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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF SHARES AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, $0.001 par value per share............ $50,600,000 $14,927
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(1) Estimated solely for the purpose of computing the amount of the Registration
fee pursuant to Rule 457 under the Securities Act of 1933, as amended.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that 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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<PAGE> 2
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 MARCH 17, 1998
COM21 LOGO
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SHARES
COMMON STOCK
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All of the 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 $ and $ 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 $ , 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 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.
WESSELS, ARNOLD & HENDERSON
The date of this Prospectus is , 1998.
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[SEE APPENDIX "DESCRIPTION OF GRAPHICS"]
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 a
1- for-2 reverse split of the outstanding shares of Common Stock and Preferred
Stock to be effected prior to the effectiveness of the registration statement
related to the Offering made hereby, 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 19, 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........................................ shares
Common Stock to be outstanding after the Offering(1)........ 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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YEARS ENDED DECEMBER 31,
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1993 1994 1995 1996 1997
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STATEMENTS OF OPERATIONS DATA:
Total revenues.......................................... $ -- $ -- $ -- $ 1,000 $ 15,649
Gross profit............................................ -- -- -- 1,000 7,277
Total costs and expenses................................ 139 894 6,922 15,913 28,912
Loss from operations.................................... (139) (894) (6,922) (14,913) (13,263)
Net loss................................................ (139) (837) (6,666) (14,471) (13,055)
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DECEMBER 31, 1997
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ACTUAL AS ADJUSTED(2)
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BALANCE SHEETS DATA:
Cash and cash equivalents................................... $17,950
Working capital............................................. 19,523
Total assets................................................ 31,573
Long-term obligations....................................... 1,508
Total stockholders' equity.................................. 23,283
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(1) Based on the number of shares outstanding as of December 31, 1997. Excludes:
(i) 1,328,911 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 $1.80 per share; (ii) 1,222,089 shares of Common
Stock reserved for future issuance under the 1998 Stock Incentive Plan (of
which options to purchase 500,000 shares are intended to be granted upon the
effectiveness of this Offering at the initial public offering price); (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 Note 6 and Note 11 of Notes to Financial
Statements.
(2) Adjusted to reflect the sale of shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $ 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 December 31, 1997, the Company had an accumulated
deficit of approximately $35.3 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. 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 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
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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.
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
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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.
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
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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 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
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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. The ultimate outcome of this litigation cannot
presently be determined and accordingly no provision for any loss which may
result has been recorded in the accompanying financial statements. 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. See
"Business -- Intellectual Property; Patent Litigation."
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
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<PAGE> 12
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.
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 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
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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
"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 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, six customers comprised 66% of the
Company's total revenues. Further, in 1997, revenues attributable to Philips,
3Com and Siemens accounted for 21%, 16% and 12% 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
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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.
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.
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RISKS ASSOCIATED WITH INTERNATIONAL MARKETS. In 1997, revenues attributable
to international customers accounted for 64% of total revenues. 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 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."
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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 organizations, and of governmental entities,
both domestic and international, for accurate exchange of data. The Company's
current estimate is 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. However, 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 it without disruption of its
business and without incurring significant expense. 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
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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 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
16
<PAGE> 18
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 % 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."
MANAGEMENT'S BROAD DISCRETION OVER ALLOCATION OF PROCEEDS OF THE
OFFERING. The net proceeds to the Company from the sale and issuance of the
shares of Common Stock offered hereby are estimated to be
approximately $ at an assumed initial public offering price of
$ 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 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 12,729,743 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 12,729,743
Restricted
17
<PAGE> 19
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 2,801,000 shares,
including 250,000 shares reserved under the Company's 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, 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 $ per share
based upon an assumed public offering price of $ per share. To the extent
that outstanding options or warrants to purchase the Company's Common Stock are
exercised, there may be further dilution.
18
<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the sale and issuance of the
shares of Common Stock offered hereby are estimated to be
approximately $ million (approximately $ million if the
Underwriters' over-allotment option is exercised in full), at an assumed initial
public offering price of $ 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
December 31, 1997 (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 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $ per
share and after deducting the estimated underwriting discount and the estimated
offering expenses:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Current portion of long-term obligations.................... $ 1,210 $ 1,210 $
Long-term obligations....................................... $ 1,508 $ 1,508 $
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; 2,772,139 shares issued
and outstanding, actual, 12,729,743 shares issued and
outstanding, pro forma and shares issued and
outstanding, as adjusted(1)............................. 3 13
Additional paid-in capital................................ 58,722 58,722
Deferred stock compensation............................... (116) (116)
Accumulated deficit....................................... (35,336) (35,336)
-------- -------- ----------
Total stockholders' equity.............................. 23,283 23,283
-------- -------- ----------
Total capitalization............................... $ 26,001 $ 26,001 $
======== ======== ==========
</TABLE>
- ---------------
(1) Based on the number of shares outstanding as of December 31, 1997. Excludes:
(i) 1,328,911 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 $1.80 per share; (ii) 1,222,089 shares of Common
Stock reserved for future issuance under the Company's 1998 Stock Incentive
Plan (of which options to purchase 500,000 shares are intended to be granted
upon the effectiveness of this Offering at the initial public offering
price); (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.
19
<PAGE> 21
DILUTION
The net tangible book value of the Company as of December 31, 1997 was
approximately $ , or $ 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 shares of Common Stock offered hereby at an assumed
initial public offering price of $ per share (after deducting the estimated
underwriting discount and the estimated offering expenses), the Company's pro
forma net tangible book value as of December 31, 1997 would have been
$ , or $ per share of Common Stock. This represents an
immediate increase in pro forma net tangible book value of $ per share
to existing stockholders and an immediate dilution of $ per share to
new public investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...... $
Pro forma net tangible book value per share as of
December 31, 1997............................... $
Increase per share attributable to new investors... $
----------
Pro forma net tangible book value per share after the
Offering........................................... $
----------
Dilution per share to new investors.................. $
==========
</TABLE>
The following table summarizes, as of December 31, 1997, 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(1)....... 12,729,743 $59,703,570 $4.69
New investors..................
---------- ----- ----------- -----
Total................ 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
- ---------------
(1) If the Underwriters' over-allotment option is exercised in full, the number
of shares held by existing stockholders will be reduced by shares to
or % of the total shares of Common Stock to be outstanding after
this Offering, and the number of shares held by new investors will be
increased to , or % of the total shares of Common Stock to be
outstanding after this Offering.
The foregoing computations are based on the number of shares of Common
Stock outstanding as of December 31, 1997 and exclude 1,328,911 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 $1.80 per
share, 1,222,089 shares of Common Stock reserved for future issuance under the
Company's 1998 Stock Incentive Plan (of which options to purchase 500,000 shares
are intended to be granted upon the effectiveness of this Offering), 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.
20
<PAGE> 22
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 historical results are not necessarily indicative of
the operating results to be expected in the future.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues.................. $ -- $ -- $ -- $ 1,000 $ 15,649
Cost of total revenues.......... -- -- -- -- 8,372
------ ------ ------- -------- --------
Gross profit............... -- -- -- 1,000 7,277
Operating expenses:
Research and development...... 79 545 5,233 12,395 13,481
Sales and marketing........... -- -- 770 1,970 5,277
General and administrative.... 60 349 919 1,548 1,782
------ ------ ------- -------- --------
Total operating
expenses............ 139 894 6,922 15,913 20,540
Loss from operations............ (139) (894) (6,922) (14,913) (13,263)
Total other income.............. -- 58 257 447 229
------ ------ ------- -------- --------
Loss before income taxes........ (139) (836) (6,665) (14,466) (13,034)
Income taxes.................... -- 1 1 5 21
------ ------ ------- -------- --------
Net loss.............. $ (139) $ (837) $(6,666) $(14,471) $(13,055)
====== ====== ======= ======== ========
Net loss per share, basic and
diluted(1).................... $ -- $(0.54) $ (3.53) $ (7.64) $ (6.15)
====== ====== ======= ======== ========
Shares used in computation,
basic and diluted(1).......... -- 1,562 1,887 1,894 2,124
====== ====== ======= ======== ========
Pro forma net loss per share,
basic and diluted(2).......... $ (1.27)
========
Shares used in pro forma
computation, basic and
diluted(2).................... 10,279
========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1993 1994 1995 1996 1997
----- ------ ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEETS DATA:
Cash and cash equivalents............ $ 7 $2,082 $3,273 $12,427 $17,950
Working capital (deficit)............ (322) 2,024 2,328 9,097 19,523
Total assets......................... 21 2,308 4,606 17,036 31,573
Long-term obligations................ -- -- 275 1,292 1,508
Total stockholders' equity
(deficit).......................... (307) 2,222 3,288 12,056 23,283
</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).
21
<PAGE> 23
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 December 31, 1997, had an accumulated deficit of $35.3 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"), which is a greater than five percent (5%) stockholder of the
Company, the Company recognized certain technology licensing revenues in the
quarters ended June 30, 1996 and March 31, 1997. Under the terms of the 3Com
Agreement, 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 December 31, 1997 an aggregate of approximately $1.5 million has
been recognized as technology licensing fees and royalties pursuant to this
agreement. See "Certain Transactions," "Principal Stockholders" and Note 9 of
Notes to Financial Statements.
To date, gross margin on sales of headend 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
22
<PAGE> 24
continues to take, steps to reduce the manufacturing costs of its cable modem
products by consolidating functionality and 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 December 31, 1997, 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.
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. The Company's
current estimate is 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 December 31, 1997, the Company had an accumulated deficit of
approximately $35.3 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 "Risk Factors -- Limited Operating History; History of
Losses; No Assurance of Profitability."
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<PAGE> 25
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 four
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,
1997 1997 1997 1997
--------- -------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues.............................. $ 500 $ 2,878 $ 5,577 $ 6,694
Cost of total revenues...................... -- 1,520 2,986 3,866
------- ------- ------- -------
Gross profit................................ 500 1,358 2,591 2,828
Operating expenses:
Research and development.................. 3,128 3,041 3,309 4,003
Sales and marketing....................... 870 1,145 1,363 1,899
General and administrative................ 367 405 432 578
------- ------- ------- -------
Total operating expenses............... 4,365 4,591 5,104 6,480
------- ------- ------- -------
Loss from operations........................ (3,865) (3,233) (2,513) (3,652)
Total other income (expense)................ 37 (18) 34 176
------- ------- ------- -------
Loss before income taxes.................... (3,828) (3,251) (2,479) (3,476)
Income taxes................................ -- 12 2 7
------- ------- ------- -------
Net loss.................................... $(3,828) $(3,263) $(2,481) $(3,483)
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Total revenues.............................. 100.0% 100.0% 100.0% 100.0%
Cost of total revenues...................... -- 52.8 53.5 57.8
------- ------- ------- -------
Gross margin................................ 100.0 47.2 46.5 42.2
Operating expenses:
Research and development.................. 625.6 105.6 59.4 59.8
Sales and marketing....................... 174.0 39.8 24.4 28.4
General and administrative................ 73.4 14.1 7.8 8.6
------- ------- ------- -------
Total operating expenses............... 873.0 159.5 91.6 96.8
------- ------- ------- -------
Loss from operations........................ (773.0) (112.3) (45.1) (54.6)
Total other income (expense)................ 7.4 (0.7) 0.6 2.7
------- ------- ------- -------
Loss before income taxes.................... (765.6) (113.0) (44.5) (51.9)
Income taxes................................ -- 0.4 0.0 0.1
------- ------- ------- -------
Net loss.................................... (765.6)% (113.4)% (44.5)% (52.0)%
======= ======= ======= =======
</TABLE>
24
<PAGE> 26
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 and December 31, 1997 recorded total revenues of $2.9 million, $5.6
million and $6.7 million, respectively. During 1997, revenues attributable to
international customers constituted 64% of total revenues. During 1997,
approximately 97% of the Company's total revenues 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 four quarters, all operating expense categories generally
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 presented 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-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.
25
<PAGE> 27
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 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.
26
<PAGE> 28
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private sales of Common Stock and Preferred Stock which, through December 31,
1997, provided net cash proceeds of approximately $58.6 million. Net cash used
in operating activities in 1996 of $11.7 million 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 of $23.1 million in
1996 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 of $16.1 million resulted
primarily from a net loss of $13.1 million and the increase of $5.0 million and
$2.6 million in accounts receivable and inventory, 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 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.
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 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 December 31, 1997, the Company had $18.0 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."
27
<PAGE> 29
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
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<PAGE> 30
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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<PAGE> 31
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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<PAGE> 32
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.
SEE APPENDIX -- DESCRIPTION OF FIGURE 1
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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<PAGE> 33
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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<PAGE> 34
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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<PAGE> 35
PRODUCTS
The Company's product offerings are depicted in the following diagram.
[SEE APPENDIX "DESCRIPTION OF GRAPHICS"]
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.
34
<PAGE> 36
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 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.
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<PAGE> 37
- 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 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. Both modules are expected to become available in mid-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.
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<PAGE> 38
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 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
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<PAGE> 39
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.
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
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<PAGE> 40
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
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> 41
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 December 31, 1997. 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> <C>
- -------------------------------------------------------------------------------------------------
COM21 COMMERCIAL DEPLOYMENTS
- -------------------------------------------------------------------------------------------------
QUARTER OF
INITIAL
CUSTOMER DEPLOYMENT LOCATION HOMES PASSED
- -------------------------------------------------------------------------------------------------
Baerum Kabel-TV Q2 1997 Oslo, Norway 36,000
- -------------------------------------------------------------------------------------------------
Cablecom Holding AG Q2 1997 Zurich, Switzerland 200,000
- -------------------------------------------------------------------------------------------------
CableVision TCI-International Q2 1997 Buenos Aires, Argentina 1,200,000
- -------------------------------------------------------------------------------------------------
Halifax Cable Q2 1997 Halifax, Nova Scotia 205,000
- -------------------------------------------------------------------------------------------------
NV Eneco Q2 1997 Rotterdam, The Netherlands 600,000
- -------------------------------------------------------------------------------------------------
Palo Alto Cable Co-op Q2 1997 Palo Alto, California 56,000
- -------------------------------------------------------------------------------------------------
Spie Trindel Q2 1997 Colmar, France 25,000
- -------------------------------------------------------------------------------------------------
Telindus NV/SA Q2 1997 Nyon, Switzerland 80,000
- -------------------------------------------------------------------------------------------------
Videopole Q2 1997 Meudon, France 23,000
- -------------------------------------------------------------------------------------------------
Cablecom Holding AG Q3 1997 Geneva, Switzerland 450,000
- -------------------------------------------------------------------------------------------------
Charter Communications Q3 1997 Pasadena, California 110,000
- -------------------------------------------------------------------------------------------------
Prime Cable Q3 1997 Las Vegas, Nevada 480,000
- -------------------------------------------------------------------------------------------------
Super Canal Holding Q3 1997 Mendoza, Argentina 50,000
- -------------------------------------------------------------------------------------------------
Telekabel Q3 1997 Leeuwarden, The Netherlands 120,000
- -------------------------------------------------------------------------------------------------
Telia Stofa A/S Q3 1997 Horsens, Denmark 200,000
- -------------------------------------------------------------------------------------------------
Telindus NV/SA Q3 1997 Lausanne, Switzerland 200,000
- -------------------------------------------------------------------------------------------------
TOTAL 4,035,000
=========
- -------------------------------------------------------------------------------------------------
</TABLE>
In 1997, revenues attributable to Philips, 3Com and Siemens accounted for
21%, 16% and 12% of total revenues, respectively. See "Risk Factors -- Customer
Concentration" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
In 1997, revenues attributable to international customers constituted 64%
of total revenues. 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."
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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> 43
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.
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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
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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 seven 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 February 28, 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 $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 December 31, 1997, Com21 had a team of 71 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 six engineers with Ph.D.s and 26 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
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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
December 31, 1997, the Company had nine 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
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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.
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 Hybrid's 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
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entitled "Remote Link Adapter for Use in TV Broadcast Data Transmission System"
(collectively, 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, as a result of the broadened
claims, 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. The ultimate outcome of this
litigation cannot presently be determined and accordingly no provision for any
loss which may result has been recorded in the accompanying financial
statements. Accordingly, regardless of the outcome of any litigation 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. See "Risk
Factors -- Patents and Proprietary Rights; Patent Litigation."
EMPLOYEES
As of December 31, 1997, the Company had a total of 131 full-time employees
and eleven full-time contractors. Of the total number of employees, 71 were in
research and development, 22 in marketing and technical support, 18 in
operations, eight in sales and twelve 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 December 31, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- ---- --------
<S> <C> <C>
Peter D. Fenner................... 61 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
Robert A. Hoff.................... 45 Director
Robert W. Wilmot.................. 52 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 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 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. 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
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("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
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.
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.
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.
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C. RICHARD KRAMLICH. Mr. Kramlich has been a Director of the Company since
May 1994. Mr. Kramlich is the co-founder and General Partner of New Enterprise
Associates. 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 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 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 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 seven 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.
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
50
<PAGE> 52
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 $25,000
Vice President, Engineering
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No stock options or stock appreciation rights were granted to the Named
Executive Officers during fiscal 1997.
51
<PAGE> 53
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND LAST FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning option exercises and
option holdings for the last Fiscal Year with respect to the Named Executive
Officers. Except as set forth below, no options or stock appreciation rights
were exercised by any such individual during such year, and no stock
appreciation rights were outstanding on December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL
SHARES YEAR-END(#)(2) YEAR-END($)(4)
ACQUIRED ON VALUE --------------------------- -----------------------------
NAME EXERCISE(#)(1)(2) REALIZED($)(3) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------------- -------------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Peter D. Fenner...... 115,000 $147,650 371,500 -- $2,414,749 --
Buck J. Gee.......... 25,000 $ 62,500 -- -- -- --
David L. Robertson... 39,168 $109,587 15,000 -- $ 91,500 --
William J.
Gallagher.......... -- -- 97,500 -- $ 624,749 --
Kenneth C. Gorman.... 50,000 $ 10,000 -- -- -- --
</TABLE>
- ---------------
(1) As of December 31, 1997, Mr. Fenner was vested in 115,000 of the shares
exercised, Mr. Gee was vested in 7,917 of the shares exercised, Mr.
Robertson was vested in 16,668 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
On March 10, 1998 the Board of Directors authorized the Compensation
Committee to grant options to purchase an aggregate of 500,000 shares of Common
Stock to certain of the Company's employees, including executive officers. Such
grants are contingent upon the effectiveness of the registration statement
related to this Offering and will have an exercise price equal to the initial
public offering price of the Common Stock.
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 will become effective
on April 1, 1998 (the "Plan Effective Date").
An initial reserve of 2,478,190 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. 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
52
<PAGE> 54
repurchased shares added to the reserve exceed 72,810. In addition, the number
of shares of Common Stock reserved for 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 four percent (4%) of the
total number of shares of Common Stock outstanding on the last trading day of
the preceding calendar year. 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
53
<PAGE> 55
accounting charge and valued at fair market value on the exercise date. The
option may also be 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
54
<PAGE> 56
be in effect, a non-statutory option to purchase that number of shares of Common
Stock determined 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 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
55
<PAGE> 57
and may be granted to one or more officers of the Company as part of their
option grants under the 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.
56
<PAGE> 58
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.
57
<PAGE> 59
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.
<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 94,882 114,943
3Com Corporation.............. -- -- -- -- -- 876,211 244,017
Entities affiliated with
Kleiner Perkins Caufield and
Byers(2).................... -- -- -- 750,000 150,000 57,965 18,487
Entities affiliated with Paul
and Evelyn Baran Trust
Agreement(3)................ 235,441 -- -- 110,070 22,014 12,500 --
Entities affiliated with New
Enterprise Associates VI,
L.P.(4)..................... 632,912 -- -- 295,888 59,178 94,881 459,770
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 and
CrossPoint Entrepreneurs Fund. 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
and shares held by New Enterprise Associates VI, 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.
61
<PAGE> 60
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 is a
greater than five percent stockholder in the Company.
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.
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<PAGE> 61
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
December 31, 1997 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
NUMBER OF BENEFICIALLY OWNED(2)
SHARES ----------------------
BENEFICIALLY PRIOR TO AFTER THE
NAMES AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) OFFERING OFFERING
---------------------------------------- ------------ --------- ---------
<S> <C> <C> <C>
New Enterprise Associates VI, L.P...................... 1,542,629 12.1%
2490 Sand Hill Road
Menlo Park, CA 94025
CrossPoint Venture Partners 1993(3).................... 1,197,803 9.4
18552 MacArthur Boulevard, Suite 400
Irvine, CA 92715
3Com Corporation....................................... 1,120,228 8.8
5400 Bayfront Plaza
Building 100
Santa Clara, CA 95052
Paul and Evelyn Baran Trust Agreement(4)............... 980,025 7.7
Kleiner Perkins Caufield and Byers(5).................. 976,452 7.7
2750 Sand Hill Road
Menlo Park, CA 94025
Peter D. Fenner(6)..................................... 506,000 3.9
Paul Baran(7).......................................... 980,025 7.7
David L. Robertson(8).................................. 75,000 *
William J. Gallagher(9)................................ 97,500 *
Buck J. Gee(10)........................................ 75,000 *
Kenneth C. Gorman(11).................................. 75,000 *
Robert C. Hawk(12)..................................... 34,703 *
Robert A. Hoff(13)..................................... 1,197,803 9.4
C. Richard Kramlich(14)................................ 1,542,629 12.1
Scott J. Loftesness.................................... 287,870 2.3
Robert W. Wilmot(15)................................... 112,500 *
All directors and officers as a group (14
persons)(16)......................................... 5,110,367 4.0
</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 12,729,743 shares outstanding as of
December 31, 1997. 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 December 31, 1997 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) Represents 1,161,579 shares held by CrossPoint Venture Partners 1993 and
36,224 shares held by CrossPoint 1993 Entrepreneurs Fund.
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<PAGE> 62
(4) 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.
(5) Represents 952,041 shares held by Kleiner Perkins Caufield & Byers VII and
24,411 shares held by KPCB Information Sciences Zaibatsu Fund II.
(6) Includes 371,500 shares of Common Stock issuable upon exercise of
immediately exercisable options, 270,835 shares of which are subject to the
Company's right of repurchase.
(7) 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.
(8) Includes 15,000 shares of Common Stock issuable upon exercise of
immediately exercisable options, 11,250 shares of which are subject to the
Company's right of repurchase.
(9) Includes 97,500 shares of Common Stock issuable upon exercise of
immediately exercisable options, 45,314 shares of which are subject to the
Company's right of repurchase.
(10) Includes 16,295 shares of Common Stock subject to the Company's right of
repurchase.
(11) Represents 75,000 shares of Common Stock were acquired pursuant to a stock
option exercise of which 36,876 shares are subject to the Company's right
of repurchase.
(12) Includes 15,000 shares of Common Stock acquired pursuant to the exercise,
all of which are subject to the Company's right of repurchase.
(13) Represents 1,161,579 shares held by CrossPoint Venture Partners 1993 and
36,224 shares held by CrossPoint 1993 Entrepreneurs Fund. Mr. Hoff is a
General Partner at CrossPoint Venture Partners and as such may be deemed to
share voting and investment power with respect to such shares. However, Mr.
Hoff disclaims beneficial ownership of such shares.
(14) Represents 1,542,629 shares held by New Enterprise Associates VI, L.P. 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.
(15) Includes 5,209 shares of the Company's Common Stock subject to the
Company's right of repurchase.
(16) Includes 627,895 shares of Common Stock issuable upon exercise of
immediately exercisable options, of which 536,129 shares are subject to the
Company's right of repurchase.
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<PAGE> 63
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 shares of Common Stock issued and
outstanding and approximately 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 December 31, 1997 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> 64
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
An application has been made to have the Common Stock approved for
quotation on the Nasdaq National Market under the trading symbol "CMTO."
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
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<PAGE> 65
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.
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<PAGE> 66
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 shares of Common Stock assuming the issuance of the
shares of Common Stock offered hereby and no exercise of the
Underwriters' over-allotment option. Of the total outstanding shares of Common
Stock, all 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 12,729,743 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 12,729,743 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
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<PAGE> 67
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 2,551,000 shares of
Common Stock reserved for issuance under its 1998 Stock Incentive Plan and the
250,000 shares issuable pursuant to 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.
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<PAGE> 68
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 Wessels, Arnold & Henderson,
L.L.C. 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 ..................................
Wessels, Arnold & Henderson, L.L.C. ........................
---------
Total.............................................
=========
</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 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
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<PAGE> 69
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.
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.
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.
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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> 71
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............. F-3
Statements of Operations for the Years Ended December 31,
1995, 1996 and 1997....................................... F-4
Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997.......................... F-5
Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997....................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 72
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.
San Jose, California
January 16, 1998
(January 23, 1998 as to the first
paragraph of Note 11; March 10, 1998 as to the
second through fifth paragraphs of Note 11; and , 1998 as to the
last paragraph of Note 11)
------------------------
To the Board of Directors and Stockholders of
Com21, Inc.:
The financial statements included herein have been adjusted to give effect to
the one-for-two reverse common and convertible preferred stock split as
described in the last paragraph of Note 11 to the financial statements. The
above report is in the form that will be signed by Deloitte & Touche LLP upon
the effectiveness of such event assuming that from March 10, 1998 to the
effective date of such event, no other events shall have occurred that would
affect the accompanying financial statements or notes thereto.
DELOITTE & TOUCHE LLP
San Jose, California
March 10, 1998
F-2
<PAGE> 73
COM21, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, (NOTE 1)
-------------------- DECEMBER 31,
1996 1997 1997
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $12,427.. $ 17,950 $ 17,950
Accounts receivable:
Trade (net of allowance of $121 in 1997)................ -- 3,984 3,984
Related parties......................................... -- 1,052 1,052
Inventories............................................... -- 2,643 2,643
Prepaid expenses and other................................ 281 430 430
-------- -------- --------
Total current assets............................... 12,708 26,059 26,059
Property and Equipment -- Net............................... 4,223 5,311 5,311
Other Assets................................................ 105 203 203
-------- -------- --------
Total Assets....................................... $ 17,036 $ 31,573 $ 31,573
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 1,220 $ 2,832 $ 2,832
Accrued compensation and related benefits................. 581 871 871
Deferred revenue (principally related party).............. 1,000 1,004 1,004
Other current liabilities................................. 93 619 619
Current portion of capital lease and debt obligations..... 717 1,210 1,210
-------- -------- --------
Total current liabilities.......................... 3,611 6,536 6,536
Deferred Rent............................................... 77 246 246
Capital Lease Obligations................................... 1,089 1,320 1,320
Debt Obligations............................................ 203 188 188
-------- -------- --------
Total liabilities.................................. 4,980 8,290 8,290
-------- -------- --------
Commitments and Contingencies(Notes 5 and 11)
Stockholders' Equity:
Convertible preferred stock:
Series A; $0.001 par value; 1,805,674 shares authorized,
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;
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;
2,905,730 shares issued and outstanding; liquidation
preference $23,246..................................... 3 3 --
Series G; $0.001 par value; 3,000,000 shares authorized;
2,655,125 shares issued and outstanding; liquidation
preference $23,100..................................... -- 3 --
Common stock, $0.001 par value; 35,000,000 shares
authorized; shares issued and outstanding: 1996,
1,998,097; 1997, 2,772,139.............................. 2 3 13
Additional paid-in capital................................ 34,328 58,722 58,722
Deferred stock compensation............................... -- (116) (116)
Accumulated deficit....................................... (22,281) (35,336) (35,336)
-------- -------- --------
Total stockholders' equity......................... 12,056 23,283 23,283
-------- -------- --------
Total Liabilities and Stockholders' Equity......... $ 17,036 $ 31,573 $ 31,573
======== ======== ========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 74
COM21, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Revenues:
Product ($4,021 in 1997 from related parties)....... $ -- $ -- $ 15,149
License fees -- related party....................... -- 1,000 500
------- -------- --------
Total revenues.............................. -- 1,000 15,649
Cost of Product Revenues ($2,024 in 1997 for related
parties)............................................ -- -- 8,372
------- -------- --------
Gross Profit.......................................... -- 1,000 7,277
------- -------- --------
Operating Expenses:
Research and development............................ 5,233 12,395 13,481
Sales and marketing................................. 770 1,970 5,277
General and administrative.......................... 919 1,548 1,782
------- -------- --------
Total operating expenses.................... 6,922 15,913 20,540
------- -------- --------
Loss From Operations.................................. (6,922) (14,913) (13,263)
------- -------- --------
Other Income (Expense):
Interest income..................................... 264 629 679
Interest expense.................................... (5) (185) (396)
Other income (expense) -- net....................... (2) 3 (54)
------- -------- --------
Total other income.......................... 257 447 229
------- -------- --------
Loss Before Income Taxes.............................. (6,665) (14,466) (13,034)
Income Taxes.......................................... 1 5 21
------- -------- --------
Net Loss.............................................. $(6,666) $(14,471) $(13,055)
======= ======== ========
Net Loss Per Share, Basic and Diluted................. $ (3.53) $ (7.64) $ (6.15)
======= ======== ========
Shares Used in Computation, Basic and Diluted......... 1,887 1,894 2,124
======= ======== ========
Pro Forma Net Loss Per Share, Basic and Diluted (Note
1).................................................. $ (1.27)
========
Shares Used in Pro Forma Computation, Basic and
Diluted (Note 1).................................... 10,279
========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 75
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 1$0.. 2,772,139 $3 $58,722 $(116) $(35,336) $ 23,283
========= === ========= == ======= ===== ======== ========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE> 76
COM21, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss.......................................... $(6,666) $(14,471) $(13,055)
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
Deferred rent.................................. -- 77 169
Changes in operating assets and liabilities:
Accounts receivable -- trade................. -- -- (3,984)
Accounts receivable -- related parties....... -- -- (1,052)
Inventories.................................. -- -- (2,643)
Prepaid expenses and other................... (71) (183) (149)
Other assets................................. (30) (68) (98)
Accounts payable............................. 782 379 1,612
Accrued compensation and related benefits.... 49 518 290
Deferred revenue (principally related
party).................................... -- 1,000 4
Other current liabilities.................... 13 68 526
------- -------- --------
Net Cash Used in Operating Activities.......... (5,786) (11,638) (16,145)
------- -------- --------
Cash Used in Investing Activities:
Purchases of property and equipment............... (987) (2,345) (2,085)
------- -------- --------
Cash Flows From Financing Activities:
Net proceeds from issuance of common stock........ 9 43 530
Net proceeds from issuance of preferred stock..... 7,723 23,196 23,660
Proceeds from issuance of debt obligations........ 241 250 2,440
Repayments under capital lease obligations........ (8) (232) (607)
Repayments on debt obligations.................... -- (120) (2,270)
------- -------- --------
Net Cash Provided by Financing Activities...... 7,965 23,137 23,753
------- -------- --------
Net Increase in Cash and Cash Equivalents........... 1,192 9,154 5,523
Cash and Cash Equivalents, Beginning of period...... 2,081 3,273 12,427
------- -------- --------
Cash and Cash Equivalents, End of period............ $ 3,273 $ 12,427 $ 17,950
======= ======== ========
Noncash Investing and Financing Activities:
Property and equipment acquired under capital
leases......................................... $ 156 $ 1,722 $ 1,146
======= ======== ========
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
======= ======== ========
Cash paid for interest............................ $ 5 $ 182 $ 324
======= ======== ========
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE> 77
COM21, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
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.
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
condition. The Company maintains allowances for estimated potential bad debt
losses. The recorded
F-7
<PAGE> 78
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
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, six customers comprised 66% 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 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.
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.
F-8
<PAGE> 79
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
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 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.
Recently Issued Accounting Standards -- In June 1997, the Financial
Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive
Income," which requires an enterprise to report, by major components and as a
single total, the change in net assets during the period from nonowner sources;
and 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. In October 1997, the American
Institute of Certified Public Accountants issued Statement of Position 97-2,
"Software Revenue Recognition." ("SOP 97-2") which 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 these
statements will not impact the Company's financial position, results of
operations or cash flows.
2. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
(IN THOUSANDS)
<S> <C>
Raw materials and sub-assemblies...................... $ 633
Work-in-process....................................... 980
Finished goods........................................ 1,030
------
$2,643
======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Equipment under capital lease................ $ 1,953 $ 3,367
Computer equipment and software.............. 1,997 2,904
Production equipment......................... 1,066 1,931
Leasehold improvements....................... 181 208
Furniture and fixtures....................... 171 189
------- -------
5,368 8,599
Accumulated depreciation and amortization.... (1,145) (3,288)
------- -------
$ 4,223 $ 5,311
======= =======
</TABLE>
Accumulated amortization on capital leases as of December 31, 1996 and 1997
was approximately $376,000 and $1,167,000, respectively.
F-9
<PAGE> 80
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
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.
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.
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
F-10
<PAGE> 81
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
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.
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.
F-11
<PAGE> 82
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
- 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.
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.
F-12
<PAGE> 83
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
Common Stock
At December 31, 1996 and 1997, the Company had the right to repurchase
44,301 and 320,311 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.
Net Loss Per Share
The following is a reconciliation of the numerators and denominators of the
basic and diluted net loss per share computations for the years ended December
31 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Net Loss (Numerator):
Net loss, basic and diluted......... $(6,666) $(14,471) $(13,055)
------- -------- --------
Shares (Denominator):
Weighted average common shares
outstanding...................... 1,888 1,910 2,244
Weighted average common shares
outstanding subject to
repurchase....................... (1) (16) (120)
------- -------- --------
Shares used in computation, basic
and diluted...................... 1,887 1,894 2,124
------- -------- --------
Net Loss Per Share, Basic and
Diluted............................. $ (3.53) $ (7.64) $ (6.15)
======= ======== ========
</TABLE>
During 1995, 1996 and 1997, 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 December 31, 1997: 9,957,604 shares of
convertible preferred stock; warrants to purchase 46,286 shares of convertible
preferred stock; 320,311 outstanding shares of common stock subject to
repurchase; and options to purchase 1,328,911 shares of common stock.
Stock Option Plan
Under the Company's 1995 Stock Option Plan (the "1995 Plan"), as restated
and amended through January 30, 1997, the Company may grant options to purchase
up to 3,000,000 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.
F-13
<PAGE> 84
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
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
=========== ===========
</TABLE>
On January 15, 1998, the Board of Directors approved an amendment to the
1995 Plan to reserve an additional 750,000 shares for issuance under the 1995
Plan.
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>
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
F-14
<PAGE> 85
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
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. Under SFAS No. 123,
the fair value of stock-based awards to employees is calculated through the use
of option pricing models, even though such models were developed to estimate the
fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
These models also require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated
values. The Company's calculations were made using the Black-Scholes option
pricing model with the following weighted average assumptions for 1995, 1996 and
1997: expected life, 5 years; stock volatility, 0%; 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 $(6,676,000)($(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 net operating loss and tax credit
carryforwards generated in 1997 which the Company provided a full
F-15
<PAGE> 86
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
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 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.
Export sales attributable to international customers accounted for 64% of
total revenues for the year ended December 31, 1997.
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
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.
F-16
<PAGE> 87
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
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 $364,000, $688,000,
and $0, 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. On January 23, 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, 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
F-17
<PAGE> 88
COM21, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
the Company ultimately prevails. The ultimate outcome of this litigation cannot
presently be determined and accordingly no provision for any loss which may
result has been recorded in the accompanying financial statements. 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, financial position, results of operations or
cash flows.
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 2,551,000
shares of Common Stock have been authorized for issuance under the 1998 Stock
Plan, which number includes unvested shares purchased by exercise optons granted
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 4% 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 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. In addition, the Compensation Committee of the Board of Directors
approved, contingent on the effectiveness of the registration statement relating
to the initial public offering, the grant to purchase at the initial public
offering price an aggregate of 500,000 shares of Common Stock to officers and
employees under the 1998 Stock Plan.
On March 10, 1998, the Board of Directors adopted, subject to stockholder
approval (which was received , 1998), a one-for-two reverse split of
the outstanding shares of common and convertible preferred stock. The stock
split will occur upon the effectiveness of the registration statement relating
to the initial public offering. All share and per share amounts in these
financial statements have been adjusted to give effect to the reverse stock
split.
F-18
<PAGE> 89
APPENDIX - Description of Graphics
INSIDE FRONT COVER
- ------------------
An illustrated map of the world is labeled with red dots which denote the
locations of Com21 commercial deployments and blue dots which denote the
locations of field trials. Below the map to the right is a list entitled "Com21
Worldwide Distribution Partners" which includes "Dacom", "ENC Sendirian Berhad",
"Fujikura Ltd.", "Furukawa Electric", "Global Manufacturers Services S.A.", "HSA
Net", "Hitachi Cable, Ltd.", "HITRON Technology Inc.", "J.K. Bros.
International, Inc.", "Pacific Satellite International, Ltd.", "Philips",
"Siemens", "SolNet Technologies, Ltd.", "Spie Trindel", "Telia Stofa A/S",
"Teleste Oy" and "Telindus". Below the map to the left is a list entitled "Com21
Commercial Deployments" which includes the name of each customer in deployment
and their respective geographic location: "Baerum Kabel-TV" - "Oslo, Norway",
"Cablecom Holding AG" - "Zurich, Switzerland; Geneva, Switzerland", "Cablevision
TCI-International" - "Buenos Aires, Argentina", "Charter Communications" -
"Pasadena, California", "Halifax Cable" - "Halifax, Nova Scotia", "NV Eneco" -
"Rotterdam, The Netherlands", "Palo Alto Cable Co-op" - "Palo Alto, California",
"Prime Cable" - "Las Vegas, Nevada", "Spie Trindel" - "Colmar, France", "Super
Canal Holding" - "Mendoza, Argentina", "Telekabel" - "Leeuwarden, The
Netherlands", "Telia Stofa A/S" - "Horsens, Denmark", "Telindus NV/SA" - "Nyon,
Switzerland; Lausanne, Switzerland", "Videopole" - "Mendon, France".
INSIDE GATEFOLD
- ---------------
A banner appears across the top of the page that reads "Com21 provides
high-speed communications solutions for the broadband access market."
An illustration entitled "ComUNITY Access System" occupies the majority of the
page and depicts the products of the Com21 cable modem system. A small cloud in
the center of the page labeled "cable infrastructure" is surrounded by arrows
that branch out in different directions indicating market segments and are of
different widths in order to differentiate the various levels of service enabled
by the Company's modems. The arrows connect the cable infrastructure cloud to
illustrations typifying the various market segments, including a house labeled
"Telecommuter" next to an illustration of a ComPORT cable modem labeled
"ComPORT"; an office building labeled "SOHO" next to an illustration of a
ComPORT cable modem labeled "Cable Return"; a house labeled "Residential" next
to an illustration of a ComPORT cable modem labeled "ComPORT"; a house labeled
"Telephone Return" next to an unlabeled illustration of a ComPORT cable modem;
and an illustration of a ComCONTROLLER labeled "ComCONTROLLER" which is
connected to an illustration of a computer labeled "NMAPS" and to an office
building labeled "Corporate Office" through a line labeled "Virtual Private
Network". The illustration of the ComCONTROLLER connects to a sphere labeled
"Internet". The illustration of the house labeled "Telephone Return" includes an
illustration of a modem labeled "PSTN Modem" which connects to the sphere
labeled "Internet" through a line over telephone poles labeled "PSTN".
A box at the bottom of the page entitled "Advantages to Cable Operators"
includes three phrases with several bullet points under each phrase. The first
phrase reads: "Increased Cable Operator Revenues" above the bullet points
"Multiple Markets - Telecommuter, SOHO Business, Consumer Residential";
"Multiple Applications - High Speed Internet Access, Virtual Private Networks,
Multimedia" and "Multiple Tiers of Service - 16 Cable Operator Defined Levels of
Service". The second phrase reads: "Reduced Total Cost of Ownership" above the
bullet points "Reliable Operations"; "Ingress Noise Blocker (INB)"; "Dual Mode
Cable/Telephone Return Modems" and "Network Management". The third phrase
reads: "Advanced Technology" above the bullet points "High Performance RF
Design"; "ATM Architecture" and "High ASIC Integration".
GRAPHIC PAGE 31
- ---------------
Figure 1 consists of two adjacent illustrations which graph "Bandwidth
Requirements" on the vertical axis and "Number of Subscribers" on the horizontal
axis. Each of the graphs is labeled with the following four levels of cable
modem service, which are positioned on the vertical axis in descending order:
"Corporate Telecommuter," "Small Office/Home Office User," "Frequent Residential
Consumer Internet User," and "Occasional Residential Consumer Internet User."
The first illustration is entitled "Single Level of Service - Typical Cable
Modem System" and has a shaded bar between "Frequent Residential Consumer
Internet User" and "Occasional Residential Consumer Internet User" which is
labeled "Flat Rate for All Users"; above this bar is an arrow labeled "Lost
Revenues" and below the bar is an arrow labeled "Lost Customers." The second
illustration is entitled "Multiple Levels of Service - Com21 ComUNITY Access
System" and has four shaded bars depicting the four service levels. A column to
the right of the illustration is labeled "Illustrative Levels of Pricing" and
has dollar amounts that correspond to the four service levels as follows:
Corporate Telecommuter - $300/month; Small Office/Home Office User - $200/month;
Frequent Residential Consumer Internet User - $50/month, and Occasional
Residential Consumer Internet User - $25/month.
GRAPHIC PAGE 34
- ---------------
The diagram is a pictorial representation of the ComUNITY Access system,
including the ComCONTROLLER, ComPORT and NMAPS, as well as the INB.
Additionally, the diagram depicts the target markets for which these products
are intended.
<PAGE> 90
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....................... 19
Dividend Policy....................... 19
Capitalization........................ 19
Dilution.............................. 20
Selected Financial Data............... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 28
Management............................ 48
Certain Transactions.................. 58
Principal Stockholders................ 60
Description of Capital Stock.......... 62
Shares Eligible for Future Sale....... 65
Underwriting.......................... 67
Legal Matters......................... 68
Experts............................... 68
Change in Independent Auditors........ 69
Additional Information................ 69
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
SHARES
COMMON STOCK
DEUTSCHE MORGAN GRENFELL
MERRILL LYNCH & CO.
WESSELS, ARNOLD & HENDERSON
PROSPECTUS
, 1998
<PAGE> 91
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.......................... 1,000
Printing and Engraving Expenses............................. *
Legal Fees and Expenses of the Company...................... *
Accounting Fees and Expenses................................ *
Blue Sky Fees and Expenses.................................. *
Transfer Agent Fees......................................... *
Miscellaneous............................................... *
-------
Total............................................. *
</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> 92
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 881,597 shares of its Common Stock to
employees and consultants for an aggregate purchase price of $582,090
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> 93
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
& 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.
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 (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by Amendment.
+ Confidential treatment has been requested as to a portion of this Agreement.
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
II-3
<PAGE> 94
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> 95
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Milpitas, State of California, on this 17th day of
March, 1998.
COM21, INC.
By: /s/ Peter D. Fenner
------------------------------------
Peter D. Fenner
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, Peter D. Fenner
and David L. Robertson, and each one of them, his or her true and lawful
attorneys-in-fact and agents, each with full power of substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
Registration Statement, and to sign any registration statement for the same
offering covered by this Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, as
amended, and all post-effective amendments thereto, and to file the same, with
all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming that each of said attorneys-in-fact and
agents or any of them, or his or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
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
--------- ----- ----
<S> <C> <C>
/s/ Peter D. Fenner President, Chief Executive March 17, 1998
- -------------------------------------------------------- Officer (Principal
(Peter D. Fenner) Executive Officer and
Director)
/s/ David L. Robertson Vice President, Finance, March 17, 1998
- -------------------------------------------------------- Chief Financial Officer
(David L. Robertson) (Principal Financial and
Accounting Officer) and
Secretary
/s/ Paul Baran Director March 17, 1998
- --------------------------------------------------------
(Paul Baran)
/s/ Robert A. Hoff Director March 17, 1998
- --------------------------------------------------------
(Robert A. Hoff)
/s/ C. Richard Kramlich Director March 17, 1998
- --------------------------------------------------------
(C. Richard Kramlich)
/s/ Scott J. Loftesness Director March 17, 1998
- --------------------------------------------------------
(Scott J. Loftesness)
/s/ Robert C. Hawk Director March 17, 1998
- --------------------------------------------------------
(Robert C. Hawk)
/s/ Robert W. Wilmot Director March 17, 1998
- --------------------------------------------------------
(Robert W. Wilmot)
</TABLE>
II-5
<PAGE> 96
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
& 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.
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 (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by Amendment.
+ Confidential treatment has been requested as to a portion of this Agreement.
<PAGE> 1
EXHIBIT 1.1
DEUTSCHE MORGAN GRENFELL INC.
EQUITY CAPITAL MARKETS WSGR DRAFT DATED 03/13/98
DATED _________, 1998
COM21, INC.
_________ shares
Common Stock
------------------
UNDERWRITING
AGREEMENT
------------------
<PAGE> 2
COM21, INC.
_______ SHARES
PLUS AN OPTION TO PURCHASE UP TO
_______ ADDITIONAL SHARES TO COVER OVER-ALLOTMENTS
COMMON STOCK
UNDERWRITING AGREEMENT
____________, 1998
DEUTSCHE MORGAN GRENFELL INC.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
WESSELS, ARNOLD & HENDERSON, L.L.C.
As Representatives of the several Underwriters
c/o Deutsche Morgan Grenfell Inc.
31 West 52nd Street
New York, New York 10019
Dear Sirs:
Com21, Inc., a Delaware corporation (the "Company"), hereby confirms
its agreement with the several underwriters named in Schedule 1 hereto (the
"Underwriters"), for whom you have been duly authorized to act as
representatives (the one or more firms acting in such capacities, the
"Representatives"), as set forth below. If you are the only Underwriters, all
references herein to the Representatives shall be deemed to be references to
the Underwriters.
Section 1. Underwriting. Subject to the terms and conditions contained
herein:
(a) The Company proposes to issue and sell [_____] shares of
common stock, par value $0.001 per share (the "Common Stock") (said shares to
be issued and sold by the Company the "Firm Shares"), to the several
Underwriters. The Company also proposes to issue and sell not more than[_____]
additional shares of Common Stock (the "Option Shares" and, together with the
Firm Shares, the "Shares") to the several Underwriters if requested by the
Representatives as provided in Section 2(b) hereof.
(b) Upon your authorization of the release of the Firm Shares, the
Underwriters propose to make a public offering (the "Offering") of the Firm
Shares upon the terms set forth in the Prospectus (as defined below) as soon
after the Registration Statement (as defined below) and this Agreement have
become effective as in the Representatives' sole judgment is advisable. As used
in this Agreement, the term "Original Registration Statement" means the
registration statement (File No. 333-____) initially filed with the Securities
and Exchange Commission (the "Commission") relating to the Shares, as amended
at the time when it was or is declared effective, including all financial
schedules and exhibits thereto and including any information omitted therefrom
pursuant to Rule 430A under the Securities Act of 1933, as amended (the
"Securities Act"), and included in the Prospectus; the term "Rule 462(b)
Registration Statement" means any registration statement filed with the
Commission pursuant to Rule 462(b) under the Securities Act (including the
Registration Statement and any Preliminary Prospectus (as defined below) or
Prospectus incorporated therein at the time such Registration Statement becomes
effective); the term "Registration Statement" includes both the Original
Registration Statement and any Rule 462(b) Registration Statement; the term
"Preliminary Prospectus" means each prospectus subject to completion filed with
the Original Registration Statement or any amendment thereto (including the
-1-
<PAGE> 3
prospectus subject to completion, if any, included in the Original Registration
Statement or any amendment thereto at the time it was or is declared
effective); the term "Prospectus" means:
(i) if the Company relies on Rule 434 under the
Securities Act, the Term Sheet (as defined below) relating to the Shares that
is first filed pursuant to Rule 424(b)(7) under the Securities Act, together
with the Preliminary Prospectus identified therein that such Term Sheet
supplements;
(ii) if the Company does not rely on Rule 434 under the
Securities Act, the prospectus first filed with the Commission pursuant to Rule
424(b) under the Securities Act;
(iii) if the Company does not rely on Rule 434 under the
Securities Act and if no prospectus is required to be filed pursuant to Rule
424(b) under the Securities Act, the prospectus included in the Registration
Statement; or
(iv) for purposes of the representations and warranties
contained in Section 5 hereof, if the prospectus is not in existence, the most
recent Preliminary Prospectus; and the term "Term Sheet" means any term sheet
that satisfies the requirements of Rule 434 under the Securities Act. Any
reference herein to the "date" of a Prospectus that includes a Term Sheet shall
mean the date of such Term Sheet.
Section 2. Purchase and Closing.
(a) On the basis of the representations, warranties, agreements
and covenants herein contained and subject to the terms and conditions herein
set forth, the Company agrees to issue and sell to each of the Underwriters,
and each of the Underwriters, severally and not jointly, agrees to purchase
from the Company, at a purchase price of $___ per Share (the "Purchase Price"),
the number of Firm Shares set forth opposite the name of such Underwriter in
Schedule 1 hereto. [Firm Shares shall be registered by [ChaseMellon
Shareholder Services, Inc.] in the name of the nominee of the Depository Trust
Company ("DTC"), Cede & Co. ("Cede & Co."), and credited to the accounts of
such of its participants as the Representatives shall request, upon notice to
the Company at least 48 hours prior to the First Closing Date (as defined
below)], with any transfer taxes payable in connection with the transfer of the
Firm Shares to the Underwriters duly paid, against payment by or on behalf of
the Underwriters to the account of the Company of the aggregate Purchase Price
therefor by wire transfer in immediately available funds. The Company will
make the certificate or certificates for the Firm Shares available for checking
and packaging by the Representatives at the offices in New York, New York of
the Company's transfer agent or registrar or of the Representatives at least 24
hours prior to the First Closing Date. Delivery or registry of and payment for
the Firm Shares shall be made at the offices of Brobeck Phleger & Harrison LLP,
Two Embarcadero Place, 2200 Geng Road, Palo Alto, California at 9:30 A.M., New
York City time, on [_________, ____], or at such other place, time or date as
the Representatives and the Company may agree upon. Such time and date of
delivery against payment are herein referred to as the "First Closing Date,"
and the implementation of all the actions described in this Section 2(a) is
herein referred to as the "First Closing."
(b) For the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Shares as contemplated by the
Prospectus, the Company hereby grants to the several Underwriters an option to
purchase, severally and not jointly, the Option Shares. The purchase price to
be paid for any Option Shares shall be the same as the Purchase Price for the
Firm Shares set forth above in paragraph (a) of this Section 2. The option
granted hereby may be exercised as to all or any part of the Option Shares from
time to time within thirty days after the date of the Prospectus (or, if such
30th day shall be a Saturday or Sunday or a holiday, on the next business day
thereafter when the New York Stock Exchange and the Nasdaq Stock Market's
National Market (the "Nasdaq National Market") is open for trading). The
Underwriters shall not be under any obligation to purchase any of the Option
Shares prior to the exercise of such option. The Representatives may from time
to time exercise the option granted hereby by giving notice in writing or by
telephone (confirmed in
-2-
<PAGE> 4
writing) to the Company setting forth the aggregate number of Option Shares as
to which the several Underwriters are then exercising the option and the date
and time for delivery or registry of and payment for such Option Shares. Any
such date of delivery or registry shall be determined by the Representatives
but shall not be earlier than two business days or later than five business
days after such exercise of the option and, in any event, shall not be earlier
than the First Closing Date. The time and date set forth in such notice, or
such other time or date as the Representatives and the Company may agree upon
or as the Representatives may determine pursuant to Section 2(a) hereof, is
herein called an "Option Closing Date" with respect to such Option Shares, and
the implementation of all the actions described in this Section 2(b) is herein
referred to as the "Option Closing." As used in this Agreement, the term
"Closing Date" means either the First Closing Date or any Option Closing Date,
as applicable, and the term "Closing" means either the First Closing or any
Option Closing, as applicable. If the option is exercised as to all or any
portion of the Option Shares, then either one or more certificates in
definitive form for such Option Shares shall be delivered or, if such Option
Shares are to be held through DTC, such Option Shares shall be registered and
credited, on the related Option Closing Date in the same manner, and upon the
same terms and conditions, set forth in paragraph (a) of this Section 2, except
that reference therein to the Firm Shares and the First Closing Date shall be
deemed, for purposes of this paragraph (b), to refer to such Option Shares and
Option Closing Date, respectively. Upon exercise of the option as provided
herein, the Company shall become obligated to sell to each of the several
Underwriters, and, on the basis of the representations, warranties, agreements
and covenants herein contained and subject to the terms and conditions herein
set forth, each of the Underwriters (severally and not jointly) shall become
obligated to purchase from the Company the same percentage of the total number
of the Option Shares as to which the several Underwriters are then exercising
the option as such Underwriter is obligated to purchase of the aggregate number
of Firm Shares, as adjusted by the Representatives in such manner as they deem
advisable to avoid fractional shares.
(c) The Company hereby acknowledges that the payment of monies
pursuant to Section 2(a) hereof (a "Payment") by or on behalf of the
Underwriters of the aggregate Purchase Price for any Shares does not constitute
closing of a purchase and sale of the Shares. Only execution and delivery, by
facsimile or otherwise, of a receipt for Shares by the Underwriters indicates
completion of the closing of a purchase of the Shares from the Company.
Furthermore, in the event that the Underwriters make a Payment to the Company
prior to the completion of the closing of a purchase of Shares, the Company
hereby acknowledges that until the Underwriters execute and deliver such
receipt for the Shares, the Company will not be entitled to the Payment and
shall return the Payment to the Underwriters as soon as practicable (by wire
transfer of same-day funds) upon demand. In the event that the closing of a
purchase of Shares is not completed and the Payment is not returned by the
Company to the Underwriters on the same day the Payment was received by the
Company, the Company agrees to pay to the Underwriters in respect of each day
the Payment is not returned by the Company, in same-day funds, interest on the
amount of such Payment in an amount representing the Underwriters' cost of
financing as reasonably determined by the Representatives.
It is understood that any of you, individually and not as one of the
Representatives, may (but shall not be obligated to) make Payment on behalf of
any Underwriter or Underwriters for any of the Shares to be purchased by such
Underwriter or Underwriters. No such Payment shall relieve such Underwriter or
Underwriters from any of its or their obligations hereunder.
-3-
<PAGE> 5
Section 3. Covenants.
(a) The Company will:
(i) use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, and any
amendments thereto to become effective as promptly as possible. If required,
the Company will file the Prospectus or any Term Sheet that constitutes a part
thereof and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rules 434 and 424(b) under the
Securities Act. During any time when a prospectus relating to the Shares is
required to be delivered under the Securities Act, the Company (x) will comply
with all requirements imposed upon it by the Securities Act and the rules and
regulations of the Commission thereunder to the extent necessary to permit the
continuance of sales of or dealings in the Shares in accordance with the
provisions hereof and of the Prospectus, as then amended or supplemented, and
(y) will not file with the Commission the Prospectus, Term Sheet, any amendment
or supplement to such Prospectus or Term Sheet, any amendment to the
Registration Statement (including the amendment referred to in the second
sentence of Section 5(a)(i) hereof) or any Rule 462(b) Registration Statement
unless the Representatives previously have been advised of, and furnished with
a copy within a reasonable period of time prior to, the proposed filing and the
Representatives shall have given their consent to such filing. The Company
will prepare and file with the Commission, in accordance with the rules and
regulations of the Commission, promptly upon request by the Representatives or
counsel for the Underwriters, any amendments to the Registration Statement or
amendments or supplements to the Prospectus that may be necessary or advisable
in connection with the distribution of the Shares by the several Underwriters.
The Company will advise the Representatives, promptly after receiving notice
thereof, of the time when the Registration Statement or any amendment thereto
has been filed or declared effective or the Prospectus or Term Sheet or any
amendment or supplement thereto has been filed and will provide evidence
satisfactory to the Representatives of each such filing or effectiveness.
(ii) without charge, provide (x) to the Representatives
and to counsel for the Underwriters, an executed and a conformed copy of the
Original Registration Statement and each amendment thereto or any Rule 462(b)
Registration Statement (in each case including exhibits thereto), (y) to each
other Underwriter, a conformed copy of the Original Registration Statement and
each amendment thereto or any Rule 462(b) Registration Statement (in each case
without exhibits thereto), and (z) so long as a prospectus relating to the
Shares is required to be delivered under the Securities Act, as many copies of
each Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto as the Representatives may reasonably request. Without limiting the
application of clause (z) of the preceding sentence, the Company, not later
than (I) 9:00 A.M., New York City time, on the business day following the date
of determination of the public offering price, if such determination occurred
at or prior to 12:00 noon, New York City time, on such date or (II) 6:00 P.M.,
New York City time, on the business day following the date of determination of
the public offering price, if such determination occurred after 12:00 noon, New
York City time, on such date, will deliver to the Underwriters, without charge,
as many copies of the Prospectus and any amendment or supplement thereto as the
Representatives may reasonably request for purposes of confirming orders that
are expected to settle on the First Closing Date.
(iii) advise the Representatives, promptly after receiving
notice or obtaining knowledge thereof, of (w) the issuance by the Commission of
any stop order suspending the effectiveness of the Original Registration
Statement or any amendment thereto or any Rule 462(b) Registration Statement or
any order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, (x) the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, (y) the
institution, threatening or contemplation of any proceeding for any purpose
identified in the preceding clause (w) or (x), or (z) any request made by the
Commission for amending the Original Registration Statement or any Rule 462(b)
Registration Statement, for amending or supplementing the Prospectus or for
additional
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<PAGE> 6
information. The Company will use its best efforts to prevent the issuance of
any such stop order and, if any such stop order is issued, to obtain the
withdrawal thereof as promptly as possible.
(b) The Company will arrange for the qualification of the Shares
for offering and sale in each jurisdiction as the Representatives shall
designate including, but not limited to, pursuant to applicable state
securities ("Blue Sky") laws of certain states of the United States of America
or other U.S. jurisdictions, and the Company shall maintain such qualifications
in effect for so long as may be necessary in order to complete the placement of
the Shares; provided, however, that the Company shall not be obliged to file
any general consent to service of process or to qualify as a foreign
corporation or as a securities dealer in any jurisdiction or to subject itself
to taxation in respect of doing business in any jurisdiction in which it is not
otherwise so subject.
(c) If, at any time prior to the final date when a prospectus
relating to the Shares is required to be delivered under the Securities Act,
any event occurs as a result of which the Prospectus, as then amended or
supplemented, would include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or
if for any other reason it shall be necessary at any time to amend the
Registration Statement or amend or supplement the Prospectus to comply with the
Securities Act or the rules or regulations of the Commission thereunder or
applicable law, the Company will promptly notify the Representatives thereof
and will promptly, at its own expense, but subject to the second sentence of
Section 3(a)(i) hereof: (x) prepare and file with the Commission an amendment
to the Registration Statement or amendment or supplement to the Prospectus
which will correct such statement or omission or effect such compliance; and
(y) supply any amended Registration Statement or amended or supplemented
Prospectus to the Underwriters in such quantities as the Underwriters may
reasonably request.
(d) The Company will make generally available to the Company's
securityholders and to the Representatives as soon as practicable an earnings
statement that satisfies the provisions of Section 11(a) of the Securities Act,
including Rule 158 thereunder.
(e) The Company will apply the net proceeds from the sale of the
Shares as set forth under "Use of Proceeds" in the Prospectus.
(f) The Company will not publicly announce any intention to, and
will not, without the prior written consent of the Representatives, on behalf
of the Underwriters, (i) 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 shares of Common Stock or any securities
convertible into, or exercisable or exchangeable for, Common Stock, (ii) enter
into any swap or other agreement that transfers, in whole or in part, any of
the economic consequences of ownership of the shares of Common Stock or
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock (whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of shares of Common Stock or such other
securities, in cash or otherwise) or (iii) release any officer, director or
other stockholder from any provision whereby such officer, director or other
stockholder agreed not to sell, make any short sale of, loan, grant any option
for the purchase of or otherwise transfer or dispose of any securities of the
Company without the prior written consent of Deutsche Morgan Grenfell Inc., for
a period beginning from the date hereof and continuing to and including the
date 180 days after the date hereof, except pursuant to this Agreement and
other than with respect to (x) shares of Common Stock to be issued upon the
exercise of warrants to purchase shares of Common Stock, or upon conversion or
exchange of securities convertible or exchangeable into shares of Common Stock,
in each case, which are outstanding on the date hereof and disclosed in the
Prospectus, and (y) shares of Common Stock (or any securities convertible into
or exchangeable for shares of Common Stock) issued pursuant to any employee
benefit plans, qualified stock option plans or other employee compensation
plans which are disclosed in the Prospectus.
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<PAGE> 7
(g) Neither the Company nor any of its affiliates, nor any person
acting on behalf of any of them will, directly or indirectly, (i) take any
action designed to cause or to result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Shares or (ii) (x) sell, bid for, purchase, or pay anyone any compensation
for soliciting purchases of, the Shares or (y) pay or agree to pay to any
person any compensation for soliciting another to purchase any other securities
of the Company.
(h) The Company will obtain the agreements described in Section
7(f) hereof prior to the First Closing Date.
(i) If at any time during the 25-day period after the Registration
Statement becomes effective or during the period prior to any Closing Date, any
rumor, publication or event relating to or affecting the Company shall occur as
a result of which in the Representatives' sole judgment the market price of the
Shares has been or is likely to be materially affected (regardless of whether
such rumor, publication or event necessitates a supplement to or amendment of
the Prospectus), the Company will, after notice from the Representatives
advising the Company to the effect set forth above, forthwith prepare, consult
with the Representatives concerning the substance of, and disseminate a press
release or other public statement reasonably satisfactory to the
Representatives, responding to or commenting on such rumor, publication or
event.
(j) If the Company elects to rely on Rule 462(b), the Company
shall both file the Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) and pay the applicable fees in accordance with Rule
111 promulgated under the Securities Act by the earlier of (x) 10:00 P.M. New
York City time on the date of this Agreement and (y) the time confirmations are
sent or given, as specified by Rule 462(b)(2) under the Securities Act.
(k) The Company will cause the Shares to be duly included for
quotation on the Nasdaq National Market prior to the First Closing Date. The
Company will ensure that the Shares remain included for quotation on the Nasdaq
National Market following the First Closing Date.
Section 4. Expenses.
(a) The Company shall bear and pay all costs and expenses incurred
incident to the performance of its obligations under this Agreement, whether or
not the transactions contemplated herein are consummated or this Agreement is
terminated pursuant to Section 9 hereof, including: (i) the fees and expenses
of its counsel, accountants and any other experts or advisors retained by the
Company; (ii) fees and expenses incurred in connection with the registration of
the Shares under the Securities Act and the preparation and filing of the
Registration Statement, the Prospectus and all amendments and supplements
thereto; (iii) the printing and distribution of the Prospectus and any
Preliminary Prospectus and the printing and production of all other documents
connected with the Offering (including this Agreement and any other related
agreements); (iv) expenses related to the qualification of the Shares under the
state securities or Blue Sky laws, including filing fees and the fees and
disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of any Blue Sky memoranda; (v) the filing fees
and expenses, if any, incurred with respect to any filing with the National
Association of Securities Dealers, Inc., including the fees and disbursements
of counsel for the Underwriters in connection therewith; (vi) all expenses
arising from the quoting of the Shares on the Nasdaq National Market; (vii) all
arrangements relating to the preparation, issuance and delivery to the
Underwriters of any certificates evidencing the Shares, including transfer
agent's and registrar's fees; and (viii) the costs and expenses of the
"roadshow" and any other meetings with prospective investors in the Shares
(other than as shall have been specifically approved by the Representatives to
be paid for by the Underwriters).
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<PAGE> 8
Section 5. Representations and Warranties.
(a) As a condition of the obligation of the Underwriters to
underwrite and pay for the Shares, the Company represents and warrants to, and
agrees with, each of the several Underwriters as follows:
REGISTRATION STATEMENT AND PROSPECTUS
(i) The Original Registration Statement, including the
Preliminary Prospectus, has been filed by the Company with the Commission under
the Securities Act, and one or more amendments to such Registration Statement
may have been so filed. After the execution of this Agreement, the Company
will file with the Commission either (x) if such Registration Statement, as it
may have been amended, has been declared by the Commission to be effective
under the Securities Act, either (I) if the Company relies on Rule 434 under
the Securities Act, a Term Sheet relating to the Shares that shall identify the
Preliminary Prospectus that it supplements containing such information as is
required or permitted by Rules 434, 430A and 424(b) under the Securities Act or
(II) if the Company does not rely on Rule 434 under the Securities Act, a
prospectus in the form most recently included in an amendment to such
Registration Statement (or, if no such amendment shall have been filed, in such
Registration Statement), with such changes or insertions as are required by
Rule 430A under the Securities Act or permitted by Rule 424(b) under the
Securities Act, and in the case of either clause (I) or (II) of this sentence,
as have been provided to and approved by the Representatives prior to the
execution of this Agreement, or (y) if such Registration Statement, as it may
have been amended, has not been declared by the Commission to be effective
under the Securities Act, an amendment to such Registration Statement,
including a form of prospectus, a copy of which amendment has been furnished to
and approved by the Representatives prior to the execution of this Agreement.
The Company may also file a Rule 462(b) Registration Statement with the
Commission for the purpose of registering certain additional Shares, which
registration shall be effective upon filing with the Commission.
(ii) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. When any Preliminary
Prospectus was filed with the Commission, it (x) contained all statements
required to be stated therein in accordance with, and complied in all material
respects with the requirements of, the Securities Act and the rules and
regulations of the Commission thereunder and (y) did not include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. When the Registration Statement or any
amendment thereto was or is declared effective, it (I) contained or will
contain all statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the requirements of, the
Securities Act and the rules and regulations of the Commission thereunder and
(II) did not or will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. When the Prospectus or any Term
Sheet that is a part thereof or any amendment or supplement to the Prospectus
is filed with the Commission pursuant to Rule 424(b) (or, if the Prospectus or
such amendment or supplement is not required to be so filed, when the
Registration Statement or the amendment thereto containing the Prospectus or
such amendment or supplement to the Prospectus was or is declared effective)
and on the Closing Date, the Prospectus, as amended or supplemented at any such
time, (A) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply in all material
respects with the requirements of, the Securities Act and the rules and
regulations of the Commission thereunder and (B) did not or will not include
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (ii) do not apply to statements or omissions made
in any Preliminary Prospectus, the Registration Statement or any amendment
thereto or the Prospectus or any amendment or supplement thereto in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through the Representatives specifically for use therein.
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<PAGE> 9
(iii) If the Company has elected to rely on Rule 462(b) and
the Rule 462(b) Registration Statement is not effective, (x) the Company will
file a Rule 462(b) Registration Statement in compliance with, and that is
effective upon filing pursuant to, Rule 462(b) and (y) the Company has given
irrevocable instructions for transmission of the applicable filing fee in
connection with the filing of the Rule 462(b) Registration Statement, in
compliance with Rule 111 under the Securities Act, or the Commission has
received payment of such filing fee.
(iv) If the Company has elected to rely on Rule 434 under
the Securities Act, the Prospectus is not "materially different", as such term
is used in Rule 434, from the prospectus included in the Registration Statement
at the time of its effectiveness or an effective post-effective amendment
thereto (including such information that is permitted to be omitted pursuant to
Rule 430A under the Securities Act);
(v) The Company has not distributed and, prior to the
later of (x) any Closing Date and (y) the completion of the distribution of the
Shares, will not distribute any offering material in connection with the
Offering other than the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto.
(vi) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, (x) the
Company has not incurred any material liability or obligation, direct or
contingent, nor entered into any material transaction not in the ordinary
course of business; (y) the Company has not purchased any of its outstanding
capital stock, nor declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock; and (z) there has not been any
material change in the capital stock, short-term or long-term debt of the
Company taken as a whole, except in each case as described in or contemplated
by the Prospectus.
THE SHARES
(vii) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus. All of the issued shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable, have been issued in compliance with all
applicable federal and state securities laws and were not issued in violation
of or subject to any preemptive rights or other rights to subscribe for or
purchase such securities. The Shares have been duly authorized by all
necessary corporate action of the Company and, after payment therefor in
accordance herewith, will be validly issued, fully paid and nonassessable at
the Closing Date. No holders of outstanding shares of capital stock of the
Company are entitled as such to any preemptive or other rights to subscribe for
any of the Shares, and no holder of securities of the Company has any right
which has not been fully exercised or waived to require the Company to register
the offer or sale of any securities owned by such holder under the Securities
Act in the Offering contemplated by this Agreement.
(viii) Except as disclosed in the Prospectus, there are no
outstanding (x) securities or obligations of the Company convertible into or
exchangeable for any capital stock of the Company, (y) warrants, rights or
options to subscribe for or purchase from the Company any such capital stock or
any such convertible or exchangeable securities or obligations, or (z)
obligations of the Company to issue any shares of capital stock, any such
convertible or exchangeable securities or obligations, or any such warrants,
rights or options.
(ix) The Company has no subsidiaries and does not own any
shares of stock or any other equity securities of any corporation or have any
equity interest in any firm, partnership, association or other entity.
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<PAGE> 10
LISTING
(x) All of the Shares have been duly authorized and
accepted for quotation on the Nasdaq National Market, subject to official
notice of issuance.
MARKET MANIPULATION
(xi) Neither the Company nor any of its affiliates, nor
any person acting on behalf of any of them, has, directly or indirectly, (x)
taken any action designed to cause or to result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Shares, or (y) since the filing of the Original Registration
Statement (I) sold, bid for, purchased, or paid anyone any compensation for
soliciting purchases of, the Shares or (II) paid or agreed to pay to any person
any compensation for soliciting another to purchase any other securities of the
Company.
CORPORATE POWER AND AUTHORITY
(xii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the law of its jurisdiction of
incorporation with full power and authority to own, lease and operate its
properties and assets and conduct its business as described in the Prospectus,
is duly qualified to transact business and is in good standing in each
jurisdiction in which its ownership, leasing or operation of its properties or
assets or the conduct of its business requires such qualification, except where
the failure to be so qualified does not amount to a material liability or
disability to the Company and has full power and authority to execute and
perform its obligations under this Agreement.
(xiii) The execution and delivery of this Agreement and the
issuance and sale of the Shares have been duly authorized by all necessary
corporate action of the Company, and this Agreement has been duly executed and
delivered by the Company and is the valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except (x) as
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally
and (y) to the extent that rights to indemnity or contribution under this
Agreement may be limited by federal and state securities laws or the public
policy underlying such laws.
(xiv) The issuance, offering and sale of the Shares to the
Underwriters by the Company pursuant to this Agreement, the compliance by the
Company with the other provisions of this Agreement and the consummation of the
other transactions herein contemplated do not (x) require the consent,
approval, authorization, registration or qualification of or with any
governmental authority, except such as have been obtained or made or such as
may be required by the state securities or Blue Sky laws of the various states
of the United States of America or other U.S. jurisdictions in connection with
the offer and sale of the Shares by the Underwriters, or (y) conflict with or
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, lease or
other agreement or instrument to which the Company is a party or by which the
Company or any of its properties is bound, or the certificate of incorporation
or by-laws of the Company, or any statute or any judgment, decree, order, rule
or regulation of any court or other governmental authority or any arbitrator
applicable to the Company, except for such conflicts breaches or defaults as
would not, individually or in the aggregate have a material adverse effect on
or constitute a materially adverse change in, or constitute a development
involving a materially adverse effect on or change in the condition (financial
or otherwise) earnings, properties, business affairs or business prospects,
stockholders' equity net worth or results to operations of the Company.
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<PAGE> 11
(xv) The Company is not, and will conduct its operations
in a manner so that it continues not to be, an "investment company" and, after
giving effect to the Offering and the application of the proceeds therefrom,
will not be an "investment company," as such term is defined in the Investment
Company Act of 1940, as amended (the "1940 Act").
TITLE, LICENSES AND CONSENTS
(xvi) The Company has good and marketable title in fee
simple to all items of real property and marketable title to all personal
property owned by it, in each case free and clear of any security interests,
liens, encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not interfere
with the use made or proposed to be made of such property by the Company and
any real property and buildings held under lease by the Company is held under
valid, subsisting and enforceable leases, with such exceptions as are not
material and do not interfere with the use made or proposed to be made of such
property and buildings by the Company, in each case except as described in or
contemplated by the Prospectus.
(xvii) The Company owns or possesses, or can acquire on
reasonable terms, all material patents, patent applications, trademarks,
service marks, trade names, licenses, know-how, copyrights, trade secrets and
proprietary or other confidential information necessary to operate the business
now operated by it, and the Company has not received any notice of infringement
of or conflict with asserted rights of any third party with respect to any of
the foregoing which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a materially adverse effect
on or constitute a materially adverse change in, or constitute a development
involving a prospective materially adverse effect on or change in, the
condition (financial or otherwise), earnings, properties, business affairs or
business prospects, stockholders' equity, net worth or results of operations of
the Company, except as described in or contemplated by the Prospectus.
(xviii) The Company possesses all consents, licenses,
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct its business, and
the Company has not received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a materially adverse effect on or constitute a
materially adverse change in, or constitute a development involving a
prospective materially adverse effect on or change in, the condition (financial
or otherwise), earnings, properties, business affairs or business prospects,
net worth or results of operations of the Company, except as described in or
contemplated by the Prospectus.
FINANCIAL STATEMENTS
(xix) Deloitte & Touche LLP, who have certified certain
financial statements of the Company and delivered their report with respect to
the audited financial statements and schedules included in the Registration
Statement and the Prospectus, are independent public accountants as required by
the Securities Act and the applicable rules and regulations thereunder.
(xx) The financial statements and schedules of the Company
included in the Registration Statement and the Prospectus were prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied throughout the periods involved (except as otherwise noted therein) and
they present fairly the financial condition of the Company as at the dates at
which they were prepared and the results of operations of the Company in
respect of the periods for which they were prepared.
INTERNAL ACCOUNTING CONTROLS
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<PAGE> 12
(xxi) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (w) transactions are
executed in accordance with management's general or specific authorizations;
(x) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability; (y)
access to assets is permitted only in accordance with management's general or
specific authorization; and (z) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
LITIGATION
(xxii) No legal or governmental proceedings are pending or
threatened to which the Company is a party or to which the property of the
Company is subject that are required to be described in the Registration
Statement or the Prospectus and are not described therein; and no statutes,
regulations, contracts or other documents that are required to be described in
the Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described therein or filed as required.
DIVIDENDS AND DISTRIBUTIONS
(xxiii) The Company is not currently prohibited, directly or
indirectly, from paying any dividends or making any other distribution on its
capital stock, in each case except as described in or contemplated by the
Prospectus.
TAXES
(xxiv) The Company has filed all foreign, federal, state and
local tax returns that are required to be filed or has requested extensions
thereof (except in any case in which the failure so to file would not have a
materially adverse effect on the Company) and has paid all taxes required to be
paid by it and any other assessment, fine or penalty levied against it, to the
extent that any of the foregoing is due and payable, except for any such
assessment, fine or penalty that is currently being contested in good faith or
as described in or contemplated by the Prospectus.
INSURANCE
(xxv) The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which it is engaged; the Company
has not been refused any insurance coverage sought or applied for; and the
Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), earnings, properties, business affairs or business
prospects, net worth or results of operations of the Company except as
described in or contemplated by the Prospectus.
PENSION AND LABOR
(xxvi) The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA)
for which the Company would have any liability; the Company has not incurred
and does not expect to incur liability under (x) Title IV of ERISA with respect
to termination of, or withdrawal from, any "pension plan" or (y) Sections 412
or 4971 of the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the "Code"); and each
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<PAGE> 13
"pension plan" for which the Company would have any liability that is intended
to be qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by failure to
act, which would cause the loss of such qualification.
(xxvii) No labor dispute with the employees of the Company
exists or is threatened or imminent that could have a materially adverse effect
on or constitute a materially adverse change in, or constitute a development
involving a prospective materially adverse effect on or change in, the
condition (financial or otherwise), properties, management, earnings, business
affairs or business prospects, net worth or results of operations of the
Company except as described in or contemplated by the Prospectus.
ENVIRONMENTAL
(xxviii) The Company is not in violation of any federal or
state law or regulation relating to occupational safety and health or to the
storage, handling or transportation of hazardous or toxic materials and the
Company has received all permits, licenses or other approvals required of it
under applicable federal and state occupational safety and health and
environmental laws and regulations to conduct its business, and the Company is
in compliance with all terms and conditions of any such permit, license or
approval, except any such violation of law or regulation, failure to receive
required permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals which would not,
singly or in the aggregate, have a materially adverse effect on or constitute a
materially adverse change in, or constitute a development involving a
prospective materially adverse effect on or change in, the condition (financial
or otherwise), earnings, properties, business affairs or business prospects,
net worth or results of operations of the Company except as described in or
contemplated by the Prospectus.
OTHER AGREEMENTS
(xxix) No default exists, and no event has occurred which,
with notice or lapse of time or both, would constitute a default in the due
performance and observance of any term, covenant or condition of any indenture,
mortgage, deed of trust, lease or other agreement or instrument to which the
Company is a party or by which the Company or any of its properties is bound.
ABSENCE OF MATERIALLY ADVERSE CHANGE
(xxx) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company has not sustained any material loss or interference with its business
or property from fire, flood, hurricane, accident or other calamity, whether or
not covered by insurance, or from any labor dispute or any legal or
governmental proceeding, and there has been no materially adverse change
(including, without limitation, a change in management or control), or
development involving a prospective materially adverse change, in the condition
(financial or otherwise), management, earnings, property, business affairs or
business prospects, stockholders' equity, net worth or results of operations of
the Company other than as described in or contemplated by the Prospectus
(exclusive of any amendments or supplements thereto).
(xxxi) No receiver or liquidator (or similar person) has
been appointed in respect of the Company or in respect of any part of the
assets of the Company; no resolution, order of any court, regulatory body,
governmental body or otherwise, or petition or application for an order, has
been passed, made or presented for the winding up of the Company for the
protection of the Company from its creditors; and the Company has not stopped
or suspended payments of its debts, become unable to pay its debts or otherwise
become insolvent.
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<PAGE> 14
(b) The above representations and warranties shall be deemed to be
repeated at each Closing, and all references therein to the Shares and the
Closing Date shall be deemed to refer to the Firm Shares or the Option Shares
and the First Closing Date or the applicable Option Closing Date, each as
applicable.
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Section 6. Indemnity.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), against any and all
losses, claims, damages or liabilities, joint or several, to which such
Underwriter or such controlling person may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement made
by the Company in Section 5 hereof,
(ii) any untrue statement or alleged untrue statement of
any material fact contained in the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or
(iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto a material fact required
to be stated therein or necessary to make the statements therein not
misleading,
and will reimburse, as incurred, each Underwriter and each such controlling
person for any legal or other costs or expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in the
Registration Statement or any amendment thereto, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter through the Representatives specifically for use therein; and
provided, further, that the Company will not be liable to any Underwriter or
any person controlling such Underwriter with respect to any such untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus that is corrected in the Prospectus (or any
amendment or supplement thereto) if the person asserting any such loss, claim,
damage or liability purchased Shares from such Underwriter but was not sent or
given a copy of the Prospectus (as amended or supplemented) in any case where
such delivery of the Prospectus (as amended or supplemented) was required by
the Securities Act, unless such failure to deliver the Prospectus (as amended
or supplemented) was a result of noncompliance by the Company with Section 3
hereof. The indemnity provided for in this Section 6 shall be in addition to
any liability which the Company may otherwise have. The Company will not,
without the prior written consent of the Representatives, settle or compromise
or consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification may be sought
hereunder (whether or not any such Representatives or any person who controls
any such Representatives is a party to such claim, action, suit or proceeding),
unless such settlement, compromise or consent includes an unconditional release
of all of the Underwriters and such controlling persons from all liability
arising out of such claim, action, suit or proceeding.
(b) Each Underwriter, severally and not jointly, will indemnify
and hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act against any losses, claims, damages or liabilities to which
the Company or any such director or officer of the Company, or any such
controlling person of the Company may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are
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<PAGE> 16
based upon (i) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto
or (ii) the omission or the alleged omission to state in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto a material fact required to
be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter through the Representatives specifically for use
therein, and, subject to the limitation set forth immediately preceding this
clause, will reimburse, as incurred, any legal or other expenses reasonably
incurred by the Company or any such director, officer or controlling person in
connection with investigating, defending against or appearing as a third-party
witness in connection with any such loss, claim, damage, liability or any
action in respect thereof. The indemnity provided in this Section 6 will be in
addition to any liability which any Underwriter may otherwise have. The
remedies provided for in this Section 6 are not exclusive and shall not limit
any rights or remedies which may otherwise be available to any indemnified
party at law or in equity.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to paragraph (a) or (b) of this Section 6,
such person (for purposes of this paragraph (c), the "indemnified party")
shall, promptly after receipt by such party of notice of the commencement of
such action, notify the person against whom such indemnity may be sought (for
purposes of this paragraph (c), the "indemnifying party"), but the omission so
to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party otherwise than under this Section 6. In
case any such action is brought against any indemnified party, and it notifies
the indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided,
however, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be one or more legal defenses available to
it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not
have the right to direct the defense of such action on behalf of such
indemnified party or parties and such indemnified party or parties shall have
the right to select separate counsel to defend such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense of any such action
and approval by such indemnified party of counsel appointed to defend such
action, the indemnifying party will not be liable to such indemnified party
under this Section 6 for any legal or other expenses, other than reasonable
costs of investigation, subsequently incurred by such indemnified party in
connection with the defense thereof, unless (i) the indemnified party shall
have employed separate counsel in accordance with the proviso to the next
preceding sentence (it being understood, however, that in connection with such
action the indemnifying party shall not be liable for the expenses of more than
one separate counsel (in addition to local counsel) in any one action or
separate but substantially similar actions in the same jurisdiction arising out
of the same general allegations or circumstances, designated in writing by the
Representatives in the case of paragraph (a) of this Section 6, representing
the indemnified parties under such paragraph (a) who are Underwriters or
persons controlling any Underwriter and who are parties to such action or
actions), or (ii) the indemnifying party does not promptly retain counsel
satisfactory to the indemnified party, or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense
of the indemnifying party. All fees and expenses reimbursed pursuant to this
paragraph (c) shall be reimbursed as they are incurred. After such notice from
the indemnifying party to such indemnified party, the indemnifying party will
not be liable for the costs and expenses of any settlement of such action
effected by such indemnified party without the consent of the indemnifying
party.
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<PAGE> 17
(d) In circumstances in which the indemnity agreement provided for
in the preceding paragraphs of this Section 6 is unavailable or insufficient,
for any reason, to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the Offering or (ii) if the allocation
provided by the foregoing clause (i) is not permitted by applicable law, not
only such relative benefits but also the relative fault of the indemnifying
party or parties on the one hand and the indemnified party on the other in
connection with the statements or omissions or alleged statements or omissions
that resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total proceeds
from the Offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriters.
The relative fault of the parties shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriters, the parties' relative
intents, knowledge, access to information and opportunity to correct or prevent
such statement or omission, and any other equitable considerations appropriate
in the circumstances. The Company and the Underwriters agree that it would not
be equitable if the amount of such contribution were determined by pro rata or
per capita allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take into
account the equitable considerations referred to above in this paragraph (d).
Notwithstanding any other provision of this paragraph (d), no Underwriter shall
be obligated to make contributions hereunder that in the aggregate exceed the
total public offering price of the Shares purchased by such Underwriter under
this Agreement, less the aggregate amount of any damages that such Underwriter
has otherwise been required to pay in respect of the same or any substantially
similar claim, and no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute hereunder are
several in proportion to their respective underwriting obligations and not
joint, and contributions among Underwriters shall be governed by the provisions
of the Deutsche Morgan Grenfell Inc. Master Agreement Among Underwriters. For
purposes of this paragraph (d), each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act shall have the same rights to contribution as such
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, shall have the same rights to contribution as the Company.
Section 7. Conditions Precedent.
The obligations of the several Underwriters to purchase and pay for
the Shares shall be subject, in the Representatives' sole discretion, to the
accuracy of the representations and warranties of the Company contained herein
as of the date hereof and as of each Closing Date, as if made on and as of each
Closing Date, to the accuracy of the statements of the Company's officers and
made pursuant to the provisions hereof, to the performance by the Company of
its covenants and agreements hereunder and to the following additional
conditions:
(a) (i) If the Original Registration Statement or any amendment
thereto filed prior to the First Closing Date has not been declared effective
as of the time of execution hereof, the Original Registration Statement or such
amendment shall have been declared effective not later than 6:00 P.M. New York
City time on the date of determination of the public offering price, if such
determination occurred at or prior to 4:30 P.M. New York City time on such
date, or 12:00 noon New York City time on the business day following the day on
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<PAGE> 18
which the public offering price was determined, if such determination occurred
after 4:30 P.M. New York City time on such date, and (ii) if the Company has
elected to rely upon Rule 462(b), the Rule 462(b) Registration Statement shall
have been declared effective not later than the time confirmations are sent or
given as specified by Rule 462(b)(2), or such later time and date as shall have
been consented to by the Representatives; if required, the Prospectus or any
Term Sheet that constitutes a part thereof and any amendment or supplement
thereto shall have been filed with the Commission in the manner and within the
time period required by Rules 434 and 424(b) under the Securities Act; no stop
order suspending the effectiveness of the Registration Statement or any
amendment thereto shall have been issued, and no proceedings for that purpose
shall have been instituted or threatened or, to the knowledge of the Company or
the Representatives, shall be contemplated by the Commission; and the Company
shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise).
(b) The Representatives shall have received a legal opinion from
Brobeck Phleger & Harrison LLP, counsel for the Company, dated the Closing
Date, to the effect that:
(i) the Registration Statement is effective under the
Securities Act; any required filing of the Prospectus, or any Term Sheet that
constitutes a part thereof, pursuant to Rules 434 and 424(b) has been made in
the manner and within the time period required by Rules 434 and 424(b); and no
stop order suspending the effectiveness of the Registration Statement or any
amendment thereto has been issued and, to the best knowledge of such counsel,
no proceedings for that purpose are pending or threatened by the Commission;
(ii) the Original Registration Statement and each
amendment thereto, any Rule 462(b) Registration Statement and the Prospectus
(in each case, other than the financial statements and other financial
information derived therefrom, as to which such counsel need express no
opinion) comply as to form in all material respects with the applicable
requirements of the Securities Act and the rules and regulations of the
Commission thereunder;
(iii) such counsel has no reason to believe that (in each
case, other than the financial statements and financial information derived
therefrom, as to which such counsel need express no opinion or belief) (x) the
Registration Statement, as of its effective date, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
(y) the Prospectus, as of its date or the date of such opinion, included or
includes any untrue statement of a material fact or omitted or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(iv) if the Company elects to rely on Rule 434 under the
Securities Act, the Prospectus is not "materially different," as such term is
used in Rule 434, from the prospectus included in the Registration Statement at
the time of its effectiveness or an effective post-effective amendment thereto
(including such information that is permitted to be omitted pursuant to Rule
430A under the Securities Act);
(v) the Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus; all of the issued shares of
capital stock of the Company have been duly authorized and validly issued and
are, to such counsel's knowledge, fully paid and nonassessable, to such
counsel's knowledge, have been issued in compliance with the registration and
qualification provisions of all applicable federal and state securities laws
and were not issued in violation of or subject to any preemptive rights or, to
such counsel's knowledge, other rights to subscribe for or purchase
securities; the Shares have been duly authorized by all necessary corporate
action of the Company and, when issued and delivered to and paid for by the
Underwriters pursuant to this Agreement, will be validly issued, fully paid and
nonassessable; no holders of outstanding shares of capital stock of the Company
are entitled as such to any preemptive or, to such counsel's knowledge, other
rights to subscribe for any of the Shares; and no holder of securities of the
Company has any right which has not
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<PAGE> 19
been fully exercised or waived to require the Company to register the offer or
sale of any securities owned by such holder under the Securities Act in the
Offering contemplated by this Agreement;
(vi) all of the Shares have been duly authorized and
accepted for quotation on the Nasdaq National Markets, subject to official
notice of issuance;
(vii) the Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware and is duly qualified to transact business as a foreign corporation
and is in good standing under the laws of all other jurisdictions where the
ownership, leasing or operation of its properties or assets or the conduct of
its business requires such qualification, except where the failure to be so
qualified does not amount to a material liability or disability to the Company;
the Company has full power and authority to own, lease and operate its
properties and assets and conduct business as described in the Registration
Statement and the Prospectus, and the Company has corporate power to enter into
this Agreement and to carry out all the terms and provisions hereof to be
carried out by it;
(viii) the statements set forth under the heading
"Description of Capital Stock" in the Prospectus, insofar as such statements
purport to summarize certain provisions of the capital stock of the Company,
provide a fair summary of such provisions; and the statements set forth under
the headings "Risk Factors--Control by Principal Stockholders; Certain
Anti-Takeover Provisions," "Risk Factors--Shares Eligible for Future Sale,"
"Management--Employment Agreements and Change of Control Arrangements,"
"Management--Limitation of Liability and Indemnification Matters," "Certain
Transactions" and "Shares Eligible for Future Sale" in the Prospectus, insofar
as such statements constitute a summary of the legal matters, documents or
proceedings referred to therein, have been reviewed by such counsel and fairly
present the information called for with respect to such legal matters,
documents and proceedings in all material respects as required by the
Securities Act and the rules and regulations thereunder;
(ix) the execution and delivery of this Agreement have
been duly authorized by all necessary corporate action of the Company and this
Agreement has been duly executed and delivered by the Company;
(x) the issuance, offering and sale of the Shares to the
Underwriters by the Company pursuant to this Agreement, the compliance by the
Company with the other provisions of this Agreement and the consummation of the
other transactions herein contemplated do not (x) require the consent,
approval, authorization, registration or qualification of or with any
governmental authority, except such as have been obtained or made (and
specified in such opinion) or such as may be required by the securities or Blue
Sky laws of the various states of the United States of America and other U.S.
jurisdictions in connection with the offer and sale of the Shares by the
Underwriters, or (y) conflict with or result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any material
indenture, mortgage, deed of trust, lease or other agreement or instrument,
known to such counsel, to which the Company is a party or by which the Company
or any of its properties is bound, or the certificate of incorporation or
by-laws of the Company, or any statute or any judgment, decree, order, rule or
regulation of any court or other governmental authority or any arbitrator known
to such counsel and applicable to the Company;
(xi) the Company is not an "investment company" and, after
giving effect to the Offering and the application of the proceeds therefrom,
will not be an "investment company," as such term is defined in the 1940 Act;
(xii) such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company is a party
or to which the property of the Company is subject that are required to be
described in the Registration Statement or the Prospectus and are not described
therein or any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the
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<PAGE> 20
Prospectus or to be filed as exhibits to the Registration Statement that are
not described therein or filed as required;
(xiii) such counsel is not aware of any written claim or any
challenge by any person to the rights of the Company with respect to its
business other than those identified in the Prospectus;
(xiv) such counsel is not aware of any legal actions,
claims or proceedings pending or threatened against the Company asserted in
writing and alleging that the Company is infringing or otherwise violating any
patents, trademarks, copyrights, mask work rights, trade secrets or other
intellectual property rights owned by others other than those identified in the
Prospectus;
(xv) such counsel has reviewed the descriptions of patents
and patent applications under the captions "Risk Factors--Proprietary Rights;
Patent Litigation" and "Business--Proprietary Rights; Patent Litigation" in the
Registration Statement and Prospectus, and, to the extent they constitute
matters of law or legal conclusions, these descriptions are accurate and fairly
and completely present the patent situation of the Company;
(xvi) after review of each patent and patent application of
the Company, and after review of the file history and patent of each of the
Hybrid patents (as defined in the Prospectus and including the claims set forth
in the reissue application of the '304 Patent) and the files of the Company's
patent attorney and each noninfringement or invalidity opinion received by the
Company with respect to each of the Hybrid patents and the patent litigation
(including all pleadings with respect thereto) described in the Prospectus,
such counsel is aware of nothing that causes such counsel to believe that, as
of the date of the Registration Statement became effective and as of the date
of such opinion, the description of patents, patent applications and patent
litigation under the captions "Risk Factors--Proprietary Rights; Patent
Litigation" and "Business--Proprietary Rights; Patent Litigation" in the
Registration Statement and Prospectus contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading; and
(xvii) [Additional opinions to follow pending due diligence
investigation.]
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials and, as to matters involving the
application of laws of any jurisdiction other than the States of California and
Delaware, or the United States, to the extent satisfactory in form and scope to
counsel for the Underwriters, upon the opinion of other counsel. The foregoing
opinion shall also state that the Underwriters are justified in relying upon
such opinion of such and, and copies of any such opinion shall be delivered to
the Representatives and counsel for the Underwriters.
References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date of
such opinion. The opinions of issuer's counsel described herein shall be
rendered to the Underwriters at the request of the Company and shall so state
therein.
(c) The Representatives shall have received a legal opinion from
Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the
Underwriters, dated the Closing Date, covering the issuance and sale of the
Shares, the Registration Statement and the Prospectus, and such other related
matters as the Representatives may reasonably require, and the Company shall
have furnished to such counsel such documents as they may reasonably request
for the purpose of enabling them to pass upon such matters.
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<PAGE> 21
(d) The Representatives shall have received from Deloitte & Touche
LLP a letter or letters dated, respectively, the date hereof and the Closing
Date, in form and substance satisfactory to the Representatives, to the effect
that:
(i) they are independent accountants with respect to the
Company and its within the meaning of the Securities Act and the applicable
rules and regulations thereunder;
(ii) in their opinion, the audited financial statements
and schedules examined by them and included in the Registration Statement and
the Prospectus comply in form in all material respects with the applicable
accounting requirements of the Securities Act and the related published rules
and regulations;
(iii) on the basis of a reading of the latest available
interim unaudited financial statements of the Company, carrying out certain
specified procedures (which do not constitute an examination made in accordance
with generally accepted auditing standards) that would not necessarily reveal
matters of significance with respect to the comments set forth in this
paragraph (iii), a reading of the minute books of the shareholders, the board
of directors and any committees thereof of the Company, and inquiries of
certain officials of the Company who have responsibility for financial and
accounting matters, nothing came to their attention that caused them to believe
that:
(x) the unaudited financial statements of the
Company included in the Registration Statement and the Prospectus do not comply
in form in all material respects with the applicable accounting requirements of
the Securities Act and the related published rules and regulations thereunder
or are not in conformity with GAAP applied on a basis substantially consistent
with that of the audited consolidated financial statements included in the
Registration Statement and the Prospectus; and
(y) at a specific date not more than five
business days prior to the date of such letter, there were any changes in the
capital stock or long-term debt of the Company or any decreases in net current
assets or stockholders' equity of the Company, compared with amounts shown on
March 31, 1998 unaudited balance sheet included in the Registration Statement
and the Prospectus, or for the period from April 1, 1998 to [__________ __,
1998] there were any decreases, as compared with [March 1, 1998 to March 31,
1998], in sales, net revenues, net income before income taxes or total or per
share amounts of net income of the Company except in all instances for changes,
decreases or increases set forth in such letter.
(iv) they have carried out certain specified procedures,
not constituting an audit, with respect to certain amounts, percentages and
financial information that are derived from the general accounting records of
the Company and are included in the Registration Statement and the Prospectus
and in [Exhibit 11] to the Registration Statement, and have compared such
amounts, percentages and financial information with such records of the Company
and with information derived from such records and have found them to be in
agreement, excluding any questions of legal interpretation.
In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that (I) such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (II) such changes,
decreases or increases do not, in the sole judgment of the Representatives,
make it impractical or inadvisable to proceed with the purchase and delivery of
the Shares as contemplated by the Registration Statement, as amended as of the
date hereof. References to the Registration Statement and the Prospectus in
this paragraph (d) with respect to either letter referred to above shall
include any amendment or supplement thereto at the date of such letter.
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<PAGE> 22
(e) The Company shall have furnished or caused to be furnished to
the Underwriters at the Closing a certificate of its Chairman of the Board, its
President or its Chief Executive Officer and its Chief Financial Officer
satisfactory to the Underwriters to the effect that:
(i) the representations and warranties of the Company in
this Agreement are true and correct as if made on and as of the Closing Date;
the Registration Statement, as amended as of the Closing Date, does not include
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading, and the Prospectus, as
amended or supplemented as of the Closing Date, does not include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; and the Company has performed all
covenants and agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or, to the best
of the Company's knowledge, are contemplated by the Commission; and
(iii) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company has not sustained any material loss or interference with its business
or properties from fire, flood, hurricane, accident or other calamity, whether
or not covered by insurance, or from any labor dispute or any legal or
governmental proceeding, and there has not been any materially adverse change
(including, without limitation, a change in management or control), or
development involving a prospective materially adverse change, in the condition
(financial or otherwise), management, earnings, properties, business affairs or
business prospects, stockholders' equity, net worth or results of operations of
the Company, except in each case as described in or contemplated by the
Prospectus (exclusive of any amendment or supplement thereto).
(f) The Representatives shall have received from each person who
is a director or officer and certain securityholders of the Company who own
more than 95% of the outstanding shares of Common Stock, an agreement dated on
or before the date of this Agreement to the effect that such person will not
publicly announce any intention to and will not, without the prior written
consent of the Representatives on behalf of the Underwriters, (i) 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, or (ii) enter into any swap or other
agreement that transfers, in whole or in part, any of the economic consequences
of ownership of the shares of Common Stock or any securities convertible into,
or exercisable or exchangeable for, shares of Common Stock (whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of shares of Common Stock or such other securities, in cash or otherwise), in
each case, beneficially owned (within the meaning of Rule 13d-3 under the
Exchange Act) or otherwise controlled by such person on the date hereof or
hereafter acquired, for a period beginning from the date hereof and continuing
to and including the date 180 days after the date hereof; provided, however,
that such person may, without the prior written consent of the Representatives
on behalf of the Underwriters, transfer shares of Common Stock or such other
securities to members of such person's immediate family or to trusts for the
benefit of members of such person's immediate family or in connection with bona
fide gifts, provided that any transferee agrees to the transfer restrictions
described above.
(g) Prior to the commencement of the Offering, the Company shall
have made an application for the quotation of the Shares on the Nasdaq National
Market and the Shares shall have been included for trading on the Nasdaq
National Market, subject to official notice of issuance.
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<PAGE> 23
(h) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, there shall not have occurred any downgrading, nor
shall any notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act.
(i) On or before the Closing Date, the Representatives and counsel
for the Underwriters shall have received such further certificates, documents
or other information as they may have reasonably requested from the Company.
(j) All opinions, certificates, letters and documents delivered
pursuant to this Agreement will comply with the provisions hereof only if they
are satisfactory in all material respects to the Representatives and counsel
for the Underwriters. The Company shall furnish to the Representatives such
conformed copies of such opinions, certificates, letters and documents in such
quantities as the Representatives and counsel for the Underwriters shall
reasonably request.
The respective obligations of the several Underwriters to purchase and
pay for any Shares shall be subject, in their discretion, to each of the
foregoing conditions to purchase the Shares, except that all references therein
to the Shares and the Closing Date shall be deemed to refer to the Firm Shares
or the Option Shares and the First Closing Date or the related Option Closing
Date, each as applicable.
Section 8. Default of Underwriters.
If, at the First Closing, any one or more of the Underwriters shall
fail or refuse to purchase Shares that it has or they have agreed to purchase
hereunder on such date, and the aggregate number of Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
is ten percent or less of the aggregate number of the Shares to be purchased on
such date, the other Underwriters may make arrangements satisfactory to the
Representatives for the purchase of such Shares by other persons (who may
include one or more of the non- defaulting Underwriters, including the
Representatives), but if no such arrangements are made by the First Closing
Date, the other Underwriters shall be obligated severally in the proportions
that the number of Firm Shares set forth opposite their respective names in
Schedule 1 hereto bears to the aggregate number of Firm Shares set forth
opposite the names of all such non-defaulting Underwriters, or in such other
proportions as the Representatives may specify, to purchase the Shares which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase on such date. If, at the First Closing, any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
ten per cent of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to the Representatives, the Company for the purchase
of such Firm Shares are not made within 36 hours after such default, this
Agreement shall terminate without liability on the part of any non-defaulting
Underwriter or the Company. In any such case either the Representatives or the
Company shall have the right to postpone the Closing, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, at any Option Closing, any Underwriter or
Underwriters shall fail or refuse to purchase Option Shares, the non-defaulting
Underwriters shall have the option to (i) terminate their obligation hereunder
to purchase Option Shares or (ii) purchase not less than the number of Option
Shares that such non-defaulting Underwriters would have been obligated to
purchase in the absence of such default. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 8. Any action taken under this Section 8 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
-22-
<PAGE> 24
Section 9. Termination.
This Agreement shall be subject to termination in the sole discretion
of the Representatives by notice to the Company given prior to any Closing Date
in the event that the Company shall have failed, refused or been unable to
perform all obligations and satisfy all conditions on its part to be performed
or satisfied hereunder at or prior thereto or, if at or prior to any Closing
Date, (a) trading in securities generally on the New York Stock Exchange or the
Nasdaq National Market shall have been suspended or materially limited or
minimum or maximum prices shall have been established by or on, as the case may
be, the Commission or the New York Stock Exchange or the Nasdaq National
Market; (b) trading of any securities of the Company shall have been suspended
on any exchange or in any over-the-counter market; (c) a general moratorium on
commercial banking activities shall have been declared by either Federal or New
York State authorities; (d) there shall have occurred (i) an outbreak or
escalation of hostilities between the United States and any foreign power, (ii)
an outbreak or escalation of any other insurrection or armed conflict involving
the United States, or (iii) any other calamity or crisis or materially adverse
change in general economic, political or financial conditions having an effect
on the U.S. financial markets that, in the sole judgment of the
Representatives, makes it impractical or inadvisable to proceed with the public
offering or the delivery of the Shares as contemplated by the Registration
Statement, as amended as of the date hereof; or (e) the Company shall have, in
the sole judgment of the Representatives, sustained any material loss or
interference with its business or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from any
labor dispute or any legal or governmental proceeding, or there shall have been
any materially adverse change (including, without limitation, a change in
management or control), or constitute a development involving a prospective
materially adverse change, in the condition (financial or otherwise),
management, earnings, properties, business affairs or business prospects,
stockholders' equity, net worth or results of operations of the Company, except
in each case as described in or contemplated by the Prospectus (exclusive of
any amendment or supplement thereto). Termination of this Agreement pursuant
to this Section 9 shall be without liability of any party to any other party
except for the liability of the Company in relation to expenses as provided in
Sections 4 and 10 hereof, the indemnity provided in Section 6 hereof and any
liability arising before or in relation to such termination.
Section 10. Reimbursement of Expenses.
If the sale of the Shares provided for herein is not consummated
because any condition to the obligations of the Underwriters set forth in
Section 7 hereof is not satisfied or because of any termination pursuant to
Section 9(a), (c) or (d) hereof (other than by reason of a default by any of
the Underwriters), the Company shall reimburse the Underwriters, severally upon
demand, for all out-of-pocket expenses (including fees and disbursements of
counsel) that shall have been incurred by them in connection with the proposed
purchase and sale of the Shares.
Section 11. Information Supplied by Underwriters.
The statements set forth in the last paragraph on the front cover page
and under the heading "Underwriting" in any Preliminary Prospectus or the
Prospectus (to the extent such statements relate to the Underwriters)
constitute the only information furnished by any Underwriter through the
Representatives to the Company for the purposes of Section 5(a)(ii) and Section
6 hereof. The Underwriters confirm that such statements (to such extent) are
correct.
-23-
<PAGE> 25
Section 12. Notices.
In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by the Representatives. Any notice or notification in any form to be
given under this Agreement may be delivered in person or sent by telex,
facsimile or telephone (subject in the case of a communication by telephone to
confirmation by telex or facsimile) addressed to:
in the case of the Company:
Com21, Inc.
750 Tasman Drive
Milpitas, California 95035
Facsimile: (408) 953-9299
Telephone: (408) 953-9157
Attention: Peter D. Fenner
in the case of the Underwriters:
Deutsche Morgan Grenfell Inc.
31 West 52nd Street
New York, New York 10019
Facsimile: (212) 469-8172
Telephone: (212) 469-7151
Attention: Tom Curtis
Any notice under this Section 12 shall take effect, in the case of
delivery, at the time of delivery and, in the case of telex or
facsimile, at the time of dispatch.
Section 13. Miscellaneous.
(a) Time shall be of the essence of this Agreement.
(b) The headings herein are inserted for convenience of reference
only and are not intended to be part of, or to affect, the meaning or
interpretation of this Agreement.
(c) For purposes of this Agreement, (a) "business day" means any
day on which the New York Stock Exchange is open for trading, and (b)
"subsidiary" has the meaning set forth in Rule 405 under the Securities Act.
(d) This Agreement may be executed in any number of counterparts,
all of which, taken together, shall constitute one and the same Agreement and
any party may enter into this Agreement by executing a counterpart.
(e) This Agreement shall inure to the benefit of and shall be
binding upon the several Underwriters, the Company and their respective
successors and legal representatives, and nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any other person any
legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of such persons and for the benefit of no other person,
except that (i) the indemnities of the Company contained in Section 6 hereof
shall also be for the benefit of any person or persons who control any
Underwriter within the
-24-
<PAGE> 26
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
and (ii) the indemnities of the Underwriters contained in Section 6 hereof
shall also be for the benefit of the directors of the Company, the officers of
the Company who have signed the Registration Statement and any person or
persons who control the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act. No purchaser of Shares from
any Underwriter shall be deemed a successor because of such purchase.
(f) The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, its officers and
the several Underwriters set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement shall remain in full force and
effect, regardless of (i) any investigation made by or on behalf of the
Company, any of its officers or directors, any Underwriter or any controlling
person referred to in Section 6 hereof and (ii) delivery of and payment for the
Shares. The respective agreements, covenants, indemnities and other statements
set forth in Sections 4, 6 and 10 hereof shall remain in full force and effect,
regardless of any termination or cancellation of this Agreement.
Section 14. Severability.
It is the desire and intent of the parties that the provisions of this
Agreement be enforced to the fullest extent permissible under the law and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, in the event that any provision of this Agreement would be held in
any jurisdiction to be invalid, prohibited or unenforceable for any reason,
such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Section 15. Governing Law.
The validity and interpretation of this Agreement, and the terms and
conditions set forth herein, shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to any provisions
relating to conflicts of laws.
-25-
<PAGE> 27
If the foregoing is in accordance with your understanding, please sign
and return to us eight (8) counterparts hereof, and upon the acceptance hereof
by you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement among each of the Underwriters and
the Company. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in the Deutsche
Morgan Grenfell Inc. Master Agreement Among Underwriters, the form of which
shall be submitted to the Company for examination upon request, but without
warranty on your part as to the authority of the signers thereof.
Very truly yours,
COM21 INC.
By: _______________________________________
Peter D. Fenner,
President and Chief Executive Officer
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
DEUTSCHE MORGAN GRENFELL INC.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
WESSELS, ARNOLD & HENDERSON, L.L.C.
Acting severally on behalf of
themselves and the several Underwriters
named in Schedule 1 hereto
By: DEUTSCHE MORGAN GRENFELL INC.
By: _______________________________________
Name:______________________________________
Title:_____________________________________
-26-
<PAGE> 28
SCHEDULE 1
The Underwriters
Number of Firm Shares To be
Underwriter Purchased
- --------------------------------------------------------------------------------
Deutsche Morgan Grenfell Inc
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Wessels, Arnold & Henderson, L.L.C.
[Others]
Total ---------------
===============
S-1
<PAGE> 1
EXHIBIT 4.2
COM21, INC.
AMENDED AND RESTATED INFORMATION
AND REGISTRATION RIGHTS AGREEMENT
July 22, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Certain Definitions......................................................... 1
2. Financial Statements and Reports to Stockholders............................ 2
3. Additional Information...................................................... 2
4. Inspection; Investor Representation at Board Meetings....................... 3
4.1 Inspection........................................................... 3
4.2 Investor Representation at Board Meetings............................ 3
5. Termination of Covenants.................................................... 4
6. Demand Registration......................................................... 4
6.1 Request for Registration on Form Other Than Form S-3................. 4
6.2 Right of Deferral of Registration on Form Other Than Form S-3........ 4
6.3 Request for Registration on Form S-3................................. 5
6.4 Registration of Other Securities in Demand Registration.............. 5
6.5 Underwriting in Demand Registration.................................. 6
6.5.1 Notice of Underwriting........................................ 6
6.5.2 Inclusion of Other Holders in Demand Registration............. 6
6.5.3 Selection of Underwriter in Demand Registration............... 6
6.5.4 Marketing Limitation in Demand Registration................... 6
6.5.5 Right of Withdrawal in Demand Registration.................... 7
6.6 Blue Sky in Demand Registration...................................... 7
7. Piggyback Registration...................................................... 7
7.1 Notice of Piggyback Registration and Inclusion of Registrable
Securities........................................................... 7
7.2 Underwriting in Piggyback Registration............................... 7
7.2.1 Notice of Underwriting in Piggyback Registration.............. 7
7.2.2 Marketing Limitation in Piggyback Registration................ 8
7.2.3 Allocation of Shares in Piggyback Registration................ 8
7.2.4 Withdrawal in Piggyback Registration.......................... 8
7.3 Blue Sky in Piggyback Registration................................... 9
8. Expenses of Registration.................................................... 9
9. Reports Under Securities Exchange Act of 1934............................... 9
</TABLE>
i.
<PAGE> 3
<TABLE>
<S> <C> <C>
10. Termination of Registration Rights.......................................... 10
11. Registration Procedures and Obligations..................................... 10
12. Information Furnished by Holder............................................. 11
13. Indemnification............................................................. 11
13.1 Company's Indemnification of Holders................................. 11
13.2 Holder's Indemnification of Company.................................. 12
13.3 Indemnification Procedure............................................ 13
13.4 Contribution......................................................... 13
13.5 Conflicts............................................................ 13
14. Limitations on Registration Rights Granted to Other Securities.............. 14
15. Transfer of Rights.......................................................... 14
16. Market Stand-off............................................................ 14
17. No-Action Letter or Opinion of Counsel in Lieu of Registration;
Conversion of Preferred Stock............................................... 15
18. Miscellaneous............................................................... 15
18.1 Entire Agreement; Successors and Assigns............................. 15
18.2 Governing Law........................................................ 15
18.3 Counterparts......................................................... 15
18.4 Headings............................................................. 15
18.5 Notices.............................................................. 16
18.6 Amendment of Agreement............................................... 16
18.7 Transfer to Fund Participants........................................ 16
</TABLE>
Schedule I - Schedule of Investors
ii.
<PAGE> 4
AMENDED AND RESTATED INFORMATION
AND REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INFORMATION AND REGISTRATION RIGHTS
AGREEMENT (the "Agreement") is made as of July 22, 1997, by and among COM21,
INC., a Delaware corporation (the "Company") and the investors listed on the
attached Schedule I who become signatories to this Agreement (collectively, the
"Investors").
R E C I T A L S
A. The Company and the Investors have entered into agreements for
sale by the Company and purchase by the Investors of the Company's securities.
B. In connection with the purchase and sale of the Company's
securities, the Company and the Investors desire to provide for the rights of
the Investors with respect to information about the Company, registration of the
Common Stock issued upon conversion or exercise of the securities according to
the terms of this Agreement, and certain other rights.
THE PARTIES AGREE AS FOLLOWS:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
(a) "Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time of Registration administering the
Securities Act.
(b) "Convertible Securities" shall mean securities of the Company
convertible into or exchangeable for Common Stock of the Company or into other
securities that are convertible into or exchangeable for Common Stock.
(c) "Form S-3" shall mean Form S-3 issued by the Commission or any
substantially similar form then in effect.
(d) "Holder" shall mean any holder of outstanding Registrable
Securities which have not been sold to the public, but only if such holder is
one of the Investors or an assignee or transferee of Registration rights as
permitted by Section 15.
(e) "Initiating Holders" shall mean Holders who in the aggregate
hold at least thirty-three percent (33%) of the Registrable Securities.
(f) "Material Adverse Event" shall mean an occurrence having a
consequence that either (a) is materially adverse as to the business,
properties, or financial condition of the Company or (b) is reasonably
foreseeable, has a reasonable likelihood of occurring, and if it were
<PAGE> 5
to occur might materially adversely affect the business, properties, prospects,
or financial condition of the Company.
(g) "1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
(h) The terms "Register", "Registered", and "Registration" refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act ("Registration Statement"), and the
declaration or ordering of the effectiveness of such Registration Statement.
(i) "Registrable Securities" shall mean all Common Stock not
previously sold to the public and issued or issuable upon conversion or exercise
of any of the Company's Convertible Securities purchased by or issued to the
Investors, including Common Stock issued pursuant to stock splits, stock
dividends and similar distributions, and any securities of the Company granted
registration rights pursuant to Section 14 of this Agreement.
(j) "Registration Expenses" shall mean all expenses incurred by
the Company in complying with Sections 7 or 8 of this Agreement, including,
without limitation, all federal and state registration, qualification, and
filing fees, printing expenses, fees and disbursements of counsel for the
Company and one special counsel for Holders (if different from the Company),
blue sky fees and expenses, and the expense of any special audits incident to or
required by any such registration.
(k) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
(l) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities pursuant to
this Agreement.
2. Financial Statements and Reports to Stockholders. The Company shall
deliver to each Investor as soon as practicable after the end of each fiscal
year of the Company and its subsidiaries (if any), and in any event within 90
days thereafter, an audited consolidated balance sheet of the Company and its
subsidiaries (if any) as of the end of such year and audited consolidated
statements of income, stockholders' equity and cash flow for such year, which
year-end financial reports shall be in reasonable detail and shall be prepared
in accordance with generally accepted accounting principles and accompanied by
the opinion of independent public accountants of recognized standing selected by
the Company. In addition, the Company shall deliver to the Investors: (a)
contemporaneously with delivery to holders of Common Stock, a copy of each
periodic report of the Company delivered to holders of Common Stock and (b) an
annual capitalization summary.
3. Additional Information. As long as an Investor (together with any
affiliate) or its transferee holds the lesser of (i) all of the Convertible
Securities purchased by such Investor, and
2.
<PAGE> 6
(ii) not less than 100,000 shares of Convertible Securities of the Company (or
an equivalent number of shares consisting of Registrable Securities issued upon
conversion or exercise of the Convertible Securities of the Company or a
combination of such Registrable Securities and such Convertible Securities), as
adjusted for recapitalizations, stock splits, stock dividends and the like, the
Company will deliver to such Investor:
(a) As soon as practicable after the end of each month, and in any
event within 30 days thereafter, unaudited consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of such month, and
consolidated statements of income and cash flow for such month and for the
current fiscal year to date, prepared in accordance with generally accepted
accounting principles (other than for accompanying notes and subject to changes
resulting from year-end audit adjustment).
(b) As soon as practicable following submission to and approval by
the Board of Directors of the Company, but in no event later than 90 days after
the end of each fiscal year, an operating budget and plan (the "Plan")
respecting the next fiscal year prepared on a monthly basis, including balance
sheets and statements of cash flows for such months, and a summary of such Plan
together with any update of the Plan as such update is prepared.
4. Inspection; Investor Representation at Board Meetings
4.1 Inspection. The Company shall permit each Investor, at such
Investor's expense and upon reasonable notice to the Company, to visit and
inspect the Company's properties, to examine its books of account and records
and to discuss the Company's affairs, finances, and accounts with its officers,
all at such reasonable times as may be requested by each such Investor;
provided, however, that the Company shall not be obligated pursuant to this
Section 4.1 to provide any information which it reasonably and in good faith
considers to be a trade secret or similar confidential information that is too
sensitive to disclose to such Investor. Subject to Section 15, the rights of an
Investor under this Section 4.1 may not be assigned as part of such Investor's
sale of any of the Registrable Securities or Convertible Securities except with
the consent of the Company, which consent shall not be unreasonably withheld.
4.2 Investor Representation at Board Meetings. Each Investor
holding at least 200,000 shares of Convertible Securities of the Company, shall
have the right to receive notices (except with respect to previously unscheduled
telephonic meetings) and minutes of each meeting of the Board as if such
Investor were a director, and to designate a representative to attend all Board
meetings, and to speak at or otherwise participate in such meetings to the
extent permitted by the Board; provided, however, that such person may disclose
or use any information made known by virtue of such notice, minutes, or
attendance only to the extent consistent with the fiduciary obligations of a
director of the Company, whether or not such person actually is a director. The
rights of an Investor under this Section 4.2 are not assignable.
3.
<PAGE> 7
5. Termination of Covenants. The covenants of the Company set forth in
Sections 2, 3 and 4 shall be terminated and be of no further force or effect
upon the earlier of (a) immediately prior to the closing of the first public
offering of the Common Stock of the Company that is effected pursuant to a
Registration Statement filed with, and declared effective by, the Commission
under the Securities Act (other than either a public offering limited solely to
employees of the Company or an offering pursuant to Rule 145 under the
Securities Act) and (b) the date the Company registers any securities under the
Securities and Exchange Act of 1934, and such covenants shall terminate as to
any Investor as of the date such Investor no longer holds any shares of the
capital stock of the Company.
6. Demand Registration.
6.1 Request for Registration on Form Other Than Form S-3. Subject
to the terms of this Agreement, in the event that the Company shall receive from
the Initiating Holders at any time after (subject to Section 16) three months
after the Company's initial public offering of shares of Common Stock under a
Registration Statement, a written request that the Company effect any
Registration with respect to all or a part of the Registrable Securities on a
Form other than Form S-3 for an offering with a reasonably anticipated aggregate
offering price to the public of at least $7,500,000, the Company shall (i)
promptly give written notice of the proposed Registration to all other Holders
and shall (ii) as soon as practicable, use its best efforts to effect
Registration of the Registrable Securities specified in such request, together
with any Registrable Securities of any Holder joining in such request as are
specified in a written request given within 20 days after written notice from
the Company. The Company shall not be obligated to take any action to effect any
such registration pursuant to this Section 6.1 (i) during the period starting
with the date sixty (60) days prior to the Company's estimated date of filing,
and ending on the date six (6) months immediately following the effective date
of a Registration pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan) provided that the Company is employing all reasonable
efforts in good faith to cause such Registration to become effective and that
the Company's estimate of the date of filing such Registration is made in good
faith or (ii) after the Company has effected two such Registrations pursuant to
this Section 6.1 and such Registrations have been declared effective.
6.2 Right of Deferral of Registration on Form Other Than Form S-3.
If the Company shall furnish to all such Holders who joined in the request a
certificate signed by the President of the Company stating that, in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company for any Registration to be effected as requested
under Section 6.1, the Company shall have the right, exercisable not more than
once in any twelve-month period, to defer the filing of a Registration Statement
with respect to such offering for a period of not more than 120 days from
delivery of the request of the Initiating Holders.
4.
<PAGE> 8
6.3 Request for Registration on Form S-3.
(a) If a Holder or Holders of the outstanding Registrable
Securities request that the Company file a Registration Statement on Form S-3
(or any successor form to Form S-3) for a public offering of shares of
Registrable Securities and the Company is a registrant entitled to use Form S-3
to Register the Registrable Securities for such an offering, the Company shall
use all reasonable efforts to cause such Registrable Securities to be Registered
for the offering on such form and to cause such Registrable Securities to be
qualified in such jurisdictions as the Holder or Holders may reasonably request;
provided, however, that the Company shall not be required to effect more than
two Registrations pursuant to this Section 6.3 in any twelve (12) month period.
The substantive provisions of Section 6.5 shall be applicable to each
Registration initiated under this Section 6.3.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to file a Registration Statement pursuant to this Section 6.3:
(i) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such Registration, qualification, or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(ii) If the Company, within ten (10) days of the
receipt of the request of the initiating Holders, gives notice of its bona fide
intention to effect the filing of a Registration Statement with the Commission
within sixty (60) days of receipt of such request (other than with respect to a
registration statement relating to a Rule 145 transaction or an offering solely
to employees), provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective;
(iii) within six months immediately following the
effective date of any registration statement pertaining to the securities of the
Company (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan); or
(iv) if the Company shall furnish to such Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its stockholders for a registration statement to be filed in the
near future, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed 120 days
from the receipt of the request to file such registration by such Holder
provided that the Company shall not exercise the right contained in this
paragraph (iv) more than once in any twelve (12) month period.
6.4 Registration of Other Securities in Demand Registration. Any
Registration Statement filed pursuant to the request of the Initiating Holders
under this Section 6 may, subject
5.
<PAGE> 9
to the provisions of Section 6.5, include securities of the Company other than
Registrable Securities.
6.5 Underwriting in Demand Registration.
6.5.1 Notice of Underwriting. If the Initiating Holders intend
to distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to this Section 6, and the Company shall include such information in
the written notice referred to in Section 6.1 or 6.3. The right of any Holder to
Registration pursuant to Section 6 shall be conditioned upon such Holder's
agreement to participate in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting.
6.5.2 Inclusion of Other Holders in Demand Registration. If
the Company, officers or directors of the Company holding Common Stock other
than Registrable Securities, or holders of securities other than Registrable
Securities, request inclusion in such Registration, the Initiating Holders, to
the extent they deem advisable and consistent with the goals of such
Registration, may, on behalf of all Holders, offer to any or all of the Company,
such officers or directors, and such holders of securities other than
Registrable Securities that such securities other than Registrable Securities be
included in the underwriting and may condition such offer on the acceptance by
such persons of the terms of this Section 6. In the event, however, that the
number of shares so included exceeds the number of shares of Registrable
Securities included by all Holders, such Registration shall be treated as
governed by Section 7 hereof rather than Section 6, and it shall not count as a
Registration for purposes of Section 6.1 hereof.
6.5.3 Selection of Underwriter in Demand Registration. The
Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement with
the representative ("Underwriter's Representative") of the underwriter or
underwriters selected for such underwriting by the Holders of a majority of the
Registrable Securities being registered by the Initiating Holders and agreed to
by the Company.
6.5.4 Marketing Limitation in Demand Registration. In the
event the Underwriter's Representative advises the Initiating Holders in writing
that market factors (including, without limitation, the aggregate number of
shares of Common Stock requested to be Registered, the general condition of the
market, and the status of the persons proposing to sell securities pursuant to
the Registration) require a limitation of the number of shares to be
underwritten, then (i) first the Common Stock (other than Registrable
Securities) held by officers or directors of the Company, (ii) next the
securities other than Registrable Securities, and (iii) last the securities
requested to be Registered by the Company, shall be excluded from such
Registration to the extent required by such limitation. If a limitation of the
number of shares is still required, the Initiating Holders shall so advise all
Holders and the number of shares of Registrable Securities that may be included
in the Registration and underwriting shall be allocated
6.
<PAGE> 10
among all Holders in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities entitled to inclusion in such Registration
held by such Holders at the time of filing the Registration Statement. No
Registrable Securities or other securities excluded from the underwriting by
reason of this Section 6.5.4 shall be included in such Registration Statement.
6.5.5 Right of Withdrawal in Demand Registration. If any
Holder of Registrable Securities, or a holder of other securities entitled (upon
request) to be included in such Registration, disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the underwriter and the Initiating Holders delivered at least seven
days prior to the effective date of the Registration Statement. The securities
so withdrawn shall also be withdrawn from the Registration Statement.
6.6 Blue Sky in Demand Registration. In the event of any
Registration pursuant to Section 6, the Company will exercise its best efforts
to Register and qualify the securities covered by the Registration Statement
under such other securities or Blue Sky laws of such jurisdictions as shall be
reasonably appropriate for the distribution of such securities; provided,
however, that (i) the Company shall not be required to qualify to do business or
to file a general consent to service of process in any such states or
jurisdictions, and (ii) notwithstanding anything in this Agreement to the
contrary, in the event any jurisdiction in which the securities shall be
qualified imposes a non-waivable requirement that expenses incurred in
connection with the qualification of the securities be borne by selling
stockholders, such expenses shall be payable pro rata by selling stockholders.
7. Piggyback Registration.
7.1 Notice of Piggyback Registration and Inclusion of Registrable
Securities. Subject to the terms of this Agreement, in the event the Company
decides to Register any of its Common Stock (either for its own account or the
account of a security holder or holders exercising their respective demand
registration rights) on a form that would be suitable for a registration
involving solely Registrable Securities, the Company will: (i) promptly give
each Holder written notice thereof (which shall include a list of the
jurisdictions in which the Company intends to attempt to qualify such securities
under the applicable Blue Sky or other state securities laws) and (ii) include
in such Registration (and any related qualification under Blue Sky laws or other
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request delivered to the Company by any Holder
within 15 days after delivery of such written notice from the Company.
7.2 Underwriting in Piggyback Registration.
7.2.1 Notice of Underwriting in Piggyback Registration. If the
Registration of which the Company gives notice is for a Registered public
offering involving an underwriting, the Company shall so advise the Holders as a
part of the written notice given pursuant to Section 7.1. In such event, the
right of any Holder to Registration shall be conditioned upon such underwriting
and the inclusion of such Holder's Registrable Securities in
7.
<PAGE> 11
such underwriting to the extent provided in this Section 7. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement with the
Underwriter's Representative for such offering. The Holders shall have no right
to participate in the selection of the underwriters for an offering pursuant to
this Section 7.
7.2.2 Marketing Limitation in Piggyback Registration. In the
event the Underwriter's Representative advises the Holders seeking Registration
of Registrable Securities pursuant to Section 7 in writing that market factors
(including, without limitation, the aggregate number of shares of Common Stock
requested to be Registered, the general condition of the market, and the status
of the persons proposing to sell securities pursuant to the Registration)
require a limitation of the number of shares to be underwritten, the
Underwriter's Representative (subject to the allocation priority set forth in
Section 7.2.3) may:
(a) in the case of the Company's initial Registered
public offering, exclude some or all Registrable Securities from such
registration and underwriting; and
(b) in the case of any Registered public offering
subsequent to the initial public offering, limit the number of shares of
Registrable Securities to be included in such Registration and underwriting to
not less than thirty percent (30%) of the securities included in such
Registration (based on aggregate market values).
7.2.3 Allocation of Shares in Piggyback Registration. In the
event that the Underwriter's Representative limits the number of shares to be
included in a Registration pursuant to Section 7.2.2, the number of shares to be
included in such Registration shall be allocated (subject to Section 7.2.2) in
the following manner: The shares (other than Registrable Securities) held by
officers or directors of the Company shall be excluded from such Registration
and underwriting to the extent required by such limitation. If a limitation of
the number of shares is still required after such exclusion, the number of
shares that may be included in the Registration and underwriting by selling
stockholders shall be allocated among all other Holders thereof and other
holders of securities other than Registrable Securities requesting and legally
entitled to include shares in such Registration, in proportion, as nearly as
practicable, to the respective amounts of securities (including Registrable
Securities) which such Holders and such other holders would otherwise be
entitled to include in such Registration. No Registrable Securities or other
securities excluded from the underwriting by reason of this Section 7.2.3 shall
be included in the Registration Statement.
7.2.4 Withdrawal in Piggyback Registration. If any Holder
disapproves of the terms of any such underwriting, such person may elect to
withdraw therefrom by written notice to the Company and the underwriter
delivered at least seven days prior to the effective date of the Registration
Statement. Any Registrable Securities or other securities excluded or withdrawn
from such underwriting shall be withdrawn from such Registration.
8.
<PAGE> 12
7.3 Blue Sky in Piggyback Registration. In the event of any
Registration of Registrable Securities pursuant to this Section 7, the Company
will exercise its best efforts to Register and qualify the securities covered by
the Registration Statement under such other securities or Blue Sky laws of such
jurisdictions (not exceeding 20 unless otherwise agreed to by the Company) as
shall be reasonably appropriate for the distribution of such securities;
provided, however, that (i) the Company shall not be required to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions, and (ii) notwithstanding anything in this Agreement to the
contrary, in the event any jurisdiction in which the securities shall be
qualified imposes a non-waivable requirement that expenses incurred in
connection with the qualification of the securities be borne by selling
stockholders, such expenses shall be payable pro rata by selling stockholders.
8. Expenses of Registration. All Registration Expenses incurred in
connection with two Registrations pursuant to Section 6 (other than a
Registration on Form S-3), two Registrations pursuant to Section 6.3 and
unlimited Registrations pursuant to Section 7, shall be borne by the Company.
All Registration Expenses incurred in connection with any other registration,
qualification, or compliance, shall be apportioned among the Holders and other
holders of the securities so registered on the basis of the number of shares so
registered. Notwithstanding the above, the Company shall not be required to pay
for any expenses of any registration proceeding begun pursuant to Section 6 if
the registration request is subsequently withdrawn at the request of the Holders
of a majority of the Registrable Securities to be registered (which Holders
shall bear such expenses), unless the Holders of a majority of the Registrable
Securities agree to forfeit their right to one demand registration pursuant to
Section 6; provided further, however, that if at the time of such withdrawal,
the Holders have learned of a Material Adverse Event with respect to the
condition, business, or prospects of the Company not known to the Holders at the
time of their request, then the Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to Section 6. All Selling
Expenses shall be borne by the holders of the securities Registered pro rata on
the basis of the number of shares Registered.
9. Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the Commission that may at
any time permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) use its best efforts to make and keep public information
available, as those terms are understood and defined in Commission Rule 144, at
all times after ninety (90) days after the effective date of the first
Registration Statement under the Securities Act filed by the Company for the
offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end
9.
<PAGE> 13
of the fiscal year in which the first Registration Statement filed by the
Company for the offering of its securities to the general public is declared
effective;
(c) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the Act and
the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Commission Rule
144 (at any time after ninety (90) days after the effective date of the first
Registration Statement filed by the Company for an offering of its securities to
the general public), the Securities Act and the 1934 Act (at any time after it
has become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested by a
Holder in availing itself of any rule or regulation of the Commission which
permits a Holder to sell any such securities without Registration or pursuant to
such form.
10. Termination of Registration Rights. The rights to cause the Company
to Register securities granted under Sections 6 and 7 of this Agreement shall
terminate, with respect to each Holder, on the earlier of (i) the date five
years after the closing date of the Company's initial public offering, (ii) upon
such Holder holding less than 1% of the outstanding Registrable Securities
provided such Holder's Registrable Securities can be sold pursuant to Rule 144
within a three-month period without compliance with the registration
requirements of the Securities Act.
11. Registration Procedures and Obligations. Whenever required under
this Agreement to effect the Registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Commission a Registration Statement
with respect to such Registrable Securities and use its best efforts to cause
such Registration Statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such Registration Statement effective for up to one hundred twenty (120) days.
(b) Prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
10.
<PAGE> 14
(d) Use its best efforts to register and qualify the securities
covered by such Registration Statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
Registration Statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Provide a transfer agent and registrar for all Registrable
Securities Registered pursuant to such Registration Statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such Registration.
(h) Furnish, at the request of any Holder requesting Registration
of Registrable Securities pursuant to this Agreement, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a Registration pursuant to this Agreement, (i) an opinion, dated such date,
of the counsel representing the Company for the purposes of such Registration,
in form and substance as is customarily given to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders, and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters.
12. Information Furnished by Holder. It shall be a condition precedent
of the Company's obligations under this Agreement that each Holder of
Registrable Securities included in any Registration furnish to the Company such
information regarding such Holder and the distribution proposed by such Holder
or Holders as the Company may reasonably request.
13. Indemnification.
13.1 Company's Indemnification of Holders. To the extent permitted
by law, the Company will indemnify each Holder, each of its officers, directors,
and constituent partners, legal counsel for the Holders, and each person
controlling such Holder, with respect to which Registration, qualification, or
compliance of Registrable Securities has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls any
underwriter
11.
<PAGE> 15
against all claims, losses, damages, or liabilities (or actions in respect
thereof) to the extent such claims, losses, damages, or liabilities arise out of
or are based upon any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus or other document (including any
related Registration Statement) incident to any such Registration,
qualification, or compliance, or are based on any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation or alleged
violation by the Company of the Securities Act, the 1934 Act, any state
securities law, or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any state securities law applicable to the Company and relating
to action or inaction required of the Company in connection with any such
Registration, qualification, or compliance; and the Company will pay as incurred
to each such Holder, each such underwriter, and each person who controls any
such Holder or underwriter, any legal and any other expenses reasonably incurred
in connection with investigating or defending any such claim, loss, damage,
liability, or action; provided, however, that the indemnity contained in this
Section 13.1 shall not apply to amounts paid in settlement of any such claim,
loss, damage, liability, or action if settlement is effected without the consent
of the Company (which consent shall not unreasonably be withheld); and provided,
further, that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability, or expense arises out of or is based
upon any untrue statement or omission based upon written information furnished
to the Company by such Holder, underwriter, or controlling person and stated to
be for use in connection with the offering of securities of the Company.
13.2 Holder's Indemnification of Company. To the extent permitted
by law, each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such Registration, qualification or,
compliance is being effected pursuant to this Agreement, indemnify the Company,
each of its directors and officers, each legal counsel and independent
accountant of the Company, each underwriter, if any, of the Company's securities
covered by such a Registration Statement, each person who controls the Company
or such underwriter within the meaning of the Act, and each other such Holder,
each of its officers, directors, and constituent partners, and each person
controlling such other Holder, against all claims, losses, damages, and
liabilities (or actions in respect thereof) arising out of or based upon any
untrue statement (or alleged untrue statement) of a material fact contained in
any such Registration Statement, prospectus, offering circular, or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation or alleged violation by such Holder of the
Securities Act, the 1934 Act, any state securities law, or any rule or
regulation promulgated under the Securities Act, the 1934 Act or any state
securities law applicable to such Holder and relating to action or inaction
required of such Holder in connection with any such Registration, qualification,
or compliance, and will pay as incurred to the Company, such Holders, such
directors, officers, partners, persons, law and accounting firms, underwriters
or control persons, any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability, or action, in each case only to the extent that such untrue statement
(or alleged untrue statement) or omission (or alleged omission) is made in such
Registration Statement, prospectus, offering circular, or other document in
reliance upon and
12.
<PAGE> 16
in conformity with written information furnished to the Company by such Holder
and stated to be specifically for use in connection with the offering of
securities of the Company; provided, however, that the indemnity contained in
this Section 13.2 shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability, or action if settlement is effected without the
consent of such Holder (which consent shall not unreasonably be withheld);
provided, further, that such Holder's liability under this Section 13.2 shall
not exceed such Holder's proceeds from the offering of securities made in
connection with such Registration.
13.3 Indemnification Procedure. Promptly after receipt by an
indemnified party under this Section 13 of notice of the commencement of any
action, such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party under this Section 13, notify the indemnifying
party in writing of the commencement thereof and generally summarize such
action. The indemnifying party shall have the right to participate in and to
assume the defense of such claim; provided, however, that the indemnifying party
shall be entitled to select counsel for the defense of such claim with the
approval of any parties entitled to indemnification, which approval shall not be
unreasonably withheld; provided further, however, that if either party
reasonably determines that there may be a conflict between the position of the
Company and the Investors in conducting the defense of such action, suit, or
proceeding by reason of recognized claims for indemnity under this Section 13,
then counsel for such party shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interest of such party. The failure to notify an indemnifying party promptly of
the commencement of any such action, if prejudicial to the ability of the
indemnifying party to defend such action, shall relieve such indemnifying party,
to the extent so prejudiced, of any liability to the indemnified party under
this Section 13, but the omission so to notify the indemnifying party will not
relieve such party of any liability that such party may have to any indemnified
party otherwise other than under this Section 13.
13.4 Contribution. If the indemnification provided for in this
Section 13 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
13.5 Conflicts. Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in the underwriting
agreement entered into in
13.
<PAGE> 17
connection with the underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting agreement shall
control.
The obligations of the Company and Holders under this Section 13
shall survive the completion of any offering of Registrable Securities in a
Registration Statement under this Agreement or otherwise.
14. Limitations on Registration Rights Granted to Other Securities. From
and after the date of this Agreement, the Company shall not enter into any
agreement with any holder or prospective holder of any securities of the Company
providing for the granting to such holder of any information or Registration
rights, except that, with the consent of the Holders of a majority of the
aggregate of the Convertible Securities and Registrable Securities then
outstanding, additional holders may be added as parties to this Agreement with
regard to any or all securities of the Company held by them. Each such
additional party shall execute a counterpart of this Agreement, and upon
execution by such additional party and by the Company, shall be considered an
Investor for all purposes of this Agreement. The additional parties and the
additional Registrable Securities shall be identified in an amendment to
Schedule I hereto.
15. Transfer of Rights. The rights to information under Sections 2, 3,
and 4 and the right to cause the Company to Register securities granted by the
Company to the Investors under this Agreement may be assigned by any Holder to a
transferee or assignee of any Convertible Securities or Registrable Securities
not sold to the public acquiring at least 10,000 shares of such Holder's
Registrable Securities (equitably adjusted for any stock splits, subdivisions,
stock dividends, changes, combinations or the like); provided, however, that (i)
the shares of Convertible Securities or Registrable Securities acquired by said
transferee must constitute at least 20% of Holder's aggregate of Convertible
Securities and Registrable Securities immediately prior to the transfer, (ii)
the Company must receive written notice prior to the time of said transfer,
stating the name and address of said transferee or assignee and identifying the
securities with respect to which such information and Registration rights are
being assigned, and (iii) the transferee or assignee of such rights must not be
a person deemed by the Board of Directors of the Company, in its best judgment,
to be a competitor or potential competitor of the Company. Notwithstanding the
limitation set forth in the foregoing sentence respecting the minimum number of
shares which must be transferred, any Holder which is a partnership may transfer
such Holder's Registration rights to such Holder's constituent partners without
restriction as to the number or percentage of shares acquired by any such
constituent partner.
16. Market Stand-off. Each Holder hereby agrees that, if so requested by
the Underwriter's Representative (if any) in connection with the Company's
initial public offering, such Holder shall not sell, make any short sale of,
loan, grant any option for the purchase of, or otherwise transfer or dispose of
(or demand the registration pursuant to Section 6.1 of) any Registrable
Securities or other securities of the Company without the prior written consent
of the Company and the Underwriter's Representative for such period of time (not
to exceed 180 days) following the effective date of a Registration Statement of
the Company filed under the Securities Act as may be requested by the
Underwriter's Representative. The obligations of Holders under
14.
<PAGE> 18
this Section 16 shall be conditioned upon similar agreements being in effect
with each other stockholder who is an officer, director, or selling stockholder.
17. No-Action Letter or Opinion of Counsel in Lieu of Registration;
Conversion of Preferred Stock. Notwithstanding anything else in this Agreement,
if the Company shall have obtained from the Commission a "no-action" letter in
which the Commission has indicated that it will take no action if, without
Registration under the Securities Act, any Holder disposes of Registrable
Securities covered by any request for Registration made under this Agreement in
the specific manner in which such Holder proposes to dispose of the Registrable
Securities included in such request (such as including, without limitation,
inclusion of such Registrable Securities in an underwriting initiated by either
the Company or the Holders), or if in the opinion of counsel for the Company
concurred in by counsel for such Holder, which concurrence shall not be
unreasonably withheld, no Registration under the Securities Act is required in
connection with such disposition, the Registrable Securities included in such
request shall not be eligible for Registration under this Agreement; provided,
however, that any Registrable Securities not so disposed of shall be eligible
for Registration in accordance with the terms of this Agreement with respect to
other proposed dispositions to which this Section 17 does not apply. The
Registration rights set forth in this Agreement of the Holders of the
Registrable Securities are conditioned upon the conversion of the Registrable
Securities with respect to which registration is sought into Common Stock prior
to the effective date of the Registration Statement.
18. Miscellaneous.
18.1 Entire Agreement; Successors and Assigns. This Agreement
constitutes the entire contract between the Company and the Investors relative
to the subject matter hereof. Any previous agreements between the Company and
any Investor concerning Registration rights (including, without limitation, the
Amended and Restated Information and Registration Rights Agreement dated April
4, 1996) are superseded by this Agreement. Subject to the exceptions
specifically set forth in this Agreement, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
executors, administrators, heirs, successor, and assigns of the parties.
18.2 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California excluding
those laws that direct the application of the laws of another jurisdiction.
18.3 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.
18.4 Headings. The headings of the Sections of this Agreement are
for convenience and shall not by themselves determine the interpretation of this
Agreement.
15.
<PAGE> 19
18.5 Notices. Any notice required or permitted hereunder shall be
given in writing and shall be conclusively deemed effectively given upon
personal delivery, or five days after deposit in the United States mail, by
registered or certified mail, postage prepaid, addressed (i) if to the Company,
as set forth below the Company's name on the signature page of this Agreement,
and (ii) if to an Investor, at such Investor's address as set forth on Schedule
A, or at such other address as the Company or such Investor may designate by ten
(10) days' advance written notice to the Investors or the Company, respectively.
18.6 Amendment of Agreement. Any provision of this Agreement may be
amended only by a written instrument signed by the Company and by persons
holding at least sixty percent (60%) of the Registrable Securities as defined in
Section 1 of this Agreement.
18.7 Transfer to Fund Participants. Notwithstanding any other
provision of this Agreement to the contrary, if any Investor makes a
distribution of Registrable Securities pro rata to its limited or general
partners, the parties agree that such partners shall receive the rights set
forth in this Agreement (other than the rights set forth at Section 4.2) to the
extent such Investor was entitled at the time of such distribution. For purposes
of determining share ownership requirements in this Agreement, shares owned by
an Investor and all affiliated entities shall be aggregated.
16.
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have executed this Amended
and Restated Information and Registration Rights Agreement as of the day and
year first above written.
The Company: COM21, INC.,
a Delaware corporation
By: ____________________________________
Peter D. Fenner, President
and Chief Executive Officer
INVESTORS:
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
[SIGNATURE PAGE TO RIGHTS AGREEMENT]
<PAGE> 21
BRAD PEERY CAPITAL VENTURES, L.P.
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
FARNIL INVESTMENTS N.V.
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
___________________________________
Dennis Fernandez
___________________________________
Jay T. Last
[SIGNATURE PAGE TO RIGHTS AGREEMENT]
<PAGE> 22
MASEFIELD COMPANY, N.V.
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
___________________________________
Benjamin Millerbis
MONTGOMERY ASSOCIATES
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
[SIGNATURE PAGE TO RIGHTS AGREEMENT]
<PAGE> 23
NEXUS GROUP, LLC
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
PORCELAIN PARTNERS LP
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
SIEMENS AG
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
[SIGNATURE PAGE TO RIGHTS AGREEMENT]
<PAGE> 24
VAN WAGONER CAPITAL MANAGEMENT
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
XYLAN
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
ANDREESSEN CHARITABLE REMAINDER 1996
TRUST DATED FEBRUARY 2, 1996
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
[SIGNATURE PAGE TO RIGHTS AGREEMENT]
<PAGE> 25
BAYVIEW INVESTORS, L.P.
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
________________________________________
Harper W. Boyd, Jr.
BROBECK INVESTMENT COMPANY V L.P.
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
[SIGNATURE PAGE TO RIGHTS AGREEMENT]
<PAGE> 26
CHARTER VENTURES II L.P.
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
COMDISCO, INC.
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
CROSSPOINT VENTURE PARTNERS
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
________________________________________
Scott Daugherty
[SIGNATURE PAGE TO RIGHTS AGREEMENT]
<PAGE> 27
________________________________________
Kevin DeBre
EUROLINK
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
HATFIELD ASSOCIATES, INC.
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
________________________________________
Robert C. Hawk
________________________________________
Jeffrey P. Higgins
________________________________________
William D. Houser
[SIGNATURE PAGE TO RIGHTS AGREEMENT]
<PAGE> 28
________________________________________
Karen Ikeda
JAPAN ASSOCIATED FINANCE COMPANY
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
KLEINER PERKINS CAUFIELD & BYERS VII
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
KPCB INFORMATION ZAIBATSU FUND II
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
[SIGNATURE PAGE TO RIGHTS AGREEMENT]
<PAGE> 29
KOREA TECHNOLOGY BANKING
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
KRAMER AND ASSOCIATES
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
ROBERT B. LIEPOLD, INC.
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
[SIGNATURE PAGE TO RIGHTS AGREEMENT]
<PAGE> 30
________________________________________
Scott Loftesness
________________________________________
Marilyn Loftesness
________________________________________
Stephens Millard
________________________________________
Anthony Montagu
NEW ENTERPRISE ASSOCIATES VI, L.P.
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
________________________________________
John Otto
[SIGNATURE PAGE TO RIGHTS AGREEMENT]
<PAGE> 31
3COM CORPORATION
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
________________________________________
Richard A. Van Saun
VERTEX INVESTMENT (II) (LTD.)
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
[SIGNATURE PAGE TO RIGHTS AGREEMENT]
<PAGE> 32
UMB BANK, SUCCESSOR TRUSTEE OF BROBECK,
PHLEGER & HARRISON LLP RETIREMENT
SAVINGS F/B/O MICHAEL J. CASEY
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
UMB BANK, SUCCESSOR TRUSTEE OF BROBECK,
PHLEGER & HARRISON LLP RETIREMENT
SAVINGS F/B/O GARI L. CHEEVER
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
[SIGNATURE PAGE TO RIGHTS AGREEMENT]
<PAGE> 33
UMB BANK, SUCCESSOR TRUSTEE OF BROBECK,
PHLEGER & HARRISON LLP RETIREMENT
SAVINGS F/B/O EDWARD M. LEONARD
By: ___________________________________
(Signature)
___________________________________
(Print Name)
Its: ___________________________________
[SIGNATURE PAGE TO RIGHTS AGREEMENT]
<PAGE> 34
SCHEDULE I
SCHEDULE OF INVESTORS
<PAGE> 1
Exhibit 10.1
LEASE AGREEMENT
THIS LEASE, made this 10th day of May, 1996, between JOHN ARRILLAGA,
Trustee, or his Successor Trustee, UTA dated 7/20/77 (ARRILLAGA FAMILY TRUST) as
amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee, UTA dated
7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, hereinafter
called Landlord, and COM21, INC., a Delaware corporation, hereinafter called
Tenant
WITNESSETH
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit "A",
attached hereto and incorporated herein by this reference thereto more
particularly described as follows
All of that certain 44,624+/- square foot, one-story building located at 750
Tasman Drive, Milpitas, California 95035. Said Premises is more particularly
shown within the area outlined in Red on Exhibit A attached hereto. The entire
parcel, of which the Premises is a part is shown within the area outlined in
Green on Exhibit A attached. The Premises shall be improved as shown on Exhibit
B to be attached hereto, and is leased an "as-is" basis, in its present
condition, and in the configuration as shown in Red on Exhibit B to be attached
hereto.
As used herein the Complex shall mean and include all of the land outlined in
Green and described in Exhibit "A" attached hereto, and all of the buildings,
improvements, fixtures and equipment now or hereafter situated on said land.
Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions hereinafter set forth and Tenant covenants as a
material part of the consideration for this Lease to perform and observe each
and all of said terms, covenants and conditions. This Lease is made upon the
conditions of such performance and observance
1. USE Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purposes of general
office, light manufacturing, research and development, and storage and other
uses necessary for Tenant to conduct Tenant's business, provided that such uses
shall be in accordance with all applicable governmental laws and ordinances and
for no other purpose. Tenant shall not do or permit to be done in or about the
Premises or the Complex nor bring or keep or permit to be brought or kept in or
about the Premises or the Complex anything which is prohibited by or will in any
way increase the existing rate of (or otherwise affect) fire or any insurance
covering the Complex or any part thereof,or any of its contents, or will cause a
cancellation of any insurance covering the Complex or any part thereof, or any
of its contents. Tenant shall not do or permit to be done anything in, on or
about the Premises or the Complex which will in any way obstruct or interfere
with the rights of other tenants or occupants of the Complex or injure or annoy
them, or use or allow the Premises to be used by for any improper, immoral,
unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit
any nuisance in, on or about the Premises or the Complex. No sale by auction
shall be permitted on the Premises. Tenant shall not place nay loads upon the
floors, walls, or ceiling, which endanger the structure, or place any harmful
fluids or other materials in the drainage system of the building, or overloading
existing electrical or other mechanical systems. No waste materials or refuse
shall be dumped upon or permitted to remain upon any part of the Premises or
outside of the building in which the Premises are a part, except in trash
containers placed inside exterior enclosures designated by Landlord for that
purpose or inside of the building proper where designated by Landlord. No
materials, supplies, equipment, finished products or semi-finished products, raw
materials or articles of any nature shall be stored upon or permitted to remain
outside the Premises or on any portion of common area of the Complex. No
loudspeaker or other device, system or apparatus which can be heard outside the
Premises shall be used in or at the Premises without the prior written consent
of Landlord. Tenant shall not commit or suffer to be committed any
<PAGE> 2
waste in or upon the Premises. Tenant shall indemnify, defend and hold Landlord
harmless against any loss, expense, damage, attorneys' fees, or liability
arising out of failure of Tenant to comply with any applicable law. Tenant shall
comply with any covenant, condition, or restriction (CC&R's) affecting the
Premises. The provisions of this paragraph are for the benefit of Landlord only
and shall not be construed to be for the benefit of any tenant or occupant of
the Complex.
2. TERM*
A. The term of this Lease shall be for a period of Eight (8) years
(unless sooner terminated as hereinafter provided) and, subject to Paragraphs
2(B) and 3, shall commence on the 1st day of August, 1996 and end on the 31st
day of July of 2004.
B. Possession of the Premises shall be deemed tendered and the term of
this Lease shall commence when the first of the following occurs:
(a) One day after of Certificate of Occupancy is granted by the
proper governmental agency, or if the governmental agency having jurisdiction
over the area in which the Premises are situated does not issue certificates of
occupancy, then the same number of days after certification by Landlord's
architect or contractor that Landlord's construction work has been completed; or
(b) Upon the occupancy of the Premises by any of Tenant's
operating personnel; or
(c) When the Tenant Improvements have been substantially
completed for Tenant's use and occupancy, in accordance and compliance with
Exhibit B of this Lease Agreement; or
(d) As otherwise agreed in writing.
3. POSSESSION If Landlord, for any reason whatsoever, cannot deliver possession
of said premises to Tenant at the commencement of the said term, as hereinbefore
specified, this Lease shall not be void or voidable; no obligation of Tenant
shall be affected thereby; nor shall Landlord or Landlord's agents be liable to
Tenant for any loss or damage resulting therefrom; but in that event the
commencement and termination dates of the Lease, and all other dates affected
thereby shall be revised to conform to the date of Landlord's delivery of
possession, as specified in Paragraph 2(b), above. The above is, however,
subject to the provision that the period of delay, of delivery of the premises
shall not exceed 90 days from the commencement date herein (except those delays
caused by Acts of God, strikes, war, utilities, governmental bodies, weather,
unavailable materials, and delays beyond Landlord's control shall be excluded in
calculating such period) in which instance Tenant, at its option, may, by
written notice to Landlord, terminate this Lease.
4. RENT
A. Basic Rent. Tenant agrees to pay to Landlord at such place as
Landlord may designate without deduction, offset, prior notice or demand, and
Landlord agrees to accept the Basic Rent for the leased Premises the total sum
of SIX MILLION THREE HUNDRED SEVENTY SEVEN THOUSAND FORTY FOUR AND 80/100
($6,377,044.80) Dollars in lawful money of the United States of America, payable
as follows:
- --------
* It is agreed in the event said Lease commences on a date other than the first
day of the month the term of the Lease will be extended to account for the
number of days in the partial month. The Basic Rent during the resulting partial
month will be pro-rated (for the number of days in the partial month) at the
Basic Rent scheduled for the projected commencement date as shown in Paragraph
43.
<PAGE> 3
See Paragraph 43 for Basic Rent Schedule
B. Time for Payment. In the event that the term of this Lease commences
on a date other than the first day of a calendar month, on the date of
commencement of the term hereof Tenant shall pay to Landlord as rent for the
period from such date of commencement to the first day of the next succeeding
calendar month that proportion of the monthly rent hereunder which the number of
days between such date of commencement and the first day of the next succeeding
calendar month bears to thirty (30) days. In the event that the term of this
Lease for any reason ends on a date other than the last day of a calendar month,
on the first day of the last calendar month of the term hereof Tenant shall pay
to Landlord as rent for the period from said first day of said last calendar
month to and including the last day of the term hereof that proportion of the
monthly rent hereunder which the number of days between said first day of said
last calendar month and the last day of the term hereof bears to thirty (30).
C. Late Charge. Notwithstanding any other provision of this Lease, if
Tenant is in default in the payment of rental as set forth in this Paragraph 4
when due, or any part thereof, Tenant agrees to pay Landlord, in addition to the
delinquent rental due, a late charge for each rental payment in default ten (10)
days. Said late charge shall equal ten (10%) percent of each rental payment so
in default.
D. Additional Rent. Beginning with the commencement date of the term of
this Lease, Tenant shall pay to Landlord in addition to the Basic Rent and as
Additional Rent the following:
(a) Tenant's proportionate share of Taxes relating to the Complex
as set forth in Paragraph 12, and
(b) Tenant's proportionate share of all insurance premiums
relating to the Complex, as set forth in Paragraph 15, and
(c) Tenant's proportionate share of expenses for the operation,
management, maintenance and repair of the Building (including common areas of
the Building) and Common Areas of the Complex in which the Premises are located
as set forth in Paragraph 7, and
(d) All charges, costs and expenses, which Tenant is required to
pay hereunder, together with all interest and penalties, costs and expenses,
including attorneys; fees and legal expenses, that may accrue thereto in the
event of Tenants failure to pay such amounts, nd all damages, reasonable costs
and expenses which Landlord may incur by reason of default of Tenant or failure
on Tenant's part to comply with the terms of this Lease. In the event of
nonpayment by Tenant of Additional Rent, Landlord shall have all the rights and
remedies with respect thereto as Landlord has for nonpayment of rent. The
Additional Rent due hereunder shall be paid to Landlord or Landlord's agent (i)
within five days for taxes and insurance and within thirty (30) days for all
other Additional Rent items after presentation of invoice from Landlord or
Landlord's agent setting forth such Additional Rent and/or (ii) at the option of
landlord, Tenant shall pay to Landlord monthly, in advance, Tenant's prorata
share os an amount estimated by Landlord to be Landlord's approximate average
monthly expenditure for such Additional Rent items, which estimated amount shall
be reconciled within 120 days of the end of each calendar year as compared to
Landlord's actual expenditure for said Additional Rent items, with Tenant paying
to Landlord, upon demand, any amount of actual expenses expended by Landlord n
excess of said estimated amount, or Landlord refunding to Tenant (providing
Tenant is not in default in the performance of any of the terms, covenants and
conditions of this Lease) any amount of estimated payments made by Tenant in
excess of Landlord's actual expenditures for said Additional Rent items. The
respective obligations of Landlord and Tenant under this paragraph shall survive
the expiration or other termination of the term of this Lease, wand if the term
hereof shall expire or shall otherwise terminate on a day other than the last
day of a calendar year, the actual Additional Rent incurred for the calendar
year in which the term hereof express or otherwise terminates hall be determine
and settles on the basis of the statement of actual Additional Rent for such
calendar year and shall be prorated in the proportion which the number of days
in such calendar year preceding such expiration or termination bears to 365.
E. Fixed Management Fee. Beginning with the Commencement Date of the
Term of this Lease,
<PAGE> 4
Tenant shall pay to landlord, in addition to the Basic Rent and Additional Rent,
a fixed monthly management fee equal to 1% of the Basic Rent due for each month
during the Lease Term ("Management Fee").
F. Place of Payment of Rent and Additional Rent. All Basic Rent
hereunder and all payments hereunder for Additional Rent shall be paid to
Landlord at the office of Landlord at Peery/Arrillaga, File 1504, Box 60000, San
Francisco, CA 94160 or to such other person or to such other place as Landlord
may from time to time designate in writing.
G. Security Deposit. Concurrently with Tenant's execution of this Lease,
Tenant shall deposit with Landlord the sum of One Hundred Fifty Thousand Seven
Hundred Twenty One and 60/100 ($151,721.60) Dollars. Said sum shall be held by
Landlord as a Security Deposit for the faithful performance by Tenant of all of
the terms, covenants, and conditions of this Lease to be kept and performed by
Tenant during the term hereof. If Tenant defaults with respect to any provision
of this Lease, including, but not limited to, the provisions relating to the
payment of rent and any of the monetary sums due herewith. Landlord may (but
shall not be require to) use, apply or retain [all] or any part of this Security
Deposit for the payment of any other amount which Landlord may spend by reason
of default or to compensate landlord for any other [ ] damage which Landlord may
suffer by reason of Tenant's default. If any portion of said Deposit is so used
or applied, Tenant shall, within ten (10) days after written [demand] therefor,
deposit cash with Landlord in the amount sufficient to restore the Security
Deposit to its original amount. Tenant's failure to do so shall be a material
breach of this Lease. Landlord shall not be required to keep this security
Deposit separate from its general funds, and Tenant shall not be entitled to
interest on such Deposit [ ] Tenant fully and faithfully performs every
provision of this Lease to be performed by it, the Security Deposit or any
balance thereof shall be returned to Tenant for (or at Landlord's option, to the
last assignee of Tenant's interest hereunder) at the expiration of the Lease
term and after Tenant has vacated the Premises. In the event of [termination] of
Landlord's interest in this Lease, Landlord shall transfer said deposit to
Landlord's successor in interest whereupon Tenant agrees to release Landlord
from [liability] for the return of such Deposit or the accounting therefor.
5. RULES AND REGULATIONS AND COMMON AREA Subject to the terms and conditions of
this Lease and such Rules and Regulations as Landlord may from time to time
prescribe, Tenant and Tenant's employees, invitees and customers, shall, in
common with other occupants of the Complex in which the Premises are located,
their respective employees, invitees and customers, and others entitled to the
use thereof, have the non-exclusive right to use the access roads, parking
areas, and facilities provided and designated by Landlord for the general use
and convenience of the occupants of the complex in which the Premises are
located, which areas and facilities are referred to herein as "Common Area".
This right shall terminate upon the termination of this Lease. Landlord reserves
the right from time to time to make changes in the shape, size, location, amount
and extent of Common Area. Landlord further reserves the right to promulgate
such reasonable rules and regulations relating to use of the Common Area, and
any part or parts thereof, as Landlord may deem appropriate for the best
interests of the occupants of the Complex. The Rules and Regulations shall be
binding upon Tenant upon delivery of a copy of them to Tenant, and Tenant shall
abide by them and cooperate in their observance. Such Rules and Regulations may
be amended by Landlord from time to time, with or without advance notice, and
all amendments shall be effective upon delivery of a copy to Tenant. Landlord
shall not be responsible to Tenant for the non-performance by any other tenant
or occupant of the Complex of any of said Rules and Regulations. Landlord shall
operate, manage and maintain the Common Area. The manner in which the Common
Area shall be maintained and the expenditures for such maintenance shall be at
the discretion of the Landlord.
[ ],860.80 Due upon Lease execution.
[ ],860.80 Promissory Note due August 1, 1997.
6. PARKING Tenant shall have the right to use with other tenants or occupants of
the Complex 177 parking spaces in the common parking areas of the Complex.
Tenant agrees, that Tenant, Tenant's employees, agents, representatives and/or
invitees shall no use parking spaces in excess of said 177 spaces allocated to
Tenant hereunder. Landlord shall have the right, at Landlord's sole discretion,
to specifically designate the location of Tenant's parking spaces within the
common parking areas of the Complex in the event of a dispute among the tenants
occupying the
<PAGE> 5
building and/or Complex referred to herein, in which event Tenant agrees that
Tenant, Tenant's employees, agents, representatives and/or invitees shall not
use any parking spaces other than those parking spaces specifically designated
by Landlord for Tenant's use. Said parking spaces, if specifically designated by
Landlord to Tenant, may be relocated by Landlord at any time, and from time to
time. Landlord reserves the right, at Landlord's sole discretion , to rescind
any specific designation of parking spaces, thereby returning Tenant's parking
spaces to the common parking area. Landlord shall give Tenant written notice of
any change in Tenant's parking spaces. Tenant shall not, at any time, park or
permit to be parked, any trucks or vehicles adjacent to the loading areas so as
to interfere in any way with the use of such ares, nor shall Tenant at any time
park, or permit the parking of Tenant's trucks or other vehicles or the trucks
and vehicles of Tenant's suppliers or others, in any portion of the common
parking area not designated by Landlord for such use by Tenant. Tenant shall not
park nor permit to be parked, any inoperative vehicles or equipment on any
portion of the common parking area or other common areas of the Complex. Tenant
agrees to assume responsibility for compliance by its employees with the parking
provision contained herein. If Tenant or its employees park in other than such
designated parking areas, then Landlord may charge Tenant, as an additional
charge, and Tenant agrees to pay , ten ($10) Dollars per day for each day or
partial day each such vehicle is parked in any area other than that designated.
Tenant hereby authorizes Landlord at Tenant's sole expense to tow away from the
Complex any vehicle belonging to Tenant or Tenant's employees parked in
violation of these provisions, or to attach violation stickers or notices to
such vehicles. Tenant shall use the parking areas for vehicle parking only, and
shall not use the parking areas for storage.
7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS
OF THE COMPLEX As Additional Rent and in accordance with Paragraph 4D of this
Lease, Tenant shall pay to Landlord Tenant's proportionate share (calculated on
a square footage or other equitable basis as calculated by Landlord) of all
expenses of operation, maintenance and repair of the Common Areas of the Complex
including, but not limited to, license, permit, and inspection fees; security;
utility charges associated with exterior landscaping and lighting (including
water and sewer charges); all charges incurred in the maintenance of landscaped
areas, lakes, parking lots, sidewalks, driveways; maintenance, repair and
replacement of all fixtures and electrical, mechanical, and plumbing systems,
structural elements and exterior surfaces of the buildings; salaries and
employee benefits of personnel and payroll taxes applicable thereto; supplies,
materials, equipment and tools; the cost of capital expenditures which have the
effect of reducing operating expenses, provided, however that in the event
Landlord makes such capital improvements, Landlord may amortize its investment
in said improvements (together with interest at the rate of fifteen (15%)
percent per annum on the unamortized balance) as an operating expense in
accordance with standard accounting practices, provided, that such amortization
is not at a rate greater than the anticipated savings in the operating expenses.
"Additional Rent" as used herein shall not include Landlord's debt
repayments; interest on charges; expenses directly or indirectly incurred by
Landlord for the benefit of any other tenant; cost for the installation of
partioning or any other tenant improvements; cost of attracting tenants;
depreciation; interest, or executive salaries.
8. ACCEPTANCE AND SURRENDER OF PREMISES By entry hereunder, Tenant accepts the
Premises as being in good and sanitary order, condition and repair and accepts
the building and improvements included in the Premises in their present
condition and without representation or warranty by Landlord as to the condition
of such building or as to the use or occupancy which may be made thereof. Any
exceptions to the foregoing must be by written agreement executed by Landlord
and Tenant. Tenant agrees on the last day of the Lease term, or on the sooner
termination of this Lease, to surrender the Premises promptly and peaceably to
Landlord in good condition and repair (damage by Acts of God, fire, normal wear
and tear excepted), with all interior walls painted, or cleaned so that they
appear freshly painted, and repaired and replaced, if damaged; all floors
cleaned and waxed; all carpets cleaned and shampooed; the airconditioning and
heating equipment serviced by a reputable and licensed service firm and in good
operating condition (provided the maintenance of such equipment has been
Tenant's responsibility during the term of this Lease) together with all
alterations additions, and improvements which may have been made in, to, or on
the Premises (except movable trade fixtures installed at the expense of Tenant)
except that Tenant shall ascertain from Landlord within thirty (30) days before
the end of the term of this Lease whether Landlord desires to have the Premises
or any part or parts thereof restored to their condition and configuration was
when the Premises were delivered to Tenant and if Landlord shall so desire, then
Tenant shall restore said Premises or such part or parts thereof before the end
of this Lease at Tenant's sole cost and expense. Tenant, on or before the end of
the term or sooner termination of this Lease, shall remove all of Tenant's
personal property and trade fixtures from the
<PAGE> 6
Premises, and all property not so removed on or before the end of the term or
sooner termination of this Lease shall be deemed abandoned by Tenant and title
to same shall thereupon pass to Landlord without compensation to Tenant.
Landlord may, upon termination of this Lease remove all moveable furniture and
equipment so abandoned by Tenant, at Tenant's sole cost, and repair any damage
caused by such removal at Tenant;s sole cost. If the Premises be not surrendered
at the end of the term or sooner termination of this Lease, Tenant shall
indemnify Landlord against loss or liability resulting from the delay by Tenant
in so surrendering the Premises including without limitation, any claims made by
any succeeding tenant founded on such delay. Nothing contained herein shall be
construed as an extension of the term hereof or as a consent of Landlord to any
holding over by Tenant. The voluntary or other surrender of this Lease or the
Premises by Tenant or a mutual cancellation of this Lease shall not work as a
merger and, at the option of Landlord, shall either terminate all or any
existing subleases or subtenancies or operate as an assignment to Landlord of
all or any such subleases or subtenancies.
9. ALTERATIONS AND ADDITIONS Tenant shall not make, or suffer to be made, any
alteration or addition to the Premises, or any part thereof, without the written
consent of Landlord first had and obtained by Tenant, but at the cost of Tenant,
and any addition to, or alteration of, the Premises, except moveable furniture
and trade fixtures, shall at once become a part of the Premises and belong to
Landlord. Landlord reserved the right to approve all contractors and mechanics
proposed by Tenant to airconditioning, floor to ceiling partioning, drapery,
carpeting, and floor installations made by Tenant, together with all property
that has become an integral part f the Premises, shall not be deemed trade
fixtures. Tenant agrees that it will not proceed to make such alternation or
additions, without having obtained consent from Landlord to do so, and until
five (5) days from the receipt of such consent, in order that Landlord may post
appropriate notices to avoid any liability to contractors or material suppliers
for payment for Tenant's improvements. Tenant will at all times permit such
notices to be posted and to remain posted until the completion of work. Tenant
shall, if required by Landlord, secure at Tenant's own cost and expense, a
completion and lien indemnity bond, satisfactory to Landlord, for such work.
Tenant further covenants and agrees that any mechanic's lien filed against the
Premises or against the Complex for work claimed to have been done for, or
materials claimed to have been furnished to Tenant, will be discharged by
Tenant, by bond or otherwise, within ten (10) days after the filing thereof, at
the cost and expense of Tenant. Any exceptions to the foregoing must be made in
writing and executed by both Landlord and Tenant.
10. TENANT MAINTENANCE Tenant shall, at its sole cost and expense, keep and
maintain the Premises (including appurtenances) and every part thereof,
excluding any damage caused by the negligence or willful misconduct of Landlord
or Landlord's agents, employees, invitees or licensees), in a high standard of
maintenance and repair, and in good and sanitary condition. Tenant maintenance
and repair responsibilities herein referred to include, but are not limited to
all windows, window frames, plate glass, glazing, truck doors, plumbing systems
(such as water and drain lines, sinks, toilets, faucets, drains, showers and
water fountains), electrical systems (such as panels, conduits, outlets,
lighting fixtures, lamps, bulbs, tubes, ballasts), heating and air-conditioning
systems (such as compressors, fans, air handlers, ducts, mixing boxes,
thermostats, time clocks, boilers, heaters, supply and return grills), store
fronts, roofs, downspout, all interior improvements within the premises
including but not limited to wall coverings, window coverings, carpet, floor
coverings, partitioning, ceiling, doors (both interior and exterior, including
closing mechanisms, latches, locks, skylights (if any), automatic fire
extinguishing systems, and elevators and all other interior improvements of any
nature whatsoever. Tenant agrees to provide carpet shields under all rolling
chairs or to otherwise be responsible for wear and tear of the carpet caused by
such rolling chairs if such wear and tear exceeds that caused by normal foot
traffic in surrounding areas. Areas of excessive wear shall be replaced at
Tenant's sole expense upon termination. Tenant hereby waives all rights under,
and benefits of, subsection 1 of Section 1932 and Section 1941 and 1942 of the
California Civil Code and under any similar law, statute or ordinance now or
hereafter in effect.
11. UTILITIES Tenant shall pay promptly, as the same become due, all charges for
water, gas, electricity, telephone, telex and other electronic communications
service, sewer service, waste pick-up and any other utilities, materials or
services furnished directly to or used by Tenant on or about the Premises during
the term of this Lease, including, without limitation, any temporary or
permanent utility surcharge or other exactions whether or not hereinafter
imposed.
Landlord shall not be liable for and Tenant shall not be entitled to any
abatement or reduction of rent by reason of any interruption or failure of
utility services to the Premises when such failure is caused by accident,
<PAGE> 7
breakage, repair, strikes, lockouts, or other labor disturbances or labor
disputes of any nature, or by any other cause, similar or dissimilar, beyond the
reasonable control of Landlord.
12. TAXES
A. As Additional Rent and in accordance with Paragraph 4D and this
Lease, Tenant shall pay to Landlord Tenant's proportionate share of all Real
Property Taxes, which prorata share shall be allocated to the leased Premises by
square footage or other equitable basis, as calculated by Landlord. The term
"Real Property Taxes", as used herein, shall mean (i) all taxes, assessments,
levies and other charges of any kind or nature whatsoever, general and special,
foreseen (including all installments of principal and interest required to pay
any general or special assessments for public improvements and any increases
resulting from reassessments caused by any change in ownership of the Complex)
now or hereafter imposed by any governmental or quasi governmental authority or
special district having the direct or indirect power to tax or levy assessments,
which are levied or assessed against, or with respect to the value occupancy or
use of, all or any portion of the Complex (as now constructed or as may at any
time hereafter be construed, altered, or otherwise changed) or Landlord's
interest therein, any improvements located within the Complex (regardless of
ownership); the fixtures, equipment and other property of Landlord, real or
personal, that are an integral part of and located in the Complex; or parking
areas, public utilities, or energy within the Complex; (ii) all charges, levies
or fees imposed by reason of environmental regulation or other governmental
control of the Complex and (iii) all costs and fees (including attorneys' fees)
incurred by Landlord in contesting any Real Property Tax and negotiating with
public authorities as to any Real Property Tax. If at any time during the term
of this Lease the taxation or assessment of the Complex prevailing as of the
commencement date of this Lease shall be altered so that in lieu of or in
addition to any Real Property Tax described above there shall be levied,
assessed or imposed (whether by reason of a change in the method of taxation or
assessment creation of a new tax or charge, or any other cause) an alternate or
additional tax or charge (i) on the value, use or occupancy of the Complex or
Landlord's interest therein or (ii) on or measured by the gross receipts, income
or rentals from the Complex, then any such tax or charge, however designated,
shall be included within the meaning of the term "Real Property Taxes" for
purposes of this Lease. If any Real Property Tax is based upon property or rents
unrelated to the Complex, then only that part of such real Property tax that is
fairly allocable to the Complex shall be included within the meaning of the term
"Real Property Taxes". Notwithstanding the foregoing, the term "Real Property
Taxes" shall not include estate, inheritance gift or franchise taxes of Landlord
or the federal or state net income tax imposed on Landlord's income from all
sources.
B. Taxes on Tenant's Property
(a) Tenant shall be liable for and shall pay ten days before
delinquency, taxes levied against any personal property or trade fixtures placed
by Tenant in or about the Premises. If any such taxes on Tenant's personal
property or trade fixtures are levied against Landlord or Landlord's property or
if the assessed value of the Premises in increased by the inclusion therein of a
value placed upon such personal property or trade fixtures of Tenant and if
landlord, after written notice to Tenant, pays the taxes based on such increased
assessment, which Landlord shall have the right to do regardless of the validity
thereof, but only under proper protest if requested by Tenant, Tenant shall upon
demand, as the case may be, repay to Landlord the taxes so levied against
Landlord, or the proportion of such taxes resulting from such increase in the
assessment; provided that in any such event Tenant shall have the right, in the
name of Landlord and with Landlord's full cooperation to bring suit in any court
of competent jurisdiction to recover the amount of any such taxes so paid under
protest and any amount so recovered shall belong to Tenant.
(b) if the Tenant improvements in the Premises, whether
installed, and/or paid for by Landlord or Tenant and whether or not affixed to
the real property so as to become a part thereof, are assessed for real property
tax purposes at a valuation higher than the valuation at which standard office
improvements in other space in the Complex are assessed, then the real property
taxes and assessments levied against Landlord or the Complex by reason of such
excess assessed valuation shall be deemed to be taxes levied against personal
property of Tenant and shall be governed by the provisions of 12Ba above. If the
records of the County Assessor are available and sufficiently detailed to serve
as a basis for determining whether said Tenant improvements are assessed at a
higher
<PAGE> 8
valuation than standard office improvements in other space in the Complex, such
records shall be binding on both the Landlord and the Tenant. If the records of
the County Assessor are not available or sufficiently detailed to serve as a
basis for making said determination, the actual cost of construction shall be
used.
13. LIABILITY INSURANCE Tenant at Tenant's expense, agrees to keep in force
during the term of this Lease a policy of commercial general insurance with
combined single limit coverage of not less than Two Million Dollars ($2,000,000)
for injuries to or death of persons occurring in, on or about the Premises or
the Complex, and property damage insurance with limits of $550,000. The policy
or policies affecting such insurance, certificates of insurance of which shall
be furnished to Landlord shall name Landlord as an additional insureds, and
shall insure any liability of Landlord, contingent or otherwise, as respects
acts or omissions of Tenant, its agents, employees or invitees or otherwise by
any conduct or transactions of any of said persons in or about or concerning the
Premises, including any failure of Tenant to observe or perform any of its
obligations hereunder, shall be issued by an insurance company admitted to
transact business in the Sate of California, and shall provide that the
insurance effected thereby shall not be canceled, except upon thirty (30) days
prior written notice to Landlord. If during the term of this Lease, in the
considered opinion of Landlord's Lender, insurance advisor, or counsel, the
amount of insurance described in this paragraph 13 is not adequate. Tenant
agrees to increase and coverage to such reasonable amount as Landlord's lender,
insurance advisor, or counsel shall deem adequate.
14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION
INSURANCE Tenant shall maintain a policy or policies of fire and property damage
insurance in "all risk" form with a sprinkler leakage endorsement insuring the
personal property, inventory, trade fixtures, and leasehold improvements within
the leased Premises for the full replacements value thereof. The proceeds from
any of such policies shall be used for the repair or replacement of such items
so insured.
Tenant shall also maintain a policy or policies of workman's
compensation insurance and any other employee benefit insurance sufficient to
comply with all laws.
15. PROPERTY INSURANCE Landlord shall purchase and keep in force and as
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall
pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's
proportionate share (calculated on a square footage or other equitable basis as
calculated by Landlord) of the deductibles on insurance claims and the cost of
policy or policies of insurance covering loss or damage to the Premises and
Complex in the amount of the full replacement value thereof, providing
protection against those perils included within the classification of "all
risks" insurance and flood and/or earthquake insurance, if available, plus a
policy of rental income insurance in the amount of one hundred (100%) percent of
twelve (12) months Basic Rent, plus sums paid as Additional Rent and any
deductibles related thereto. If such insurance cost is increased due to Tenant's
use of the Premises or the Complex, Tenant agrees to pay to Landlord the full
cost of such increase. Tenant shall have no interest in nor any right to the
proceeds of any insurance procured by Landlord for the Complex. Landlord and
Tenant do each hereby respectively release the other, to the extent of insurance
coverage of the releasing party, from any liability for loss or damage caused by
fire or any of the extended coverage casualties included in the releasing
party's insurance policies, irrespective of the cause of such fire or casualty;
provided, however, prohibited, the insured party affected shall promptly notify
the other party thereof.
16. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord for any injury to or death of any person or
damage to or destruction of property in or about eh Premises or the Complex by
or from any cause whatsoever, including, without limitation, gas, fire, oil,
electricity or leakage of any character from the roof, walls, basements or other
portion of the Premises or the Complex but excluding, however, the willful
misconduct or negligence of Landlord, its agents, servants, employees, invitees,
or contractors of which negligence Landlord has knowledge and reasonable time to
correct. Except as to injury to persons or damage to property the negligence of
Landlord, [its agents, servants, employees, invitees, or contractors to the
extent arising from the willful misconduct or] Tenant shall hold Landlord
harmless from and defend Landlord against any and all expenses, including
reasonable attorneys' fees, in connection therewith, arising out of any injury
to or death of any person or damage to or destruction of property occurring in,
on or about the Premises, or any part thereof, from any cause whatsoever.
<PAGE> 9
17. COMPLIANCE Tenant, at its sole cost and expense, shall promptly comply with
all laws, statutes, ordinances and governmental rules, regulations or
requirements now or hereafter in effect; with the requirements of any board of
the underwriters or other similar body now or hereafter constituted, and with
any direction or occupancy certificate issued pursuant to law by any public
officer, provided, however, that no such failure shall be deemed a breach of the
provisions if Tenant immediately upon notification, commences to remedy or
rectify said failure. The judgement of any court of competent jurisdiction or
the admission of Tenant in any action against Tenant. Whether Landlord be a
party thereto or not, that Tenant has violated any such law, statute, ordinance
or governmental rule, regulation, requirement, direction or provision, shall be
conclusive of that fact as between Landlord and Tenant. The paragraph shall not
be interpreted as requiring Tenant to make structural changes or improvements,
except to the extent such changes or improvements are required as a result of
Tenant's use of the Premises. Tenant shall, at its sole cost and expense, comply
with any and all requirements pertaining to said Premises, of any insurance
organization or company, necessary for the maintenance of reasonable fire and
public liability insurance covering the Premises.
18. LIENS Tenant shall keep the Premises and the Complex free from any liens
arising out of any work performed, materials furnished or obligations incurred
by Tenant in the event that Tenant shall not, within ten (10) days following the
imposition of such lien, cause the same to be released of record, Landlord shall
have, in addition to all other remedies provided herein and by law, the right,
but no obligation, to cause the same to be released by such means as it shall
deem proper, including payment of the claim giving rise to such lien. All sums
paid by Landlord for such purpose, and all expenses incurred by it in connection
therewith, shall be payable to Landlord by Tenant on demand with interest at the
prime rate of interest as quoted by the Bank of America.
19. ASSIGNMENT AND SUBLETTING Tenant shall not assign, transfer, or hypothecate
the leasehold estate under this Lease, or any interest therein, and shall not
sublet the Premises, or any part thereof, or any right or privilege appurtenant
thereto, or suffer any other person or entity to occupy or use the Premises, or
any portion thereof, without, in each case, the prior written consent of
Landlord which consent will not be unreasonably withheld. As a condition for
granting this consent to any assignment, transfer or subletting, Landlord may
require that Tenant agrees to pay to Landlord, as additional rent 50% of all
rents or additional consideration received by Tenant from its assignees,
transferees, or subtenants in excess of the rent payable by Tenant to Landlord
hereunder. [...any reasonable leasing commissions paid by Tenant to third
parties not affiliated with Tenant.] Tenant shall by thirty (30) days written
notice advise Landlord of its intent to assign or transfer Tenant's interest in
the Lease or sublet the Premises or any portion thereof for any part of the term
hereof. Within thirty (30) days after receipt of said written notice, Landlord
may, in its sole discretion, elect to terminate this Lease as to the portion of
the Premises described in Tenant's notice on the date specified in Tenant's
notice by giving written notice of such election to terminate. If no such notice
to terminate is given to Tenant within said thirty (30) day period, Tenant may
proceed to locate an acceptable sublessee, assignee, or other transferee for
presentment to Landlord for Landlord's approval, all in accordance with the
terms, covenants, and conditions of this paragraph 19. If Tenant intends to
sublet the entire Premises and Landlord elects to terminate this Lease, this
Lease shall be terminated on the date specified in Tenant's notice. If, however,
this Lease shall terminate pursuant to the foregoing with respect to less than
all of the Premises, the rent, as defined and reserved hereinabove shall be
adjusted on a pro rata basis to the number of square feet retained by Tenant,
and this Lease as so amended shall continue in full force and effect. In the
event Tenant is allowed to assign, transfer or sublet the whole or any part, of
the Premises, with the prior written consent of Landlord, no assignee,
transferee or subtenant shall assign or transfer this Lease, either in whole or
in part, or sublet the whole or any part of the Premises, without also having
obtained the prior written consent of Landlord which consent shall not be
unreasonably withheld. A consent of Landlord to one assignment, transfer,
hypothecation, subletting, occupation or use by any other person. Any such
assignment transfer, hypothecation, subletting, occupation or use without such
consent shall be void and shall constitute a breach of this Lease by Tenant and
shall, at the option of Landlord exercised by written notice to Tenant,
terminate this Lease. The leasehold estate under this Lease shall not, nor shall
any interest therein, be assignable for any purpose by operation of law without
the written consent of Landlord which consent shall not be unreasonably
withheld. As a condition to its consent, Landlord may require Tenant to pay all
expenses in connection with the assignment, and Landlord may require Tenant's
assignee or transferee (or other assignees or transferees) to assume in writing
all of the obligations under this Lease and for Tenant to remain liable to
Landlord under the Lease. See Paragraph 50.
<PAGE> 10
20. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest of
Landlord in the land and buildings in which the demised Premises are located, to
secure a loan from a lender (hereinafter referred to as "Lender") to Landlord,
Tenant shall, at the request of Landlord or Lender, execute in writing an
agreement subordinating its rights under this Lease to the lien of such deed of
trust, or, if so requested, agreeing that the lien of Lender's deed of trust
shall be or remain subject and subordinate to the rights of Tenant under this
Lease [and provided Lender executes a reasonable nondisturbance agreement].
Notwithstanding any such subordination, Tenant's possession under this Lease
shall not be disturbed if Tenant is not in default and so long as tenant shall
pay all rent and observe and perform all of the provisions set forth in this
lease.
21. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times after
at least 24 hours notice (except in emergencies) have, the right to enter the
Premises to inspect them; to perform any services to be provided by Landlord
hereunder; to submit the Premises to prospective purchasers, mortgagers or
tenants; to post notices of nonresponsibility; and to alter, improve or repair
the Premises and any portion of the Complex, all without abatement of rent; and
may erect scaffolding and other necessary structures in or through the Premises
where reasonably required by the character of the work to be performed;
provided, however that the business of Tenant shall be interfered with to the
least extent that is reasonably practical. For each of the foregoing purposes,
Landlord shall at all times have and retain a key with which to unlock all of
the doors in an emergency in order to obtain entry to the Premises, and any
entry to the Premises obtained by Landlord by any of said means, or otherwise,
shall not under any circumstances be construed or deemed to be a forcible or
unlawful entry into or a detainer of the premises or an eviction, actual or
constructive, of Tenant from the Premises or any portion thereof. Landlord shall
also have the right at any time to change the arrangement or location of
entrances or passageways, doors and doorways, and corridors, elevators, stairs,
toilets or other public parts of the Complex and to change the name, number or
designation by which the Complex is commonly known, and none of the foregoing
shall be deemed an actual or constructive eviction of Tenant, or shall entitle
Tenant to any reduction of rent hereunder.
22. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option,
constitute a breach of this Lease by Tenant. If the trustee or receiver
appointed to serve during a bankruptcy liquidation, reorganization, insolvency
or similar action elects to reject Tenant's unexpired Lease, the trustee or
receiver shall notify Landlord in writing of its election within thirty (30)
days after an order for relief in a liquidation action or within thirty (30)
days after the commencement of any action.
Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to the
reasonable satisfaction of Landlord that the trustee or receiver shall cure) any
and all previous defaults under the unexpired Lease and shall compensate
Landlord for all actual pecuniary loss and shall provide adequate assurance of
future performance under said Lease to the reasonable satisfaction of Landlord.
Adequate assurance of future performance, as used herein, includes, but shall
not be limited to: (i) assurance of source and payment of rent, and other
consideration due under this Lease; (ii) assurance that the assumption or
assignment of this Lease will not breach substantially any provision, such as
radius, location, use, or exclusivity provision, in any agreement relating to
the above described Premises.
Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in connection
with a bankruptcy, liquidation, reorganization or insolvency action or an
assignment of Tenant for the benefit of creditors or other similar act. Nothing
contained in this Lease shall be construed as giving or granting or creating an
equity in the demised Premises to Tenant. In no event shall the leasehold estate
under this Lease, or any interest therein, be assigned by Tenant under any
bankruptcy, insolvency or reorganization proceedings.
The failure to perform or honor any covenant, condition or
representation made under this Lease shall constitute a default hereunder by
Tenant upon expiration of the appropriate grace period hereinafter provided.
Tenant shall have a period of five (5) days from the date of written notice from
Landlord within which to cure any default in the payment of rental or adjustment
thereto. Tenant shall have a period of thirty (30) days from the date of written
notice from Landlord within which to cure any other default under this Lease [].
Upon an uncured default of this Lease by Tenant Landlord shall have the
following rights and remedies in addition to any other rights or remedies
available to Landlord at law or in equity.
<PAGE> 11
(a) The rights and remedies provided for by California Civil Code
Section 1951.2, including but not limited to, recovery of the worth at the time
of award of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of rental loss for the same period
that Tenant proves could be reasonably avoided, as computed pursuant to
subsection (b) of said Section 1951.2. Any proof by Tenant under subparagraphs
(2) and (3) of Section 1951.2 of the California Civil Code of the amount of
rental loss that could be reasonable avoided shall be made in the following
manner: Landlord and Tenant shall each select a licensed real estate broker in
the business of renting property of the same type and use as the Premises and in
the same geographic vicinity. Such two real estate brokers shall select a third
licensed real estate broker, and the three licensed real estate brokers so
selected shall determine the amount of the rental loss that could be reasonably
avoided from the balance of the term of this Lease after the time of award. The
decision of the majority of said licensed real estate brokers shall be final and
binding upon the parties hereto.
(b) The rights and remedies provided by California Civil Code Section
which allows Landlord to continue the Lease in effect and to enforce all of its
rights and remedies under this Lease, including the right to recover rent as it
becomes due, for so long as Landlord does not terminate Tenant's right to
possession; acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver upon Landlord's initiative to protect its
interest under this Lease shall not constitute a termination of Tenant's right
to possession.
(c) The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.
(d) [] The right and power to enter the Premises and remove therefrom
all persons and property, to store such property in a public warehouse or
elsewhere at the cost of and for the account of Tenant, and to sell such
property and apply such proceeds therefrom pursuant to applicable California
law. Landlord may from time to time sublet the Premises or any part thereof for
such term or terms (which may extend beyond the term of this Lease) and at such
rent and such other terms as Landlord in its sole discretion may deem advisable,
with the right to make alterations and repairs to the Premises. Upon each
subletting, (i) Tenant shall be immediately liable to pay Landlord, in addition
to indebtedness other than rent due hereunder, the cost of such subletting,
including, but not limited to, reasonable attorneys' fees, and any real estate
commission actually paid, and the cost of such alterations and repairs incurred
by Landlord and the amount, if any, by which the rent hereunder for the period
of such subletting (to the extent such period does not exceed the term hereof)
exceeds the amount to be paid as rent for the Premises for such period or (ii)
at the option of Landlord, rents received from such subletting shall be applied
first to payment of indebtedness other than rent due hereunder from Tenant to
Landlord; second, to the payment of any cost of such subletting and of such
alterations and repairs; third to payment of rent due and unpaid hereunder; and
the residue, if any, shall be held by Landlord and applied in payment of future
rent as the same becomes due hereunder. If Tenant has been credited with any
rent to be received by such subletting under option (i) and such rent shall not
be promptly paid to Landlord by the subtenant(s), or is such rentals received
from such subletting under option (ii) during any month be less than that to be
paid during that month by Tenant hereunder. Tenant shall pay any such deficiency
to Landlord. Such deficiency shall be calculated and paid monthly, provided,
however, that if the nature of Tenant's failure is such that more than thirty
(30) days is reasonably required to cure the same, Tenant shall not be in
default so long as Tenant commences performance within such thirty (30) day
period and thereafter prosecutes the same to completion. No taking possession of
the Premises by Landlord shall be construed as an election on its part to
terminate this Lease unless a written notice of such intention to Tenant.
Notwithstanding any such subletting without termination, Landlord may at any
time hereafter elect to terminate this Lease for such previous breach.
(e) The right to have a receiver appointed for Tenant upon application
by Landlord, to take possession of the Premises and to apply any rental
collected from the Premises and to exercise all other rights and remedies
granted to Landlord pursuant to subparagraph d above (except that Tenant may
vacate so long as it pays rent, provides and on-site security guard during
normal business hours from Monday through Friday, and otherwise performs its
obligations hereunder.
23. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease and if Tenant shall abandon, vacate or surrender
said Premises, or be dispossessed by the process of law, or otherwise, any
personal property belonging to Tenant and left on the Premiss shall be deemed to
be abandoned, at the option of Landlord, except such property as may be
mortgaged to Landlord.
<PAGE> 12
24. DESTRUCTION In the event the Premises are destroyed in whole or in part from
any cause, except for routine maintenance and repairs and incidental damage and
destruction caused from vandalism and accidents for which Tenant is responsible
for under Paragraph 10. Landlord, may at its option:
(a) Rebuild or restore the Premises to their condition prior to the
damage or destruction, or
(b) Terminate this Lease. (providing that the Premises is damaged to the
extent of 33 1/3% of the replacement cost).
If Landlord does not give Tenant notice in writing within thirty (30) days from
the destruction of the Premises of its election to either rebuild or restore the
Premises to their condition prior to the damage or destruction. Tenant shall be
entitled to a reduction in rent while such repair is being made in the
proportion that the area of the Premises rendered untenable by such damage bears
to the total area of the Premises. [...that the rebuilding or restoration will
exceed days or] If Landlord does not complete the rebuilding or restoration
within one hundred eighty (180) days following the date of destruction (such
period of time to be extended for delays caused by the fault or neglect of
Tenant or because of Acts of God, acts of public agencies, labor disputes,
strikes, fires, freight embargoes, rainy or stormy weather, inability to obtain
materials, supplies or fuels, acts of contractors or subcontractors, or delay of
the contractors or subcontractors due to such causes or other contingencies
beyond the control of Landlord), then Tenant shall have the right to terminate
this Lease by giving fifteen (15) days prior written notice to Landlord.
Notwithstanding anything herein to the contrary, Landlord's obligation to
rebuild or restore shall be limited to the building and interior improvements
constructed by Landlord as they existed as of the commencement date of the Lease
and shall not include restoration of Tenant's trade fixtures, equipment,
merchandise, or any improvements, alterations or additions made by Tenant to the
Premises, which Tenant shall forthwith replace or fully repair at Tenant's sole
cost and expense provided this Lease is not cancelled according to the
provisions above.
Unless this Lease is terminated pursuant to the foregoing provisions,
this Lease shall remain in full force and effect. Tenant hereby expressly waives
the provisions of Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of
the California Civil Code.
In the event that the building in which the Premises are situated is
damaged or destroyed to the extent of not less than 33 1/3% of the replacement
cost thereof. Landlord may elect to terminate this Lease, whether the Premises
be injured or not.
25. EMINENT DOMAIN If all or any part of the Premises shall be taken by any
public authority under the power of eminent domain or conveyance in lieu
thereof, this Lease shall terminate as to any portion of the Premises so taken
or conveyed on the date when title vests in the condemnor, and Landlord shall be
entitled to any and all payment, income, rent, award, or any interest therein
whatsoever which may be paid or made in connection with such taking or
conveyance, and Tenant shall have no claim against Landlord or otherwise for the
value of any unexpired term of this Lease. Notwithstanding the foregoing
paragraph, any compensation specifically awarded Tenant for loss of business.
Tenant's personal property, moving cost or loss of goodwill, shall be and remain
the property of Tenant.
If (i) any action or proceeding is commenced for such taking of the Premises or
any part thereof, or if Landlord is advised in writing by any entity or body
having the right or power of condemnation of its intention to condemn the
premises or any portion thereof, or (ii) any of the foregoing events occur with
respect to the taking of any space in the Complex not leased hereby, or if any
such spaces so taken or conveyed in lieu of such taking and Landlord shall
decide to discontinue the use and operation of the Complex, or decide to
demolish, alter or rebuild the Complex, then, in any of such events Landlord
shall have the right to terminate this Lease by giving Tenant written notice
thereof within sixty (60) days of the date of receipt of said written advice, or
commencement of said action or proceeding, or taking conveyance, which
termination shall take place as the first to occur of the last day of the
calendar month next following the month in which such notice is given or the
date on which title to the Premises shall vest in the condemner.
In the event of such a partial taking or conveyance of the Premises, if
the portion of the Premises taken or conveyed is so substantial that the Tenant
can no longer reasonably conduct its business, Tenant shall have the privilege
of terminating this Lease within sixty (60) days from the date of such taking or
conveyance, upon written notice to Landlord of its intention so to do, and upon
giving of such notices this Lease shall terminate on the last day of the
calendar month next following the month in which such notice is given, upon
payment by Tenant of the
<PAGE> 13
rent from the date of such taking or conveyance to the date of termination.
If a portion of the Premises to be taken by condemnation or conveyance
in lieu thereof and neither Landlord nor Tenant shall terminate this Lease as
provided herein, this Lease shall continue in full force and effect as to the
part of the Premises not so taken or conveyed, and the rent herein shall be
apportioned as of the date of such taking or conveyance so that thereafter the
rent to be paid by Tenant shall be in the ratio that the area of the portion of
the Premises not so taken or conveyed bears to the total area of the Premises
prior to such taking.
26. SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of the
Complex or any interest therein, by any owner of the reversion then
constituting, the transferor shall thereby be released from any further
liability upon any of the terms, covenants or conditions (express or implied)
contained in favor of Tenant, and in such event, insofar as such transfer is
concerned, Tenant agrees to look solely to the responsibility of the successor
in interest of such transferor in and to the Complex and this Lease. This Lease
shall not be affected by any such sale or conveyance, and Tenant agrees to
attorn to the successor in interest of such transferor.
27. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord in
the land and buildings in which the leased Premises are located whether such
interest of Landlord is a fee title interest or a leasehold interest is
encumbered by deed of trust, and such interest is acquired by the lender or any
third party through judicial foreclosure or by exercise of a power of sale at
private trustee's foreclosure sale. Tenant hereby agrees to attorn to the
purchaser at any such foreclosure sale and to recognize such purchaser as the
Landlord under this Lease. In the event the lien of the deed of trust securing
the loan from a Lender to Landlord is prior and paramount [ ] the Lease, this
Lease shall nonetheless continue in full force and effect for the remainder of
the unexpired term hereof, at the same rental herein reserved and upon all the
other terms, conditions and covenants herein contained.
28. HOLDING OVER Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the leased Premises except as expressly provided
in this Lease. Any holding over after the expiration or other termination of the
term of this Lease, with the consent of Landlord, shall be construed to be a
tenancy from month to month, on the same terms and conditions herein specified
insofar as applicable except that the month Basic Rent shall be increased to an
amount equal to one hundred fifty (150%) percent of monthly Basic Rent required
during the last month of the Lease term.
29. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten (10)
days' prior written notice to Landlord execute, acknowledge and deliver to
Landlord a statement in writing (i) certifying that this Lease is unmodified and
in full force and effect (or, if modified, stating the nature of such
modification and certifying this Lease, as so modified, is in full force and
effect) and the date to which the rent, and other charges are paid in advance,
if any, and (ii) acknowledging that there are to Tenant's knowledge, any uncured
defaults on the part of the Landlord hereunder, or specifying such defaults, if
any, are claimed. Any such statement may be exclusively relied upon by any
prospective purchaser or encumbrancer of the Premises. Tenant's failure to
deliver such statement within such time shall be conclusive upon Tenant that
this Lease is in full force and effect, without modification except as may be
represented by Landlord; that there are no uncured defaults in Landlord's
performance, and that not more than one month's rent has been paid in advance.
30. CONSTRUCTION CHANGES It is understood that the description of the Premises
and the location of ductwork, plumbing and other facilities therein are subject
to [] minor changes as Landlord or Landlord's architect determines to be
desirable in the course of construction of the Premises, and no such changes, or
any changes in [] for any other portions of the Complex shall affect this Lease
or entitle Tenant to any reduction of rent hereunder or result in any liability
of Landlord to Tenant. Landlord does not guarantee the accuracy of any drawings
supplied to Tenant and verification of the accuracy of such drawings rests with
Tenant.
31. RIGHT OF LANDLORD TO PERFORM All terms, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed []
Tenant at Tenant's sole cost and expense and without any reduction of rent. If
Tenant shall fail to pay any sum of money, or other rent, required to be paid by
it hereunder [] fail to perform any other term or covenant hereunder on its part
to be performed, and such failure shall continue
<PAGE> 14
for five (5) days after written notice thereof by Landlord, Landlord, without
waiving or releasing Tenant from any obligation of Tenant hereunder, may, but
shall not be obligated to, make any such payment or perform any such other term
or covenant on Tenant's part to be performed. All sums so paid by Landlord and
all necessary costs of such performance by Landlord together with interest
thereon at the rate of the prime rate of interest per annum as quoted by the
Bank of America from the date such payment or performance by Landlord, shall be
paid (and Tenant covenants to make such payment) to Landlord on demand by
Landlord, and Landlord shall have (in addition to any other right or remedy of
Landlord) the same rights and remedies in the event of nonpayment by Tenant as
in the case of failure by Tenant in the payment of rent hereunder
32. ATTORNEYS' FEES
A. In the event that either Landlord or Tenant should bring suit for the
possession of the Premises, for the recovery of any sum due under this Lease, or
because of the breach of any provision of this Lease, or for any other relief
against the other party hereunder, then all costs and expenses, including
reasonable attorneys' fees, incurred by the prevailing party therein shall be
paid by the other party, which obligations on the part of the other party shall
be deemed to have accrued on the date of the commencement of such action and
shall be enforceable whether or not the action is prosecuted to judgement.
B. Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant
shall pay to Landlord its costs and expenses incurred in such suit, including a
reasonable attorneys' fee.
33. WAIVER The waiver by either party of the other party's failure to perform or
observe any term, covenant or condition herein contained to be performed or
observed by such waiving party shall not be deemed to be a waiver of such term,
covenant or condition or of any subsequent failure of the party failing to
perform or observe the same or any other such term, covenant or condition
therein contained, and no custom or practice which may develop between the
parties hereto during the term hereto during the term hereof shall be deemed a
waiver of, or in any way affect, the right of either party to insist upon
performance and observance by the other party in strict accordance with the
terms hereof.
34. NOTICES All notices, demands, requests, advices or designations which may be
or are required to be given by either party to the other hereunder shall be in
writing. All notices, demands, requests, advices or designations by Landlord to
Tenant shall be sufficiently given, made or delivered if personally served on
Tenant by leaving the same at the Premises or if sent by United States certified
or registered mail, postage prepaid, addressed to Tenant at the Premises. All
notices, demands, requests, advices, or designations by Tenant to Landlord shall
be sent by United States certified or registered mail, postage prepaid,
addressed to Landlord at its offices at Peery/Arrillaga, 2560 Mission College
Blvd., Suite 101, Santa Clara, CA 95054. Each notice, request, demand, advice or
designation referred to in this paragraph shall be deemed received on the date
of the personal service or mailing thereof in the manner herein provided, as the
case may be.
35. EXAMINATION OF LEASE Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise until its execution
and delivery by both Landlord and Tenant.
36. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord fails
to perform obligations required of Landlord within a reasonable time, but in no
event earlier than thirty (30) days after written notice by Tenant to Landlord
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have heretofore been furnished to Tenant in
writing, specifying wherein Landlord has failed to perform such obligations,
provided, however, that if the nature of Landlord's obligations is such that
more than thirty (30) days are required for performance, then Landlord shall not
be in default if Landlord commences performance within such thirty (30) day
period and thereafter diligently prosecutes the same to completion.
37. CORPORATE AUTHORITY If Tenant is a corporation, (or a partnership) each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he is duly authorized to execute and
<PAGE> 15
deliver this Lease on behalf of said corporation (or partnership) in accordance
with the by-laws of said corporation (or partnership in accordance with the
partnership agreement) and that this lease is binding upon said corporation (or
partnership) in accordance with its terms. If Tenant is a corporation, Tenant
shall, within thirty (30) days after execution of this Lease, deliver to
Landlord a certified copy of the resolution of the Board of Directors of said
corporation authorizing or ratifying the execution of this Lease.
[Section 38 BASIC RENT ADJUSTMENT deleted]
39. LIMITATION OF LIABILITY In consideration of the benefits accruing hereunder,
Tenant and all successors and assigns covenant and agreed that, in the even of
any actual or alleged failure, breach or default hereunder by Landlord:
(i) the sole and exclusive remedy shall be against Landlord and
Landlord's assets;
(ii) no partner of Landlord shall be sued or named as a party in any
suit or action; (except as may be necessary to secure jurisdiction of the
partnership);
(iii) no service of process shall be made against any partner of
Landlord (except as may be necessary to secure jurisdiction of the partnership);
(iv) no partner of Landlord shall be required to answer or otherwise
please to any service of process;
(v) no judgement will be taken against any partner of Landlord;
(vi) any judgment taken against any partner of Landlord may be vacated
and set aside at any time without hearing;
(vii) no writ of execution will ever be levied against the assets of any
partner of Landlord;
(viii) these covenants and agreements are enforceable both by Landlord
and also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements shall be
applicable to any covenant or agreement either expressly contained in this Lease
or imposed by statute or common law.
40. MISCELLANEOUS AND GENERAL PROVISIONS
a. Tenant shall not, without the written consent of Landlord, use the
name of the building for any purpose other than as the address of the business
conducted by Tenant in the Premises.
b. This Lease shall in all respects be governed by and construed in
accordance with the laws of the State of California. If any provision of this
Lease shall be invalid, unenforceable or ineffective for any reason whatsoever,
all other provisions hereof shall be and remain in full force and effect.
c. The term "Premises" includes the space leased hereby and any
improvements now or hereafter installed therein or attached thereto. The term
"Landlord" or any pronoun used in place thereof includes the plural as well as
the singular and the successors and assigns of Landlord. The term "Tenant" or
any pronoun used in place thereof includes the plural as well as the singular
and individuals, firms, associations, partnerships and corporations, and their
and each of their respective heirs, executors, administrators, successors and
permitted assigns.
The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used in
any gender include other genders. If there be more than one Tenant the
obligations of Tenant hereunder are joint and several. The paragraph headings of
this Lease are for convenience of reference only and shall have no effect upon
the construction or interpretation of any provision hereof.
d. Time is of the essence of this Lease and of each and all of its
provisions.
e. At the expiration or earlier termination of this Lease, Tenant shall
execute, acknowledge and deliver to Landlord, within ten (10) days after written
demand from Landlord to Tenant, any quitclaim deed or other document required by
any reputable title company, license to operate in the State of California, to
remove the cloud or encumbrance created by this Lease from the real property at
which Tenant's Premises are a part.
f. This instrument along with any exhibits and attachments hereto
constitutes the entire agreement
<PAGE> 16
between Landlord and Tenant relative to the Premises and this agreement and the
exhibits and attachments may be altered amended or revoked only by an instrument
in writing signed by both Landlord and Tenant. Landlord and Tenant agree hereby
that all prior or contemporaneous oral agreements between and among themselves
and their agents or representatives relative to the leasing of the Premises are
merged in or revoked by this agreement.
g. Neither Landlord nor Tenant shall record this Lease or a short form
memorandum hereof without the written consent of the other.
h. Tenant further agrees to execute any amendments, required by a lender
to enable Landlord to obtain financing, so long as Tenant's rights hereunder are
not substantially affected.
i. Paragraphs 43 through 53 are added hereto and are included as a part
of this lease.
j. Clauses, plats and riders, if any, signed by Landlord and Tenant and
endorsed on or affixed to this Lease are a part hereof.
k. Tenant covenants and agrees that no diminution or shutting off of
light, air or view by any structure which may be hereafter erected (whether or
not by Landlord) shall in any way affect this Lease, entitle Tenant to any
reduction of rent hereunder or result in any liability of Landlord to Tenant.
41. BROKERS Tenant warrants that it had dealings with only the following real
estate brokers or agents in connection with the negotiation of this Lease: none
and that it knows of no other real estate broker or agent who is entitled to a
commission in connection with this Lease.
42. SIGNS No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or [painted] or affixed on or to any part of the outside of
the Premises or any exterior windows of the Premises without the written consent
of Landlord first had and obtained and Landlord shall have the right to remove
any such sign, placard, picture, advertisement, name or notice without notice to
and at the expense of Tenant. If Tenant is allowed to print or affix or in any
way place a sign in, on, or about the Premises, upon expiration or other sooner
termination of this Lease, Tenant at Tenant's sole cost and expense shall both
remove such sign and repair all damage in such a manner as to restore all
aspects of the appearance of the Premises to the condition prior to the
placement of said sign.
All approved signs or lettering on outside doors shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person approved of
by Landlord. Tenant shall not place anything or allow anything to be placed near
the glass of any window, door partition or wall which may appear unsightly from
outside the Premises.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year last written below.
LANDLORD: TENANT:
ARRILLAGA FAMILY TRUST COM21, INC.
a Delaware corporation
By: /s/ John Arrillaga By: /s/ David L. Robertson
------------------------------- -------------------------------
John Arrillaga, Trustee
Dated: 5/22/96 Title: Vice President of Finance
----------------------------- -----------------------------
RICHARD T. PEERY
SEPARATE PROPERTY TRUST Print or Type Name /s/ David L. Robertson
-------------------------
By: /s/ Richard T. Peery 5/23/96 Dated: May 20, 1996
------------------------------ -------------------------------
<PAGE> 17
Richard T. Peery, Trustee
<PAGE> 18
Paragraphs 43 to 53 to Lease Agreement Dated May 10, 1996. By and Between the
Arrillga Family Trust and the Richard T. Peery Separate Property Trust, as
Landlord, and Com21, Inc., a Delaware corporation, as Tenant for 44,624+/-
Square Feet of Space Located at 750 Tasman Drive, Milpitas, California.
43. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate sum
of SIX MILLION THREE HUNDRED SEVENTY SEVEN THOUSAND FORTY FOUR AND 80/100
DOLLARS ($6,377,044.80), shall be payable as follows:
On August 1, 1996, the sum of FORTY SEVEN THOUSAND TWO HUNDRED FIFTY AND
NO/100 DOLLARS ($47,250.00) shall be due, and a like sum due on the first day of
each month thereafter, through and including July 1, 1997.
On August 1, 1997, the sum of SIXTY TWO THOUSAND FOUR HUNDRED SEVENTY
THREE AND 60/100 DOLLARS ($62,473.60) shall be due, and a like sum due on the
first day of each month thereafter, through and including July 1, 1999.
On August 1, 1999, the sum of SIXTY SIX THOUSAND NINE HUNDRED THIRTY SIX
AND NO/100 DOLLARS ($66,936.00) shall be due and a like sum due on the first day
of each month thereafter, through and including July 1, 2002.
On August 1, 2001, the sum of SEVENTY ONE THOUSAND THREE HUNDRED NINETY
EIGHT AND 40/100 DOLLARS ($71, 398.40) shall be due, and a like sum due on the
first day of each month thereafter, through and including July 1, 2002.
On August 1, 2002, the sum of SEVENTY THREE THOUSAND SIX HUNDRED TWENTY
NINE AND 60/100 DOLLARS ($73,629.60) shall be due, and a like sum due on the
first day of each month thereafter, through and including July 1, 2003.
On August 1, 2003, the sum of SEVENTY FIVE THOUSAND EIGHT HUNDRED SIXTY
AND 80/100 DOLLARS ($75,860.80) shall be due, and a like sum due on the first
day of each month thereafter, through and including July 1, 2004; or until the
entire aggregate sum of SIX MILLION THREE HUNDRED SEVENTY SEVEN THOUSAND FORTH
FOUR AND 80/100 DOLLARS ($6,377,044.80) has been paid.
44. EARLY ENTRY: Tenant and its agents and contractors shall be permitted to
enter the Premises prior to the Commencement Date for the purpose of installing
at Tenant's sole cost and expense, Tenant's trade fixtures and equipment,
telephone equipment, security systems and cabling for computers. Such entry
shall be subject to all of the terms and conditions of this Lease, except that
Tenant shall not be required to pay any Rent on account thereof. Any entry or
installation work by Tenant and its agents in the Premises pursuant to this
Paragraph 44 shall (i) be undertaken at Tenant's sole risk, (ii) not interfere
with or delay Landlord's work in the Premises (if any), and (iii) not be deemed
occupancy or possession of the Premises for purposes of the Lease. Tenant shall
indemnify, defend, and hold Landlord harmless from any and all loss, damage,
liability, expense (including reasonable attorney's fees), claim or demand of
whatsoever character, direct or consequential, including, but not limited
thereby the generality of the
<PAGE> 19
foregoing; injury to or death of persons and damage to or loss of property
arising out of the exercise by Tenant of any early entry right granted
hereunder. In the event Tenant's work in said Premises delays the completion of
the interior improvements to be provided by Landlord, if any, or in the event
Tenant has not completed construction of it's interior improvements by the
scheduled Commencement Date, it is agreed between the parties that this Lease
will commence on the schedule Commencement Date of August 1, 1996 regardless of
the construction status of said interior improvements completed or to be
completed by Tenant or Landlord. It is the intent of the parties hereto that the
commencement of Tenant's obligation to pay Rent under the Lease not be delayed
by any of such causes or by any other act of Tenant (except as expressly
provided herein) and, in the event it is so delayed. Tenant's obligation to pay
Rent under the Lease shall commence as of the date it would otherwise have
commenced absent delay caused by Tenant.
45. EARLY OCCUPANCY: In the event the Premises leased hereunder become available
for Tenant's use and occupancy prior to the scheduled Commencement Date hereof,
Tenant shall have the right to occupy the Premises as of the date Landlord so
completes said Premises for Tenant's use and occupancy. This Lease shall
commence and Tenant shall pay to Landlord, effective as of the date Premises are
delivered to Tenant, all Additional Rent expenses which are Tenant's
responsibility hereunder (however, Tenant shall not be responsible for paying
Base Rent during the early occupancy period), and Tenant shall be obligated to
perform, and be bound by, each and every term, covenant, and condition of this
Lease. In the event Tenant occupies the Premises prior to August 1, 1996, the
Term of this Lease will be extended to include the early occupancy period (i.e.
If Tenant occupies said space on July 1, 1996, the Lease Term will be extended
for one (1) month from an eight (8) year Term to an eight (8) year one (1) month
Term).
46. "As-IS BASIS: Subject only Paragraphs 52 ("Maintenance of the Premises") and
53 ("Punch List"), and to Landlord making the improvements shown on Exhibit B to
be attached hereto, it is hereby agreed that the Premises leased hereunder is
leased strictly on an "as-is" basis and in its present condition, and in the
configuration as shown on Exhibit B to be attached hereto, and by reference made
a part hereof. Except as specified in Paragraphs 52 ("Maintenance of the
Premises") and 53 ("Punch List"), it is specifically agreed between the parties
that after Landlord makes the interior improvements as shown on Exhibit B,
Landlord shall not be required to make, nor be responsible for any cost, in
connection with any repair, restoration, and/or improvement to the Premises in
order for this Lease to commence, or thereafter, throughout the Term of this
Lease. Landlord makes no warranty or representation of any kind or nature
whatsoever as to the condition or repair of the Premises, nor as to the use or
occupancy which may be made thereof.
47. CONSENT: Whenever the consent of one party to the other is required
hereunder, such consent shall not be unreasonably withheld.
48. CHOICE OF LAW; SEVERABILITY: This Lease shall in all respects be governed by
and construed in accordance with the laws of the State of California. If any
provisions of this Lease shall be invalid, unenforceable, or ineffective for any
reason whatsoever, all other provisions hereof shall be and remain in full force
and effect.
49. ASSESSMENT CREDITS: The demised property herein is subject to a special
<PAGE> 20
assessment levied by the City of Milpitas in Improvement District No. 9. As part
of said special assessment proceedings, additional bonds were sold and
assessments levied to provide for construction contingencies and reserve funds.
Interest will be earned on such funds created for contingencies and on reserve
funds which will be credited for the benefit of said assessment district. To the
extent surpluses are created in said district through unused contingency funds,
interest earnings or reserve funds, such surpluses shall be deemed the property
of Landlord. Notwithstanding that such surpluses may be credited on assessments
otherwise due against the demised premises. Tenant shall pay to Landlord, as
additional rent, if and at the time of any such credit of surpluses, an amount
equal to all such surpluses so credited.
50. ASSIGNMENT AND SUBLETTING (CONTINUED): Any and all sublease agreement(s)
between Tenant and any and all subtenant(s) (which agreements must be consented
to by Landlord, pursuant to the requirements of this Lease) shall contain the
following language:
If Landlord and Tenant jointly and voluntarily elect, for any reason
whatsoever, to terminate the Master Lease prior to the scheduled Master Lease
termination date, then this Sublease (if then still in effect) shall terminate
concurrently with the termination of the Master Lease. Subtenant expressly
acknowledges and agrees that (1) the voluntary termination of the master Lease
by Landlord and Tenant and the resulting termination of this Sublease shall not
give Subtenant any right or power to make any legal or equitable claim against
Landlord or Tenant, including without limitation any claim for interference with
contract or interference with prospective economic advantage, and (2) Subtenant
hereby waives any and all rights it may have under law or at equity to challenge
such an early termination of the Sublease, and unconditionally releases and
relieves Landlord and Tenant, and their officers, directors, employees and
agents, from any and all claims, demands, and/or causes of action whatsoever
(collectively, "Claims"), whether such matters are known or unknown, latent or
apparent, suspected or unsuspected, foreseeable or unforeseeable, which
Subtenant may have arising out of or in connection with any such early
termination of this Sublease. Subtenant knowingly and intentionally waives any
and all protection which is or may be given by Section 1542 of the California
Civil Code which provides as follows: "A general release does not extend to
claims which the creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have materially
affected his settlement with debtor."
The term of this Sublease is therefore subject to early termination.
Subtenant's initials here below evidence (a) Subtenant's consideration of an
agreement to this early termination provision, (b) Subtenant's acknowledgement
that, in determining the net benefits to be derived by Subtenant under the terms
of this Sublease, Subtenant has anticipated the potential for early termination,
and (c) Subtenant's agreement to the general waiver and release of Claims above.
Initials:______________ Initials:____________
Subtenant Tenant
51. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to
the existence or use of "Hazardous Materials" (as defined herein) on, in, under
or about the Premises and real property located beneath said Premises
(hereinafter collectively referred to as the
<PAGE> 21
"Property") and the Complex.
As used herein, the term "Hazardous Materials" shall mean any hazardous or toxic
substance, material or waste which is or becomes subject to or regulated by any
local governmental authority, the Sate of California, or the United States
Government. The term "Hazardous Materials" includes, without limitation any
material or hazardous substance which is (i) listed under Article 9 or defined
as "hazardous" or "extremely hazardous" pursuant to Article 11 of Title 22 of
the California Administrative Code, Division 4, Chapter 30, (ii) listed or
defined as a "hazardous waste" pursuant to the Federal Resource Conservation and
Recovery Act, Section 42 U.S.C. Section 6901 et. seq., (iii) listed or defined
as a "hazardous substance" pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et. seq. (42 U.S.C.
Section 9601), (iv) petroleum or any derivative of petroleum, or (v) asbestos.
Subject to the terms of this Paragraph 51, Tenant shall have no obligation to
"clean up", reimburse, release, indemnify, or defend Landlord with respect to
any Hazardous Materials or wastes which Tenant (prior to and during the Term of
the Lease) did not store, dispose, or transport in, use, or cause to be on the
Property or which Tenant, its agents, employees, contractors, vendors, invitees,
visitors or its future subtenants and/or assignees (if any) (during the Term of
this Lease), did not store, dispose, or transport in, use or cause to be on the
Complex in violation of applicable law.
Tenant shall be 100 percent liable and responsible for: (i) any and all
"investigation and cleanup" of said Hazardous Materials contamination which
Tenant, its agents, employees, contractors, vendors, invitees, visitors or its
future subtenants and/or assignees (if any), or other parties on the Property,
does store, dispose, or transport in, use or cause to be on the Property, and
which Tenant, its agents, employees, contractors, vendors, invitees, visitors or
its future subtenants and/or assignees (if any) does store, dispose, or
transport in, use or cause to be on the Complex and (ii) any claims, including
third party claims, resulting from such Hazardous Materials contamination.
Tenant shall indemnify Landlord and hold Landlord harmless from any liabilities,
demands, costs, expenses and damages, including, without limitation, attorney
fees incurred as a result of any claims resulting from such Hazardous Materials
contamination.
Tenant also agrees not to use or dispose of any Hazardous Materials on the
Property or the Complex without first obtaining Landlord's written consent.
Tenant agrees to complete compliance with governmental regulations regarding the
use or removal or remediation of Hazardous Materials used, stored, disposed of,
transported or cause to be on the Property or the Complex as stated above, and
prior to the termination of said Lease Tenant agrees to follow the proper
closure procedures and will obtain a clearance from the local fire department
and/or the appropriate governing agency. If Tenant uses Hazardous Materials,
Tenant also agrees to install, at Tenant's expense, such Hazardous Materials
monitoring devices as Landlord deems reasonably necessary. It is agreed that the
Tenant's responsibilities related to Hazardous Materials will survive the
termination date of the Lease and that Landlord may obtain specific performance
of Tenant's responsibilities under this Paragraph 51.
52. MAINTENANCE OF THE PREMISES: In addition to, and notwithstanding anything to
<PAGE> 22
the contrary in Paragraph 10, Landlord shall repair damage to the structural
shelf, foundation, and roof structure (but not the interior improvements, roof
membrane, or glazing) of the building leased hereunder at Landlord's cost and
expense provided Tenant has not caused such damage, in which event Tenant shall
be responsible for 100 percent of any such costs for repair or damage so caused
by the Tenant. Notwithstanding the foregoing, a crack in the foundation, or
exterior walls that does not endanger the structural integrity of the building,
or which is not life- threatening, shall not be considered material, nor shall
Landlord be responsible for repair of same.
53. PUNCH LIST: In addition to and notwithstanding anything to the contrary in
Paragraphs 8 ("Acceptance and Surrender of Premises") and 46 (As-Is Basis") of
this Lease, Tenant shall have thirty (30) days after the Commencement Date to
provide Landlord with a written "punch list" pertaining to defects in the
Building, the roof membrane, the HVAC system, and in the interior improvements
constructed by Landlord for Tenant. As soon as reasonably possible thereafter,
Landlord, or one of Landlord's representatives (if so approved by Landlord), and
Tenant shall conduct a joint walk-through of the Premises (if Landlord so
requires), and inspect such Tenant Improvements, using their best efforts to
agree on the incomplete or defective construction related to the Tenant
Improvements installed by Landlord. After such inspection as been completed,
Landlord shall prepare, and both parties shall sign, a list of all "punch list"
items which the parties reasonably agree are to be corrected by Landlord (but
which shall exclude any damage or defects caused by Tenant, its employees,
agents or parties Tenant has contracted with to work on the Premises). Landlord
shall have thirty (30) days thereafter (or longer if necessary, provided
Landlord is diligently pursuing the completion of the same) to complete, at
Landlord's expense, the "punch list" items without the Commencement Date of the
Lease and Tenant's obligation to pay Rental thereunder being affected.
Notwithstanding the foregoing, a crack in the foundation, or exterior walls that
does not endanger the structural integrity of the building, or which is not
life-threatening, shall not be considered material, nor shall Landlord be
responsible for repair of same. This Paragraph shall be of no force and effect
if Tenant shall fail to give any such notice to Landlord within thirty (30) days
after the Commencement Date of this Lease.
<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,
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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,
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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 [ * ] 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.
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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 [*] 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) [*] 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 [*]
(b) As of the Effective Date, 3Com currently does not intend to
enter the market for Headend Controller Units [*]. 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.
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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 [*] Com21
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, [*] days of the
Effective Date, 3Com shall pay to Com21 [*].
*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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(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)
[*] 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 [*]
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 [*] 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 [*]. If, after [*] but on or before [*], 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 [*]. If said
Com21 Mongoose Product meeting said criteria is not delivered by Com21 until [*]
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 [*]
(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.
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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 [*] 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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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
12
<PAGE> 13
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
15
<PAGE> 16
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
16
<PAGE> 17
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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<PAGE> 20
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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<PAGE> 21
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: Date:
----------------------------- -----------------------------
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
21
<PAGE> 22
EXHIBIT A
COM21TECHNOLOGY
[to be prepared and delivered consistent with Section 5.2]
22
<PAGE> 23
EXHIBIT B
SPECIFICATIONS
[to be attached at the time of execution]
23
<PAGE> 24
EXHIBIT C
COM21 MONGOOSE PRODUCT SPECIFICATION
[Product Specification to be attached at the time of execution]
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<PAGE> 25
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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<PAGE> 27
- 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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<PAGE> 28
EXHIBIT E
DESIGN PACKAGE
[description of materials to be delivered consistent with Section 5.2]
28
<PAGE> 29
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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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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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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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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<PAGE> 6
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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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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(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.
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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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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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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 [*] 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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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 [*]
31 to 60 days [*]
61 to 90 days [*]
</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 [*]
31 to 60 days [*]
61 to 90 days [*]
</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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<PAGE> 17
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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<PAGE> 18
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) [*] 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
- ------------------------------- -------------------------------
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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<PAGE> 39
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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<PAGE> 40
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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<PAGE> 41
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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<PAGE> 42
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 [*] 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
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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
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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.
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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:
----------------------------
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SCHEDULE 1
FEE SCHEDULE
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<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) $[*]
2. Custom Escrow Agreements
Priced by Proposal
3. Annual Storage Fee
Standard Storage Unit 10" X 10" X 24" $[*]
(Larger Units Available)
(Total start-up and first year's fees = [*]
4. Account Administration/Maintenance
Clerical (One hour minimum per year) $[*]
Officer Level (As required) $[*]
Termination Fee (Minimum) $[*]
Shipping additional
5. Registration of Additional Licensees To
Multiple Licensee Escrow
First Licensee [*]
Additional Licensees - Initial Registration $[*]
Annual Fee Per Licensee Thereafter $[*]
6. Outside Costs
Cost Plus [*], 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.
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<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.
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<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.
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<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.
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<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 [*] 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
[*] 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 [*] 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 [*] 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 10.5
COM21, INC.
1995 STOCK OPTION PLAN
(RESTATED AND AMENDED THROUGH JANUARY 15, 1998)
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1995 Stock Option Plan is intended to promote the
interests of Com21, Inc., a Delaware corporation, by providing eligible persons
with the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
remain in the service of the Corporation.
Capitalized terms herein shall have the meanings assigned to
such terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board.
However, any or all administrative functions otherwise exercisable by the Board
may be delegated to the Committee. Members of the Committee shall serve for
such period of time as the Board may determine and shall be subject to removal
by the Board at any time. The Board may also at any time terminate the
functions of the Committee and reassume all powers and authority previously
delegated to the Committee.
B. The Plan Administrator shall have full power and
authority (subject to the provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for proper administration of the Plan
and to make such determinations under, and issue such interpretations of, the
Plan and any outstanding options as it may deem necessary or advisable.
Decisions of the Plan Administrator shall be final and binding on all parties
who have an interest in the Plan or any option or shares issued thereunder.
III. ELIGIBILITY
A. The persons eligible to receive option grants under
the Plan are as follows:
(i) Employees,
(ii) non-employee members of the Board or
the non-employee members of the board of directors of any Parent or
Subsidiary, and
<PAGE> 2
(iii) consultants who provide services to
the Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall have full authority to
determine which eligible persons are to receive option grants under the Plan,
the time or times when such option grants are to be made, the number of shares
to be covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times at which each
option is to become exercisable, the vesting schedule (if any) applicable to
the option shares and the maximum term for which the option is to remain
outstanding.
IV. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. The maximum number of
shares of Common Stock which may be issued over the term of the Plan shall not
exceed 6,000,000(1) shares.
B. Shares of Common Stock subject to outstanding options
shall be available for subsequent issuance under the Plan to the extent (i) the
options expire or terminate for any reason prior to exercise in full or (ii)
the options are cancelled in accordance with the cancellation-regrant
provisions of Article Two. All shares issued under the Plan, whether or not
those shares are subsequently repurchased by the Corporation pursuant to its
repurchase rights under the Plan, shall reduce on a share-for-share basis the
number of shares of Common Stock available for subsequent issuance under the
Plan.
C. Should any change be made to the Common Stock by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration,
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan and (ii) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option in order to prevent the dilution or enlargement of benefits thereunder.
The adjustments determined by the Plan Administrator shall be final, binding
and conclusive. In no event shall any such adjustments be made in connection
with the conversion of one or more outstanding shares of the Corporation's
preferred stock into shares of Common Stock.
____________________
(1) Reflects the 1,500,000-share increase authorized by the Board on January 15,
1998, subject to stockholder approval.
2.
<PAGE> 3
ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the
Plan applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed
by the Plan Administrator in accordance with the following provisions:
(i) The exercise price per share shall
not be less than eighty-five percent (85%) of the Fair Market Value
per share of Common Stock on the option grant date.
(ii) If the person to whom the option is
granted is a 10% Stockholder, then the exercise price per share shall
not be less than one hundred ten percent (110%) of the Fair Market
Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately
due upon exercise of the option and shall, subject to the provisions of Section
I of Article Three and the documents evidencing the option, be payable in cash
or check made payable to the Corporation. Should the Common Stock be
registered under Section 12(g) of the 1934 Act at the time the option is
exercised, then the exercise price may also be paid as follows:
(i) in shares of Common Stock held for
the requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
(ii) to the extent the option is
exercised for vested shares, through a special sale and remittance
procedure pursuant to which the Optionee shall concurrently provide
irrevocable written instructions (a) to a Corporation-designated
brokerage firm to effect the immediate sale of the purchased shares
and remit to the Corporation, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate exercise
price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld
by the Corporation
3.
<PAGE> 4
by reason of such exercise and (b) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, no option shall have a term in
excess of ten (10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE. The following
provisions shall govern the exercise of any options held by the Optionee at the
time of cessation of Service or death:
(i) Should the Optionee cease to remain
in Service for any reason other than Disability or death, then the
Optionee shall have a period of three (3) months following the date
of such cessation of Service during which to exercise each
outstanding option held by such Optionee.
(ii) Should such Service terminate by
reason of Disability, then the Optionee shall have a period of six
(6) months following the date of such cessation of Service during
which to exercise each outstanding option held by such Optionee.
However, should such Disability be deemed to constitute Permanent
Disability, then the period during which each outstanding option held
by the Optionee is to remain exercisable shall be extended by an
additional six (6) months so that the exercise period shall be the
twelve (12)-month period following the date of the Optionee's
cessation of Service by reason of such Permanent Disability.
(iii) Should the Optionee die while
holding one or more outstanding options, then the personal
representative of the Optionee's estate or the person or persons to
whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution shall have a
period of twelve (12) months following the date of the Optionee's
death during which to exercise each such option.
(iv) Under no circumstances, however,
shall any such option be exercisable after the specified expiration
of the option term.
(v) During the applicable post-Service
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of Service. Upon
the expiration of the applicable exercise period or
4.
<PAGE> 5
(if earlier) upon the expiration of the option term, the option shall
terminate and cease to be outstanding for any vested shares for which
the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and
cease to be outstanding to the extent it is not exercisable for
vested shares on the date of such cessation of Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall
have no stockholder rights with respect to the shares subject to the option
until such person shall have exercised the option, paid the exercise price and
become a holder of record of the purchased shares.
E. UNVESTED SHARES. The Plan Administrator shall have
the discretion to grant options which are exercisable for unvested shares of
Common Stock under the Plan. Should the Optionee cease Service while holding
such unvested shares, the Corporation shall have the right to repurchase, at
the exercise price paid per share, all or (at the discretion of the Corporation
and with the consent of the Optionee) any of those unvested shares. The terms
upon which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right. The Plan Administrator may not
impose a vesting schedule upon any option grant or any shares of Common Stock
subject to the option which is more restrictive than twenty percent (20%) per
year vesting, with the initial vesting to occur one (1) year after the option
grant date. However, such limitation shall not be applicable to any option
grants made to individuals who are officers of the Corporation, non-employee
Board members or independent consultants.
F. FIRST REFUSAL RIGHTS. Until such time as the Common
Stock is first registered under Section 12(g) of the 1934 Act, the Corporation
shall have the right of first refusal with respect to any proposed disposition
by the Optionee (or any successor in interest) of any shares of Common Stock
issued under the Plan. Such right of first refusal shall be exercisable in
accordance with the terms established by the Plan Administrator and set forth
in the document evidencing such right.
G. LIMITED TRANSFERABILITY OF OPTIONS. During the
lifetime of the Optionee, the option shall be exercisable only by the Optionee
and shall not be assignable or transferable other than by will or by the laws
of descent and distribution following the Optionee's death.
H. WITHHOLDING. The Corporation's obligation to deliver
shares of Common Stock upon the exercise of any options granted under the Plan
shall be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of the Plan shall be applicable
5.
<PAGE> 6
to Incentive Options. Options which are specifically designated as
Non-Statutory Options shall not be subject to the terms of Section II.
A. ELIGIBILITY. Incentive Options may only be granted
to Employees.
B. EXERCISE PRICE. The exercise price per share shall
not be less than one hundred percent (100%) of the Fair Market Value per share
of Common Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value
of the shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under the Plan (or
any other option plan of the Corporation or any Parent or Subsidiary) may for
the first time become exercisable as Incentive Options during any one (1)
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more such options
which become exercisable for the first time in the same calendar year, the
foregoing limitation on the exercisability of such options as Incentive Options
shall be applied on the basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an
Incentive Option is granted is a 10% Stockholder, then the option term shall
not exceed five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION
A. In the event of any Corporate Transaction, each
outstanding option shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation (or parent thereof) in connection
with such Corporate Transaction. In addition, all outstanding repurchase
rights shall terminate in the event of any Corporate Transaction, except to the
extent the repurchase rights are assigned to the successor corporation (or
parent thereof) in connection with such Corporate Transaction.
B. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in the consummation of such Corporate
Transaction, had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to (i) the number and
class of securities available for issuance under the Plan following the
consummation of such Corporate Transaction and (ii) the exercise price payable
per share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
C. The grant of options under the Plan shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure
6.
<PAGE> 7
or to merge, consolidate, dissolve, liquidate or sell or transfer all or any
part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option
holders, the cancellation of any or all outstanding options under the Plan and
to grant in substitution therefor new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new option grant date.
7.
<PAGE> 8
ARTICLE THREE
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee to pay the
option exercise price by delivering a promissory note payable in one or more
installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. Promissory notes may be authorized with or without
security or collateral. In all events, the maximum credit available to the
Optionee may not exceed the sum of (i) the aggregate option exercise price
payable for the purchased shares (less the par value of such shares) plus (ii)
any Federal, state and local income and employment tax liability incurred by
the Optionee in connection with the option exercise.
II. ADDITIONAL AUTHORITY
A. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to extend the period of time for which the option
is to remain exercisable following the Optionee's cessation of Service or death
from the limited period otherwise in effect for that option to such greater
period of time as the Plan Administrator shall deem appropriate, but in no
event beyond the expiration of the option term.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan became effective when adopted by the Board
in December 1995, and was approved by the Corporation's stockholders on
November 4, 1995. The initial share reserve approved by the Board was 530,000
shares. In 1995, the Board approved two increases in the total number of
shares authorized for issuance under the Plan, the first for 470,000 shares and
the second for an additional 500,000 shares. On October 12, 1995, the Board
approved a restatement of the Plan to bring it into compliance with the
requirements of the California Department of Corporations. The Plan was
amended by the Board on February 12, 1996, and such increase was approved by
the Corporation's stockholders. The Plan was further amended by the Board on
January 30, 1997 to increase the number of shares of Common Stock authorized
for issuance over the term of the Plan from 3,500,000 to 4,500,000 shares, and
such increase was approved by the Corporation's stockholders. The Plan was
further amended by the Board on January 15, 1998 to increase the number of
shares of Common Stock authorized for issuance over the term of the Plan from
4,500,000 to 6,000,000 shares, subject to the approval of such share increase
by the Corporation's stockholders within the succeeding twelve (12) months. No
option grants made on the basis of the 1,500,000-share increase shall become
exercisable in whole or in part unless and until such stockholder approval is
obtained. Should such stockholder approval not be obtained within twelve (12)
months after the date the excess grants are first made, then
8.
<PAGE> 9
any options granted on the basis of such excess shares shall terminate without
ever becoming exercisable for those shares, and no further option grants shall
be made on the basis of such share increase.
B. The Plan shall terminate upon the earliest of (i) the
expiration of the ten (10)-year period measured from the date the Plan is
adopted by the Board, (ii) the date on which all shares available for issuance
under the Plan shall have been issued or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such Plan
termination, all options and unvested stock issuances outstanding under the
Plan shall continue to have full force and effect in accordance with the
provisions of the documents evidencing such options or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall, without the consent of the Optionees,
adversely affect their rights and obligations under their outstanding options.
In addition, the Board shall not, without the approval of the Corporation's
stockholders, (i) increase the maximum number of shares issuable under the
Plan, except for permissible adjustments in the event of certain changes in the
Corporation's capitalization, (ii) materially modify the eligibility
requirements for Plan participation or (iii) materially increase the benefits
accruing to Plan participants.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options
under the Plan and the issuance of any shares of Common Stock upon the exercise
of any option shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it and the shares of Common Stock
issued pursuant to it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right
to continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of the
9.
<PAGE> 10
Optionee, which rights are hereby expressly reserved by each, to terminate the
Optionee's Service at any time for any reason, with or without cause.
VIII. FINANCIAL REPORTS
The Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under the Plan, unless such individual is a key Employee whose duties in
connection with the Corporation (or any Parent or Subsidiary) assure such
individual access to equivalent information.
10.
<PAGE> 11
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
C. COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to exercise one or more administrative functions
under the Plan.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of
all or substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
F. CORPORATION shall mean Com21, Inc., a Delaware corporation.
G. DISABILITY shall mean the inability of the Optionee to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment and shall be determined by the Plan Administrator
on the basis of such medical evidence as the Plan Administrator deems warranted
under the circumstances. Disability shall be deemed to constitute PERMANENT
DISABILITY in the event that such Disability is expected to result in death or
has lasted or can be expected to last for a continuous period of twelve (12)
months or more.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.
J. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
A-1.
<PAGE> 12
(i) If the Common Stock is at the time traded on
the Nasdaq National Market, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question, as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market or any successor
system. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time listed on
any Stock Exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on
the Stock Exchange determined by the Plan Administrator to be the
primary market for the Common Stock, as such price is officially
quoted in the composite tape of transactions on such exchange. If
there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(iii) If the Common Stock is at the time neither
listed on any Stock Exchange nor traded on the Nasdaq National
Market, then the Fair Market Value shall be determined by the Plan
Administrator after taking into account such factors as the Plan
Administrator shall deem appropriate.
K. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
L. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
M. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
N. OPTIONEE shall mean any person to whom an option is granted
under the Plan.
O. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
P. PLAN shall mean the Corporation's 1995 Stock Option Plan, as
set forth in this document.
Q. PLAN ADMINISTRATOR shall mean either the Board or the
Committee, to the extent the Committee is at the time responsible for the
administration of the Plan.
A-2.
<PAGE> 13
R. SERVICE shall mean the provision of services to the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant,
except to the extent otherwise specifically provided in the documents
evidencing the option grant.
S. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
T. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
U. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
A-3.
<PAGE> 1
EXHIBIT 10.6
COM21, INC.
1998 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1998 Stock Incentive Plan is intended to promote the
interests of Com 21, Inc., a Delaware corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for
them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity
programs:
- the Discretionary Option Grant Program under
which eligible persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock,
- the Salary Investment Option Grant Program
under which eligible employees may elect to have a portion of their base salary
invested each year in special option grants,
- the Stock Issuance Program under which
eligible persons may, at the discretion of the Plan Administrator, be issued
shares of Common Stock directly, either through the immediate purchase of such
shares or as a bonus for services rendered the Corporation (or any Parent or
Subsidiary),
- the Automatic Option Grant Program under
which eligible non-employee Board members shall automatically receive option
grants at periodic intervals to purchase shares of Common Stock, and
- the Director Fee Option Grant Program under
which non-employee Board members may elect to have all or any portion of their
annual retainer fee otherwise payable in cash applied to a special option
grant.
<PAGE> 2
B. The provisions of Articles One and Seven shall apply
to all equity programs under the Plan and shall govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive
authority to administer the Discretionary Option Grant and Stock Issuance
Programs with respect to Section 16 Insiders. Administration of the
Discretionary Option Grant and Stock Issuance Programs with respect to all
other persons eligible to participate in those programs may, at the Board's
discretion, be vested in the Primary Committee or a Secondary Committee, or the
Board may retain the power to administer those programs with respect to all
such persons. However, any discretionary option grants or stock issuances for
members of the Primary Committee shall be made by a disinterested majority of
the Board.
B. Members of the Primary Committee or any Secondary
Committee shall serve for such period of time as the Board may determine and
may be removed by the Board at any time. The Board may also at any time
terminate the functions of any Secondary Committee and reassume all powers and
authority previously delegated to such committee.
C. Each Plan Administrator shall, within the scope of
its administrative functions under the Plan, have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Discretionary
Option Grant and Stock Issuance Programs and to make such determinations under,
and issue such interpretations of, the provisions of such programs and any
outstanding options or stock issuances thereunder as it may deem necessary or
advisable. Decisions of the Plan Administrator within the scope of its
administrative functions under the Plan shall be final and binding on all
parties who have an interest in the Discretionary Option Grant and Stock
Issuance Programs under its jurisdiction or any option or stock issuance
thereunder.
D. The Primary Committee shall have the sole and
exclusive authority to determine which Section 16 Insiders and other highly
compensated Employees shall be eligible for participation in the Salary
Investment Option Grant Program for one or more calendar years. However, all
option grants under the Salary Investment Option Grant Program shall be made in
accordance with the express terms of that program, and the Primary Committee
shall not exercise any discretionary functions with respect to the option
grants made under that program.
E. Service on the Primary Committee or the Secondary
Committee shall constitute service as a Board member, and members of each such
committee shall accordingly be entitled to full indemnification and
reimbursement as Board members for their service on such committee. No member
of the Primary Committee or the Secondary Committee shall be liable for any act
or omission made in good faith with respect to the Plan or any option grants or
stock issuances under the Plan.
2.
<PAGE> 3
F. Administration of the Automatic Option Grant and
Director Fee Option Grant Programs shall be self-executing in accordance with
the terms of those programs, and no Plan Administrator shall exercise any
discretionary functions with respect to any option grants or stock issuances
made under those programs.
IV. ELIGIBILITY
A. The persons eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or
the board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent
advisors who provide services to the Corporation (or any Parent or
Subsidiary).
B. Only Employees who are Section 16 Insiders or other
highly compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of
its administrative jurisdiction under the Plan, have full authority to
determine, (i) with respect to the option grants under the Discretionary Option
Grant Program, which eligible persons are to receive option grants, the time or
times when such option grants are to be made, the number of shares to be
covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times when each option
is to become exercisable, the vesting schedule (if any) applicable to the
option shares and the maximum term for which the option is to remain
outstanding and (ii) with respect to stock issuances under the Stock Issuance
Program, which eligible persons are to receive stock issuances, the time or
times when such issuances are to be made, the number of shares to be issued to
each Participant, the vesting schedule (if any) applicable to the issued shares
and the consideration for such shares.
D. The Plan Administrator shall have the absolute
discretion either to grant options in accordance with the Discretionary Option
Grant Program or to effect stock issuances in accordance with the Stock
Issuance Program.
E. The individuals who shall be eligible to participate
in the Automatic Option Grant Program shall be limited to (i) those individuals
who first become non-employee Board members after the Underwriting Date,
whether through appointment by the Board or election by the Corporation's
stockholders, and (ii) those individuals who continue to serve as non-employee
Board members at one or more Annual Stockholders Meetings held after the
Underwriting Date. A non-employee Board member who has previously been in the
employ of the Corporation (or any Parent or Subsidiary) shall not be eligible
to receive an option grant under the Automatic
3.
<PAGE> 4
Option Grant Program at the time he or she first becomes a non-employee Board
member, but shall be eligible to receive periodic option grants under the
Automatic Option Grant Program while he or she continues to serve as a
non-employee Board member.
F. All non-employee Board members shall be eligible to
participate in the Director Fee Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The maximum number of shares of Common
Stock initially reserved for issuance over the term of the Plan shall not exceed
2,478,190 shares, which shall consist of the number of shares which remained
available for issuance, as of the Plan Effective Date, under the Predecessor
Plan as last approved by the Corporation's stockholders, including the shares
subject to outstanding options under that Predecessor Plan. To the extent any
unvested shares of Common Stock outstanding under the Predecessor Plan as of the
Plan Effective Date are subsequently repurchased by the Corporation, at the
option exercise price paid per share, in connection with the holder's
termination of service prior to vesting in the shares, those repurchased shares
shall be added to the reserve of Common Stock available for issuance under the
Plan, but in no event shall the number of such repurchased shares added to the
reserve exceed 72,810 shares. In addition, the number of shares of Common Stock
reserved for 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 four percent of the total number of shares of Common Stock
outstanding on the last trading day of the preceding calendar year.
B. No one person participating in the Plan may receive
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 500,000 shares of Common Stock in the aggregate per
calendar year, beginning with the 1998 calendar year.
C. Shares of Common Stock subject to outstanding options
(including options incorporated into this Plan from the Predecessor Plan) shall
be available for subsequent issuance under the Plan to the extent (i) those
options expire or terminate for any reason prior to exercise in full or (ii)
the options are cancelled in accordance with the cancellation-regrant
provisions of Article Two. Unvested shares issued under the Plan and
subsequently cancelled or repurchased by the Corporation (including unvested
shares issued under the Predecessor Plan and repurchased by the Corporation at
or after the Plan Effective Date), at the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes
incurred in connection with the exercise of an option or the vesting of a stock
issuance under the Plan, then the number
4.
<PAGE> 5
of shares of Common Stock available for issuance under the Plan shall be
reduced by the gross number of shares for which the option is exercised or
which vest under the stock issuance, and not by the net number of shares of
Common Stock issued to the holder of such option or stock issuance. Shares of
Common Stock underlying one or more stock appreciation rights exercised under
Section IV of Article Two of the Plan shall NOT be available for subsequent
issuance under the Plan.
D. If any change is made to the Common Stock by reason
of any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the number and/or class of securities for which
any one person may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances under the Plan per calendar
year, (iii) the number and/or class of securities for which grants are
subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members, (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan and (v) the number and/or class of securities and price
per share in effect under each outstanding option incorporated into this Plan
from the Predecessor Plan. Such adjustments to the outstanding options are to
be effected in a manner which shall preclude the enlargement or dilution of
rights and benefits under such options. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.
5.
<PAGE> 6
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the
Plan applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed
by the Plan Administrator but shall not be less than one hundred percent (100%)
of the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately
due upon exercise of the option and shall, subject to the provisions of Section
I of Article Six and the documents evidencing the option, be payable in one or
more of the forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
(iii) to the extent the option is
exercised for vested shares, through a special sale and remittance
procedure pursuant to which the Optionee shall concurrently provide
irrevocable instructions to (a) a Corporation- designated brokerage
firm to effect the immediate sale of the purchased shares and remit to
the Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Corporation
by reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
6.
<PAGE> 7
B. EXERCISE AND TERM OF OPTIONS. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, no option shall have a term in
excess of ten (10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the
exercise of any options held by the Optionee at the time of cessation of
Service or death:
(i) Any option outstanding at the time
of the Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined
by the Plan Administrator and set forth in the documents evidencing
the option, but no such option shall be exercisable after the
expiration of the option term.
(ii) Any option exercisable in whole or
in part by the Optionee at the time of death may be subsequently
exercised by the personal representative of the Optionee's estate or
by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and
distribution.
(iii) Should the Optionee's Service be
terminated for Misconduct, then all outstanding options held by the
Optionee shall terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of Service. Upon
the expiration of the applicable exercise period or (if earlier) upon
the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding
to the extent the option is not otherwise at that time exercisable for
vested shares.
2. The Plan Administrator shall have complete
discretion, exercisable either at the time an option is granted or at any time
while the option remains outstanding, to:
(i) extend the period of time for which
the option is to remain exercisable following the Optionee's cessation
of Service from the limited exercise period otherwise in effect for
that option to such greater period of time as the Plan Administrator
shall deem appropriate, but in no event beyond the expiration of the
option term, and/or
7.
<PAGE> 8
(ii) permit the option to be exercised,
during the applicable post-Service exercise period, not only with
respect to the number of vested shares of Common Stock for which such
option is exercisable at the time of the Optionee's cessation of
Service but also with respect to one or more additional installments
in which the Optionee would have vested had the Optionee continued in
Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall
have no stockholder rights with respect to the shares subject to the option
until such person shall have exercised the option, paid the exercise price and
become a holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have
the discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase, at the exercise
price paid per share, any or all of those unvested shares. The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the
lifetime of the Optionee, Incentive Options shall be exercisable only by the
Optionee and shall not be assignable or transferable other than by will or by
the laws of descent and distribution following the Optionee's death.
Non-Statutory Options shall be subject to the same restrictions, except that a
Non-Statutory Option may, in connection with the Optionee's estate plan, be
assigned in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established
exclusively for one or more such family members. The assigned portion may only
be exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall not be subject to the terms of this Section
II.
A. ELIGIBILITY. Incentive Options may only be granted
to Employees.
B. EXERCISE PRICE. The exercise price per share shall
not be less than one hundred percent (100%) of the Fair Market Value per share
of Common Stock on the option grant date.
8.
<PAGE> 9
C. DOLLAR LIMITATION. The aggregate Fair Market Value
of the shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under the Plan (or
any other option plan of the Corporation or any Parent or Subsidiary) may for
the first time become exercisable as Incentive Options during any one calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To
the extent the Employee holds two (2) or more such options which become
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an
Incentive Option is granted is a 10% Stockholder, then the exercise price per
share shall not be less than one hundred ten percent (110%) of the Fair Market
Value per share of Common Stock on the option grant date, and the option term
shall not exceed five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each
outstanding option shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Corporate Transaction,
become fully exercisable with respect to the total number of shares of Common
Stock at the time subject to such option and may be exercised for any or all of
those shares as fully vested shares of Common Stock. However, an outstanding
option shall NOT become exercisable on such an accelerated basis if and to the
extent: (i) such option is, in connection with the Corporate Transaction, to
be assumed by the successor corporation (or parent thereof) or (ii) such option
is to be replaced with a cash incentive program of the successor corporation
which preserves the spread existing at the time of the Corporate Transaction on
any shares for which the option is not otherwise at that time exercisable and
provides for subsequent payout in accordance with the same exercise/vesting
schedule applicable to those option shares or (iii) the acceleration of such
option is subject to other limitations imposed by the Plan Administrator at the
time of the option grant.
B. All outstanding repurchase rights shall automatically
terminate, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the
Corporate Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
9.
<PAGE> 10
D. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments to reflect such Corporate Transaction
shall also be made to (i) the exercise price payable per share under each
outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same, (ii) the maximum number and/or class of
securities available for issuance over the remaining term of the Plan and (iii)
the maximum number and/or class of securities for which any one person may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under the Plan per calendar year.
E. The Plan Administrator shall have the discretionary
authority to provide for the automatic acceleration of one or more outstanding
options under the Discretionary Option Grant Program upon the occurrence of a
Corporate Transaction, whether or not those options are to be assumed in the
Corporate Transaction, so that each such option shall, immediately prior to the
effect date of such Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock at the time subject to
that option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. In addition, the Plan Administrator shall have the
discretionary authority to structure one or more of the Corporation's
repurchase rights under the Discretionary Option Grant Program so that those
rights shall not be assignable in connection with such Corporate Transaction
and shall accordingly terminate upon the consummation of such Corporate
Transaction, and the shares subject to those terminated rights shall thereupon
vest in full.
F. The Plan Administrator shall have full power and
authority, exercisable either at the time the option is granted or at any time
while the option remains outstanding, to provide for the automatic acceleration
of one or more outstanding options under the Discretionary Option Grant Program
in the event the Optionee's Service is subsequently terminated by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of any Corporate Transaction in which
those options are assumed and do not otherwise accelerate. Any options so
accelerated shall remain exercisable for fully vested shares until the earlier
of (i) the expiration of the option term or (ii) the expiration of the one (1)
year period measured from the effective date of the Involuntary Termination.
In addition, the Plan Administrator may provide that one or more of the
Corporation's outstanding repurchase rights with respect to shares held by the
Optionee at the time of such Involuntary Termination shall immediately
terminate, and the shares subject to those terminated repurchase rights shall
accordingly vest in full.
G. The Plan Administrator shall have the discretionary
authority to provide for the automatic acceleration of one or more outstanding
options under the Discretionary Option Grant Program upon the occurrence of a
Change in Control so that each such option shall, immediately prior to the
effect date of such Change in Control, become fully exercisable with respect to
the total number of shares of Common Stock at the time subject to that option
and may
10.
<PAGE> 11
be exercised for any or all of those shares as fully vested shares of Common
Stock. In addition, the Plan Administrator shall have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Discretionary Option Grant Program so that those rights shall terminate
automatically upon the consummation of such Change in Control, and the shares
subject to those terminated rights shall thereupon vest in full.
Alternatively, the Plan Administrator may condition the automatic acceleration
of one or more outstanding options under the Discretionary Option Grant Program
and the termination of one or more of the Corporation's outstanding repurchase
rights under such program upon the subsequent termination of the Optionee's
Service by reason of an Involuntary Termination within a designated period (not
to exceed eighteen (18) months) following the effective date of such Change in
Control. Each option so accelerated shall remain exercisable for fully vested
shares until the earlier of (i) the expiration of the option term or (ii) the
expiration of the one (1) year period measured from the effective date of
Optionee's cessation of Service.
H. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction or Change in Control shall remain
exercisable as an Incentive Option only to the extent the applicable One
Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent
such dollar limitation is exceeded, the accelerated portion of such option
shall be exercisable as a Nonstatutory Option under the Federal tax laws.
I. The outstanding options shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option
holders, the cancellation of any or all outstanding options under the
Discretionary Option Grant Program (including outstanding options incorporated
from the Predecessor Plan) and to grant in substitution new options covering
the same or different number of shares of Common Stock but with an exercise
price per share based on the Fair Market Value per share of Common Stock on the
new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and
authority to grant to selected Optionees tandem stock appreciation rights
and/or limited stock appreciation rights.
B. The following terms shall govern the grant and
exercise of tandem stock appreciation rights:
(i) One or more Optionees may be granted
the right, exercisable upon such terms as the Plan Administrator may
establish, to elect between the exercise of the underlying option for
shares of Common Stock and
11.
<PAGE> 12
the surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (a) the Fair Market
Value (on the option surrender date) of the number of shares in which
the Optionee is at the time vested under the surrendered option (or
surrendered portion thereof) over (b) the aggregate exercise price
payable for such shares.
(ii) No such option surrender shall be
effective unless it is approved by the Plan Administrator, either at
the time of the actual option surrender or at any earlier time. If
the surrender is so approved, then the distribution to which the
Optionee shall be entitled may be made in shares of Common Stock
valued at Fair Market Value on the option surrender date, in cash, or
partly in shares and partly in cash, as the Plan Administrator shall
in its sole discretion deem appropriate.
(iii) If the surrender of an option is not
approved by the Plan Administrator, then the Optionee shall retain
whatever rights the Optionee had under the surrendered option (or
surrendered portion thereof) on the option surrender date and may
exercise such rights at any time prior to the later of (a) five (5)
business days after the receipt of the rejection notice or (b) the
last day on which the option is otherwise exercisable in accordance
with the terms of the documents evidencing such option, but in no
event may such rights be exercised more than ten (10) years after the
option grant date.
C. The following terms shall govern the grant and
exercise of limited stock appreciation rights:
(i) One or more Section 16 Insiders may
be granted limited stock appreciation rights with respect to their
outstanding options.
(ii) Upon the occurrence of a Hostile
Take-Over, each individual holding one or more options with such a
limited stock appreciation right shall have the unconditional right
(exercisable for a thirty (30)-day period following such Hostile
Take-Over) to surrender each such option to the Corporation, to the
extent the option is at the time exercisable for vested shares of
Common Stock. In return for the surrendered option, the Optionee
shall receive a cash distribution from the Corporation in an amount
equal to the excess of (A) the Take-Over Price of the shares of Common
Stock which are at the time vested under each surrendered option (or
surrendered portion thereof) over (B) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within
five (5) days following the option surrender date.
12.
<PAGE> 13
(iii) The grant of such limited stock
appreciation right shall automatically constitute pre- approval by the
Plan Administrator of any subsequent exercise of that right in
accordance with the terms of this Paragraph C. Accordingly, no
further approval of the Plan Administrator or the Board shall be
required at the time of the actual option surrender and cash
distribution.
(iv) The balance of the option (if any)
shall remain outstanding and exercisable in accordance with the
documents evidencing such option.
13.
<PAGE> 14
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive
authority to determine the calendar year or years (if any) for which the Salary
Investment Option Grant Program is to be in effect and to select the Section 16
Insiders and other highly compensated Employees eligible to participate in the
Salary Investment Option Grant Program for those calendar year or years. Each
selected individual who elects to participate in the Salary Investment Option
Grant Program must, prior to the start of each calendar year of participation,
file with the Plan Administrator (or its designate) an irrevocable
authorization directing the Corporation to reduce his or her base salary for
that calendar year by an amount not less than Ten Thousand Dollars ($10,000.00)
nor more than Fifty Thousand Dollars ($50,000.00). The Primary Committee shall
have complete discretion to determine whether to approve the filed
authorization in whole or in part. To the extent the Primary Committee
approves the authorization, the individual who filed that authorization shall
automatically be granted an option under the Salary Investment Grant Program on
the first trading day in January of the calendar year for which the salary
reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one
or more documents in the form approved by the Plan Administrator; provided,
however, that each such document shall comply with the terms specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be
thirty-three and one-third percent (33-1/3%) of the Fair Market Value per share
of Common Stock on the option grant date.
2. The exercise price shall become immediately
due upon exercise of the option and shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
14.
<PAGE> 15
B. NUMBER OF OPTION SHARES. The number of shares of
Common Stock subject to the option shall be determined pursuant to the
following formula (rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the approved reduction in
the Optionee's base salary for the calendar year, and
B is the Fair Market Value per share of Common Stock
on the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall
become exercisable in a series of twelve (12) successive equal monthly
installments upon the Optionee's completion of each calendar month of Service
in the calendar year for which the salary reduction is in effect. Each option
shall have a maximum term of ten (10) years measured from the option grant
date.
D. EFFECT OF TERMINATION OF SERVICE. Should the
Optionee cease Service for any reason while holding one or more options under
this Article Three, then each such option shall remain exercisable, for any or
all of the shares for which the option is exercisable at the time of such
cessation of Service, until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Service. Should the Optionee die
while holding one or more options under this Article Three, then each such
option may be exercised, for any or all of the shares for which the option is
exercisable at the time of the Optionee's cessation of Service (less any shares
subsequently purchased by Optionee prior to death), by the personal
representative of the Optionee's estate or by the person or persons to whom the
option is transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution. Such right of exercise shall lapse, and the
option shall terminate, upon the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the three (3)-year period measured from the date
of the Optionee's cessation of Service. However, the option shall, immediately
upon the Optionee's cessation of Service for any reason, terminate and cease to
remain outstanding with respect to any and all shares of Common Stock for which
the option is not otherwise at that time exercisable.
III . CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the
Optionee remains in Service, each outstanding option held by such Optionee
under this Salary Investment Option Grant Program shall automatically
accelerate so that each such option shall, immediately prior to the effective
date of the Corporate Transaction, become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to such option and
may be exercised
15.
<PAGE> 16
for any or all of those shares as fully-vested shares of Common Stock. Each
such outstanding option shall be assumed by the successor corporation (or
parent thereof) in the Corporate Transaction and shall remain exercisable for
the fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of the Optionee's cessation of Service.
B. In the event of a Change in Control while the
Optionee remains in Service, each outstanding option held by such Optionee
under this Salary Investment Option Grant Program shall automatically
accelerate so that each such option shall immediately become fully exercisable
with respect to the total number of shares of Common Stock at the time subject
to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. The option shall remain so exercisable
until the earlier of (i) the expiration of the ten (10)-year option term, (ii)
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Service or (iii) the surrender of the option in
connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the
Optionee shall have a thirty (30)-day period in which to surrender to the
Corporation each outstanding option granted him or her under the Salary
Investment Option Grant Program. The Optionee shall in return be entitled to a
cash distribution from the Corporation in an amount equal to the excess of (i)
the Take-Over Price of the shares of Common Stock at the time subject to the
surrendered option (whether or not the Optionee is otherwise at the time vested
in those shares) over (ii) the aggregate exercise price payable for such
shares. Such cash distribution shall be paid within five (5) days following
the surrender of the option to the Corporation. The Primary Committee shall,
at the time the option with such limited stock appreciation right is granted
under the Salary Investment Option Grant Program, pre-approve any subsequent
exercise of that right in accordance with the terms of this Paragraph C.
Accordingly, no further approval of the Primary Committee or the Board shall be
required at the time of the actual option surrender and cash distribution.
D. The grant of options under the Salary Investment
Option Grant Program shall in no way affect the right of the Corporation to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Salary
Investment Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.
16.
<PAGE> 17
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed
by the Plan Administrator, but shall not be less than one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of
Article Seven, shares of Common Stock may be issued under the Stock Issuance
Program for any of the following items of consideration which the Plan
Administrator may deem appropriate in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the
Corporation (or any Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock
Issuance Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed
by the Participant or the performance objectives to be attained,
(ii) the number of installments in which
the shares are to vest,
(iii) the interval or intervals (if any)
which are to lapse between installments, and
17.
<PAGE> 18
(iv) the effect which death, Permanent
Disability or other event designated by the Plan Administrator is to
have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.
2. Any new, substituted or additional securities
or other property (including money paid other than as a regular cash dividend)
which the Participant may have the right to receive with respect to the
Participant's unvested shares of Common Stock by reason of any stock dividend,
stock split, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder
rights with respect to any shares of Common Stock issued to the Participant
under the Stock Issuance Program, whether or not the Participant's interest in
those shares is vested. Accordingly, the Participant shall have the right to
vote such shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in
Service while holding one or more unvested shares of Common Stock issued under
the Stock Issuance Program or should the performance objectives not be attained
with respect to one or more such unvested shares of Common Stock, then those
shares shall be immediately surrendered to the Corporation for cancellation,
and the Participant shall have no further stockholder rights with respect to
those shares. To the extent the surrendered shares were previously issued to
the Participant for consideration paid in cash or cash equivalent (including
the Participant's purchase-money indebtedness), the Corporation shall repay to
the Participant the cash consideration paid for the surrendered shares and
shall cancel the unpaid principal balance of any outstanding purchase- money
note of the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion
waive the surrender and cancellation of one or more unvested shares of Common
Stock which would otherwise occur upon the cessation of the Participant's
Service or the non-attainment of the performance objectives applicable to those
shares. Such waiver shall result in the immediate vesting of the Participant's
interest in the shares of Common Stock as to which the waiver applies. Such
waiver may be effected at any time, whether before or after the Participant's
cessation of Service or the attainment or non-attainment of the applicable
performance objectives.
18.
<PAGE> 19
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase
rights under the Stock Issuance Program shall terminate automatically, and all
the shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Corporate Transaction, except to the extent
(i) those repurchase rights are to be assigned to the successor corporation (or
parent thereof) in connection with such Corporate Transaction or (ii) such
accelerated vesting is precluded by other limitations imposed in the Stock
Issuance Agreement.
B. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the unvested shares are issued or any
time while the Corporation's repurchase rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's
Service should subsequently terminate by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Corporate Transaction in which those repurchase rights
are assigned to the successor corporation (or parent thereof).
C. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the unvested shares are issued or any
time while the Corporation's repurchase rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's
Service should subsequently terminate by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
19.
<PAGE> 20
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the
dates specified below:
1. Each individual who is first elected or
appointed as a non-employee Board member at any time after the Underwriting
Date shall automatically be granted, on the date of such initial election or
appointment, a Non-Statutory Option to purchase 20,000 shares of Common Stock,
provided that individual has not previously been in the employ of the
Corporation or any Parent or Subsidiary.
2. On the date of each Annual Stockholders
Meeting held after the Underwriting Date, each individual who is to continue to
serve as an Eligible Director, whether or not that individual is standing for
re-election to the Board at that particular Annual Meeting, shall automatically
be granted a Non-Statutory Option to purchase 5,000 shares of Common Stock,
provided such individual has served as a non-employee Board member for at least
six (6) months. There shall be no limit on the number of such 5,000-share
option grants any one Eligible Director may receive over his or her period of
Board service, and non-employee Board members who have previously been in the
employ of the Corporation (or any Parent or Subsidiary) or who have otherwise
received a stock option grant from the Corporation prior to the Underwriting
Date shall be eligible to receive one or more such annual option grants over
their period of continued Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal
to one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall be payable in one or
more of the alternative forms authorized under the Discretionary Option Grant
Program. Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten
(10) years measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall
be immediately exercisable for any or all of the option shares. However, any
shares purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's
cessation of Board service prior to vesting in those shares. Each initial
15,000-share grant shall vest, and the Corporation's repurchase right shall
lapse, in a series of four (4)
20.
<PAGE> 21
successive equal annual installments over the Optionee's period of continued
service as a Board member, with the first such installment to vest upon the
Optionee's completion of one (1) year of Board service measured from the option
grant date. Each annual 5,000-share automatic option shall vest, and the
Corporation's repurchase right shall lapse, in a series of two successive equal
annual installments over the Optionee's period of continued service as a Board
Member, with the first such installment to vest upon the Optionee's completion
of one (1) year of Board service measured from the option grant date.
E. TERMINATION OF BOARD SERVICE. The following
provisions shall govern the exercise of any options held by the Optionee at the
time the Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of
Optionee's death, the personal representative of the Optionee's estate
or the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and
distribution) shall have a twelve (12)-month period following the date
of such cessation of Board service in which to exercise each such
option.
(ii) During the twelve (12)-month
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares of Common Stock for which the
option is exercisable at the time of the Optionee's cessation of Board
service.
(iii) Should the Optionee cease to serve
as a Board member by reason of death or Permanent Disability, then all
shares at the time subject to the option shall immediately vest so
that such option may, during the twelve (12)-month exercise period
following such cessation of Board service, be exercised for all or any
portion of those shares as fully-vested shares of Common Stock.
(iv) In no event shall the option remain
exercisable after the expiration of the option term. Upon the
expiration of the twelve (12)-month exercise period or (if earlier)
upon the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Board service for any reason other than death
or Permanent Disability, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for vested
shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares
of Common Stock at the time subject to each outstanding option but not
otherwise vested shall automatically vest in full so that each such option
shall, immediately prior to the effective date of the Corporate
21.
<PAGE> 22
Transaction, become fully exercisable for all of the shares of Common Stock at
the time subject to such option and may be exercised for all or any portion of
those shares as fully-vested shares of Common Stock. Immediately following the
consummation of the Corporate Transaction, each automatic option grant shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof).
B. In connection with any Change in Control, the shares
of Common Stock at the time subject to each outstanding option but not
otherwise vested shall automatically vest in full so that each such option
shall, immediately prior to the effective date of the Change in Control, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Each such option shall remain exercisable
for such fully-vested option shares until the expiration or sooner termination
of the option term or the surrender of the option in connection with a Hostile
Take-Over.
C. All outstanding repurchase rights shall automatically
terminate, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction or
Change in Control.
D. Upon the occurrence of a Hostile Take-Over, the
Optionee shall have a thirty (30)-day period in which to surrender to the
Corporation each of his or her outstanding automatic option grants. The
Optionee shall in return be entitled to a cash distribution from the
Corporation in an amount equal to the excess of (i) the Take-Over Price of the
shares of Common Stock at the time subject to each surrendered option (whether
or not the Optionee is otherwise at the time vested in those shares) over (ii)
the aggregate exercise price payable for such shares. Such cash distribution
shall be paid within five (5) days following the surrender of the option to the
Corporation. No approval or consent of the Board or any Plan Administrator
shall be required in connection with such option surrender and cash
distribution.
E. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, provided the aggregate
exercise price payable for such securities shall remain the same.
F. The grant of options under the Automatic Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
22.
<PAGE> 23
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
23.
<PAGE> 24
ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
Each non-employee Board member may elect to apply all or any
portion of the annual retainer fee otherwise payable in cash for his or her
service on the Board to the acquisition of a special option grant under this
Director Fee Option Grant Program. Such election must be filed with the
Corporation's Chief Financial Officer prior to first day of the calendar year
for which the annual retainer fee which is the subject of that election is
otherwise payable. Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee
Option Grant Program on the first trading day in January in the calendar year
for which the annual retainer fee which is the subject of that election would
otherwise be payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the
terms and conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be
thirty-three and one-third percent (33-1/3%) of the Fair Market Value per share
of Common Stock on the option grant date.
2. The exercise price shall become immediately
due upon exercise of the option and shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of
Common Stock subject to the option shall be determined pursuant to the
following formula (rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to
the non-employee Board member's election, and
24.
<PAGE> 25
B is the Fair Market Value per share of Common Stock
on the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall
become exercisable in a series of twelve (12) equal monthly installments upon
the Optionee's completion of each month of Board service over the twelve
(12)-month period measured from the grant date. Each option shall have a
maximum term of ten (10) years measured from the option grant date.
D. TERMINATION OF BOARD SERVICE. Should the Optionee
cease Board service for any reason (other than death or Permanent Disability)
while holding one or more options under this Director Fee Option Grant Program,
then each such option shall remain exercisable, for any or all of the shares
for which the option is exercisable at the time of such cessation of Board
service, until the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Board service. However, each option held by the Optionee
under this Director Fee Option Grant Program at the time of his or her
cessation of Board service shall immediately terminate and cease to remain
outstanding with respect to any and all shares of Common Stock for which the
option is not otherwise at that time exercisable.
E. DEATH OR PERMANENT DISABILITY. Should the Optionee's
service as a Board member cease by reason of death or Permanent Disability,
then each option held by such Optionee under this Director Fee Option Grant
Program shall immediately become exercisable for all the shares of Common Stock
at the time subject to that option, and the option may be exercised for any or
all of those shares as fully-vested shares until the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the expiration of the three
(3)-year period measured from the date of such cessation of Board service.
Should the Optionee die after cessation of Board service but
while holding one or more options under this Director Fee Option Grant Program,
then each such option may be exercised, for any or all of the shares for which
the option is exercisable at the time of the Optionee's cessation of Board
service (less any shares subsequently purchased by Optionee prior to death), by
the personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution. Such right of exercise
shall lapse, and the option shall terminate, upon the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the three (3)-year period
measured from the date of the Optionee's cessation of Board service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the
Optionee remains a Board member, each outstanding option held by such Optionee
under this Director Fee Option Grant Program shall automatically accelerate so
that each such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable with respect to the
25.
<PAGE> 26
total number of shares of Common Stock at the time subject to such option and
may be exercised for any or all of those shares as fully-vested shares of
Common Stock. Each such outstanding option shall be assumed by the successor
corporation (or parent thereof) in the Corporate Transaction and shall remain
exercisable for the fully-vested shares until the earlier of (i) the expiration
of the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of the Optionee's cessation of Board service.
B. In the event of a Change in Control while the
Optionee remains in Service, each outstanding option held by such Optionee
under this Director Fee Option Grant Program shall automatically accelerate so
that each such option shall immediately become fully exercisable with respect
to the total number of shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. The option shall remain so exercisable until the
earlier or (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Service.
C. Upon the occurrence of a Hostile Take-Over, the
Optionee shall have a thirty (30)-day period in which to surrender to the
Corporation each outstanding option granted him or her under the Director Fee
Option Grant Program. The Optionee shall in return be entitled to a cash
distribution from the Corporation in an amount equal to the excess of (i) the
Take-Over Price of the shares of Common Stock at the time subject to each
surrendered option (whether or not the Optionee is otherwise at the time vested
in those shares) over (ii) the aggregate exercise price payable for such
shares. Such cash distribution shall be paid within five (5) days following
the surrender of the option to the Corporation. No approval or consent of the
Board or any Plan Administrator shall be required in connection with such
option surrender and cash distribution.
D. The grant of options under the Director Fee Option
Grant Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director
Fee Option Grant Program shall be the same as the terms in effect for option
grants made under the Discretionary Option Grant Program.
26.
<PAGE> 27
ARTICLE SEVEN
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant
to pay the option exercise price under the Discretionary Option Grant Program
or the purchase price of shares issued under the Stock Issuance Program by
delivering a full-recourse, interest bearing promissory note payable in one or
more installments. The terms of any such promissory note (including the
interest rate and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion. In no event may the maximum credit
available to the Optionee or Participant exceed the sum of (i) the aggregate
option exercise price or purchase price payable for the purchased shares plus
(ii) any Federal, state and local income and employment tax liability incurred
by the Optionee or the Participant in connection with the option exercise or
share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of options or the issuance or vesting of such
shares under the Plan shall be subject to the satisfaction of all applicable
Federal, state and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion,
provide any or all holders of Non-Statutory Options or unvested shares of
Common Stock under the Plan (other than the options granted or the shares
issued under the Automatic Option Grant or Director Fee Option Grant Program)
with the right to use shares of Common Stock in satisfaction of all or part of
the Taxes incurred by such holders in connection with the exercise of their
options or the vesting of their shares. Such right may be provided to any such
holder in either or both of the following formats:
Stock Withholding: The election to have the
Corporation withhold, from the shares of Common Stock otherwise issuable upon
the exercise of such Non-Statutory Option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%)) designated
by the holder.
Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised or the shares
vest, one or more shares of Common Stock previously acquired by such holder
(other than in connection with the option exercise or share vesting triggering
the Taxes) with an aggregate Fair Market Value equal to the percentage of the
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
27.
<PAGE> 28
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately at the
Plan Effective Date. However, the Salary Investment Option Grant Program and
the Director Fee Option Grant Program shall not be implemented until such time
as the Primary Committee may deem appropriate. Options may be granted under
the Discretionary Option Grant at any time on or after the Plan Effective Date.
However, no options granted under the Plan may be exercised, and no shares
shall be issued under the Plan, until the Plan is approved by the Corporation's
stockholders. If such stockholder approval is not obtained within twelve (12)
months after the Plan Effective Date, then all options previously granted under
this Plan shall terminate and cease to be outstanding, and no further options
shall be granted and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the
Predecessor Plan, and no further option grants or direct stock issuances shall
be made under the Predecessor Plan after the Section 12 Registration Date.
All options outstanding under the Predecessor Plan on the Section 12
Registration Date shall be incorporated into the Plan at that time and shall be
treated as outstanding options under the Plan. However, each outstanding
option so incorporated shall continue to be governed solely by the terms of the
documents evidencing such option, and no provision of the Plan shall be deemed
to affect or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of Common
Stock.
C. One or more provisions of the Plan, including
(without limitation) the option/vesting acceleration provisions of Article Two
relating to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated
from the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest to occur
of (i) March 9, 2008, (ii) the date on which all shares available for issuance
under the Plan shall have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with a Corporate
Transaction. Should the Plan terminate on March 9, 2008, then all option grants
and unvested stock issuances outstanding at that time shall continue to have
force and effect in accordance with the provisions of the documents evidencing
such grants or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations
with respect to stock options or unvested stock issuances at the time
outstanding under the Plan unless the Optionee or the Participant consents to
such amendment or modification. In addition, certain amendments may require
stockholder approval pursuant to applicable laws or regulations.
28.
<PAGE> 29
B. Options to purchase shares of Common Stock may be
granted under the Discretionary Option Grant and Salary Investment Option Grant
Programs and shares of Common Stock may be issued under the Stock Issuance
Program that are in each instance in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued under those programs shall be held in escrow until there is obtained
stockholder approval of an amendment sufficiently increasing the number of
shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and
the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any
stock option under the Plan and the issuance of any shares of Common Stock (i)
upon the exercise of any granted option or (ii) under the Stock Issuance
Program shall be subject to the Corporation's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the stock options granted under it and the shares of Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be
issued or delivered under the Plan unless and until there shall have been
compliance with all applicable requirements of Federal and state securities
laws, including the filing and effectiveness of the Form S-8 registration
statement for the shares of Common Stock issuable under the Plan, and all
applicable listing requirements of any stock exchange (or the Nasdaq National
Market, if applicable) on which Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any Parent or Subsidiary employing or retaining such person) or
of the Optionee or the Participant, which rights are hereby expressly reserved
by each, to terminate such person's Service at any time for any reason, with or
without cause.
29.
<PAGE> 30
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by
any person or related group of persons (other than the Corporation or
a person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over
a period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time the Board approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
A-1.
<PAGE> 31
(ii) the sale, transfer or other disposition of
all or substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
G. CORPORATION shall mean Com21, Inc., a Delaware corporation,
and its successors.
H. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock
option grant in effect for non-employee Board members under Article Six of the
Plan.
I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.
J. ELIGIBLE DIRECTOR shall mean a non-employee Board member
eligible to participate in the Automatic Option Grant Program in accordance
with the eligibility provisions of Article One.
K. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.
M. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on
the Nasdaq National Market, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question, as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on
any Stock Exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
A-2.
<PAGE> 32
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal
to the price per share at which the Common Stock is to be sold in the
initial public offering pursuant to the Underwriting Agreement.
N. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept.
O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation
following (A) a change in his or her position with the Corporation
which materially reduces his or her duties and responsibilities or the
level of management to which he or she reports, (B) a reduction in his
or her level of compensation (including base salary, fringe benefits
and target bonus under any corporate-performance based bonus or
incentive programs) by more than fifteen percent (15%) or (C) a
relocation of such individual's place of employment by more than fifty
(50) miles, provided and only if such change, reduction or relocation
is effected by the Corporation without the individual's consent.
Q. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of
the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by such person adversely affecting the business or affairs of the
Corporation (or any Parent or Subsidiary) in a material manner. The foregoing
definition shall not be deemed to be inclusive of all the acts or omissions
which the Corporation (or any Parent or Subsidiary) may consider as grounds for
the dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
A-3.
<PAGE> 33
S. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
T. OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant, Salary Investment Option Grant, Automatic
Option Grant or Director Fee Option Grant Program.
U. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
V. PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.
W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of
twelve (12) months or more. However, solely for purposes of the Automatic
Option Grant and Director Fee Option Grant Programs, Permanent Disability or
Permanently Disabled shall mean the inability of the non-employee Board member
to perform his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
X. PLAN shall mean the Corporation's 1998 Stock Incentive Plan,
as set forth in this document.
Y. PLAN ADMINISTRATOR shall mean the particular entity, whether
the Primary Committee, the Board or the Secondary Committee, which is
authorized to administer the Discretionary Option Grant and Stock Issuance
Programs with respect to one or more classes of eligible persons, to the extent
such entity is carrying out its administrative functions under those programs
with respect to the persons under its jurisdiction.
Z. PLAN EFFECTIVE DATE shall mean April 1, 1998.
AA. PREDECESSOR PLAN shall mean the Corporation's pre-existing
Stock Option Plan in effect immediately prior to the Plan Effective Date
hereunder.
A-4.
<PAGE> 34
AB. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate
in such program.
AC. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary
investment option grant program in effect under the Plan.
AD. SECONDARY COMMITTEE shall mean a committee of one or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
AE. SECTION 12 REGISTRATION DATE shall mean the date on which the
Common Stock is first registered under Section 12 of the 1934 Act.
AF. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
AG. SERVICE shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in
the documents evidencing the option grant or stock issuance.
AH. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
AI. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into
by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
AJ. STOCK ISSUANCE PROGRAM shall mean the stock issuance program
in effect under the Plan.
AK. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
A-5.
<PAGE> 35
AL. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
AM. TAXES shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those
options or the vesting of those shares.
AN. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
AO. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
AP. UNDERWRITING DATE shall mean the date on which the
Underwriting Agreement is executed and priced in connection with an initial
public offering of the Common Stock.
A-6.
<PAGE> 1
EXHIBIT 10.7
COM21, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the
interests of Com21, Inc. by providing eligible employees with the opportunity
to acquire a proprietary interest in the Corporation through participation in a
payroll-deduction based employee stock purchase plan designed to qualify under
Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to
such terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret
and construe any provision of the Plan and to adopt such rules and regulations
for administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares
of authorized but unissued or reacquired Common Stock, including shares of
Common Stock purchased on the open market. The maximum number of shares of
Common Stock which may be issued over the term of the Plan shall not exceed Two
Hundred Fifty Thousand (250,000) shares.
B. Should any change be made to the Common Stock by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration,
appropriate adjustments shall be made to (i) the maximum number and class of
securities issuable under the Plan, (ii) the maximum number and class of
securities purchasable per Participant on any one Purchase Date and (iii) the
number and class of securities and the price per share in effect under each
outstanding purchase right in order to prevent the dilution or enlargement of
benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase
under the Plan through a series of successive offering periods until such time
as (i) the maximum number of shares of Common Stock available for issuance
under the Plan shall have been purchased or (ii) the Plan shall have been
sooner terminated.
<PAGE> 2
B. Each offering period shall be of such duration (not
to exceed twenty-four (24) months) as determined by the Plan Administrator
prior to the start date of such offering period. However, the initial offering
period shall commence at the Effective Time and terminate on the last business
day in April 2000. The next offering period shall commence on the first
business day in May 2000, and subsequent offering periods shall commence as
designated by the Plan Administrator.
C. Each offering period shall be comprised of a series
of one or more successive Purchase Intervals. Purchase Intervals shall run
from the first business day in May each year to the last business day in
October of the same year and from the first business day in November each year
to the last business day in April of the following year. However, the first
Purchase Interval in effect under the initial offering period shall commence at
the Effective Time and terminate on the last business day in October 1998.
D. Should the Fair Market Value per share of Common
Stock on any Purchase Date within an offering period be less than the Fair
Market Value per share of Common Stock on the start date of that offering
period, then that offering period shall automatically terminate immediately
after the purchase of shares of Common Stock on such Purchase Date, and a new
offering period shall commence on the next business day following such Purchase
Date. The new offering period shall have a duration of twenty (24) months,
unless a shorter duration is established by the Plan Administrator within five
(5) business days following the start date of that offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the
start date of any offering period under the Plan may enter that offering period
on such start date or on any subsequent Semi-Annual Entry Date within that
offering period, provided he or she remains an Eligible Employee.
B. Each individual who first becomes an Eligible
Employee after the start date of an offering period may enter that offering
period on any subsequent Semi-Annual Entry Date within that offering period on
which he or she is an Eligible Employee.
C. The date an individual enters an offering period
shall be designated his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering
period, the Eligible Employee must complete the enrollment forms prescribed by
the Plan Administrator (including a stock purchase agreement and a payroll
deduction authorization) and file such forms with the Plan Administrator (or
its designate) on or before his or her scheduled Entry Date.
2.
<PAGE> 3
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant
for purposes of acquiring shares of Common Stock during an offering period may
be any multiple of one percent (1%) of the Base Salary paid to the Participant
during each Purchase Interval within that offering period, up to a maximum of
ten percent (10%). The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines:
(i) The Participant may, at any time
during the offering period, reduce his or her rate of payroll
deduction to become effective as soon as possible after filing the
appropriate form with the Plan Administrator. The Participant may
not, however, effect more than one (1) such reduction per Purchase
Interval.
(ii) The Participant may, prior to the
commencement of any new Purchase Interval within the offering period,
increase the rate of his or her payroll deduction by filing the
appropriate form with the Plan Administrator. The new rate (which may
not exceed the ten percent (10%) maximum) shall become effective on
the start date of the first Purchase Interval following the filing of
such form.
B. Payroll deductions shall begin on the first pay day
following the Participant's Entry Date into the offering period and shall
(unless sooner terminated by the Participant) continue through the pay day
ending with or immediately prior to the last day of that offering period. The
amounts so collected shall be credited to the Participant's book account under
the Plan, but no interest shall be paid on the balance from time to time
outstanding in such account. The amounts collected from the Participant shall
not be required to be held in any segregated account or trust fund and may be
commingled with the general assets of the Corporation and used for general
corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under
the Plan on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within the
same or a different offering period.
3.
<PAGE> 4
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be
granted a separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive installments over
the remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan
Administrator may deem advisable.
Under no circumstances shall purchase rights be granted under
the Plan to any Eligible Employee if such individual would, immediately after
the grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right
shall be automatically exercised in installments on each successive Purchase
Date within the offering period, and shares of Common Stock shall accordingly
be purchased on behalf of each Participant (other than Participants whose
payroll deductions have previously been refunded pursuant to the Termination of
Purchase Right provisions below) on each such Purchase Date. The purchase
shall be effected by applying the Participant's payroll deductions for the
Purchase Interval ending on such Purchase Date to the purchase of whole shares
of Common Stock at the purchase price in effect for the Participant for that
Purchase Date.
C. PURCHASE PRICE. The purchase price per share at
which Common Stock will be purchased on the Participant's behalf on each
Purchase Date within the offering period shall be equal to eighty-five percent
(85%) of the lower of (i) the Fair Market Value per share of Common Stock on
the Participant's Entry Date into that offering period or (ii) the Fair Market
Value per share of Common Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares
of Common Stock purchasable by a Participant on each Purchase Date during the
offering period shall be the number of whole shares obtained by dividing the
amount collected from the Participant through payroll deductions during the
Purchase Interval ending with that Purchase Date by the purchase price in
effect for the Participant for that Purchase Date. However, the maximum number
of shares of Common Stock purchasable per Participant on any one Purchase Date
shall not exceed One Thousand Five Hundred (1,500) shares, subject to periodic
adjustments in the event of certain changes in the Corporation's
capitalization. In addition, the maximum aggregate number of shares of Common
Stock purchasable by all Participants on any one Purchase Date shall not exceed
Sixty Thousand (60,000) shares, subject to periodic adjustments in the event of
certain changes in the Corporation's capitalization.
4.
<PAGE> 5
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions
not applied to the purchase of shares of Common Stock on any Purchase Date
because they are not sufficient to purchase a whole share of Common Stock shall
be held for the purchase of Common Stock on the next Purchase Date. However,
any payroll deductions not applied to the purchase of Common Stock by reason of
the limitation on the maximum number of shares purchasable on the Purchase Date
shall be promptly refunded.
F. TERMINATION OF PURCHASE RIGHT. The following
provisions shall govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior
to the next scheduled Purchase Date in the offering period, terminate
his or her outstanding purchase right by filing the appropriate form
with the Plan Administrator (or its designate), and no further payroll
deductions shall be collected from the Participant with respect to the
terminated purchase right. Any payroll deductions collected during
the Purchase Interval in which such termination occurs shall, at the
Participant's election, be immediately refunded or held for the
purchase of shares on the next Purchase Date. If no such election is
made at the time such purchase right is terminated, then the payroll
deductions collected with respect to the terminated right shall be
refunded as soon as possible.
(ii) The termination of such purchase
right shall be irrevocable, and the Participant may not subsequently
rejoin the offering period for which the terminated purchase right was
granted. In order to resume participation in any subsequent offering
period, such individual must re-enroll in the Plan (by making a timely
filing of the prescribed enrollment forms) on or before his or her
scheduled Entry Date into that offering period.
(iii) Should the Participant cease to
remain an Eligible Employee for any reason (including death,
disability or change in status) while his or her purchase right
remains outstanding, then that purchase right shall immediately
terminate, and all of the Participant's payroll deductions for the
Purchase Interval in which the purchase right so terminates shall be
immediately refunded. However, should the Participant cease to remain
in active service by reason of an approved unpaid leave of absence,
then the Participant shall have the right, exercisable up until the
last business day of the Purchase Interval in which such leave
commences, to (a) withdraw all the payroll deductions collected to
date on his or her behalf for that Purchase Interval or (b) have such
funds held for the purchase of shares on his or her behalf on the next
scheduled Purchase Date. In no event, however, shall any further
payroll deductions be collected on the Participant's behalf during
such leave. Upon the Participant's return to active service within
(i) ninety (90) days following the commencement of such leave or, if
longer, the period during which such Participant's right to
reemployment with the Corporation is guaranteed by either statute or
contract, his or her payroll
5.
<PAGE> 6
deductions under the Plan shall automatically resume at the rate in
effect at the time the leave began, unless the Participant withdraws
from the Plan prior to his or her return. If the Participant's leave
of absence, whether paid or unpaid, (i) exceeds ninety (90) days and
(ii) is not guaranteed by either statute or contract, then the
Participant's status as an Eligible Employee will be deemed to have
terminated on the ninety-first (91st) day of such leave, and such
Participant's purchase right for the offering period in which such
leave began shall thereupon terminate. An individual who returns to
active employment following such a leave will be treated as a new
employee for purposes of participating in the Plan and will
accordingly have a new Entry Date. Such an individual must re-enroll
in the Plan (by making a timely filing of the prescribed enrollment
forms) on or before his or her scheduled Entry Date into the offering
period.
G. CORPORATE TRANSACTION. Each outstanding purchase
right shall automatically be exercised, immediately prior to the effective date
of any Corporate Transaction, by applying the payroll deductions of each
Participant for the Purchase Interval in which such Corporate Transaction
occurs to the purchase of whole shares of Common Stock at a purchase price per
share equal to eighty-five percent (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 Corporate Transaction occurs or (ii) the Fair
Market Value per share of Common Stock immediately prior to the effective date
of such Corporate Transaction. However, the applicable limitation on the
number of shares of Common Stock purchasable per Participant and in the
aggregate shall continue to apply to any such purchase.
The Corporation shall use its best efforts to provide at least
ten (10)-days prior written notice of the occurrence of any Corporate
Transaction, and Participants shall, following the receipt of such notice, have
the right to terminate their outstanding purchase rights prior to the effective
date of the Corporate Transaction.
H. PRORATION OF PURCHASE RIGHTS. Should the total
number of shares of Common Stock to be purchased pursuant to outstanding
purchase rights on any particular date exceed the number of shares then
available for issuance under the Plan, the Plan Administrator shall make a
pro-rata allocation of the available shares on a uniform and nondiscriminatory
basis, and the payroll deductions of each Participant, to the extent in excess
of the aggregate purchase price payable for the Common Stock pro-rated to such
individual, shall be refunded.
I. ASSIGNABILITY. The purchase right shall be
exercisable only by the Participant and shall not be assignable or transferable
by the Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no
stockholder rights with respect to the shares subject to his or her outstanding
purchase right until the shares are purchased on the Participant's behalf in
accordance with the provisions of the Plan and the Participant has become a
holder of record of the purchased shares.
6.
<PAGE> 7
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to
acquire Common Stock pursuant to any purchase right outstanding under this Plan
if and to the extent such accrual, when aggregated with (i) rights to purchase
Common Stock accrued under any other purchase right granted under this Plan and
(ii) similar rights accrued under other employee stock purchase plans (within
the meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value per share on the
date or dates such rights are granted) for each calendar year such rights are
at any time outstanding.
B. For purposes of applying such accrual limitations to
the purchase rights granted under the Plan, the following provisions shall be
in effect:
(i) The right to acquire Common Stock
under each outstanding purchase right shall accrue in a series of
installments on each successive Purchase Date during the offering
period on which such right remains outstanding.
(ii) No right to acquire Common Stock
under any outstanding purchase right shall accrue to the extent the
Participant has already accrued in the same calendar year the right to
acquire Common Stock under one (1) or more other purchase rights at a
rate equal to Twenty-Five Thousand Dollars ($25,000) worth of Common
Stock (determined on the basis of the Fair Market Value per share on
the date or dates of grant) for each calendar year such rights were at
any time outstanding.
C. If by reason of such accrual limitations, any
purchase right of a Participant does not accrue for a particular Purchase
Interval, then the payroll deductions which the Participant made during that
Purchase Interval with respect to such purchase right shall be promptly
refunded.
D. In the event there is any conflict between the
provisions of this Article and one or more provisions of the Plan or any
instrument issued thereunder, the provisions of this Article shall be
controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on November 21,
1997 and shall become effective at the Effective Time, provided no purchase
rights granted under the Plan shall be exercised, and no shares of Common Stock
shall be issued hereunder, until (i) the Plan shall have been approved by the
stockholders of the Corporation and (ii) the Corporation shall have complied
with all applicable requirements of the 1933 Act (including the registration of
the shares
7.
<PAGE> 8
of Common Stock issuable under the Plan on a Form S-8 registration statement
filed with the Securities and Exchange Commission), all applicable listing
requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock is listed for trading and all other
applicable requirements established by law or regulation. In the event such
stockholder approval is not obtained, or such compliance is not effected,
within twelve (12) months after the date on which the Plan is adopted by the
Board, the Plan shall terminate and have no further force or effect, and all
sums collected from Participants during the initial offering period hereunder
shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall
terminate upon the earliest of (i) the last business day in April 2008, (ii)
the date on which all shares available for issuance under the Plan shall have
been sold pursuant to purchase rights exercised under the Plan or (iii) the
date on which all purchase rights are exercised in connection with a Corporate
Transaction. No further purchase rights shall be granted or exercised, and no
further payroll deductions shall be collected, under the Plan following such
termination.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at
any time to become effective immediately following the close of any Purchase
Interval. However, the Board may not, without the approval of the
Corporation's stockholders, (i) increase the number of shares of Common Stock
issuable under the Plan or the maximum number of shares purchasable per
Participant on any one Purchase Date, except for permissible adjustments in the
event of certain changes in the Corporation's capitalization, (ii) alter the
purchase price formula so as to reduce the purchase price payable for the
shares of Common Stock purchasable under the Plan or (iii) modify eligibility
requirements for participation in the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration
of the Plan shall be paid by the Corporation; however, each Plan Participant
shall bear all costs and expenses incurred by such individual in the sale or
other disposition of any shares purchased under the Plan.
B. Nothing in the Plan shall confer upon the Participant
any right to continue in the employ of the Corporation or any Corporate
Affiliate for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Corporate Affiliate
employing such person) or of the Participant, which rights are hereby expressly
reserved by each, to terminate such person's employment at any time for any
reason, with or without cause.
C. The provisions of the Plan shall be governed by the
laws of the State of California without resort to that State's conflict-of-laws
rules.
8.
<PAGE> 9
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
COM21, Inc.
<PAGE> 10
APPENDIX
The following definitions shall be in effect under the Plan:
A. BASE SALARY shall mean the (i) regular base salary
paid to a Participant by one or more Participating Companies during such
individual's period of participation in one or more offering periods under the
Plan plus (ii) any pre-tax contributions made by the Participant to any Code
Section 401(k) salary deferral plan or any Code Section 125 cafeteria benefit
program now or hereafter established by the Corporation or any Corporate
Affiliate. The following items of compensation shall NOT be included in Base
Salary: (i) all overtime payments, bonuses, commissions (other than those
functioning as base salary equivalents), profit-sharing distributions and other
incentive-type payments and (ii) any and all contributions (other than Code
Section 401(k) or Code Section 125 contributions) made on the Participant's
behalf by the Corporation or any Corporate Affiliate under any employee benefit
or welfare plan now or hereafter established.
B. BOARD shall mean the Corporation's Board of
Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as
amended.
D. COMMON STOCK shall mean the Corporation's common
stock.
E. CORPORATE AFFILIATE shall mean any parent or
subsidiary corporation of the Corporation (as determined in accordance with
Code Section 424), whether now existing or subsequently established.
F. CORPORATE TRANSACTION shall mean either of the
following stockholder-approved transactions to which the Corporation is a
party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of
all or substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation.
G. CORPORATION shall mean Com21, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Com21, Inc. which shall by appropriate action adopt
the Plan.
A-1.
<PAGE> 11
H. EFFECTIVE TIME shall mean the time at which the
Underwriting Agreement is executed and finally priced. Any Corporate Affiliate
which becomes a Participating Corporation after such Effective Time shall
designate a subsequent Effective Time with respect to its
employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any person who is
employed by a Participating Corporation on a basis under which he or she is
regularly expected to render more than twenty (20) hours of service per week
for more than five (5) months per calendar year for earnings considered wages
under Code Section 3401(a).
J. ENTRY DATE shall mean the date an Eligible Employee
first commences participation in the offering period in effect under the Plan.
The earliest Entry Date under the Plan shall be the Effective Time.
K. FAIR MARKET VALUE per share of Common Stock on any
relevant date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on
the Nasdaq National Market, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question, as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market or any successor
system. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time listed on
any Stock Exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(iii) For purposes of the initial offering period
which begins at the Effective Time, the Fair Market Value shall be
deemed to be equal to the price per share at which the Common Stock is
sold in the initial public offering pursuant to the Underwriting
Agreement.
L. 1933 ACT shall mean the Securities Act of 1933, as
amended.
M. PARTICIPANT shall mean any Eligible Employee of a
Participating Corporation who is actively participating in the Plan.
A-2.
<PAGE> 12
N. PARTICIPATING CORPORATION shall mean the Corporation
and such Corporate Affiliate or Affiliates as may be authorized from time to
time by the Board to extend the benefits of the Plan to their Eligible
Employees. The Participating Corporations in the Plan are listed in attached
Schedule A.
O. PLAN shall mean the Corporation's 1998 Employee Stock
Purchase Plan, as set forth in this document.
P. PLAN ADMINISTRATOR shall mean the committee of two
(2) or more Board members appointed by the Board to administer the Plan.
Q. PURCHASE DATE shall mean the last business day of
each Purchase Interval. The initial Purchase Date shall be July 31, 1998.
R. PURCHASE INTERVAL shall mean each successive six
(6)-month period within the offering period at the end of which there shall be
purchased shares of Common Stock on behalf of each Participant.
S. SEMI-ANNUAL ENTRY DATE shall mean the first business
day in May and November each year on which an Eligible Employee may first enter
an offering period.
T. STOCK EXCHANGE shall mean either the American Stock
Exchange or the New York Stock Exchange.
U. UNDERWRITING AGREEMENT shall mean the agreement
between the Corporation and the underwriter or underwriters managing the
initial public offering of the Common Stock.
A-3.
<PAGE> 1
EXHIBIT 10.8
COM21, INC.
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into this 3 day of 2, 4 by and
between Com21, Inc., a Delaware corporation (the "Company"), and 1
("Indemnitee").
RECITALS:
A. The Company and Indemnitee recognize the continued difficulty
in obtaining liability insurance for corporate directors, officers, employees,
controlling persons, agents and fiduciaries, the significant increases in the
cost of such insurance and the general reductions in the coverage of such
insurance.
B. The Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, controlling persons, agents and fiduciaries to expensive litigation
risks at the same time as the availability and coverage of liability insurance
has been severely limited.
C. The stockholders of the Company have adopted Bylaws (the
"Bylaws") providing for the indemnification of the officers, directors, agents
and employees of the Company to the maximum extent authorized by Section 145 of
the Delaware Corporations Code, as amended ("Code").
D. Indemnitee does not regard the current protection available
for the Company's directors, officers, employees, controlling persons, agents
and fiduciaries as adequate under the present circumstances, and Indemnitee and
other directors, officers, employees, controlling persons, agents and
fiduciaries of the Company may not be willing to serve or continue to serve in
such capacities without additional protection.
E. The Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Company and the members of its Board of Directors with
respect to indemnification of such directors.
F. The Company (i) desires to attract and retain the involvement
of highly qualified individuals, such as Indemnitee, to serve the Company and,
in part, in order to induce Indemnitee to be involved with the Company and (ii)
wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law.
G. In view of the considerations set forth above, the Company
desires that Indemnitee be indemnified by the Company as set forth herein.
<PAGE> 2
NOW, THEREFORE, the Company and Indemnitee hereby agree as
follows:
1. Indemnification of Indemnitee.
The Company hereby agrees to indemnify Indemnitee to
the fullest extent permitted by law, even if such indemnification is not
specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation (the "Certificate"), the Company's
Bylaws or by statute. In the event of any change after the date of this
Agreement in any applicable law, statute or rule which expands the right of a
Delaware corporation to indemnify a member of its Board of Directors or an
officer, employee, controlling person, agent or fiduciary, it is the intent of
the parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits afforded by such change. In the event of any change in any applicable
law, statute or rule which narrows the right of a Delaware corporation to
indemnify a member of its Board of Directors or an officer, employee, agent or
fiduciary, such change, to the extent not otherwise required by such law,
statute or rule to be applied to this Agreement, shall have no effect on this
Agreement or the parties' rights and obligations hereunder except as set forth
in Section 10(a) hereof.
2. Additional Indemnity. The Company hereby agrees to
hold harmless and indemnify the Indemnitee:
a. against any and all expenses incurred by
Indemnitee, as set forth in Section 3(a) below; and
b. otherwise to the fullest extent not prohibited by
the Certificate, the Bylaws or the Code.
3. Indemnification Rights.
a. Indemnification of Expenses. The Company
shall indemnify and hold harmless Indemnitee, together with Indemnitee's
partners, affiliates, employees, agents and spouse and each person who controls
any of them or who may be liable within the meaning of Section 15 of the
Securities Act of 1933, as amended (the "Securities Act"), or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to the
fullest extent permitted by law if Indemnitee was or is or becomes a party to
or witness or other participant in, or is threatened to be made a party to or
witness or other participant in, any threatened, pending or completed action,
suit, proceeding or alternative dispute resolution mechanism, or any hearing,
inquiry or investigation that Indemnitee and the Company believe might lead to
the institution of any such action, suit, proceeding or alternative dispute
resolution mechanism, whether civil, criminal, administrative, investigative or
other (hereinafter a "Claim") against any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participating
in (including on appeal), or preparing to defend, be a witness in or
participate in, any such action, suit, proceeding, alternative dispute
resolution mechanism,
2.
<PAGE> 3
hearing, inquiry or investigation, judgments, fines, penalties and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) of such Claim and any federal,
state, local or foreign taxes imposed on Indemnitee as a result of the actual
or deemed receipt of any payments under this Agreement (collectively,
hereinafter "Expenses"), including all interest, assessments and other charges
paid or payable in connection with or in respect of such Expenses, incurred by
Indemnitee by reason of (or arising in part out of) any event or occurrence
related to the fact that Indemnitee is or was a director, officer, employee,
controlling person, agent or fiduciary of the Company, or any subsidiary of the
Company, or is or was serving at the request of the Company as a director,
officer, employee, controlling person, agent or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise, or by
reason of any action or inaction on the part of Indemnitee while serving in
such capacity including, without limitation, any and all losses, claims,
damages, expenses and liabilities, joint or several (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit, proceeding or any claim
asserted) under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, which relate directly
or indirectly to the registration, purchase, sale or ownership of any
securities of the Company or to any fiduciary obligation owed with respect
thereto (hereinafter an "Indemnification Event"). Such payment of Expenses
shall be made by the Company as soon as practicable but in any event no later
than twenty-five (25) days after written demand by Indemnitee therefor is
presented to the Company.
b. Reviewing Party. Notwithstanding the
foregoing, (i) the obligations of the Company under Section 2 shall be subject
to the condition that the Reviewing Party (as described in Section 12(e)
hereof) shall not have determined (in a written opinion, in any case in which
the Independent Legal Counsel referred to in Section 3(c) hereof is involved)
that Indemnitee would not be permitted to be indemnified under applicable law,
and (ii) and Indemnitee acknowledges and agrees that the obligation of the
Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 4(a) (an "Expense Advance") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee
would not be permitted to be so indemnified under applicable law, the Company
shall be entitled to be reimbursed by Indemnitee (who hereby agrees to
reimburse the Company) for all such amounts theretofore paid; provided,
however, that if Indemnitee has commenced or thereafter commences legal
proceedings in a court of competent jurisdiction to secure a determination that
Indemnitee should be indemnified under applicable law, any determination made
by the Reviewing Party that Indemnitee would not be permitted to be indemnified
under applicable law shall not be binding and Indemnitee shall not be required
to reimburse the Company for any Expense Advance until a final judicial
determination is made with respect thereto (as to which all rights of appeal
therefrom have been exhausted or lapsed). Indemnitee's obligation to reimburse
the Company for any Expense Advance shall be unsecured and no interest shall be
charged thereon. If there has not been a Change in Control (as defined in
Section 12(c) hereof), the Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a Change
in Control which has been approved by a majority of the Company's Board of
3.
<PAGE> 4
Directors who were directors immediately prior to such Change in Control), the
Reviewing Party shall be the Independent Legal Counsel referred to in Section
3(e) hereof. If there has been no determination by the Reviewing Party or if
the Reviewing Party determines that Indemnitee substantively would not be
permitted to be indemnified in whole or in part under applicable law,
Indemnitee shall have the right to commence litigation seeking an initial
determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, including the legal or factual bases
therefor, and the Company hereby consents to service of process and to appear
in any such proceeding. Any determination by the Reviewing Party otherwise
shall be conclusive and binding on the Company and Indemnitee.
c. Contribution. If the indemnification
provided for in Section 3(a) above for any reason is held by a court of
competent jurisdiction to be unavailable to an Indemnitee in respect of any
losses, claims, damages, expenses or liabilities referred to therein, then the
Company, in lieu of indemnifying Indemnitee thereunder, shall contribute to the
amount paid or payable by Indemnitee as a result of such losses, claims,
damages, expenses or liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and Indemnitee, or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company and Indemnitee in connection with the action or inaction which resulted
in such losses, claims, damages, expenses or liabilities, as well as any other
relevant equitable considerations. In connection with the registration of the
Company's securities, the relative benefits received by the Company and
Indemnitee shall be deemed to be in the same respective proportions that the
net proceeds from the offering (before deducting expenses) received by the
Company and the Indemnitee, in each case as set forth in the table on the cover
page of the applicable prospectus, bear to the aggregate public offering price
of the securities so offered. The relative fault of the Company and Indemnitee
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or
Indemnitee and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and Indemnitee agree that it would not be just and
equitable if contribution pursuant to this Section 3(c) were determined by pro
rata or per capita allocation or by any other method of allocation which does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. In connection with the registration of the Company's
securities, in no event shall an Indemnitee be required to contribute any
amount under this Section 3(c) in excess of the lesser of (i) that proportion
of the total of such losses, claims, damages or liabilities indemnified against
equal to the proportion of the total securities sold under such registration
statement which is being sold by Indemnitee or (ii) the proceeds received by
Indemnitee from its sale of securities under such registration statement. No
person found guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
4.
<PAGE> 5
person who was not found guilty of such fraudulent misrepresentation.
d. Survival Regardless of Investigation. The
indemnification and contribution provided for herein will remain in full force
and effect regardless of any investigation made by or on behalf of Indemnitee
or any officer, director, employee, agent or controlling person of Indemnitee.
e. Change in Control. After the date hereof,
the Company agrees that if there is a Change in Control of the Company (other
than a Change in Control which has been approved by a majority of the Company's
Board of Directors who were directors immediately prior to such Change in
Control) then, with respect to all matters thereafter arising concerning the
rights of Indemnitee to payments of Expenses under this Agreement or any other
agreement or under the Company's Certificate or Bylaws as now or hereafter in
effect, Independent Legal Counsel (as defined in Section 12(d) hereof) shall be
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law. The
Company agrees to abide by such opinion and to pay the reasonable fees of the
Independent Legal Counsel referred to above and to fully indemnify such counsel
against any and all reasonable expenses (including attorneys' fees), claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto.
f. Mandatory Payment of Expenses.
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in the defense of any
action, suit, proceeding, inquiry or investigation referred to in Section 3(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee
shall be indemnified against all Expenses incurred by Indemnitee in connection
herewith.
4. Expenses; Indemnification Procedure.
a. Advancement of Expenses. The Company shall
advance all Expenses incurred by Indemnitee. The advances to be made hereunder
shall be paid by the Company to Indemnitee as soon as practicable but in any
event no later than ten (10) days after written demand by Indemnitee therefor
to the Company.
b. Notice/Cooperation by Indemnitee. Indemnitee
shall give the Company notice in writing as soon as practicable of any Claim
made against Indemnitee for which indemnification will or could be sought under
this Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing to
Indemnitee).
5.
<PAGE> 6
c. No Presumptions; Burden of Proof. For
purposes of this Agreement, the termination of any Claim by judgment, order,
settlement (whether with or without court approval) or conviction, or upon a
plea of nolo contendere, or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law. In addition, neither the failure of the Reviewing
Party to have made a determination as to whether Indemnitee has met any
particular standard of conduct or had any particular belief, nor an actual
determination by the Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under applicable law, shall be a defense to Indemnitee's
claim or create a presumption that Indemnitee has not met any particular
standard of conduct or did not have any particular belief. In connection with
any determination by the Reviewing Party or otherwise as to whether Indemnitee
is entitled to be indemnified hereunder, the burden of proof shall be on the
Company to establish that Indemnitee is not so entitled.
d. Notice to Insurers. If, at the time of the
receipt by the Company of a notice of a Claim pursuant to Section 4(b) hereof,
the Company has liability insurance in effect which may cover such Claim, the
Company shall give prompt notice of the commencement of such Claim to the
insurers in accordance with the procedures set forth in each of the policies.
The Company shall thereafter take all necessary or desirable action to cause
such insurers to pay, on behalf of Indemnitee, all amounts payable as a result
of such action, suit, proceeding, inquiry or investigation in accordance with
the terms of such policies.
e. Selection of Counsel. In the event the
Company shall be obligated hereunder to pay the Expenses of any Claim, the
Company shall be entitled to assume the defense of such Claim, with counsel
approved by the Indemnitee, which approval shall not be unreasonably withheld,
upon the delivery to Indemnitee of written notice of its election to do so.
After delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred
by Indemnitee with respect to the same Claim; provided that, (i) Indemnitee
shall have the right to employ Indemnitee's counsel in any such Claim at
Indemnitee's expense and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized by the Company, (B) Indemnitee shall have
reasonably concluded that there is a conflict of interest between the Company
and Indemnitee in the conduct of any such defense, or (C) the Company shall not
continue to retain such counsel to defend such Claim, then the fees and
expenses of Indemnitee's counsel shall be at the expense of the Company.
5. Nonexclusivity.
The indemnification provided by this Agreement shall
be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate, its Bylaws, any agreement, any vote of stockholders or
disinterested directors, the General Corporation
6.
<PAGE> 7
Law of the State of Delaware, or otherwise. The indemnification provided under
this Agreement shall continue as to Indemnitee for any action Indemnitee took
or did not take while serving in an indemnified capacity even though Indemnitee
may have ceased to serve in such capacity.
6. No Duplication of Payments.
The Company shall not be liable under this Agreement
to make any payment in connection with any Claim made against any Indemnitee to
the extent Indemnitee has otherwise actually received payment (under any
insurance policy, Certificate of Incorporation, Bylaw or otherwise) of the
amounts otherwise indemnifiable hereunder.
7. Partial Indemnification.
If any Indemnitee is entitled under any provision of
this Agreement to indemnification by the Company for any portion of Expenses
incurred in connection with any Claim, but not, however, for all of the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the
portion of such Expenses to which Indemnitee is entitled.
8. Mutual Acknowledgement.
The Company and Indemnitee acknowledge that in
certain instances, Federal law or applicable public policy may prohibit the
Company from indemnifying its directors, officers, employees, controlling
persons, agents or fiduciaries under this Agreement or otherwise. Each
Indemnitee understands and acknowledges that the Company has undertaken or may
be required in the future to undertake with the Securities and Exchange
Commission to submit the question of indemnification to a court in certain
circumstances for a determination of the Company's rights under public policy
to indemnify Indemnitee.
9. Liability Insurance.
To the extent the Company maintains liability
insurance applicable to directors, officers, employees, control persons, agents
or fiduciaries, each such Indemnitee shall be covered by such policies in such
a manner as to provide Indemnitee the same rights and benefits as are accorded
to the most favorably insured of the Company's directors, if Indemnitee is a
director, or of the Company's officers, if Indemnitee is not a director of the
Company but is an officer; or of the Company's key employees, controlling
persons, agents or fiduciaries, if Indemnitee is not an officer or director but
is a key employee, agent, control person, or fiduciary.
10. Exceptions.
Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
7.
<PAGE> 8
a. Claims Initiated by Indemnitee. To indemnify
or advance expenses to any Indemnitee with respect to Claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except (i) with
respect to actions or proceedings to establish or enforce a right to indemnify
under this Agreement or any other agreement or insurance policy or under the
Company's Certificate of Incorporation or Bylaws now or hereafter in effect
relating to Claims for Indemnifiable Events, (ii) in specific cases if the
Board of Directors has approved the initiation or bringing of such Claim, or
(iii) as otherwise required under Section 145 of the Delaware General
Corporation Law, regardless of whether Indemnitee ultimately is determined to
be entitled to such indemnification, advance expense payment or insurance
recovery, as the case may be; or
b. Claims Under Section 16(b). To indemnify any
Indemnitee for expenses and the payment of profits arising from the purchase
and sale by Indemnitee of securities in violation of Section 16(b) of the
Exchange Act or any similar successor statute; or
c. Claims Excluded Under Section 145 of the
Delaware General Corporation Law. To indemnify any Indemnitee if (i) he did
not act in good faith or in a manner reasonably believed by such Indemnitee to
be in or not opposed to the best interests of the Company, or (ii) with respect
to any criminal action or proceeding, Indemnitee had reasonable cause to
believe his conduct was unlawful, or (iii) Indemnitee shall have been adjudged
to be liable to the Company unless and only to the extent the court in which
such action was brought shall permit indemnification as provided in Section
145(b) of the Delaware General Corporation Law.
11. Period of Limitations.
No legal action shall be brought and no cause of
action shall be asserted by or in the right of the Company against any
Indemnitee, any Indemnitee's estate, spouse, heirs, executors or personal or
legal representatives after the expiration of five years from the date of
accrual of such cause of action, and any claim or cause of action of the
Company shall be extinguished and deemed released unless asserted by the timely
filing of a legal action within such five-year period; provided, however, that
if any shorter period of limitations is otherwise applicable to any such cause
of action, such shorter period shall govern.
12. Construction of Certain Phrases.
a. For purposes of this Agreement, references to
the "Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
employees, agents or fiduciaries, so that if Indemnitee is or was a director,
officer, employee, agent, control person, or fiduciary of such constituent
corporation, or is or was
8.
<PAGE> 9
serving at the request of such constituent corporation as a director, officer,
employee, control person, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
b. For purposes of this Agreement, references to
"other enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on any Indemnitee with respect to an
employee benefit plan; and references to "serving at the request of the
Company" shall include any service as a director, officer, employee, agent or
fiduciary of the Company which imposes duties on, or involves services by, such
director, officer, employee, agent or fiduciary with respect to an employee
benefit plan, its participants or its beneficiaries; and if any Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in the
interests of the participants and beneficiaries of an employee benefit plan,
Indemnitee shall be deemed to have acted in a manner "not opposed to the best
interests of the Company" as referred to in this Agreement.
c. For purposes of this Agreement a "Change in
Control" shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their ownership of
stock of the Company, (A) who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding Voting Securities,
increases his beneficial ownership of such securities by 5% or more over the
percentage so owned by such person, or (B) becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Exchange Act), directly or indirectly, of
securities of the Company representing more than 20% of the total voting power
represented by the Company's then outstanding Voting Securities, (ii) during
any period of two consecutive years, individuals who at the beginning of such
period constitute the Board of Directors of the Company and any new director
whose election by the Board of Directors or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof, or (iii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation other than a merger or consolidation which would
result in the Voting Securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at least 80% of the
total voting power represented by the Voting Securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
the stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially all of the
Company's assets.
9.
<PAGE> 10
d. For purposes of this Agreement, "Independent
Legal Counsel" shall mean an attorney or firm of attorneys, selected in
accordance with the provisions of Section 3(d) hereof, who shall not have
otherwise performed services for the Company or any Indemnitee within the last
three years (other than with respect to matters concerning the right of any
Indemnitee under this Agreement, or of other indemnitees under similar
indemnity agreements).
e. For purposes of this Agreement, a "Reviewing
Party" shall mean any appropriate person or body consisting of a member or
members of the Company's Board of Directors or any other person or body
appointed by the Board of Directors who is not a party to the particular Claim
for which Indemnitee are seeking indemnification, or Independent Legal Counsel.
f. For purposes of this Agreement, "Voting
Securities" shall mean any securities of the Company that vote generally in the
election of directors.
13. Counterparts.
This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
14. Binding Effect; Successors and Assigns.
This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company, spouses, heirs, and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation or otherwise) to all,
substantially all, or a substantial part, of the business and/or assets of the
Company, by written agreement in form and substance satisfactory to Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if no such
succession had taken place. This Agreement shall continue in effect with
respect to Claims relating to Indemnifiable Events regardless of whether any
Indemnitee continues to serve as a director, officer, employee, agent,
controlling person, or fiduciary of the Company or of any other enterprise,
including subsidiaries of the Company, at the Company's request.
15. Attorneys' Fees. In the event that any action is
instituted by an Indemnitee under this Agreement or under any liability
insurance policies maintained by the Company to enforce or interpret any of the
terms hereof or thereof, any Indemnitee shall be entitled to be paid all
Expenses incurred by Indemnitee with respect to such action if Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless, as a part of such action, a
court of competent
10.
<PAGE> 11
jurisdiction over such action determines that the material assertions made by
Indemnitee as a basis for such action were not made in good faith or were
frivolous. In the event of an action instituted by or in the name of the
Company under this Agreement to enforce or interpret any of the terms of this
Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee in defense of such action (including costs and expenses incurred
with respect to Indemnitee counterclaims and cross-claims made in such action),
and shall be entitled to the advancement of Expenses with respect to such
action, unless, as a part of such action, a court having jurisdiction over such
action determines that the Indemnitee's material defenses to such action were
made in bad faith or were frivolous.
16. Notice. All notices and other communications required
or permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given (a) five (5) days after deposit with
the U.S. Postal Service or other applicable postal service, if delivered by
first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c)
one business day after the business day of deposit with Federal Express or
similar overnight courier, freight prepaid, or (d) one day after the business
day of delivery by facsimile transmission, if deliverable by facsimile
transmission, with copy by first class mail, postage prepaid, and shall be
addressed if to Indemnitee, at Indemnitee's address as set forth beneath
Indemnitee's signature to this Agreement and if to the Company at the address
of its principal corporate offices (attention: President) or at such other
address as such party may designate by ten (10) days' advance written notice to
the other party hereto.
17. Consent to Jurisdiction. The Company and Indemnitee
each hereby irrevocably consent to the jurisdiction of the courts of the State
of Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action instituted
under this Agreement shall be commenced, prosecuted and continued only in the
Court of Chancery of the State of Delaware in and for New Castle County, which
shall be the exclusive and only proper forum for adjudicating such a claim.
18. Severability. The provisions of this Agreement shall
be severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or sentence) are held by a court
of competent jurisdiction to be invalid, void or otherwise unenforceable, and
the remaining provisions shall remain enforceable to the fullest extent
permitted by law. Furthermore, to the fullest extent possible, the provisions
of this Agreement (including, without limitations, each portion of this
Agreement containing any provision held to be invalid, void or otherwise
unenforceable, that is not itself invalid, void or unenforceable) shall be
construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
19. Choice of Law. This Agreement shall be governed by
and its provisions construed and enforced in accordance with the laws of the
State of Delaware, as applied to contracts between Delaware residents, entered
into and to be performed entirely within the State of Delaware, without regard
to the conflict of laws principles thereof.
11.
<PAGE> 12
20. Subrogation. In the event of payment under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of Indemnitee who shall execute all documents
required and shall do all acts that may be necessary to secure such rights and
to enable the Company effectively to bring suit to enforce such rights.
21. Amendment and Termination. No amendment,
modification, termination or cancellation of this Agreement shall be effective
unless it is in writing signed by all parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
22. Integration and Entire Agreement. This Agreement
sets forth the entire understanding between the parties hereto and supersedes
and merges all previous written and oral negotiations, commitments,
understandings and agreements relating to the subject matter hereof between the
parties hereto.
23. No Construction as Employment Agreement. Nothing
contained in this Agreement shall be construed as giving the Indemnitee any
right to be retained in the employ of the Company or any of its subsidiaries.
24. Corporate Authority. The Board of Directors of the
Company has approved the terms of this Agreement.
12.
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on and as of the day and year first above written.
COMPANY:
COM21, INC.,
a Delaware corporation
By:__________________________________
Peter Fenner
President
INDEMNITEE
By:__________________________________
1
Address:_____________________________
_____________________________
_____________________________
[SIGNATURE PAGE TO COM21, INC. INDEMNIFICATION AGREEMENT]
<PAGE> 1
Exhibit 10.9
LOAN AND SECURITY AGREEMENT
BORROWER: COM2L, INC.
ADDRESS: 750 TASMAN DRIVE
MILPITAS, CALIFORNIA 95035
DATE: MAY 30,1997
This Loan and Security Agreement is entered into on the above date between
GREYROCK BUSINESS CREDIT, a Division of NationsCredit Commercial Corporation
("GBC"), whose address is 10880 Wilshire Blvd. Suite 950, Los Angeles, CA 90024
and the borrower named above ("Borrower"), whose chief executive office is
located at the above address ("Borrower's Address"). The Schedule to this
Agreement (the "Schedule") being signed concurrently is an integral part of this
Agreement. (Definitions of certain terms used in this Agreement are set forth in
Section 8 below.)
1. LOANS.
1.1 LOANS. GBC will make loans to Borrower (the "Loans"), up to
the amounts (the "Credit Limit") shown on the Schedule*, provided no Default or
Event of Default has occurred and is continuing. If at any time or for any
reason the total of all outstanding Loans and all other Obligations exceeds the
Credit Limit, Borrower shall immediately pay the amount of the excess to GBC,
without notice or demand. **
*MINUS THE AVAILABILITY RESERVES
**"AVAILABILITY RESERVES" SHALL MEAN SUCH AMOUNTS AS GBC MAY FROM TIME
TO TIME ESTABLISH AND REVISE IN ITS GOOD FAITH BUSINESS JUDGMENT TO REFLECT (A)
ANY MATERIAL INCREASE IN DILUTION WITH RESPECT TO THE ACCOUNTS OR ANY MATERIAL
DECLINE IN THE GENERAL CREDITWORTHINESS OF ACCOUNT DEBTORS; AND/OR (B) EVENTS,
CONDITIONS, CONTINGENCIES OR RISKS WHICH MAY SUBSTANTIALLY AFFECT EITHER THE
COLLATERAL OR ANY OTHER PROPERTY WHICH IS SECURITY FOR THE OBLIGATIONS OR ITS
VALUE, OR THE ASSETS, BUSINESS OR PROSPECTS OF BORROWER OR THE SECURITY
INTERESTS AND OTHER RIGHTS OF GBC IN THE COLLATERAL (INCLUDING THE
ENFORCEABILITY, PERFECTION AND PRIORITY THEREOF) AND/OR (C) GBC'S GOOD FAITH
BELIEF THAT ANY COLLATERAL REPORT OR FINANCIAL INFORMATION FURNISHED BY OR ON
BEHALF OF BORROWER TO GBC WAS FALSE OR MISLEADING IN A MATERIAL RESPECT WHEN
MADE.
1.2 INTEREST. All Loans and all other monetary Obligations shall
bear interest at the rate shown on the Schedule, except where expressly set
forth to the contrary in this Agreement or in another written agreement signed
by GBC and Borrower. Interest shall be payable monthly, on the last day of the
month. Interest may, in GBC's discretion, be charged to Borrower's loan account,
and the same shall thereafter bear interest at the same rate as the other Loans.
1.3 FEES. Borrower shall pay GBC the fee(s) shown on the
Schedule, which are in addition to all interest and other sums payable to GBC
and are not refundable.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of
all of the Obligations when due, Borrower hereby grants to GBC a security
interest in all of Borrower's interest in the following, whether now owned or
hereafter acquired, and wherever located (collectively, the "Collateral"): All
Inventory, Equipment,
<PAGE> 2
Receivables, and General Intangibles, including, without limitation, all of
Borrower's Deposit Accounts, all money, all collateral in which GBC is granted a
security interest pursuant to any other present or future agreement, all
property now or at any time in the future in GBC's possession, and all proceeds
(including proceeds of any insurance policies, proceeds of proceeds and claims
against third parties), all products of the foregoing, and all books and records
related to any of the foregoing.*
* NOTWITHSTANDING THE FOREGOING PROVISIONS OF THIS SECTION 2.1, SUCH
GRANT OF A SECURITY INTEREST SHALL NOT EXTEND TO, AND THE TERM "COLLATERAL"
SHALL NOT INCLUDE, ANY GENERAL INTANGIBLES OF THE BORROWER (WHETHER OWNED OR
HELD AS LICENSEE OR LESSEE, OR OTHERWISE), TO THE EXTENT THAT (I) SUCH GENERAL
INTANGIBLES ARE NOT ASSIGNABLE OR CAPABLE OF BEING ENCUMBERED AS A MATTER OF LAW
OR UNDER THE TERMS OF THE LICENSE, LEASE OR OTHER AGREEMENT APPLICABLE THERETO
(BUT SOLELY TO THE EXTENT THAT ANY SUCH RESTRICTION SHALL BE ENFORCEABLE UNDER
APPLICABLE LAW), WITHOUT THE CONSENT OF THE LICENSOR OR LESSOR THEREOF OR OTHER
APPLICABLE PARTY THERETO AND (II) SUCH CONSENT HAS NOT BEEN OBTAINED; PROVIDED,
HOWEVER, THAT THE FOREGOING GRANT OF SECURITY INTEREST SHALL EXTEND TO, AND THE
TERM "COLLATERAL" SHALL INCLUDE (A) ANY GENERAL INTANGIBLE WHICH IS A RECEIVABLE
OR A PROCEED OF, OR OTHERWISE RELATED TO THE ENFORCEMENT OR COLLECTION OF, ANY
RECEIVABLE, OR GOODS WHICH ARE THE SUBJECT OF ANY RECEIVABLE, (B) ANY AND ALL
PROCEEDS OF ANY OTHER GENERAL INTANGIBLES WHICH ARE OTHERWISE EXCLUDED TO THE
EXTENT THAT THE ASSIGNMENT OR ENCUMBRANCE OF SUCH PROCEEDS IS NOT SO RESTRICTED,
AND (C) UPON OBTAINING THE CONSENT OF ANY SUCH LICENSOR, LESSOR OR OTHER
APPLICABLE PARTY'S CONSENT WITH RESPECT TO ANY SUCH OTHERWISE EXCLUDED GENERAL
INTANGIBLES, SUCH GENERAL INTANGIBLES AS WELL AS ANY AND ALL PROCEEDS THEREOF
THAT MIGHT THERETOFORE HAVE BEEN EXCLUDED FROM SUCH GRANT OF A SECURITY INTEREST
AND THE TERM "COLLATERAL".
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce GBC to enter into this Agreement and to make Loans,
Borrower represents and warrants to GBC as follows, and Borrower covenants that
the following representations will continue to be true, and that Borrower will
at all times comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is
and will continue to be, duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Borrower is and will
continue to be qualified and licensed to do business in all jurisdictions in
which any failure to do so would have a material adverse effect on Borrower. The
execution, delivery and performance by Borrower of this Agreement, and all other
documents contemplated hereby (i) have been duly and validly authorized, (ii)
are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), (iii) do not violate Borrower's articles or certificate of
incorporation, or Borrower's by-laws, or any law or any material agreement or
instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instrument which is binding upon Borrower or its
property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give GBC 30 * days prior written notice before changing its name
or doing business under any other name. Borrower has complied, and will in the
future comply, with all laws relating to the conduct of business under a
fictitious business name.
*15
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in
the heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give GBC at least 30 * days prior
written notice before
2.
<PAGE> 3
opening any additional place of business, changing its chief executive office,
or moving any of the Collateral to a location other than Borrower's Address or
one of the locations set forth on the Schedule***
* 15
** (OTHER THAN (I) IN CONNECTION WITH SALES OR OTHER DISPOSITIONS OF
INVENTORY AND OTHER PRODUCT IN THE ORDINARY COURSE OF BUSINESS, (II) DISPOSAL IN
THE ORDINARY COURSE OF BUSINESS OF ITEMS OF COLLATERAL WHICH HAVE BECOME WORN
OUT OR OBSOLETE OR WHICH ARE PROMPTLY BEING REPLACED, PROVIDED THAT WITHOUT
GBC'S PRIOR WRITTEN CONSENT BORROWER SHALL NOT DISPOSE OF MORE THAN $50,000 OF
COLLATERAL (WITH EACH ITEM OF SUCH COLLATERAL TO BE VALUED AT THE GREATER OF
COST OR FAIR MARKET VALUE) IN ANY FISCAL YEAR, (III) DISPOSAL OF DEMONSTRATION
INVENTORY OUTSIDE THE ORDINARY COURSE OF BUSINESS NOT EXCEEDING IN THE AGGREGATE
$50,000 IN ANY FISCAL YEAR, DISPOSAL OF EQUIPMENT INVENTORY OUTSIDE THE ORDINARY
COURSE OF BUSINESS NOT EXCEEDING IN THE AGGREGATE $50,000 IN ANY FISCAL YEAR,
(IV) MOVEMENT OF EQUIPMENT TO ANY ADDITIONAL LOCATION REPORTED TO GBC AND WITHIN
A JURISDICTION IN WHICH GBC HAS TAKEN ALL NECESSARY ACTION IN ORDER TO PROTECT
AND PERFECT ITS SECURITY INTEREST THEREIN, AND (V) ANY AND ALL MOBILE GOODS
WHICH ARE OF A TYPE NORMALLY USED IN MORE THAN ONE JURISDICTION). IN CONNECTION
WITH OPENING OF NEW SALES OFFICES OUTSIDE OF THE DENVER OFFICE, BORROWER WILL BE
PERMITTED TO PROVIDE GBC NOTICE WITHIN 30 DAYS FOLLOWING THE OPENING OF THE NEW
OFFICE, PROVIDED THAT (I) THE COLLATERAL LOCATED AT SUCH NEW SALES OFFICE SHALL
NOT EXCEED $50,000 UNTIL SUCH NOTICE HAS BEEN GIVEN TO GBC AND GBC HAS TAKEN ALL
NECESSARY ACTION IN ORDER TO PROTECT AND PERFECT ITS SECURITY INTEREST IN ANY
COLLATERAL TO BE LOCATED AT SUCH OFFICE, AND (II) NOT MORE THAN AN AGGREGATE OF
$100,000 OF COLLATERAL SHALL AT ANY TIME BE LOCATED AT NEW SALES OFFICES FOR
WHICH NOTICE HAS NOT YET BEEN GIVEN TO GBC AND FOR WHICH GBC HAS NOT YET TAKEN
ALL NECESSARY ACTION IN ORDER TO PROTECT AND PERFECT ITS SECURITY INTEREST IN
ANY COLLATERAL TO BE LOCATED AT SUCH OFFICES.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at
all times in the future be, the sole owner of all the Collateral, except for
items of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. GBC now has, and
will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend GBC and the Collateral against all claims of
others. So long as any Loan is outstanding none of the Collateral now is or will
be affixed to any real property in such a manner, or with such intent, as to
become a fixture*. Borrower is not and will not become a lessee under any real
property lease pursuant to which the lessor may obtain any rights in any of the
Collateral and no such lease now prohibits, restrains, impairs or will prohibit,
restrain or impair Borrower's right to remove any Collateral from the leased
premises **. Whenever any Collateral is located upon premises in which any third
party has an interest (whether as owner, mortgagee, beneficiary under a deed of
trust, lien or otherwise), Borrower shall, whenever requested by GBC, use its
best efforts to cause such third party to execute and deliver to GBC, in form
acceptable to GBC, such waivers and subordinations as GBC shall specify, so as
to ensure that GBC's rights in the Collateral are, and will continue to be,
superior to the rights of any such third party. Borrower will keep in full force
and effect, and will comply *** with all the terms of, any lease of real
property where any of the Collateral now or in the future may be located.
* , UNLESS SUCH COLLATERAL IS COVERED BY A FIXTURE FILING DULY EXECUTED
AND DELIVERED BY THE BORROWER IN FAVOR OF GBC, IS RECORDED WITH RESPECT TO SUCH
REAL PROPERTY, AND PROVIDES GBC'S SECURITY INTEREST/LIEN AGAINST SUCH COLLATERAL
WITH PRIORITY SATISFACTORY TO GBC.
** EXCEPT TO THE EXTENT PROVIDED UNDER LEASES WITH RESPECT TO WHICH THE
LANDLORD HAS ENTERED INTO A LANDLORD'S WAIVER AND AGREEMENT IN RECORDABLE FORM
AND SATISFACTORY TO GBC, ACKNOWLEDGING GBC'S PRIOR SECURITY INTEREST IN THE
COLLATERAL AND PROVIDING ACCESS FOR GBC TO THE COLLATERAL AND THE PREMISES
3.
<PAGE> 4
***IN ALL MATERIAL RESPECTS
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in
good working condition, ordinary wear and tear excepted, and Borrower will not
use the Collateral for any unlawful purpose. Borrower will immediately advise
GBC in writing of any material loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial
statements now or in the future delivered to GBC have been, and will be,
prepared in conformity with generally accepted accounting principles and now and
in the future will completely and fairly reflect the financial condition of
Borrower, at the times and for the periods therein stated*. Between the last
date covered by any such statement provided to GBC and the date hereof, there
has been no material adverse change in the financial condition or business of
Borrower. Borrower is now and will continue to be solvent.
* , EXCEPT IN THE CASE OF QUARTERLY FINANCIAL INFORMATION FOR THE
ABSENCE OF FOOTNOTE DISCLOSURE AND SUBJECT TO CHANGES RESULTING FROM NORMAL,
YEAR-END AUDIT ADJUSTMENTS, AND EXCEPT IN THE CASE OF PROJECTIONS OR FORECASTS
FOR THE UNDERSTANDING THAT ALTHOUGH BORROWER HAS PREPARED THE SAME IN GOOD FAITH
UTILIZING ASSUMPTIONS IT BELIEVES TO BE REASONABLE, GBC RECOGNIZES THAT
FORECASTS AND ASSUMPTIONS BY THEIR NATURE INVOLVE APPROXIMATIONS AND
UNCERTAINTIES.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by applicable
law, and Borrower has timely paid, and will timely pay, all applicable taxes,
assessments, deposits and contributions now or in the future owed by Borrower.
Borrower may, however, defer payment of any contested taxes, provided that
Borrower (i) in good faith contests Borrower's obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted, (ii)
notifies GBC in writing of the commencement of, and any material development in,
the proceedings, and (iii) posts bonds or takes any other steps required to keep
the contested taxes from becoming a lien upon any of the Collateral. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or any other governmental agency.
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all applicable laws and regulations,
including, but not limited to, those relating to Borrower's ownership of real or
personal property, the conduct and licensing of Borrower's business, and all
environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which *
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Borrower, or in any material impairment
in the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform GBC in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower involving any single claim of
$50,000 or more, or involving $100,000 or more in the aggregate.
4.
<PAGE> 5
*IS REASONABLY LIKELY TO
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes.
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and
warrants to GBC as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made,
represent an undisputed, bona fide, existing, unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services, in the ordinary course of Borrower's business.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to GBC as follows: All statements made and all unpaid
balances appearing in all invoices, instruments and other documents evidencing
the Receivables are and shall be true and correct and all such invoices,
instruments and other documents and all of Borrower's books and records are and
shall be genuine and in all respects what they purport to be, and all
signatories and endorsers have the capacity to contract. All sales and other
transactions underlying or giving rise to each Receivable shall comply * with
all applicable laws and Governmental rules and regulations. ** signatures and
endorsements on all documents, instruments, and agreements relating to all
Receivables are and shall be genuine, and all such documents, instruments and
agreements are and shall be legally enforceable in accordance with their terms.
* IN ALL MATERIAL RESPECTS
** TO THE BEST OF THE BORROWER'S KNOWLEDGE AT THE TIME OF THE SALE, ALL
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall
deliver to GBC transaction reports and loan requests, schedules and assignments
of all Receivables, and schedules of collections, * all on GBC's standard
forms**; provided, however, that Borrower's failure to execute and deliver the
same shall not affect or limit GBC's security interest and other rights in all
of Borrower's Receivables, nor shall GBC's failure to advance or lend against a
specific Receivable affect or limit GBC's security interest and other rights
therein. *** with each such schedule and assignment, or later if **** requested
by GBC, Borrower shall furnish GBC with copies (or, at GBC's request, originals)
of all contracts, orders, invoices, and other similar documents, and all
original shipping instructions, delivery receipts, bills of lading, and other
evidence of delivery, for any goods the sale or disposition of which gave rise
to such Receivables, and Borrower warrants the genuineness of all of the
foregoing. Borrower shall also furnish to GBC an aged accounts receivable trial
balance in such form and at such intervals as GBC shall request. In addition,
Borrower shall deliver to GBC the originals of all instruments, chattel paper,
security agreements, guarantees and other documents and property evidencing or
securing any Receivables, immediately upon receipt thereof and in the same form
as received, with all necessary endorsements.
* AS GBC SHALL REQUEST,
** , OR ON SUCH OTHER FORMS AS SHALL BE REASONABLY SATISFACTORY TO GBC
*** IF AT ANY TIME REQUESTED BY GBC, TOGETHER
**** SO
4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect
all Receivables, unless and until a Default or an Event of Default has occurred
*. Borrower shall hold all payments on, and proceeds of, Receivables in trust
for GBC, and Borrower shall deliver all such payments and proceeds to GBC,
within one business day after
5.
<PAGE> 6
receipt of the same, in their original form, duly endorsed, to be applied to the
Obligations in such order as GBC shall determine.
* AND IS CONTINUING
4.5 DISPUTES. Borrower shall notify GBC promptly of all disputes or
claims relating to Receivables on the regular reports to GBC. Borrower shall not
forgive, or settle any Receivable for less than payment in full, or agree to do
any of the foregoing, except that Borrower may do so, provided that: (i)
Borrower does so in good faith, in a commercially reasonable manner, in the
ordinary course of business, and in arm's length transactions, which are
reported to GBC on the regular reports provided to GBC; (ii) no Default or Event
of Default has occurred and is continuing; and (iii) taking into account all
such settlements and forgiveness, the total outstanding Loans and other
Obligations will not exceed the Credit Limit.
4.6 RETURNS. Provided no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower shall promptly determine the reason
for such return and promptly issue a credit memorandum to the Account Debtor in
the appropriate amount (sending a copy to GBC). In the event any attempted
return occurs after the occurrence * of any Event of Default, Borrower shall (i)
not accept any return without GBC's prior written consent, (ii) hold the
returned Inventory in trust for GBC, (iii) segregate all returned Inventory from
all of Borrower's other property, (iv) conspicuously label the returned
Inventory as GBC's property, and (v) immediately notify GBC of the return of any
Inventory, specifying the reason for such return, the location and condition of
the returned Inventory, and on GBC's request deliver such returned Inventory to
GBC.
* AND DURING THE CONTINUANCE
4.7 VERIFICATION. GBC may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or GBC or such other name as GBC may choose, * and GBC or its designee
may, at any time, notify Account Debtors that it has a security interest in the
Receivables.
* PROVIDED THAT, IF NO EVENT OF DEFAULT AND NO EVENT WHICH, WITH NOTICE
OR PASSAGE OF TIME OR BOTH, WOULD CONSTITUTE AN EVENT OF DEFAULT HAS OCCURRED
AND IS CONTINUING, SUCH VERIFICATIONS SHALL NOT BE DONE MORE FREQUENTLY THAN
ONCE PER CALENDAR QUARTER
4.8 NO LIABILITY. GBC shall not under any circumstances be responsible
or liable for any shortage or discrepancy in, damage to, or loss or destruction
of, any goods, the sale or other disposition of which gives rise to a
Receivable, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall GBC be deemed to be responsible for any of Borrower's
obligations under any contract or agreement giving rise to a Receivable. Nothing
herein shall, however, relieve GBC from liability for its own gross negligence
or willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 INSURANCE. Borrower shall, at all times, insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to GBC, * in such form and amounts as GBC may
reasonably require, and Borrower shall provide evidence of such insurance to
GBC, so that GBC is satisfied that such insurance is, at all times, in full
force and effect. All such insurance policies shall name GBC as an additional
loss payee, and shall contain a lenders loss payee endorsement in form
reasonably acceptable to GBC. Upon receipt of the proceeds of any such
insurance, GBC shall apply such proceeds in reduction of the Obligations as GBC
shall determine in its sole discretion, except that, provided no Default or
Event of Default has occurred and
6.
<PAGE> 7
is continuing, GBC shall release to Borrower insurance proceeds with respect to
Equipment totaling less than $100,000, which shall be utilized by Borrower for
the replacement of the Equipment with respect to which the insurance proceeds
were paid. GBC may require reasonable assurance that the insurance proceeds so
released will be so used. If Borrower fails to provide or pay for any insurance,
GBC may, but is not obligated to, obtain the same at Borrower's expense.
Borrower shall promptly deliver to GBC copies of all reports made to insurance
companies **.
* COVERING SUCH PROPERTY AND RISKS AS IS CUSTOMARILY CARRIED BY
COMPANIES ENGAGED IN SIMILAR BUSINESSES AND OWNING SIMILAR PROPERTIES IN THE
LOCALITIES WHERE THE BORROWER OPERATES, AND
** INVOLVING CLAIMS IN EXCESS OF $50,000
5.2 REPORTS. Borrower, at its expense, shall provide GBC with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets, sales projections, operating plans and
other financial documentation), as GBC shall from time to time reasonably
specify.
5.3 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on
one business day's notice, GBC, or its agents, shall have the right to inspect
the Collateral, and the right to audit and copy Borrower's books and records.
GBC shall take reasonable steps to keep confidential all information obtained in
any such inspection or audit, but GBC shall have the right to disclose any such
information to its auditors, regulatory agencies, and attorneys, and pursuant to
any subpoena or other legal process. The foregoing inspections and audits shall
be at Borrower's expense and the charge therefor shall be $600 per person per
day (or such higher amount as shall represent GBC's then current standard charge
for the same), plus reasonable out-of-pockets expenses. Borrower shall not be
charged more than $3,000 per audit (plus reasonable out-of-pockets expenses),
nor shall audits be done more frequently than four times per calendar year,
provided that the foregoing limits shall not apply after the occurrence of a
Default or Event of Default, nor shall they restrict GBC's right to conduct
audits at its own expense (whether or not a Default or Event of Default has
occurred). Borrower will not enter into any agreement with any accounting firm,
service bureau or third party to store Borrower's books or records at any
location other than Borrower's Address, without first obtaining GBC's written
consent, which may be conditioned upon such accounting firm, service bureau or
other third party agreeing to give GBC the same rights with respect to access to
books and records and related rights as GBC has under this Agreement.
5.4 REMITTANCE OF PROCEEDS. All proceeds arising from the sale or other
disposition of any Collateral shall be delivered, in kind, by Borrower to GBC in
the original form in which received by Borrower not later than the following
business day after receipt by Borrower, to be applied to the Obligations in such
order as GBC shall determine; provided that, if no Default or Event of Default
has occurred and is continuing, then Borrower shall not be obligated to remit to
GBC the proceeds of the sale of Equipment which is sold in the ordinary course
of business, in a good-faith arm's length transaction. Except for the proceeds
of the sale of Equipment as set forth above, Borrower shall not commingle
proceeds of Collateral with any of Borrower's other funds or property, and shall
hold such proceeds separate and apart from such other funds and property and in
an express trust for GBC. Nothing in this Section limits the restrictions on
disposition of Collateral set forth elsewhere in this Agreement.
5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule,
Borrower shall not, without GBC's prior written consent, do any of the
following: (i) merge or consolidate with another corporation or entity *; (ii)
acquire any assets, except in the ordinary course of business; (iii) enter into
any other transaction outside the ordinary course of business; (iv) sell or
transfer any Collateral, except that Borrower may (a) sell finished Inventory in
the ordinary course of Borrower's business, (b) sell Equipment in the ordinary
course of business, in good-faith arm's length transactions; ** (v) store any
Inventory or other Collateral with any warehouseman or other third party ***;
(vi) sell any Inventory on a sale-or-return, guaranteed sale, consignment, or
other contingent basis ****; (vii) make any loans of any money or other assets
+; (viii) incur any debts, outside the ordinary course of business, which would
have a material, adverse effect on Borrower or on the prospect of repayment of
the Obligations; (ix)
7.
<PAGE> 8
guarantee or otherwise become liable with respect to the obligations of another
party or entity ++; (x) pay or declare any dividends on Borrower's stock (except
for dividends payable solely in stock of Borrower); (xi) redeem, retire,
purchase or otherwise acquire, directly or indirectly, any of Borrower's stock
+++; (xii) make any change in Borrower's capital structure which would have a
material adverse effect on Borrower or on the prospect of repayment of the
Obligations; or (xiii) dissolve or elect to dissolve; or (xiv) agree to do any
of the foregoing.
* (PROVIDED THAT BORROWER MAY MERGE INTO ANOTHER CORPORATION FOR
PURPOSES OF EFFECTING A REINCORPORATION INTO ANOTHER STATE AFTER GBC HAS
NOTIFIED BORROWER IN WRITING THAT ALL STEPS NECESSARY TO PROTECT THE VALIDITY
AND PERFECTION OF GBC'S FIRST-PRIORITY SECURITY INTEREST IN THE COLLATERAL,
SUBJECT TO PERMITTED LIENS, HAVE BEEN TAKEN)
** (C) LICENSE, SUBLICENSE AND GRANT DISTRIBUTION AND SIMILAR RIGHTS IN
THE ORDINARY COURSE OF BUSINESS, AND (D) SELL OR DISPOSE OF ASSETS IN THE
ORDINARY COURSE OF BUSINESS WHICH HAVE BECOME WORN OUT OR OBSOLETE OR WHICH ARE
PROMPTLY BEING REPLACED, AND ASSETS (OTHER THAN RECEIVABLES) OUTSIDE THE
ORDINARY COURSE OF BUSINESS NOT EXCEEDING IN THE AGGREGATE $50,000 (WITH EACH
SUCH ASSET TO BE VALUED AT THE GREATER OF COST OR FAIR MARKET VALUE) IN ANY
FISCAL YEAR
*** EXCEPT AFTER GBC HAS NOTIFIED BORROWER IN WRITING THAT ALL STEPS
NECESSARY TO PROTECT THE VALIDITY, PERFECTION AND ENFORCEABILITY OF GBC'S
FIRST-PRIORITY SECURITY INTEREST IN THE INVENTORY, SUBJECT TO PERMITTED LIENS,
HAS BEEN TAKEN AND EXCEPT FOR INVENTORY IN AN AGGREGATE AMOUNT OF $1,000,000
STORED AT CELESTICA AND OTHER INVENTORY LEFT FOR TESTING WITH CUSTOMERS IN THE
ORDINARY COURSE OF BUSINESS
**** OTHER THAN INVENTORY BEING TESTED BY CUSTOMERS IN THE ORDINARY
COURSE OF BUSINESS
+ OTHER THAN LOANS TO OR GUARANTEES OF THE OBLIGATIONS OF EMPLOYEES IN
CONNECTION WITH RECRUITING, RELOCATION OR OTHER PURPOSES, NOT TO EXCEED $100,000
IN THE AGGREGATE OUTSTANDING AT ANY TIME, AND LOANS ARISING AS THE RESULT OF
ACCEPTING PROMISSORY NOTES FROM EMPLOYEES FOR THE PURCHASE BY SUCH EMPLOYEES OF
STOCK OF THE BORROWER
++ OTHER THAN ENDORSEMENTS OF INSTRUMENTS OR ITEMS OF PAYMENT FOR
COLLECTION IN THE ORDINARY COURSE OF BUSINESS, OBLIGATIONS PURSUANT TO THE
BORROWER'S BYLAWS OR IN INDEMNIFICATION AGREEMENTS, TO INDEMNIFY OFFICERS,
DIRECTORS AND EMPLOYEES OF THE BORROWER IN CONNECTION WITH THE PERFORMANCE OF
THEIR DUTIES FOR THE BORROWER AND THE GUARANTEES DESCRIBED ABOVE
+++ EXCEPT THAT BORROWER MAY REPURCHASE OR REDEEM SHARES OF ITS STOCK
FOR UP TO $100,000 IN THE AGGREGATE IN ANY FISCAL YEAR, IN CONNECTION WITH AN
EMPLOYEE STOCK PURCHASE PROGRAM, PROVIDED NO EVENT OF DEFAULT AND NO EVENT
WHICH, WITH NOTICE OR PASSAGE OF TIME OR BOTH, WOULD CONSTITUTE AN EVENT OF
DEFAULT UNDER THE LOAN AGREEMENT, HAS OCCURRED AND IS CONTINUING
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against GBC with respect to any Collateral or in any manner
relating to Borrower, Borrower shall without expense to GBC, make available
Borrower and its officers, employees and agents, and Borrower's books and
records*, without charge, to the extent that GBC may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
* SUBJECT TO THE PRESERVATION OF THE ATTORNEY-CLIENT PRIVILEGE
5.7 NOTIFICATION OF CHANGES. Borrower will * notify GBC in writing of
any change in its ** officers or directors, the opening of any new bank account
or other deposit account, and any material adverse change in the business or
financial affairs of Borrower.
8.
<PAGE> 9
* WITHIN A REASONABLE TIME PERIOD
** EXECUTIVE
5.8 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
GBC, to execute all documents and take all actions, as GBC may deem reasonably
necessary or useful in order to perfect and maintain GBC's perfected security
interest in the Collateral, and in order to fully consummate the transactions
contemplated by this Agreement.
5.9 INDEMNITY. Borrower hereby agrees to indemnify GBC and hold GBC
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, costs and expenses (including
* attorneys' fees), of every nature, character and description, which GBC may
sustain or incur based upon or arising out of any of the Obligations, any actual
or alleged failure to collect and pay over any withholding or other tax relating
to Borrower or its employees, any relationship or agreement between GBC and
Borrower, any actual or alleged failure of GBC to comply with any writ of
attachment or other legal process relating to Borrower or any of its property,
or any other matter, cause or thing whatsoever occurred, done, omitted or
suffered to be done by GBC relating to Borrower or the Obligations (except any
such amounts sustained or incurred as the result of the gross negligence or
willful misconduct of GBC or any of its directors, officers, employees, agents,
attorneys, or any other person affiliated with or representing GBC) **.
Notwithstanding any provision in this Agreement to the contrary, the indemnity
agreement set forth in this Section shall survive any termination of this
Agreement and shall for all purposes continue in full force and effect.
* REASONABLE
** PROVIDED THAT THE FOREGOING INDEMNITY SHALL NOT EXTEND TO LOST
PROFITS OF GBC OR TO CONSEQUENTIAL DAMAGES WHICH MAY BE SUFFERED BY GBC
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date"); provided that the
Maturity Date shall automatically be extended, and this Agreement shall
automatically and continuously renew, for successive additional terms of one
year each, unless one party gives written notice to the other, not less than *
days prior to the next Maturity Date, that such party elects to terminate this
Agreement effective on the next Maturity Date.
* 30
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective three business days after
written notice of termination is given to GBC; or (ii) by GBC at any time after
the occurrence of an Event of Default, without notice, effective immediately. If
this Agreement is terminated by Borrower or by GBC under this Section 6.2,
Borrower shall pay to GBC a termination fee (the "Termination Fee") in the
amount shown on the Schedule. The Termination Fee shall be due and payable on
the effective date of termination and thereafter shall bear interest at a rate
equal to the highest rate applicable to any of the Obligations.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Without limiting the generality of the foregoing, if on the Maturity Date, or on
any earlier effective date of termination, there are any outstanding letters of
credit issued based upon an application, guarantee, indemnity or similar
agreement on the part of GBC, then on such date Borrower shall provide to GBC
cash collateral in an amount equal to % * of the face amount of all such letters
of credit plus all interest, fees and costs due or (in GBC's estimation) likely
to become
9.
<PAGE> 10
due in connection therewith, to secure all of the Obligations relating to said
letters of credit, pursuant to GBC's then standard form cash pledge agreement.
Notwithstanding any termination of this Agreement, all of GBC's security
interests in all of the Collateral and all of the terms and provisions of this
Agreement shall continue in full force and effect until all Obligations have
been paid and performed in full; provided that, without limiting the fact that
Loans are subject to the discretion of GBC, GBC may, in its sole discretion,
refuse to make any further Loans after termination. No termination shall in any
way affect or impair any right or remedy of GBC, nor shall any such termination
relieve Borrower of any Obligation to GBC, until all of the Obligations have
been paid and performed in full. Upon payment and performance in full of all the
Obligations and termination of this Agreement, GBC shall promptly deliver to
Borrower termination statements, requests for reconveyances and such other
documents as may be reasonably required to terminate GBC's security interests.
* 100%
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower shall
give GBC immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to GBC by Borrower or any of
Borrower's officers, employees or agents, now or in the future, shall be untrue
or misleading in a material respect *; or (b) Borrower shall fail to pay when
due any Loan or ** any interest thereon or any other monetary Obligation; or (c)
the total Loans and other Obligations outstanding at any time shall exceed the
Credit Limit ***; or (d) Borrower shall fail to perform any non-monetary
Obligation which by its nature cannot be cured; or (e) Borrower shall fail to
perform any other non-monetary Obligation, which failure is not cured within 5
business days after the date performance is due; or (f) any levy, assessment,
attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made
on all or any part of the Collateral **** which is not cured within 10 days
after the occurrence of the same; or (g) any default or event of default occurs
under any obligation secured by a Permitted Lien, which is not cured within any
applicable cure period or waived in writing, by the holder of the Permitted Lien
+; or (h) Borrower breaches any material contract or obligation, which has or
may reasonably be expected to have a material adverse effect on Borrower's
business or financial condition; or (i) dissolution, termination of existence,
insolvency or business failure of Borrower or any Guarantor; or appointment of a
receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by Borrower or any Guarantor under any reorganization, bankruptcy,
insolvency, arrangement. readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; or (j) the
commencement of any proceeding against Borrower or any Guarantor under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, which is not cured by the dismissal thereof within 45 days
after the date commenced; or (k) revocation or termination of, or limitation or
denial of liability upon, any guaranty of the Obligations or any attempt to do
any of the foregoing; or (1) revocation or termination of, or limitation or
denial of liability upon, any pledge of any certificate of deposit, securities
or other property or asset pledged by any third party to secure any or all of
the Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or (m) Borrower makes any payment on account of any indebtedness
or obligation which has been subordinated to the Obligations other than as
permitted in the applicable subordination agreement, or if any Person who has
subordinated such indebtedness or obligations terminates or in any way limits or
terminates its subordination agreement; or (n) there shall be a change in the
record or beneficial ownership of the outstanding shares of stock of Borrower ++
without the prior written consent of GBC +++; or (o) Borrower shall generally
not pay its debts as they become due, or Borrower shall conceal, remove or
transfer any part of its property, with intent to hinder, delay or defraud its
creditors, or make or suffer any transfer of any of its property which may be
fraudulent under any bankruptcy, fraudulent conveyance or similar law; or (p)
there shall be a material adverse change in Borrower's business or financial
condition. GBC may cease making any Loans hereunder during any of the above cure
periods, and thereafter if an Event of Default has occurred.
10.
<PAGE> 11
* AS OF THE DATE MADE
** , WITHIN THREE DAYS OF THE DUE DATE,
*** AND THE BORROWER SHALL FAIL TO REPAY AN AMOUNT EQUAL TO THE EXCESS
WITHIN ONE BUSINESS DAY OF DEMAND
**** WITH A VALUE IN EXCESS OF $10,000
+ , PROVIDED THAT IF THE AMOUNT INVOLVED IS LESS THAN $50,000 THEN THE
SAME SHALL NOT BE AN EVENT OF DEFAULT UNLESS AND UNTIL THE HOLDER OF THE
PERMITTED LIEN COMMENCES ANY ACTION TO ENFORCE ITS LIEN AGAINST ANY COLLATERAL
++ SUCH THAT THERE SHALL BE A CHANGE IN THE GROUP OF PERSONS WHO
PRESENTLY, IN THE AGGREGATE, HOLD MORE THAN 50% OF THE STOCK OF THE BORROWER
+++ OTHER THAN PURSUANT TO AN INITIAL PUBLIC OFFERING
7.2 REMEDIES. Upon the occurrence and during the continuance of any
Event of Default, and at any time thereafter *, GBC, at its option, and without
notice or demand of any kind (all of which are hereby expressly waived by
Borrower)** , may do any one or more of the following: (a) Cease making Loans or
otherwise extending credit to Borrower under this Agreement or any other
document or agreement; (b) Accelerate and declare all or any part of the
Obligations to be immediately due, payable, and performable, notwithstanding any
deferred or installment payments allowed by any instrument evidencing or
relating to any Obligation; (c) Take possession of any or all of the Collateral
wherever it may be found, and for that purpose Borrower hereby authorizes GBC
without judicial process to enter onto any of Borrower's premises without
interference to search for, take possession of, keep, store, or remove any of
the Collateral, and remain on the premises or cause a custodian to remain on the
premises in exclusive control thereof, without charge for so long as GBC deems
it reasonably necessary in order to complete the enforcement of its rights under
this Agreement or any other agreement; provided, however, that should GBC seek
to take possession of any of the Collateral by Court process, Borrower hereby
irrevocably waives: (i) any bond and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession; (ii) any demand for possession prior to the commencement of any suit
or action to recover possession thereof; and (iii) any requirement that GBC
retain possession of, and not dispose of, any such Collateral until after trial
or final judgment; (d) Require Borrower to assemble any or all of the Collateral
and make it available to GBC at places designated by GBC which are reasonably
convenient to GBC and Borrower, and to remove the Collateral to such locations
as GBC may deem advisable; (e) Complete the processing, manufacturing or repair
of any Collateral prior to a disposition thereof and, for such purpose and for
the purpose of removal, GBC shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time GBC obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. GBC shall have the right to conduct
such disposition on Borrower's premises without charge, for such time or times
as GBC deems reasonable, or on GBC's premises, or elsewhere and the Collateral
need not be located at the place of disposition. GBC may directly or through any
affiliated company purchase or lease any Collateral at any such public
disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale; (g) Demand payment
of, and collect any Receivables and General Intangibles comprising Collateral
and, in connection therewith, Borrower irrevocably authorizes GBC to endorse or
sign Borrower's name on all collections, receipts, instruments and other
documents, to take possession of and open mail addressed to Borrower and remove
therefrom payments made with
11.
<PAGE> 12
respect to any item of the Collateral or proceeds thereof, and, in GBC's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Receivables, General Intangibles and the like for less than face value; and (h)
Demand and receive possession of any of Borrower's federal and state income tax
returns and the books and records utilized in the preparation thereof or
referring thereto. All reasonable attorneys' fees, expenses, costs, liabilities
and obligations incurred by GBC with respect to the foregoing shall be added to
and become part of the Obligations, shall be due on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations. Without limiting any of GBC's rights and remedies, from and after
the occurrence of any Event of Default, the interest rate applicable to the
Obligations shall be increased by an additional *** percent per annum.
* WHILE AN EVENT OF DEFAULT IS CONTINUING
** ,EXCEPT THAT GBC SHALL GIVE BORROWER ONE GENERAL NOTICE, CONCURRENTLY
WITH OR PRIOR TO EXERCISING ANY OF THE FOLLOWING REMEDIES, WHICH NOTICE MAY BE
GIVEN VIA FACSIMILE (WHICH WILL BE DEEMED TO HAVE BEEN GIVEN THE DAY OF
ELECTRONIC CONFIRMATION OF DELIVERY VIA FACSIMILE (OR IF THAT DAY IS NOT A
BUSINESS DAY, THEN THE NEXT BUSINESS DAY AFTER ELECTRONIC CONFIRMATION OF
DELIVERY VIA FACSIMILE)), STATING, IN GENERAL TERMS, THAT "GBC IS PROCEEDING TO
EXERCISE ITS RIGHTS AND REMEDIES" OR WORDS OF SIMILAR EFFECT (BUT NO SUCH NOTICE
SHALL BE REQUIRED IF EXIGENT CIRCUMSTANCES MAKE IT UNDULY DIFFICULT OR
IMPRACTICAL TO GIVE ANY SUCH NOTICE)
*** TWO
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
GBC agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to
Borrower at least seven days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least seven days before the sale in a
newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general,
non-specific terms; (iii) The sale is conducted at a place designated by GBC,
with or without the Collateral being present; (iv) The sale commences at any
time between 8:00 a.m. and 6:00 p.m; (v) Payment of the purchase price in cash
or by cashier's check or wire transfer is required; (vi) With respect to any
sale of any of the Collateral, GBC may (but is not obligated to) direct any
prospective purchaser to ascertain directly from Borrower any and all
information concerning the same. GBC shall be free to employ other methods of
noticing and selling the Collateral, in its discretion, if they are commercially
reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence and during the continuance of
any Event of Default, without limiting GBC's other rights and remedies, Borrower
grants to GBC an irrevocable power of attorney coupled with an interest,
authorizing and permitting GBC (acting through any of its employees, attorneys
or agents) at any time, at its option, but without obligation, with or without
notice to Borrower, and at Borrower's expense, to do any or all of the
following, in Borrower's name or otherwise, but GBC agrees to exercise the
following powers in a commercially reasonable manner: (a) Execute on behalf of
Borrower any documents that GBC may, in its sole discretion, deem advisable in
order to perfect and maintain GBC's security interest in the Collateral, or in
order to exercise a right of Borrower or GBC, or in order to fully consummate
all the transactions contemplated under this Agreement, and all other present
and future agreements; (b) Execute on behalf of Borrower any document
exercising, transferring or assigning any option to purchase, sell or otherwise
dispose of or to lease (as lessor or lessee) any real or personal property which
is part of GBC's Collateral or in which GBC has an interest; (c) Execute on
behalf of Borrower, any invoices relating to any Receivable, any draft against
any Account Debtor and any notice to any Account Debtor, any proof of claim in
bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or other
lien, or assignment or satisfaction of mechanic's, materialman's or other lien;
(d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral: endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into GBC's
possession; (e) Endorse all checks and other forms of remittances received by
GBC; (f) Pay, contest or settle any lien, charge, encumbrance, security interest
and adverse claim in or to any of the Collateral, or any judgment based thereon,
or otherwise take any action to terminate or discharge the same; Grant
extensions of time to pay, compromise claims and settle Receivables and
12.
<PAGE> 13
General Intangibles for less than face value and execute all releases and other
documents in connection therewith; (h) Pay any sums required on account of
Borrower's taxes or to secure the release of any liens therefor, or both; (i)
Settle and adjust, and give releases of, any insurance claim that relates to any
of the Collateral and obtain payment therefor; (j) Instruct any third party
having custody or control of any books or records belonging to, or relating to,
Borrower to give GBC the same rights of access and other rights with respect
thereto as GBC has under this Agreement; and (k) Take any action or pay any sum
required of Borrower pursuant to this Agreement and any other present or future
agreements. Any and all reasonable sums paid and any and all reasonable costs,
expenses, liabilities, obligations and reasonable attorneys' fees incurred by
GBC with respect to the foregoing shall be added to and become part of the
Obligations, shall be payable on demand, and shall bear interest at a rate equal
to the highest interest rate applicable to any of the Obligations. In no event
shall GBC's rights under the foregoing power of attorney or any of GBC's other
rights under this Agreement be deemed to indicate that GBC is in control of the
business, management or properties of Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any
sale or other disposition of the Collateral shall be applied by GBC first to the
reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by GBC in the exercise of its rights under this Agreement, second to
the interest due upon any of the Obligations, and third to the principal of the
Obligations, in such order as GBC shall determine in its sole discretion. Any
surplus shall be paid to Borrower or other persons legally entitled thereto;
Borrower shall remain liable to GBC for any deficiency. If GBC, in its sole
discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral, GBC shall have
the option, exercisable at any time, in its sole discretion, of either reducing
the Obligations by the principal amount of purchase price or deferring the
reduction of the Obligations until the actual receipt by GBC of the cash
therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set
forth in this Agreement, GBC shall have all the other rights and remedies
accorded a secured party under the California Uniform Commercial Code and under
all other applicable laws, and under any other instrument or agreement now or in
the future entered into between GBC and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
GBC of one or more of its rights or remedies shall not be deemed an election,
nor bar GBC from subsequent exercise or partial exercise of any other rights or
remedies. The failure or delay of GBC to exercise any rights or remedies shall
not operate as a waiver thereof, but all rights and remedies shall continue in
full force and effect until all of the Obligations have been fully paid and
performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"Account Debtor" means the obligor on a Receivable.
Affiliate" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"Agreement" and "this Agreement" means this Loan and Security Agreement
and all modifications and amendments thereto, extensions thereof, and
replacements therefor.
"Business Day" means a day on which GBC is open for business.
"Code" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
"Collateral" has the meaning set forth in Section 2.1 above.
13.
<PAGE> 14
"Default" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"Deposit Account" has the meaning set forth in Section 9105 of the Code.
"Eligible Receivables" means unconditional Receivables arising in the
ordinary course of Borrower's business from the completed sale of goods or
rendition of services, which GBC, in its sole judgment, shall deem eligible for
borrowing, based on such considerations as GBC may from time to time deem
appropriate.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and
other tangible personal property (other than Inventory) of every kind and
description used in Borrower's operations or owned by Borrower and any interest
in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.
"Event of Default" means any of the events set forth in Section 7.1 of
this Agreement.
"General Intangibles" means all general intangibles of Borrower, whether
now owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against GBC, rights to purchase or sell real
or personal property, rights as a licensor or licensee of any kind, royalties,
telephone numbers, proprietary information, purchase orders, and all insurance
policies and claims (including life insurance, key man insurance, credit
insurance, liability insurance, property insurance and other insurance), tax
refunds and claims, computer programs, discs, tapes and tape files, claims under
guaranties, security interests or other security held by or granted to Borrower,
all rights to indemnification and all other intangible property of every kind
and nature (other than Receivables).
"Guarantor" means any Person who has guaranteed any of the Obligations.
"Inventory" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located, to be furnished
under any contract of service or held for sale or lease (including all raw
materials, work in process, finished goods and goods in transit), and all
materials and supplies of every kind, nature and description which are or might
be used or consumed in Borrower's business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such goods,
merchandise or other personal property, and all warehouse receipts, documents of
title and other documents representing any of the foregoing.
"LIBOR Rate" means (i) the one-month London Interbank Offered Rate for
deposits in U.S. dollars, as shown each day in The Wall Street Journal (Eastern
Edition) under the caption "Money Rates - London Interbank Offered Rates
(LIBOR)"; or (ii) if the Wall Street Journal does not publish such rate, the
offered one-month rate for deposits in U.S. dollars which appears on the Reuters
Screen LIBOR Page as of 10:00 a.m., New York time, each day, provided that if at
least two rates appear on the Reuters Screen LIBOR Page on any day, the "LIBOR
Rate" for such day shall be the arithmetic mean of such rates; or (iii) if the
Wall Street Journal does not publish such rate on a particular day and no such
rate appears on the Reuters Screen LIBO Page on such day, the rate per annum at
which deposits in U.S. dollars are offered to the principal London office of The
Chase Manhattan Bank, in the London interbank market at approximately 11:00
A.M., London time, on such day in an amount approximately equal to the
outstanding principal amount of the Loans, for a period of one month, in each of
the foregoing cases as determined in good faith by GBC, which determination
shall be conclusive absent manifest error.
14.
<PAGE> 15
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to GBC, whether evidenced by this Agreement or any note
or other instrument or document, whether arising from an extension of credit,
opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by GBC in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees, loan fees,
termination fees, minimum interest charges and any other sums chargeable to
Borrower under this Agreement or under any other present or future instrument or
agreement between Borrower and GBC.
"Permitted Liens" means the following: (i) purchase money security
interests in specific items of Equipment; (ii) leases of specific items of
Equipment; (iii) liens for taxes not yet payable; (iv) additional security
interests and liens which are subordinate to the security interest in favor of
GBC and are consented to in writing by GBC (which consent shall not be
unreasonably withheld); (v) security interests being terminated substantially
concurrently with this Agreement; (vi) liens of materialmen, mechanics,
warehousemen, carriers, or other similar liens arising in the ordinary course of
business and securing obligations which are not delinquent; (vii) liens incurred
in connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above *,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods**. GBC will have the
right to require, as a condition to its consent under subparagraph (iv) above,
that the holder of the additional security interest or lien sign an
intercreditor agreement on GBC's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of GBC, and
agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
* OR CLAUSE (IV) ABOVE
** ,(IX) LIENS OR SECURITY INTERESTS EXISTING AS OF THE DATE HEREOF AND
DISCLOSED IN THE SCHEDULE; (X) ANY JUDGMENT, ATTACHMENT OR SIMILAR LIEN, UNLESS
THE JUDGMENT IT SECURES IS NOT FULLY COVERED BY INSURANCE AND HAS NOT BEEN
DISCHARGED WITHIN 15 DAYS OF THE ENTRY THEREOF; (XI) EASEMENTS, RIGHTS OF WAY,
SERVITUDES OR ZONING OR BUILDING RESTRICTIONS AND OTHER MINOR ENCUMBRANCES ON
REAL PROPERTY AND IRREGULARITIES IN THE TITLE TO SUCH PROPERTY WHICH DO NOT IN
THE AGGREGATE MATERIALLY IMPAIR THE USE OR VALUE OF SUCH PROPERTY OR RISK THE
LOSS OR FORFEITURE OF TITLE THERETO; AND (XII) LIENS WHICH CONSTITUTE BANKER'S
LIENS, RIGHTS OF SET-OFF OR SIMILAR RIGHTS AND REMEDIES AS TO DEPOSIT ACCOUNTS
OR OTHER FUNDS MAINTAINED WITH ANY BANK OR OTHER FINANCIAL INSTITUTION, WHETHER
ARISING BY OPERATION OF LAW OR PURSUANT TO CONTRACT; PROVIDED THAT (A) SUCH
DEPOSIT ACCOUNT IS NOT A DEDICATED CASH COLLATERAL ACCOUNT, AND (B) IS NOT
INTENDED BY THE BORROWER TO PROVIDE COLLATERAL TO THE DEPOSITORY INSTITUTION
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"Receivables" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents and all other forms of
obligations at any time owing to Borrower, all guaranties and other security
therefor, all merchandise returned to or repossessed by Borrower, and all rights
of stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.
Other Terms. All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with generally accepted accounting principles, consistently applied. All
15.
<PAGE> 16
other terms contained in this Agreement, unless otherwise indicated, shall have
the meanings provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by GBC (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by GBC on account of the Obligations three Business Days after receipt
by GBC of immediately available funds. GBC shall not, however, be required to
credit Borrower's account for the amount of any item of payment which is
unsatisfactory to GBC in its discretion, and GBC may charge Borrower's Loan
account for the amount of any item of payment which is returned to GBC unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the
Obligations may be applied, and in GBC's sole discretion reversed and
re-applied, to the Obligations, in such order and manner as GBC shall determine
in its sole discretion.
9.3 CHARGES TO ACCOUNT. GBC may, in its discretion, require that
Borrower pay monetary Obligations in cash to GBC, or charge them to Borrower's
Loan account, in which event they will bear interest at the same rate applicable
to the Loans.
9.4 MONTHLY ACCOUNTINGS. GBC shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by GBC), * unless Borrower
notifies GBC in writing to the contrary within sixty days after each account is
rendered, describing the nature of any alleged errors or admissions.
* ABSENT MANIFEST ERROR,
9.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, or certified mail return receipt
requested, addressed to GBC or Borrower at the addresses shown in the heading to
this Agreement, or at any other address designated in writing by one party to
the other party. All notices shall be deemed to have been given upon delivery in
the case of notices personally delivered, or at the expiration of one business
day following delivery to the private delivery service, or * business days
following the deposit thereof in the United States mail, with postage prepaid.
* THREE
9.6 SEVERABILITY. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
9.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and GBC and supersede all
prior and contemporaneous negotiations and oral representations and agreements,
all of which are merged and integrated in this Agreement. There are no oral
understandings, representations or agreements between the parties which are not
set forth in this Agreement or in other written agreements signed by the parties
in connection herewith.
9.8 WAIVERS. The failure of GBC at any time or times to require Borrower
to strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and GBC shall
16.
<PAGE> 17
not waive or diminish any right of GBC later to demand and receive strict
compliance therewith. Any waiver of any default shall not waive or affect any
other default, whether prior or subsequent, and whether or not similar. None of
the provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to GBC shall be deemed to have been waived by
any act or knowledge of GBC or its agents or employees, but only by a specific
written waiver signed by an authorized officer of GBC and delivered to Borrower.
Borrower waives demand, protest, notice of protest and notice of default or
dishonor, notice of payment and nonpayment, release, compromise, settlement,
extension or renewal of any commercial paper, instrument, account, General
Intangible, document or guaranty at any time held by GBC on which Borrower is or
may in any way be liable, and notice of any action taken by GBC, unless
expressly required by this Agreement.
9.9 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of GBC.
9.10 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
9.11 ATTORNEYS FEES AND COSTS. Borrower shall reimburse GBC for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by GBC, pursuant to, or in
connection with, or relating to this Agreement (whether or not a lawsuit is
filed), including, but not limited to, any reasonable attorneys' fees and costs
GBC incurs in order to do the following: prepare and negotiate this Agreement
and the documents relating to this Agreement; obtain legal advice in connection
with this Agreement or Borrower; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, Account Debtors, commence,
intervene in, or defend any action or proceeding; initiate any complaint to be
relieved of the automatic stay in bankruptcy; file or prosecute any probate
claim, bankruptcy claim, third-party claim, or other claim; examine, audit,
copy, and inspect any of the Collateral or any of Borrower's books and records;
protect, obtain possession of, lease, dispose of, or otherwise enforce GBC's
security interest in, the Collateral; and otherwise represent GBC in any
litigation relating to Borrower. If either GBC or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its reasonable costs and attorneys'
fees, including (but not limited to) reasonable attorneys' fees and costs
incurred in the enforcement of, execution upon or defense of any order, decree,
award or judgment. All attorneys' fees and costs to which GBC may be entitled
pursuant to this Paragraph shall immediately become part of Borrower's
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations.
9.12 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and GBC; provided, however,
that Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of GBC, and any prohibited assignment shall be
void. No consent by GBC to any assignment shall release Borrower from its
liability for the Obligations.
9.13 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.14 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower
against GBC, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Loan Agreement, or any
other present or future document or agreement, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or any other
matter, cause or thing, whatsoever, occurred, done, omitted or suffered to be
done by GBC, its directors, officers, employees, agents, accountants or
attorneys, shall be barred unless asserted by Borrower by the commencement of an
action or proceeding in a court of competent jurisdiction by the filing of a
complaint within one year after * the first act, occurrence or omission upon
which such claim or cause of action,
17.
<PAGE> 18
or any part thereof, is based, and the service of a summons and complaint on an
officer of GBC, or on any other person authorized to accept service on behalf of
GBC, within thirty (30) days thereafter. Borrower agrees that such one-year
period is a reasonable and sufficient time for Borrower to investigate and act
upon any such claim or cause of action. The one-year period provided herein
shall not be waived, tolled, or extended except by the written consent of GBC in
its sole discretion. This provision shall survive any termination of this Loan
Agreement or any other present or future agreement.
* BORROWER LEARNS OF, OR IN THE EXERCISE OF REASONABLE DILIGENCE SHOULD
HAVE LEARNED OF,
9.15 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used
in this Agreement for convenience. Borrower and GBC acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against GBC or Borrower under any rule of
construction or otherwise.
9.16 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of GBC and Borrower shall
be governed by the laws of the State of California. As a material part of the
consideration to GBC to enter into this Agreement, Borrower (i) agrees that all
actions and proceedings relating directly or indirectly to this Agreement shall,
at GBC's option, be litigated in courts located within California, and that the
exclusive venue therefor shall be Los Angeles County; (ii) consents to the
jurisdiction and venue of any such court and consents to service of process in
any such action or proceeding by personal delivery or any other method permitted
by law; and (iii) waives any and all rights Borrower may have to object to the
jurisdiction of any such court, or to transfer or change the venue of any such
action or proceeding,
9.17 CONFIDENTIALITY. GBC COVENANTS AND AGREES, ON A CONTINUING BASIS,
TO USE REASONABLE EFFORTS TO MAINTAIN THE CONFIDENTIALITY OF AND NOT TO DISCLOSE
TO ANY PERSON OTHER THAN ITS OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND
ACCOUNTANTS AND AFFILIATES, AND SUCH OTHER PERSONS TO WHOM GBC SHALL AT ANY TIME
BE REQUIRED TO MAKE SUCH DISCLOSURE IN ACCORDANCE WITH APPLICABLE LAW, ANY AND
ALL PROPRIETARY, TRADE SECRET OR CONFIDENTIAL INFORMATION PROVIDED TO OR
RECEIVED BY GBC FROM OR ON ACCOUNT OF BORROWER OR ANY AFFILIATE OF BORROWER,
INCLUDING BUSINESS PLANS AND FORECASTS, NON-PUBLIC FINANCIAL INFORMATION,
CONFIDENTIAL OR SECRET PROCESSES, FORMULAE, DEVICES OR CONTRACTUAL INFORMATION,
CUSTOMER LISTS, EMPLOYEE RELATION MATTERS, AND ANY OTHER INFORMATION THE
DISCLOSURE OF WHICH COULD REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE
IMPACT ON THE BUSINESS, FINANCES OR OPERATIONS OF BORROWER OR ITS AFFILIATES,
PROVIDED, HOWEVER, THE FOREGOING PROVISIONS SHALL NOT BE EFFECTIVE REGARDING THE
DISPOSITION OF COLLATERAL AFTER AN EVENT OF DEFAULT.
9.18 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND GBC EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN GBC AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF GBC OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
18.
<PAGE> 19
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH GBC OR BORROWER,IN ALL OF
THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWER:
COM21, INC.
BY
-------------------------------
PRESIDENT OR VICE PRESIDENT
BY
-------------------------------
SECRETARY OR ASS'T SECRETARY
GBC:
GREYROCK BUSINESS CREDIT,
A DIVISION OF NATIONSCREDIT COMMERCIAL
CORPORATION
BY
-------------------------------
TITLE
------------------------------
19.
<PAGE> 20
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: COM21, INC.
ADDRESS: 750 TASMAN DRIVE
MILPITAS, CALIFORNIA 95035
DATE: MAY 30, 1997
This Schedule is an integral part of the Loan and Security Agreement between
GREYROCK BUSINESS CREDIT, A DIVISION OF NATIONSCREDIT COMMERCIAL CORPORATION
("GBC") and the above-borrower ("Borrower") of even date.
1. CREDIT LIMIT
(Section 1.1): An amount not to exceed the lesser of (a) or (b) below:
(a) $5,000,000 at any one time outstanding; or
(b) The sum of the following:
(i) Receivable Loans. 80% of the amount of
Borrower's Eligible Receivables (as defined in
Section 8 above), plus
(ii) Term Loan. The unpaid principal balance of
the Term Loan in the original principal amount
of $2,000,000 being made concurrently herewith
by GBC to Borrower (the "Term Loan") and
evidenced by the Secured Promissory Note ("Term
Note") of even date herewith made by Borrower to
the order of GBC.
2. INTEREST.
INTEREST RATE (Section 1.2):
The interest rate in effect throughout each calendar
month during the term of this Agreement shall be the
highest "LIBOR Rate" in effect during such month,
plus 4.875% per annum, provided that the interest
rate in effect in each month shall not be less than
9% per annum, and provided that the interest charged
for each month shall be a minimum of $6,000,
regardless of the amount of the Obligations
outstanding. Interest shall be calculated on the
basis of a 360-day year for the actual number of
days elapsed. "LIBOR Rate" has the meaning set forth
in Section 8 above.
3. FEES (Section 1.3/Section 6.2):
Loan Fee: $50,000, payable concurrently herewith.
20.
<PAGE> 21
GREYROCK BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
Termination Fee: $6,000 per month for each month (or portion thereof)
from the effective date of termination to the
Maturity Date
NSF Check Charge: $15.00 per item.
Wire Transfers: $15.00 per transfer.
4. MATURITY DATE
(Section 6.1): MAY 31, 1998, subject to automatic renewal as
provided in Section 6.1 above, and early termination
as provided in Section 6.2 above.
==================================================================
5. REPORTING. (Section 5.2):
Borrower shall provide GBC with the following:
1. Annual financial statements, as soon as
available, and in any event within 90 days
following the end of Borrower's fiscal year,
certified by independent certified public
accountants acceptable to GBC.
2. Quarterly unaudited financial statements, as
soon as available, and in any event within
30 days after the end of each fiscal quarter
of Borrower.
3. Monthly unaudited financial statements, as
soon as available, and in any event within
30 days after the end of each month.
4. Monthly Receivable agings, aged by invoice
date, within 10 days after the end of each
month.
5. Monthly accounts payable agings, aged by
invoice date, and outstanding or held check
registers within 10 days after the end of
each month.
6. BORROWER INFORMATION:
PRIOR NAMES OF
BORROWER
(Section 3.2): None
PRIOR TRADE
NAMES OF BORROWER
(Section 3.2): None
EXISTING TRADE
NAMES OF BORROWER
21.
<PAGE> 22
GREYROCK BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
(Section 3.2): None
OTHER LOCATIONS AND
ADDRESSES (Section 3.3): 7900 E. Union Ave., Suite 1100,
Denver, CO
MATERIAL ADVERSE
LITIGATION (Section 3.10): None
7. OTHER COVENANTS:
Borrower shall at all times comply with all of
the following additional covenants:
(1) WARRANTS. The Borrower shall provide GBC with
five-year warrants to purchase 50,000 shares of
Series F Preferred Stock of the Borrower, on the
terms set forth in the Warrant to Purchase Stock and
related documents being executed concurrently with
this Agreement, at $4.00 per share (which Borrower
represents and warrants is the last price at which
Borrower issued and sold its Series F Preferred
Stock, which were sales of over 5,000,000 shares
during the period April 4, 1996 to May 7, 1996).
Such warrants shall contain such terms and
provisions as Borrower and GBC shall agree. Said
warrants shall be deemed fully earned on the date
hereof, shall be in addition to all interest and
other fees, and shall be non-refundable.
Borrower: GBC:
COM21, INC. GREYROCK BUSINESS CREDIT,
a Division of NationsCredit
Commercial Corporation
By__________________________________________
President By_____________________________
Title__________________________
By__________________________________________
Secretary or Ass't Secretary
22.
<PAGE> 23
WARRANT TO PURCHASE STOCK
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Warrant to Purchase 50,000 Issue Date: May 30, 1997
Shares of the Series F Preferred Expiration Date: May 30, 2002
Stock of Com21, Inc. Initial Exercise Price: $4.00 per share
THIS WARRANT CERTIFIES THAT, for the agreed upon value
of $1.00 and for other good and valuable
consideration, GREYROCK BUSINESS CREDIT, A DIVISION OF
NATIONSCREDIT COMMERCIAL CORPORATION ("Holder") is
entitled to purchase the number of fully paid and
non-assessable shares of the class of securities (the
"Shares") of Com21, Inc. (the "Company") at the
initial exercise price per Share (the "Warrant Price")
all as set forth above and as adjusted pursuant to
Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth in this
Warrant. The address of the Holder is 10880 Wilshire
Blvd. Suite 950, Los Angeles, CA 90024 and the address
of the Company is 750 Tasman Drive, Milpitas,
California 95035.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant at any time on
or prior to the Expiration Date, in whole or in part, for amounts not less than
ten thousand (10,000) shares (as adjusted pursuant to Article 2 of this Warrant)
by delivering a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a certified bank check, bank draft or wire transfer of
immediately available funds in an amount equal to the Warrant Price then in
effect multiplied by the number of Shares being Purchased for the Shares being
purchased.
1.2 CONVERSION RIGHT. In lieu of exercising, this Warrant as specified
in Section 1.1, Holder may from time to time convert this Warrant, in whole or
in part, into a number Of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.4.
1.3 [Reserved]
1.4 FAIR MARKET VALUE. If the Shares are traded in a public market, the
fair market value of the Shares shall be the closing price of the Shares (or the
closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking firm to undertake such valuation. If the valuation of such investment
banking firm is greater than that determined by the Board of Directors, then all
fees and expenses of such investment banking firm shall be paid by the Company.
In all other circumstances, such fees and expenses shall be paid by Holder.
1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.
<PAGE> 24
WARRANT TO PURCHASE STOCK
1.6 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at Holder's expense shall execute and deliver, in lieu of this
Warrant, a new warrant of like tenor.
1.7 REPURCHASE ON SALE, MERGER OR CONSOLIDATION OF THE COMPANY.
1.7.1. "ACQUISITION". For the purpose of this Warrant, "Acquisition"
means any sale, license, or other disposition of all or substantially all of the
assets of the Company, or any reorganization, consolidation, or merger of the
Company where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction.
1.7.2. ASSUMPTION OF WARRANT. If upon the closing of any Acquisition the
successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
1.7.3. NONASSUMPTION. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this Warrant and Holder has
not otherwise exercised this Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 and thereafter Holder shall participate in the Acquisition on the
same terms as other holders of the same class of securities of the Company.
1.7.4. [Reserved]
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 [Reserved]
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its Articles
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 and
in taking
2.
<PAGE> 25
WARRANT TO PURCHASE STOCK
all such action as may be reasonably necessary or appropriate to protect
Holder's rights under this Article against impairment.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying to Holder an amount computed
by multiplying the fractional interest by the fair market value of a full Share.
2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of this
Warrant is not greater than (i) the price per share at which the Shares were
last issued in an arms-length transaction in which at least $500,000 of the
Shares were sold and (ii) the fair market value of the Shares as of the date of
this Warrant, as such value is determined in accordance with Section 1.4 hereof.
(b) All Shares which may be issued upon the exercise of the purchase
right represented by this Warrant and payment of the aggregate purchase price
(other than in connection with a purchase under Section 1.2 hereof), and all
securities, if any, issuable upon conversion of the Shares, shall, upon Issuance
and payment of the aggregate purchase price for all of the Shares purchased
(other than in connection with an exercise hereunder pursuant to Section 1.2
hereof) be duly authorized, validly issued, fully paid and non-assessable, and
free of any liens and encumbrances except for restrictions on transfer provided
for herein or under applicable federal and state securities laws.
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
Holder (1) at least 20 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) within forty-five (45) days after the end of each of the first three
quarters of each fiscal year, the Company's quarterly, unaudited financial
statements.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"). The Company agrees that the Shares or, if the Shares are converted into
common stock of the Company, such common stock, shall be subject to the
registration rights set
forth on Exhibit A.
ARTICLE 4. MISCELLANEOUS
3.
<PAGE> 26
WARRANT TO PURCHASE STOCK
4.1 TERM: NOTICE OF EXPIRATION. This Warrant is exercisable, in whole or
in part, at any time and from time to time on or before the Expiration Date set
forth above.
4.2 LEGENDS. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Shares issuable upon exercise of this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, if reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel (i) if the transfer is to any corporation that on its own or
through other intermediate corporations has an effective complete ownership
interest in 100% of the stock of the Holder, or if the transfer is to any
wholly-owned subsidiary of any such entity or to any wholly-owned subsidiary of
Holder, or (ii) if there is no question as to the availability of current
information as referenced in Rule 144(c) (as reasonably determined by the
Company), Holder represents that it has complied with Rule 144(d) and (e) in
reasonable detail, the selling broker represents that it has complied with Rule
144(f), and the Company is provided with a copy of Holders notice of proposed
sale as filed with the SEC.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.2, Holder
may transfer all or part of this Warrant or the Shares issuable upon exercise of
this Warrant (or the securities issuable, directly or indirectly, upon
conversion of the Shares, if any) by giving the Company notice of the portion of
the Warrant being transferred setting forth the name, address and taxpayer
identification number of the transferee and surrendering this Warrant to the
Company for reissuance to the transferee(s) (and Holder if applicable), provided
that the Holder shall be permitted to effect no more than five (5) transfers of
the Warrant during the term of this Warrant and each such transfer shall be in
the minimum number of 10,000 Shares. The Company shall have the right to refuse
to transfer any portion of this Warrant to any person who directly competes with
the Company, as such refusal is determined by the Company in its reasonable
discretion. Holder further agrees that, upon the specific written request of the
Company or its underwriters relating to the initial public offering of the
common stock of the Company, the Holder will not sell or otherwise transfer the
Warrant or the Shares during the 180 day period following the effective date of
the registration statement of the Company in connection with such initial public
offering.
4.5 NOTICES. All notices and other communications from the Company to
the Holder, or vice versa, shall be shall be in writing and shall be given
either personally or by reputable private delivery service or by regular
first-class mail, or certified mail return receipt requested, addressed to each
such party at the addresses shown in the heading to this Agreement, or at any
other address designated in writing by one party to the other party. All notices
shall be deemed to have been given upon delivery in the case of notices
personally delivered, or at the expiration of one business day following
delivery to the private delivery service, or three business days following the
deposit thereof in the United States mail, with postage prepaid.
4.6 WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 ATTORNEYS FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
4.9 NO RIGHTS AS SHAREHOLDER. This Warrant, as distinct from the Shares
for which this Warrant is exercisable,
4.
<PAGE> 27
WARRANT TO PURCHASE STOCK
will not entitle Holder to any of the rights of a stockholder of the Company.
4.10 SURVIVAL. The representations and warranties set forth in this
Warrant by the Company (other than with respect to Section 3.1(a) after the date
hereof) and the Holder shall survive the date of this Warrant and will expire
upon the earlier of (a) the Expiration Date or (b) the date that the Holder has
exercised this Warrant for all of the Shares purchasable pursuant to the terms
hereof.
ARTICLE 5. REPRESENTATIONS AND COVENANTS OF THE HOLDER.
5.1 Holder hereby represents and warrants to the Company as follows:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Holder's rights contained herein
will be acquired for investment and not with a view to the sale or distribution
of any part thereof, and the Holder has no present intention of selling or
engaging in any public distribution of the same except pursuant to a
registration or exemption.
(b) Private Issue. The Holder understands (i) that the Preferred Stock
issuable upon exercise of this Warrant is not registered under the 1933 Act or
qualified under applicable state securities laws on the ground that the issuance
contemplated by this Warrant will be exempt from the registration and
qualifications requirements thereof, and (ii) that the Company's reliance on
such exemption is predicated on the representations set forth herein.
(c) Disposition of Holder's Rights. In no event will the Holder make a
disposition of any of its rights to acquire Preferred Stock or Preferred Stock
issuable upon exercise of such rights unless and until (i) it shall have
notified the Company of the proposed disposition, and (ii) if requested by the
Company and as limited by the provisions set forth in Section 4.3 hereof, it
shall have furnished the Company with an opinion of counsel (which counsel may
either be inside or outside counsel to the Holder) satisfactory to the Company
and its counsel to the effect that (A) appropriate action necessary for
compliance with the 1933 Act has been taken, or (B) an exemption from the
registration requirements of the 1933 Act is available. Notwithstanding the
foregoing, the restrictions imposed upon the transferability of any of its
rights to acquire Preferred Stock or Preferred Stock issuable on the exercise of
such rights do not apply to transfers from the beneficial owner of any of the
aforementioned securities to its nominee or from such nominee to its beneficial
owner, and shall terminate as to any particular share of Preferred Stock when
(1) such security shall have been effectively registered under the 1933 Act and
sold by the holder thereof in accordance with such registration or (2) such
security shall have been sold without registration in compliance with Rule 144
under the 1933 Act, or (3) a letter shall have been issued to the Holder at its
request by the staff of the Securities and Exchange Commission or a ruling shall
have been issued to the Holder at its request by such Commission stating that no
action shall be recommended by such staff or taken by such Commission, as the
case may be, if such security is transferred without registration under the 1933
Act in accordance with the conditions set forth in such letter or ruling and
such letter or ruling specifies that no subsequent restrictions on transfer are
required. Whenever the restrictions imposed hereunder shall terminate, as
hereinabove provided, the Holder or holder of a share of Preferred Stock then
outstanding as to which such restrictions have terminated shall be entitled to
receive from the Company, without expense to such holder, one or more new
certificates for the Warrant or for such shares of Preferred Stock not bearing
any restrictive legend.
(d) Financial Risk. The Holder has such knowledge and experience in
financial and business matters as to be capable of evaluating, the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Holder understands that if the Company
does not register with the Securities and Exchange Commission pursuant to
Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Preferred Stock pursuant to this Warrant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite period.
The Holder also understands that any sale of its rights of the Holder to
purchase Preferred Stock or Preferred Stock which might be made by it in
reliance upon Rule 144 under the 1933 Act may be made only in accordance with
the terms and conditions of that Rule.
(f) Accredited Investor. Holder is an "accredited investor" within the
meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in
effect.
5.
<PAGE> 28
WARRANT TO PURCHASE STOCK
(g) Due Incorporation, etc. Holder is a corporation duly organized,
validly existing, and in good standing under the laws of its state of
organization.
(h) Information. Holder has had access to sufficient information about
the Company, and has had the opportunity to ask questions and has received
answers about the Company, to make an informed investment decision.
COM21, INC.
By _______________________________________
Chairman of the Board, President or
Vice President
By _______________________________________
Secretary of Ass't Secretary
6.
<PAGE> 29
WARRANT TO PURCHASE STOCK
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase _______ shares of the
Common/Series ______ Preferred [strike one] Stock of __________ pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into Shares
in the manner specified in the Warrant. This conversion is exercised with
respect to __________ of the Shares covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
-----------------------------
(NAME)
-----------------------------
-----------------------------
(ADDRESS)
3. The undersigned represents it is acquiring the shares solely for its own
account and not as a nominee for any other party and not with a view toward the
resale or distribution thereof except in compliance with applicable securities
laws.
- --------------------------------
(Signature)
- --------------------------------
(Date)
EXHIBIT A
REGISTRATION RIGHTS
The Shares (if common stock), or the common stock issuable upon conversion
of the Shares, shall be deemed "Registrable Securities" entitled to "piggy back"
registration rights and the Holder shall be deemed to be a "Holder" (for
purposes of piggyback registration rights only) pursuant to the terms of the
following agreement (the "Agreement") between the Company and its investor(s):
Amended and Restated Information and Registration Rights Agreement dated
April 4, 1996
The Company agrees that no amendments will be made to the Agreement which
would have a disproportionately adverse impact on Holder's registration rights
thereunder when compared with the registration rights of the other holders of
registration rights under the Agreement, without the consent of Holder.
All parties understand and agree that the registration rights of Holder as
granted hereunder shall be limited to those set forth in Section 7 of the
Agreement (regarding piggyback registration) and related sections and the Holder
shall have no rights under Section 6 of the Agreement (regarding demand
registration rights).
7.
<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
[*] 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
[*] 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 [*] 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 [*] in the first line of that
clause and the insertion, in the same place, of the words [*] 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
[*] , 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 day of , 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).
<PAGE> 2
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.
<PAGE> 3
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)
- -------------------------------- ----------------------------------
<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.
<PAGE> 4
<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.
<PAGE> 5
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.
<PAGE> 6
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.
<PAGE> 7
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.
<PAGE> 8
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.
<PAGE> 9
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.
<PAGE> 10
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: Date:
----------------------------- -----------------------------
10.
<PAGE> 11
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: Date:
----------------------------- -----------------------------
*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
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: Date:
----------------------------- -----------------------------
<PAGE> 1
Exhibit 10.12
WIND RIVER SYSTEMS, INC.
VXWORKS LICENSE AGREEMENT
PLEASE READ THIS DOCUMENT CAREFULLY BEFORE OPENING THE
PACKAGE CONTAINING THE VXWORKS SOFTWARE.
THIS AGREEMENT STATES THE TERMS AND CONDITIONS UPON WHICH WIND
RIVER SYSTEMS, INC. ("WIND RIVER") OFFERS TO LICENSE THE VXWORKS DEVELOPMENT
SOFTWARE ENCLOSED IN THE PACKAGE WITH THIS LICENSE AND THE RELATED DOCUMENTATION
("THE PROGRAM"). AMONG OTHER THINGS, THIS AGREEMENT LICENSES THE PROGRAM TO YOU
FOR LIMITED USES AND CONTAINS WARRANTY DISCLAIMERS.
BY OPENING THE PACKAGE IN WHICH THE MEDIUM (TAPE OR OTHERWISE)
CONTAINING THE PROGRAM IS ENCLOSED, YOU ARE AGREEING TO BECOME BOUND BY THE
TERMS OF THIS AGREEMENT. IF YOU DO NOT AGREE TO THE TERMS OF THIS AGREEMENT, DO
NOT OPEN THE PACKAGE. PROMPTLY RETURN THE UNOPENED PACKAGE TO THE PLACE WHERE
YOU OBTAINED IT FOR A FULL REFUND.
The Program is licensed, not sold, to you for use only under the
terms of this Agreement, and Wind River reserves all rights not expressly
granted to you. You own the tape, disk or other medium on which the Program is
originally recorded or fixed, but Wind River retains ownership of all copies of
the Program.
1. License. You (the original licensee of this copy of the
Program) may:
(a) Use the Program on a single CPU of the type set forth
on the package enclosing the copy of the Program provided to you. Such use may
be on a single machine or on a server physically linked to not more than 10
intelligent nodes. Use is limited to the Location and for the particular Project
as defined and specified on the Wind River Sales Acknowledgement Agreement under
which you purchased this copy of the Program (the "Sales Agreement").
(b) Make one copy of the Program in tangible object code
form for purposes of backup; provided that such copy includes a reproduction of
any notices appearing in or on the Program.
(c) Make one copy of the Program or portions thereof,
except for the directory "bin," subdirectory "h" and the files entitled
"makefile" in directories "config/all" and "config/(target)." Such copy shall be
in tangible object code form only for physical incorporation into a Target
Application (as defined below) that you develop using the Program, provided that
such copy includes a reproduction of any notices appearing in or on the Program.
Such copy shall be used for development purposes only and be accessed only as a
part of that Target Application and not on a stand-alone or independent basis.
<PAGE> 2
2. Additional Restrictions.
(a) Unauthorized copying of the Program or of the written
materials is expressly forbidden. You may be held legally responsible for any
copyright infringement which is caused or encouraged by your failure to abide by
the terms of this Agreement.
(b) You may not market, distribute or transfer copies of
the Program to others or electronically transfer the Program from one computer
to another over a network. The Program contains trade secrets and in order to
protect them you may not decompile, reverse engineer, disassemble or otherwise
reduce the Program to a human-perceivable form or disclose it to any third
party. You may not rent, lease or loan the Program.
(c) You understand that Wind River may update or revise
the Program and in so doing incurs no obligation to furnish such updates to you,
other than under Section 7 (Support and Maintenance) below or under a valid Wind
River Maintenance Agreement.
UPON TRANSFER OF ANY COPY OF THE PROGRAM TO ANOTHER PARTY, THIS
LICENSE IS AUTOMATICALLY TERMINATED.
ONE FUNCTION OF THE PROGRAM IS TO CREATE TARGET APPLICATION
PROGRAMS ("TARGET APPLICATIONS") THAT MAY IN SOME INSTANCES REQUIRE
INCORPORATION OF PORTIONS OF THE PROGRAM. EXCEPT AS SET FORTH IN SECTION 1(C)
ABOVE, NO LICENSE IS GRANTED HEREUNDER TO COPY OR REPRODUCE ANY PORTION OF THE
PROGRAM AS PART OF ANY SUCH TARGET APPLICATION AND SUCH RIGHTS ARE ONLY GRANTED
BY MEANS OF VXWORKS/MICROWORKS TARGET APPLICATION LICENSES. THESE LICENSES ARE
AVAILABLE FOR VARIOUS QUANTITIES OF TARGET APPLICATION COPIES. SEE YOUR
AUTHORIZED WIND RIVER REPRESENTATIVE FOR DETAILS.
3. Confidentiality. Wind River considers the Program to contain
valuable trade secrets of Wind River or licensors of Wind River, the
unauthorized disclosure of which could cause irreparable harm to Wind River. You
agree to use reasonable efforts not to disclose the Program to any third parties
and not to use the Program other than for the purposes authorized by this
Agreement. This confidentiality obligation shall continue after any termination
of this Agreement.
4. Limited Warranty; Infringement Indemnity. Wind River warrants
that the Program will perform substantially in accordance with the accompanying
written materials for a period of ninety (90) days from the date of shipment by
Wind River, when properly installed on the computer for which a license is
granted hereunder. Wind River does not warrant that the operation of the Program
will meet your requirements or operate free from error. This limited warranty
gives you specific legal rights. You may have others, which vary from state to
state. Wind River will defend any suit brought against you and will pay all
damages finally awarded in such suit insofar as such suit is based on a claim
that the Program
2.
<PAGE> 3
as provided to you infringes a United States copyright or patent, provided that
Wind River is notified promptly of such claim and at its expense is given full
and complete authority (including settlement authority), information and
assistance by you for such defense. In the event that the Program is held in any
such suit to infringe such a right and its use is enjoined, or if in the opinion
of Wind River the Program is likely to become the subject of such a claim, Wind
River at its own election and expense will either (i) procure for you the right
to continue using the program or (ii) modify or replace the Program so that it
becomes noninfringing while giving equivalent performance. In the event that (i)
or (ii) above are not, in Wind River's sole determination, reasonably
practicable, then Wind River may terminate this Agreement and refund an
equitable portion of monies paid by you in connection with the licenses granted
hereunder.
5. Disclaimer. WIND RIVER DISCLAIMS ALL OTHER WARRANTIES, EITHER
EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE AND NONINFRINGEMENT OF THIRD PARTY RIGHTS. NO ORAL OR WRITTEN
INFORMATION OR ADVICE GIVEN BY WIND RIVER, ITS DEALERS, DISTRIBUTORS, AGENTS OR
EMPLOYEES SHALL CREATE A WARRANTY OR IN ANY WAY INCREASE THE SCOPE OF THIS
WARRANTY AND YOU MAY NOT RELY ON ANY SUCH INFORMATION OR ADVICE.
6. Limited Remedies. Wind River's entire liability and your
exclusive remedy shall be, at Wind River's option, either (a) return of the
price paid or (b) repair or replacement of any Program that does not meet Wind
River's Limited Warranty which is returned to Wind River with a copy of your
receipt. Any replacement Program will be warranted for the remainder of the
original warranty period or thirty (30) days, whichever is longer. THESE
REMEDIES ARE NOT AVAILABLE OUTSIDE OF THE UNITED STATES OF AMERICA.
WIND RIVER SHALL NOT BE LIABLE FOR ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES (INCLUDING DAMAGES FOR LOSS OF BUSINESS, PROFITS OR THE
LIKE) ARISING OUT OF THE USE OR INABILITY TO USE THE PROGRAM EVEN IF WIND RIVER
OR ITS REPRESENTATIVES HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE
LIABILITY OF WIND RIVER FOR ANY CLAIMS ARISING OUT OF THIS AGREEMENT, THE SALES
AGREEMENT OR USE OF THE PROGRAM, REGARDLESS OF THE FORM OF ACTION, SHALL NOT
EXCEED THE GREATER OF THE LICENSE FEE FOR THE PROGRAM OR $500.
THE LIMITED WARRANTY, LIMITED REMEDIES AND LIMITED
LIABILITY ARE FUNDAMENTAL ELEMENTS OF THE BASIS OF THE BARGAIN
BETWEEN WIND RIVER AND YOU. WIND RIVER WOULD NOT BE ABLE TO
PROVIDE THE PROGRAM WITHOUT SUCH LIMITATIONS.
3.
<PAGE> 4
7. Support and Maintenance.
(a) During the ninety (90) day warranty period referred to
above, Wind River will provide the following support services in accordance with
Wind River's standard terms and conditions for maintenance services: (i)
reasonable telephone and written consultation during Wind River's normal
business hours concerning normal use of the Program; (ii) analysis of suspected
Program failures (where you have provided adequate documentation of such
suspected failure) and corrections to the Program as needed, and (iii) one copy
of new releases of corrections and upgrades to the Program and corresponding
technical documentation (does not include new features announced as extra cost
options).
(b) Wind River shall have no obligation under this
Agreement for corrections of errors or problems which are due to a breach by you
of the terms of this Agreement, or which cannot be remedied due to the
operational characteristics of the computer equipment on which the Program is
used.
(c) Except as may be provided above or in a separate Wind
River Maintenance Agreement between Wind River and you, if any, Wind River is
under no obligation to maintain or support the Program supplied to you and Wind
River has no obligation to furnish you with any further assistance,
documentation or information of any nature. You are solely responsible for the
support and maintenance of all portions of any Target Applications developed by
you.
8. Termination. This Agreement is effective until terminated.
Except for Sections 2 through 6 (which will survive any termination of this
Agreement), this Agreement will continue until your breach of this Agreement.
Upon termination, you agree not to use the Program for any purpose whatsoever
and to destroy the Program and any copy then in your possession. This remedy
shall be in addition to any other remedies available to Wind River.
9. Export Control. You agree to comply with all applicable export
laws as amended from time to time. You may not knowingly, without prior
authorization (if required) of the Office of Export Licensing, U.S. Department
of Commerce, export or reexport, as defined in Section 779.1(b)-(c) of the
Export Administration Regulations ("Regulations") and any amendments thereto:
the Program, or the immediate product (including Target Applications, processes
and services) produced directly by use of the Program, to Iraq, Iran, Syria,
South African military or police agencies, or any Group S or Z country specified
in Supplement No. 1 to Section 770 of the Regulations as amended from time to
time.
10. Government End Users. If the Program is acquired by or on
behalf of a unit or agency of the United States Government, this provision
applies. The Program: (a) was developed at private expense, is existing computer
software and no part of it was developed with government funds, (b) is a trade
secret of Wind River or its licensors for all purposes of the Freedom of
Information Act, (c) is "restricted computer software" submitted with restricted
rights in accordance with subparagraphs (a) through (d) of the Commercial
4.
<PAGE> 5
Computer Software-Restricted Rights clause at 52.227-19 and its successors, (d)
in all respects is proprietary data belonging solely to Wind River or its
licensors; (e) is unpublished and all rights are reserved under the copyright
laws of the United States. For units of the Department of Defense (DoD), the
Program is licensed only with "Restricted Rights" as that term is defined in the
DoD Supplement to the Federal Acquisition Regulation, 252.227-7013(c)(1)(ii),
Rights in Technical Data and Computer Software and its successors, and use,
duplication or disclosure is subject to restrictions as set forth in subdivision
(c)(1)(ii) of the Rights in Technical Data and Computer Software clause at
252.227-7013. Contractor/manufacturer is Wind River Systems, Inc. 1010 Atlantic
Avenue, Alameda, CA 94501. If the Program is acquired under a GSA Schedule, the
Government has agreed to refrain from changing or removing any insignia or
lettering from the Program or the documentation that is provided or from
producing copies of manuals or media (except for backup purposes).
11. General. This Agreement will be governed by the laws of the
State of California except with regard to its choice of law rules. This
Agreement and the Sales Agreement between Wind River and you constitute the
complete, final and exclusive statement of the agreement between Wind River and
you, which supersede all proposals, oral or written, and all other
communications between the parties relating to the subject matter of this
Agreement. No waiver, alteration or modification of the provisions of this
Agreement or any of the terms of your purchase order will be valid unless made
in writing and signed by a corporate officer of Wind River. If any legal action
or proceeding is brought for the enforcement of this Agreement, or because of
any alleged dispute, breach, default or misrepresentation in connection with any
of the provisions of this Agreement, the successful or prevailing party or
parties shall be entitled to recover reasonable attorneys' fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
such party may be entitled. If any provision or provisions of this Agreement are
determined to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Agreement will not in any way
be affected or impaired thereby.
Should you have any questions concerning this Agreement, or if
you wish to contact Wind River for any reason, please write: Wind River Customer
Service, 1010 Atlantic Avenue, Alameda, CA 94501.
5.
<PAGE> 6
September 12, 1994
Mr. Mark Laubach
Com21
VXWORKS TARGET LICENSE PROPOSAL
OPTION 1:
VxWorks Target Licenses shall be purchased for three separate categories: Head
Unit, Home Unit - Standalone, and Home Unit - PC Card. Purchases shall be made
according to the terms below and at the following cumulative schedules.
Head Unit
<TABLE>
<CAPTION>
DESCRIPTION QUANTITY PRICE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Additional VxWorks Target Licenses First 1,000 [*]
- -----------------------------------------------------------------------------------------------------
1,001-5,000 [*]
- -----------------------------------------------------------------------------------------------------
Over 5,000 [*]
- -----------------------------------------------------------------------------------------------------
</TABLE>
Home Unit - Standalone
<TABLE>
<CAPTION>
DESCRIPTION QUANTITY PRICE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Additional VxWorks Target Licenses First 1,000 [*]
- -----------------------------------------------------------------------------------------------------
1,001-5,000 [*]
- -----------------------------------------------------------------------------------------------------
5,001-20,000 [*]
- -----------------------------------------------------------------------------------------------------
20,001-50,000 [*]
- -----------------------------------------------------------------------------------------------------
Over 50,000 [*]
- -----------------------------------------------------------------------------------------------------
</TABLE>
Home Unit - PC Card
<TABLE>
<CAPTION>
DESCRIPTION QUANTITY PRICE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Additional VxWorks Target Licenses First 1,000 [*]
- -----------------------------------------------------------------------------------------------------
1,001-5,000 [*]
- -----------------------------------------------------------------------------------------------------
5,001-20,000 [*]
- -----------------------------------------------------------------------------------------------------
20,001-50,000 [*]
- -----------------------------------------------------------------------------------------------------
Over 50,000 [*]
- -----------------------------------------------------------------------------------------------------
OPTION 2: NOT VALID
</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> 7
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of Com21, Inc. on Form
S-1 of our report dated January 16, 1998 (January 23, 1998 as to the first
paragraph of Note 11; March 10, 1998 as to the second through fifth paragraphs
of Note 11; and , 1998 as to the last paragraph of Note 11) appearing
in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
San Jose, California
, 1998
---------------------------
The financial statements of Com21, Inc. included in the Prospectus have
been adjusted to give effect to the one-for-two reverse common and convertible
preferred stock split which is to occur upon the effectiveness of this
Registration Statement. The above consent is in the form which will be signed by
Deloitte & Touche LLP upon consummation of such reverse split, which is
described in the last paragraph of Note 11 to the financial statements, and
assuming that, from March 10, 1998 to the date of such reverse split, no other
events shall have occurred that would affect the accompanying financial
statements or notes thereto.
DELOITTE & TOUCHE LLP
San Jose, California
March 10, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 17,950
<SECURITIES> 0
<RECEIVABLES> 5,157
<ALLOWANCES> 121
<INVENTORY> 2,643
<CURRENT-ASSETS> 26,059
<PP&E> 8,599
<DEPRECIATION> 3,288
<TOTAL-ASSETS> 31,573
<CURRENT-LIABILITIES> 6,536
<BONDS> 1,508
0
10
<COMMON> 3
<OTHER-SE> 23,270
<TOTAL-LIABILITY-AND-EQUITY> 31,573
<SALES> 15,149
<TOTAL-REVENUES> 15,649
<CGS> 8,372
<TOTAL-COSTS> 8,372
<OTHER-EXPENSES> 20,540
<LOSS-PROVISION> 121
<INTEREST-EXPENSE> 396
<INCOME-PRETAX> (13,034)
<INCOME-TAX> 21
<INCOME-CONTINUING> (13,055)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,055)
<EPS-PRIMARY> (6.15)
<EPS-DILUTED> (6.15)
</TABLE>
