21
Product parts or components, to be mutually agreed upon by Com21 and Philips,
for shipment to Philips on a rush basis.
5.4 Delivery. Com21 Products are delivered F.O.B. Com21's plant or
other place of shipment and will be shipped by a freight forwarder specified by
Philips.
5.5 Order Changes; Rescheduling. Philips may, without charge, increase
an Order for any particular Com21 Product provided that Philips gives prior
written notice thereof. Com21 will use commercially reasonable efforts to
accommodate Philips for any Order increase. Cancellation or rescheduling of an
Order for a Com21 Product shall be effective only with prior written notice
received by Com21 and, to the extent Com21 has incurred costs and/or expenses
(excluding general administration and management costs) due to such cancellation
or rescheduling, shall be subject to charges not to exceed the charges set forth
in the following schedule (charges are based on the price of the portion of the
Order that is changed or cancelled), provided Com21 is unable to sell such Com21
Products within a reasonable period of time despite Com21's commercially
reasonable efforts. If an Order is rescheduled for shipment more than one
hundred twenty (120) days after the originally scheduled Shipment
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Date, or if it is rescheduled twice, it will be deemed cancelled.
<TABLE>
<CAPTION>
Notice Period
Before Cancellation Rescheduling
Scheduled Shipment Charge Charge
------------------ ------ ------
<S> <C> <C>
0 to 30 days [*] [*]
31 to 60 days [*] [*]
60 days and more [*] [*]
</TABLE>
5.6 Rejection of Com21 Products in Case of Nonconformity.
5.6.1 Philips may reject any portion of any shipment of Com21
Products which is not conforming in all material respects with the
specifications set forth in Com21's published data sheets applicable to the part
numbers set forth in Exhibit A (Com21 Products). In order to reject a shipment,
Philips must (i) give written notice to Com21 of Philips' rejection of the
shipment within fourteen (14) days of receipt together with a detailed written
indication of the reasons for such rejection and (ii) obtain a Return Materials
Authorization ("RMA") number from Com21. After notice of rejection is given,
Philips shall cooperate with Com21 in determining whether such rejection is
justified. If no such notice of rejection is timely received by Com21, Philips
shall be deemed to have accepted such shipment of Com21 Products.
5.6.2 Com21 shall specify its preferred shipping method for
returned Com21 Products and Com21 shall pay all transportation and insurance
charges for properly rejected Com21 Products and Philips shall be entitled to a
credit in the amount of the purchase price of properly rejected Com21 Products
to be applied to future orders. Com21 shall notify Philips promptly as
reasonably possible whether Com21 accepts Philips' basis for rejection.
5.6.3 Whether or not Com21 accepts Philips' basis for
rejection, Com21 shall use its reasonable efforts, at Philips' request, to
provide replacement Com21 Products which shall be purchased by Philips as
provided herein.
5.7 Prices. Prices of Com21 Products to Philips payable by Philips are
those set forth on Com21's then current price list [*]. Notwithstanding the
foregoing, for Com21 Cable Modems that Philips purchases from Com21 for sale to
End Users located in North America, [*]
(i) [*] during the period in which Philips purchases
up to [*] units of the Com21 Cable Modem in
aggregate worldwide;
(ii) [*] during the period in which Philips purchases
more
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[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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than [*] but less than [*] units of the Com21
Cable Modem in aggregate worldwide; or
(iii) [*] during the period in which Philips purchases
more than [*] units of the Com21 Cable Modem in
aggregate worldwide.
The purchase price to Philips of Com21 Headends purchased by Philips for sale to
End Users located in North America shall be [*]
Com21 shall advise Philips of the then current price of Com21
Products to Philips for sales by Philips to End Users in North America in
accordance with the provisions of this Section 5.7 and Com21 shall use its good
faith efforts to provide Philips with price updates within seven (7) business
days after prices are quoted by Com21. Notwithstanding anything to the contrary
in this Agreement, the foregoing provisions of this Section 5.7 will be
applicable to all New Com21 Products listed in Exhibit A, as amended.
5.7.1 Price Changes. Com21 shall have the right, in its sole
discretion, from time to time or at any time, to change the prices of the Com21
Products with ninety (90) days' prior written notice for price increases. New
prices will apply to all shipments made after such notice period. Orders placed
by Philips within the notice period shall not exceed one hundred fifty percent
(150%) of Philips' average per Order quantities during the previous six (6)
month period of Com21 Products affected by the increase, although Orders in
excess of such quantities may be made but shall be subject to the new increased
price. In the event of any price decrease, Com21 will provide Philips with a
credit towards future orders equal to the difference between (i) the price paid
by Philips for the Com21 Products affected by the decrease that remain in
Philips' inventory upon the effective date of the decrease (not including Com21
Products obtained more than three (3) months before the decrease and Com21
Products obtained more than six (6) months before a price decrease during the
first year of the term of the Agreement) and (ii) the decreased price for the
same amount of such Com21 Products. Prior to any Com21 announcement of a price
decrease and upon Com21's request, Philips shall disclose to Com21 in writing
Philips' inventory of Com21 Products.
[*] In the event, during the term of this Agreement, Com21
enters into an agreement of similar scope with a third party [*]
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[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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5.8 Payment of Purchase Orders. Payment of all Orders shall be made in
U.S dollars by wire transfer to the bank account designated below or such other
bank and account as may be designated by Com21 in writing from time to time.
Terms of payment will be net thirty (30) days from Shipment Date or invoice
date, whichever is later, unless Com21 at any time determines that Philips'
credit is not satisfactory, in which case payment terms shall be by letter of
credit satisfactory to Com21. No part of any payment payable to Com21 hereunder
may be reduced due to any counterclaim, set-off, adjustment or other right which
Philips might have against Com21, any other party or otherwise.
Designated Bank: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, California 95050
Telephone: (408) 654-7400
Routing Number: 121140399
Beneficiary: Com21, Inc.
Account No.: 0272683175
Federal Tax I.D. No.: 94-3201698
5.8.1 Taxes; Late Fees. Philips will pay, indemnify and hold
Com21 harmless from all charges including, without limitation, transportation
charges, any sales, use, excise, ad valorem, import, export, value-added or
similar tax, or other tax or duty not based upon Com21's net income and all
government permit fees, license fees, customs fees and similar fees, duties and
other governmental assessments which Com21 may incur in connection with this
Agreement and the performance of Com21's or Philips' (or any Affiliate's)
obligations hereunder. Any amounts that are not paid on or before such payment
is due shall bear interest at a rate of one percent (1%) per month, calculated
on the number of days such payment is delinquent, or if less, the maximum amount
permitted by law. The foregoing shall in no way limit any other remedy available
to Com21.
6. PHILIPS COVENANTS AND REPRESENTATIONS.
Except as otherwise expressly and unambiguously provided
herein, Philips represents, warrants and agrees:
(i) to notify Com21 of any actual or potential governmental
action relevant to any Com21 Product as soon as Philips becomes aware of such
action;
(ii) not to modify, create any derivative work of, or include
in any other software or make any copies of the Com21 Software or any software
or firmware contained in the Com21 Products or copies or any portion thereof;
(iii) not to delete, alter, obscure, add to or fail to
reproduce in and on any Com21 Product the name of such Com21 Product and any
copyright or other notices appearing in or on any component, copy,
documentation, media, master or package materials provided by Com21 or which may
be required by Com21 at any time;
(iv) not to reverse assemble, decompile, reverse engineer or
otherwise
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attempt to derive the source code (or the underlying ideas, structure, sequence,
organization or algorithms) from the Com21 Software or copies of other software
contained in a Com21 Product or from any other information or allow others to do
any of the foregoing;
(v) to comply with good business practices and all laws and
regulations relevant to this Agreement or the subject matter hereof. In its
distribution efforts, Philips will use the then current names, marks and
designations used by Com21 for the Com21 Products (the "Marks") (but will not
represent or imply that it is Com21 or is a part of Com21). However, all
advertisements, promotional materials, packaging and anything else bearing a
Mark shall identify Com21 as the Mark owner and shall be subject to prior
written approval of Com21, which approval shall not be unreasonably withheld.
Philips agrees not to use or contest during or after the term of this Agreement
any Mark used by Com21 anywhere in the world (or any name, mark or designation
substantially similar thereto). In addition, during the term of this Agreement,
Philips shall cooperate with Com21 in its efforts to register the Marks. Philips
shall not apply to register any of the Marks without Com21's prior written
consent;
(vi) to keep Com21 informed as to any problems encountered
with the Com21 Products and any resolutions arrived at for those problems, and
to communicate promptly to Com21 any and all modifications, design changes or
improvements of the Com21 Products suggested by any customer, employee or agent.
Philips further agrees that Com21 shall have any and all right, title and
interest in and to any such suggested modifications, design changes or
improvements of the Com21 Products, without the payment of any additional
consideration therefor either to Philips, or its employees, agents or customers.
Philips further agrees that it will also promptly notify Com21 of any
infringement of any trademarks or other proprietary rights relating to the Com21
Products of which Philips becomes aware; and
(vii) to comply, to the extent applicable, with the U.S.
Foreign Corrupt Practices Act (regarding among other things, payments to
government officials) and all export laws, restrictions, national security
controls and regulations of the United States and all other applicable foreign
agencies and authorities, and not to export or re-export, or allow the export or
re-export of, any Com21 Product or any copy or direct product thereof (a) in
violation of any such restrictions, laws or regulations or (b) without all
required licenses and authorizations, to Cuba, Libya, North Korea, Iran, Iraq or
Rwanda or to any Group D:1 or E:2 country (or any national of such country)
specified in the then current Supplement No. 1 to part 740 of the U.S. Export
Administration Regulations (or any successor supplement or regulations). Philips
shall promptly execute any documents required by Com21 to comply with U.S.
export requirements or demonstrate to Com21 its compliance with such
requirements. Philips shall obtain and bear all expenses relating to any
necessary licenses and/or exemptions with respect to the export from the U.S. of
all Com21 Products, material or items deliverable by Com21 hereunder to any
location and shall demonstrate to Com21 compliance with all applicable laws and
regulations prior to delivery thereof by Com21.
7. MARKETING OF COM21 PRODUCTS. Philips shall use its commercially reasonable
efforts to successfully market the Com21 Products through existing and new
distribution channels, provide systems integration services for End Users and
provide First Level Support (including installation, training and other support)
to End Users on a continuing basis. Com21 will provide Philips with updated
information on product positioning,
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competitive products and other appropriate marketing tools as agreed upon by the
parties on an as needed basis. In connection with certain large sales
opportunities or presentations, Com21, upon Philips' request, will use
commercially reasonable efforts to provide Philips with technical and marketing
presales support, as mutually agreed by the parties. Each party shall bear its
own costs and expenses incurred in connection with its sales and marketing
efforts, unless otherwise agreed to in advance by both parties.
8. TRAINING AND SUPPORT OF COM21 PRODUCTS.
8.1 Training. Com21 will provide Philips personnel a total of two (2)
man days of sales training in connection with sales and marketing of the Com21
Products and ten (10) man days of technical training in connection with
installation and support of the Com21 Product per annum. Training will be
conducted at mutually agreeable times and locations; provided Philips shall pay
reasonable travel, lodging and meal expenses incurred by Com21 in connection
with providing technical training at a location other than Com21's facilities.
Each party shall bear its own sales and marketing training expenses including,
without limitation, travel, lodging and meal expenses.
8.2 Support. Com21 shall provide Support Services (as defined in
Exhibit D) to Philips for the Com21 Software pursuant to the terms and
conditions set forth in the Com21 Support Terms and Conditions in Exhibit D
hereto (Com21 Support Terms and Conditions). Philips shall have sole
responsibility for performing First Level Support of the Com21 Products. Philips
shall perform a reasonable technical investigation of all Support Services
issues and attempt to determine the cause of the problem before requesting Com21
to provide Support Services. In the event that Philips requests Com21 to perform
on-site support, then Com21 and Philips will mutually agree upon the corrective
action to be taken.
9. DEMONSTRATION COM21 PRODUCTS. Philips shall purchase from Com21 such Com21
Products comprising one (1) complete broadband modem system ("Demonstration
System") for Philips' internal use only. In addition, Philips shall be entitled
to purchase Com21 Products comprising up to four (4) additional Demonstration
Systems for internal use within the Philips Broadband Networks organization.
Such Demonstration Systems may be used at national and regional trade shows to
promote the Com21 Products and Philips' distribution and systems integration
services in connection with the Com21 Products, provided (i) the Demonstration
Systems are maintained in good working order and appearance and otherwise in a
manner which reflects favorably upon Com21 and (ii) the Demonstration Systems
are operated substantially in accordance with Com21's reasonable operating
guidelines. Such Com21 Products shall be of commercial grade, except that
Philips may elect to accept (a) a late beta version of the Com21 Software,
provided that modifications of such beta version of the Com21 Software prior to
commercial availability will be limited to updates and (b) beta versions of the
Com21 Cable Modem and the Com21 Headend, provided that Com21 will exchange each
such beta version for a commercial grade version when it becomes available. The
price of the Demonstration Systems shall be discounted from Com21's current
price list as set forth in Exhibit E hereto (Demonstration Systems Prices) and
shall include, without charge, one (1) copy of the Com21 Software for each
Demonstration System. Philips shall not obscure, remove, alter or add to any
trademark, logo, designation or label on or in any Com21 Product purchased under
this Section 9.
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10. WARRANTY; DISCLAIMER.
10.1 Com21 Products Standard Warranty. Com21 warrants only to Philips
for the period stated in the next paragraph and, in the case of clause (iv)
below, from the date of shipment to one (1) year following January 1, 2000 (the
"Warranty Period"), that:
(i) each Com21 Cable Modem and Com21 Headend shall be free
from material defects in design, manufacturing and materials;
(ii) the media provided by Com21 containing the Com21 Software
(but not the Com21 Software itself) is free from physical defects;
(iii) each Com21 Cable Modem and Com21 Headend will perform
substantially in accordance with Com21's published performance and functional
specifications for such Com21 Product; and
(iv) the use of dates prior to, after or including the year
2000 will not render a Com21 Product inoperative.
For Com21 Products shipped to End Users from Philips'
inventory, the Warranty Period applicable to such Com21 Products shall be one
(1) year from the date of shipment to the End User; provided that, in no event
shall the Warranty Period exceed fifteen (15) months from the original date of
shipment by Com21, and further provided such Com21 Products are included in a
written report, submitted by Philips to Com21 on a monthly basis, of Philips'
inventory of Com21 Products, specifying the shipment date, quantity shipped and
serial numbers of such Com21 Products. Com21 and Philips may, as required,
review the applicability of the fifteen (15)-month Warranty Period to reflect a
twelve (12)-month operational warranty in an efficient factory-to-customer
logistics operation.
The foregoing warranty above does not extend to any Com21
Product that (i) is modified or altered, (ii) is not maintained to Com21's
maintenance recommendations, (iii) is operated in a manner other than that
specified by Com21, (iv) has its serial number removed or altered, (v) is
treated with abuse, negligence or other improper treatment (including, without
limitation, use outside the recommended environment) or (vi) is used with or
operated with any product, the performance or functionality of which is affected
by the use of dates prior to, after or including the year 2000. Philips' sole
remedy with respect to any warranty set forth in this Section 10.1 is as stated
in Section 10.3 (Return of Com21 Products) below and, with respect to defects in
the Com21 Software other than as provided in the foregoing warranty, in the
Com21 Support Terms and Conditions in Exhibit D hereto. Philips is fully
responsible for satisfaction of its customers and will be responsible for all
claims, damages, settlements, expenses and attorneys fees incurred by Com21 with
respect to Philips' customers or their claims beyond Com21's above warranty
obligation to Philips, except to the extent that such warranty is expressly
prohibited by the law applicable to an agreement between Philips and an End User
or a Philips reseller and an End User governing the sale and purchase of the
Com21 Products.
EXCEPT TO THE EXTENT THE PROVISIONS OF THIS PARAGRAPH
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ARE EXPRESSLY PROHIBITED BY THE LAW APPLICABLE TO AN AGREEMENT BETWEEN PHILIPS
AND AN END USER OR A PHILIPS RESELLER AND AN END USER GOVERNING THE SALE AND
PURCHASE OF COM21 PRODUCTS, IN WHICH CASE THE WARRANTIES WITH RESPECT TO SUCH
COM21 PRODUCTS SHALL BE LIMITED TO THE MAXIMUM EXTENT PERMITTED BY SUCH LAW,
COM21 MAKES NO OTHER WARRANTIES WITH RESPECT TO THE COM21 PRODUCTS, OR ANY
SERVICES AND DISCLAIMS ALL OTHER WARRANTIES AND CONDITIONS, EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE AND NON-INFRINGEMENT. FURTHER, COM21 DOES NOT WARRANT,
GUARANTEE OR MAKE ANY REPRESENTATIONS REGARDING THE USE, OR THE RESULTS OF THE
USE, OF THE COM21 PRODUCTS OR RELATED DOCUMENTATION IN TERMS OF CORRECTNESS,
ACCURACY, RELIABILITY OR OTHERWISE.
10.1.1 Product Reliability Failure. Com21 shall use its
commercially reasonable efforts to ensure that not greater than one percent (1%)
of the units of the Com21 Cable Modem delivered to Philips during any
consecutive rolling twelve (12) month period fail to comply with the above
warranty.
10.1.2 Excess Product Failure. "Excess Product Failure" shall
mean more than one percent (1%), but less than three percent (3%), of the units
of the Com21 Cable Modem delivered to Philips during any rolling twelve (12)
month period, or any other representative period, fail to comply with the above
warranty. In the event of an Excess Product Failure, the parties shall work
together in good faith to develop a corrective action program to be implemented
within a mutually agreeable timeframe.
10.1.3 Catastrophic Product Failure. "Catastrophic Product
Failure" shall mean greater than three percent (3%) of the units of the Com21
Cable Modem delivered to Philips during any rolling twelve (12) month period, or
any other representative period, fail to comply with the above warranty or in
the event of it being determined that any Com21 Product as delivered to Philips
by Com21 has a defect that causes or could cause injury to a person or
substantial property damage when such Com21 Product is used as specified in the
documentation provided by Com21 for such Com21 Product or in the event (i) a
government authority having jurisdiction over the distribution and use of the
Com21 Products orders a recall of the Com21 Products or (ii) Com21, Philips and
an End User all agree in writing to the return of all units of Com21 Products
delivered to such End User. In the case of a Catastrophic Product Failure,
Com21's obligations shall be, as soon as practicable, to propose a corrective
action plan to fix the failure of any affected unit of Com21 Cable Modem and to
implement this action plan upon Philips' acceptance thereof. If the action plan
is not acceptable to Philips, Philips can require Com21 to repair or replace, at
Com21's option, the affected units of Com21 Cable Modem. The repair or
replacement shall be done at mutually agreed-upon location(s); provided,
however, that costs of repair or replacement together with the shipping,
transportation and other costs of gathering and redisseminating such units of
the Com21 Cable Modem shall be borne by Com21. The parties agree to make
commercially reasonable efforts to complete the repair or replacement of all of
the affected units of Com21 Cable Modem within a reasonable time after written
notice of Catastrophic Product Failure by Philips to Com21.
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10.2 Com21 Products Extended Warranty. Philips may obtain an extended
warranty for the Com21 Cable Modem and Com21 Headend in accordance with the
terms and conditions set forth in Exhibit F (Com21 Products Extended Warranty).
10.3 Return of Com21 Products. Philips will handle and be responsible
for all warranty returns of Com21 Products from its direct and indirect
customers. Com21 Products obtained from Com21 which do not comply with the above
warranty and are returned to Philips during the Warranty Period (as shown by
appropriate documentation) will be repaired or replaced at Com21's option, at no
cost to Philips. Philips shall ensure that only Com21 Products that do not
comply with the above warranty are the basis of any warranty claim and that such
Com21 Products are promptly returned to Com21. Com21 will bear the cost of
freight and insurance of returned Com21 Products. All returned Com21 Products
must be in the original packaging and container, or other protective packaging,
which shall conspicuously bear the RMA number Philips obtains from Com21 prior
to return. In the event that a Com21 Product returned by Philips is determined
by Com21 to comply with the warranty, Philips shall reimburse the amount of
shipping and insurance charges incurred by Com21 and pay Com21 FIFTY DOLLARS
(US$50) for each returned Com21 Product in which no problem was found. If Com21
cannot, or determines that it is not practical to, repair or replace the
returned Com21 Product, the price therefor paid by Philips will be credited and
applied to future orders. Com21 will reimburse Philips for reasonable expenses,
which Com21 has pre-approved in writing, incurred and paid by Philips in
connection with performing repairs of Com21 Products returned during the
Warranty Period and Com21 will, upon request, provide Philips, at no expense,
with parts necessary for performing such repairs. In addition, Com21 will make
available to Philips repair parts for purchase at Com21's then current spare
parts prices. In the event of a breach by a Com21 Product of an implied
condition or warranty that may not be disclaimed or excluded under the law
applicable to the agreement between Philips and its End User or between a
Philips reseller and its End User governing the purchase and sale of such Com21
Product, Com21 agrees to indemnify Philips against any claim or damages solely
resulting from such breach; provided the breach is not caused by any action,
omission or intervention by Philips or such Philips reseller; further provided
that (i) the provisions of this paragraph are expressly prohibited by such law
and (ii) Philips or the Philips reseller has used its commercially best efforts
to limit the warranties and conditions applicable to such Com21 Product to the
maximum extent permitted under such law.
10.3.1 Out-of-Warranty Repairs. After expiration of the
Warranty Period, Com21 will repair Com21 Products on a time and materials basis
at prices and charges that are not higher than those provided by Com21 to third
parties. Com21 will warrant such out-of-warranty repair of Com21 Products for a
period of thirty (30) days from the date of repair.
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10.3.2 Repair or Replacement Turn Around Time. Com21 will use
commercially reasonable efforts to repair or replace defective units of the
Com21 Cable Modem and Com21 Headend, whether such repair or replacement is
in-warranty or out-of-warranty, and ship the repaired or replaced Com21 Product
to Philips within ten (10) business days, but in no event more than fifteen (15)
business days, after Com21's receipt of the defective Com21 Product. Failure of
the Com21 Software to comply with the warranty set forth in Section 10.1 (iv)
shall be deemed a "Critical Error" as defined in the Com21 Support Terms and
Conditions set forth in Exhibit D hereto and Com21 will correct such failure in
accordance with the terms for correcting Critical Errors specified therein.
Correction of other errors of the Com21 Software shall be performed by Com21
pursuant to the Com21 Support Terms and Conditions in accordance with the
priority level reasonably assigned to such errors by Philips.
11. CONFIDENTIALITY.
11.1 Confidential Information. Information of either party (the
"Disclosing Party") including, but not limited to, trade secrets, know-how,
inventions (whether patentable or not), ideas, improvements, works of
authorship, derivative works, modifications, product development plans,
forecasts, strategies, names and expertise of employees and consultants,
techniques, processes, algorithms, software programs, schematics, designs,
contracts, customer lists, financial information, sales and marketing plans and
all other business and technical information, which at the time of disclosure is
clearly designated as confidential, shall be the confidential information
("Confidential Information") of the Disclosing Party. In particular, but without
limitation, the Com21 Software source code and the source code of any software
and firmware contained in the Com21 Products shall be the Confidential
Information of Com21. In addition, the terms of this Agreement shall be the
Confidential Information of each party disclosed to the other party. Each party
recognizes the importance to the other of the other's Confidential Information.
In particular, Philips recognizes that the Com21 Software source code and other
of Com21's Confidential Information (and the confidential nature thereof) are
critical to the business of Com21 and that Com21 would not enter into this
Agreement without assurance that such technology and information and the value
thereof will be protected as provided in this Section 11.1 (Confidential
Information).
11.2 Confidentiality Obligations. Each party (the "Receiving Party")
acknowledges that in the course of the performance of this Agreement, it may
obtain the Confidential Information of the Disclosing Party. The Receiving Party
shall, at all times, both during the term of this Agreement and thereafter for a
period of five (5) years, keep in confidence as a fiduciary and take all
precautions the Receiving Party uses with respect to its confidential materials
of a similar nature. The Receiving Party shall not use the Confidential
Information of the Disclosing Party other than for the purpose of performing its
obligations under this Agreement or as expressly permitted under the terms of
this Agreement or by a separate written agreement.
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The Receiving Party shall take all reasonable steps to prevent unauthorized
disclosure or use of the Disclosing Party's Confidential Information and to
prevent it from falling into the public domain or into the possession of
unauthorized persons. The Receiving Party shall not disclose Confidential
Information of the Disclosing Party to any person or entity other than its
officers, employees, consultants and Affiliates who need access to such
Confidential Information in order to perform its obligations under this
Agreement and will protect the Disclosing Party's Confidential Information to
the same extent the Receiving Party protects its Confidential Information. In
addition, Com21 staff shall not disclose any of the purchasing price conditions
of this Agreement to any person, including Philips staff, associates and
customers worldwide except the following nominated officers: Garry McCarten,
Edwin Taits, David Torr, Neinhard Neuwirth, Jim Reynolds, Steve Mulvogue, Dieter
Brauer, Peter Gensch, and other officers as nominated by Garry McCarten or the
appropriate Philips senior manager. The Receiving Party shall immediately give
notice to the Disclosing Party of any unauthorized use or disclosure of
Disclosing Party's Confidential Information. The Receiving Party agrees to
assist the Disclosing Party to remedy such unauthorized use or disclosure of its
Confidential Information.
11.3 Exceptions to Confidential Information. Information that is in or
(through no improper action or inaction of the Receiving Party or any Affiliate,
agent or employee) enters the public domain shall not be Confidential
Information hereunder; provided, however, Confidential Information may include
information concerning the Receiving Party's use or manner of use of information
or data in the public domain. Without granting any right or license, the
Disclosing Party agrees that the obligations set forth in Section 11.2
(Confidentiality Obligations) above shall not apply to the extent that
Confidential Information includes information which the Receiving Party can
document (i) was rightfully in its possession or known by it prior to receipt
from the Disclosing Party, or (ii) was rightfully disclosed to it by another
person without restriction, or (iii) was independently developed without use of
any Confidential Information of the Disclosing Party by employees of the
Receiving Party who had no access to such information, or (iv) is or becomes
(through no improper action or inaction by the Receiving Party or any Affiliate,
agent, consultant or employee) generally available to the public.
Notwithstanding the foregoing, Philips shall not disclose qualification test
results for any Com21 Product except for the sole purpose of providing a
quotation, Request for Proposals (RFPs) or support relating to such Com21
Product. Philips shall not, nor permit any third party (including, without
limitation, End Users) to, publish such test results.
12. INFRINGEMENT; PRODUCT LIABILITY
12.1 Indemnification. Com21 shall defend, indemnify and hold Philips
and its officers, directors, employees and agents harmless from liability
arising from (a) infringement by the Com21 Products of any patent, copyright or
trademark and (b) the death of, or bodily injury to, any person or property
damage on account of use of a Com21 Product which is finally determined by a
court of competent jurisdiction to have been caused by a manufacturing defect,
materials defect or design defect of such Com21 Product, provided that (w) Com21
is promptly notified in writing of any and all threats, claims and proceedings
related thereto,
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(x) given reasonable assistance in connection therewith, (y)
has sole control over the defense and all negotiations for a settlement or
compromise, and (z) Com21's obligation under clause (a) shall not exceed the
amount in aggregate paid to it hereunder on account of Com21 Products sold by
Philips, during the twelve (12) month period prior to the date the cause of
action arose, to End Users located in the same country in which the infringement
occurred. Com21 will not be responsible for any settlement it does not approve
in writing. The foregoing obligation of Com21 does not apply to any liability
caused by Philips or any Philips Affiliate's negligence, recklessness or wilful
misconduct or with respect to any Com21 Product or portions or components
thereof (i) not supplied by Com21, (ii) made in whole or in part in accordance
to Philips' design specifications, where the infringement relates to such
specifications, (iii) which is modified after shipment by Com21, (iv) combined
with other products, processes or materials, (v) where Philips continues
allegedly infringing activity after being notified thereof or after being
informed of modifications that would have avoided the alleged infringement, (vi)
where Philips' use of the Com21 Product is incident to an infringement not
resulting primarily from the Com21 Product or is not strictly in accordance with
the licenses granted hereunder or (vii) used in a manner other than as specified
in the documentation provided by Com21 for such Com21 Product.
Philips will indemnify Com21 and its officers, directors, employees and
agents from all liability, damages, settlements, attorneys' fees and expenses
related to a claim excluded from Com21's indemnity obligation by the foregoing
sentence or any claims, liability or damages arising out of the actions or
inactions of Philips or of any Philips Affiliate under this Agreement,
including, without limitation, breach of any of Philips' warranties, obligations
or representations herein, or failure to protect Com21's ownership interest in
the Com21 Products in connection with the marketing or distribution of the Com21
Products. Similarly, Com21 will indemnify Philips and its officers, directors,
employees and agents from all liability, damages, settlements, attorneys' fees
and expenses related to any claims, liability or damages arising out of the
actions or inactions of Com21 or of any Com21 Affiliate under this Agreement,
including, without limitation, breach of any of Com21's warranties, obligations
or representations herein, except the warranties provided in Section 10.1 above.
THE FOREGOING IS IN LIEU OF ANY WARRANTIES OF NONINFRINGEMENT, WHICH ARE HEREBY
DISCLAIMED.
12.2 Infringement by Com21 Product. If a Com21 Product or any part
thereof becomes, or in Com21's opinion is likely to become, the subject of a
claim of infringement of a patent or copyright of a third party, Com21 shall, at
its option and expense, (i) procure for Philips or its End User the right to
continue using the Com21 Product or (ii) replace or modify the Com21 Product so
that it becomes non-infringing but remains functionally equivalent, which
Philips shall accept as full and complete satisfaction for any claims it might
have against Com21 arising from such infringement. Com21's exercise of any of
its obligations under this Section 12.2 (Infringement by Com21 Product) shall
not limit or exhaust its obligations of indemnification under Section 12.1 above
(Indemnification).
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13. TERM AND TERMINATION.
13.1 Term. This Agreement shall be effective for a period of three (3)
years commencing on the Effective Date, unless earlier terminated in accordance
with its terms. Thereafter, this Agreement shall be automatically renewed on its
anniversary dates for successive one (1) year terms subject to a party providing
written notice to the other party, no later than ninety (90) days prior to any
such anniversary date, of such party's intent not to renew in which event this
Agreement shall terminate at the end of the then current term. Philips
understands that after the date of termination, neither it nor any
subdistributor shall have any right whatsoever to continue as a dealer or
distributor or otherwise regardless of any undocumented continuation of the
relationship with Com21 or be entitled to any compensation in connection with
such termination. Upon termination of this Agreement, Com21 may elect in its
sole discretion, to cancel pending Orders, in which case, Com21 will repurchase
all of the entire remaining inventory of the then current versions of the Com21
Products held by Philips. Com21 shall pay Philips for all Com21 Products so
repurchased (if received in new and resalable condition) an amount equal to the
price paid by Philips to Com21. Absent such cancellation of pending Orders by
Com21, Philips shall have the right, for a period of six (6) months following
the effective date of termination, to distribute Com21 Products remaining in
inventory held by Philips and not repurchased by Com21.
13.2 Termination for Cause. This Agreement may be terminated by a party
for cause immediately by written notice upon the occurrence of any of the
following events:
(i) If the other ceases to do business, or otherwise
terminates its business operations; provided, however, that the acquisition of
all or substantially all of a party's stock, assets or business shall not be
grounds for termination of this Agreement; or
(ii) If the other shall fail to promptly secure or renew any
license, registration, permit, authorization or approval for this Agreement or
conduct its business in the manner contemplated by this Agreement or if any such
license, registration, permit, authorization or approval is revoked or suspended
and not reinstated within sixty (60) days; or
(iii) If the other breaches any material provision of this
Agreement and fails to cure such breach within thirty (30) days (10 days in the
case of a failure to pay) of written notice describing the breach; provided,
however, that a breach of the obligations set forth in Sections 11
(Confidentiality), 6(ii) or 6(iv) shall be grounds for immediate termination of
this Agreement by the non-breaching party; or
(iv) If the other becomes insolvent or seeks protection under
any bankruptcy, receivership, trust deed, creditors arrangement, composition or
comparable proceeding, or if any such proceeding is instituted against the other
(and not dismissed within ninety (90) days).
13.3 Obligations of Philips Upon Termination. Upon any termination of
this Agreement by Com21:
(i) Philips' obligations to pay all sums due hereunder shall
be accelerated
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and all such sums shall be due and payable on the effective date of termination
or expiration;
(ii) All licenses granted to Philips hereunder shall
immediately terminate, and Philips shall discontinue all use and distribution of
the Com21 Products, Com21 Software and Marks;
(iii) Philips may keep one (1) copy of the Com21 Software in
object code form to be used solely for support of its installed base of Com21
Products as of the date of termination and Philips shall have a limited license
only to the extent necessary for Philips to support the installed base of Com21
Products.
13.4 Other Obligations Upon Termination. Except as otherwise provided
in Section 13.3 (Obligations of Philips Upon Termination) above, upon
termination of this Agreement, each party shall, within fifteen (15) days of the
effective date of any termination of this Agreement, return to the other or
destroy all manifestations of the other party's Confidential Information and any
and all other materials in such party's possession which had been furnished to
it by the other party pursuant to this Agreement, and such party shall warrant
in writing to the other within thirty (30) days after termination or expiration
that all such materials have been returned or destroyed pursuant to this Section
13.4 (Other Obligations Upon Termination). Com21 agrees to provide Philips' End
Users, following expiration or any termination of this Agreement, with service
and support of the Com21 Products subject to the terms of a written agreement
between Com21 and each such End User. Com21 further agrees to honor, following
expiration or any termination of this Agreement, all then currently effective
warranties of the Com21 Products extended by Philips to End Users, provided such
warranties are of the same scope as those set forth in Section 10 of this
Agreement. Notwithstanding the foregoing, Com21 shall have no obligation under
any agreement between Philips and an End User for service or support of the
Com21 Products.
13.5 Survival. Termination of this Agreement shall not relieve Philips
from its obligations to pay Com21 any sums accrued hereunder. The parties agree
that their respective rights, obligations and duties under Sections 4
(Ownership), 5.8 (Payment of Purchase Orders), 5.8.1 (Taxes; Late Fees), 6
(Philips Covenants and Representations), 10.1 (Com21 Products Standard
Warranty), 10.3 (Return of Com21 Products), 11 (Confidentiality), 12
(Infringement, Product Liability), 13.3 (Obligations of Philips Upon
Termination), 13.4 (Other Obligations Upon Termination), 13.5 (Survival), 13.6
(No Liability for Termination), 13.8 (No Effect on End-Users), 13.9 (Termination
Not Sole Remedy), 14 (Limited Liability), 15 (Relationship of Parties), 16
(Assignment), 17 (Successors and Assigns), 18 (Source Code Escrow) and 19
(General) as well as any rights, obligations and duties which by their nature
extend beyond the termination or expiration of this Agreement shall survive any
termination or expiration of this Agreement.
13.6 No Liability for Termination. Each party understands that the
rights of termination hereunder are absolute. Neither party shall incur any
liability whatsoever for any damage, loss or expenses of any kind suffered or
incurred by the other (or for any compensation to the other) arising from or
incident to any termination of this Agreement by such party which complies with
the terms of this Agreement whether or not such party is aware of any such
damage, loss or expenses.
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13.7 Pending Orders. In the event of any termination, Com21 may elect
to continue or terminate any Order for Com21 Products then pending. In the event
Com21 elects to terminate an Order, Com21 shall ship the ordered Com21 Products
directly to the End User.
13.8 No Effect On End Users. Upon an End User acquiring a copy of the
Com21 Software pursuant to an End User License Agreement, the End User shall be
entitled to use that copy of the Com21 Software, subject to the terms and
conditions of the End-User License Agreement. The rights of End Users are
independent of this Agreement and, notwithstanding anything to the contrary
herein, will survive any termination of this Agreement for any reason
whatsoever.
13.9 Termination Not Sole Remedy. Termination is not the sole remedy
under this Agreement and, whether or not termination is effected, all other
remedies will remain available.
14. LIMITED LIABILITY.
EXCEPT PURSUANT TO CLAUSE (a), (b) or (d) BELOW AND NOTWITHSTANDING
ANYTHING TO THE CONTRARY HEREIN, NEITHER PARTY SHALL BE LIABLE IN ANY RESPECT
UNDER CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE FOR ANY INDIRECT,
SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES (INCLUDING BUT NOT LIMITED TO LOSS
OF PROFITS, LOST DATA OR COST OF CAPITAL) OR FOR COST OF SUBSTITUTE GOODS,
TECHNOLOGIES OR SERVICES.
FURTHERMORE, EXCEPT FOR (a) CASES IN WHICH PROVISIONS OF THIS SECTION
14 ARE PROHIBITED BY ANY LAWS WHICH GOVERNS ANY AGREEMENT BETWEEN PHILIPS AND
ANY END USER OR A PHILIPS RESELLER AND ANY END USER, (b) BREACH OF SECTION
6(ii), 6(vi) OR 11 HEREOF, (c) INDEMNIFICATION UNDER SECTION 12.1 AND PRODUCT
LIABILITY CLAIMS OR (d) ACTIONS OF PHILIPS BEYOND THE SCOPE OF THE LICENSES
GRANTED HEREUNDER, COM21 SHALL NOT BE LIABLE TO PHILIPS NOR PHILIPS LIABLE TO
COM21 IN EXCESS OF, IN THE CASE OF COM21, THE AGGREGATE AMOUNT RECEIVED FROM
PHILIPS HEREUNDER, AND IN THE CASE OF PHILIPS, THE AGGREGATE AMOUNT PAID OR
PAYABLE HEREUNDER, IN THE TWELVE (12) MONTH PERIOD PRIOR TO THE DATE THE CAUSE
OF ACTION AROSE.
15. RELATIONSHIP OF PARTIES. The parties hereto each expressly understand and
agree that Com21 and Philips and its Affiliates are independent contractors in
the performance of each and every part of this Agreement, each is solely
responsible for all of its employees and agents and its labor costs and expenses
arising in connection therewith. Each party (the "Indemnifying Party") is
responsible for and will indemnify the other (the "Indemnified Party") from any
and all claims, liabilities, damages, debts, settlements, costs, attorneys'
fees, expenses and liabilities of any type whatsoever that may arise on account
of the Indemnifying Party's or any activities of its Affiliates, employees or
agents (including, without limitation, direct and indirect subdistributors)
including, without limitation, providing unauthorized representations or
warranties (or failing to disclose all warranties and liabilities) to its
customers or breaching any
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term, representation or warranty of this Agreement. Each party is in no manner
associated with or otherwise connected with the actual performance of this
Agreement on the part of the other party, nor with such other party's employment
of other persons or incurring of other expenses. Except as expressly provided
herein, neither party shall have no right to exercise any control whatsoever
over the activities or operations of the other party.
16. ASSIGNMENT. This Agreement and the rights hereunder are not transferable or
assignable by Philips without the prior written consent of Com21, except an
assignment to Philips' parent corporation or an Affiliate thereof. Any attempted
assignment, delegation or other transfer, of this Agreement or of any rights or
obligations hereunder contrary to this Section 16 (Assignment) shall be a
material breach of this Agreement by Philips, shall be void and shall be of no
force or effect.
17. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of, and be
binding upon, the parties and their respective successors and assigns.
18. SOURCE CODE ESCROW. Upon Philips' request, Com21 shall, at Philips' expense,
maintain in escrow under the terms and conditions specified in the Source Code
Escrow Agreement in the form attached hereto as Exhibit G (Com21 Source Code
Escrow Agreement) the source code for the Com21 Software ("Deposit Materials").
Com21 shall update the Deposit Materials within ninety (90) days of the
commercial release of a new version of the Com21 Software. In the event of
termination by Philips pursuant to Section 13.2, Com21 is unable or unwilling to
perform its obligations of support of the Com21 Software for more than thirty
(30) consecutive days, provided Philips has purchased Support Services, or Com21
seeks protection under any bankruptcy or similar laws, and the trustee in
bankruptcy fails either to assume this Agreement within one twenty (120) days of
the date of filing of such bankruptcy petition or to perform this Agreement
within the meaning of Section 365(a)(4)(i) of the United States Bankruptcy Code
(the "Release Condition"), Philips shall be entitled to receive a copy of the
Deposit Materials only during the period that the Release Condition exists for
the sole purpose of correcting errors in the Com21 Software. If at any time the
Release Condition ceases to exist, Philips shall immediately destroy or return
all copies and portions of the Deposit Materials to the escrow agent and shall
notify the escrow agent and Com21 that it has done so.
19. GENERAL.
19.1 Amendment and Waiver. Except as otherwise expressly provided
herein, any provision of this Agreement may be amended and the observance of any
provision of this Agreement may be waived (either generally or any particular
instance and either retroactively or prospectively) only with the written
consent of the parties. However, it is the intention of the parties that this
Agreement be controlling over additional or different terms of any order,
confirmation, invoice or similar document, even if accepted in writing by the
parties, and that waivers and amendments shall be effective only if made by
non-pre-printed agreements clearly understood by the parties to be an amendment
or waiver.
19.2 Governing Law and Legal Actions. This Agreement shall be governed
by and construed under the laws of the State of California and the United States
of America without
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regard to conflicts of laws provisions thereof and without regard to the United
Nations Convention on Contracts for the International Sale of Goods. The sole
jurisdiction and venue for actions related to the subject matter hereof shall be
the courts having within their jurisdiction the location of Com21's principal
place of business. Both parties hereby consent and waive any venue objections to
the jurisdiction of such courts. The parties agree that process may be served in
the manner provided herein for giving of notices or otherwise as allowed by
California or federal law.
19.3 Attorneys' Fees. In any action or proceeding to enforce rights
under this Agreement, the prevailing party shall be entitled to recover all
court costs and reasonable attorneys' fees incurred, including such costs and
attorneys' fees incurred in enforcing and collecting any judgment.
19.4 Headings. Headings and captions are for convenience only and are
not to be used in the interpretation of this Agreement.
19.5 Notices. Any notice provided for or permitted under this Agreement
shall be sufficient only if personally delivered, sent by confirmed telex or
telecopy with written verification of successful transmission, delivered by a
major commercial international rapid delivery service with tracking capabilities
and written verification of receipt, mailed by certified or registered mail,
postage prepaid, return receipt requested to a party at the address set forth
below, or at such other place of which the other part(ies) has notified in
accordance with the provision of this Section 19.5 (Notices). If not received
sooner, notice by mail shall be deemed received five (5) days after deposit in
the U.S. or Australian mails.
If to Com21: Com21, Inc.
750 Tasman Drive
Milpitas, CA 95035
USA
Telecopy: (408) 953-9299
Attention: President
and copy to: Brobeck, Phleger & Harrison
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
USA
Telecopy: (650) 496-2885
Attention: Thomas Kellerman, Esq.
If to Philips Philips Public Telecommunication Systems
Monash Gateway
745 Springvale Road
Mulgrave
VIC 3170 Australia
Telecopy: 03-9574-3577
Attention: General Manager, ICC
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and copy to: Philips Legal Department
Philips Electronics Australia Limited, 16th Level
15 Blue Street
North Sydney NSW 2060
Australia
Telephone: 61 2 9925 3300
Telecopy: 61 2 9925 3259
Attention: The Manager
and copy to: Office of the General Counsel
Philips Electronics North American Corporation
100 East 42nd Street
New York, New York 10017
Telephone: (212) 850-5000
Telecopy: (212) 850-5515
19.6 Entire Agreement. This Agreement, including all exhibits to this
Agreement, constitutes the entire agreement between the parties relating to the
subject matter hereof and supersedes the Memorandum of Understanding dated
October 23, 1996 and all prior or simultaneous proposals, negotiations,
representations, conversations, discussions and agreements, whether written or
oral, among the parties and all past dealing or industry custom. In the event of
any conflict between the terms contained in this Agreement and the terms
contained in any exhibit hereto, the terms of this Agreement shall prevail.
19.7 Severability. If any provision of this Agreement is held by a
court of competent jurisdiction to be illegal, invalid or unenforceable, that
provision shall be limited or eliminated to the minimum extent necessary so that
this Agreement shall otherwise remain in full force and effect and enforceable.
19.8 Injunctive Relief. It is expressly agreed that a material breach
of this Agreement (a breach of Section 11.2 (Confidentiality Obligations) shall
be deemed a material breach of this Agreement) by a party would cause
irreparable harm to the non-breaching party and that a remedy at law would be
inadequate. Therefore, in addition to any and all remedies available at law, the
non-breaching party shall be entitled to seek an injunction or other equitable
remedies in all legal proceedings in the event of any threatened or actual
violations of any or all of the provisions hereof.
19.9 Remedies. Except as otherwise expressly stated in this Agreement,
the rights and remedies of a party set forth herein with respect to failure of
the other to comply with the terms of this Agreement (including, without
limitation, rights of termination of this Agreement) are not exclusive, the
exercise thereof shall not constitute an election of remedies and the aggrieved
party shall in all events be entitled to seek whatever additional remedies may
be available in law or in equity.
19.10 Force Majeure. A party shall not be liable for non-performance or
delay in performance (other than of obligations regarding payment of money or
confidentiality) caused
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by any event reasonably beyond the control of such party including, but not
limited to, wars, hostilities, revolutions, riots, civil commotion, national
emergency, strikes, lockouts or other labor disputes or shortages or inability
to obtain material or equipment, unavailability of supplies, compliance with
laws or regulations (including, without limitation, those related to
infringement), epidemics, fire, flood, earthquake, force of nature, explosion,
embargo, or any Act of God, or any law, proclamation, regulation, ordinance or
other act or order of any court, government or governmental agency; provided the
party claiming force majeure notifies the other party promptly after the force
majeure event has arisen; and further provided that the party claiming force
majeure relief shall resume performance hereunder once the force majeure event
has ended.
19.11 Allocation of Risk. The sections on limitation of liability,
indemnification, warranties and disclaimer of warranties allocate the risks in
the Agreement among the parties. This allocation is an essential element of the
basis of the bargain among the parties.
19.12 Publicity and Press Releases. None of the parties shall disclose
the terms of this Agreement without the prior approval of the other parties,
except that a party may disclose the terms of this Agreement where required by
law, provided that such party makes every reasonable attempt to obtain
confidential treatment or similar protection to the fullest extent available to
avoid public disclosure of the terms of this Agreement.
19.13 Compliance with Laws. Com21 and Philips each covenant that all of
its activities under or pursuant to this Agreement shall comply with all
applicable laws, rules and regulations. In particular, but without limitation,
Philips shall be responsible for obtaining all licenses, permits and approvals
which are necessary or advisable for sales of the Com21 Products within the
Territory and for the performance of its duties hereunder.
19.14 No Rights by Implication. No rights or licenses with respect to
the Com21 Products or Com21 Confidential Information are granted, other than
those rights expressly and unambiguously granted in this Agreement.
19.15 Construction of Agreement. This Agreement has been negotiated by
the respective parties hereto and their attorneys and the language hereof shall
not be construed for or against any party.
19.16 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. If this Agreement is
executed in counterparts, no signatory hereto shall be bound until all the
parties named below have duly executed or caused to be duly executed a
counterpart of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the dates set forth below effective as of the Effective Date.
COM21, INC. PHILIPS PUBLIC
TELECOMMUNICATION SYSTEMS
By: [SIG] By: [SIG]
------------------------------- ------------------------------
Name: William J. Gallagher Name: B. Adams
----------------------------- -----------------------------
Title: Vice President Title: Gen. Manager
---------------------------- ----------------------------
Date: 26 Nov 97 Date: 19 Nov 97
---------------------------- -----------------------------
Distribution Agreement
25
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EXHIBIT A
COM21 PRODUCTS
MODEL NUMBER DESCRIPTION
SUBSCRIBER UNITS
CP1000 ComPORT Cable Modem - US - High Frequency Band
CP1100 ComPORT Cable Modem - Int'l - High Frequency Band
HEADEND UNITS
CC2100 ComCONTROLLER Ch/Sw/DPS/Tx/Rx/CC/EM (USD)
CC2110 ComCONTROLLER Ch/Sw/DPS/Tx/Rx/CC/EM (Int'l)
CC0101 ComCONTROLLER Tx RF Module
CC0100 ComCONTROLLER Transmit Main (US Domestic)
CC0110 ComCONTROLLER Transmit Main (International)
CC0200 ComCONTROLLER Receive Card (US Domestic)
CC0210 ComCONTROLLER Receive Card (International)
CC0300 ComCONTROLLER CC Card
CC0400 ComCONTROLLER 10BT Card (4K Addresses)
CC0401 ComCONTROLLER 10BT Card (8K Addresses)
CC0500 ComCONTROLLER ATM Switch (spare)
CC0600 ComCONTROLLER 110V/220V Power Supply (spare)
CC0700 ComCONTROLLER Mini-Chassis Backplane (spare)
CC0800 ComCONTROLLER Mini-Chassis Cabling, Assembly
CC0810 ComCONTROLLER Fan Assembly
CC0811 ComCONTROLLER Face Plate
SOFTWARE
CS3000 NMAPS Software License
CS0300 HCX System Software License (US)
CS0310 HCX System Software License (International)
SERVICES
CX9010 Off Site Support
CX9020 On Site Support
CX9030 Training (5 days)
CX9100 Extended Service Contract
DOCUMENTATION
CD8110 Technical Reference Manual
CD8120 Installation, Operation and Maintenance Manual
CD8140 NMAPS Command Reference Manual
CD8141 NMAPS Quick Reference Guide
CD8151 ComPORT Quick Reference Guide
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EXHIBIT B
END USER SOFTWARE LICENSE AGREEMENT
This End User Software License Agreement ("Agreement") is entered
into as of the date last written below ("Effective Date") by and between Com21,
a Delaware corporation, having its principal place of business at 750 Tasman
Drive, Milpitas, California 95035 ("Com21") and the undersigned end user, having
a principal place of business at the address set forth below ("License")
1. DEFINITIONS.
a. "Documentation" means the end user documentation
provided by Com21 associated with the Software.
b. "Hardware" means, collectively, Com21's headend
controller unit, Com21's subscriber-end data over cable modem and/or voice over
cable modem and a central processing unit ("CPU") operating on a SUN platform
with HP OpenView software.
c. "Licensed Products" means, collectively, the Software
and the Documentation.
d. "Software" means, collectively, the version(s) of the
Com21 network management applications programs (the "NMAP Software"), Com21
cable modem image software and other software contained in any Hardware, in
object code form including updates, modifications or enhancements of such
programs that may be provided by Com21 in its sole discretion from time to time.
2. GRANT OF LICENSE.
Subject to all the terms and conditions of this Agreement, Com21
grants Licensee a non-exclusive, non-sublicensable, non-transferable right
("License") to use the Software only in accordance with the Documentation and
only in connection with the Hardware licensed or purchased by Licensee. Licensee
has no right to receive, use, examine, or modify any source code or design
documentation relating to the Software.
3. OWNERSHIP OF SOFTWARE.
As between the parties, Com21 retains all title to and ownership
of and, except as expressly and unambiguously licensed herein, all rights and
interest in the Licensed Products including all customizations, enhancements,
modifications, improvements, derivatives or other changes (by whomever produced)
and all copies and portions thereof, whether or not incorporated into or with
other software, and all intellectual property and proprietary rights anywhere in
the world therein. The License does not constitute a sale of the Software or any
portion or copy of it.
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4. RESTRICTIONS.
Except as reasonably required to use the Software with the
Hardware strictly in accordance with the License, copying or modification of the
Licensed Products or any portion thereof, including Software that has been
modified or incorporated into or with other software, is expressly forbidden.
Licensee shall not remove, alter, obscure or fail to reproduce all copyright,
trademark and other proprietary rights notices that appear in or on the Licensed
Products. Except to the extent expressly prohibited by applicable law, Licensee
shall not (and shall not allow any third party to) decompile, disassemble, or
otherwise reverse engineer or attempt to reconstruct or discover any source code
or underlying ideas, structure, sequence, organization, algorithms, file
formats, programming or interoperability interfaces of the Software or of any
files contained in or generated using the Software by any means whatsoever.
Further, Licensee shall not (i) load or use any portion of the NMAP Software on
or with more than one central processing unit or associated storage device, (ii)
provide, lease, lend or otherwise use or allow others to use the Software to or
for the benefit of third parties, (iii) except as specified in the
Documentation, modify, incorporate into or with other software or create a
derivative work of any part of the Software, (iv) load or use any portion of the
Software (whether or not modified or incorporated into or with other software)
on or with any machine or system other than the Hardware, (v) except if, as and
to the extent expressly authorized in the Documentation, transmit or use the
Software over a network, or (vi) disseminate performance information or analysis
(including, without limitation, benchmarks) from any source relating to the
Software.
5. TERMINATION OF LICENSE.
The License shall remain in effect for so long as Licensee's use
of the Licensed Products is in compliance with the terms and conditions of this
Agreement. Upon Licensee's failure to cure any material breach of this Agreement
or any other portion of the Agreement of which it is a part within thirty (30)
days of receiving notice of such breach from Com21 (or immediately upon notice
in the case of a breach of Section 4), this Agreement shall terminate
automatically. Upon termination, Licensee shall immediately cease all use of the
Licensed Product and return or destroy all copies of the Licensed Product and
all portions thereof (whether or not modified or incorporated with or into other
software) and so certify to Com21. Except for the License and except as
otherwise expressly provided herein, the terms of this Agreement shall survive
termination. Termination is not an exclusive remedy and all other remedies will
be available whether or not the License is terminated.
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6. LIMITED WARRANTY AND DISCLAIMER.
THE LICENSED PRODUCTS ARE PROVIDED "AS IS" WITHOUT WARRANTY OF
ANY KIND INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. LICENSEE'S EXCLUSIVE REMEDY FOR ANY DEFECT IN
THE SOFTWARE SHALL BE AS PROVIDED UNDER COM21'S SOFTWARE SUPPORT TERMS AND
CONDITIONS TO THE EXTENT LICENSEE HAS PURCHASED COM21 SUPPORT SERVICES FOR THE
SOFTWARE. FURTHER, COM21 DOES NOT WARRANT, GUARANTEE, OR MAKE ANY
REPRESENTATIONS REGARDING THE USE, OR THE RESULTS OF THE USE, OF THE LICENSED
PRODUCTS IN TERMS OF CORRECTNESS, ACCURACY, RELIABILITY, OR THAT THE LICENSED
PRODUCTS ARE OR WILL BE ERROR-FREE.
This limited warranty does not affect or prejudice statutory
rights Licensee may have acquired in the country in which the Licensed Products
are being used.
7. LIMITATION OF REMEDIES AND DAMAGES.
TO THE MAXIMUM EXTENT PERMITTED UNDER APPLICABLE LAW, COM21 SHALL
NOT BE RESPONSIBLE OR LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS
AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY FOR
(I) ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOST PROFITS OR LOSS OR
INACCURACY OF DATA OR (II) COST OF PROCUREMENT OF SUBSTITUTE GOODS, SERVICES OR
TECHNOLOGY OR (III) ANY MATTER BEYOND ITS REASONABLE CONTROL. NOTHING IN THIS
AGREEMENT SHALL EXCLUDE OR RESTRICT COM21'S LIABILITY FOR DEATH OR PERSONAL
INJURY SOLELY CAUSED BY COM21'S WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OR TO THE
EXTENT EXPRESSLY PROHIBITED UNDER APPLICABLE MANDATORY PRODUCT LIABILITY LAWS,
IF ANY.
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8. INDEMNIFICATION.
Com21 shall hold Licensee harmless from liability resulting from
infringement by the Software of any United States patent issued as of the date
sixty (60) days before delivery of the Software or any United States copyright,
provided Com21 is promptly notified of any and all threats, claims and
proceedings related thereto, given reasonable assistance and has sole control
over the defense and all negotiations for a settlement or compromise; Com21 will
not be responsible for any settlement it does not approve in writing. THE
FOREGOING CONSTITUTES COM21'S SOLE LIABILITY, AND LICENSEE'S SOLE REMEDY, IN THE
EVENT OF ANY INFRINGEMENT OF THIRD PARTY RIGHTS BY THE LICENSED PRODUCTS AND IS
IN LIEU OF ANY WARRANTIES OF NONINFRINGEMENT, WHICH ARE HEREBY DISCLAIMED TO THE
MAXIMUM EXTENT PERMITTED UNDER APPLICABLE LAW. The foregoing obligation of Com21
does not apply with respect to Software or portions or components thereof (i)
not supplied by Com21, (ii) made in whole or in part in accordance to Licensee's
specifications, (iii) which are modified after delivery by Com21, (iv) combined
with other products, processes or materials (excluding the Hardware) not
supplied by Com21, (v) where Licensee continues allegedly infringing activity
after being notified thereof or after being informed of modifications that would
have avoided the alleged infringement, or (vi) where Licensee's use of the
Software is incident to an infringement not resulting primarily from the
Software or is not strictly in accordance with the License; Licensee will
indemnify Com21 and its officers, directors, agents and employees from all
damages, settlements, attorneys' fees and expenses related to a claim of
infringement excluded from Com21's indemnity obligation by this sentence.
9. GOVERNMENT MATTERS.
Licensee shall comply with the U.S. Foreign Corrupt Practices Act
(regarding among other things, payments to government officials) and all export
laws, restrictions, national security controls and regulations of the United
States or other applicable foreign agency or authority, and not to export or
re-export, or allow the export or re-export of any Software or any copy or
direct product thereof in violation of any such restrictions, laws or
regulations or, without all required licenses and authorizations, to any Group
D:1 or E:2 country, including, without limitation, Cuba, Libya, North Korea,
Iran, Iraq, or Rwanda (or any national or such country) specified in the then
current Supplement No. 1 to Part 740 of the U.S. Export Administration
Regulations (or any successor supplement or regulations).
10. MISCELLANEOUS.
a. Assignment. The License and this Agreement are not
assignable or transferable by Licensee without the prior written consent of
Com21; any attempt to do so shall be void.
b. Notices. Any notice, report, approval or consent
required or permitted hereunder shall be in writing and will be deemed to have
been duly given if delivered personally, by international overnight courier
service with tracking capabilities and written confirmation or mailed by
first-class, registered or certified mail, postage prepaid to the respective
addresses of the parties as set herein (or such other address as a party may
designate by ten (10) days written notice).
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c. Waivers and Amendments. No failure to exercise, and no
delay in exercising, on the part of either party, any privilege, any power or
any rights hereunder will operate as a waiver thereof, nor will any single or
partial exercise of any right or power hereunder preclude further exercise of
any other right hereunder. Any waivers of or amendments to any provision of this
Agreement shall be effective only if made in writing clearly understood by both
parties to be an amendment or waiver and signed by a representative of the
respective parties authorized to bind the parties.
d. Severability. If any provision of this Agreement shall
be adjudged by any court of competent jurisdiction to be unenforceable or
invalid, that provision shall be limited or eliminated to the minimum extent
necessary so that this Agreement shall otherwise remain in full force and effect
and enforceable.
e. Governing Law; Attorneys' Fees. This Agreement shall be
deemed to have been made in, and shall be construed pursuant to the laws of the
State of California and the United States of America without regard to conflicts
of laws provisions thereof and without regard to the U.N. Convention on
Contracts for the International Sale of Goods. The sole and exclusive
jurisdiction and venue for any action or dispute relating to the subject matter
of this Agreement shall be the California state and U.S. federal courts having
within their jurisdiction the location of Com21 and each of the parties hereto
submits itself to the exclusive jurisdiction and venue of such courts for the
purpose of any such action or dispute and hereby waives any venue objection
thereto. The prevailing party in any action to enforce this Agreement shall be
entitled to recover costs and expenses including, without limitation, attorneys'
fees.
f. English Language. The original of this Agreement has
been written in English. Licensee hereby agrees to waive any right under the law
of the country in which the Software was initially licensed to have this
Agreement written in the native language.
g. Equitable Relief. The parties agree that a material
breach of this Agreement adversely affecting Com21's proprietary rights in the
Software would cause irreparable injury to Com21 for which monetary damages
would not be an adequate remedy and that the Com21 shall be entitled to
equitable relief in addition to any remedies it may have hereunder or at law.
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h. Entire Agreement. Both parties agree that this
Agreement is the complete and exclusive statement of the mutual understanding of
the parties and supersedes and cancels all previous written and oral agreements
and communications relating to the subject matter of this Agreement.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date set forth below.
COM21, INC. [LICENSEE'S NAME]
By: [SIG] By: [SIG]
------------------------------- -------------------------------
Name: WILLIAM J. GALLAGHER Name: B. ADAMS
----------------------------- -----------------------------
Title: VICE PRESIDENT Title: GEN. MGR.
---------------------------- ---------------------------
Date: 26 NOV 97 Date: 19 NOV 97
---------------------------- -----------------------------
Address: 15 Blue Street
---------------------------
N. Sydney
---------------------------
NSW 2060
---------------------------
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EXHIBIT C
PRICE LIST
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EXHIBIT D
COM21 SUPPORT TERMS AND CONDITIONS
The following terms and conditions relate to and are incorporated into
the Agreement. Capitalized terms not defined in Section 1 below have the same
meaning as in the Agreement.
1. DEFINITIONS
Unless defined otherwise herein, capitalized terms used in these
Support Services Terms and Conditions shall have the same meaning as
set forth in the Agreement.
"Critical Error" means the Com21 Software crashes or a significant
number of End Users are unable to use the Com21 Software because of
replicatable Errors in the Com21 Software, causing significant End User
inconvenience or dissatisfaction.
"Error" means an error in the Com21 Software which significantly
degrades the Com21 Software's performance or function.
"Error Correction" means the use of commercially diligent efforts to
correct Errors.
"Fix" means the repair or replacement of object or executable code
versions of the Com21 Software to remedy an Error.
"Minor Error" means that a small number of End Users are experiencing a
replicatable Error in the Com21 Software that limits some functionality
of the Com21 Software or that Philips' technical support personnel,
after using commercially diligent efforts to provide a solution,
require Com21's assistance.
"Moderate Error" means End Users are able to use the Com21 Software but
a small number of End Users experience Errors in the Com21 Software
causing significant inconvenience to those End Users due to some loss
of functionality of the Com21 Software.
"Support Services" means Com21 support services as described in
Section 3.
"Telephone Support" means technical support telephone assistance
provided by Com21 to the Technical Support Contact during Com21's
normal business hours.
"Workaround" means a change in the procedures followed or data supplied
by Com21 to avoid an Error without substantially impairing use of Com21
Software by End Users.
2. COVERAGE
Subject to the terms hereof, Com21 will provide Support Services to
Philips for the Com21 Software.
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3. SUPPORT SERVICES
Support Services consist of Error Correction as specified in Section 6
hereof provided to the "Technical Support Contact" designated by
Philips as responsible for communications between the parties regarding
the Support Services hereunder. Upon detection of any Error, Philips
agrees to provide Com21 a listing of output and any other data, that
Com21 may reasonably request in order to reproduce the operating
conditions similar to those present when the Error occurred.
4. TERM AND TERMINATION
Support Services shall be provided without additional consideration for
a term of three (3) months commencing on the Effective Date (the
"Initial Term"), unless terminated by either party. Beyond the Initial
Term, Philips may purchase Support Services for a term of one (1) year
and renewable for additional one (1) year periods by providing Com21
written notice not later than thirty (30) days prior to expiration of
the current term for Support Services. Com21 may suspend or cancel
Support Services if Philips fails to make payment pursuant to the
Section titled "Fees and Payment" or breaches the Support Services
provisions and such breach is not remedied within thirty (30) days (15
days in the case of nonpayment) after Philips receives notice of the
breach.
5. FEES AND PAYMENT
For Support Services after the Initial Term, Philips shall pay Com21
the applicable Support Services fee as listed in the then-current Com21
price list. Support Services fees will be billed on an annual basis,
payable in advance. Philips shall be responsible for all taxes
associated with Support Services other than U.S. taxes based on Com21's
net income. Philips' payment is due within thirty (30) days of receipt
of Com21's invoice. In the event Philips fails to pay Com21 on the due
date, then to reinstate or renew Support Services (if allowed by
Com21), Philips must first pay Com21 the annual Support Services fee
and the reinstatement charge listed in the then-current Com21 price
list.
6. ERROR CORRECTION
Com21 shall exercise commercially diligent efforts to correct any Error
reported by Philips in the Com21 Software in accordance with the
priority level reasonably assigned to such Error by Philips.
a) Critical Errors. In the event of a Critical Error, Com21
will respond to Critical Errors by assigning a technician to
investigate the Error within four (4) hours from the time Philips
reports the Error to Com21. Com21 will provide Philips information and
a proposal for the correction of such Error no later than twenty-four
(24) hours from the time the Error was first reported to Com21. Com21
shall use in commercially reasonable efforts to provide a Workaround or
a Fix that solves or reduces the severity of the Error within
forty-eight (48) hours from the time Philips first reports the Error.
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b) Moderate Errors. In the event of a Moderate Error, Com21
will respond to all Moderate Errors by assigning a technician to
investigate such Error within four (4) hours from the time Philips
reports the Error to Com21. Com21 will provide a Workaround within
fourteen (14) days or will Fix the Error in a time frame to be agreed
upon by the parties.
c) Minor Errors. In the event of a Minor Error, Com21 will
respond to requests for information within eight (8) hours and, if
appropriate, use commercially diligent efforts to provide an upgrade of
the Com21 Software providing a Workaround or a Fix for the Error within
three (3) months of Philips' reporting of such Error.
If Com21 believes that a problem reported by Philips may not be due to
an Error in the Com21 Software, Com21 will so notify Philips. At that
time, Philips may (1) instruct Com21 to proceed with problem
determination at its possible expense as set forth below or (2)
instruct Com21 that Philips does not wish the problem pursued at its
possible expense. If Philips requests that Com21 proceed with problem
determination at its possible expense and Com21 determines that the
error was not due to an Error in the Com21 Software, Philips shall pay
Com21, at Com21' then-current and standard consulting rates, for all
work performed in connection with such determination, plus reasonable
related expenses incurred therewith. Philips shall not be liable for
(i) problem determination or repair to the extent problems are due to
Errors in the Com21 Software or (ii) work performed under this
paragraph in excess of its instructions or (iii) work performed after
Philips has notified Com21 that it no longer wishes work on the problem
determination to be continued at its possible expense (such notice
shall be deemed given when actually received by Com21). If Philips
instructs Com21 that it does not wish the problem pursued at its
possible expense or if such determination requires effort in excess of
Philips' instructions, Com21 may, at its sole discretion, elect not to
investigate the Error with no liability therefor.
7. EXCLUSIONS
Com21 shall have no obligation to support:
1) Com21 Software that has been altered, damaged or modified or
Com21 Software or any portion thereof has been incorporated
with or into other software; or
2) Com21 Software that is not the then current release or any
release which has been replaced by the then current release of
the same Com21 Software more than thirty (30) days after the
date of the current release; or
3) Problems in the Com21 Software that are caused by Philips'
negligence, abuse or misapplication, misuse or other causes
beyond the control of Com21.
Com21 shall have no liability for any changes in hardware which may be
necessary to use the Com21 Software.
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8. LIMITATION OF LIABILITY
Com21's liability for damages from any cause of action whatsoever
relating to Com21's agreement to provide Support Services shall be
limited to the amount paid by Philips for the Support Services for the
applicable year.
9. THESE TERMS AND CONDITIONS CONSTITUTE A SERVICE CONTRACT AND NOT A
WARRANTY FOR THE COM21 SOFTWARE. THE COM21 SOFTWARE AND ALL MATERIALS
RELATED TO THE COM21 SOFTWARE ARE SUBJECT EXCLUSIVELY TO THE WARRANTIES
SET FORTH IN THE AGREEMENT. THIS EXHIBIT IS AN ADDITIONAL PART OF THE
AGREEMENT AND DOES NOT CHANGE OR SUPERSEDE ANY TERM OF THE AGREEMENT
EXCEPT TO THE EXTENT UNAMBIGUOUSLY CONTRARY THERETO.
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EXHIBIT E
DEMONSTRATION SYSTEM
<TABLE>
<CAPTION>
MODEL NUMBER DESCRIPTION VERSION PRICE
SUBSCRIBER UNITS
<S> <C> <C> <C>
CP1000 ComPORT Cable Modem - US - High Frequency Band US [*]
CP1100 ComPORT Cable Modem - Int'l - High Frequency Band INTERNATIONAL [*]
HEADEND UNITS
CC2100 ComCONTROLLER Ch/Sw/DPS/Tx/Rx/CC/EM (USD) US [*]
CC2110 ComCONTROLLER Ch/Sw/DPS/Tx/Rx/CC/EM (Int'l) INTERNATIONAL [*]
NMAPS
CS3100 Network Management and Provisioning Station Software US [*]
CS3000 Network Management and Provisioning Station Software INTERNATIONAL [*]
SOFTWARE
CS0300 HCX System Software License US [*]
CS0310 HCX System Software License INTERNATIONAL [*]
</TABLE>
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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EXHIBIT F
COM21 PRODUCTS EXTENDED WARRANTY
[LOGO[
COMMUNICATIONS FOR THE 21ST CENTURY
Com21 Warranty and Service Policy
Document 280-0050-00
Version 1.0
April 22, 1998
Approvals:
- ---------------------------- ---------------------------------
Buck Gee (Marketing) Bill Gallagher (Sales)
- ---------------------------- ---------------------------------
Mike Gordon (Support) Dave Robertson (Finance)
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PURPOSE
This document summarizes the terms and conditions of Com21 Warranty and Service
offerings for Com21 hardware and software products.
HARDWARE WARRANTIES
STANDARD HARDWARE WARRANTY POLICY
Com21 warrants that the hardware portion of the ComCONTROLLER and
ComPORT products will materially conform to the specifications
applicable to such product and will be free from material defects in
materials and workmanship under normal and proper use for one (1) year
from the date of Com21's shipment. Com21's sole liability under this
warranty is, at the option of Com21, to repair or replace a Com21
hardware product that does not conform with the foregoing warranty.
This warranty shall not apply any damage or defect arising as a result
of neglect, improper installation, alteration, accident, or improper
use of a Com21 hardware product. This warranty is specifically in lieu
of, and Com21 disclaims, all other warranties, express or implied,
including, without limitation, any warranty for merchantability,
fitness for a particular purpose and non-infringement. Com21 will not
be liable for any incidental or consequential damages or for the cost
of substitute goods, services or technology.
OTHER POLICY TERMS:
- ComCONTROLLER and ComPORT products are covered for twelve (12)
months from date of Com21's shipment at no charge.
- $50 no trouble found charge for units that are returned, but
are determined by Com21 to conform with the warranty.
- Philips pays shipping charges to Com21; Com21 pays return
shipping charges unless no trouble found, then reseller pays
return shipping charges unless otherwise agreed by Com21.
- Com21 sends the repaired or replaced hardware units to
reseller within fifteen (15) working days after Com21's
receipt of the defective products covered under warranty
unless otherwise agreed.
- A Com21 Return Material Authorization number must be obtained
from Com21 Technical Support for all warranty and non-warranty
repairs prior to return of hardware products.
POST-WARRANTY HARDWARE EQUIPMENT SUPPORT
After expiration of the one (1)-year hardware warranty period,
Com21 will repair Com21 hardware products on a time and
materials basis on the terms and at the prices shown in the
"Com21 Services" Section. Com21 will warrant such
out-of-warranty repair of Com21 hardware products for a period
of ninety (90) days from the date of Com21's shipment to
reseller unless otherwise agreed too.
COMPORT EXTENDED WARRANTY
The ComPORT extended warranty extends standard hardware
warranty for ComPORT cable modems and power supply for an
additional twenty-four (24) months. The
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price is [*] per modem at time of purchase or [*] if purchased
before the standard hardware warranty expires. This extended
warranty cannot be renewed or further extended.
COMCONTROLLER EXTENDED WARRANTY
ComCONTROLLER extended warranty can be purchased for any
ComCONTROLLER product or sub-system and it extends standard
hardware warranty for an additional twenty-four (24) months.
The warranty price is [*] of the Com21 list price of the
ComCONTROLLER product or sub-system, if the warranty is
purchased at time of purchase, and is [*], if the warranty is
purchased within the twelve (12) month standard hardware
warranty period. This extended warranty cannot be renewed or
further extended.
ORDER NUMBER AND PRICE OF HARDWARE WARRANTIES:
<TABLE>
<CAPTION>
Order
Number Description Price
------ ----------- -----
<S> <C> <C>
CX9500 ComPORT Extended Warranty (Time of purchase). Not [*]
renewable. No discounts are available. [*]
CX9550 ComPORT Extended Warranty (Within 12 months). Not [*]
renewable. No discounts are available. [*]
CX9510 ComCONTROLLER Extended Warranty (Time of purchase). [*]
Not renewable. No discounts are available. [*]
CX9560 ComCONTROLLER Extended Warranty (Within 12 months). [*]
Not renewable. No discounts are available. [*]
</TABLE>
SOFTWARE WARRANTY, SUPPORT AND MAINTENANCE CONTRACTS
COM21'S SOFTWARE WARRANTY
The warranty period for software media is ninety (90) days. The Com21
software products are provided "as is" without warranty of any
kind, including, without limitation, any warranty of
merchantability, fitness for a particular purpose and
non-infringement. Further, Com21 does not warrant, guarantee, or
make any representations regarding the use, or the results of the
use, of the licensed Com21 software products in terms of
correctness, accuracy, reliability, or that the licensed products
are or will be error free unless otherwise agreed to by Com21.
SOFTWARE SUPPORT POLICY
Com21 will provide telephone technical support for the current shipping
version of the Com21 software and its immediate prior release. For
example, if Com21 is shipping NMAPS v2.3, then Com21 would provide
telephone support for NMAPS v2.3 and version 2.2. If a customer was
still using NMAPS v2.1, Com21 would not provide support except to
instruct the customer that it must upgrade to the current shipping
version, which in this case would be v2.3, and then Com21 could
determine if the customer's problem was resolved by the current
shipping release or if error still exists. If the error is not
resolved by the current shipping release, then Com21 would then
provide technical support to resolve or mitigate the error.
Com21 will respond to Critical Errors by assigning a technician to
investigate the error within four (4) hours from the time customer
reports the error to Com21. Com21 will provide customer information
and a proposal for the correction of such error no later than
twenty-four (24) hours from the time the error was first reported
to Com21. Com21 will use commercially reasonable efforts to provide
a Workaround within forty-eight (48) hours from the time customer
first reports the Error.
Com21 will use its commercially reasonable efforts to provide a
Workaround for moderate or
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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minor errors within forty-eight (48) hours from the time customer
first reports the error to Com21, patches, i.e., software which
corrects or removes a reproducible anomaly or "bug", will not be
provided for these type of Errors. Com21 will use in commercially
reasonable efforts to correct and/or fix moderate or minor errors
in the next update or upgrade of the Com21 software.
SOFTWARE MAINTENANCE CONTRACTS AND UPGRADES*
Maintenance contracts for Com21 software have a twelve (12)-month term
beginning on the date of shipment by Com21, renewable annually.
Com21 encourages its resellers to purchase software maintenance for the
Com21 software. The benefits of annual software maintenance are
no-charge upgrades including all new product features to all major
releases of the Com21 software and all maintenance releases during
the twelve (12) month term of the maintenance contract. If
purchased separately, the combined cost of these upgrades and
maintenance release will be more than the annual price of software
maintenance.
Com21 encourages its resellers to offer customers the extended software
maintenance program with all others of Com21 software. The two
examples below illustrate the difference in price for maintenance
of the Com21 software with and without the extended software
maintenance program in place.
A) If a customer purchases a software maintenance contract at
time of purchase of Com21 software, the price will be [*] of
the list price of NMAPS and [*] of the list price of the
System software (per ComController). Once the customer has
purchased maintenance, it must purchase maintenance for all
subsequent purchases of software and ComCONTROLLER units in
order for such software and ComCONTROLLER units to be covered
under the maintenance program. For example, if a customer
purchases NMAPS, one ComCONTROLLER including the System
software and maintenance on 9/1/97, the software is covered
until 8/31/98. If the customer purchases a new ComCONTROLLER
including System software on 12/1/97, it must purchase the
maintenance for the System software. As a result, the NMAPS
and System software that was purchased on 9/1/97 will be
covered by the maintenance contract until 8/31/98 and the
System software purchased on 12/1/97 will be covered by the
maintenance contract until 11/30/98. If software maintenance
is purchased after the date of purchase of the Com21 software,
but within ninety (90) days, then the price is [*] of the list
price of the Com21 software for which maintenance is
purchased.
B) A customer that does not purchase maintenance will receive
maintenance (bug-fix) releases but not any upgrade or new
feature of any component of the Com21 ComUNITY Access system.
For example, an upgrade would be NMAPS or the System software
moving from 2.1 to 2.2 or from 2.2 to 2.3. an example of a
maintenance release would be moving from version 2.1 to 2.1.1.
Under this scenario, if a customer purchased a new upgrade, it
would pay [*] of the list price of the upgrade. Although for
one upgrade, this price is less than the annual fee for
maintenance purchasing two or more upgrades separately per
year will cost more than the annual maintenance fee. Com21 is
currently planning to release at least
- --------
* MAJOR RELEASE: A comprehensive software release that has significant new
features to provide additional functionality or performance.
MAINTENANCE RELEASE: Periodic revisions to major releases which may
include performance improvements, support for new hardware,
new software features, and/or bug fixes.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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two upgrades annually, who has purchased NMAPS v2.1 and does
not purchase the upgrade to v2.2 charged [*] for the upgrade
from v2.1 to v2.3.
ORDER NUMBER AND PRICE FOR SOFTWARE MAINTENANCE PRODUCTS:
<TABLE>
<CAPTION>
Order Number Description Price
- ------------ ----------- -----
<S> <C> <C>
TBD (CX9200) ComUNITY Access Software Maintenance contract; [*]
TBD (CX9201) ComUNITY Access Software Maintenance contract; [*]
TBD (CX9202) ComUNITY Access Software Maintenance contract; [*]
TBD (CX9203) ComUNITY Access Software Maintenance contract; [*]
</TABLE>
SERVICE OFFERINGS
Standard Service Policy
At no charge, Com21 offers the following support to resellers.
- (M-F) 7AM to 7PM PST telephone support, after hours message
support.
- Next business day response.
- On site support requires a customer PO, minimum charge for a
service call is [*].
- ----------------
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
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EXHIBIT G
SOURCE CODE ESCROW DEPOSIT AGREEMENT
Account Number
This Source Code Escrow Deposit Agreement including any Exhibits
and Addenda ("Agreement") is effective this day of , 19 , by and
between Escrow Holder ("Escrow Holder"), ("Licensor") and ("Licensee")
.
Notices to Licensor, Licensee and Escrow Holder should be sent to
the parties as identified in the attached Exhibit A.
WHEREAS, Licensor and Licensee have or will enter into a contract
dated _______, 199_ (the "Distribution Agreement");
WHEREAS, Licensor and Licensee desire this Technology Escrow
Agreement to be supplementary to said contract pursuant to 11 U.S.C. Section
365(n);
WHEREAS, availability of or access to certain proprietary data
relating to the proprietary technology and other materials is critical to
Licensee in the conduct of its business;
WHEREAS, Licensor has deposited or will deposit with Escrow
Holder the related proprietary data to provide for retention and controlled
access for Licensee under certain specified conditions:
NOW THEREFORE, for good and valuable consideration, the receipt
of which is hereby acknowledged, and in consideration of the promises, mutual
covenants and conditions contained herein, the parties hereto agree as follows:
1. Licensor Deposit Account. Following the execution of this
Agreement and the payment of the set-up and deposit fees to Escrow Holder,
Escrow Holder shall open a "Deposit Account" for Licensor. The opening of the
account means that Escrow Holder shall establish an account ledger in the name
of the Licensor and that Licensor shall receive renewal notices as provided in
Section 7. Unless and until Licensor makes an Initial Deposit with Escrow
Holder, Escrow Holder shall have no obligation to Licensor except as defined by
this Section.
2. Initial Deposit. The "Initial Deposit" will consist of all
material initially supplied by Licensor to Escrow Holder as specified by an
accompanying document called a "Description of Deposit Materials" hereinafter
referred to as an Exhibit B. Escrow Holder shall issue to Licensor and Licensee
a copy of the initial Exhibit B within ten (10) days of acceptance by Escrow
Holder of the Initial Deposit.
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3. Deposit Changes. The Licensor will keep the Deposit updated
with supplemental or replacement materials ("Deposit Changes") to the extent
required by the License Agreement.
(a) Supplemental Deposit. A "Supplemental Deposit" will include
any materials added to the Deposit. Licensor will submit any Supplemental
Deposit accompanied by an Exhibit B. Within ten (10) days of acceptance by
Escrow Holder of such Supplemental Deposit, Escrow Holder shall notify Licensor
and Licensee by issuing a copy of the Exhibit B.
(b) Replacement Deposit. "Replacement Materials" replace the
existing Deposit defined by Exhibit B(s). Licensor will submit any Replacement
Materials accompanied by an Exhibit B. Within ten (10) days of acceptance by
Escrow Holder of such Replacement Materials, Escrow Holder shall notify Licensor
and Licensee by issuing a copy of the Exhibit B. Escrow Holder will destroy or
return to Licensor all materials that are replaced by the Replacement Materials.
4. Deposit Inspection. Upon the receipt of the Initial Deposit
materials and any Deposit Changes, Escrow Holder will visually match the listed
items on the Exhibit B to the labeling of such materials. Escrow Holder shall
not be responsible for verifying the contents or validating the accuracy of
Licensor's labeling. Acceptance of the Deposit will occur only when Escrow
Holder concludes that the Deposit Inspection is complete; which conclusion shall
not be unreasonably withheld.
5. License Registration Account. Following the execution of this
Agreement and the payment of the set-up, deposit and registration fee to Escrow
Holder, Escrow Holder shall open a "Registration Account" for Licensee. The
opening of the Registration Account means that Escrow Holder shall establish an
account ledger in the name of the Licensee and that Licensee shall receive
renewal notices as provided in Section 7. Unless and until Licensor makes an
Initial Deposit of Materials with Escrow Holder, Escrow Holder shall have no
obligation to Licensee except as defined by this section.
6. Deposit Obligations of Confidentiality. Escrow Holder agrees
to establish a receptacle in which it shall place the Deposit (meaning the
Initial Deposit, Supplemental Deposits and Replacement Deposits to the extent
then applicable) and shall put the receptacle under the control of one or more
of its officers, selected by Escrow Holder, whose identity shall be available to
Licensor and Licensee at all times. Escrow Holder shall exercise a professional
level of care in carrying out the terms of this Agreement.
Escrow Holder acknowledges Licensor's assertion that the Deposit
shall contain proprietary data of Licensor and that Escrow Holder has an
obligation to preserve and protect that confidentiality.
Escrow Holder may duplicate the Deposit only as necessary to
preserve and safely store the Deposit, and to provide copies thereof, as
authorized herein, to Licensee. Escrow Holder shall reproduce on all copies of
the Deposit made by Escrow Holder any proprietary or confidentiality notices
contained in the Deposit originally deposited with it by Licensor.
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Except as expressly provided in this Agreement, Escrow Holder
agrees that it shall not divulge, disclose, otherwise make available to third
parties, or make any use whatsoever of the Deposit, or of any information
provided to it by Licensor in connection with this Agreement, without the
express prior written consent of Licensor. This obligation will continue
indefinitely notwithstanding termination of this Agreement.
7. Term of Agreement. This Agreement will have an initial term of
one year, commencing on the effective date of this Agreement. This Agreement may
be renewed for additional one-year periods upon receipt by Escrow Holder of the
specified renewal fees. In the event that the renewal fees are not received
within thirty (30) days prior to the expiration date, Escrow Holder shall so
notify Licensor and Licensee of the thirty (30) day expiration period. If the
renewal fees are not received within the subsequent thirty (30) days, this
Agreement will expire without further notice and without liability of Escrow
Holder to the parties of this Agreement. Licensee has the right to pay renewal
fees and other related fees. In the event Licensee pays the renewal fees and
Licensor is of the opinion that any necessary condition for renewal is not met,
Licensor may so notify Escrow Holder, and Licensee in writing. The resulting
dispute will be resolved pursuant to the dispute resolution process defined in
Section 12.
8. Expiry. Except as otherwise expressly provided in this
Agreement, upon non-renewal or other termination of this Agreement, all duties
and obligations of Escrow Holder to Licensor and Licensee will terminate. If
Licensor requests the return of the Deposit, Escrow Holder shall return the
Deposit to Licensor only after all outstanding invoices and the deposit return
fees are paid. If the fee(s) are not received by the anniversary date of this
Agreement, Escrow Holder shall, at its option, destroy or return the Deposit to
Licensor.
9. Filing for Release of Deposit by Licensee. Upon notice to
Escrow Holder by Licensee (in the form of an affidavit or declaration by an
officer of Licensee) of the occurrence of a release condition as defined in
Section 10, and payment of the filing for release fee, Escrow Holder shall so
notify Licensor by certified mail with a copy of the notice from the Licensee.
If Licensor provides contrary instruction within ten (10) working days of the
mailing of the notice to Licensor, Escrow Holder shall not deliver the Deposit
to the Licensee except as provided below.
"Contrary instruction" means the filing of an affidavit or
declaration with Escrow Holder by an officer of Licensor stating that a Release
Condition has not occurred, or has been cured. Escrow Holder will send a copy of
the affidavit or declaration by certified mail to the Licensee who is filing for
the release of the Deposit materials. Upon receipt of contrary instruction,
Escrow Holder shall not deliver a copy of the Deposit and shall continue to
store the Deposit until otherwise directed by Licensor and Licensee jointly, or
until resolution of the dispute pursuant to Section 12.
10. Release of Deposit to Licensee. Release conditions are those
conditions specified for release of escrow in Section 18 of the Distribution
Agreement.
If after following the procedure in Section 9, Escrow Holder does
not receive
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<PAGE> 47
contrary instruction from Licensor, Escrow Holder is authorized to release the
Deposit, or if more than one Licensee is registered to the Deposit, a copy of
the Deposit, to the Licensee filing for release following receipt of any fees
due to Escrow Holder.
11. Conditions for Use Following Release. Following a release as
provided in Section 10, Licensee shall have the non-exclusive right to use the
released material only to support and maintain the Com21 Software and to
distribute error corrections (in object code form only) to then current
end-users thereof for use in their licensed configurations. Additionally,
Licensee shall be required to maintain the confidentiality of the released
materials and technology in accordance with the terms of the License Agreement.
12. Disputes. In the event of a dispute as to which this section
applies, Escrow Holder shall so notify Licensor and Licensee in writing. Such
dispute will be settled by arbitration (which arbitration shall be binding for
purposes of this Agreement only) [in accordance with the rules of the American
Arbitration Association (AAA). Licensor and Licensee will each select one
arbitrator and a third arbitrator will be selected unanimously by the two
arbitrators selected by the parties. If the two arbitrators selected by the
parties are unable to select the third arbitrator within ten (10) days of the
appointment of the two arbitrators, the parties consent to the selection of the
third arbitrator by the AAA administrator.
13. Indemnification. Licensor and Licensee agree to defend and
indemnify Escrow Holder and hold Escrow Holder harmless from and against all
claims, actions and suits, whether in contract or in tort, and from and against
any and all liabilities, losses, damages, costs, charges, penalties, counsel
fees, and other expenses of any nature (including, without limitation,
settlement costs) incurred by Escrow Holder as a result of performance of this
Agreement except in the event of a judgment or arbitration decision which
specified that Escrow Holder acted with gross negligence or willful misconduct.
14. Audit Rights. Escrow Holder agrees to keep records of the
activities undertaken and materials prepared pursuant to this Agreement.
Licensor and Licensee will be entitled at reasonable times, during normal
business hours and upon reasonable notice to Escrow Holder, during the term of
this Agreement to inspect the records of Escrow Holder with respect to this
Agreement.
Licensor or Licensee will be entitled, upon reasonable notice to
Escrow Holder and during normal business hours, at the facilities designated by
Escrow Holder, accompanied by a designated employee of Escrow Holder, to inspect
the physical status and condition (but not contents) of the Deposit. The Deposit
may not be changed by Licensor or Licensee during the audit.
15. Designated Representative. Licensor and Licensee each agree
to designate one individual to receive notices from Escrow Holder and to act on
behalf of Licensor and Licensee respectively with respect to the performance of
their obligations as set forth in this Agreement and to notify Escrow Holder
immediately, in the manner stipulated in Exhibit A, in the event of any change
from one Designated Representative to another.
16. General. Subject to the terms of this Agreement, Escrow
Holder may
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Confidential
act in reliance upon any written instruction, instrument, or signature
reasonably believed to be genuine and may assume that any person giving any
written notice, request, advice or instruction in connection with or relating to
this Agreement has been duly authorized to do so. Escrow Holder is not
responsible for failure to fulfill its obligations under this Agreement due to
causes beyond its control.
This Agreement is to be governed by, and construed in accordance
with the laws of the State of California, without regard to conflicts of laws
provisions thereof.
Except for the License Agreement, this Agreement, including the
Exhibits and Addenda hereto, constitutes the entire Agreement between the
parties concerning the subject matter hereof, and will supersede all previous
communications, representations, understandings, and agreements, either oral or
written, between the parties. Licensor and Licensee acknowledge that Escrow
Holder has no knowledge of the terms and conditions contained in the License
Agreement and that Escrow Holder's only obligations shall be as set forth herein
or in any other writing signed by Escrow Holder, Licensor and Licensee.
If any provision of this Agreement is held by any court to be
invalid or unenforceable, that provision will be limited or severed from this
Agreement to the minimum extent necessary so that this Agreement shall otherwise
remain in full force and effect and enforceable.
17. Fees. All service fees will be due in full at the time of the
request for service. Renewal fees will be due in full upon the receipt of
invoice unless otherwise specified by the invoice. For the purpose of annual
renewal fees the effective date of this Agreement will be the anniversary date.
Invoiced fees must be paid within sixty (60) days of receipt of invoice or
Escrow Holder may terminate this Agreement. If payment is not timely received by
Escrow Holder, Escrow Holder shall have the right to accrue and collect interest
at the rate of one and one-half percent per month (18% per annum) from the date
of invoice for all later payments, or, if lower, the maximum rate allowed by
law.
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<PAGE> 49
All fees will be those specified in Escrow Holder's standard
Schedule of Fees in effect at the time of renewal, or request for service,
except as otherwise agreed. For any increase in Escrow Holder's standard fees,
Escrow Holder shall notify Licensor and Licensee at least ninety (90) days prior
to any renewal of this Agreement. For any service not listed on the Schedule of
Fees, Escrow Holder shall provide a quote prior to rendering such service.
Dated: 11/26/97
------------- ------------------------------
Licensor
By: [SIG]
---------------------------
WILLIAM J. GALLAGHER
-----------------------------
(Print Name)
VICE PRESIDENT
-----------------------------
Title
Dated: 11/19/97
------------- ------------------------------
Licensor
By: [SIG]
---------------------------
B. ADAMS
-----------------------------
(Print Name)
GEN. MANAGER
-----------------------------
Title
Dated:
------------- ------------------------------
ESCROW HOLDER
By:
---------------------------
-----------------------------
(Print Name)
-----------------------------
Title
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<PAGE> 50
Confidential
EXHIBIT A
TO
SOURCE CODE ESCROW AGREEMENT
Account Number
Notices to Licensor Regarding
Agreement Terms and Conditions Invoices should
should be addressed to: be addressed to:
Licensor: Com21, Inc. __________________
Address: 750 Tasman Drive __________________
Milpitas, CA 95035 __________________
Designated __________________ __________________
Representative: __________________ __________________
Phone: __________________ __________________
Notices to Licensee Regarding
Agreement Terms and Conditions Invoices should
should be addressed to: be addressed to:
Licensee: Philips Public Tele-
communication Systems __________________
Address: Monash Gateway __________________
745 Springvale Road __________________
Mulgrave
VIC 3170
Australia
Designated __________________ __________________
Representative: __________________ __________________
Phone: __________________ __________________
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Confidential
All requests from Licensor or License to change the designated representative
must be given in writing and signed by an officer of Licensor or Licensee as the
case may be.
Invoice Inquiries
All Contracts, Deposit Materials and Remittance of
and Official Notifications to Fees to Escrow Holder
Escrow Holder should be should be addressed to:
addressed to:
___________________________________ _________________________________
___________________________________ _________________________________
___________________________________ _________________________________
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EXHIBIT B
Description of Deposit Materials
Deposit Account Number___________________________________________________
Deposit Account Name_____________________________________________________
Licensor, pursuant to a Deposit Agreement, hereby deposits the below described
materials into the above referenced Deposit Account by providing them to Escrow
Holder. The Deposit Type is: (check box that applies)
Initial Deposit Supplemental Replacement
If Replacement then Destroy Deposit or Return Deposit
If no Deposit Type has been checked the materials will be deemed to be an
Initial or Supplemental Deposit.
DEPOSIT MATERIALS
Name _____________________________________ Version _____________________________
Date _________________________ CPU/OS ______________ Compiler __________________
Application ____________________________________________________________________
Utilities needed________________________________________________________________
Special operating instructions__________________________________________________
________________________________________________________________________________
Item Description Media Quantity
I certify that the above described
materials were delivered/sent to
the Escrow Holder: Receipt of the materials
acknowledged.
By ______________________________ By ______________________________
Name ____________________________ Name ____________________________
Title ___________________________ Title ___________________________
For _____________________________ For Escrow Holder
Date ____________________________ Date ____________________________
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