-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G87+pOpf88MXLp2DlxFmcBIpQvG6/BR2/c570CR5tn6HKY+ZXRfxmMZRvGllSLOy aNmwD81Z4+xf+hUkedGCKw== 0001032210-00-000592.txt : 20000328 0001032210-00-000592.hdr.sgml : 20000328 ACCESSION NUMBER: 0001032210-00-000592 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 20000327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METAWAVE COMMUNICATIONS CORP CENTRAL INDEX KEY: 0001028361 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 911673152 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-30568 FILM NUMBER: 578852 BUSINESS ADDRESS: STREET 1: 10735 WILLOWS ROAD NE STREET 2: P O BOX 97069 CITY: REDMOND STATE: WA ZIP: 98073-9769 BUSINESS PHONE: 4257025648 MAIL ADDRESS: STREET 1: 10735 WILLOWS ROAD NE STREET 2: P O BOX 97069 CITY: REDMOND STATE: WA ZIP: 98073-9769 S-1/A 1 AMENDMENT NO. 1 TO FORM S-1 As filed with the Securities and Exchange Commission on March 27, 2000 Registration No. 333-30568 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- Amendment No. 1 to FORM S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ---------------- METAWAVE COMMUNICATIONS CORPORATION (Exact name of Registrant as specified in its charter) ---------------- Delaware 3663 91-1673152 (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification Number)
10735 Willows Road NE Redmond, WA 98052 (425) 702-5600 (Address, including zip code and telephone number, including area code, of Registrant's principal executive offices) ---------------- ROBERT H. HUNSBERGER President and Chief Executive Officer 10735 Willows Road NE Redmond, WA 98052 (425) 702-5600 (Name, address including zip code and telephone number including area code, of agent for service) Copies to: WILLIAM W. ERICSON PATRICK J. SCHULTHEIS JOHN W. ROBERTSON ROBERT G. DAY KIRK D. SCHUMACHER ALLISON L. BERRY Venture Law Group Wilson Sonsini Goodrich & Rosati A Professional Corporation Professional Corporation 4750 Carillon Point 650 Page Mill Road Kirkland, WA 98033-7355 Palo Alto, CA 94304-1050 (425) 739-8700 (650) 493-9300
---------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. ---------------- If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under 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 - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------
Proposed Maximum Offering Proposed Title Of Each Class Of Amount Price Maximum Securities To Be to be per Aggregate Amount Of Registered Registered(1) share(2) Offering Price(2) Registration Fee(3) - ------------------------------------------------------------------------------------- Common Stock, par value $0.0001................ 7,187,500 $13.00 $93,437,500 $24,668 - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------
(1) Includes 937,500 shares of common stock issuable upon exercise of the underwriters' over-allotment option. (2) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act. (3) Includes $22,770 previously paid. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell these securities and it is not soliciting an offer to buy these + +securities in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION March 27, 2000 PROSPECTUS 6,250,000 Shares [METAWAVE LOGO] Common Stock ----------- This is Metawave Communications Corporation's initial public offering. We expect the public offering price to be between $11.00 and $13.00 per share. Currently, no public market exists for the shares. We have applied to have our common stock quoted on the Nasdaq National Market under the symbol "MTWV." Investing in the common stock involves risks that are described in the "Risk Factors" section beginning on page 7 of this prospectus. -----------
Per Share Total --------- ----- Public offering price............................... Underwriting discount............................... Proceeds, before expenses, to Metawave..............
The underwriters may also purchase up to an additional 937,500 shares at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The shares will be ready for delivery on or about , 2000. ----------- Merrill Lynch & Co. Salomon Smith Barney U.S. Bancorp Piper Jaffray ------------ The date of this prospectus is , 2000. Stylized Metawave logo. Text on top: Metawave provides spectrum management solutions that increase the capacity and improve the performance of wireless networks. Line art depictions of SpotLight 2000 CDMA system and Spotlight GSM system Bullet points stating between depictions of systems: * Add-on capacity enhancement to CDMA and GSM base stations * Increases efficiency of CDMA or GSM network infrastructure * Maintains or improves call quality Graphic of radio frequency spectrum Stylized Metawave Logo Spectrum Management Solutions for Wireless Communications Left page Graphic of radio frequency spectrum Artwork depicting the evolution of wireless technology from analog to CDMA to spectrum management and graphical depiction of a smart antenna system Right page Map of the world depicting the CDMA, GSM and analog wireless standards in various regions of the world titled "Global Market Opportunity" Language -- Our current product offerings are for CDMA, GSM and analog networks. Graphical depiction of people speaking on wireless phones. TABLE OF CONTENTS
Page ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 7 Forward-Looking Statements............................................... 18 Use of Proceeds.......................................................... 18 Dividend Policy.......................................................... 18 Capitalization........................................................... 19 Dilution................................................................. 20 Selected Consolidated Financial Data..................................... 21 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 22 Business................................................................. 27 Management............................................................... 40 Certain Relationships and Related Party Transactions..................... 50 Principal Stockholders................................................... 52 Description of Securities................................................ 54 Shares Eligible for Future Sale.......................................... 57 Underwriting............................................................. 59 Legal Matters............................................................ 62 Experts.................................................................. 62 Where You Can Find Additional Information................................ 62 Index to Financial Statements............................................ F-1
---------------- You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date. Through and including , 2000 (25 days after commencement of this offering), all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. PROSPECTUS SUMMARY The summary highlights selected information contained elsewhere in the prospectus. You should read the entire prospectus, including "Risk Factors" and the financial data and related notes before making an investment decision. Metawave Communications Corporation We provide smart antenna systems to wireless network operators facing capacity constraints in the wireless communications industry. Our SpotLight smart antenna systems consist of antennas that improve the reception and transmission of radio signals dynamically through the use of our proprietary software. We believe that wireless operators can increase overall network capacity, improve or maintain network quality, reduce network operating costs and better manage network infrastructure by implementing our SpotLight systems. As the demand for wireless services continues to grow, we will develop systems based on our proprietary technologies that address the associated network capacity problems faced by wireless network operators. The recent increase in demand for wireless services has been driven by an increased number of subscribers, lower prices and expanded availability of existing services. In addition to these factors, the emergence of new data and Internet-oriented wireless services is expected to contribute to the continued increase in subscriber usage. For example, wireless subscriber usage in the United States is expected to grow at a compound annual growth rate of 20.9% through 2003, according to The Strategis Group. The growth rate in wireless subscriber usage is not necessarily indicative of our growth rate. This rapid growth in demand for wireless services and wireless usage has strained the capacity of wireless networks given the fixed amount of radio frequency spectrum allocated to wireless network operators. To address the challenge of increasing capacity while maintaining signal quality, wireless network operators generally have deployed more efficient digital technologies or have built additional cell sites, which contain the transmitting and receiving equipment used by wireless network operators to connect the wireless network to subscribers' mobile phones. However, the high costs and technical difficulties associated with building new cell sites, as well as the inherent capacity limitations of digital technologies, have created the need for a cost- effective solution to manage available spectrum. We have had a history of significant losses and we expect to continue generate substantial losses in 2000 and beyond, even if our revenues increase. Our net loss in 1999 was $42.4 million as compared to our revenues of $22.6 million in 1999. Our accumulated deficit was $120.6 million at December 31, 1999. In our limited operating history, we have never achieved profitability. We anticipate that a significant portion of the proceeds of this offering will be used to offset our operating losses. As of December 31, 1999 we had sold 121 SpotLight systems to a variety of customers worldwide, including the following customers who accounted for more that ten percent of our revenues in 1999: ALLTEL Communications Inc., which accounted for 44.8% of our revenues, Grupo IUSACELL S.A. de C.V. of Mexico, which accounted for 26.0% of our revenues; and Southwestco Wireless Inc., which accounted for 20.9% of our revenues. We have developed cost-effective smart antenna systems for expanding network capacity while improving or maintaining overall network performance. These systems are our primary product and have accounted for substantially all of our revenues to date. Our SpotLight systems are designed to be compatible with base station equipment for Code Division Multiple Access, or CDMA, and Global System for Mobile Communications, or GSM, technologies, as well as analog technologies. We have not completed any commercial sales of our SpotLight GSM system. Our SpotLight systems provide solutions to wireless network operators with the following benefits: 3 Cost-Effective Capacity Expansion. Our SpotLight systems enable wireless network operators to increase the capacity of their existing networks and therefore reduce the need to build and maintain expensive new cell sites. Our SpotLight 2000 system has improved CDMA capacity in cell sites from 30% to 50%, depending on network configuration. In addition, in a recent field trial, our SpotLight GSM system demonstrated that GSM network capacity can be increased by up to 100% without increasing the number of GSM cell sites. Adding SpotLight systems in selected cell sites can increase overall network capacity. Improved Network Performance. Our SpotLight systems allow wireless network operators to increase capacity while maintaining or improving the level of service and signal quality. Our SpotLight 2000 systems efficiently allocate existing network resources to better match subscriber usage. We expect our SpotLight GSM systems to provide better signal reception and reduced interference. Compatibility with Standards and Equipment. We design our SpotLight systems to be compatible with most of the widely deployed wireless standards operating at 800 MHz and 900 MHz and related installed base station equipment in order to allow wireless network operators' to continue to use their existing equipment and technology. Our objective is to provide smart antenna systems to the wireless communications market worldwide. To accomplish this objective we intend to: . Continue to focus on delivering solutions that address the capacity constraints of wireless network operators; . Expand our presence and penetration of our current CDMA customers by leveraging the performance and service of our existing system deployments; . Target additional large multi-system 800 MHz CDMA and 900 MHz GSM wireless network operators around the world that serve substantial concentrations of customers and have the greatest market share in their respective markets; and . Use our technology leadership and intellectual property to develop and provide new capacity solutions to the existing and emerging wireless communications markets, including Personal Communications System, or PCS, operating at 1800 MHz and 1900 MHz. Our principal executive offices are located at 10735 Willows Road NE, Redmond, Washington 98052, and our telephone number is (425) 702-5600. We were originally incorporated in the state of Washington in January 1995 and reincorporated in the state of Delaware in July 1995. Our Web site is www.metawave.com. The information on this Web site does not constitute part of this prospectus. 4 The Offering Common stock offered by Metawave........... 6,250,000 shares Shares outstanding after the offering...... 36,613,817 shares Use of proceeds............................ We intend to use the net proceeds for general corporate purposes, including working capital and capital expenditures. See "Use of Proceeds." Proposed Nasdaq National Market symbol..... MTWV
The number of shares of our common stock to be outstanding immediately after the offering is based on the number of shares outstanding at December 31, 1999. This number excludes outstanding or available options and outstanding warrants to purchase an aggregate of 4,133,229 shares. See "Capitalization." Unless otherwise indicated, the information in this prospectus, including the outstanding share information below is based on the number of shares outstanding as of December 31, 1999 and assumes: . the conversion of 32,027,203 outstanding shares of preferred stock into an aggregate of 27,972,907 shares of common stock, for further details please see "Capitalization"; . a 2-for-3 split of our common stock; . no exercise of the underwriters' over-allotment option; . no exercise of outstanding warrants; and . no exercise of outstanding options under our stock option plans. 5 Summary Consolidated Financial Data The summary consolidated financial data below should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of Metawave and related notes included elsewhere in this prospectus.
Year ended December 31, ---------------------------- 1997 1998 1999 -------- -------- -------- (in thousands, except per share data) Consolidated Statement of Operations Data: Revenues........................................ $ 1,450 $ 15,991 $ 22,596 Gross profit (loss)............................. (278) (2,037) 360 Total operating expenses........................ 22,228 35,728 39,599 Loss from operations............................ (22,506) (37,765) (39,239) Other income (expense), net..................... 402 (6,563) (3,174) -------- -------- -------- Net loss........................................ $(22,104) $(44,328) $(42,413) ======== ======== ======== Basic and diluted net loss per share............ $ (12.18) $ (21.88) $ (18.98) Shares used in computation of basic and diluted net loss per share............................. 1,815 2,026 2,235 Pro forma basic and diluted net loss per share.. $ (1.90) Shares used in computation of pro forma net loss per share................................. 22,375
The "pro forma" column below gives effect to the conversion of all outstanding shares of preferred stock upon completion of this offering. The "pro forma as adjusted" column below gives effect to the sale of the shares of common stock in this offering at an assumed initial public offering price of $12.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses. Please see "Use of Proceeds" and "Capitalization."
December 31, 1999 --------------------------------- Pro Forma Actual Pro Forma As Adjusted --------- --------- ----------- (in thousands) Consolidated Balance Sheet Data: Cash and cash equivalents................... $ 20,165 $ 20,165 $ 88,915 Working capital............................. 22,759 22,759 91,509 Total assets................................ 40,946 40,946 109,696 Long-term obligations, net of current portion.................................... 2,503 2,503 2,503 Convertible and redeemable preferred stock and warrants............................... 144,102 -- -- Common stock and warrants................... 3,573 147,675 216,425 Accumulated deficit......................... (120,640) (120,640) (120,640) Stockholders' equity (deficit).............. (117,954) 26,148 94,898
6 RISK FACTORS You should carefully consider carefully the risks described below, as well as other information contained in this prospectus, before making a decision to buy our common stock. Risks Related to Our Business We have a limited operating history which makes it difficult for you to evaluate our business and your investment. We were incorporated in 1995 and were in the development stage until late 1997, when we commenced shipment for commercial sale of our first SpotLight smart antenna system. We therefore have a limited operating history upon which an investor may evaluate our operations and future prospects. The revenue and profit potential of our business is unproven and our limited operating history makes our future operating results difficult to predict because the market for smart antenna systems is so new and wireless technologies change so rapidly. Because our smart antenna systems were introduced relatively recently, we are unable to predict with any degree of certainty whether our smart antenna systems will achieve widespread market acceptance. In view of our limited operating history, an investment in our common stock must be considered in light of the risks and uncertainties that may be encountered by early stage companies in the wireless communications equipment market. In addition, period- to-period comparisons of operating results may not be meaningful and operating results from prior periods may not be indicative of future performance. We have incurred net losses and negative cash flow for our entire history, we expect to incur future net losses and we may never achieve profitability. We have never achieved profitability and as of December 31, 1999, we had an accumulated net deficit of approximately $120.6 million. We intend to continue to make significant investments in our operations, particularly to support product development, to increase manufacturing capacity and to market new smart antenna systems. Accordingly, we expect to continue to generate substantial losses in 2000 and beyond, even if revenues increase. To achieve profitability, we must, among other things: . successfully scale our current operations; . introduce new smart antenna systems; . implement and execute our business and marketing strategies; . develop and enhance our brand; . adapt to changes in the marketplace; . respond to competitive developments in the wireless communications industry; and . continue to attract, integrate, retain and motivate qualified personnel. We might not be successful in achieving any or all of these objectives. Failure to achieve any or all of these objectives could materially and adversely affect our business, operating results and financial position causing our stock price to decline. We cannot be certain that we can achieve sufficient revenues to achieve profitability, or if we do, that we could remain profitable. 7 We expect our quarterly revenues and operating results to fluctuate and these fluctuations may cause the price of our stock to decline. We base our operating expenses on anticipated revenue trends and a high percentage of our expenses are fixed in the short term. As a result, any delay in generating or recognizing revenues could cause our operating results to fall below the expectations of securities analysts and investors, which would likely cause our stock price to decline. Factors that may cause our quarterly results to fluctuate include: . gain or loss by us of significant customers; . our ability to increase sales to our existing customers; . delays in customer orders; . delays in installing our smart antenna systems; . our ability to reduce manufacturing costs of our smart antenna systems; . our ability to introduce new smart antenna systems; . market acceptance of any new smart antenna systems; . introduction and enhancement of competitive or substitute products by our competitors; . limitations in our manufacturing capacity; and . delays or changes in regulatory environments. We depend on a limited number of wireless network operators for substantially all of our revenues, so the loss of a customer or a delay in an order from a customer could impair our operating results. We derive our revenues from sales of our SpotLight 2000 system to a limited number of wireless network operators. Due to the highly concentrated nature of the wireless industry and industry consolidation, we believe that the number of potential customers for future systems will be limited. Five customers have accounted for substantially all of our system sales to date. The U.S. wireless operations of three of our customers--AirTouch, Bell Atlantic and GTE--are expected to be consolidated into one entity in 2000. On July 28, 1998, Bell Atlantic and GTE announced a merger and on September 21, 1999, Bell Atlantic and Vodaphone AirTouch plc, the parent company of AirTouch announced an agreement to merge their U.S. wireless operations. Bell Atlantic owns 47.2% of IUSACELL and Southwestco is a subsidiary of Bell Atlantic. Failure by us to capture a significant percentage of the wireless network operators as customers could cause our operating results to be significantly less than anticipated and lead to a decline in our stock price. Moreover, due to this customer concentration, the loss, or reduced demand from, any customer could cause our sales to fall significantly. Because our contracts with new customers are subject to satisfying performance criteria, the timing of purchases is difficult to predict and as a result our revenue is unpredictable. We believe that the purchase of our SpotLight systems is typically a strategic decision that requires approval at senior levels of customers' organizations, significant technical evaluation and a substantial commitment of customers' personnel, financial and other resources. Our contracts with new customers typically contain conditional acceptance provisions for the initial system sales and we delay recognition of revenue until all conditions are satisfied, which causes our sales cycle to last up to 18 months and to vary substantially from customer to customer. This variability makes predicting our revenues difficult. Typically, performance of our systems must be accepted in an initial cell site or cluster of cell sites in a field trial prior to completing any additional sales to a particular wireless network operator. This makes the sales process associated with the purchase of our systems complex, lengthy and subject to a number of significant risks. We may incur substantial expenses and expend significant management and personnel resources in the process of a field trial. If we do not satisfy conditions in these contracts or if satisfaction of these conditions were delayed for any reason, revenues in any particular period could fall significantly below our expectations. 8 Any delay in customer acceptance or shipment could delay our recognition of revenues which could cause our stock price to decline. Delays in shipment or customer acceptance of our antenna systems can happen for a variety of reasons, including: . an unanticipated shipment rescheduling; . cancellation or deferral by a customer; . competitive or economic factors; . unexpected manufacturing, installation or other difficulties; . unavailability or delays in deliveries of components, subassemblies or services by suppliers; or . the failure to receive an anticipated order. Our customers are typically large organizations and make equipment purchases on their own schedules. We have no influence on their internal budgetary decisions. Any delay in system shipment could cause revenues and operating results in a particular period to fall below our expectations as well as below the expectations of public market analysts or investors. If this occurs, the trading price of our common stock would likely decline. Our future revenues depend on the sale of our SpotLight systems and if our SpotLight systems fail to achieve market acceptance of our SpotLight systems, our revenues will fail to meet expectations. Our future success depends upon the degree to which our smart antenna systems are accepted. We believe that substantially all of our revenues in the foreseeable future will be derived from sales of our SpotLight systems. If our SpotLight systems fail to achieve broad market acceptance among our customers and potential customers, our revenues could fall below our and analysts' expectations which could cause our stock price to decline. In light of the relatively recent introduction of our SpotLight systems, in particular our SpotLight GSM system which recently completed its first field trial, and the rapidly evolving nature of the wireless communications industry, we cannot predict with any degree of assurance whether our current or future smart antenna systems will achieve broad market acceptance. We have not yet completed any commercial sales of our SpotLight GSM system. We must demonstrate that our systems provide a cost-effective spectrum management solution that expands wireless network operators' capacity within each operator's unique network configuration and specifications. If our smart antenna systems do not achieve widespread acceptance with wireless network operators, we will be unable to increase our revenues as expected. Our smart antenna systems are complex and may have errors or defects that are detected only after deployments in complex networks, which may lead to loss of customers and revenues and increased costs. Our smart antenna systems are highly complex and are designed to be deployed in complex networks. Although our systems are tested during manufacturing and prior to deployment, they can only be fully tested when deployed in networks. Consequently, our customers may discover errors after the systems have been fully deployed. If we are unable to fix errors or other problems that may be identified in full deployment, we could experience: . costs associated with the remediation of any problems; . loss of or delay in revenues; . loss of customers; . failure to achieve market acceptance and loss of market share; . diversion of deployment resources; . increased service and warranty costs; 9 . legal actions by our customers; and . increased insurance costs. Our limited experience in installing our systems may result in excessive costs and delays which could cause us to lose customers. Because we are one of the first companies to sell and deploy smart antenna systems, there is little, if any, established field service expertise for the installation of smart antenna systems in general or for the SpotLight systems in particular. It is difficult to attract and maintain qualified field service personnel and to train them to install our SpotLight systems. Failure to have adequate numbers of trained field service personnel would adversely affect our ability to competently install our systems on a timely basis, which may adversely affect our customers and their business. In addition to our own personnel, we have used and will continue to use subcontractors for some installation and field service tasks. We may not be able to find sufficient subcontractors with adequate experience and expertise and we may not be able to retain their services on acceptable terms, if at all. If we are unable to reduce our installation and optimization costs, we may not be able to achieve profitability. We charge a fixed fee to install and optimize our SpotLight systems. To date, our costs to install and optimize our systems have significantly exceeded the revenues associated with this work. Our smart antenna systems must be installed, integrated and optimized with existing equipment installed in our customers' cell sites. This process can be lengthy, causing delays in a customer's commercial deployment of our systems. These delays may be the result of factors outside of our control, including: . zoning restrictions on installing additional equipment in a cell site; . difficulties associated with the topography of the intended coverage area of a cell site, such as the presence of water and hillsides; . inability to easily access cell sites; and . lack of experienced field service crews, particularly for international deployments. Failure to perform these field service tasks at a profit would adversely affect our overall profitability. Additionally, our inability to correct field service problems, whether or not in our control, may also harm our reputation and competitive position in the industry. Our existing stockholders have significant control of our management and affairs, which they could exercise against your best interests. Following the completion of this offering, our officers and directors, together with entities that may be deemed affiliates of or related to such persons or entities, will beneficially own approximately 42.50% of our outstanding common stock. As a result, these stockholders, acting together, may be able to control our management and affairs and matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control of Metawave and might affect the market price of our common stock. Our management resources may become strained due to the rapid expansion of our operations. The growth of our operations has placed, and is expected to continue to place, a significant strain on our financial and management resources as well as our system design, manufacturing, sales and customer support capabilities. From January 1, 1997 to December 31, 1999, we expanded from 107 to 248 employees. Most of our executive officers have no prior experience as executive officers of publicly traded companies. Our new employees include a number of key managerial, technical and operations personnel who have not yet been fully 10 integrated into our operations, including our Chief Financial Officer, who was hired in March 2000, and we expect to add additional key personnel in the near future. We have sales offices in Redmond, Washington and Allen, Texas, and overseas locations, including Taipei, Taiwan, Shanghai, China and Sao Paulo, Brazil. As we expand our operations to multiple domestic and international locations, management of our operations has become and will continue to become increasingly complex. In order to manage growth effectively and increase or maintain profitability, we must implement and improve our operational, financial and management information systems, procedures and controls on a timely basis. We have limited manufacturing experience and facilities which may affect our ability to expand our business. Our manufacturing operations consist primarily of supplier and commodity management and assembling finished goods from components and subassemblies purchased from outside suppliers. We configure each SpotLight system to be compatible with customer equipment, and our ability to achieve manufacturing efficiencies by assembling systems before orders are received, therefore, is limited. We intend to expand our manufacturing capacity, but due to our limited experience with large scale operations, we may not be able to develop internally the management structure or facilities needed to increase this capacity. Since orders must ordinarily be shipped within 90 days of receipt of a purchase order, our inability to ship orders on a timely basis because of our limited capacity could damage relationships with customers and result in cancellation of orders or lost orders. Our current manufacturing facilities consist of a single facility in Redmond, Washington. If our facilities or the facilities of our suppliers were incapable of operating, even temporarily, or were unable to operate at or near full capacity for any extended period, we would be unable to meet customers' delivery expectations. In connection with our capacity expansion, we intend to manufacture our SpotLight GSM systems in Taipei, Taiwan and may seek to develop one or more additional manufacturing facilities. The addition of any facility will likely increase the complexity of our operations and the risk of inefficient management of our manufacturing operations. Our manufacturing facilities are vulnerable to damage or interruption from earthquakes and other natural disasters, power loss, sabotage, intentional acts of vandalism and similar events. We do not have a formal disaster recovery plan, and we may not carry sufficient business interruption insurance to compensate us for losses that could occur. Our inability to adequately subcontract our excess manufacturing needs may cause delays in shipment of our systems and lost revenues. We intend, in certain instances, to subcontract additional assembly processes. If we are not able to successfully identify subcontractors with adequate experience or fail to control the quality of systems produced by these subcontractors, it may harm our reputation or cause our customers to decrease spending on our systems. Additionally, we may not be able to contract with third parties for additional manufacturing capacity on acceptable terms, which may cause us to delay shipments of systems and consequently lose revenue. Our reliance on a limited number of suppliers for our smart antenna systems could impair our ability to manufacture and deliver our systems on a timely basis. Some parts and components used in our smart antenna systems are presently available only from sole sources including linear power amplifiers supplied by Powerwave Technologies, Inc. and integrated duplexer low-noise amplifiers supplied by Filtronics Comtek, Ltd. Some other parts and components used in our systems are available from a limited number of sources. Our reliance on these sole or limited source suppliers involves certain risks and uncertainties, including the possibility of a shortage or the discontinuation of certain key components. Any reduced availability of these parts or components when required could materially impair our ability to manufacture and deliver our systems on a timely basis and result in the cancellation of orders, which could significantly harm our business and operating results. 11 The long lead time of some of our components could impair our ability to timely deliver our systems if we do not accurately predict future demand or maintain an inventory. The purchase of some key components involves long lead times and, in the event of unanticipated increases in demand for our smart antenna systems, we may be unable to obtain such components in sufficient quantities to meet our customers' requirements. We do not have guaranteed supply arrangements with any of these suppliers, do not maintain an extensive inventory of parts or components and customarily purchase sole or limited source parts and components pursuant to purchase orders. Business disruptions, quality issues, production shortfalls or financial difficulties of a sole or limited source supplier could materially and adversely affect us by increasing product costs, or eliminating or delaying the availability of such parts or components. In such event, our inability to develop alternative sources of supply quickly and on a cost- effective basis could materially impair our ability to manufacture and deliver our systems on a timely basis and could significantly affect our revenues. Our success is dependent on continuing to hire and retain qualified personnel, and if we are not successful in attracting and retaining these personnel, we may not be able to operate our business. The success of our business depends upon the continued contributions of each of our key technical and senior management personnel each of whom would be difficult to replace. We have not entered into employment agreements with any of our employees other than severance arrangements with Robert H. Hunsberger, Richard Henderson, Dr. Douglas O. Reudink, Victor K. Liang, Stuart Fuhlendorf and Andrew Merrill. Except for Dr. Reudink, our founder and Chief Technical Officer, we have not entered into any non-competition agreements with any of our employees. We do not maintain key-man life insurance on any of our key technical or senior management personnel. In addition, we anticipate that we will need additional management personnel, if we are to be successful in increasing production capacity and the scale of our operations as well as operating as a public company. To effectively manage our recent growth as well as any future growth, we will need to attract and retain qualified engineering, financial, manufacturing, quality assurance, sales, marketing and customer support personnel. Competition for such personnel, particularly qualified engineers, is intense in our market. We have experienced difficulties in recruiting sufficient numbers of qualified engineers in the past and we expect to continue to experience difficulties in the future. There may be only a limited number of persons with the requisite skills to serve in these positions, particularly in the market where we are located, and it may be increasingly difficult for us to hire such personnel over time. As our product development efforts relate to wireless standards that are widely deployed in foreign countries, such as GSM, we may be required to recruit foreign engineers who have expertise in such standards. Current U.S. immigration laws restrict our ability to hire foreign employees, which could impair our product development efforts. The loss of any key employee, the failure of any key employee to perform in his or her current position, our inability to attract and retain skilled employees as needed or the inability of our officers and key employees to expand, train and manage our employee base could limit our ability to expand and become profitable. Because we need to expand manufacturing capacity and sales, we require substantial working capital which we may not be able to acquire. We require substantial working capital to fund our business. Our future capital requirements will depend upon many factors, including the success or failure of our efforts to expand our production, sales and marketing efforts, the status of competitive products, and the requirements of our efforts to develop new smart antenna systems and system enhancements. We believe that current capital resources, together with the estimated net proceeds from this offering, are adequate to fund our operations for at least 12 months. Thereafter, we may be required to raise additional capital to maintain growth or expand capacity which may not be available to us on acceptable terms, if at all. We maintain a line of credit with Imperial Bank with customary commercial rates and restrictions, which we have currently renewed and increased. Any inability to obtain needed financing by us could constrain our ability to meet current obligations or continue growing. 12 Our substantial sales in the international markets subject us to various risks and costs which may harm our business. We anticipate that international sales will continue to account for a significant portion of our revenues for the foreseeable future. Risks and associated costs inherent in our international business activities include: . difficulties obtaining foreign regulatory approval for our smart antenna systems; . unexpected changes in regulatory requirements; . complying with foreign laws and treaties; . legal uncertainties regarding export trade; . inadequate protection of intellectual property in foreign countries; . greater difficulties collecting delinquent or unpaid accounts; . lack of suitable export financing; . potentially adverse tax consequences; . foreign exchange fluctuations if we accept non-U.S. dollar revenues; . dependence upon independent sales representatives and other indirect channels of distribution; . difficulties and costs associated with staffing and managing international operations; . political and economic instability; and . enforceability of contracts with foreign customers and distributors governed by foreign laws. As more of our international sales are derived from sales in Asia, an increasing portion of our revenues could be subject to the economic and political risks associated with that region. We expect to begin to derive revenues from the sale of our SpotLight GSM systems in 2000 in Asia in general and the greater China market in particular. Changes in political or economic conditions in the region could adversely affect our operations, in particular any deterioration of political relations between the United States and the People's Republic of China or the People's Republic of China and Taiwan could negatively affect our business. If economic growth rates decline in Asia in general and the greater China market in particular, expenditures for telecommunications equipment and infrastructure improvements could decrease, which would negatively affect our business and our operating results. We may engage in future acquisitions that dilute our stockholders, cause us to incur debt or assume contingent liabilities and subject us to other risks. We may make acquisitions of businesses, products or technologies in the future. Since we have not made any material acquisitions in the past, no assurance can be given as to our ability to successfully integrate any businesses, products, technologies or personnel that might be acquired in the future, and our failure to do so could significantly affect our business and operating results. Moreover, we may not be able to locate suitable acquisition opportunities and this inability could impair our ability to grow as quickly as possible or obtain access to technology that may be important to the development of our business. Further, acquisitions entail numerous operational risks, including: . difficulties in assimilating operations; . potential loss of key employees, technologies, products and the information systems of the acquired companies; . diversion of management's attention from other business concerns; and . risks of entering geographic and business markets in which we have no or limited prior experience. 13 Our limited ability to protect our intellectual property may affect our ability to compete and we could lose customers. We rely on a combination of patent, trade secret, copyright and trademark protection, nondisclosure agreements and other measures to protect our proprietary rights. We also enter into confidentiality or license agreements with our employees, consultants, and corporate partners, and control access to and distribution of our proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our intellectual property or technology. If our methods of protecting our intellectual property are not adequate, our competitors may misappropriate our technology and we could lose customers to these competitors. Claims that we infringe third party intellectual property rights could result in significant expense and restrictions on our ability to sell our systems in particular markets. We may not be aware of all patents or patent applications that may materially affect our ability to make, use or sell any current or future products. From time to time, third parties have asserted patents, copyrights and other intellectual property rights with regard to technologies that are important to us. We expect that we will increasingly be subject to infringement claims as the number of products and competitors in the spectrum management market grows and the functionality of products overlaps. Third parties may assert infringement claims against us in the future, and such assertions could result in costly litigation or require us to obtain a license to intellectual property rights of such parties. There can be no assurance that these licenses would be available on terms acceptable to us, if at all. Any failure to obtain a license from any third party asserting claims in the future or defense of any third party lawsuit could result in costly defenses or restrict our ability to sell our systems. See "Business--Intellectual Property" for more information regarding risks relating to protecting our intellectual property rights and risks relating to claims of infringement of other intellectual property rights. Our systems and the business our customers are subject to significant government regulation which may cause uncertainty in the compliance of our systems and delay in the purchase of our systems. Many of our smart antenna systems are required to comply with numerous domestic and international government regulations and standards, which vary by market. As standards for products continue to evolve, we will need to modify our systems or develop and support new versions of our systems to meet emerging industry standards, comply with government regulations and satisfy the requirements necessary to obtain approvals. Compliance with government regulations and industry standards can each be a lengthy process, taking from several months to longer than a year. It may be difficult for us to obtain additional necessary regulatory approvals or comply with new industry standards in a timely manner, if at all. Our inability to obtain regulatory approval and meet established standards in a timely manner could delay or prevent entrance into or force our departure from markets, which would harm our sales. In addition, our customers' operations are subject to extensive government regulations. To the extent that our customers are delayed in deploying their wireless systems as a result of existing or new standards or regulations, we could experience delays in orders. Any delay could contribute to fluctuations in our results of operations. See "Business--Government Regulation" for more information regarding the governmental control and approval of our business. Risks Related to the Wireless Industry We depend on the capital spending patterns of wireless network operators, and if capital spending is decreased or delayed it may result in lower than expected revenues. Since we rely on wireless network operators to purchase our smart antenna systems, any substantial decrease or delay in capital spending patterns in the industry would negatively affect our revenues which could cause our stock price to decline. The demand for our smart antenna systems depends to a significant degree 14 upon the magnitude and timing of capital spending by these operators for constructing, rebuilding or upgrading their systems. The capital spending patterns of wireless network operators depend on a variety of factors outside our control, including access to financing, the status of federal, local and foreign government regulation and deregulation, changing standards for wireless technology, overall demand for analog and digital wireless services, competitive pressures and general economic conditions. In addition, capital spending patterns in the wireless industry can be subject to some degree of seasonality, with lower levels of spending in the first calendar quarter, based on annual budget cycles. We must reduce our costs and introduce new systems in order to achieve and maintain profitability. We anticipate that average selling prices for our smart antenna systems will need to decrease in the future in response to competitive pricing pressures and new product introductions by competitors. To achieve profitability we will need to reduce our manufacturing costs. If the price of base station equipment continues to decrease, the addition of new cell sites may be viewed as a more cost-effective alternative for wireless network operators seeking increased capacity. In order to compete, we must lower average selling prices. To lower average selling prices without adversely affecting gross profits, we will have to reduce the manufacturing costs of our smart antenna systems through engineering improvements and economies of scale in production and purchasing. We may not be able to achieve cost savings at a rate needed to keep pace with competitive pricing pressures. If we are unable to reduce costs sufficiently to offset the expected declining average selling prices, we may not achieve profitability. Further, if we cannot provide our distribution partners with sufficient financial incentive to distribute our systems without adversely affecting our profitability, our distribution strategy would be harmed which could result in the loss of current and potential customers. If we do not respond quickly to changing customer needs and product introductions by our competition, our sales will decline and our products may become obsolete. The market for our current smart antenna systems and planned future systems is subject to rapid technological change, frequent new system introductions and enhancements, product obsolescence, changes in customer requirements and evolving industry standards. To be competitive, we must successfully develop, introduce and sell new smart antenna systems or system enhancements that respond to changing customer requirements on a timely and cost-effective basis. Our future success will depend on our ability to develop new smart antenna systems and system enhancements designed to: . operate with different digital technologies and in some cases across other principal manufacturers' base stations; . achieve market acceptance of our present and future smart antenna systems; and . keep pace with the development and introduction of competitive products by competitors. We have in the past experienced and may in the future experience delays in development and introduction of smart antenna systems and system enhancements. We may be required to obtain licenses to intellectual property rights held by third parties to develop new smart antenna systems or system enhancements and there can be no assurance that such licenses will be available on acceptable terms, if at all. If we fail to timely and cost-effectively develop new smart antenna systems or system enhancements that respond to new technologies and customer needs, the demand for our smart antenna systems may fall and we could lose revenues. If we fail to obtain cooperation from base station manufacturers, our smart antenna systems may no longer be compatible with customers' equipment and we may not be able to sell our smart antenna systems. Our product strategy relies on ensuring the compatibility of our systems with base stations sold by wireless equipment manufacturers. If base station manufacturers change or modify their equipment so that our smart antenna systems are no longer compatible, we would need to redesign our systems to meet any changed 15 technology or modified equipment. This may involve substantial costs and potentially a prolonged development stage for new systems. Consequently, we may need to rely on the cooperation of customers or base station manufacturers to ensure that our smart antenna systems remain compatible if base station equipment is modified. As our systems are designed to reduce the need to purchase incremental base stations for capacity expansion of wireless networks, obtaining cooperation from base station manufacturers may prove difficult. If we are unable to obtain this cooperation and as a result cannot make our systems compatible with base station equipment, we may not be able to sell our smart antenna systems. Intense competition in the wireless infrastructure equipment market may lead to reduced prices, revenues and market shares causing the price of our stock to decline. The market for spectrum management solutions is relatively new but we expect it to become increasingly competitive. This market is part of the broader market for wireless infrastructure equipment which is dominated by a number of large companies including Lucent, Motorola, Ericsson, Nortel, Nokia, Siemens, Alcatel and others. Our smart antenna systems compete with other solutions to expand network capacity. These alternative solutions include other smart antenna systems, adding base stations for capacity, deploying efficient digital technologies and various enhancements to digital technologies. We believe that the principal competitive factor is the cost-effective delivery of increased capacity to wireless network operators. If our systems are not the most cost- effective solution, our ability to attract and retain customers would be harmed. We believe that base station manufacturers, which provide wireless network capacity through sales of additional base stations or the development of competitive technologies, represent the most significant competitive threat to us. For more information on the competitive risks facing us, please see "Business--Competition." The failure of the wireless communications services industry to grow at the rates currently anticipated would seriously harm our business, results of operation and financial condition. Our future operating results will depend upon the continued growth and increased availability and acceptance of wireless communications services. There can be no assurance that the volume and variety of wireless services or the markets for and acceptance of such services will grow, or that such growth will create a demand for our systems. If the wireless communications market fails to grow, or grows more slowly than anticipated, our sales will be lower than expected, which would seriously harm our business. The wireless communications industry has developed different technologies and standards based on the type of service provided and geographical region. There is uncertainty as to whether all existing wireless technologies will continue to achieve market acceptance in the future. If a digital technology for which we develop a smart antenna system is not widely adopted, the potential size of the market for this system would be limited, and we may not recover the cost of development. Further, we may not be able to redirect our development efforts toward those digital wireless technologies that do sustain market acceptance in a timely manner, which would impede our ability to achieve or sustain profitability once achieved. Risks Related to this Offering Technology company stock prices have been volatile and you may be unable to sell your shares at or above the offering price. The stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. Market fluctuations as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our common shares. The market price of our common stock could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including: . changes in financial estimates of our operating results by securities analysts; 16 . fluctuations in the valuation of companies perceived by investors to be comparable to us; . performance of similar companies; and . share price and volume fluctuations attributable to inconsistent trading volume levels of our shares. Because our initial public offering price will be substantially higher than the book value per share of our outstanding common stock, new investors will incur immediate and substantial dilution in the amount of $9.41 per share. Immediately after this offering, the initial public offering price will be substantially higher than the book value per share based on the total value of our assets less our total liabilities. Therefore, if you purchase common stock in this offering, you will experience immediate and substantial dilution of approximately $9.41 per share in the price you pay for the common stock as compared to its book value. Furthermore, investors purchasing common stock in this offering will own only 17.1% of our shares outstanding even though they will have contributed 34.7% of the total consideration received by us in connection with our sales of common stock. To the extent outstanding options to purchase common stock are exercised, there will be further dilution. Following this offering, a substantial number of our shares of common stock will become available for sale in the public market, which could cause the market price of our stock to decline. If our stockholders sell substantial amounts of our common stock (including shares issued upon the exercise of outstanding options and warrants) in the public market following this offering, the market price of our common stock could fall. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price acceptable to us. Upon completion of this offering, we will have 36,613,817 outstanding shares of common stock based upon shares outstanding as of December 31, 1999, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options after December 31, 1999. Of these shares, the 6,250,000 shares sold in this offering will be freely transferable without restriction under the Securities Act, unless held by "affiliates" of Metawave as that term is used in the Securities Act and the Regulations promulgated thereunder. The remaining shares of common stock outstanding after this offering will be available for sale in the public market as follows:
Number Date of Availability of Sale of Shares ---------------------------- ---------- Upon the closing of this offering............................... 469,142 91 days after the date of this prospectus....................... 411,112 181 days after the date of this prospectus...................... 29,505,874 Periodically thereafter upon the expiration of one-year holding periods........................................................ 22,310
Antitakeover provisions in Delaware and Washington law and our charter documents could discourage or prevent a change in control of our company that our stockholders may consider favorable. Certain provisions of our certificate of incorporation and bylaws and the provisions of Delaware and Washington law could have the effect of delaying, deferring or preventing an acquisition of Metawave, even if an acquisition would be beneficial to our stockholders. Please see "Description of Securities" for a more complete description of these issues. 17 FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements that involve risks and uncertainties. We use words such as "anticipates," "believes," "plans," "expects," "future," "intends" and similar expressions to identify forward- looking statements. This prospectus also contains forward-looking statements attributed to third parties relating to their estimates regarding the growth of the wireless communications industry. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this prospectus. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described in the preceding pages and elsewhere in this prospectus. USE OF PROCEEDS We estimate our net proceeds from the sale of 6,250,000 shares of our common stock offered in this offering to be approximately $68.8 million, or approximately $79.2 million if the underwriters' over-allotment option is exercised in full, based on an assumed initial public offering price of $12.00 per share and after deducting the estimated underwriting discounts and commissions and estimated offering expenses. We intend to use the net proceeds for general corporate purposes, including working capital to fund anticipated operating losses. We expect to use approximately $2.8 million of the net proceeds in 2000 for capital expenditures primarily associated with expanding our manufacturing facilities and acquiring additional testing equipment. In addition, we plan to use approximately $22.6 million of the net proceeds in 2000 to fund research and development activities. We may, when and if the opportunity arises, use a portion of the proceeds to acquire or invest in complimentary businesses, products or technologies; however, we currently have no commitments or agreements and are not involved in any negotiations with respect to any transactions of this nature. Pending such uses, we intend to invest such funds in short-term, investment grade, interest-bearing obligations. DIVIDEND POLICY We have never declared or paid any cash dividends on our capital stock or other securities. We currently anticipate that we will retain all of our future earnings for use in the expansion and operation of our business and do not anticipate paying cash dividends in the foreseeable future. The terms of our credit agreement with Imperial Bank restrict our ability to pay dividends and in the future the terms of other credit agreements may impose restrictions or limitations on the payment of dividends. 18 CAPITALIZATION The actual column in the following table sets forth our actual capitalization as of December 31, 1999. The pro forma column in the following table gives effect to: . The conversion on a 0.66667 to one basis of an aggregate of 8,240,743 outstanding shares of Series A and Series B preferred stock into 5,493,821 shares of common stock upon completion of this offering; . The conversion on a 0.87190-to-one basis of an aggregate of 2,491,880 outstanding shares of Series C preferred stock into 2,172,677 shares of common stock upon completion of this offering; . The conversion on a 0.96096-to-one basis of an aggregate of 3,018,429 outstanding shares of Series D preferred stock into 2,900,577 shares of common stock upon completion of this offering; and . The conversion on a 0.95238-to-one basis of an aggregate of 18,276,151 outstanding shares of Series E preferred stock into 17,405,832 shares of common stock upon completion of this offering. The pro forma as adjusted column gives effect to the sale by us of the 6,250,000 shares of common stock offered hereby at an assumed initial public offering price of $12.00 per share, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and the change in the authorized number of shares following completion of this offering.
December 31, 1999 --------------------------------- Pro Forma Actual Pro Forma As Adjusted --------- --------- ----------- (in thousands) Long-term obligations........................ $ 2,503 $ 2,503 $ 2,503 Convertible and redeemable preferred stock... 143,945 -- -- Convertible and redeemable preferred stock warrants.................................... 157 -- -- Stockholders' equity (deficit): Preferred stock, actual--37,000,000 shares authorized, 32,027,203 shares which have been designated as convertible and redeemable; pro forma and pro forma as adjusted--10,000,000 shares authorized, none outstanding........................... -- -- -- Common stock, actual--50,000,000 shares authorized, 2,390,910 shares issued and outstanding; pro forma--50,000,000 shares authorized, 30,363,817 shares issued and outstanding; pro forma as adjusted-- 150,000,000 shares authorized, 36,613,817 shares issued and outstanding.............. 3,573 147,675 216,425 Deferred stock compensation.................. (906) (906) (906) Accumulated other comprehensive income....... 19 19 19 Accumulated deficit.......................... (120,640) (120,640) (120,640) --------- --------- --------- Total stockholders' equity (deficit)....... (117,954) 26,148 94,898 --------- --------- --------- Total capitalization....................... $ 28,651 $ 28,651 $ 97,401 ========= ========= =========
The information in the table excludes as of December 31, 1999: . 2,885,294 shares issuable upon exercise of outstanding options at a weighted average exercise price of $5.25 per share; . 90,870 shares of common stock issuable upon the conversion of preferred stock after the exercise of outstanding preferred stock warrants at a weighted average exercise price of $6.20 per share on an as if converted basis; . 20,833 shares issuable upon exercise of an outstanding common stock warrant at an exercise price of $6.75 per share; and . an aggregate of 1,136,232 shares available for future issuance of stock options under our stock plans. 19 DILUTION As of December 31, 1999, we had a pro forma net tangible book value of approximately $26.1 million, or $0.86 per share of common stock. Pro forma net tangible book value represents total tangible assets less total liabilities divided by the pro forma number of shares of common stock outstanding, assuming the conversion of convertible and redeemable preferred stock to common stock and the conversion of preferred stock warrants to common stock warrants. Without taking into account any other changes in the pro forma net tangible book value after December 31, 1999, other than to give effect to the receipt by us of the net proceeds from the sale of the 6,250,000 shares of common stock offered hereby at an assumed initial public offering price of $12.00 per share, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, the pro forma net tangible book value at December 31, 1999 would have been approximately $94.9 million, or $2.59 per share. This represents an immediate increase in net tangible book value of $1.73 per share to existing stockholders and an immediate dilution of $9.41 per share to new investors purchasing shares in this offering. The following table illustrates this per share dilution: Assumed initial public offering price per share................... $12.00 Pro forma net tangible book value per share as of December 31, 1999............................................................ $0.86 Increase per share attributable to new investors................. 1.73 ----- Pro forma net tangible book value per share after the offering.... 2.59 ------ Dilution per share to new investors............................... $ 9.41 ======
The following table summarizes, on a pro forma basis, as of December 31, 1999, the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing stockholders and new investors (before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us):
Shares Purchased Total Consideration Average ------------------ -------------------- Price Number Percent Amount Percent Per Share ---------- ------- ------------ ------- --------- Existing stockholders......... 30,363,817 82.9 $141,190,477 65.3 $ 4.65 New investors................. 6,250,000 17.1 $175,000,000 34.7 $12.00 ---------- ----- ------------ ----- Total..................... 36,613,817 100.0% $216,190,477 100.0% ========== ===== ============ =====
The information presented with respect to existing stockholders excludes as of December 31, 1999: . 2,885,294 shares issuable upon exercise of outstanding options at a weighted average exercise price of $5.25 per share; . 90,870 shares of common stock issuable upon the conversion of preferred stock after the exercise of 123,880 outstanding preferred stock warrants at a weighted average exercise price of $6.20 per share on an as if converted basis; . 20,833 shares issuable upon exercise of an outstanding common stock warrant at an exercise price of $6.75 per share; and . an aggregate of 1,136,232 shares available for future issuance under our stock plans. To the extent that any of the options or warrants are exercised, or additional options are issued and exercised, there will be further dilution to new investors. For additional information about our capitalization and the options and warrants described above, see "Description of Securities" and notes 4 and 5 of Notes to Consolidated Financial Statements. 20 SELECTED CONSOLIDATED FINANCIAL DATA You should read the following selected financial data in conjunction with our consolidated financial statements and notes to our consolidated financial statements and with "Management's Discussion and Analysis of Financial Condition and Results of Operations," which are included elsewhere in this prospectus. The consolidated statements of operations data for the years ended December 31, 1997, 1998 and 1999, and the balance sheet data at December 31, 1998 and 1999, are derived from audited consolidated financial statements included elsewhere in this prospectus. The consolidated statement of operations data for the period from inception to December 31, 1995 and for the year ended December 31, 1996 and the balance sheet data as of December 31, 1995, 1996 and 1997 are derived from audited consolidated financial statements not included in this prospectus. See note 1 and 9 of Notes to Consolidated Financial Statements for an explanation of the number of shares used to compute shares used in calculation of basic and diluted net loss per share. The "pro forma" consolidated balance sheet data gives effect to the conversion of all outstanding shares of preferred stock upon completion of this offering.
Period from January 19, 1995 (inception) to Year ended December 31, December 31, -------------------------------------- 1995 1996 1997 1998 1999 ---------------- -------- -------- -------- -------- (in thousands, except per share data) Consolidated Statement of Operations Data: Revenues................ $ -- $ 1,291 $ 1,450 $ 15,991 $ 22,596 Cost of revenues........ -- 1,097 1,728 18,028 22,236 ------- -------- -------- -------- -------- Gross profit (loss)..... -- 194 (278) (2,037) 360 Operating expenses: Research and development........... 883 7,186 13,083 18,495 22,787 Sales and marketing.... 84 1,704 5,383 11,346 11,080 General and administrative........ 168 2,434 3,762 5,887 5,732 ------- -------- -------- -------- -------- Total operating expenses............ 1,135 11,324 22,228 35,728 39,599 ------- -------- -------- -------- -------- Loss from operations.... (1,135) (11,130) (22,506) (37,765) (39,239) Other income (expense), net.................... 135 335 402 (6,563) (3,174) ------- -------- -------- -------- -------- Net loss................ $(1,000) $(10,795) $(22,104) $(44,328) $(42,413) ======= ======== ======== ======== ======== Basic and diluted net loss per share......... $ (0.55) $ (5.89) $ (12.18) $ (21.88) $ (18.98) ======= ======== ======== ======== ======== Shares used in computation of basic and diluted net loss per share.............. 1,833 1,833 1,815 2,026 2,235 ======= ======== ======== ======== ======== Pro forma basic and diluted net loss per share.................. $ (1.90) ======== Shares used in computation of pro forma net loss per share.................. 22,375 ========
December 31, December 31, ------------------------------------------- 1999 1995 1996 1997 1998 1999 Pro forma ------ ------- ------- ------- -------- ------------ (in thousands) Consolidated Balance Sheet Data: Cash and cash equivalents............ $1,422 $19,092 $13,334 $10,763 $ 20,165 $ 20,165 Working capital......... 4,280 17,722 15,677 (17,135) 22,759 22,759 Total assets............ 6,135 21,747 22,575 32,510 40,946 40,946 Long term obligations, net of current portion................ 96 1,757 2,978 4,413 2,503 2,503 Convertible and redeemable preferred stock and warrants..... 5,500 30,100 49,410 61,595 144,102 -- Common stock and warrants............... 10 10 1,968 2,179 3,573 147,675 Accumulated deficit..... (1,000) (11,795) (33,899) (78,227) (120,640) (120,640) Stockholders' equity (deficit).............. (990) (11,785) (33,136) (76,596) (117,954) 26,148
21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview We provide smart antenna systems that address the capacity constraints faced by wireless network operators. From inception in January 1995 through December 31, 1997, our operating activities related primarily to conducting research and development, building market awareness, recruiting management and technical personnel and building an operating infrastructure. Shipment for commercial sale of our initial SpotLight system began late in the fourth quarter of 1997 and we first recognized revenues for the sale of our SpotLight system in the first quarter of 1998. Since the beginning of 1998, our operating activities have been focused on increasing sales, new product development and expanding manufacturing capacity. Since inception, we have incurred significant losses and as of December 31, 1999, had an accumulated deficit of $120.6 million. Our revenues are derived primarily from sales of our SpotLight systems, which includes the sale of hardware and the licensing of software, and from related installation and optimization services. We believe that substantially all of our revenues in the foreseeable future will be derived from sales of our SpotLight systems. Our sales cycles can be lengthy and the related contracts typically include performance specifications and customer acceptance conditions in connection with the sale of each system to a new customer. Revenues. We generate revenues through the sale of our smart antenna systems and related installation and optimization services. Our systems revenues are recognized when title to the system and risk of loss is transferred to the customer and all customer acceptance conditions, if any, have been satisfied, and collection probable. Services revenues, generally for installation and optimization, are recognized when the services have been performed and all customer acceptance conditions, if any, have been satisfied. Our maintenance contract revenues are recognized ratably over the term of the agreement (typically one year). Any billings in excess of our revenues are classified as deferred revenue and related systems are recorded as inventory. Our contract terms including pricing and acceptance criteria, if any, typically vary depending upon the order. Consequently, our revenues may vary from quarter to quarter depending on the length of the sales cycle and the applicable contract terms. To date, our international sales have been denominated in U.S. dollars. However, in the future, a portion of our international sales may be denominated in foreign currencies. Sales to ALLTEL, IUSACELL, and Southwestco represent substantially all our revenues for the year ended December 31, 1999, and we expect a limited number of customers will account for a substantial percentage of revenues for the foreseeable future. Cost of Revenues. Our cost of revenues typically consists of material components, system assembly and testing, and overhead expenses. Our gross margins are generally higher for hardware revenues than for service revenues. We anticipate that our overall gross margins will fluctuate from period-to- period as a result of shifts in product mix, the proportion of direct and indirect sales, anticipated decreases in average selling prices and our ability to reduce costs. Research and Development. Our research and development expense consists principally of salaries, related personnel expenses, consultant fees and prototype expenses related to the design, development, testing and enhancement of our SpotLight systems. As of December 31, 1999, all of our research and development costs had been expensed as incurred. We believe that continued investment in research and development is critical to achieving our strategic product development and cost reduction objectives and, as a result, expect this expense to continue to increase significantly in absolute dollars in the future. Sales and Marketing. Our sales and marketing expense consists of salaries, sales commissions and related expenses for personnel engaged in marketing, sales and field service support for new installations and installed base, as well as promotional expenditures. We believe that these expenses will increase in absolute dollars as the marketing campaigns for our SpotLight 2000 and SpotLight GSM systems expand and we increase our sales personnel. 22 General and Administrative. Our general and administrative expense consists primarily of salaries and personnel related expenses, recruiting and relocation expenses, professional and consulting fees, and other general corporate expenses. We expect this expense to increase as we add personnel and incur additional costs related to our operation as a public company. Stock compensation expense. We have recorded stock-based compensation expense of $3.0 million related to stock options granted below fair market value for accounting purposes through December 31, 1999. Of this amount, we amortized approximately $2.1 million through that same period. This amount represents the difference between the exercise price of these stock option grants and the deemed fair value of the common stock at the time of grant. The remaining $906,000 will be amortized over the remaining vesting period of the options, generally four years. As a result, the amortization of stock-based compensation will impact our reported results of operations through fiscal 2002. The stock-based compensation expense has been allocated to research and development expense, sales and marketing expense and general and administrative expense, as appropriate. Results of Operations Years Ended December 31, 1999 and 1998 Revenues. Revenues were $22.6 million in 1999 and $16.0 million in 1998, an increase of 41.3%. This increase was primarily due to increased unit sales of our SpotLight systems, increased revenues per unit sold and the introduction of a new version of our SpotLight 2000 CDMA system in July 1999. International sales of our systems accounted for 26.0% of revenues in 1999 and 23.5% in 1998. Cost of Revenues. Our cost of revenues was $22.2 million in 1999 and $18.0 million in 1998, an increase of 23.3%. The increase in cost of revenues was primarily the result of increased units sold and change in product mix from analog systems to our SpotLight 2000 CDMA system. Also, in 1999 we began to include in cost of revenues the personnel expenses related to field installation and engineering services. This change was made to properly align direct costs and overhead with revenues. Our cost of revenues and gross profit may be affected by the mix of systems sold, the mix of distribution channels used by us, the mix of services provided, and the average order size. We expect to realize higher gross margins on direct channel sales relative to indirect channel sales. If sales through indirect channels increase as a percentage of total revenues our gross margins will likely decrease. Research and Development. Research and development expense was $22.8 million in 1999 and $18.5 million in 1998, an increase of 23.2%. The increase was primarily due to increased personnel related to the development and testing of our SpotLight GSM system and our SpotLight 2000 CDMA system. Sales and Marketing. Sales and marketing expense was $11.1 million in 1999 and $11.3 million in 1998, a decrease of 2.3%. The decrease was primarily due to including in cost of revenues the personnel of expenses associated with field installation and engineering services. General and Administrative. General and administrative expense was $5.7 million in 1999 and $5.9 million in 1998, a decrease of 2.6%. The decrease was primarily due to the reduction of administrative personnel and reductions in outside professional services. Other Income (Expense), Net. Our total other income (expense), net amounted to an expense of $3.2 million in 1999 compared to an expense of $6.6 million in 1998. The decreased expense was primarily the result of reduced interest expense as a result of the repayment of our $29.0 million Senior Secured Bridge Notes bearing interest at 13.75% in April 1999. Gross other income increased by $1.0 million from 1998 to 1999 due to income from short-term investments in 1999 made with the proceeds from the Series E preferred stock financing. 23 Years Ended December 31, 1998 and 1997 Revenues. Revenues were $16.0 million in 1998 and $1.5 million in 1997. This increase reflected our first full year of revenues resulting from the commercial deployment of our SpotLight systems. Our revenues for 1997 consisted primarily of services provided by the Network Services division which was discontinued and sold in March 1998. Cost of Revenues. Our cost of revenues was $18.0 million in 1998 and $1.7 million in 1997. The increase was primarily related to costs associated with introducing our analog system and the first version of our SpotLight CDMA system. Research and Development. Research and development expense was $18.5 in 1998 and $13.1 million in 1997, an increase of 41.4%. The increase was primarily attributable to increased personnel related to the introduction of our analog system, development of the first version of our SpotLight CDMA system, and start up costs related to the development of our GSM system. Sales and Marketing. Sales and marketing expense was $11.3 million in 1998 and $5.4 million in 1997, an increase of 110.8%. The increase was primarily attributable to expansion of our direct sales force, marketing and service support staff. Also in 1998, we increased expenses associated with initial field trials, marketing communications, and training and documentation. General and Administrative. General and administrative expense was $5.9 million in 1998 and $3.8 million in 1998, an increase of 56.5%. The increase reflected the addition of administrative staff, new facilities in Redmond, Washington and Allen, Texas, increased outside professional services associated with financings and expenses associated with the implementation of our enterprise resource planning system. Other Income (Expense), Net. Our total other income (expense), net amounted to an expense of $6.6 million in 1998 compared to income of $402,000 in 1997. The increased interest expense was primarily the result of issuing the $29.0 million Senior Secured Bridge Notes in May 1998, bearing interest at 13.75% per annum. Selected Quarterly Results of Operations The following table sets forth certain unaudited quarterly consolidated statement of operations data for the eight quarters ended December 31, 1999. This unaudited information has been prepared substantially on the same basis as the annual audited financial statements appearing elsewhere in this prospectus, and includes all necessary adjustments that we consider necessary to present fairly the financial information for the periods presented. The quarterly data should be read in conjunction with the audited consolidated financial statements and the notes thereto appearing elsewhere in this prospectus.
Quarter ended -------------------------------------------------------------------------------- March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, 1998 1998 1998 1998 1999 1999 1999 1999 --------- -------- --------- -------- --------- -------- --------- -------- (in thousands) Consolidated Statement of Operations Data: Revenues................ $ 2,538 $ 3,963 $ 6,557 $ 2,933 $ 6,834 $ 1,553 $ 5,725 $ 8,484 Cost of revenues........ 2,910 3,486 6,374 5,258 7,059 1,860 5,768 7,549 ------- ------- -------- -------- -------- -------- ------- -------- Gross profit............ (372) 477 183 (2,325) (225) (307) (43) 935 Operating expenses: Research and development........... 3,575 4,450 5,525 4,945 5,392 5,651 5,301 6,443 Sales and marketing.... 1,996 2,091 3,347 3,912 2,694 2,722 2,434 3,230 General and administrative........ 1,044 1,385 1,177 2,281 1,280 1,654 1,360 1,438 ------- ------- -------- -------- -------- -------- ------- -------- Total operating expenses.............. 6,615 7,926 10,049 11,138 9,366 10,027 9,095 11,111 ------- ------- -------- -------- -------- -------- ------- -------- Loss from operations.... (6,987) (7,449) (9,866) (13,463) (9,591) (10,334) (9,138) (10,176) Other income (expense), net.................... 54 (1,719) (2,202) (2,696) (3,108) (614) 293 255 ------- ------- -------- -------- -------- -------- ------- -------- Net loss................ $(6,933) $(9,168) $(12,068) $(16,159) $(12,699) $(10,948) $(8,845) $ (9,921) ======= ======= ======== ======== ======== ======== ======= ========
24 Our revenues increased significantly over the last two quarters primarily as a result of increased unit sales of our SpotLight systems and expanding customer base. Our revenues in the last quarter of 1998 decreased compared to the previous quarter due to delays in receiving orders from a significant customer. Our revenues in the second quarter of 1999 declined compared to the previous quarter primarily due to delays in orders associated with the transition from analog to CDMA systems. Research and development expense has generally remained constant on a quarterly basis but increased in the last quarter of 1999 due to expenses associated with costs of prototype systems and write off of certain capital assets associated with research and development. Sales and marketing expense has fluctuated with the number of personnel in sales, marketing and customer support and changes in classifications to cost of revenues in 1999. General and administrative expense has fluctuated with the number of personnel. The increase in the fourth quarter of 1998 was the result of the establishment of a bad debt reserve and expenses associated with the cancellation of a public offering. As a result of our reduction in force in the third quarter of 1999, general and administrative expense declined. Our limited operating history makes the prediction of future operating results difficult. Our business prospects must be considered in light of the risks and uncertainties often encountered by early-stage companies in the wireless communications market. We may not be successful in addressing these risks and uncertainties. We have experienced significant percentage growth in revenues in recent periods; however, we do not believe that prior growth rates are indicative of future growth rates. It is likely that in some future quarter our operating results may fall below the expectations of securities analysts and investors. In this event, the trading price of our common stock may fall significantly. Liquidity and Capital Resources Since inception, we have financed our operations primarily through private sales of preferred stock and common stock and the issuance of debt instruments, and to a lesser extent, capital leases arrangements and borrowings under various lines of credit. Net proceeds from these transactions totaled $182.2 million as of December 31, 1999. For the twelve months ended December 31, 1999, we used net cash in operating activities of $37.8 million. Our operating activities included major uses of cash to fund our net loss of $42.4 million. We also used cash by increasing accounts receivable by $5.8 million and reduced accounts payable and accrued liabilities by $1.4 million. We partially offset cash uses by lowering inventories by $3.8 million, increasing deferred revenues by $1.6 million. Our net cash used in the fourth quarter 1999 amounted to $3.8 million. Our net cash used in operating activities in 1998 amounted to $34.9 million. Our net cash used in investing activities in 1999 was $1.3 million. Our 1998 net cash used in investing activities was $2.5 million. Net cash provided by financing activities was $48.5 million for year ended December 31, 1999. This primarily consisted of net proceeds from the sale of Series E preferred stock of $82.5 million. In April 1999, we repaid $29.0 million in Senior Secured Bridge Notes plus interest of $4.1 million. Our 1998 net cash from financing activities was $34.8 million consisting of $29.0 million from the sale of Senior Secured Bridge Notes at 13.75% interest and $7.2 million from the sale of Series E preferred stock. As of December 31, 1999, we had $20.2 million in cash and cash equivalents, $7.5 million under a revolving line of credit with Imperial Bank and $3.0 million under a equipment lease arrangement with Transamerica Business Credit, of which $1.8 million remained available. On March 23, 2000, we signed a commitment letter renewing and increasing our line of credit with Imperial Bank to $10 million, of which no amount is presently outstanding other than a $2.5 million standby letter of credit to support our obligations under the lease for our Redmond, Washington facility. Borrowings under the Transamerica equipment lease are 25 secured by the equipment financed thereunder. The Transamerica equipment lease terms vary from 24 to 36 months with an effective interest rate of 12.26% per annum for domestic equipment leases and 12.86% for foreign equipment leases, and interest is payable monthly. We have several capital leases with terms ranging from 24 to 48 months. At December 31, 1999, our outstanding capital lease obligations were $5.2 million, accruing interest at rates ranging from 7.25% to 14.50%. Please see note 5 to the financial statements for a more complete description of the credit facilities. We anticipate an increase in our capital expenditures and lease commitments consistent with anticipated growth in operations, infrastructure and personnel. We expect to use approximately $2.8 million of the net proceeds from this offering for capital expenditures primarily associated with expanding our manufacturing facilities and acquiring additional testing equipment. In addition, we plan to use approximately $22.6 million of the net proceeds in 2000 to fund research and development activities. We believe that current capital resources, together with the estimated net proceeds from this offering, are adequate to fund our operations for at least 12 months. Thereafter, we may be required to raise additional capital which may not be available to us on acceptable terms, if at all. Any inability to obtain needed financing by us could have a material adverse effect on our business and operating results. Market Risk We do not use derivative financial instruments. We generally place our marketable security investments in high credit quality instruments, primarily U.S. Government obligations and corporate obligations with contractual maturities of less than one year. We do not expect any material loss from our marketable security investments and therefore believe that our potential interest rate exposure is not material; however, these investments are subject to interest rate risk. Recent Accounting Pronouncements In June 1998, the FASB issued SFAS No. 133, Accounting for Derivatives and Hedging Activities, which requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designed as part of a hedge transaction and, if it is, the type of hedge transaction. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. We do not anticipate that the adoption of this new standard will have a material effect on our earnings or our financial position, but we continue to evaluate the impact of SFAS No. 133. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin Number 101 ("SAB 101"). This summarized certain areas of the staff's views in applying generally accepted accounting principles as it applies to revenue recognition. The Company believes that its revenue recognition principles comply with SAB 101. The Company will continue to evaluate interpretations of SAB 101. 26 BUSINESS Overview We provide smart antenna systems for the wireless communications industry. We believe that our SpotLight systems enable wireless network operators to increase overall network capacity, improve or maintain network quality, reduce network operating costs and better manage their network infrastructure. As the demand for wireless services has grown in recent years, we have developed products based on our proprietary technologies that address the associated network capacity problems faced by wireless network operators. Our SpotLight systems can reduce the need for more costly infrastructure upgrades and additional cell site deployments, allowing wireless network operators to more cost-effectively keep pace with subscriber growth and increased demand for digital services. These smart antenna systems utilize proprietary hardware and software to enable a more efficient utilization of the finite amount of radio frequency spectrum, or "wireless bandwidth." Our technology is designed to be implemented in a variety of market segments in the wireless communications industry and currently supports CDMA, GSM and analog standards. Our customers include AirTouch Communications, Inc., ALLTEL, Bell Atlantic Mobile, GTE Wireless Inc., IUSACELL, Southwestco and Telefonica Servicios Moviles S.A.C. of Peru. As of December 31, 1999, we had sold 121 SpotLight systems worldwide. Industry Background Growth in Wireless Usage The demand for wireless communications services has grown significantly in recent years. According to The Strategis Group, U.S. subscriber usage was expected to increase from approximately 174 billion minutes of use in 1999 to approximately 372 billion minutes of use by 2003, representing an expected compound annual growth rate of 20.9%. This increase in usage has been driven by an increased number of subscribers, lower prices and expanded availability of existing services. In addition to these factors, the emergence of new data and Internet-oriented wireless services is expected to contribute to the increase in subscriber usage in the future. Increased Subscribers. The number of wireless subscribers has increased significantly in recent years. According to International Data Corporation, or IDC, there were approximately 303 million wireless subscribers around the world in 1998 and that number was expected to reach approximately 1.1 billion subscribers in 2003, representing an expected compound annual growth rate of 28.9%. According to IDC, in 1998, there were approximately 64 million wireless subscribers in the United States and that number was expected to grow to approximately 118 million by 2003, representing an expected compound annual growth rate of 12.9%. Lower Price. The price of wireless services has decreased significantly in recent years. According to data provided by The Strategis Group, the average price per wireless minute in the United States was expected to decline from $0.25 per minute in 1999 to $0.12 per minute in 2003. With multiple wireless network operators competing in most U.S. markets, competitive pricing strategies, such as discounting and fixed rate plans, have resulted in a greater number of wireless subscribers, as well as a substantial increase in subscriber usage. In addition, the greater supply of commercially available wireless frequency due to increased government allocation of spectrum to wireless network operators has resulted in increased competition among existing and new wireless network operators, further reducing costs to subscribers. Expanded Availability of Existing Services. Due to the high initial fixed costs involved, early wireless deployments were limited to urban centers and major traffic corridors. However, to meet increased demands for ubiquitous wireless services, wireless network operators accelerated the buildout and upgrade of their networks. This increased coverage has enabled these wireless network operators to reach new subscribers and provide a higher level of service to existing subscribers. New Wireless Services. Consumer demand for "any time, anywhere" access to the Internet and data services, such as email and instant messaging, has created a demand for delivery of these services over a 27 wireless network. Devices with wireless access, such as mobile phones, palm computers and laptop computers with wireless modems, continue to evolve, providing applications and ease of use that increase wireless data usage. Additionally, standard protocols such as Wireless Application Protocol, or WAP, have emerged and are designed to create interoperability of wireless equipment and Internet-based products. These protocols are expected to further drive consumer demand for wireless access to the Internet and data services. Strains on Wireless Network Capacity Increased subscriber usage and the demand for ubiquitous wireless access place a significant strain on wireless network operators given the fixed amount of radio frequency spectrum that is available. Wireless spectrum is allocated to individual wireless network operators in fixed amounts by governments in the U.S. and foreign markets. Thus, the fundamental challenge for wireless network operators is to increase capacity, while maintaining signal quality, within a fixed amount of wireless bandwidth. Wireless network operators generally have used two alternatives to address capacity problems: building additional cell sites or deploying more efficient digital technologies. Additional cell sites. Operators of wireless networks often address capacity problems by building new cell sites. This alternative has three major disadvantages. First, we believe the cost of constructing a new standard 800 MHz CDMA cell site, including land, building and equipment, can be approximately $500,000. Second, building cell sites closer together increases signal interference in the network, which can reduce capacity and call quality, exacerbating the very problems that the additional cell sites were built to resolve. Third, wireless network operators face significant community resistance arising from environmental and zoning concerns and objections to the appearance of additional cell site towers. More efficient digital technologies. In addition to building more cell sites, wireless network operators have deployed more spectrum-efficient digital technologies such as CDMA, GSM and TDMA to increase capacity. These digital technologies offer many improvements to wireless network operators and their customers, including more cost-effective infrastructure, smaller phones with improved battery life and value-added features, such as the capability to support data services. According to IDC, 69.2% of subscribers worldwide were using digital handsets in 1998 and this number was expected to increase to 96.8% by 2003. Despite the improvement offered by digital technologies, wireless network operators continue to find that portions of their networks still face capacity limitations. For instance, CDMA lacks the ability to efficiently add incremental capacity in localized heavy traffic areas of a network. Consequently, wireless network operators must either deploy new cells, or dedicate more spectrum to CDMA in significant portions of their network to resolve isolated capacity constraints. In GSM networks, the capacity is limited by interference between cell sites within the network. This interference prevents GSM network operators from adding additional capacity to the network. The growing demand for wireless services, coupled with the high costs and technical difficulties associated with increasing network capacity, create the need for more cost-effective solutions. As wireless network operators seek to provide ubiquitous wireless service and support increased subscriber usage, they must address the fundamental challenge of achieving maximum capacity from the finite spectrum they have been allocated. The Metawave Solution We provide smart antenna systems to wireless network operators. Our SpotLight systems are a cost-effective solution to expanding network capacity while improving or maintaining overall network performance. Our SpotLight systems are compatible with CDMA, GSM and analog base station equipment. Our smart antenna systems provide wireless network operators with the following benefits: Cost-Effective Capacity Expansion. Our SpotLight systems enable wireless network operators to increase the capacity of their existing networks and reduce the need to build and maintain costly new cell sites. Our SpotLight systems can be deployed selectively within a network in either a single cell site or multiple cell sites. Based on customer data, current versions of our SpotLight 2000 system improved CDMA capacity in cell sites from 30% to 50%, depending on network configuration. Additionally, in a recent field trial, our SpotLight GSM 28 system demonstrated that, when deployed in a network of cell sites, GSM network capacity can be increased by 100% without increasing the number of GSM cell sites. By applying our SpotLight solutions in these targeted capacity constrained cell sites, overall network capacity can be correspondingly increased. Improved Network Performance. Our SpotLight systems allow wireless network operators to increase capacity while maintaining or improving the level of service and signal quality. Our SpotLight 2000 systems increase CDMA network performance by efficiently distributing existing network resources to better match subscriber usage. We believe our SpotLight GSM systems will provide wireless network operators with better signal reception and reduced interference thereby improving network performance. Compatibility with Standards and Equipment. Our SpotLight systems are designed to be compatible with most existing wireless standards and currently installed cell site equipment thereby preserving the wireless network operators' existing investment in equipment and technology. Our smart antenna systems have been independently developed by us to be compatible with the Motorola, Lucent and Nortel 800 MHz CDMA base stations, which we believe represent substantially all of the 800 MHz CDMA base stations deployed in North America. We believe our SpotLight GSM systems are also compatible with most 900 MHz GSM base stations deployed worldwide. Strategy Our objective is to provide smart antenna systems to the worldwide wireless communications market. Key elements of our strategy include: Deliver Solutions to Capacity Constrained Wireless Network Operators. We will continue to focus on developing solutions to increase capacity for those wireless network operators facing capacity constraints. To date, we have developed SpotLight systems to address the capacity and system quality problems facing 800 MHz CDMA and 900 MHz GSM wireless network operators. According to IDC, as of 1998, U.S. wireless network operators at these frequencies serviced more than 75% of wireless subscribers. As capacity issues emerge in wireless networks using different frequencies, we intend to develop smart antenna systems that address capacity problems in these wireless networks. Further Penetrate Existing CDMA Customers. We believe that the 800 MHz CDMA market will continue to represent a significant opportunity for us. Over the last two years we have sold SpotLight 2000 systems to the four largest 800 MHz CDMA wireless network operators in North America, as measured by subscriber market share data provided by the Radio Communications Review. We intend to leverage the performance and service of our existing system deployments to expand our presence and penetration within these wireless network operators. Target Additional Strategic Customers. With our products today, we are able to target additional large multi-system 800 MHz CDMA and 900 MHz GSM wireless network operators around the world that serve substantial concentrations of customers and have the greatest market share in their respective markets. We intend to target these markets by expanding our manufacturing, installation, sales and service capabilities in the regions served by these wireless network operators. Leverage Technology Leadership To Expand Markets. We intend to use our technology leadership and intellectual property to develop and provide new capacity solutions to the existing and emerging wireless communications markets. Our core technology can be used to address spectrum management issues in many large wireless networks. Currently, the principal areas of our product development are the following: . Integrating our technology into equipment provided by wireless base station manufacturers; . Developing smart antenna products for use by wireless network operators at 1800 MHz and 1900 MHz PCS spectrum; . Exploring the development of products for the TDMA wireless standard; and . Exploring the development of products for the broadband wireless market. 29 Markets In wireless communications networks, there are several wireless standards that use different technologies to process calls and divide allocated spectrum. These wireless standards fall into two broad categories, analog and digital. Advanced Mobile Phone System, or AMPS, is the leading analog standard. Digital standards are further subdivided into two general schemes, time division and code division. Time Division Multiple Access, or TDMA, and Global Systems for Mobile Communications, or GSM, are the leading time division standards. Code Division Multiple Access, or CDMA, is the leading code division standard. We have developed smart antenna systems that increase capacity for CDMA, GSM and analog based networks. The terms cellular and PCS are often used interchangeably by the popular press when discussing wireless communications networks. However, within the wireless industry the distinction between the two is important. Cellular describes networks operating in the 800 MHz and 900 MHz frequency bands, using both analog and digital standards. Analog, CDMA, GSM and TDMA are the most widely deployed cellular standards across the globe. PCS typically describes networks operating in the 1800 MHz and 1900 MHz frequency bands. CDMA, GSM and TDMA the most widely deployed PCS standards. CDMA Market. The CDMA wireless market consists of wireless network operators at both cellular and PCS frequencies. We believe that approximately half of the cellular networks in North America have adopted CDMA as their digital technology. Wireless network operators are overlaying CDMA networks on top of existing analog networks thereby allocating spectrum between CDMA and analog. We also believe that CDMA is the most widely deployed PCS digital technology in North America. The CDMA Development Group, a trade association, estimated there were 50 million CDMA subscribers worldwide at year end 1999, accessing both the 800 MHz and 1900 MHz networks. Roughly 90% of these are in North America and Asia. Frost and Sullivan estimated there were 46,716 CDMA 800 MHz base stations in operation in 1999, up from 26,200 in 1998. These base stations represent the target market for our CDMA systems. Frost and Sullivan also estimated 38,082 CDMA PCS base stations were in operation in 1999, up from 20,730 in 1998. GSM Market. The GSM market consists of wireless network operators at both cellular and PCS frequencies. According to the GSM Association, GSM is the most widely deployed digital standard worldwide and has been deployed in 142 countries, with more than 250 million subscribers, predominantly in Europe and Asia, at year end 1999. According to Frost and Sullivan, there were 98,133 GSM base stations in operation at 900 MHz in 1999, up from 46,515 in 1998. These base stations represent the market for our GSM systems. Frost and Sullivan also estimated there were 55,711 PCS base stations using GSM were in operation in 1999, up from 31,690 in the prior year. TDMA Wireless Market. The TDMA market consists of wireless network operators at both cellular and PCS frequencies. According to the Universal Wireless Communication Consortium, there were an estimated 30 million TDMA wireless and PCS subscribers worldwide as of September 30, 1999. Third Generation Standards. Over the next several years, CDMA, GSM and TDMA wireless network operators may begin to migrate their systems to third generation, or 3G, standards. Although the specifications for 3G are not complete, we believe that they will be based on CDMA technologies and that our smart antenna systems will be applicable to the evolving 3G technologies. We intend to develop 3G compatible products. Broadband Fixed Wireless In fixed, broadband wireless networks, no predominant standards currently exist. This market is often described under the umbrella term, broadband wireless access, or BWA. The BWA market services both mobile and fixed end users. Services range from high speed internet access, to combined high capacity data and voice offerings. 30 Metawave Products We have developed spectrum management solutions, consisting of smart antenna systems, applications software and engineering services, that enable wireless network operators to increase overall network capacity, improve or maintain network quality, reduce network operating costs and better manage their network infrastructure. SpotLight 2000 Platform. Our SpotLight smart antenna system was initially designed for use in analog networks and was first shipped for commercial sale in November 1997. The second generation SpotLight 2000 system was designed to support both analog and CDMA wireless standards. Our SpotLight 2000 connects to Motorola HDII, SC2400, SC4812 and SC9600 base stations, Lucent Series II base stations, and Nortel Metrocell base stations. We have analyzed data from numerous CDMA networks and have found that the distribution of traffic within a network and even within a cell varies considerably. Thus, wireless network operators are faced with the challenge of allocating spectrum resources to uneven and varied subscriber traffic. CDMA lacks the ability to efficiently add incremental capacity in localized areas. Consequently, to resolve isolated capacity constraints, wireless network operators must either deploy new cells or dedicate more spectrum to CDMA in significant portions of their network. Cells are most often divided into three sectors. Because of imbalanced traffic, one sector is often utilized to its maximum capacity, while the neighboring sectors have unused or excess capacity. When a sector's capacity is fully utilized, new calls cannot be originated within the sector without negatively affecting network performance despite call servicing capability remaining unused in adjacent sectors. In addition, subscriber calls cannot be transferred into the overloaded sector when moving from an adjacent cell or sector. This results in either calls being blocked or calls being terminated. Our proprietary SpotLight 2000 system balances the traffic load within a cell, reducing the problem of having one sector overloaded while the other sectors are underutilized. As traffic varies throughout the day, our SpotLight System can accommodate these variations and balance the traffic accordingly. This load balancing increases network efficiency and capacity. Load Balancing Through Sector Synthesis Load Balancing Through Sector Synthesis Graphical depiction with 2 cell sites demonstrating the load balancing capability of the SpotLight 2000 CDMA system through sector synthesis. Language under the cell site graphic on the left states: Before SpotLight 2000 Peak traffic loading strains capacity in one sector, while capacity remains idle in others. Language under the cell site graphic on the right states: After SpotLight 2000 Load balancing by reorienting and resizing sectors increases cell site capacity. As illustrated above, our SpotLight 2000 system addresses traffic loading by controlling the transmission and reception of CDMA radio signals by base stations through a process called sector synthesis. Our SpotLight 2000 system adapts the sector coverage of the base stations' CDMA radios to the local traffic patterns around 31 cell sites. The system's phased-array antenna makes it possible to dynamically adjust sector antenna patterns through a software-driven process. As a result, wireless network operators can optimize their CDMA networks with increased flexibility and precision, thereby enhancing network capacity and performance in response to changing traffic patterns taking into account local terrain and variable radio frequency conditions. The SpotLight 2000 system can be deployed in three different configurations depending on customer network requirements. The CDMA-only configuration uses our SpotLight system to support only the CDMA interface. This is the baseline SpotLight system for customers who are interested in improving the capacity of their CDMA system without changing their analog network. The second available configuration is CDMA with Analog Pass Through, or CDMA/APT. This system provides capacity benefits to the CDMA interface while "passing" the analog signals through our SpotLight system without changing the analog network. The CDMA/APT system allows the service provider to support both CDMA and analog networks with a single antenna and set of power amplifiers. The third system configuration is the dual mode system which provides capacity improvements to both the CDMA and analog wireless standards, configuring and optimizing each wireless standard separately, while using only a single set of antennas. Each of the three configurations described above can be deployed in three- sector cell sites or can be used to increase the sectorization of a CDMA cell site from three sectors to four, five or six sectors. In cell sites where more than a single sector is heavily loaded, the wireless network operator may use the SpotLight 2000 system to increase the sectorization of the cell site and gain additional capacity over the original three-sector cell site. The SpotLight system enables wireless network operators to use our software- controlled antenna patterns to reduce handoff overhead and optimization problems normally associated with four, five or six sector deployments. At the same time, the SpotLight system provides an efficient way to increase the sectorization of the cell site without having to add additional antennas, cables, duplexers, filters or power amplifiers. Our SpotLight 2000 system can be administered and monitored locally or remotely through our Windows-based software application called SiteSculptor. SiteSculptor allows real time monitoring of system performance through graphical displays. Further, we offer networked access to our SpotLight 2000 system with our SiteNet network application. SiteNet utilizes our SiteSculptor software package to provide a means for remote SpotLight configuration and centralized collection of performance statistics in analog and CDMA networks. SpotLight for GSM. Our SpotLight GSM system is designed to increase GSM network capacity by reducing cell site and network interference levels using a beam-switching technology. Currently the capacity of dense urban GSM networks is limited by interference between cell sites within the network. This interference prevents wireless network operators from adding additional capacity to the network. Our SpotLight system segments the normal three sector coverage area into twelve narrow beam patterns. Our SpotLight GSM system tracks the location of each subscriber within the sector coverage area and then assigns a single narrow beam to them. As the subscriber moves through the sector coverage area, our SpotLight GSM system continues to track the position of the subscriber and switches the correct narrow beam to them. As illustrated below, the interference received by and transmitted from the host cell site can be significantly reduced, allowing the wireless network operator to increase capacity while maintaining signal quality. 32 Interference Reduction Through Switched Beam Technology Graphical depiction with two cell sites demonstrating the switched beam capability of the SpotLight GSM system. Language under the cell site on the left states: Before SpotLight GSM Conventional sectors cause interference to be received by and transmitted for the cell site over a large area Language under the cell site on the right states: After SpotLight 2000 Narrow beams reduce the interference received by and transmitted from the cell site Our SpotLight GSM system is designed to be compatible with most existing 900 MHz GSM base station equipment. We intend to develop systems to be compatible with 1800 MHz base station equipment. Our SpotLight GSM system can be configured to support one, two or three sectors within the cell site, allowing the wireless network operator to use our SpotLight GSM system to reduce interference only in the capacity limited sectors. Based on a recent field trial, our SpotLight GSM system, when deployed in a network of cell sites, can increase GSM network capacity by up to 100% without increasing the number of cell sites. To date, we have not completed any commercial sales of our SpotLight GSM system. Core Technology We believe that one of our key competitive advantages is our investment and expertise in the core technologies that enable efficient spectrum management of wireless networks. Spectrum management encompasses a number of technical components, including advanced antenna concepts, radiowave propagation models, network performance monitoring tools, wireless standards knowledge and communications systems hardware implementations. These core competencies, when applied in combination, allow wireless network operators to optimize capacity, coverage and quality across their networks. We have developed, and continue to expand upon, the following fundamental technical elements: Phased-Array Antenna Systems. We have developed phased-array antenna systems that provide compact beam-forming within a single structure. The antenna systems make use of uniform linear or cylindrical arrays with a combination of both ground-based and tower-based feed networks. We have designed antennas to synthesize multiple narrow fixed-beams, which can be used to track individual users within a cell site. In addition, we have developed beam-forming techniques to allow the coverage area of a cell site to be customized. The phased-array antenna technology can be scaled to a variety of gains and to span a broad range of frequencies. The basic implementations are wireless standard independent, and can therefore be applied to many wireless environments, including cellular, PCS, enhanced specialized mobile radio, two-way paging, multi-channel multipoint distribution service, or MMDS, other broadband wireless markets, and emerging satellite-based wireless services. We continue to develop and focus on improving the functionality and quality of our antenna systems as well as reducing the costs and time associated with manufacturing and deploying our antennas in the field. Multibeam Hardware Architectures. We have developed cost-effective hardware implementations of the complex circuitry necessary to support the operation of multibeam systems on high-traffic cell sites. The hardware architecture can be organized into several key subsystems: beam switching matrices, ultra-linear amplification, beam-forming feed structures, array calibration circuitry and performance measuring receivers. 33 Our beam-switching technology allows us to effectively switch the call from beam to beam within a cell while maintaining call quality. It is adaptable to GSM, TDMA and analog wireless standards, where rapid beam switching is required. Additionally, we have developed proprietary hardware techniques to dynamically adjust CDMA sector patterns and maintain call quality by calibrating phased-array antenna configurations. To monitor the radio environment and adjust the sector coverage patterns for both our CDMA and GSM systems, we have developed scanning receivers designed to accurately operate over various channel bandwidths. Our spatial technology allows the simultaneous operation of multiple wireless standards, currently CDMA/analog, through the same physical antenna structure, while maintaining independent optimization of the performance for each wireless standard. Real Time Network Control Algorithms. We have developed algorithms to control beam switching hardware in real world radio environments. These algorithms make real time decisions about which beams best serve each user, how often to update beam selections and how to mitigate interference from other users on the same or adjacent channels. In addition, we have developed expertise in the optimization of wireless network performance for CDMA, GSM and analog wireless standards. This expertise allows network control algorithms to be customized based on the specific wireless standard and network deployment scenario. We have also developed internal software tools for performance modeling wireless networks, allowing us to further customize systems for wireless network operators based on their specific needs. Adaptive Beam-Forming Techniques. We design and build antenna systems with a broad range of standard and custom beam types and shapes using adaptive beam- forming technology. Adaptive beam-forming systems can monitor traffic loading and interference levels and then respond by implementing changes designed to equalize traffic loads and reduce interference. With respect to CDMA, our system makes use of phased-array antennas to create custom sector antenna patterns through a software-driven process known as sector synthesis. Applications Software. We develop applications software that allow wireless network operators to analyze network performance and make appropriate modifications to manage their spectrum more efficiently. We have designed the SiteSculptor application software to allow users of our SpotLight system to quickly and easily simulate antenna patterns and implement those patterns through software configuration of our SpotLight systems. The antenna pattern editor allows the wireless network operator to load per-sector traffic data into our SpotLight system for analysis. SiteSculptor analyzes the data and provides the operator with suggested sectorization patterns. SiteSculptor also allows the user to modify the antenna pattern as required, view a simulation of the pattern, and then load the pattern directly into our SpotLight system. Research and Development Our success depends on a number of factors, which include our ability to identify and respond to emerging technological trends in our target markets, develop and maintain competitive systems, enhance our existing systems by adding features and functionality that differentiate them from those of our direct and indirect competitors and bring systems to market on a timely basis and at competitive prices. As a result, we have made, and we intend to continue to make, significant investments in research and product development. Our research and development expenses were $22.8 million in 1999, and $18.5 million in 1998. As of December 31, 1999, we had 127 employees engaged in research and product development, 91 of whom are engineers, and we continue to recruit additional skilled personnel to enhance our research and development department. Our development efforts in the near term will be focused on using our technology to develop capacity solutions to the existing and emerging wireless communications markets. Our core technology can be used to address spectrum management issues in many large wireless networks. Principal areas of focus include the following: integrating our technology into wireless base station equipment; developing smart antenna systems for use by wireless network operators at 1800 MHz and 1900 MHz PCS spectrum; exploring the development of systems for TDMA wireless standard technology; and exploring the development of systems for the broadband wireless market. 34 Customers Our customers are wireless network operators worldwide who face network capacity constraints. As of December 31, 1999, we had sold 121 SpotLight systems. These sales have been to customers located in the United States, Mexico, Russia and Paraguay. We have master supply agreements with five of the six largest 800 MHz CDMA wireless network operators in North America, as measured by subscriber market share. These customers are AirTouch, ALLTEL, Bell Atlantic, GTE, and IUSACELL. We have also sold systems to Millicom-St. Petersburg Telecom and Millicom- Telefonica Celular. The wireless operations of three of our customers-- AirTouch, Bell Atlantic and GTE--are expected to be consolidated into one entity in 2000. On July 28, 1998, Bell Atlantic and GTE announced a merger and on September 21, 1999, Bell Atlantic and Vodaphone AirTouch plc, the parent company of AirTouch announced an agreement to merge their U.S. wireless operations. Bell Atlantic owns 47.2% of IUSACELL and Southwestco is a subsidiary of Bell Atlantic. We completed a field trial of our SpotLight GSM system with Shanghai Telecom in the fourth quarter of 1999 and we have entered into a conditional sales agreement with Telefonica Peru, under which the purchase of two SpotLight 2000 systems is subject to the achievement of certain performance criteria. During the twelve months ended December 31, 1999, sales to ALLTEL, IUSACELL and Southwestco accounted for 44.8%, 26.0% and 20.9% of revenues, respectively. Sales to these customers are expected to continue to account for a significant amount of our revenues in 2000. During the twelve months ended December 31, 1998, sales to Millicom-St. Petersburg Telecom, Millicom-Telefonica Celular, ALLTEL and GTE accounted for 13.4%, 10.1%, 61.8% and 13.4% of revenues, respectively. International sales of our systems accounted for 26.0% of revenues for the fiscal year ended December 31, 1999, and 23.5% for the fiscal year ended December 31, 1998. We expect sales to foreign customers, such as IUSACELL and others to continue to account for a significant proportion of our revenues in fiscal year 2000. The terms of our master supply agreements with our customers specify pricing terms, delivery terms, ordering lead times, invoicing terms and warranty and extended maintenance terms and procedures. In addition, pursuant to the agreements, we are generally obligated to indemnify our customers for certain third party claims and other losses. The agreements generally run for between one and two years and are generally terminable by either party at any time in their discretion. As of December 31, 1999, our backlog of orders was approximately $12.8 million, compared to backlog of $2.6 million as of December 31, 1998. We only include in backlog customer commitments which are scheduled to be shipped in the next six months. System orders in our current backlog are subject to changes in delivery schedules or to cancellation at the option of the purchaser without significant penalty. Accordingly, although useful for internal scheduling of production resources, backlog as of any particular date may not be a reliable measure of sales for any future period. Sales, Marketing and Customer Support We sell our smart antenna systems in the United States through a direct sales force supported by systems engineers. Our international sales and marketing efforts are conducted through distributors, our direct sales force and agents. Sales personnel are assigned on a customer account basis and are responsible for generating system sales, providing system and customer support and soliciting customer feedback for system development. In addition, sales personnel receive support from our marketing communications organization which is responsible for the branding and marketing of our products and services. Our sales and marketing efforts are primarily focused on establishing and developing long-term relationships with potential customers. A relationship with a new customer typically begins with a field trial or conditional sale in a particular market of a customer. These are designed to satisfy performance conditions prior 35 to the completion of the sale. We generally only have one field trial or conditional sale per customer and the results of the field trial or conditional performance period must be approved at the senior level of our customers' management. Consequently, the sales process associated with the initial purchase of our systems is typically complex and lengthy, lasting in some cases up to 18 months. However, once the system successfully meets the applicable performance criteria, we typically negotiate and enter into corporate-wide master supply agreements. After this agreement is in place, purchasing decisions are generally made on a market-by-market basis pursuant to purchase orders placed under the master supply agreement which are not subject to the satisfaction of performance criteria. Consequently, the sales cycle for subsequent purchases by individual markets or regions is generally much shorter. Our customer support organization performs network design, system installation, network optimization, training, consulting and repair and maintenance services to support our SpotLight systems. Recent improvements to our pre-shipment integration and testing processes at our manufacturing facility in Redmond, Washington, combined with the integration of experienced subcontractors into our installation teams, has significantly reduced installation times for our systems. Our customer services organization also offers services to optimize the network following the installation of a SpotLight system. These services utilize our expertise in radio frequency network design, knowledge of individual network configurations and knowledge of our SpotLight system capabilities. We generally warranty our systems for 12 months. Warranty support and extended maintenance services for our CDMA/analog systems are performed at our headquarters in Redmond, Washington and will be performed for GSM systems at our offices in Taipei, Taiwan. Manufacturing We rely to a substantial extent on outside suppliers to manufacture many of the components and subassemblies used in our SpotLight systems. Our manufacturing operations at our Redmond, Washington facility consist primarily of supplier and commodity management and the assembling and testing of finished systems from the components and subassemblies purchased from these outside suppliers. We monitor quality at each stage of the production process, including the selection of component suppliers, the assembly of finished goods and final testing, packaging and shipping. We have been certified as ISO 9001 compliant since September 1998. We expect to begin manufacturing the SpotLight GSM systems in Taipei, Taiwan beginning in late fiscal year 2000. We rely on detailed sales forecasts to determine our production requirements and manage our inventory. Our assembly and testing processes have been designed to facilitate configuration of our systems tailored to the specific needs of our customers. We have programs focusing on material cost reduction and supply base management designed to reduce costs and reduce inventory exposures. Certain parts and components used in our smart antenna systems, including linear power amplifiers supplied by Powerwave Technologies, Inc. and integrated duplexer low noise amplifiers and filters supplied by Filtronic Comtek Ltd., are presently only available from a single source. We have a supply agreement with Powerwave Technologies, Inc. pursuant to which they have agreed to supply all linear power amplifiers ordered by us. Certain other parts and components are available from a limited number of sources. For a more detailed discussion of the risks associated with having a limited source of suppliers see the risk factor titled "Our reliance on a limited number of suppliers and the long lead time of our systems could impair our ability to manufacture and deliver our systems on a timely basis." Competition The market for spectrum management solutions is part of the broader market for wireless infrastructure equipment which is dominated by a number of large companies including Lucent, Motorola, Ericsson, Nortel, 36 Nokia, Siemens, Alcatel and others. Our smart antenna systems compete with other solutions to expand network capacity. These alternative solutions include other smart antenna systems, additional base stations for capacity, deploying efficient digital technologies and various enhancements to digital technologies. Other smart antenna systems are offered by various competitors. Alcatel, Hazeltine, E-Systems, Boeing and Raytheon have offered smart antenna systems for analog networks. Adaptive Telecom has offered a CDMA smart antenna product that is integrated into a CDMA base station in cooperation with the base station manufacturer. Arraycomm has offered a smart antenna product that is integrated into a Personal Handyphone System standard base station in Japan. Ericsson has announced a GSM smart antenna system called GSM Capacity Booster that includes an Ericsson base station as well as the smart antenna system. Nortel has offered a smart antenna equipped GSM base station in the past. Most of the large wireless infrastructure equipment providers, including Lucent, Motorola, Nortel, Ericsson, Nokia, Siemens, Alcatel, Samsung and NEC have large development organizations and have either announced their intention to examine smart antenna technologies, or have the core technology competence to do so for the CDMA, GSM, TDMA and 3G standards. If base station manufacturers successfully develop and integrate smart antenna solutions into their product offerings, it may materially and adversely affect our business. The addition of more cell sites often will provide more capacity to wireless networks and therefore is a substitute for our systems and, therefore, the cost of base station equipment contained in these cell sites has decreased in recent years and affects our ability to compete effectively. Other related costs for new cell sites including real estate, towers, and building construction generally have not declined. Base stations are sold by wireless infrastructure equipment manufacturers such as the companies listed above. Efficient digital technologies and enhancements to these technologies will provide more capacity to wireless networks and, therefore, are substitutes for our systems. These digital technologies include existing technologies, such as CDMA, GSM and TDMA, as well as emerging 3G standards, such as CDMA 2000 and WCDMA. There are enhancements to the existing CDMA and GSM standards, commonly referred to as 2.5G standards, which provide additional capacity. There are also various enhancements, such as improved voice coding for CDMA and various frequency hopping techniques for GSM, which are designed to increase the capacity of these standards. These digital technologies and various enhancements are also offered by the large wireless infrastructure equipment providers listed above. We believe that our smart antenna technology can be compatible with these digital technologies and their various enhancements. Our technology, and its ability to enhance capacity, is additive to the capacity enhancement provided by these digital technologies. Customers, however, may delay or cancel deployment of our smart antenna systems while they deploy these more efficient digital technologies and other enhancements which would harm our business. We believe the principal competitive factors in the spectrum management solutions market include: . expertise in the core technologies needed for radio frequency communication systems; . system performance, features and reliability; . price and performance characteristics; . timeliness of new system introductions; . customer service and support; . established customer relationships; and . size of installed customer base. We believe we will be competitive with respect to many of these factors; however most of our existing and potential competitors have longer operating histories, greater name recognition, larger installed customer bases, greater financial, technical, sales, marketing and other resources, and more established customer relationships. To be competitive we must invest significant resources to address these competitive factors and 37 achieve customer satisfaction. If we fail to do so our smart antenna systems will not compete favorably with our competitors which will materially and adversely affect our business. Intellectual Property We rely on patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We currently have 19 issued U.S. patents, 5 allowed U.S. patents and 32 pending U.S. patent applications. In addition, we are seeking patent protection for our inventions in foreign countries. The patent positions of companies in the worldwide wireless communications industry are generally uncertain and involve complex legal and factual questions. We cannot be certain that patents will be issued with respect to pending or future patent applications or that our patents will be upheld as valid or will be sufficient to prevent the development of competitive products. While we believe that our patents will make it more difficult for competitors to develop and market similar products, our patents may be invalidated, circumvented or challenged. Our patent rights may fail to provide us with competitive advantages. We have received two registered federal copyrights for our software and four more copyright applications are pending. The source code for our proprietary software is also protected as a trade secret. In addition, we enter into confidentiality agreements with our employees, customers, vendors and strategic partners, and control access to, and the distribution of our software, documentation and other confidential and proprietary information. Our primary trademarks are registered with the U.S. Patent and Trademark Office and certain other foreign jurisdictions. We have applied for trademark protection for a number of other marks which are pending in the United States and in foreign countries. Despite these efforts, it may be possible for unauthorized third parties to copy certain portions of our intellectual property contained in our systems, design around our patents, or to reverse-engineer or otherwise obtain and use our proprietary information. In addition, the laws of some countries do not protect our proprietary rights to the same extent as the laws of the United States. Accordingly, we may not be able to protect our proprietary rights against unauthorized third-party copying or use, which could significantly harm our business. We may have to pursue litigation in the future to enforce our proprietary rights or to defend against claims of infringement. These claims, regardless of their merits, may require us to enter into license arrangements or may result in protracted and costly litigation. In addition, we cannot be certain that others will not develop substantially equivalent or superceding proprietary technology, or that equivalent products will not be marketed in competition with our smart antenna systems, thereby substantially reducing the value of our proprietary rights. Patents and patent applications relating to products used in the wireless communications industry are numerous. Current and potential competitors and other third parties may have been issued or in the future may be issued patents, or may obtain additional proprietary rights relating to products used or proposed to be used by us. We may not be aware of all patents or patent applications that may materially affect our ability to make, use or sell any current or future products. From time to time, third parties have asserted patent, copyright and other intellectual property rights to technologies that are important to us. We expect that we will increasingly be subject to infringement claims as the number of products and competitors in the spectrum management market grows and the functionality of products overlaps. Third parties may assert infringement claims against us in the future, and such assertions could result in costly litigation, the diversion of management and engineering resources and require us to obtain a license to intellectual property rights of such parties. There can be no assurance that these licenses would be available on terms acceptable to us, if at all. Any failure to obtain a license from any third party asserting claims in the future or defense of any third party lawsuit could materially and adversely affect our business and operating results. Government Regulation Our smart antenna systems must obtain regulatory approval to be used. In the United States, our systems must be certified by the Federal Communications Commission before sales to customers may commence. Smart 38 antenna systems must be certified by the FCC to ensure that they will not cause wireless base stations to exceed the prescribed technical standards. In addition, these systems are required to comply with electrical safety standards to ensure that the base station operators will be in compliance with relevant Occupational Safety and Health Administration's regulations. Other countries have similar regulations that must be complied with before our systems can be used. Foreign countries' regulatory programs are generally similar to those in the United States. In most jurisdictions, smart antenna systems must be of a type approved for use with cellular base stations under national standards specific to each country. Smart antennas are also required to demonstrate compliance with electrical safety standards that may be national or international in scope. These governmental approval processes frequently involve substantial delay, which could result in the cancellation, postponement or rescheduling of systems by our customers. Any event like this in turn may adversely affect our ability to sell systems to these customers. Because of the expenses associated with government approvals of our systems in some countries, we only plan to seek product approval in those countries once we have a customer who intends to purchase our systems. This practice may take several months and may deter customers or contribute to delays in receiving or filling orders. In addition, our customers' operations are subject to extensive government regulations. To the extent that our customers are delayed in deploying their wireless networks as a result of existing or new standards or regulations, we could experience delays in orders. These delays could materially and adversely affect on our business and operating results. We are also subject to U.S. government export controls. Our sales and distributorship agreements require that the export or resale of our systems to end users located in other countries must be in compliance with U.S. export controls. Employees As of December 31, 1999, we had 248 employees, of which, 127 were primarily engaged in research, development and product management, 33 in manufacturing, 56 in sales, marketing and customer support and 32 in general and administration. We have no collective bargaining agreement with our employees and we have never experienced a work stoppage. We believe that our employee relations are good. Facilities We are headquartered in Redmond, Washington, where we lease an aggregate of approximately 96,000 square feet, housing our principal administrative, sales and marketing, customer support and manufacturing facilities. Our lease for this facility expires on May 31, 2005 and we have an option to renew this lease for two additional five year terms. We sublease approximately 13,000 square feet of this space. We have a three-year lease for sales, service and manufacturing facilities totaling approximately 6,500 square feet in Taipei, Taiwan and a five-year lease for a sales and engineering support office in Dallas, Texas. We also have representative offices in Sao Paulo, Brazil and Shanghai, China that are subject to short-term leases. Legal Proceedings We may become involved in legal proceedings from time to time in the ordinary course of business. As of the date of this prospectus, we are not involved in any pending material legal proceedings. 39 MANAGEMENT Executive Officers and Directors Our executive officers and directors and their ages as of March 24, 1999 are as follows:
Name Age Position ---- --- -------- Douglas O. Reudink.............. 60 Chairman of the Board and Chief Technical Officer Robert H. Hunsberger............ 53 President, Chief Executive Officer and Director Stuart W. Fuhlendorf............ 37 Senior Vice President and Chief Financial Officer Victor K. Liang................. 48 Senior Vice President, GSM Products Group Ray K. Butler................... 41 Vice President, International Operations Martin J. Feuerstein............ 37 Vice President, Product Development Richard Henderson............... 38 Vice President, Sales and Marketing Andrew Merrill.................. 40 Vice President, Customer Operations John R. Schaller................ 56 Controller and Treasurer Bandel L. Carano(1)............. 38 Director Bruce C. Edwards................ 46 Director David R. Hathaway(1)............ 55 Director Scot B. Jarvis(1)(2)............ 38 Director Jennifer Gill Roberts(2)........ 36 Director David A. Twyver(2).............. 53 Director
- -------- (1) Member of the Compensation Committee. (2) Member of the Audit Committee. Douglas O. Reudink, a co-founder, has served as our chief technical officer since our inception and as chairman of the board of directors since April 1997. From 1991 to 1995, Dr. Reudink served as director of wireless planning at US WEST NewVector Group, Inc., a wireless telecommunications company. From 1986 to 1991, he served as the director of Laboratories of the High Technology Center at The Boeing Company, an aerospace company. Prior to 1986, Dr. Reudink served 20 years at the Bell Laboratories division of AT&T Corporation, a telecommunications company, in various research and management positions. Dr. Reudink holds a B.S. from Linfield College and a Ph.D. from Oregon State University. Robert H. Hunsberger has served as our president and chief executive officer since July 1997. From 1995 to July 1997, Mr. Hunsberger served as senior vice president and general manager of Siemens Business Communications Systems, Inc., a telecommunications company and a wholly owned subsidiary of Siemens. From 1981 to 1995, Mr. Hunsberger held various executive positions at Nortel, a telecommunications company, including vice president of sales and marketing of its wireless networks division from 1993 to 1995 and vice president of market development of its wireless networks division and vice president of cellular systems from 1991 to 1993. Mr. Hunsberger holds a B.S. from the University of Virginia and an M.B.A. from Arizona State University. Stuart W. Fuhlendorf has served as our senior vice president and chief financial officer since March 2000. From 1992 to March 2000, Mr. Fuhlendorf served as chief financial officer of EFTC Corporation, formerly Electronic Fab Technology Corporation, an electronic component manufacturing company. Mr. Fuhlendorf holds a B.A. from the University of Northern Colorado and an M.B.A. from the University of San Diego. 40 Victor K. Liang has served as our senior vice president, GSM products group since July 1998 and general manager of Metawave Communications Taiwan Ltd., a subsidiary since October 1998. From 1989 until March 1998, Mr. Liang held various senior executive positions with Siemens and its subsidiaries, most recently serving as managing director of two Siemens' joint ventures in China, Siemens Shanghai Mobile Communications and Siemens Shanghai Communication Terminals. From 1995 to 1998, Mr. Liang served as vice president of wireless products group at Siemens Stromberg-Carlson. From 1994 to 1995, he served as Senior Director at Siemens A.G., Munich, Germany and from 1989 through 1994 he served as vice president product development of Siemens Telecommunications Ltd. in Taiwan. Mr. Liang holds a B.S. from Chiao Tung University in Taiwan and a degree in Business Administration from Cheng Chih University. Ray K. Butler has served as our vice president of international operations since August 1999, vice president of engineering from December 1997 to August 1999 and director of systems engineering and architecture from January 1997 to December 1997. From 1985 to January 1997, Mr. Butler held various management positions at the Bell Laboratories division of AT&T (which division became part of Lucent in 1996), most recently serving as technical manager of the cell site HW systems engineering group. Mr. Butler holds a B.S. from Brigham Young University and an M.S. from Polytechnic University. Martin J. Feuerstein has served as our vice president of product development since August 1998 and director of research from March 1997 to July 1998. From 1995 to March 1997, Dr. Feuerstein served as technical manager at Lucent. From 1992 to 1995, he served as a senior member technical staff at US WEST. Mr. Feuerstein holds a B.E. from Vanderbilt University, an M.S. from Northwestern University and a Ph.D. from Virginia Polytechnic Institute. Richard Henderson has served as our vice president of sales and marketing since December 1997. From 1984 to 1997, Mr. Henderson held various sales and marketing positions at Nortel, most recently serving as vice president of marketing operations from 1996 to 1997 and sales account director from 1992 to 1995. Mr. Henderson holds a B.S. from Texas A&M University and an M.B.A. from the University of Dallas. Andrew Merrill has served as our vice president of customer operations since August 1999. From 1984 to August 1999, Mr. Merrill worked at Motorola, Inc., an electronics company, in several positions, most recently serving as engineering manager from 1994 to 1999, program manager from 1992 to 1994 and international cellular infrastructure manufacturing manager from 1984 to 1992. Mr. Merrill studied communications electronics and nuclear power in the U.S. Navy. John Schaller has served as our corporate controller and treasurer since June 1998 and October 1999, respectively. From October 1997 to June 1998, he served as the chief financial officer of Superconducting Core Technologies, Inc., a telecommunications equipment company. From May 1996 to October 1997, he served as vice president and chief financial officer of AirNet Communication Corp., a telecommunications company. From June 1978 to April 1996, he served in various senior financial positions, including chief financial officer of a Motorola-Nortel wireless communications joint venture and director of finance and administration for the wireless networks division of Nortel. Mr. Schaller holds a B.S. from Philadelphia College of Textiles and Science and an M.B.A. from University of Texas. Bandel L. Carano has served as one of our directors since 1995. Mr. Carano has been a general partner of Oak Investment Partners, a venture capital firm, since 1987. Mr. Carano serves as a member of the Investment advisory board of the Stanford University Engineering Venture Fund. Mr. Carano also serves as a member of the board of directors of Netopia, Inc., a telecommunications equipment provider, Polycom, Inc., a telecommunications equipment provider and PulsePoint Communications, an information systems company, as well as several private companies. Mr. Carano holds a B.S. and an M.S. from Stanford University. Bruce C. Edwards has served as one of our directors since May 1998. Mr. Edwards has served as president, chief executive officer and a director of Powerwave Technologies, Inc., a telecommunications equipment company, since February 1996. Mr. Edwards was executive vice president, chief financial officer and a director of AST Research, Inc., a personal computer company, from 1994 to December 1995 and senior 41 vice president of finance and chief financial officer of AST from 1988 to 1994. Mr. Edwards also serves as a director of HMT Technology Corporation, a computer equipment company. Mr. Edwards holds a B.S. from Rider University and an M.B.A. from the New York Institute of Technology. David R. Hathaway has served as one of our directors since 1995. Mr. Hathaway has been a general partner of the venture capital firms Venrock Associates and Venrock Associates II, L.P. since 1980 and 1995, respectively. Mr. Hathaway serves as a director of several private companies. Mr. Hathaway holds a B.A. from Yale University. Scot B. Jarvis has served as one of our directors since February 1998. Mr. Jarvis is a co-founder and managing member of Cedar Grove Partners, LLC, a privately owned investment company. From 1994 to 1997, Mr. Jarvis was co- founder and executive vice president of NEXTLINK Communications, Inc., a wireless service operator. Mr. Jarvis serves as a director of Wireless Facilities, Inc., a wireless telecommunications company, Point.com, Inc., an internet services company, Leap Wireless International, Inc., a wireless communications company and Cricket Communications, Inc. a wireless communications company. Mr. Jarvis holds a B.A. from the University of Washington. Jennifer Gill Roberts has served as one of our directors since 1995. Ms. Roberts has been a general partner of Sevin Rosen Funds, a venture capital firm, since 1994. Ms. Roberts serves as a director of several private companies. Ms. Roberts holds a B.S. and an M.B.A. from Stanford University and an M.S. from the University of Texas. David A. Twyver has served as one of our directors since May 1998. He is currently chief executive officer of Ensemble Communications Inc, a wireless communications equipment company. From 1996 to 1997, Mr. Twyver served as chief executive officer of Teledesic Corporation, a satellite telecommunications company. From 1974 to 1996, Mr. Twyver served in several management positions at Nortel, most recently serving as president of the wireless networks group from 1993 to 1996. Mr. Twyver serves as a director of several private companies. Mr. Twyver holds a B.S. from the University of Saskatchewan. Board Composition Our bylaws currently provide for a board of directors consisting of nine members. All directors hold office until the next annual meeting of our stockholders and until their successors have been duly elected and qualified. Our officers are appointed annually and serve at the discretion of the board of directors. Committees of the Board of Directors The members of the audit committee are Scot Jarvis, Jennifer Gill Roberts and David Twyver. The audit committee reviews the results and scope of the audit and other services provided by our independent auditors. The members of the compensation committee are Bandel Carano, David Hathaway and Scot Jarvis. The compensation committee reviews and approves the compensation and benefits for our executive officers, administers our stock purchase and stock option plans and makes recommendations to the board of directors regarding such matters. Board Compensation Except for reimbursement for reasonable travel expenses relating to attendance at board meetings and the grant of stock options, directors are not compensated for their services as directors, except for Bruce Edwards, Scot Jarvis and David Twyver who each receive $1,000 for each board meeting attended and $500 for each committee meeting attended. Directors who are our employees are eligible to participate in the 1995 Stock Option Plan, the 1998 Stock Option Plan, the 2000 Stock Option Plan and the 2000 Employee Stock Purchase Plan. Directors who are not our employees are eligible to participate in the 1998 Amended and Restated Directors' Stock Option Plan. See "Stock Plans." 42 Compensation Committee Interlocks and Insider Participation No member of the compensation committee has at any time been an officer or employee of ours or any subsidiary of ours. See "Certain Relationships and Related Transactions" for a description of certain transactions and relationships between us and Bandel Carano, Bruce Edwards, David Hathaway, Jennifer Gill Roberts and Scot Jarvis and entities affiliated with them. Executive Compensation The following table sets forth information concerning compensation awarded to, earned by or paid to our chief executive officer and our four other most highly compensated executive officers whose total cash compensation exceeded $100,000 during the year ended December 31, 1999 (collectively, our "Named Executive Officers"). Summary Compensation Table
Annual Compensation Long-Term Compensation ------------------ --------------------------- Securities Underlying All Other Name and Principal Position Salary Bonus (1) Options Compensation (2) - --------------------------- -------- --------- ---------- ---------------- Robert H. Hunsberger, President and Chief Executive Officer... $270,766 $12,150 66,666 $ 912 Richard Henderson, Vice President of Sales and Marketing..................... 159,539 80,686 10,000 262 Victor K. Liang, Senior Vice President, GSM Products Group......................... 190,263 4,309 86,666 567 Douglas O. Reudink, Chairman and Chief Technology Officer.. 175,488 7,875 33,333 2,364 Martin J. Feuerstein, Vice President of Product Development................... 139,604 21,075 30,000 251
- -------- (1) Bonus represents the amount earned by the employee in 1999 and includes commissions. (2) Consists of life insurance premiums paid by us. The following table sets forth information for each of our Named Executive Officers concerning stock options granted to them during the fiscal year ended December 31, 1999. Option Grants in Fiscal Year 1999
Potential Realizable Value at Assumed Number of Percentage of Annual Rates of Stock Potential Realizable Shares Total Options Price Appreciation for Value at Midrange of Underlying Granted to Exercise Option Term(5) Assumed Initial Options Employees Price per Expiration ----------------------- Offering Price Name Granted(1) in 1999(2) Share(3) Date(4) 5% 10% of $12.00 - ---- ---------- ------------- --------- ---------- ----------- ----------- -------------------- Robert H. Hunsberger.... 66,666 4.8% $6.75 6/22/09 $ 853,107 $ 624,978 $349,997 Richard Henderson....... 10,000 0.7% 6.75 6/22/09 127,967 243,749 52,500 Victor K. Liang......... 26,666 1.9% 6.75 6/22/09 341,238 649,981 139,997 30,000 2.1% 6.75 5/19/09 383,902 731,247 157,500 30,000 2.1% 6.75 5/19/09 383,902 731,247 157,500 Douglas O. Reudink...... 33,333 2.4% 6.75 6/22/09 426,554 812,489 174,998 Martin J. Feuerstein.... 10,000 0.7% 6.75 5/19/09 127,967 243,749 52,500 20,000 1.4% 6.75 6/22/09 255,935 487,498 105,000
- -------- (1) Each of the above options was granted pursuant to our 1998 Stock Option plan. (2) In the last fiscal year, we granted options to employees to purchase an aggregate of 1,391,402 shares. 43 (3) In determining the fair market value of our common stock, our board of directors considered factors such as our financial condition and business prospects, our operating results, the absence of a market for our common stock and the risks normally associated with companies comparable to us. (4) Options granted on June 22, 1999 and expiring on June 22, 2009 vest 50% upon the effectiveness of this offering and the remaining 50% vests one year from the effective date of this offering. Those options granted on May 19, 1999 vest 25% one year from date of grant and the remaining 75% vest monthly over three years. (5) The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the Securities and Exchange Commission and do not represent our estimate or projection of our future common stock prices. These figures are based on an assumed public offering price of $12.00 per share. Option Exercises in Last Fiscal Year and Year-End Option Values There were no option exercises by our Named Executive Officers in 1999. The following table provides information concerning the number and value of unexercised options held by each of our Named Executive Officers as of December 31, 1999.
Number of Securities Value of Unexercised Underlying In-the-Money Options Unexercised Options at at December 31, December 31, 1999(1) 1999(2) ------------------------ --------------------- Name Vested Unvested Vested Unvested - ---- ----------- ------------ ---------- ---------- Robert H. Hunsberger.............. 356,500 304,166 $1,871,625 $1,596,872 Richard Henderson................. 55,554 61,112 2,187,439 320,838 Victor K. Liang................... 46,040 240,626 1,812,825 1,263,287 Douglas O. Reudink................ -- 33,333 -- 174,998 Martin J. Feuerstein.............. 35,110 61,556 1,382,456 323,169
- -------- (1) Certain options granted under the 1998 Stock Option Plan and the 1995 Stock Option Plan may be exercised immediately upon grant and prior to full vesting, subject to the optionee's entering into a restricted stock purchase agreement with us with respect to any unvested shares. The unvested shares are subject to a right of first refusal in favor of Metawave which lapses over time. (2) Based on an assumed initial public offering price of $12.00 per share, minus the exercise price, multiplied by the number of shares underlying the option. Severance Arrangements We have entered into severance arrangements with Douglas O. Reudink, chief technical officer, Robert H. Hunsberger, president and chief executive officer, Stuart Fuhlendorf, senior vice president and chief financial officer, Richard Henderson, vice president of sales and marketing, Victor K. Liang, senior vice president, GSM products group, and Andrew Merrill, vice president of customer operations. On July 7, 1995, in connection with the Series A preferred stock financing, we entered into an agreement with Dr. Reudink which provides that if we were to terminate his employment without cause after July 7, 1996, we would be obligated to make a lump-sum payment to Dr. Reudink equal to six months of his then-current base salary and to provide benefits for six months following termination. In connection with this agreement, Dr. Reudink entered into a one- year non-competition agreement effective upon the termination of his employment with us. On June 27, 1997, in connection with the employment of Mr. Hunsberger, we entered into an arrangement with Mr. Hunsberger which provides that if we were to terminate his employment without cause, we would be obligated to make a lump-sum payment to Mr. Hunsberger equal to twelve months of his then-current base salary and provide benefits for twelve months following termination. 44 On October 29, 1997, in connection with the employment of Mr. Henderson, we entered into an arrangement with Mr. Henderson which provides that if we were to terminate his employment without cause, we would be obligated to make a lump-sum payment to Mr. Henderson equal to six months of his then-current base salary. On July 23, 1998, in connection with the employment of Mr. Liang, we entered into an arrangement with Mr. Liang that provides that if we were to terminate his employment without cause within the first two years of his employment, we would be obligated to make a lump-sum payment to Mr. Liang equal to six months of his then-current base salary. On July 12, 1999, in connection with the employment of Mr. Merrill, we entered into an agreement with Mr. Merrill that provides that if we were to terminate his employment without cause, we would be obligated to pay Mr. Merrill six months of his then-current base salary. On March 10, 2000, in connection with the employment of Mr. Fuhlendorf, we entered into an agreement with Mr. Fuhlendorf that provides that if we were to terminate his employment without cause, we would be obligated to make a lump sum payment to Mr. Fuhlendorf equal to six months of his then-current base salary. Stock Plans 2000 Stock Plan. Our 2000 stock option plan provides for the grant of incentive stock options to employees, including employee directors, and of nonstatutory stock options and stock purchase rights to employees, directors and consultants. The purposes of the 2000 stock plan are to attract and retain the best available personnel, to provide additional incentives to our employees and consultants and to promote the success of our business. The 2000 plan was originally adopted by our board of directors in February 2000 and will be approved by our stockholders prior to completion of this offering. The 2000 plan provides for this issuance of options and rights to purchase up to 1,333,333 shares of our common stock, plus an automatic annual increase on the first day of each of our fiscal years beginning in 2001 through 2010 equal to the lesser of 2,000,000 shares, 5% of our outstanding common stock on the last day of the immediately preceding fiscal year, or a lesser number of shares as our board of directors determines. Unless terminated earlier by the board of directors, the 2000 plan will terminate ten years following its effective date. The 2000 plan may be administered by the board of directors or a committee of the board, each known as the administrator. The administrator determines the terms of options and stock purchase rights granted under the 2000 plan, including the number of shares subject to the award, the exercise or purchase price, and the vesting and/or exercisability of the award and any other conditions to which the award is subject. No employee may receive awards for more than 1,333,333 shares under the 2000 plan in any fiscal year. Incentive stock options granted under the 2000 plan must have an exercise price of at least 100% of the fair market value of the common stock on the date of grant. The plan does not impose restrictions on the exercise or purchase price applicable to nonstatutory stock options and stock purchase rights, although we expect that nonstatutory stock options and stock purchase rights granted to our Chief Executive Officer and our four other most highly compensated officers will generally equal at least 100% of the grant date fair market value. Payment of the exercise or purchase price may be made in cash or any other consideration allowed by the administrator. With respect to options granted under the 2000 plan, the administrator determines the term of options, which may not exceed 10 years. Generally, an option is nontransferable other than by will or the laws of descent and distribution, and may be exercised during the lifetime of the optionee only by such optionee. In certain circumstances, the administrator has the discretion to grant nonstatutory stock options with limited transferability rights. Stock options are generally subject to vesting, meaning that the optionee earns the right to exercise the option over a specified period of time only if he or she continues to provide services to Metawave over that period. Shares of stock issued pursuant to stock purchase rights granted under the 2000 plan are generally subject to a repurchase right exercisable by Metawave upon the termination of the holder's employment or consulting relationship with us for any reason (which lapses in accordance with the terms of the stock purchase right determined by the administrator at the time of grant). In addition, the 2000 stock plan 45 provides that options to purchase vested shares will terminate, and we will have the right to repurchase vested shares issued under the plan, if we terminate a participant's employment or consulting relationship with us for cause. If we are acquired, we would expect that options and stock purchase rights outstanding under the 2000 plan at the time of the transaction would be assumed or replaced with substitute options by our acquiror. If our acquiror did not assume or replace outstanding awards, then the vesting of these awards would accelerate so that the holder of an outstanding award would be able to exercise and retain the number of shares that he or she would have vested in had he or she continued working for us for another 12 months (if the holder had been employed by us for less than 2 years at the time of the acquisition) or for another 24 months (if the holder had been employed for us for 2 years or more at the time of the acquisition) from the acquisition date. In addition, if our acquiror assumed or replaced outstanding awards at the time of the acquisition and a plan participant holding assumed or replaced awards experienced an involuntary termination of his or her employment or consulting relationship within six months following the transaction, then the vesting of outstanding options or stock held by any such person who is not a Section 16 reporting person at the time of the acquisition would accelerate as to 12 or 24 months (depending upon the duration of the person's service relationship with us and our acquiror as described above), and as to all the shares underlying an award held by a person who is a Section 16 reporting officer at the time of the acquisition. Outstanding awards, the number of shares remaining available for issuance under the 2000 plan, the maximum number of shares subject to awards that may be granted to an employee during a year and the fixed number in the plan's evergreen formula will adjust in the event of a stock split, stock dividend or other similar change in our capital stock. The administrator has the authority to amend or terminate the 2000 plan, but no action may be taken that impairs the rights of any holder of an outstanding option or stock purchase right without the holder's consent. In addition, we must obtain stockholder approval of amendments to the plan as required by applicable law. 1995 and 1998 Stock Option Plans. In addition to our 2000 stock plan, we have two prior employee stock plans, our Third Amended and Restated 1995 Stock Option Plan and our 1998 Stock Option Plan. These plans provide for the grant of incentive stock options to employees, including employee directors, and the grant of nonstatutory stock options to employees, consultants and directors. Our 1995 stock plan was originally adopted by our board of directors in August 1995 and approved by our stockholders in January 1996. It has been amended several times since its adoption such that there are currently 2,766,666 shares of common stock reserved for issuance under this plan. As of December 31, 1999, options to purchase 2,029,962 shares of common stock at a weighted average exercise price of $4.28 were outstanding, 708,104 shares with a weighted average purchase price of $0.45 have been issued upon exercise of options and 28,600 shares remain available for issuance under our 1995 plan. Unless terminated earlier, the 1995 plan will terminate in August 2005. Our 1998 stock option plan was originally adopted by our board of directors in May 1998 and approved by our stockholders in September 1998. An aggregate of 1,763,369 shares of common stock has been reserved for issuance under the 1998 plan. As of December 31, 1999, options to purchase 705,332 shares of common stock at a weighted average exercise price of $7.82 were outstanding, 406 shares with a weighted average exercise price of $6.75 have been issued upon exercise of options and 1,057,631 shares remain available for future grant. Unless terminated earlier, this plan will terminate in May 2008. The terms of awards issued under our 1995 and 1998 plans are generally the same as those that may be issued under our 2000 stock plan, except with respect to the following features. Neither the 1995 plan nor the 1998 plan provides for the issuance of stock purchase rights to employees and consultants. The 1998 plan provides that, as of our first stockholders meeting following the third calendar year after the year in which this offering takes place, the maximum number of shares that may be granted to any individual employee during a fiscal year is 566,666 shares. The 1995 plan does not impose an annual limitation on the number of shares of stock subject to options that may be granted to any individual employee during a fiscal year. Under both plans, generally an option is nontransferable other than by will or the laws or descent or distribution. In addition, 46 the 1995 Stock Option Plan does not provide for forfeiture of vested options or stock upon a termination of the holder's service relationship with us for cause. 2000 Employee Stock Purchase Plan. Our 2000 employee stock purchase plan was adopted by the board of directors in February 2000 and will be submitted for approval by our stockholders prior to completion of this offering. A total of 233,333 shares of common stock has been reserved for issuance under the 2000 purchase plan, none of which have been issued as of the date of this offering. The number of shares reserved for issuance under the 2000 purchase plan will be subject to an automatic annual increase on the first day of each of our fiscal years beginning in 2001 through 2010 equal to the lesser of 266,666 shares, 1% of our outstanding common stock on the last day of the immediately preceding fiscal year or a lesser number of shares as the board of directors determines. The 2000 purchase plan becomes effective upon the date of this offering. Unless terminated earlier by the board of directors, this plan will terminate in February 2020. The 2000 purchase plan, which is intended to qualify under Section 423 of the Internal Revenue Code, will be implemented by a series of overlapping offering periods of approximately 24 months' duration, with new offering periods (other than the first offering period) commencing on May 1 and November 1 of each year. Each offering period will generally consist of four consecutive purchase periods of six months' duration, at the end of which an automatic purchase will be made for participants. The initial offering period is expected to commence on the date of this offering and end on April 30, 2002; the initial purchase period is expected to begin on the date of this offering and end on October 31, 2000, with subsequent purchase periods ending on April 30, 2001, October 31, 2001 and April 30, 2002. The 2000 purchase plan will be administered by the board of directors or by a committee appointed by the board. Our employees (including officers and employee directors), or of any majority-owned subsidiary designated by the board, are eligible to participate in the 2000 purchase plan if they are employed by us or a designated subsidiary for at least 20 hours per week and more than five months per year. The 2000 purchase plan permits eligible employees to purchase common stock through payroll deductions at a rate of not more than 15% of an employee's compensation. The purchase price is equal to the lower of 85% of the fair market value of the common stock at the beginning of each offering period or at the end of each purchase period, subject to certain adjustments as provided in the plan. Employees may end their participation in the 2000 purchase plan at any time during an offering period, and participation ends automatically on termination of employment. No employee may purchase more than 1,333 shares of common stock under the 2000 Purchase Plan in any one purchase period. If we merge or consolidate with or into another corporation or sell all or substantially all of our assets, each right to purchase stock under the 2000 purchase plan will be assumed or an equivalent right substituted by our acquiror. If our acquiror did not agree to assume or substitute stock purchase rights, any offering period and purchase period then in progress would be shortened and a new exercise date occurring prior to the closing of the transaction would be set. Outstanding awards, shares remaining available for issuance under the plan, the fixed number in the plan's evergreen formula, and the maximum number of shares that may be purchased during a six-month purchase period will each adjust in the event of a stock split, stock dividend or other similar change in our capital stock. Our board of directors has the power to amend or terminate the 2000 purchase plan and to change or terminate offering periods as long as such action does not adversely affect any outstanding rights to purchase stock thereunder. However, the board of directors may amend or terminate the 2000 purchase plan or an offering period even if it would adversely affect outstanding options in order to avoid our incurring adverse accounting charges. Amended and Restated 1998 Directors' Stock Option Plan. The 1998 directors' stock option was adopted by the board of directors in February 1998 and approved by our stockholders in April 1998. It was amended in February 2000 by our board of directors to increase the total number of shares of common stock reserved for issuance under the plan from 200,000 to 466,666 shares. This amendment will be submitted to our stockholders for approval prior to the date of this offering. As of December 31, 1999, options to purchase 150,000 shares of common stock with a weighted average exercise price of $6.50 were outstanding and no shares had been purchased upon exercise of options issued under the plan. We expect that a total of 316,666 shares of common stock will be available for issuance as of the date of this offering. 47 The directors' plan provides for the grant of nonstatutory stock options to our nonemployee directors. Prior to the date of this offering, option grants made under the 1998 directors' plan were made on a discretionary basis by our board of directors. Following this offering, the plan provides for automatic formula grants to our nonemployee directors. The directors' plan is designed to work after the date of this offering automatically without administration; however, to the extent administration is necessary, it will be performed by our board of directors. To the extent they arise, it is expected that conflicts of interest will be addressed by abstention of any interested director from both deliberations and voting regarding matters in which a director has a personal interest. Unless terminated earlier, the directors' plan will terminate in February 2008. The directors' plan provides that each person who becomes a nonemployee director after the completion of this offering will be granted a nonstatutory stock option to purchase 16,666 shares of common stock on the date on which such individual first becomes a member of our board of directors. In addition, on the date of each annual stockholders meeting, each nonemployee director who will continue serving on the board following the meeting and who has been a director of Metawave for at least six months prior to the meeting date will be granted an option to purchase 6,666 shares of common stock. All options granted under the directors' plan will have a term of ten years and an exercise price equal to the fair market value of on the date of grant and will be transferable only to members of a directors' immediate family and to trusts and other entities for the benefit their family members. Options granted under the directors' plan to new nonemployee directors following this offering will vest as to 25% of the shares underlying the option on the first anniversary of the date of the option grant and as to 1/48th of the shares each month after the first anniversary so that these options will be fully vested on the fourth anniversary of the grant date. Options granted to our nonemployee directors at the time of each annual stockholders meeting following this offering will vest as to 1/36th of the shares underlying the option so that these options will be fully vested on the third anniversary of the grant date. If Metawave determines that a director has engaged in fraud, embezzlement or similar acts against us, or if a director has disclosed information that is confidential to Metawave or engaged in any conduct constituting unfair competition against us, we have the right to suspend or terminate that director's right to exercise an option under the directors' plan. If we are acquired by another corporation, we would expect each option outstanding under our 1998 directors' plan to be assumed or replaced with equivalent options by our acquiror. If our acquiror did not assume or replace outstanding options, then the vesting of outstanding awards would accelerate so that nonemployee directors holding options would be able to exercise and retain the number of shares that he or she would have vested in had he or she continued serving as a member of our board of directors for us for another 12 months (if the director had been a member of our board us for less than 2 years at the time of the acquisition) or for another 24 months (if he or she had been a member of our board for 2 years or more at the time of the acquisition) following the acquisition date. Outstanding awards, the number of shares remaining available for grant under the plan, and the number of shares subject to the automatic director grants described above will each adjust in the event of a stock split, stock dividend or other similar change in our capital stock. Our board of directors may amend or terminate the directors' plan as long as such action does not adversely affect any outstanding option. We will obtain stockholder approval for any amendment to the plan to the extent required by applicable law. Limitation of Liability and Indemnification Matters Our certificate of incorporation limits the liability of directors to the maximum extent permitted by the Delaware General Corporation Law. Delaware law provides that a director of a corporation will not be personally liable for monetary damages for breach of such individual's fiduciary duties as a director except for liability for: . any breach of the director's duty of loyalty to Metawave or to our stockholders, . acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, 48 . unlawful payments of dividends or unlawful stock repurchases or redemptions, or . any transaction from which a director derives an improper personal benefit. Our bylaws provide that we shall indemnify our directors and officers and may indemnify our other employees and agents to the fullest extent permitted by law. We believe that indemnification under our bylaws covers at least negligence and gross negligence on the part of an indemnified party. Our bylaws also permit us to advance expenses incurred by an indemnified party in connection with the defense of any action or proceeding arising out of such party's status or service as a director, officer, employee or other agent of Metawave upon an undertaking by such party to repay such advances if it is ultimately determined that such party is not entitled to indemnification. This advancement of expenses is subject to authorization by the board of directors in the case of non-executive officers, employees and agents. We have entered into separate indemnification agreements with each of our directors and officers. These agreements require us, among other things, to indemnify the director or officer against expenses, including attorney's fees, judgments, fines and settlements paid by the individual in connection with any action, suit or proceeding arising out of his or her status or service as one of our directors or officers other than liabilities arising from willful misconduct or conduct that is knowingly fraudulent or deliberately dishonest and to advance expenses incurred by such individual in connection with any proceeding against such individual with respect to which such individual may be entitled to indemnification by us. We believe that our certificate of incorporation and bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain directors' and officers' liability insurance. At present we are not aware of any pending litigation or proceeding involving any of our directors, officers, employees or agents where indemnification will be required or permitted. We are not aware of any threatened litigation or proceeding that might result in a claim for such indemnification. 49 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS Sales of Equity Securities Certain stock option grants to our directors and executive officers are described herein under the caption "Management--Executive Compensation." Since July 1995, we have issued, in private placement transactions, shares of preferred stock as follows: . an aggregate of 5,000,000 shares of Series A preferred stock at $1.00 per share in July 1995, . an aggregate of 2,711,113 shares of Series B preferred stock at $3.375 per share in May 1996, . an aggregate of 2,491,880 shares of Series C preferred stock at $6.16 per share in October and November 1996, . an aggregate of 2,397,727 shares of Series D preferred stock at $8.00 per share in August 1997, and . an aggregate of 18,276,151 shares of Series E preferred stock at $5.00 per share in December 1998, January, April and June 1999. Upon completion of this offering, each share of Series A and Series B preferred stock will convert into 0.66667 shares of our common stock, each share of Series C preferred stock will convert into 0.87190 shares of our common stock, each share of Series D preferred stock will convert into 0.96096 shares of our common stock and each share of Series E preferred stock will convert into 0.95238 shares of our common stock. Listed below are those directors, executive officers and five percent stockholders who have made equity investments in Metawave during the last three fiscal years. We believe that the shares issued in these transactions were sold at the then fair market value and that the terms of these transactions were no less favorable than we could have obtained from unaffiliated third parties.
Series A Series B Series C Series D Series E Common Preferred Preferred Preferred Preferred Preferred Investor(1) Stock Stock(2) Stock(2) Stock(2) Stock(2) Stock(2) - ----------- ------- --------- --------- --------- --------- --------- Entities affiliated with Venrock Associates(3).. -- 1,222,222 592,592 283,086 175,654 589,164 Entities affiliated with Oak Investment Partners(4)............ -- 1,222,222 592,592 283,086 175,654 5,351,064 Entities affiliated with The Sevin Rosen Funds(5)............... -- 1,218,888 583,704 283,086 175,654 589,164 Entities affiliated with MeriTech Capital Partners L.P........... -- -- -- -- -- 4,761,900 General Motors Investment Management Corporation............ -- -- -- -- -- 3,333,330 Entities associated with Merrill Lynch, Pierce, Fenner & Smith Incorporated........... -- -- -- -- -- 2,380,950 Douglas O. Reudink...... 906,153 -- -- -- -- -- Jennifer Gill Roberts(5)............. -- 3,333 4,986 -- -- --
- -------- (1) Shares held by affiliated persons and entities have been aggregated. See "Principal Stockholders." (2) Shown on an as-converted basis. (3) David R. Hathaway, a director, is a general partner of Venrock Associates. (4) Bandel L. Carano, a director, is a general partner of Oak Investment Partners. (5) Jennifer Gill Roberts, a director, is a general partner of the Sevin Rosen Funds. In addition to the equity investment made by entities affiliated with Sevin Rosen Funds, (i) Ms. Roberts purchased shares of Series A and Series B preferred stock for her own account which convert to 3,333 and 4,986 shares of common stock, respectively, and (ii) Steven L. Domenik, a general partner of Sevin Rosen, purchased shares of Series B preferred stock for his own account which convert to 3,950 shares of common stock. 50 On April 3, 1998, Dr. Reudink sold 20,513 shares of common stock at a price of $9.75 per share to Cedar Grove Investment L.L.C., a limited liability corporation which is managed by Mr. Scot Jarvis, one of our directors. On April 17, 1998, Dr. Reudink sold 13,333 shares of common stock at a price of $9.75 per share to Spinnaker Offshore Founders Fund, an entity affiliated with Bowman Capital Management and related entities which are holders of Series D preferred stock. On April 28, 1998, we issued an aggregate principal amount of $29.0 million 13.75% Senior Secured Bridge Notes due April 28, 2000 to certain institutional investors, including Powerwave Technologies, Inc. of which Bruce Edwards, one of our directors, is president and chief executive officer. In addition, we issued warrants to purchase an aggregate of 537,500 shares of our Series D preferred stock at a purchase price of $0.01 per share. The number of shares of Series D preferred stock issuable upon exercise of these warrants was adjusted in December 1998 in connection with our sale of Series E preferred stock. On April 28, 1999 all outstanding principal and accrued interest on these notes were repaid in full. On April 26, 1999 all of the warrants issued in connection with these notes were exercised and 620,702 shares of Series D preferred stock were issued. Powerwave purchased $2,500,000 in aggregate principal amount of the 13.75% Senior Secured Bridge Notes and was issued a warrant to purchase up to an aggregate of 46,336 shares of Series D preferred stock at an exercise price of $0.01 per share which was exercised in full in April 1999 for 53,509 shares of Series D preferred stock as a result of certain adjustments. Powerwave Technologies, Inc. is currently our sole supplier of linear power amplifiers, a component in our smart antenna systems. From January 1, 1999 to December 31, 1999, we purchased a total of $6.1 million of linear power amplifiers and related components from Powerwave. Pursuant to a manufacturing agreement, Powerwave will manufacture and sell to us 100% of our requirements for linear power amplifiers that Powerwave manufactures. 51 PRINCIPAL STOCKHOLDERS The following table sets forth information known to us regarding beneficial ownership of our common stock as of December 31, 1999, after giving effect to the conversion of all outstanding shares of preferred stock, and as adjusted to reflect the sale of common stock offered by this prospectus, as to: . each person, or group of affiliated or associated persons, who owns beneficially more than 5% of the outstanding shares of our common stock, . each of our directors, . each of our Named Executive Officers, and . all of our directors and executive officers as a group. Unless otherwise indicated, the address of each stockholder is: c/o Metawave Communications Corporation, 10735 Willows Road NE, P.O. Box 97069, Redmond, WA 98073-9769. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options or warrants held by that person that are currently exercisable or will become exercisable within 60 days after December 31, 1999 are deemed outstanding, while such shares are not deemed outstanding for purposes of computing percentage ownership of any other person. The percent of beneficial ownership for each stockholder is based on 30,363,817 shares of common stock outstanding prior to this offering, on an as converted basis, plus an additional 6,250,000 shares of common stock outstanding after this offering. Unless otherwise indicated in the footnotes below, the persons and entities named in the table have sole voting and investment power with respect to all shares beneficially owned, subject to community property laws where applicable.
Percent of Shares Outstanding Shares ----------------- Beneficially Prior to After Name and Address Owned Offering Offering - --------------------------------------------- ------------ -------- -------- Oak Investment Partners(1)................... 7,730,725 25.4% 21.1% 525 University Avenue, Suite 1300 Palo Alto, CA 94301-1902 Venrock Associates(2)........................ 2,937,823 9.7 8.0 30 Rockefeller Plaza New York, NY 10112-0184 The Sevin Rosen Funds(3)..................... 2,931,602 9.7 8.0 550 Lytton Avenue, Suite 200 Palo Alto, CA 94301-1542 MeriTech Capital Partners(4)................. 4,761,899 15.7 13.0 428 University Avenue, 2nd Floor Palo Alto, CA 94301 General Motors Investment Management Corporation................................. 3,333,330 11.0 9.1 767 Fifth Avenue(5) New York, New York 10153 Merrill Lynch, Pierce, Fenner & Smith Incorporated(6)............................. 2,380,948 7.8 6.5 World Financial Center, South Tower New York, New York 10080-6123 Douglas O. Reudink(7)........................ 922,818 3.0 2.5 Robert H. Hunsberger(8)...................... 600,000 1.9 1.6 Victor K. Liang(9)........................... 66,480 * * Richard Henderson(10)........................ 106,666 * * Martin J. Feuerstein(11)..................... 48,777 * * Ray Butler(12)............................... 60,388 * * Bandel L. Carano(1).......................... 7,730,725 25.4 21.1 Jennifer Gill Roberts(13).................... 2,944,010 9.8 8.0 David R. Hathaway(2)......................... 2,937,823 9.7 8.0 Scot B. Jarvis(14)........................... 61,484 * * Bruce C. Edwards(15)......................... 16,666 * * David A. Twyver(16).......................... 16,666 * * All directors and executive officers as a group (14 persons)(17)...................... 16,181,108 51.3 42.5
- -------- * Represents less than 1% ownership. Footnotes continued on following page. 52 (1) Includes 2,876,710 shares held by Oak Investment Partners VI, L.P., 4,671,424 shares held by Oak Investment Partners VIII, L.P., 67,120 shares held by Oak VI Affiliates Fund, L.P. and 90,476 shares held by Oak VIII Affiliates Fund, L.P. Bandel L. Carano, one of our directors, is a Managing Member of Oak Associates VI, L.L.C., a general partner of Oak Investment Partners VI, L.P., a General Partner of Oak VI Affiliates and a general partner of Oak VI Affiliates Fund, and as such may be deemed to share voting and investment power with respect to such shares. Mr. Carano disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest in such shares. (2) Includes 1,715,298 shares held by Venrock Associates and 1,222,531 shares held by Venrock Associates II, L.P. David R. Hathaway, a director, is a general partner of Venrock Associates and Venrock Associates II, L.P., and as such, may be deemed to share voting and investment power with respect to such shares. Mr. Hathaway disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest in such shares. (3) Includes 10,146 shares held by Sevin Rosen Bayless Management Co., 1,998,944 shares held by Sevin Rosen Fund IV L.P., 884,694 shares held by Sevin Rosen Fund V L.P., 37,822 shares held by Sevin Rosen V Affiliates Fund L.P. (4) Includes 4,685,709 shares held by MeriTech Capital Partners and 76,190 shares held by MeriTech Capital Affiliates, L.P. (5) Includes 3,333,330 shares held by Chase Manhattan Bank, as trustee for First Plaza Group Trust, General Motors Investment Management Corporation. (6) Includes 952,380 shares held by ML IBK Positions, Inc, 599,999 shares held by Merrill Lynch KECALP L.P. 1997, 657,142 shares held by Merrill Lynch KECALP L.P. 1999, 114,285 shares held by Merrill Lynch KECALP International L.P. 1997 and 57,142 shares held by Merrill Lynch KECALP International L.P. 1999. (7) Includes 16,666 shares held in trust for Matthew Reudink, Dr. Reudink's son. (8) Includes 600,000 shares issuable upon the exercise of immediately exercisable options held by Mr. Hunsberger within 60 days of December 31, 1999, 237,500 shares of which are subject to our right of repurchase that lapses over time. (9) Includes 66,480 shares issuable upon the exercise of immediately exercisable options held by Mr. Liang within 60 days of December 31, 1999, 23,147 shares of which are subject to our right of repurchase that lapses over time. (10) Includes 106,666 shares issuable upon the exercise of immediately exercisable options held by Mr. Henderson within 60 days of December 31, 1999, 51,112 shares of which are subject to our right of repurchase that lapses over time. (11) Includes 48,777 shares issuable upon the exercise of immediately exercisable options held by Mr. Feuerstein within 60 days of December 31, 1999, 13,666 shares of which are subject to our right of repurchase that lapses over time. (12) Includes 60,388 shares issuable upon the exercise of immediately exercisable options held by Mr. Butler within 60 days of December 31, 1999. (13) Includes the shares referenced in footnote (3) and 8,272 shares held by Ms. Roberts. Jennifer Gill Roberts, one of our directors, is a general partner of Sevin Rosen Fund IV L.P., Sevin Rosen Fund V L.P. and Sevin Rosen V Affiliates Fund L.P., and as such, may be deemed to share voting and investment power with respect to such shares. Ms. Roberts disclaims beneficial ownership of the shares referenced in footnote (3), except to the extent of her pecuniary interest in such shares. (14) Includes 53,846 shares owned by Cedar Grove Investments, LLC, Cedar Grove, and 16,666 shares issuable upon the exercise of immediately exercisable options held by Cedar Grove Investments, LLC within 60 days of December 31, 1999. Mr. Jarvis, a managing member of Cedar Grove, disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest in such shares. (15) Includes 16,666 shares issuable upon the exercise of immediately exercisable options held by Mr. Edwards within 60 days of December 31, 1999. (16) Includes 16,666 shares issuable upon the exercise of immediately exercisable options held by Mr. Twyver within 60 days of December 31, 1999. (17) Includes shares referred to in footnotes (7)-(16) and 102,000 shares issuable upon exercise of outstanding options exercisable within 60 days of December 31, 1999 held by other officers. 53 DESCRIPTION OF SECURITIES Following the closing of this offering, our authorized capital stock will consist of 150,000,000 shares of common stock, $0.0001 par value, and 10,000,000 shares of preferred stock, $0.0001 par value. As of December 31, 1999, there were 2,390,910 shares of common stock outstanding that were held of record by approximately 115 stockholders. There will be 36,613,817 shares of common stock outstanding (assuming no exercise of outstanding options after December 31, 1999) after giving effect to this offering and conversion of all outstanding preferred shares. 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, 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. In the event of a liquidation, dissolution or winding up of Metawave, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior 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 available to the common stock. Preferred Stock Upon the closing of this offering, the board of directors is authorized to issue up to 10,000,000 shares of preferred stock in one or more series and to determine the powers, preferences and rights and the qualifications, limitations or restrictions granted to or imposed upon any wholly unissued series of undesignated preferred stock, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without any further vote or action by the stockholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of Metawave without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock. In certain circumstances, such issuance could have the effect of decreasing the market price of the common stock. As of the closing of this offering, no shares of preferred stock will be outstanding and we currently have no plans to issue any shares of preferred stock. Warrants As of December 31, 1999, we had warrants outstanding to purchase an aggregate of 20,833 shares of common stock, 65,416 shares of Series A preferred stock, convertible into 43,610 shares of common stock, 19,999 shares of Series B preferred stock, convertible into 13,332 shares of common stock, 34,090 shares of Series C preferred stock, convertible into 29,723 shares of common stock and 4,375 shares of Series D preferred stock, convertible into 4,204 shares of common stock. In connection with a equipment lease line entered into with Transamerica Business Credit Corporation in May 1999, we issued a warrant to purchase up to an aggregate of 20,833 shares of common stock at an exercise price of $6.75 per share. The warrant expires on May 19, 2004. In connection with an equipment lease line entered into in December 1995, we issued a warrant to purchase up to an aggregate of 48,750 shares of Series A preferred stock to Comdisco, Inc. at an exercise price of $2.1875 per share, convertible into 32,500 shares of common stock. The warrant expires on December 13, 2002. In connection with a second equipment lease line entered into in April 1996, we issued a warrant to purchase up to an aggregate of 16,666 shares of Series A preferred stock to Comdisco at an exercise price of $2.1875 per share, convertible into 11,110 shares of common stock. The warrant expires on April 9, 2003. In connection with a third equipment lease line entered into in August 1996, we issued a warrant to purchase up to an aggregate of 19,999 shares of Series B preferred stock to Comdisco at an exercise price of 54 $4.7675 per share, convertible into 13,332 shares of common stock. The warrant and the extension expire on the later of August 20, 2003 or three years following the effective date of this offering. In connection with a fourth equipment lease line entered into in June 1997, we issued a warrant to purchase up to an aggregate of 34,090 shares of Series C preferred stock to Comdisco at an exercise price of $6.16 per share convertible into 29,723 shares of common stock. The warrant expires on the later of June 9, 2004 or 18 months following the effective date of this offering. In connection with an equipment lease line entered into with Insight Investments Corporation in April 1998, we issued a warrant to purchase up to an aggregate of 4,375 shares of Series D preferred stock at an exercise price of $8.00 per share, convertible into 4,204 shares of common stock. The warrant expires on the closing of this offering. Registration Rights of Certain Holders The holders of 28,924,774 shares of common stock or certain of their transferees are entitled to rights with respect to the registration of such shares under the Securities Act. These rights are provided under the terms of an agreement between us and the holders of registrable securities. Subject to certain limitations in the agreement, certain holders of the registrable securities may require, on two occasions at any time after six months from the effective date of this offering, that we use our best efforts to register the registrable securities for public resale, provided that the proposed aggregate offering price is at least $7,500,000. No shares of common stock are being registered on behalf of these holders in this offering. Furthermore, in the event we elect to register any of our common stock for purposes of effecting any public offering, the holders of registrable securities are entitled to include their shares of common stock in the registration. A holder's right to include shares in an underwritten registration is subject to the ability of the underwriters to limit the number of shares included in the underwritten public offering. Subject to certain conditions, all fees, costs and expenses of such registrations must be borne by us and all selling expenses, including underwriting discounts, selling commissions and stock transfer taxes, relating to registrable securities must be borne by the holders of the securities being registered. In addition, we have agreed to indemnify the holders of registration rights against liabilities under the Securities Act. Anti-Takeover Provisions of Delaware and Washington Law and Charter Documents We are subject to the provisions of Section 203 of the Delaware General Corporate Law. In general, the statute prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date that the person became an interested stockholder unless, with certain exceptions, the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a "business combination" includes a merger, asset or stock sale or other transaction resulting in a financial benefit to the stockholder, and an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years prior, did own, 15% or more of the corporation's outstanding voting stock. This provision may have the effect of delaying, deferring or preventing a change in control of Metawave without further action by the stockholders. The laws of the State of Washington, where our principal executive offices are located, impose restrictions on certain transactions between certain foreign corporations and significant stockholders. Chapter 23B.19 of the Washington Business Corporation Act, or the WBCA, prohibits a "target corporation," with certain exceptions, from engaging in certain "significant business transactions" with a person or group of persons who beneficially own 10% or more of the voting securities of the target corporation, an "acquiring person", for a period of five years after such acquisition, unless the transaction or acquisition of such shares is approved by a majority of the members of the target corporation's board of directors prior to the time of acquisition. Such prohibited transactions include, among other things, a merger or consolidation with, disposition of assets to, or issuance or redemption of stock to or from, the acquiring person, termination of 5% or more of the employees of the target corporation as a result of the acquiring person's acquisition of 10% or more of the shares or allowing the acquiring person to receive disproportionate benefit as a stockholder. After the five-year period, a 55 significant business transaction may take place as long as it complies with certain fair price provisions of the statute. A target corporation includes a foreign corporation if: . the corporation has a class of voting stock registered pursuant to Section 12 or 15 of the Exchange Act, . the corporation's principal executive office is located in Washington, and . any of (a) more than 10% of the corporation's stockholders of record are Washington residents, (b) more than 10% of its shares are owned of record by Washington residents, (c) 1,000 or more of its stockholders of record are Washington residents, (d) a majority of the corporation's employees are Washington residents or more than 1,000 Washington residents are employees of the corporation, or (e) a majority of the corporation's tangible assets are located in Washington or the corporation has more than $50.0 million of tangible assets located in Washington. A corporation may not "opt out" of this statute and, therefore, we anticipate this statute will apply to us. Depending upon whether we meet the definition of a target corporation, Chapter 23B.19 of the WBCA may have the effect of delaying, deferring or preventing a change in control of Metawave. In addition, upon completion of this offering, certain provisions of our charter documents, including a provision eliminating the ability of stockholders to take actions by written consent, may have the effect of delaying or preventing changes in control or management of Metawave, which could have an adverse effect on the market price of our common stock. Our stock option and purchase plans generally provide that upon a change in control or similar event optionees are entitled to accelerated vesting credit equal to either twelve months or twenty-four months of additional vesting beyond that otherwise scheduled, based on whether he or she has been employed by Metawave less than two years, or two years or more, respectively, as of the date of such event unless in connection with the change in control or similar event, outstanding options are assumed or substituted for equivalent options of a successor corporation. The board of directors has authority to issue up to 10,000,000 shares of preferred stock and to fix the rights, preferences, privileges and restrictions, including voting rights, of these shares without any further vote or action by the stockholders. The rights of the holders of the 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 desirable 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 our outstanding voting stock, thereby delaying, deferring or preventing a change in control of Metawave. Furthermore, such preferred stock may have other rights, including economic rights senior to the common stock, and, as a result, the issuance of such preferred stock could have a material adverse effect on the market value of the common stock. We have no present plan to issue shares of preferred stock. Transfer Agent and Registrar The transfer agent and registrar for our common stock is ChaseMellon Shareholder Services L.L.C. and their number is (206) 674-3030. Listing We have applied to list our common stock on the Nasdaq National Market under the trading symbol "MTWV." 56 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, we will have outstanding 36,613,817 shares of common stock, assuming no exercise of options after December 31, 1999. Of these shares, the 6,250,000 shares sold in this offering will be eligible for resale in transactions on the Nasdaq National Market without restriction pursuant to exemptions under the Securities Act unless purchased by our "affiliates" as that term is defined in Rule 144 of the Securities Act. The remaining 30,363,817 shares outstanding upon completion of this offering will be "restricted securities" as that term is defined under Rule 144 and may not be sold publicly unless they are registered under the Securities Act or are sold pursuant to Rule 144 or another exemption from registration. All of our directors and executive officers and certain other stockholders, holding in the aggregate 16,181,105 of the shares of common stock outstanding prior to this offering, are contractually obligated not to sell or otherwise dispose of any shares of common stock for a period of 180 days after the date of this prospectus without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated or us. The number of shares of common stock available for sale in the public market is further limited by restrictions under the Securities Act. Because of the restrictions noted above, on the date of this prospectus and until 180 days after the date of this prospectus, assuming no release of the lockup period by us or by Merrill Lynch, Pierce, Fenner & Smith Incorporated, 469,142 shares in addition to the 6,250,000 shares offered hereby will be eligible for sale in the public market. Beginning 90 days after the effective date of this offering, approximately 411,112 restricted shares will be eligible for sale in the public market. Beginning 180 days after the effective date of this offering, approximately 29,505,874 restricted shares, will be eligible for sale in the public market, subject in some cases to certain volume limitations. Upon the expiration of one-year minimum holding periods, an additional 22,310 shares will be eligible for sale.
Days after Date Shares Eligible of this Prospectus for Sale Comment -------------------- --------------- ----------------------------------------- Upon effectiveness.. 6,250,000 Shares sold in offering Upon effectiveness.. 469,142 Freely tradable shares salable under Rule 144(k) that are not subject to the lockup 91 days............. 411,112 Shares salable under Rules 701 and 144 and not subject to the lockup 181 days............ 29,505,874 Lockup released; shares salable under Rules 144 and 701
In general, under Rule 144 as currently in effect, a person, or persons whose shares are aggregated, who has beneficially owned restricted shares for at least one year, including persons who may be deemed our "affiliates", would be entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of the number of shares of common stock then outstanding or the average weekly trading volume of the common stock as reported through the Nasdaq National Market during the four calendar weeks preceding the filing of a Form 144 with respect to such sale. Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us. In addition, a person who is not deemed to have been an affiliate of us at any time during the 90 days preceding a sale, and who has beneficially owned for at least two years the shares proposed to be sold, would be entitled to sell such shares under Rule 144(k) without regard to the requirements described above. In general, Rule 701 permits resales of shares issued pursuant to certain compensatory benefit plans and contracts commencing 90 days after the issuer becomes subject to the reporting requirements of the Exchange Act in reliance upon Rule 144 but without compliance with certain restrictions, including the holding period requirements, contained in Rule 144. During the lockup period, we intend to file a registration statement under the Securities Act to register shares to be issued pursuant to our employee benefit plans. As a result, any options exercised under the 1995 stock option plan, the 1998 stock option plan, the 2000 stock option plan, the 2000 director option plan, the 2000 employee stock purchase plan or any other benefit plan after the effectiveness of such registration statement will also be freely tradable in the public market, except that shares 57 held by affiliates will still be subject to the volume limitation, manner of sale, notice and public information requirements of Rule 144 unless otherwise resalable under Rule 701. As of December 31, 1999, there were outstanding options for the purchase of 2,885,294 shares of our common stock under our employee benefit plans. Prior to this offering, there has been no public market for our securities. No prediction can be made as to the effect, if any, that market sales of shares or the availability of shares for sale will have on the market price prevailing from time to time. Nevertheless, sales of substantial amounts of our common stock in the public market after the lapse of the restrictions described above could adversely affect the prevailing market price and our ability to raise equity capital in the future at a time and price which we deem appropriate. In addition, after this offering, the holders of the registrable securities will be entitled to certain demand and piggyback rights with respect to registration of their shares under the Securities Act. Registration of those shares under the Securities Act would result in such shares becoming freely tradable without restriction under the Securities Act (except for shares purchased by our affiliates) immediately upon the effectiveness of such registration. If such holders, by exercising their demand registration rights, cause a larger number of securities to be registered and sold in the public market, such sales could have an adverse effect on the market price for our common stock. If we were to include in a registration initiated by us, any registrable securities pursuant to the exercise of piggyback registration rights, such sales may have an adverse effect on our ability to raise needed capital. 58 UNDERWRITING General We intend to offer our common stock through a number of underwriters. Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Smith Barney and U.S. Bancorp Piper Jaffray are acting as representatives of the underwriters named below. Subject to the terms and conditions described in a purchase agreement among us and the underwriters, we have agreed to sell to the underwriters, and each of the underwriters severally and not jointly has agreed to purchase from our company, the number of shares of common stock set forth opposite its name below.
Number of Underwriter Shares ----------- --------- Merrill Lynch, Pierce, Fenner & Smith Incorporated.............................................. Salomon Smith Barney............................................... U.S. Bancorp Piper Jaffray Inc..................................... Total......................................................... ====
The underwriters have agreed to purchase all of the shares sold under the purchase agreement if any of these shares are purchased. If an underwriter defaults, the purchase agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the purchase agreement may be terminated. The closings for the sales of shares to be purchased by the underwriters are conditioned on one another. We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities. The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the purchase agreements, such as the receipt by the underwriters of officer's certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part. Commissions and Discounts The representatives have advised us that the underwriters propose initially to offer the shares of common stock to the public at the initial public offering price set forth on the cover page of this prospectus, and to certain dealers at a price less a concession not in excess of $ per share of common stock. The underwriters may allow, and such dealers may reallow, a discount not in excess of $ per share of common stock to certain other dealers. After the initial public offering, the public offering price, concession and discount may change. The following table shows the per share and total public offering price, the underwriting discount to be paid by us to the underwriters and the proceeds before expenses to us. The information is presented assuming either no exercise or full exercise by the underwriters of their over-allotment option.
Without Per Share Option With Option --------- ----------- ----------- Public offering price..................... $12.00 $75,000,000 $86,250,000 Underwriting discount..................... 0.84 5,250,000 6,037,500 Proceeds, before expenses, to Metawave.... 11.16 69,750,000 80,212,500
The expenses of the offering, not including the underwriting discount, are estimated at $1,000,000 and are payable by Metawave. 59 Over-allotment Option We have granted to the underwriters an option, exercisable no later than 30 days after the date of this prospectus, to purchase up to an aggregate of 937,500 additional shares of common stock at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus. To the extent that the underwriters exercise such option, each of the underwriters will have a firm commitment to purchase approximately the same percentage of such additional shares as the number set forth next to such underwriters name in the above table bears to the total number of shares of common stock offered hereby, and we will be obligated, pursuant to the option, to sell shares to the underwriters to the extent the option is exercised. The underwriters may exercise such option only to cover over-allotments made in connection with the sale of shares of common stock offered hereby. If purchased, the underwriters will offer such additional shares on the same terms as those on which the 6,250,000 shares are being offered. Reserved Shares At our request, the underwriters have reserved for sale, at the initial public offering price, up to 7% of the shares offered by this prospectus for sale to some of our employees, distributors, suppliers, business associates and related persons. If these persons purchase reserved shares, this will reduce the number of shares available for sale to the general public. Any reserved shares that are not orally confirmed for purchase within one day of the pricing of this offering will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus. No Sales of Similar Securities We, our executive officers and directors and most of our existing stockholders have agreed not to directly or indirectly: . offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, lend or otherwise dispose of or transfer any shares of our common stock or securities convertible into or exchangeable or exercisable for or repayable with our common stock, whether now owned or later acquired by the person executing the agreement or with respect to which the person executing the agreement later acquires the power of disposition, or file any registration statement under the Securities Act relating to any shares of our common stock (other than shares sold in this offering or hereafter acquired in the public market), or . enter into any swap or other agreement or any other agreement that transfers, in whole or in part, the economic consequence of ownership of our common stock whether any such swap or transaction is to be settled by delivery of our common stock or other securities, in cash or otherwise, without the prior written consent of Merrill Lynch Pierce, Fenner & Smith Incorporated on behalf of the underwriters for a period of 180 days after the date of the prospectus. See "Shares Eligible for Future Sale." Quotation on the Nasdaq National Market We have applied to have our common stock listed on the Nasdaq National Market, subject to notice of issuance, under the symbol "MTWV." Before this offering, there has been no public market for our common stock. The initial public offering price will be determined through negotiations among us and the representatives and the lead managers. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price are: . the valuation multiples of publicly traded comparisons that the representatives and the lead managers believe to be comparable to us, . our financial information, 60 . the history of, and the prospects for, our company and the industry in which we compete, . an assessment of our management, its past and present operations, and the prospects for, and timing of, our future revenues, . the present state of our development and . the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours. Other Relationships ML IBK Positions, Inc. and other investment funds which are associated with Merrill Lynch, Pierce, Fenner & Smith Incorporated purchased an aggregate of 2,380,948 shares of our Series E preferred stock. Merrill Lynch, Pierce, Fenner & Smith Incorporated has in the past provided and may in the future provide, investment banking services for which they have received, and may receive, customary fees. Price Stabilization and Short Positions Until the distribution of our common stock is completed, rules of the Commission may limit the ability of the underwriters to bid for and purchase our common stock. As an exception to these rules, the underwriters are permitted to engage in transactions that stabilize the price of our common stock. Stock transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of our common stock. The underwriters may create a short position in our common stock in connection with the offering. This means that if they sell more shares of our common stock than are set forth on the cover page of this prospectus, the underwriters may reduce that short position by purchasing our common stock in the open market. The underwriters may also elect to reduce any short position by exercising all or part of the over-allotment option described above. Neither we nor any of the underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters makes any representation that the underwriters will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. Electronic Distribution of Prospectus Merrill Lynch will be facilitating Internet distribution for this offering to certain of its Internet subscription customers. Merrill Lynch intends to allocate a limited number of shares for sale to its online brokerage customers. An electronic prospectus is available on the Website maintained by Merrill Lynch. Other than the prospectus in electronic format, the information on the Merrill Lynch Website relating to this offering is not a part of this prospectus. 61 LEGAL MATTERS The validity of the common stock offered hereby will be passed upon for us by our counsel, Venture Law Group, a Professional Corporation, Kirkland, Washington. Certain legal matters will be passed upon for the underwriters by Wilson Sonsini Goodrich & Rosati, a Professional Corporation, Palo Alto, California. EXPERTS The financial statements and schedule of Metawave Communications Corporation as of December 31, 1997, 1998 and 1999 and the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports, given on the authority of such firm as experts in accounting and auditing. ADDITIONAL INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act. This prospectus, which is a part of the registration statement, does not contain all of the information set forth in the registration statement, including items contained in the exhibits to the registration statement. For further information about our company and the common stock being offered by this prospectus, you should see the registration statement and the exhibits, financial statements and notes filed with the registration statement. Copies of the registration statement, including exhibits, financial statements and notes, may be inspected without charge at the SEC principal office in Washington, D.C. or obtained at prescribed rates from the public reference room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information regarding the public reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a World Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy and information statements and other information regarding companies that file electronically with the SEC. We have filed the registration statement, including the exhibits and schedules, electronically with the SEC via the SEC EDGAR system. 62 METAWAVE COMMUNICATIONS CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Ernst & Young LLP, Independent Auditors..................... F-2 Consolidated Balance Sheets........................................... F-3 Consolidated Statements of Operations................................. F-4 Consolidated Statements of Stockholders' Deficit...................... F-5 Consolidated Statements of Cash Flows................................. F-6 Notes to Consolidated Financial Statements............................ F-7
F-1 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors Metawave Communications Corporation We have audited the accompanying consolidated balance sheets of Metawave Communications Corporation as of December 31, 1998 and 1999, and the related consolidated statements of operations, stockholders' deficit, and cash flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. 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, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Metawave Communications Corporation at December 31, 1998 and 1999, and the consolidated results of its operations and its cash flows for the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. ERNST & YOUNG LLP Seattle, Washington February 11, 2000, except Note 14, as to which the date is March 27, 2000 - -------------------------------------------------------------------------------- The foregoing report is in the form that will be signed upon the completion of the two for three stock split described in Note 14 to the financial statements. ERNST & YOUNG LLP Seattle, Washington March 27, 2000 F-2 METAWAVE COMMUNICATIONS CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
Pro Forma Stockholders' December 31, Equity at ------------------- December 31, 1998 1999 1999 -------- --------- ------------- (Unaudited) ASSETS - ------ Current assets: Cash and cash equivalents................. $ 10,763 $ 20,165 Accounts receivable, less allowances of $908 ($693 in 1998)...................... 4,329 10,127 Inventories............................... 7,929 4,149 Debt issuance costs, net of amortization of $6,491 ($4,170 in 1998)............... 2,321 -- Prepaid expenses and other assets......... 621 613 -------- --------- Total current assets.................... 25,963 35,054 Property and equipment, net................. 6,355 5,701 Other noncurrent assets..................... 192 191 -------- --------- Total assets............................ $ 32,510 $ 40,946 ======== ========= LIABILITIES AND STOCKHOLDERS' DEFICIT - ------------------------------------- Current liabilities: Accounts payable.......................... $ 5,412 $ 3,758 Accrued liabilities....................... 2,334 2,493 Accrued compensation...................... 1,461 1,511 Senior secured notes...................... 31,704 -- Current portion of notes payable.......... 134 75 Current portion of capital lease obligations.............................. 1,908 2,692 Deferred revenues......................... 145 1,766 -------- --------- Total current liabilities............... 43,098 12,295 Capital lease obligations, less current portion.................................... 4,326 2,479 Notes payable, less current portion......... 87 8 Other long-term liabilities................. -- 16 Commitments: Convertible and redeemable preferred stock, issued and outstanding shares--14,029,088 in 1998, 32,027,203 in 1999, and none pro forma, at liquidation value................ 56,472 143,945 Convertible and redeemable preferred stock warrants................................... 5,123 157 Stockholders' equity (deficit): Preferred stock, $.0001 par value: Authorized shares--37,000,000, of which 32,027,203 have been designated as convertible and redeemable at December 31, 1999................................. Common stock, $.0001 par value: Authorized shares--50,000,000; issued and outstanding shares--2,112,229 in 1998, 2,390,910 in 1999 and 30,363,817 pro forma................................ 2,179 3,573 $ 147,675 Deferred stock compensation............... (554) (906) (906) Accumulated other comprehensive income ... 6 19 19 Accumulated deficit....................... (78,227) (120,640) (120,640) -------- --------- --------- Total stockholders' equity (deficit).... (76,596) (117,954) $ 26,148 -------- --------- ========= Total liabilities and stockholders' equity................................. $ 32,510 $ 40,946 ======== =========
See accompanying notes. F-3 METAWAVE COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data)
Year Ended December 31, ------------------------------- 1997 1998 1999 --------- --------- --------- Revenues..................................... $ 1,450 $ 15,991 $ 22,596 Cost of revenues............................. 1,728 18,028 22,236 --------- --------- --------- Gross profit (loss).......................... (278) (2,037) 360 Operating expenses: Research and development................... 13,083 18,495 22,787 Sales and marketing........................ 5,383 11,346 11,080 General and administrative................. 3,762 5,887 5,732 --------- --------- --------- Total operating expenses................. 22,228 35,728 39,599 --------- --------- --------- Operating loss............................... (22,506) (37,765) (39,239) Other income, net............................ 851 790 1,165 Interest expense............................. (449) (7,353) (4,339) --------- --------- --------- Other income (expense), net.............. 402 (6,563) (3,174) --------- --------- --------- Net loss..................................... $ (22,104) $ (44,328) $ (42,413) ========= ========= ========= Basic and diluted net loss per share......... $ (12.18) $ (21.88) $ (18.98) ========= ========= ========= Shares used in computation of basic and diluted net loss per share.................. 1,815,000 2,025,741 2,234,798 ========= ========= =========
See accompanying notes. F-4 METAWAVE COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT For the Years Ended December 31, 1997, 1998 and 1999 (in thousands, except share data)
Accumulated Common Stock Deferred Other Total ----------------- Stock Comprehensive Accumulated Stockholders' Shares Amount Compensation Income Deficit Deficit --------- ------ ------------ ------------- ----------- ------------- Balance at January 1, 1997................... 1,767,335 $ 10 $ 0 $ 0 $ (11,795) $ (11,785) Exercise of stock options............... 188,061 77 -- -- -- 77 Deferred stock compensation.......... -- 1,881 (1,881) -- -- -- Stock compensation expense............... -- -- 676 -- -- 676 Net loss for the year ended December 31, 1997.................. -- -- -- -- (22,104) (22,104) --------- ------ ------- --- --------- --------- Balance at December 31, 1997................... 1,955,396 1,968 (1,205) 0 (33,899) (33,136) Repurchased restricted stock................. (92,266) (5) -- -- -- (5) Exercise of stock options............... 241,766 106 -- -- -- 106 Issuance and exercise of common stock warrants.............. 7,333 110 -- -- -- 110 Stock compensation expense............... -- -- 651 -- -- 651 Comprehensive income (loss): Foreign exchange translation gain...... -- -- -- 6 -- 6 Net loss for the year ended December 31, 1998.................. -- -- -- -- (44,328) (44,328) --------- Comprehensive loss..... (44,322) --------- ------ ------- --- --------- --------- Balance at December 31, 1998................... 2,112,229 2,179 (554) 6 (78,227) (76,596) Exercise of stock options............... 278,681 137 -- -- -- 137 Issuance of common stock warrants........ -- 88 -- -- -- 88 Deferred stock compensation.......... -- 1,169 (1,169) -- -- -- Stock compensation expense............... -- -- 817 -- -- 817 Comprehensive income (loss): Foreign exchange translation gain...... -- -- -- 13 -- 13 Net loss for the year ended December 31, 1999.................. -- -- -- -- (42,413) (42,413) --------- Comprehensive loss..... (42,400) --------- ------ ------- --- --------- --------- Balance at December 31, 1999................... 2,390,910 $3,573 $ (906) $19 $(120,640) $(117,954) ========= ====== ======= === ========= =========
See accompanying notes. F-5 METAWAVE COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Year Ended December 31, ------------------------------ 1997 1998 1999 --------- --------- -------- Operating activities Net loss....................................... $(22,104) $(44,328) $(42,413) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense........ 1,841 2,623 3,035 Loss on disposal of assets................... -- 8 208 Stock compensation expense................... 676 651 817 Reserve for loss on assets................... 425 -- -- Accrued interest expense on senior notes..... -- 2,704 -- Debt financing amortization.................. -- 2,673 2,321 Noncash warrant expense........................ -- 110 88 Changes in operating assets and liabilities: Decrease in accounts receivable............ (1,323) (2,885) (5,798) Increase (decrease) in inventories......... (4,080) (3,849) 3,780 Increase (decrease) in other assets........ (34) (502) 8 Increase (decrease) in accounts payable, accrued liabilities, and other liabilities............................... 926 7,915 (1,441) Increase in other long-term liabilities.... -- (5) -- Increase in deferred revenues.............. 114 30 1,621 --------- --------- -------- Net cash provided by (used in) operating activities.................................... (23,559) (34,855) (37,774) Investing activities Proceeds on sale of assets..................... -- 78 -- Purchases of equipment......................... (621) (2,593) (1,317) --------- --------- -------- Net cash provided by (used in) investing activities.................................... (621) (2,515) (1,317) Financing activities Proceeds from issuance of preferred stock...... 19,182 7,190 82,507 Proceeds from issuance of common stock......... 77 101 138 Proceeds from notes payable.................... -- 29,000 -- Payments on notes payable...................... (115) (182) (31,841) Principal payments on capital lease obligations................................... (722) (1,317) (2,319) --------- --------- -------- Net cash provided by financing activities...... 18,422 34,792 48,485 --------- --------- -------- Net increase (decrease)in cash................. (5,758) (2,578) 9,394 Effect of exchange rate changes on cash........ -- 7 8 Cash and cash equivalents at beginning of period........................................ 19,092 13,334 10,763 --------- --------- -------- Cash and cash equivalents at end of period..... $ 13,334 $ 10,763 $ 20,165 ========= ========= ======== Noncash transactions and supplemental disclosures Capital lease obligations incurred to purchase assets........................................ $ 2,665 $ 3,104 $ 1,256 Inventories reclassified to property and equipment..................................... -- 171 -- Interest paid.................................. 450 596 1,653 Non cash conversion of warrants to preferred stock......................................... -- -- 620 Deferred stock compensation.................... 1,881 -- 1,169
See accompanying notes. F-6 METAWAVE COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Significant Accounting Policies Description of Business Metawave Communications Corporation (the "Company") designs, develops, manufactures and markets smart antenna systems for the wireless communications industry. The Company believes that its spectrum management solutions, consisting of smart antenna systems, applications software and engineering services, enable wireless network operators to increase overall network capacity, improve or maintain network quality and reduce network operating costs and better manage network infrastructure. Using its proprietary technologies, the Company has developed systems that address the capacity, coverage and call quality problems faced by wireless network operators. On September 2, 1998, the Company formed Metawave International Communications Corporation ("MICC"), a wholly owned Delaware subsidiary. On October 5,1998, the Company formed a Hong Kong subsidiary, Metawave Communications (Asia) Limited, which is now owned by Metawave Communications (Cayman Islands). On December 7, 1998, the Company formed Metawave Communications (Cayman Islands), a wholly owned subsidiary of MICC. On April 2, 1999 Metawave Communications (Cayman Islands) formed a Taiwan subsidiary, Metawave Communications Taiwan Co. Ltd. Principles of Consolidation and Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. In 1998, the Company adopted a 52 week fiscal year ending on the Sunday closest to December 31, 1999. The 1999 fiscal year ends on January 2, 2000, with each of the fiscal quarters representing a 13-week period. For convenience of presentation, all fiscal periods in these financial statements are treated as ending on a calendar month end. The Company experienced net losses of $44,328,000 and $42,413,000 for the years ended December 31, 1998 and 1999, respectively. These losses are the result of intense product development efforts and the costs associated with the development of the Company's manufacturing and sales operations. Management believes that the Company will experience substantial losses in 2000, even if commercial sales of the Company's systems continue to grow. Management believes that existing cash, unused credit facilities, and revenues from system sales, will be sufficient to fund operations through 2000. If necessary, management would delay and or curtail planned increases in costs and expenses to meet its liquidity needs. Foreign Currency Translation The functional currency of the Company's foreign subsidiaries is the local currency in the country in which the subsidiary is located. Assets and liabilities denominated in foreign currencies are translated to U.S. dollars at the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at the average rates of exchange prevailing during the year. The translation adjustment resulting from this process is shown within accumulated other comprehensive income (loss) as a component of stockholders' equity. Gains and losses on foreign currency transactions are included in the consolidated statement of operations as incurred. To date, gains and losses on foreign currency transactions have not been significant. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Accordingly, actual results may differ from those estimates. The Company has used estimates in determining certain provisions, including the allowance for doubtful accounts receivable, inventory reserves, useful lives for property and equipment, and warranty accruals. F-7 METAWAVE COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 1. Significant Accounting Policies--(continued) Revenue Recognition The Company generates revenues through the sales of smart antenna systems and related installation and optimization services. System revenues are recognized when title to the system and risk of loss has been transferred to the customer and all customer acceptance conditions, if any, have been satisfied, and when collection is probable. Service revenues, generally for installation and optimization, are recognized when the services have been performed and all customer acceptance conditions, if any, have been satisfied. Revenues from maintenance contracts are deferred and recognized ratably over the term of the agreement (which is typically one year). Any billings in excess of revenues are classified as deferred revenues and related systems are recorded as inventory. Concentration of Credit Risk and Major Customers Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents and trade receivables. The carrying value of financial instruments approximates market value. The Company's customers are primarily wireless network operators in the United States and certain international markets. As such, the Company's primary market is made up of a limited number of customers operating within the same industry, thereby subjecting the Company to business risks associated with potential downturns of the industry. Export sales represented 26.0% of revenues in the year ended December 31, 1999, 23.5% in 1998 and none in 1997. During 1998, one customer, Alltel Communications Inc., represented 88% of the Company's trade accounts receivable. In 1999, two customers, AirTouch Communications Inc. and Grupo Iusacell S.A. de C.V., represented 28% and 53% of the Company's trade accounts receivable, respectively. The Company performs ongoing credit evaluations of its customers' financial condition and generally does not require collateral. The Company maintains reserves, which to date have not been material, for potential credit losses, and such losses have been within management's expectations. Net Loss per Share Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net loss per share reflects the potential dilution of securities by including other common stock equivalents, including stock options and redeemable convertible preferred stock, in the weighted average number of common shares outstanding as if such shares were converted to common stock at the time of issuance. Common stock equivalents, including stock options and warrants, are excluded from the computation as their effect is anti-dilutive. For the periods presented, there is no difference between the basic and diluted net loss per share. Pro forma loss per share (unaudited) is computed by dividing net loss by the weighted average number of shares of common stock outstanding and the weighted average number of shares of convertible and redeemable preferred stock outstanding as if such shares were converted to common stock at the time of issuance. Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. The Company invests with various high-quality institutions and, in accordance with Company policy, limits the amount of credit exposure to any one institution. F-8 METAWAVE COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 1. Significant Accounting Policies--(continued) The Company accounts for its marketable securities under the provisions of Statement of Financial Accounting Standards ("SFAS") Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities." All marketable securities are classified as available-for-sale and are carried at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. As of December 31, 1998 and 1999 all marketable securities were cash equivalents and unrealized holdings gains and losses were not significant. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of purchased parts, subassemblies and finished goods. Property and Equipment Property, equipment and leasehold improvements are recorded at cost. Depreciation and amortization is provided using the straight-line method over the estimated useful lives of the related assets for financial statement purposes over estimated useful lives of two to seven years. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful life. Warranty The Company generally provides a 12 month warranty, which may vary depending upon specific contractual terms, on all systems and records a related provision for estimated warranty costs at the date of sale. Research and Development Costs Research and development costs are expensed as incurred. Advertising Costs Advertising costs are charged to expense as incurred. Advertising expense of $535,000, $692,000 and $1,387,000 was recorded for the years ended December 31, 1997, 1998 and 1999, respectively. Stock-Based Compensation The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), and related interpretations, in accounting for its employee stock options rather than the alternative fair value accounting allowed by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). APB No. 25 provides that the compensation expense relative to the Company's employee stock options is measured based on the intrinsic value of the stock option. SFAS No. 123 requires companies that continue to follow APB No. 25 to provide a pro forma disclosure of the impact of applying the fair value method of SFAS No. 123 (refer to Note 6). The Company recognizes compensation expense for options and warrants granted to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force Consensus 96-18. F-9 METAWAVE COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 1. Significant Accounting Policies--(continued) Other Comprehensive Income In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income, which establishes standards for reporting and display of comprehensive income and its components in the financial statements. The other comprehensive income (loss) which the Company currently reports is foreign currency translation adjustments. Business Segments In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which establishes standards for reporting information about operating segments in annual financial statements. The Company operates in one segment as a provider of certain wireless telecommunication equipment. SFAS No. 131 also establishes standards for related disclosures about systems and services, geographic areas and major customers. Information related to segment disclosures is contained in Notes 13 and 14. New Accounting Pronouncements In June 1998, the FASB issued SFAS No. 133, Accounting for Derivatives and Hedging Activities, which requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designed as part of a hedge transaction and, if it is, the type of hedge transaction. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. The Company does not anticipate that the adoption of this new standard will have a material effect on earnings or the financial position of the Company, but continues to evaluate the impact of SFAS No. 133. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin Number 101 ("SAB 101"). This summarized certain areas of the staff's views in applying generally accepted accounting principles as it applies to revenue recognition. The Company believes that its revenue recognition principles comply with SAB 101. The Company will continue to evaluate interpretations of SAB 101. 2. Inventories
December 31, ------------- 1998 1999 ------ ------ (in thousands) Purchased parts.............................................. $4,922 $2,251 Subassemblies................................................ 2,332 1,144 Finished goods............................................... 675 754 ------ ------ $7,929 $4,149 ====== ======
Purchased parts include purchased components and partially assembled units. Subassemblies primarily represent components that are assembled and ready for final configuration pending the detailed requirements for the specific customer. Finished goods are units representing projects-in-process at customer locations. F-10 METAWAVE COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 3. Property and Equipment
December 31, --------------- 1998 1999 ------- ------- (in thousands) Equipment................................................. $ 9,384 $10,100 Furniture and fixtures.................................... 869 976 Leasehold improvements.................................... 920 910 ------- ------- 11,173 11,986 ======= =======
Accumulated depreciation and amortization................. (4,818) (6,285) ------ ------- $6,355 $ 5,701 ====== =======
Included in property and equipment are assets acquired under capital lease obligations with an original cost of $9,591,000 and $8,920,000 as of December 31, 1998 and 1999, respectively. Accumulated amortization on the leased assets was $3,357,000 and $3,749,000 as of December 31, 1998 and 1999, respectively. 4. Notes Payable
December 31, ------------ 1998 1999 ------- ---- (in thousands) Senior Secured Notes, repaid in April 1999........................ $31,704 $-- Note payable to U.S. Bank with monthly payments of $217, maturing in July 2000, bearing interest at 11%............................ 4 -- Note payable to Comdisco, with monthly payments of $12,126, maturing in February 2000, bearing interest at 8%, with a residual payment of $50,000 due February 28, 2000, secured by the underlying equipment............................................. 202 72 Notes payable to Chrysler Financial with monthly payments aggregating $347, bearing interest at 10%........................ 15 11 ------- ---- 31,925 83 Less current portion.............................................. 31,838 75 ------- ---- Long term portion................................................. $ 87 $ 8 ======= ====
Senior Secured Notes On April 28, 1998, the Company issued $29.0 million aggregate principal amount of Senior Secured Notes ("Senior Notes"), with a maturity date of April 28, 2000. The Senior Notes accrue interest at 13.75%, payable semiannually at the option of the Company in either additional Senior Notes or cash. In October 1998, the Company issued additional Senior Notes of approximately $2.7 million in connection with the related accrued interest. In connection with the Senior Notes, the noteholders received warrants to purchase 537,500 shares of Series D Preferred Stock at $.01 per share. The Company recorded debt issuance fees of approximately $4.3 million related to the estimated fair value of these warrants. The debt issuance fees were amortized over the period during which the Senior Notes were outstanding. F-11 METAWAVE COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 4. Notes Payable--(continued) On December 21, 1998, the Company issued an additional 83,202 warrants at $0.01 per share to the Senior Noteholders in connection with certain antidilution provisions. The fair value of these additional warrants was estimated to be approximately $671,000 which has been amortized over the remaining term of the Senior Notes. In April 1999, the Company retired all of the principal and accrued interest on the Senior Notes aggregating $33,124,570. In addition, the warrants issued in connection with the Senior Notes were exercised by the noteholders for an aggregate 620,702 shares of Series D Preferred Stock. Amortization of debt issuance costs, which has been included in interest expense, aggregated $4,170,000 in 1998 and $2,321,000 in 1999. Line of Credit Agreement The Company has a credit facility with a commercial bank. The facility provides for a revolving credit line of $7.5 million to support working capital with a $3.0 million sublimit for issuance of trade-related commercial and standby letters of credit, and expires on March 14, 2000. Outstanding balances on the credit line bear interest at the bank's prime rate (8.5% as of December 31, 1998 and 1999), and are secured by the Company's accounts receivable. At December 31, 1998 and 1999, $2.5 million was outstanding related to the issuance of a standby letter of credit. The Company is required to comply with certain covenants set forth in the line of credit agreement. The Company is currently in compliance with these covenants. 5. Convertible and Redeemable Preferred Stock In July 1995, the Company issued 5,500,000 shares of Series A Preferred Stock ("Series A") through a private offering. Proceeds from the financing amounted to $5,500,000, or $1.00 per share. In May 1996, the Company issued 2,711,113 shares of Series B Preferred Stock ("Series B") through a private offering. Proceeds from the financing amounted to $9,150,006. An additional 29,630 shares of Series B were issued in November 1996 with proceeds of $100,002, or $3.375 per share. In October and November 1996, the Company issued 2,491,880 shares of Series C Preferred Stock ("Series C") through a private offering. Proceeds from the financing amounted to $15,349,980, or $6.16 per share. In August 1997, the Company issued 2,397,727 shares of Series D Preferred Stock ("Series D") through a private offering. Proceeds from the financing amounted to $19,181,816, or $8.00 per share. In December 1998, the Company issued 898,738 shares of Series E Preferred Stock ("Series E") through a private offering. Proceeds from the initial round of Series E financing amounted to $7,189,904, or $8.00. In January 1999, the Company issued 726,264 additional shares of Series E at $8.00 per share with gross proceeds of $5,810,112. In April and June 1999, the Company issued 15,676,153 additional shares of Series E at $5.00 per share with gross proceeds of $78,380,765. In connection with the issuance of the Series E at $5.00 per share in April, the existing Series E shareholders were issued 974,996 additional Series E shares adjusting the price per share from $8.00 to $5.00. Holders of Series A, B, C, D and E have preferential rights to dividends ($.08, $.27, $.49, $.64 and $.40 per share per annum, respectively) when and if declared by the Board of Directors. Dividends are not cumulative until January 1, 2002. The holders are entitled to the number of votes equal to the number of shares of common stock into which the preferred stock could be converted. Every three shares of Series A and B is convertible into two shares of common stock at the option of the holder. In July 1999, in accordance with F-12 METAWAVE COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 5. Convertible and Redeemable Preferred Stock--(continued) certain adjustment provisions of the Amended and Restated Certificate of Incorporation, the Series C, D, and E conversion rate to common stock was amended to 1.30786, 1.44144 and 1.42857, respectively. The conversion rate of the Series A, B, C, D and E Preferred Stock is subject to adjustment in the event the Company issues shares of capital stock at a price per share below the original purchase price for each Series, subject to certain exceptions. In addition, the conversion rate is automatically adjusted in the event of a stock split, stock dividend, recapitalization or similar event. As a result of the two for three stock split detailed in Note 14, the Series A, B, C, D and E conversion rates to common stock were adjusted to 0.66667, 0.66667, 0.87190, 0.96096, and 0.95238, respectively. Each share of preferred stock automatically converts to common stock upon the vote or written consent of the holders of the majority of the shares of Series A, B, C, D and E originally issued or upon the closing of an initial public offering of the Company's common stock at a price of $10 per share from which the aggregate proceeds are not less than $40 million. The conversion rates are subject to adjustment, pursuant to certain antidilution provisions as provided by the Company's Amended and Restated Certificate of Incorporation. In the event of liquidation, the holders of Series A, B, C, D and E have preferential rights to liquidation payments of $1.00, $3.375, $6.16, $8.00 and $5.00 per share, respectively, plus any declared but unpaid dividends. The preferred stock has redemption rights for a six-month period beginning on December 31, 2002 upon the election of at least 50% of the holders. The redemption price is equal to the original purchase price plus any declared but unpaid dividends. Convertible and Redeemable Preferred Stock Warrants In connection with certain leasing agreements, the Company has issued warrants providing for the purchase of 48,750 shares and 16,666 shares of Series A at an exercise price of $2.1875 per share, subject to adjustment as provided in the Warrant Agreements. The Warrant Agreements expire after seven years or 18 months to three years from the effective date of an initial public offering, whichever comes later. During 1996, the Company entered into an additional lease line to the Master Lease Agreement. The new lease included the issuance of a warrant to purchase 19,999 shares of Series B with an exercise price of $4.77. During 1997, the Company entered into an additional lease line to this Master Lease Agreement. The new lease included the issuance of a warrant to purchase 34,090 shares of Series C with an exercise price of $6.16. The value of the warrants was recorded as additional debt issuance cost and is being amortized using the interest method over the term of the related Master Lease Agreement. The warrants were valued using the Black-Scholes valuation model based upon the exercise prices described above, a risk free rate of 4.5%- 6.0%, a dividend yield rate of 0%, volatility of .6 and an expected life of 2-5 years. In connection with lease agreements entered into 1998, the Company issued warrants to purchase 4,375 shares of Series D Preferred Stock with an exercise price of $8.00. 6. Stockholders' Equity Initial Public Offering In February 2000, the Board of Directors authorized management to file a registration statement with the Securities and Exchange Commission to permit the Company to offer up to 12,000,000 shares of common stock to the public. In February 2000, the Board of Directors authorized an increase in the capitalization of the Company to 160,000,000 authorized shares with 150,000,000 shares of common stock, par value $.001 per share and 10,000,000 shares designated as preferred stock, par value $.001 per share upon the effective date of the Company's public offering. If the offering is consummated under terms presently anticipated, all outstanding shares of redeemable convertible preferred stock will convert into 27,972,908 shares of common stock. Unaudited pro forma stockholders' equity reflects the assumed conversion of the redeemable convertible preferred stock outstanding at December 31, 1999 into common stock. F-13 METAWAVE COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 6. Stockholders' Equity--(continued) Stock Repurchases On January 10, 1998, the Company repurchased 91,850 shares of common stock from one of its founders for $501 pursuant to the terms of a stock repurchase agreement with the founder. In addition, the Company caused one of its founders to surrender 66,666 shares of common stock in 1996 for no consideration. In December 1998, the Company also repurchased 416 shares from one of its employees for $ 5,000. Stock Option Plans The Company's 1995 Stock Option Plan (the "1995 Plan") provides for the granting of incentive stock options and nonqualified stock options to employees, officers, directors and consultants. Options under the 1995 Plan have been granted at fair market value on the date of grant and expire ten years after the date of the grant. Options granted under the 1995 Plan generally become exercisable at the rate of 25% of the total number of shares subject to the option after the first anniversary following the date of grant, with 2.083% vesting monthly thereafter, with all shares becoming fully vested on the fourth anniversary date of the date of grant. The Company has reserved 2,766,666 shares of common stock for issuance under the 1995 Plan. In May 1998, the Board of Directors approved the 1998 Stock Option Plan (the "1998 Plan"). Options granted under the 1998 Plan generally vest on the same terms as the 1995 Plan and are exercisable for a period of ten years. On the first trading day of each of the five calendar years beginning in 1999 and ending in 2003, the number of shares reserved for issuance under the 1998 Plan automatically increase by an amount equal to three percent of the Company's outstanding common stock, up to a maximum of 666,666 shares in any calendar year, or such lower amount as approved by the Board of Directors. The Company initially reserved 566,666 shares under the 1998 Plan, and was increased to 1,763,369 shares in April 1999 by the Board of Directors. In June 1999, the Board of Directors approved the adoption of the Employee Option Incentive Program (the "Incentive Program") under the 1998 Plan. Options granted under the Incentive Program vest five years from the date of grant, however, vesting shall accelerate for 50% of such options upon the effective date of an initial public offering ("IPO") of the Company's shares, and the remaining 50% of the options shall vest upon the twelve-month anniversary of the effective date of the IPO. Options under the Incentive Program were granted at estimated fair value on the date of grant and expire ten years after the date of the grant. The Board of Directors issued 336,666 shares under this program. In February 2000, the Board approved the 2000 Employee Stock Purchase Plan (ESSP), subject to shareholder approval. The Company will implement the ESSP upon the effective date of the Registration Statement on Form S-1 for the initial public offering and continue until April 30, 2020. The ESSP, subject to certain limitations, permits eligible employees of the Company to purchase common stock through payroll deductions of up to 15% of their compensation. The Company has authorized the issuance of up to 233,333 shares of common stock under the ESSP, plus an automatic annual increase, to be added on the first day of the fiscal year beginning in 2001, equal to the lesser of 266,666 shares, 1% of the common stock outstanding on the last day of the preceding fiscal year, or a lesser number of shares as determined by the Board of Directors. The 1998 Directors' Stock Option Plan (Directors' Plan) was adopted by the Board of Directors in February 1998 and approved by the stockholders on April 20, 1998. A total of 200,000 shares of common stock have been reserved for issuance under the Directors' Plan. The Directors' Plan provides for discretionary grants of nonstatutory stock options to nonemployee directors of the Company. Following the effectiveness of an F-14 METAWAVE COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 6. Stockholders' Equity--(continued) initial public offering of the Company's common stock, the Plan provides automatic formula based grants to the nonemployee directors. In February 2000, the Board of Directors amended the Directors' Plan, subject to shareholders approval. The amended plan becomes effective upon the effectiveness of the initial public offering. An automatic grant is made to each non-employee director who joins the Board after the closing of the initial public offering for an option to purchase 16,666 shares of common stock. Additionally, at each annual shareholder meeting, each non-employee director is granted an additional option to purchase 6,666 shares of common stock provided that the director continues serving on the Board and has served as a director six months prior to grant date. The amended Directors' Plan increases the issuance of options under the plan to 466,666. Initial options granted under the directors' plan to new nonemployee directors following the IPO will vest as to 25% of the shares underlying the option on the first anniversary of the date of the option grant and as to 1/48th of the shares each month after the first anniversary so that these options will be fully vested on the fourth anniversary of the grant date. Options granted to our nonemployee directors at the time of each annual stockholders meeting following this offering will vest as to 1/36th of the shares underlying the option so that these options will be fully vested on the third anniversary of the grant date. The exercise price of all stock options granted under the Directors' Plan shall be equal to the estimated fair value of a share of the Company's common stock on the date of grant of the option. Options granted under the Directors' Plan have a term of ten years. Deferred stock compensation is calculated as the difference between the exercise price and the deemed fair value of the Company's common stock at the date of grant. The deferred stock compensation is amortized over the vesting period of the related options. In 1997 and 1999, deferred stock compensation of $1,881,282 and $1,168,848 was recorded for options granted under the various stock option plans. Amortized stock compensation of $676,000, $651,000 and $817,000 was recorded during each of the years ended December 31, 1997, 1998 and 1999, respectively. In January and February 2000, the Company granted 495,793 additional stock options for common stock. In connection with these grants, the Company has recorded approximately, $2,095,000 of additional deferred stock compensation in the first quarter of year 2000. Had the stock compensation expense for the Company's stock option plan been determined based on the estimated fair value using the minimum value option pricing model at the date of grant, the Company's net loss would have been increased to these pro forma amounts (in thousands):
1997 1998 1999 -------- -------- -------- Net loss: As reported.................................. $(22,104) $(44,328) $(42,413) Pro forma.................................... (22,109) (44,728) (43,231) Basic and diluted net loss per share: As reported.................................. (12.18) (21.88) (18.98) Pro forma.................................... (12.18) (22.08) (12.82)
The fair value for these options was estimated at the date of grant using minimum value option pricing models that take into account: (1) the estimated fair value of the common stock at the grant date, (2) the exercise prices, (3) a one-year expected life beyond the vest date, (4) no dividends, and (5) a risk-free interest rate of between 5.42% and 6.43% during 1996 through 1999 over the expected life of the options. Compensation expense recognized in providing pro forma disclosures may not be representative of the effects on pro forma net income for future years because the amounts above include only the amortization for the fair value of 1997, 1998 and 1999 grants. F-15 METAWAVE COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 6. Stockholders' Equity--(continued) A summary of the Company's stock option activity and related information follows:
December 31, 1997 December 31, 1998 December 31, 1999 -------------------- -------------------- -------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price --------- --------- --------- --------- --------- --------- Outstanding at beginning of period.............. 1,295,236 $ .36 2,099,196 $1.19 2,531,996 $4.59 Granted at deemed fair value................ 447,988 2.93 1,478,547 13.02 914,820 6.96 Granted at above deemed fair value.... -- -- -- -- 16,666 6.75 Granted at below deemed fair value.... 906,190 1.02 -- -- 455,250 4.61 Canceled.............. (362,157) .44 (803,981) 12.56 (764,757) 6.53 Exercised............. (188,061) .41 (241,766) .44 (278,681) .50 --------- --------- --------- Outstanding at end of period................. 2,009,196 1.19 2,531,996 4.56 2,885,294 5.25 ========= ========= ========= Exercisable at end of period................. 1,426,668 1.46 2,213,954 5.13 2,837,236 5.33 ========= ========= ========= Weighted-average fair value of options granted during the period: Granted at value.... 2.93 12.84 12.71 Granted at below value.............. 2.84 -- 4.54
The following information is provided for options outstanding and exercisable at December 31, 1999:
Outstanding Exercisable ----------------------------------------- ------------------------- Average Weighted- Remaining Weighted- Range of Average Contractual Average Exercise Number of Exercise Life Number of Exercise Price Options Price (Years) Options Price - ---------- --------- --------- ----------- --------- --------- $0.15-0.53 228,411 $0.26 6.12 214,441 $0.24 0.93-1.80 777,695 0.96 7.48 743,606 0.96 3.00-5.04 561,950 4.23 9.02 561,950 4.23 5.25-6.75 655,174 6.62 8.96 655,174 6.62 7.50-12.00 662,064 11.54 8.06 662,065 11.54 --------- --------- 2,885,294 5.25 8.47 2,837,236 5.33 ========= =========
Stock options available for future grants under the Company's stock option plans total 1,136,232 as of December 31, 1999. Common Stock Warrants During 1999, the Company entered into an additional leasing agreement. The new lease included the issuance of a warrant to purchase 20,833 shares of common stock with an exercise price of $6.75. The value of the warrants, determined using the Black-Scholes valuation model, was recorded as additional interest expense over the term of the lease agreement. F-16 METAWAVE COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 6. Stockholders' Equity--(continued) Common Shares Reserved for Future Issuance The Company has reserved shares of common stock as follows:
December 31, 1999 ------------ Stock options outstanding..................................... 2,885,294 Stock option available for future grant....................... 1,136,232 ---------- 4,021,526 Conversion of: Series A Preferred Stock.................................... 3,666,664 Series B Preferred Stock.................................... 1,827,157 Series C Preferred Stock.................................... 2,172,677 Series D Preferred Stock.................................... 2,900,577 Series E Preferred Stock.................................... 17,405,832 ---------- 27,972,907 Convertible redeemable preferred stock warrants............... 90,870 Common stock warrants......................................... 20,833 ---------- 32,106,136 ==========
7. Income Taxes As of December 31, 1999, the Company had federal net operating loss carryforwards (NOL) of approximately $108.4 million and research and development tax credit carryforwards of approximately $1.9 million. The federal net operating loss carryforwards will begin to expire in the year 2009 if not utilized. As a result of changes in ownership coincident with the recent equity financing, the utilization of a portion of the net operating loss carryforward will be limited, pursuant to Section 382 of the Internal Revenue Code of 1986, as amended. Approximately $83.1 million of the NOL is limited to approximately $4.0 million per year. The remaining NOL is not subject to limitation as of December 31, 1999. F-17 METAWAVE COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 7. Income Taxes--(continued) 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. The Company has recognized a valuation allowance equal to the deferred tax assets due to the uncertainty of realizing the benefits of the assets. Significant components of the Company's deferred tax assets are as follows:
December 31, ------------------ 1998 1999 -------- -------- (in thousands) Deferred tax liabilities: Prepaid assets........................................ $ 47 $ 57 Deferred tax assets: Net operating loss carryforwards.................... 22,664 36,880 Research and development tax credit carryforwards... -- 1,872 Accrued compensation................................ 380 335 Fixed assets........................................ 90 175 Accrued expenses and reserves....................... 1,146 2,195 Deferred revenues................................... -- 564 Stock compensation.................................. 80 82 -------- -------- Total deferred tax assets............................. 24,360 42,103 -------- -------- 24,313 42,046 Less valuation reserve................................ (24,313) (42,046) -------- -------- Net deferred taxes.................................... $ -- $ -- ======== ========
8. Commitments The Company leases its facilities under noncancelable operating lease agreements that expire on various dates through 2005. The Company leases certain equipment under noncancelable capital leases that expire on various dates through 2002. In June 1998, the Company moved into a new building. The lease on this building expires on May 31, 2005. The Company, at its option, may extend the term of this lease for two successive periods of five years each. The option must be elected 12 months prior to the expiration of the initial lease term. In connection with this arrangement, the Company has issued letters of credit to the landlord aggregating $2.5 million. F-18 METAWAVE COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 8. Commitments--(continued) Following is a summary of future minimum payments under capital leases and operating leases, including the principal facility, that have initial or remaining noncancelable lease terms in excess of one year at December 31, 1999 (in thousands):
Capital Operating Leases Leases ------- --------- 2000..................................................... $3,015 $ 2,001 2001..................................................... 2,238 2,089 2002..................................................... 620 1,969 2003..................................................... -- 2,108 2004 and thereafter...................................... -- 2,867 ------ ------- 5,873 $11,034 ======= Less interest............................................ 645 ------ 5,228 Less current portion..................................... 2,322 $2,906 ======
Rental expense for operating leases was $667,939, $1,304,007 and $2,041,328 for the years ended December 31, 1997, 1998 and 1999, respectively. The Company entered into agreements with certain leasing companies to provide up to $3.0 million in 1997, $3.5 million in December 31, 1998 and $3.0 million at December 31, 1999 of financing to allow the Company to lease additional equipment. Pursuant to these agreements, equipment leases would generally have a term of three years and an implicit interest rate of 7.25% in 1997, 14.5% at December 31, 1998 and 12.25% at December 31, 1999. The leases are secured by the underlying equipment. In connection with these lease agreements, warrants were issued to purchase preferred stock (see Note 5). 9. Net Loss Per Share Basic and diluted loss per share is calculated using the average number of shares of common stock outstanding. The effect of stock options, warrants and convertible and redeemable preferred stock have not been included in the calculation of diluted net loss per share as their effect is antidilutive. Pro forma basic and diluted loss per share is computed on the basis of the average number of shares of common stock outstanding plus the effect of convertible preferred shares as if such shares were converted to common stock at the time of issuance as follows:
Year ended December 31, ---------------------------- 1997 1998 1999 -------- -------- -------- (In thousands, except per share data) Net loss (A)................................. $(22,104) $(44,328) $(42,413) ======== ======== ======== Weighted average outstanding: Common stock (B)........................... 1,815 2,026 2,235 Convertible and redeemable preferred stock..................................... 7,773 8,804 20,140 -------- -------- -------- Pro forma weighted average shares outstanding (C) ........................................ 9,588 10,830 22,375 ======== ======== ======== Basic and diluted net loss per share (A/B)... $ (12.18) $ (21.88) $ (18.98) ======== ======== ======== Pro forma net loss per share (A/C)........... $ (2.31) $ (4.09) $ (1.90) ======== ======== ========
F-19 METAWAVE COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 10. Retirement Plans The Company has a salary deferral 401(k) plan for its employees. The plan allows employees to contribute a percentage of their pretax earnings annually, subject to limitations imposed by the Internal Revenue Service. The plan also allows the Company to make a matching contribution, subject to certain limitations. To date, the Company has made no contributions to the plan. 11. Related-Party Transactions In October 1997, the Board authorized a secured loan of $162,500 and an unsecured loan of $75,000 to the Company's former Chief Financial Officer ("CFO"). Both loans bear interest at 5.5%. The secured loan was payable in full on October 28, 2002, or earlier, based upon certain events specified in the agreement. Under the original terms of the unsecured loan, $50,000 of the principal amount of the loan was to be forgiven over a three-year period provided that the CFO remained employed with the Company, with the remaining balance of $25,000 plus interest due on the earlier of October 22, 2000 or the date on which his employment terminated. In accordance with the loan agreement, a total of $16,665 was forgiven in 1998 and was expensed as compensation. The CFO resigned from the Company in January 1999. The Board authorized an extension of due dates on the secured loan of $162,500 and the unsecured loan and accrued interest balance of $62,460 to the earlier of January 30, 2000, or 190 days after an IPO of the Company. The Board authorized an amendment to the Security Agreement securing the obligations of the former CFO under the secured and unsecured promissory notes that provide for an acceleration of the notes based upon certain events specified in the Agreement. These notes were repaid in full in February 2000. Powerwave Technologies, Inc. ("Powerwave"), whose chief executive officer is a director of the Company, is the Company's sole supplier of linear power amplifiers, a component in the Company's systems. Pursuant to a manufacturing agreement with Powerwave (which agreement was approved by a majority of the Company's disinterested directors), Powerwave will manufacture and sell to the Company 100% of the Company's requirements for linear power amplifiers that Powerwave manufactures. The initial term of the agreement is 18 months with an automatic 18-month extension, unless either party otherwise terminates the agreement. The Company's purchases from Powerwave totaled $2,203,217, $8,047,401 and $6,427,026 in 1997, 1998, and 1999, respectively. In December 1997, the Company determined that it would discontinue the Company's Network Services division. In March 1998, the Company sold the assets of this division for an aggregate purchase price of $78,000 to Advanced Wireless Engineering ("AWE"), a company that was majority-owned by an individual who at that time was the Company's Vice President, Network Services. This individual resigned from the Company in March 1998 to run AWE on a full- time basis. 12. Revenues and Operations In December 1997, the Company determined that it would discontinue the Network Services division. Accordingly, the carrying value of these fixed assets were adjusted to net realizable value, thereby resulting in an impairment loss of $200,000, which is included in other expenses in the accompanying 1997 Statement of Operations. These assets were sold in March 1998. Included in revenues for the year ended December 31, 1997 and 1998 were revenues of $1,450,000 and $200,000 respectively, relating to the Network Services division and the cost of revenues were $1,728,000 and $242,000, respectively. In June 1998, in connection with certain patent licenses, the Company paid $250,000 in cash and issued 7,333 common stock warrants for an aggregate amount of $360,000. The common stock warrants had an F-20 METAWAVE COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 12. Revenues and Operations--(continued) exercise price of $.015 per share and were immediately exercised. The value of these warrants, using the Black-Scholes valuation model, of $110,000 and cash of $250,000 was recorded as research and development expense in 1998. Revenues from customers representing more than 10% of annual sales in each year were as follows:
Year Ended December 31, ----------------------- 1997 1998 1999 ------- ------- ------- AirTouch Communications, Inc....................... 27.0% -- -- Alltel Communications Inc. ........................ -- 61.8% 44.8% Cox Communications Inc. ........................... 63.0% -- -- GTE Wireless....................................... -- 13.4% -- Grupo Iusacell S.A. de C.V. ....................... -- -- 26.0% OJSC St. Petersburg Telecom........................ -- 13.4% -- Southwestco Wireless............................... -- -- 20.9% Telfonica Servicios Moveles S.A. .................. -- 10.1% --
13. International Operations Metawave sells its smart antenna systems and services throughout the world, and operates in a single industry segment. While certain expenses for sales and marketing activities are incurred in various geographical regions, substantially all of Metawave's assets are located and the majority of its operating expenses are incurred at its corporate headquarters. Revenue information by geographic region is the only segment information presented as follows:
Year Ended December 31, ---------------------- 1997 1998 1999 ------ ------- ------- (in thousands) United States....................................... $1,450 $12,233 $16,717 Paraguay............................................ -- 1,615 -- Russia.............................................. -- 2,143 -- Mexico.............................................. -- -- 5,879 ------ ------- ------- Total............................................... $1,450 $15,991 $22,596 ====== ======= =======
14. Subsequent Event--Reverse Stock Split On March 27, 2000 the Board of Directors authorized a two for three stock split of Metawave's common stock that will be effective immediately before the effective date of the initial public offering discussed in Note 6. Also, as a result of the split the conversion rate of each series of preferred stock was adjusted to reflect the split. All share and per share data and all conversion rate disclosures in the accompanying financial statements have been retroactively adjusted to reflect this split. F-21 Map of the world depicting customer deployments by commercial sales and field trials [METAWAVE LOGO] 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 us in connection with the sale of Common Stock being registered. All amounts are estimates except the SEC registration fee, the NASD filing fee and the Nasdaq National Market Listing Fee.
Amount ---------- To Be Paid ---------- SEC Registration Fee............................................. $ 24,668 NASD Filing Fee.................................................. 9,125 Nasdaq National Market Listing Fee............................... 1,000 Printing Fees and Expenses....................................... 200,000 Legal Fees and Expenses.......................................... 300,000 Accounting Fees and Expenses..................................... 200,000 Blue Sky Fees and Expenses....................................... 5,000 Transfer Agent and Registrar Fees................................ 10,000 Miscellaneous.................................................... 250,207 ---------- Total.......................................................... $1,000,000 ==========
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, indemnity 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. Article IX of Metawave's certificate of incorporation and sections 6.1 and 6.2 of Article VI of Metawave's bylaws provide for indemnification of its directors, officers, employees and other agents to the maximum extent permitted by the Delaware General Corporation Law. In addition, Metawave has entered into indemnification agreements with its directors and officers. The indemnification agreements may require Metawave, among other things, to indemnify its directors against certain liabilities that may arise by reason of their status or service as directors (other than liabilities arising from willful misconduct of 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' insurance if available on reasonable terms. The underwriting agreement (Exhibit 1.1 hereto) also provides for cross indemnification among Metawave and the underwriters with respect to certain matters, including matters arising under the Securities Act of 1933. Item 15. Recent Sales of Unregistered Securities (a) Since January 1, 1997, we have issued and sold (without payment of any selling commission to any person except as noted below) the following unregistered securities (as adjusted to reflect the automatic conversion of our outstanding preferred stock into common stock upon completion of this offering): (1) In August 1997, we issued and sold shares of Series D preferred stock convertible into an aggregate of 2,304,120 shares of common stock to 22 investors for an aggregate purchase price of $19,181,865. (2) In December 1998 and April and June 1999, we issued and sold shares of Series E Preferred Stock convertible into an aggregate of 17,405,832 shares of common stock to 25 investors for an aggregate purchase price of $91,380,781. We paid an aggregate of $1,650,322 in commissions in connection with the sale of Series E preferred stock. II-1 (3) We issued to an equipment lease provider in June 1997, a warrant to purchase shares of Series C preferred stock convertible into 29,722 shares of common stock for an aggregate purchase price of $209,994. (4) In April 1998, we issued an aggregate principal amount of $29.0 million 13.75% Senior Secured Bridge Notes due April 28, 2000 to certain institutional investors. In connection with the issuance of such notes, we issued warrants to purchase shares of Series D preferred stock convertible into 596,470 shares of common stock for an aggregate purchase price of $5,375. We paid an aggregate of $1,450,000 in commissions in connection with the issuance of the Senior Secured Bridge Notes. (5) In May 1998, we issued to an equipment lease provider a warrant to purchase shares of Series D preferred stock convertible into 4,204 shares of common stock for an aggregate purchase price of $35,000. (6) In June 1998, in connection with certain patent licenses, we issued the licensor a warrant to purchase 7,333 shares of common stock for an aggregate purchase price of $110. Such licensor subsequently exercised the warrant and purchased 7,333 shares of common stock for an aggregate purchase price of $110. (7) In May 1999, we issued to an equipment lease provider a warrant to purchase 20,833 shares of common stock for an aggregate purchase price of $140,625. (8) As of December 31, 1999, an aggregate of 708,508 shares of common stock had been issued upon exercise of options under our stock option plans. (b) There were no underwritten offerings employed in connection with any of the transactions set forth in Item 15(a). The issuances described in Items 15(a)(1) through 15(a)(7) were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) thereof as transactions by an issuer not involving any public offering. 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 where affixed to the securities issued in such transactions. All recipients had adequate access, through their relationships with us, to information about the Registrant. The issuances described in Items 15(a)(8) were deemed to be exempt from registration under the Securities Act in reliance upon Rule 701 promulgated thereunder in that they were offered and sold either pursuant to written compensatory benefit plans or pursuant to a written contract relating to compensation, as provided by Rule 701. In addition, such issuances were deemed to be exempt from registration under Section 4(2) of the Securities Act as transactions by an issuer not involving any public offering. Item 16. Exhibits and Financial Statement Schedules (a) Exhibits 1.1 Form of Underwriting Agreement. 3.1* Certificate of Incorporation of the Registrant. 3.2* Bylaws of the Registrant. 3.3 Sixth Amended and Restated Certificate of Incorporation of the Registrant, to be effected prior to the effective date of the offering. 3.4 Seventh Amended and Restated Certificate of Incorporation of the Registrant, to be filed and effective upon completion of this offering. 5.1 Opinion of Venture Law Group, A Professional Corporation. 10.1* Form of Indemnification Agreement.
II-2 10.2 1995 Stock Option Plan, as amended. 10.3 1998 Stock Option Plan, as amended. 10.4 2000 Employee Stock Purchase Plan. 10.5 1998 Amended and Restated Directors' Stock Option Plan. 10.6* Series E Preferred Stock Purchase Agreement dated April 28, 1999. 10.7* Fifth Amended and Restated Investors Rights Agreement dated April 28, 1999 by and among the Registrant and certain holders of the Registrant's capital stock. 10.8+* Lease for Willow Creek Corporate Center dated September 29, 1997 by and between the Registrant and Carr America Realty Corporation. 10.9+* Purchase Agreement dated March 4, 1998 by and between the Registrant and ALLTEL Supply Inc. 10.10+ Loan Agreement dated October 14, 1997 by and between Registrant and Imperial Bank, and amendments thereto. 10.11+* Manufacturing Agreement between the Registrant and Powerwave Technologies, Inc. dated as of September 3, 1998. 10.12+* Purchase Agreement between the Registrant and GTE Wireless Incorporated dated as of September 8, 1998. 10.13+* Technical Cooperation Agreement between the Registrant and Shanghai Telecom dated as of December 17, 1998. 10.14+ Purchase Agreement between the Registrant and Southwestco Wireless, L.P. dated as of February 24, 1999. 10.15+* Value Added Reseller Agreement between the Registrant and CommVerge Solutions (Asia), Inc. dated as of December 4, 1999. 10.16+* Distribution Agreement between the Registrant and SeeNode Co., Ltd. dated as of February 10, 2000. 10.17+* Purchase Agreement between the Registrant and AirTouch Support Services, Inc. dated as of January 1, 2000. 10.18+ Purchase Agreement between the Registrant and Grupo IUSACELL S.A., de C.V. dated as of December 17, 1999. 10.19+* Purchase Agreement between the Registrant and Cellco, L.P., dba Bell Atlantic dated as of December 20, 1999. 10.20* Employment Agreement with Mr. Douglas O. Reudink dated July 7, 1995. 10.21* Employment Agreement with Mr. Robert H. Hunsberger dated July 27, 1997. 10.22+* Employment Agreement with Mr. Andy Merrill dated July 12, 1999. 10.23* Employment Agreement with Mr. Richard Henderson dated October 29, 1997. 10.24* Employment Agreement with Mr. Victor K. Liang dated July 23, 1998. 10.25+ Employment Agreement with Mr. Stuart Fuhlendorf dated March 10, 2000. 10.26 2000 Stock Plan. 21.1* Subsidiaries of the Registrant. 23.1 Consent of Ernst & Young LLP, Independent Auditors.
II-3 23.2 Consent of Counsel (included in Exhibit 5.1). 24.1 Power of Attorney (see page II-5). 27.1* Financial Data Schedule. 99.1* Report of Ernst & Young LLP, Independent Auditors on Financial Statement Schedule. 99.2* Financial Statement Schedule.
- -------- * Previously filed. + Certain information in these exhibits has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 230.406. (b) Financial Statement Schedules The following financial statement schedule is filed herewith: Schedule II--Valuation and Qualifying Accounts (see Exhibit 99.2). Other financial statement schedules are omitted because the information called for is not required or is shown either in the financial statements or the notes thereto. Item 17. Undertakings The undersigned Registrant 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 of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1), or (4), or 497(h) under the Act shall be deemed to be a part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and this offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the undersigned Registrant has duly caused this Amendment No. 1 to Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Redmond, State of Washington, on March 27, 2000. METAWAVE COMMUNICATIONS CORPORATION /s/ Robert H. Hunsberger By: _________________________________ Robert H. Hunsberger President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ Robert H. Hunsberger President, Chief Executive March 27, 2000 _________________________________ Officer and Director (Principal Robert H. Hunsberger Executive Officer) /s/ John R. Schaller Controller (Principal Financial March 27, 2000 _________________________________ and Accounting Officer) John R. Schaller /s/ Douglas O. Reudink Chief Technical Officer and March 27, 2000 _________________________________ Chairman of the Board of Douglas O. Reudink Directors /s/ Bandel L. Carano Director March 27, 2000 _________________________________ Bandel L. Carano /s/ Bruce C. Edwards Director March 27, 2000 _________________________________ Bruce C. Edwards /s/ David R. Hathaway Director March 27, 2000 _________________________________ David R. Hathaway /s/ Scot B. Jarvis Director March 27, 2000 _________________________________ Scot B. Jarvis /s/ Jennifer Gill Roberts Director March 27, 2000 _________________________________ Jennifer Gill Roberts /s/ David A. Twyver Director March 27, 2000 _________________________________ David A. Twyver
II-5 INDEX TO EXHIBITS
Exhibit No. Description ------- ----------- 1.1 Form of Underwriting Agreement. 3.1* Certificate of Incorporation of the Registrant. 3.2* Bylaws of the Registrant. 3.3 Sixth Amended and Restated Certificate of Incorporation of the Registrant, to be effected prior to the effective date of the offering. 3.4 Seventh Amended and Restated Certificate of Incorporation of the Registrant, to be filed and effective upon completion of this offering. 5.1 Opinion of Venture Law Group, A Professional Corporation. 10.1* Form of Indemnification Agreement. 10.2 1995 Stock Option Plan, as amended. 10.3 1998 Stock Option Plan, as amended. 10.4 2000 Employee Stock Purchase Plan. 10.5 1998 Amended and Restated Directors' Stock Option Plan. 10.6* Series E Preferred Stock Purchase Agreement dated April 28, 1999. 10.7* Fifth Amended and Restated Investors Rights Agreement dated April 28, 1999 by and among the Registrant and certain holders of the Registrant's capital stock. 10.8+* Lease for Willow Creek Corporate Center dated September 29, 1997 by and between the Registrant and Carr America Realty Corporation. 10.9+* Purchase Agreement dated March 4, 1998 by and between the Registrant and ALLTEL Supply Inc. 10.10+ Loan Agreement dated October 14, 1997 by and between Registrant and Imperial Bank, and amendments thereto. 10.11+* Manufacturing Agreement between the Registrant and Powerwave Technologies, Inc. dated as of September 3, 1998. 10.12+* Purchase Agreement between the Registrant and GTE Wireless Incorporated dated as of September 8, 1998. 10.13+* Technical Cooperation Agreement between the Registrant and Shanghai Telecom dated as of December 17, 1998. 10.14+ Purchase Agreement between the Registrant and Southwestco Wireless, L.P. dated as of February 24, 1999. 10.15+* Value Added Reseller Agreement between the Registrant and CommVerge Solutions (Asia), Inc. dated as of December 4, 1999. 10.16+* Distribution Agreement between the Registrant and SeeNode Co., Ltd. dated as of February 10, 2000. 10.17+* Purchase Agreement between the Registrant and AirTouch Support Services, Inc. dated as of January 1, 2000. 10.18+ Purchase Agreement between the Registrant and Grupo IUSACELL S.A., de C.V. dated as of December 17, 1999.
Exhibit No. Description ------- ----------- 10.19+* Purchase Agreement between the Registrant and Cellco, L.P., dba Bell Atlantic dated as of December 20, 1999. 10.20* Employment Agreement with Mr. Douglas O. Reudink dated July 7, 1995. 10.21* Employment Agreement with Mr. Robert H. Hunsberger dated July 27, 1997. 10.22+* Employment Agreement with Mr. Andy Merrill dated July 12, 1999. 10.23* Employment Agreement with Mr. Richard Henderson dated October 29, 1997. 10.24* Employment Agreement with Mr. Victor K. Liang dated July 23, 1998. 10.25+ Employment Agreement with Mr. Stuart Fuhlendorf dated March 10, 2000. 10.26 2000 Stock Option Plan. 21.1* Subsidiaries of the Registrant. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 23.2 Consent of Counsel (included in Exhibit 5.1). 24.1 Power of Attorney (see page II-4). 27.1* Financial Data Schedule. 99.1* Report of Ernst & Young LLP, Independent Auditors on Financial Statement Schedule. 99.2* Financial Statement Schedule.
- -------- * Previously filed. + Certain information in these exhibits has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 230.406. EX-1.1 2 FORM OF UNDERWRITING AGREEMENT EXHIBIT 1.1 ______________________________________________________________________________ ______________________________________________________________________________ METAWAVE COMMUNICATIONS CORPORATION (a Delaware corporation) [________] Shares of Common Stock PURCHASE AGREEMENT ------------------ Dated: _________ ___, 2000 ___________________________________________________________________________ ___________________________________________________________________________ TABLE OF CONTENTS
Page ---- SECTION 1. Representations and Warranties......................................... 3 (a) Representations and Warranties by the Company........................... 3 (i) Compliance with Registration Requirements..................... 3 (ii) Independent Accountants....................................... 4 (iii) Financial Statements.......................................... 4 (iv) No Material Adverse Change in Business........................ 4 (v) Good Standing of the Company.................................. 4 (vi) Good Standing of Subsidiaries................................. 4 (vii) Capitalization................................................ 5 (viii) Authorization of Agreement.................................... 5 (ix) Authorization and Description of Securities................... 5 (x) Absence of Defaults and Conflicts............................. 5 (xi) Absence of Labor Dispute...................................... 6 (xii) Absence of Proceedings........................................ 6 (xiii) Accuracy of Exhibits.......................................... 6 (xiv) Possession of Intellectual Property........................... 6 (xv) Absence of Further Requirements............................... 7 (xvi) Possession of Licenses and Permits............................ 7 (xvii) Title to Property............................................. 7 (xviii) Compliance with Cuba Act...................................... 8 (xix) Investment Company Act........................................ 8 (xx) Environmental Laws............................................ 8 (xxi) Registration Rights........................................... 8 (xxii) International Trade........................................... 9 (xxviii) Accounting Controls........................................... 9 (xxix) Lock-up Agreements............................................ 9 (xxx) Option Plan................................................... 9 (b) Officer's Certificates.................................................. 10 SECTION 2. Sale and Delivery to Underwriters; Closing............................. 10 (a) Initial Securities...................................................... 10 (b) Option Securities....................................................... 10 (c) Payment................................................................. 10 (d) Denominations; Registration............................................. 11 SECTION 3. Covenants of the Company............................................... 11 (a) Compliance with Securities Regulations and Commission Requests.......... 11 (b) Filing of Amendments.................................................... 12 (c) Delivery of Registration Statements..................................... 12 (d) Delivery of Prospectuses................................................ 12 (e) Continued Compliance with Securities Laws............................... 12
-i- TABLE OF CONTENTS Page (f) Blue Sky Qualifications................................................. 13 (g) Rule 158................................................................ 13 (h) Use of Proceeds......................................................... 13 (i) Listing................................................................. 13 (j) Restriction on Sale of Securities....................................... 13 (k) Reporting Requirements.................................................. 14 (l) Compliance with NASD Rules.............................................. 14 (m) Compliance with Rule 463................................................ 14 SECTION 4. Payment of Expenses.................................................... 14 (a) Expenses................................................................ 14 (b) Termination of Agreement................................................ 15 SECTION 5. Conditions of Underwriters' Obligations................................ 15 (a) Effectiveness of Registration Statement................................. 15 (b) Opinion of Counsel for Company.......................................... 15 (c) Opinion of Counsel for Underwriters..................................... 15 (d) Officers' Certificate................................................... 16 (e) Accountant's Comfort Letter............................................. 16 (f) Bring-down Comfort Letter............................................... 16 (g) Approval of Listing..................................................... 16 (h) No Objection............................................................ 16 (i) Lock-up Agreements...................................................... 16 (j) Conditions to Purchase of Option Securities............................. 16 (k) Additional Documents.................................................... 17 (l) Termination of Agreement................................................ 17 SECTION 6. Indemnification........................................................ 17 (a) Indemnification of Underwriters......................................... 18 (b) Indemnification of Company, Directors and Officers...................... 19 (c) Actions against Parties; Notification................................... 19 (d) Settlement without Consent if Failure to Reimburse...................... 20 (e) Indemnification for Reserved Securities................................. 20 SECTION 7. Contribution........................................................... 20 SECTION 8. Representations, Warranties and Agreements to Survive Delivery............................................................... 21 SECTION 9. Termination of Agreement............................................... 21 (a) Termination; General.................................................... 22 (b) Liabilities............................................................. 22
TABLE OF CONTENTS Page ---- SECTION 10. Default by One or More of the Underwriters............................ 22 SECTION 11. Notices............................................................... 23 SECTION 12. Parties............................................................... 23 SECTION 13. GOVERNING LAW AND TIME................................................ 23 SECTION 14. Effect of Headings.................................................... 23
METAWAVE COMMUNICATIONS CORPORATION (a Delaware corporation) [___] Shares of Common Stock (Par Value $0.0001 Per Share) PURCHASE AGREEMENT ____________ ___, 2000 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated U.S. Bancorp Piper Jaffray, Inc. Solomon Smith Barney as Representative(s) of the several Underwriters c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated North Tower World Financial Center New York, New York 10281-1209 Ladies and Gentlemen: Metawave Communications Corporation, a Delaware corporation (the "Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of the other Underwriters named in Schedule A hereto (collectively, the "Underwriters", which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom Merrill Lynch, U.S. Bancorp Piper Jaffray, Inc., and Solomon Smith Barney are acting as representatives (in such capacity, the "Representatives"), with respect to the issue and sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of shares of Common Stock, par value $0.0001 per share, of the Company ("Common Stock") set forth in said Schedule A, and with respect to the grant by the Company to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of [______] additional shares of Common Stock to cover over-allotments, if any. The aforesaid [______] shares of Common Stock (the "Initial Securities") to be purchased by the Underwriters and all or any part of the [______] shares of Common Stock subject to the option described in Section 2(b) hereof (the "Option Securities") are hereinafter called, collectively, the "Securities". The Company understands that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after this Agreement has been executed and delivered. The Company and the Underwriters agree that up to _______ shares of the Securities to be purchased by the Underwriters (the "Reserved Securities") shall be reserved for sale by the Underwriters to certain eligible employees and persons having business relationships with the Company, as part of the distribution of the Securities by the Underwriters, subject to the terms of this Agreement, the applicable rules, regulations and interpretations of the National Association of Securities Dealers, Inc. and all other applicable laws, rules and regulations. To the extent that such Reserved Securities are not orally confirmed for purchase by such eligible employees and persons having business relationships (collectively, the "Reserved Securities Purchasers") with the Company by the end of the first business day after the date of this Agreement, such Reserved Securities may be offered to the public as part of the public offering contemplated hereby. The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-1 (No. 333-30568) covering the registration of the Securities under the Securities Act of 1933, as amended (the "1933 Act"), including the related preliminary prospectus or prospectuses. Promptly after execution and delivery of this Agreement, the Company will either (i) prepare and file a prospectus in accordance with the provisions of Rule 430A ("Rule 430A") of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet ("Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The information included in such prospectus or in such Term Sheet, as the case may be, that was omitted from such registration statement at the time it became effective but that is deemed to be part of such registration statement at the time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as "Rule 434 Information". Each prospectus used before such registration statement became effective, and any prospectus that omitted, as applicable, the Rule 430A or the Rule 434 Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a "preliminary prospectus." Such registration statement, including the exhibits thereto and schedules thereto at the time it became effective and including the Rule 430A Information and the Rule 434 Information, as applicable, is herein called the "Registration Statement." Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b) Registration Statement," and after such filing the term "Registration Statement" shall include the Rule 462(b) Registration Statement. The final prospectus in the form first furnished to the Underwriters for use in connection with the offering of the Securities is herein called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall refer to the preliminary prospectus dated _____, 2000 together with the Term Sheet and all references in this Agreement to the date of the Prospectus shall mean the date of the Term Sheet. For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospectus or any Term Sheet or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR"). -2- SECTION 1. Representations and Warranties. (a) Representations and Warranties by the Company. The Company represents and warrants to each Underwriter as of the date hereof, as of the Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if any) referred to in Section 2(b) hereof, and agrees with each Underwriter, as follows: (i) Compliance with Registration Requirements. Each of the Registration Statement and any Rule 462(b) Registration Statement has become effective under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or, to the knowledge of the Company, are contemplated by the Commission, and any request on the part of the Commission for additional information has been complied with. At the respective times the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendments thereto became effective and at the Closing Time (and, if any Option Securities are purchased, at the Date of Delivery), the Registration Statement, the Rule 462(b) Registration Statement and any amendments and supplements thereto complied and will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and the Prospectus, any preliminary prospectus and any supplement thereto or prospectus wrapper prepared in connection therewith, at their respective times of issuance and at the Closing Time, complied and will comply in all material respects with any applicable laws or regulations of foreign jurisdictions in which the Prospectus and such preliminary prospectus, as amended or supplemented, if applicable, are distributed in connection with the offer and sale of Reserved Securities. Neither the Prospectus nor any amendments or supplements thereto (including any prospectus wrapper), at the time the Prospectus or any such amendment or supplement was issued and at the Closing Time (and, if any Option Securities are purchased, at the Date of Delivery), included or will include an untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If Rule 434 is used, the Company will comply with the requirements of Rule 434 and the Prospectus shall not be "materially different", as such term is used in Rule 434, from the prospectus included in the Registration Statement at the time it became effective. The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by any Underwriter through Merrill Lynch expressly for use in the Registration Statement or Prospectus. Each preliminary prospectus and the prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so filed in all material respects with the 1933 Act Regulations and each preliminary prospectus and the Prospectus delivered to the Underwriters for use in connection with this offering was identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. -3- (ii) Independent Accountants. To the Company's knowledge after reasonable investigation, Ernst & Young LLP, which certified the financial statements and supporting schedules included in the Registration Statement, are independent public accountants as required by the 1933 Act and the 1933 Act Regulations. (iii) Financial Statements. The financial statements included in the Registration Statement and the Prospectus, together with the related schedules and notes, present fairly the financial position of the Company and its consolidated subsidiaries at the dates indicated and the statement of operations, stockholders' equity and cash flows of the Company and its consolidated subsidiaries for the periods specified; said financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved. The supporting schedules included in the Registration Statement present fairly in accordance with GAAP the information required to be stated therein. The selected financial data and the summary financial information included in the Prospectus present fairly the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included in the Registration Statement. The pro forma financial statements and the related notes thereto included in the Registration Statement and the Prospectus present fairly the information shown therein, have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and have been properly compiled on the bases described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. (iv) No Material Adverse Change in Business. Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business (a "Material Adverse Effect"), (B) there have been no transactions entered into by the Company or any of its subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and its subsidiaries considered as one enterprise, and (C) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (v) Good Standing of the Company. 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 has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under this Agreement; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. (vi) Good Standing of Subsidiaries. Each subsidiary of the Company (each a "Subsidiary" and, collectively, the "Subsidiaries") has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business as -4- described in the Prospectus and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect; except as otherwise disclosed in the Registration Statement, all of the issued and outstanding capital stock of each such Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the outstanding shares of capital stock of any Subsidiary was issued in violation of the preemptive or similar rights of any securityholder of such Subsidiary. The only subsidiaries of the Company are (a) the subsidiaries listed on Exhibit 21 to the Registration Statement and (b) certain other subsidiaries which do not constitute "significant subsidiaries" as defined in Rule 1-02 of Regulation S-X. (vii) Capitalization. The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus in the column entitled "Actual" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to this Agreement, pursuant to reservations, agreements or employee benefit plans referred to in the Prospectus or pursuant to the exercise of convertible securities or options referred to in the Prospectus). The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non- assessable; none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any securityholder of the Company. (viii) Authorization of Agreement. This Agreement has been duly authorized, executed and delivered by the Company. (ix) Authorization and Description of Securities. The Securities have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth herein, will be validly issued and fully paid and non-assessable; upon the filing of the Amended and Restated Certificate of Incorportaion of the Company attached as Exhibit 3.4 to the Registration Statement, which filing will be made immediately upon the Closing Time, the Common Stock will conform to all statements relating thereto contained in the Prospectus and such description will conform to the rights set forth in the instruments defining the same; no holder of the Securities will be subject to personal liability by reason of being such a holder; and the issuance of the Securities is not subject to the preemptive or other similar rights of any securityholder of the Company. (x) Absence of Defaults and Conflicts. Neither the Company nor any of its subsidiaries is in violation of its charter or by-laws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any subsidiary is subject (collectively, "Agreements and Instruments") except for such defaults that would not result in a Material Adverse Effect; and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein and in the Registration Statement (including the issuance and sale -5- of the Securities and the use of the proceeds from the sale of the Securities as described in the Prospectus under the caption "Use of Proceeds") and compliance by the Company with its obligations hereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any subsidiary pursuant to, the Agreements and Instruments (except for such conflicts, breaches, Repayment Events, or defaults or liens, charges or encumbrances that would not result in a Material Adverse Effect), nor will such action result in any violation of the provisions of the charter or by-laws of the Company or any subsidiary, nor will such action result in any violation of the provisions of any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any subsidiary or any of their assets, properties or operations (except for such violations that would not materially and adversely affect the Company's obligations hereunder and that would not result in a Material Adverse Effect). As used herein, a "Repayment Event" means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any subsidiary. (xi) Absence of Labor Dispute. No material labor dispute with the employees of the Company or any of its subsidiaries exists, except as described in the Prospectus, or, to the knowledge of the Company, is imminent; and the Company is not aware of any existing, overtly threatened or imminent labor disturbance by the employees of any of its principal suppliers, manufacturers or contractors that could have Material Adverse Effect. (xii) Absence of Proceedings. There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company or any subsidiary, which is required to be disclosed in the Registration Statement (other than as disclosed therein), or which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of the transactions contemplated in this Agreement or the performance by the Company of its obligations hereunder; the aggregate of all pending legal or governmental proceedings to which the Company or any subsidiary is a party or of which any of their respective property or assets is the subject which are not described in the Registration Statement, including ordinary routine litigation incidental to the business, could not reasonably be expected to result in a Material Adverse Effect. (xiii) Accuracy of Exhibits. There are no contracts or documents which are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits thereto which have not been so described and filed as required. (xiv) Possession of Intellectual Property. The Company and its subsidiaries own or possess, or can acquire on reasonable terms, adequate patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade -6- names or other intellectual property (collectively, "Intellectual Property") necessary to carry on the business now operated by them, and neither the Company nor any of its subsidiaries has received any notice or is otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which would render any Intellectual Property invalid or inadequate to protect the interest of the Company or any of its subsidiaries therein, and which infringement or conflict (if the subject of any unfavorable decision, ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would result in a Material Adverse Effect. (xv) Absence of Further Requirements. No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or required for the performance by the Company of its obligations hereunder, in connection with the offering, issuance or sale of the Securities hereunder or the consummation of the transactions contemplated by this Agreement, except (i) such as have been already obtained or as may be required under the 1933 Act or the 1933 Act Regulations or state securities laws and (ii) such as have been obtained under the laws and regulations of jurisdictions outside the United States in which the Reserved Securities are offered. (xvi) Possession of Licenses and Permits. The Company and its subsidiaries possess such permits, licenses, approvals, consents and other authorizations (collectively, "Governmental Licenses") issued by the appropriate federal, state, local or foreign regulatory agencies or bodies necessary to conduct the business now operated by them; the Company and its subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate, have a Material Adverse Effect; all of the Governmental Licenses are valid and in full force and effect, except when the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not have a Material Adverse Effect; and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect. (xvii) Title to Property. The Company and its subsidiaries have good and marketable title to all real property owned by the Company and its subsidiaries and good title to all other properties owned by them, in each case, free and clear of all mortgages, pledges, liens, security interests, claims, restrictions or encumbrances of any kind except such as (a) are described in the Prospectus or (b) do not, singly or in the aggregate, materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or any of its subsidiaries; and all of the leases and subleases material to the business of the Company and its subsidiaries, considered as one enterprise, and under which the Company or any of its subsidiaries holds properties described in the Prospectus, are in full force and effect, and neither the Company nor any subsidiary has any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease. -7- (xviii) Compliance with Cuba Act. The Company has complied with, and is and will be in compliance with, the provisions of that certain Florida act relating to disclosure of doing business with Cuba, codified as Section 517.075 of the Florida statutes, and the rules and regulations thereunder (collectively, the "Cuba Act") or is exempt therefrom. (xix) Investment Company Act. The Company is not, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Prospectus will not be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"). (xx) Environmental Laws. Except as described in the Registration Statement and except as would not, singly or in the aggregate, result in a Material Adverse Effect, (A) neither the Company nor any of its subsidiaries is in violation of any federal, state, local or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products (collectively, "Hazardous Materials") or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, "Environmental Laws"), (B) the Company and its subsidiaries have all permits, authorizations and approvals required under any applicable Environmental Laws and are each in compliance with their requirements, (C) there are no pending or threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or proceedings relating to any Environmental Law against the Company or any of its subsidiaries and (D) there are no events or circumstances that might reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or governmental body or agency, against or affecting the Company or any of its subsidiaries relating to Hazardous Materials or any Environmental Laws. (xxi) Registration Rights. There are no persons with registration rights or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company under the 1933 Act, except as described in the Prospectus and which rights have been duly waived in connection with the offering of the Securities. The Company (A) has notified certain shareholders who are parties to the Fifth Amended and Restated Investors' Rights Agreement dated April 28, 1999 (the "Registration Rights Agreement"), that pursuant to the terms of the Registration Rights Agreement, none of the shares of the Company's capital stock held by such shareholders may be sold or otherwise transferred or disposed of for a period of 180 days after the date of the Prospectus and (B) has imposed a stop-transfer instruction with the Company's transfer agent in order to enforce the 180 day lock-up provision imposed pursuant to the Registration Rights Agreement with respect to each shareholder subject to the Registration Rights Agreement. (xxvi) Insurance. The Company and its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are -8- prudent and customary in the businesses in which they are engaged; neither the Company nor any of its Subsidiaries has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect. (xxvii) International Trade. The Company and its Subsidiaries have complied and are in material compliance with all federal, state, local and foreign statutes, executive orders, proclamations, regulations, rules, directives, decrees, ordinances and similar provisions having the force or effect of law and all judicial and administrative orders, rulings, determinations and common law concerning the importation of merchandise, the export or reexport of products, services and technology, and the terms and conduct of international transactions applicable to the Company and its Subsidiaries in connection with the conduct of the Company's or any Subsidiary's business (including as the same relates to record keeping requirements) ("International Trade Laws and Regulations"); neither the Company nor any of its Subsidiaries has made or provided any material false statement or material omission to any agency of any federal, state or local government, purchasers of products, or foreign government or foreign agency, in connection with the exportation of merchandise (including with respect to export licenses, exceptions and other export authorizations and any filings required for or related to exportation of any item), the importation of merchandise or other approvals required by a foreign government or agency or any other requirement relating to any International Trade Laws and Regulations; neither the Company nor any of its Subsidiaries has made any payment, offer, gift, promise to give, or authorized or otherwise participated in, assisted or facilitated any payment or gift related to the Company's or any Subsidiary's business that is prohibited by the United States Foreign Corrupt Practices Act. (xxviii) Accounting Controls. The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (A) transactions are executed in accordance with management's general or specific authorizations; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (C) access to assets is permitted only in accordance with management's general or specific authorization; and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (xxix) Lock-up Agreements. Except for the Securities, at least [9_%] of all outstanding shares of Common Stock, and all securities convertible into or exercisable or exchangeable for Common Stock, are subject to valid and binding agreements (collectively, the "Lock-up Agreements") that restrict the holders thereof from selling, making any short sale of, granting any option for the purchase of, or otherwise transferring or disposing of, any of such shares of Common Stock, or any such securities convertible into or exercisable or exchangeable for Common Stock, for a period of 180 days after the date of the Prospectus without the prior written consent of Merrill Lynch & Co. Incorporated. (xxx) Option Plan. The Company (i) has notified each holder of a currently outstanding option issued under the Third Amended and Restated 1995 Option Plan (the "Option Plan") and each person who has acquired shares of Common Stock pursuant to the exercise of any option granted under the Option Plan that pursuant to the terms of the Option Plan, that none of such -9- options or shares may be sold or otherwise transferred or disposed of for a period of 180 days after the date of the Prospectus and (ii) has imposed a stop- transfer instruction with the Company's transfer agent in order to enforce the foregoing lock-up provision imposed pursuant to the Option Plan. (b) Officer's Certificates. Any certificate signed by any officer of the Company or any of its subsidiaries delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Company to each Underwriter as to the matters covered thereby. SECTION 2. Sale and Delivery to Underwriters; Closing. (a) Initial Securities. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at the price per share set forth in Schedule B, the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter, plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof. (b) Option Securities. In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase up to an additional [_______] shares of Common Stock at the price per share set forth in Schedule B, less an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities. The option hereby granted will expire 30 days after the date hereof and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Securities upon notice by the Representatives to the Company setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time and date of delivery (a "Date of Delivery") shall be determined by the Representatives, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Time, as hereinafter defined. If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being purchased which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter bears to the total number of Initial Securities, subject in each case to such adjustments as the Representatives in their discretion shall make to eliminate any sales or purchases of fractional shares. (c) Payment. Payment of the purchase price for, and delivery of certificates for, the Initial Securities shall be made at the offices of Venture Law Group, A Professional Corporation, 4750 Carillon Point, Kirkland, Washington 98033, or at such other place as shall be agreed upon by the Representatives and the Company, 7:00 A.M. (California time) on the third (fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given day) business day after the date hereof (unless postponed in accordance with the provisions of Section 10), or such other time not later than -10- ten business days after such date as shall be agreed upon by the Representatives and the Company (such time and date of payment and delivery being herein called "Closing Time"). In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates for, such Option Securities shall be made at the above-mentioned offices, or at such other place as shall be agreed upon by the Representatives and the Company, on each Date of Delivery as specified in the notice from the Representatives to the Company. Payment shall be made to the Company by wire transfer of immediately available funds to a bank account designated by the Company, against delivery to the Representatives for the respective accounts of the Underwriters of certificates for the Securities to be purchased by them. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial Securities and the Option Securities, if any, which it has agreed to purchase. Merrill Lynch, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option Securities, if any, to be purchased by any Underwriter whose funds have not been received by the Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder. (d) Denominations; Registration. Certificates for the Initial Securities and the Option Securities, if any, shall be in such denominations and registered in such names as the Representatives may request in writing at least one full business day before the Closing Time or the relevant Date of Delivery, as the case may be. The certificates for the Initial Securities and the Option Securities, if any, will be made available for examination and packaging by the Representatives in the City of New York not later than 10:00 A.M. (Eastern time) on the business day prior to the Closing Time or the relevant Date of Delivery, as the case may be. SECTION 3. Covenants of the Company. The Company covenants with each Underwriter as follows: (a) Compliance with Securities Regulations and Commission Requests. The Company, subject to Section 3(b), will comply with the requirements of Rule 430A or Rule 434, as applicable, and will notify the Representatives immediately, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective, or any supplement to the Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes. The Company will promptly effect the filings necessary pursuant to Rule 424(b) and will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company will make every reasonable effort to prevent the -11- issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (b) Filing of Amendments. The Company will give the Representatives notice of its intention to file or prepare any amendment to the Registration Statement (including any filing under Rule 462(b)), any Term Sheet or any amendment, supplement or revision to either the prospectus included in the Registration Statement at the time it became effective or to the Prospectus will furnish the Representatives with copies of any such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or use any such document to which the Representatives or counsel for the Underwriters shall reasonably object. (c) Delivery of Registration Statements. The Company has furnished or will deliver to the Representatives and counsel for the Underwriters, without charge, signed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein) and signed copies of all consents and certificates of experts, and will also deliver to the Representatives, without charge, a conformed copy of the Registration Statement as originally filed and of each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (d) Delivery of Prospectuses. The Company has delivered to each Underwriter, without charge, as many copies of each preliminary prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will furnish to each Underwriter, without charge, during the period when the Prospectus is required to be delivered under the 1933 Act or the Securities Exchange Act of 1934 (the "1934 Act"), such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (e) Continued Compliance with Securities Laws. The Company will comply with the 1933 Act and the 1933 Act Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Prospectus. If at any time when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to amend the Registration Statement or amend or supplement the Prospectus in order that the Prospectus will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement or the Prospectus comply with such requirements, -12- and the Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. (f) Blue Sky Qualifications. The Company will use its best efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Representatives may designate and to maintain such qualifications in effect for so long as may be necessary to complete the distribution of the Securities or, if longer, as applicable securities laws may require; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. In each jurisdiction in which the Securities have been so qualified, the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for so long as may be necessary to complete the distribution of the Securities or, if longer, as applicable securities laws may require. (g) Rule 158. The Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its securityholders as soon as practicable an earnings statement for the purposes of, and to provide the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act. (h) Use of Proceeds. The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectus under "Use of Proceeds". (i) Listing. The Company will use its best efforts to effect and maintain the quotation of the Common Stock (including the Securities) on the Nasdaq National Market and will file with the Nasdaq National Market all documents and notices required by the Nasdaq National Market of companies that have securities that are traded in the over-the-counter market and quotations for which are reported by the Nasdaq National Market. (j) Restriction on Sale of Securities. During a period of 180 days from the date of the Prospectus, the Company will not, without the prior written consent of Merrill Lynch, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any share of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or file any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Securities to be sold hereunder, (B) any shares of Common Stock issued by the Company upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof and referred to in the Prospectus, (C) any shares of Common Stock issued or options to purchase Common Stock granted pursuant to existing employee benefit plans of the Company referred to in the Prospectus or (D) any shares of Common Stock issued pursuant to any non-employee director stock plan. -13- (k) Reporting Requirements. The Company, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and the rules and regulations of the Commission thereunder. (l) Compliance with NASD Rules. The Company hereby agrees that it will ensure that the Reserved Securities will be restricted as required by the National Association of Securities Dealers, Inc. (the "NASD") or the NASD rules from sale, transfer, assignment, pledge or hypothecation for a period of three months following the date of this Agreement. The Underwriters will notify the Company in writing as to which persons will need to be so restricted. At the request of the Underwriters, the Company will direct the transfer agent to place a stop transfer restriction upon such securities for such period of time. Should the Company release, or seek to release, from such restrictions any of the Reserved Securities sold to the Restricted Persons, the Company agrees to reimburse the Underwriters for any reasonable expenses (including, without limitation, legal expenses) they incur in connection with such release. (m) Compliance with Rule 463. The Company will report to the use of proceed from the sale of the Securities pursuant to Item 701 of Regulation S-K on its periodic reports filed with the Commission pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act as may be required pursuant to Rule 463 of the 1933 Act Regulations. SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay all expenses incident to the performance of its obligations under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of this Agreement, any Agreement among Underwriters and such other documents as may be required in connection with the offering, purchase, sale, issuance or delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriters, including any stock or other transfer taxes and any stamp or other duties payable upon the sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees and disbursements of the Company's counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(f) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto, (vi) the printing and delivery to the Underwriters of copies of each preliminary prospectus, any Term Sheets and of the Prospectus and any amendments or supplements thereto, (vii) the preparation, printing and delivery to the Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of any transfer agent or registrar for the Securities and (ix) the filing fees incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by the NASD of the terms of the sale of the Securities and (x) the fees and expenses incurred in connection with the inclusion of the Securities in the Nasdaq National Market and (xi) all costs and expenses of the Underwriters, including the fees and disbursements of counsel for the Underwriters, in connection with matters related to the Reserved Securities which are designated by the Company for sale to employees and others having a business relationship with the Company. -14- (b) Termination of Agreement. If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 or Section 9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. SECTION 5. Conditions of Underwriters' Obligations. The obligations of the several Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company contained in Section 1 hereof or in certificates of any officer of the Company or any subsidiary of the Company delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions: (a) Effectiveness of Registration Statement. The Registration Statement, including any Rule 462(b) Registration Statement, has become effective and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriters. A prospectus containing the Rule 430A Information shall have been filed with the Commission in accordance with Rule 424(b) (or a post-effective amendment providing such information shall have been filed and declared effective in accordance with the requirements of Rule 430A) or, if the Company has elected to rely upon Rule 434, a Term Sheet shall have been filed with the Commission in accordance with Rule 424(b). (b) Opinion of Counsel for Company (i) At Closing Time, the Representatives shall have received the favorable opinion, dated as of Closing Time, of Venture Law Group, A Professional Corporation, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters to the effect set forth in Exhibit A hereto and to such further effect as counsel to the Underwriters may reasonably request. In giving such opinion, such counsel may rely, as to matters governed by the laws of jurisdictions other than the law of the State of Washington and the federal law of the United States and the General Corporation Law of the State of Delaware, upon the opinion of counsel satisfactory to the Representatives. (ii) At Closing Time, the Representatives shall have received the favorable opinion, dated as of Closing Time, of Fulbright & Jaworski, intellectual property counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters to the effect set forth in Exhibit B hereto and to such further effect as counsel to the Underwriters may reasonably request. (c) Opinion of Counsel for Underwriters. At Closing Time, the Representatives shall have received the favorable opinion, dated as of Closing Time, of Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters with respect to the matters set forth in Exhibit A in clauses (i), (ii), (v), (vi) (solely as to preemptive or other similar rights arising by operation of law or under the charter or by-laws of the Company), (viii) through (x), inclusive, (xiv) -15- (solely as to the information in the Prospectus under "Description of Securities-Common Stock") and the penultimate paragraph of Exhibit A hereto. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and its subsidiaries and certificates of public officials. (d) Officers' Certificate. At Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and the Representatives shall have received a certificate of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company, dated as of Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties in Section 1(a) hereof are true and correct with the same force and effect as though expressly made at and as of Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or are contemplated by the Commission. (e) Accountant's Comfort Letter. At the time of the execution of this Agreement, the Representatives shall have received from Ernst & Young, LLP a letter dated such date, in form and substance satisfactory to the Representatives, together with signed or reproduced copies of such letter for each of the other Underwriters containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus. (f) Bring-down Comfort Letter. At Closing Time, the Representatives shall have received from Ernst & Young, LLP a letter, dated as of Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (e) of this Section, except that the specified date referred to shall be a date not more than three business days prior to Closing Time. (g) Approval of Listing. At Closing Time, the Securities shall have been approved for inclusion in the Nasdaq National Market, subject only to official notice of issuance. (h) No Objection. The NASD has confirmed that it has not raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements. (i) Lock-up Agreements. At the date of this Agreement, the Representatives shall have received an agreement substantially in the form of Exhibit C hereto signed by the persons listed on Schedule C hereto. (j) Conditions to Purchase of Option Securities. In the event that the Underwriters exercise their option provided in Section 2(b) hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company or any subsidiary of the Company here- -16- under shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the Representatives shall have received: (i) Officers' Certificate. A certificate, dated such Date of Delivery, of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company confirming that the certificate delivered at the Closing Time pursuant to Section 5(d) hereof remains true and correct as of such Date of Delivery. (ii) Opinion of Counsel for Company. The favorable opinion of Venture Law Group, Professional Corporation, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(b) hereof. (iii) Opinion of Counsel for Underwriters. The favorable opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(c) hereof. (iv) Bring-down Comfort Letter. A letter from Ernst & Young, LLP, in form and substance satisfactory to the Representatives and dated such Date of Delivery, substantially in the same form and substance as the letter furnished to the Representatives pursuant to Section 5(f) hereof, except that the "specified date" in the letter furnished pursuant to this paragraph shall be a date not more than five days prior to such Date of Delivery. (k) Additional Documents. At Closing Time and at each Date of Delivery, counsel for the Underwriters shall have been furnished with such documents and opinions as they may require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be satisfactory in form and substance to the Representatives and counsel for the Underwriters. (l) Termination of Agreement. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement, or, in the case of any condition to the purchase of Option Securities, on a Date of Delivery which is after the Closing Time, the obligations of the several Underwriters to purchase the relevant Option Securities, may be terminated by the Representatives by notice to the Company at any time at or prior to Closing Time or such Date of Delivery, as the case may be, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 1, 6, 7 and 8 shall survive any such termination and remain in full force and effect. SECTION 6. Indemnification. -17- (a) Indemnification of Underwriters. 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 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of (A) the violation of any applicable laws or regulations of foreign jurisdictions where Reserved Securities have been offered and (B) any untrue statement or alleged untrue statement of a material fact included in the supplement or prospectus wrapper material distributed in foreign jurisdictions in connection with the reservation and sale of the Reserved Securities to eligible employees of the Company and persons having business relationships with the Company or the omission or alleged omission therefrom of a material fact necessary to make the statements therein, when considered in conjunction with the Prospectus or preliminary prospectus, and in light of the circumstances under which they were made, not misleading; (iii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission or in connection with any violation of the nature referred to in Section 6(a)(ii)(A) hereof; provided that (subject to Section 6(d) below) any such settlement is effected with the written consent of the Company; and (iv) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by Merrill Lynch), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission or in connection with any violation of the nature referred to in Section 6(a)(ii)(A) hereof, to the extent that any such expense is not paid under (i), (ii) or (iii) above; provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through Merrill Lynch expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or any preliminary prospectus or the Prospectus (or any amendment or -18- supplement thereto); provided further, that the Company will not be liable to any Underwriter with respect to any preliminary prospectus to the extent that the Company shall sustain the burden of proving that any such loss, liability, claim, damage or expense resulted from the fact that such Underwriter, in contravention of a requirement of applicable law, sold Securities to a person to whom such Underwriter failed to send or give, at or prior to the written confirmation of the sale of such Securities (the "Confirmation"), a copy of the Prospectus, as then amended or supplemented if: (i) the Company has previously furnished copies thereof to the Underwriters (sufficiently in advance of the Confirmation and in sufficient quantity to allow for distribution by the Confirmation) and the loss, liability, claim, damage or expense of such Underwriter resulted from an untrue statement or omission of a material fact contained in or omitted from the preliminary prospectus that was corrected in the Prospectus as, if applicable, amended or supplemented prior to the Confirmation and such Prospectus was required by law to be delivered at or prior to the Confirmation to such person and (ii) such failure to give or send such Prospectus by the Confirmation to the party or parties asserting such loss, liability, claim, damage or expense would have constituted the sole defense to the claim asserted by such person. (b) Indemnification of Company, Directors and Officers. Each Underwriter severally agrees to indemnify and hold harmless the Company, 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 1933 Act or Section 20 of the 1934 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or any preliminary prospectus or 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 Merrill Lynch expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (c) Actions against Parties; Notification. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 6(a) above, counsel to the indemnified parties shall be selected by Merrill Lynch, and, in the case of parties indemnified pursuant to Section 6(b) above, counsel to the indemnified parties shall be selected by the Company. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or -19- proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) Settlement without Consent if Failure to Reimburse. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a)(ii) Section 6(a)(iii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. (e) Indemnification for Reserved Securities. In connection with the offer and sale of the Reserved Securities, the Company agrees, promptly upon a request in writing, to indemnify and hold harmless the Underwriters from and against any and all losses, liabilities, claims, damages and expenses incurred by them as a result of the failure of any of the Reserved Securities Purchasers to pay for and accept delivery of Reserved Securities which, by the end of the first business day following the date of this Agreement, were subject to a properly confirmed agreement to purchase. SECTION 7. Contribution. If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Underwriters on the other hand in connection with the statements or omissions, or in connection with any violation of the nature referred to in Section 6(a)(ii)(A) hereof, which resulted in such losses, liabilities, claims, damages or expenses, 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 hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company and the total underwriting discount received by the Underwriters, in each case as set forth on the cover of the Prospectus, or, if Rule 434 is used, the corresponding location on the Term Sheet, bear to the aggregate initial public offering price of the Securities as set forth on such cover. -20- The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission or any violation of the nature referred to in Section 6(a)(ii)(A) hereof. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 7. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of any such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 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 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. The Underwriters' respective obligations to contribute pursuant to this Section 7 are several in proportion to the number of Initial Securities set forth opposite their respective names in Schedule A hereto and not joint. SECTION 8. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company or any of its subsidiaries submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or controlling person, or by or on behalf of the Company, and shall survive delivery of the Securities to the Underwriters. SECTION 9. Termination of Agreement. -21- (a) Termination; General. The Representatives may terminate this Agreement, by notice to the Company, at any time at or prior to Closing Time (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Representatives, impracticable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission or the Nasdaq National Market, or if trading generally on the American Stock Exchange or the New York Stock Exchange or in the Nasdaq National Market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other governmental authority, or (iv) if a banking moratorium has been declared by either Federal or New York authorities. (b) Liabilities. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 6, 7 and 8 shall survive such termination and remain in full force and effect. SECTION 10. Default by One or More of the Underwriters. If one or more of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase the Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date, each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the number of Securities to be purchased on such date, this Agreement or, with respect to any Date of Delivery which occurs after the Closing Time, the obligation of the Underwriters to purchase and of the Company to sell the Option Securities to be purchased and sold on such Date of Delivery shall terminate without liability on the part of any non-defaulting Underwriter. -22- No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement or, in the case of a Date of Delivery which is after the Closing Time, which does not result in a termination of the obligation of the Underwriters to purchase and the Company to sell the relevant Option Securities, as the case may be, either the Representatives or the Company shall have the right to postpone Closing Time or the relevant Date of Delivery, as the case may be, for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. As used herein, the term "Underwriter" includes any person substituted for an Underwriter under this Section 10. SECTION 11. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representatives at 3300 Hillview Avenue, Suite 150, Palo Alto, California 94304-1203, attention of Matt Pendo and notices to the Company shall be directed to Metawave Communications Corporation at 10735 Willows Road NE, Redmond, Washington 98052, attention of Robert Hunsberger. SECTION 12. Parties. This Agreement shall each inure to the benefit of and be binding upon the Underwriters and the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters and the Company and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters and the Company and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME. SECTION 14. Effect of Headings. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. -23- If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Underwriters and the Company in accordance with its terms. Very truly yours, METAWAVE COMMUNICATIONS CORPORATION By ------------------------------------- Robert H. Hunsberger, President and Chief Executive Officer CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED U.S. BANCORP PIPER JAFFRAY, INC. SOLOMON SMITH BARNEY By: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: ------------------------------- Authorized Signatory Name: ----------------------------- Title: ---------------------------- For themselves and as Representatives of the other Underwriters named in Schedule A hereto. -24- SCHEDULE A
Number of Initial Name of Underwriter Securities - ------------------------------------------------------------------------------ ---------- Merrill Lynch, Pierce, Fenner & Smith Incorporated............................................................. Salomon Smith Barney.......................................................... U.S. Bancorp Piper Jaffray, Inc............................................... Total......................................................................... ==========
Sch A-1 SCHEDULE B Metawave Communications Corporation [___] Shares of Common Stock (Par Value $0.0001 Per Share) 1. The initial public offering price per share for the Securities, determined as provided in said Section 2, shall be $[______]. 2. The purchase price per share for the Securities to be paid by the several Underwriters shall be $[______], being an amount equal to the initial public offering price set forth above less $[______] per share; provided that the purchase price per share for any Option Securities purchased upon the exercise of the over-allotment option described in Section 2(b) shall be reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities. Sch B-1 SCHEDULE C List of persons and entities subject to lock-up [All securityholders, as set forth in the Prospectus.] Sch C-1 Exhibit A FORM OF OPINION OF COMPANY'S COUNSEL TO BE DELIVERED PURSUANT TO SECTION 5(b)(i) (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware. (ii) The Company has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under the Purchase Agreement. (iii) The Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. (iv) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus in the column entitled "Actual" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to the Purchase Agreement or pursuant to reservations, agreements or employee benefit plans referred to in the Prospectus or pursuant to the exercise of convertible securities or options referred to in the Prospectus); the shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights continued in the Certificate of Incorporation, as amended, or by-laws of the Company; and, to our knowledge, none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any securityholder of the Company. (v) The Securities have been duly authorized for issuance and sale to the Underwriters pursuant to the Purchase Agreement and, when issued and delivered by the Company pursuant to the Purchase Agreement against payment of the consideration set forth in the Purchase Agreement, will be validly issued and fully paid and non-assessable and no holder of the Securities is or will be subject to personal liability by reason of being such a holder. (vi) To our knowledge, the issuance of the Securities is not subject to preemptive or other similar rights of any securityholder of the Company. (vii) Each Subsidiary has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or A-1 leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect; except as otherwise disclosed in the Registration Statement, all of the issued and outstanding capital stock of each Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and, to the best of our knowledge, is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; to our knowledge, none of the outstanding shares of capital stock of any Subsidiary was issued in violation of the preemptive or similar rights of any securityholder of such Subsidiary. (viii) The Purchase Agreement has been duly authorized, executed and delivered by the Company. (ix) The Registration Statement, including any Rule 462(b) Registration Statement, has been declared effective under the 1933 Act; any required filing of the Prospectus pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); and, to the best of our knowledge, no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or threatened by the Commission. (x) The Registration Statement, including any Rule 462(b) Registration Statement, the Rule 430A Information and the Rule 434 Information, as applicable, the Prospectus and each amendment or supplement to the Registration Statement and Prospectus as of their respective effective or issue dates (other than the financial statements and supporting schedules included therein or omitted therefrom, as to which we need express no opinion) complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. (xii) The form of certificate used to evidence the Common Stock complies in all material respects with all applicable statutory requirements, with any applicable requirements of the charter and by-laws of the Company and the requirements of the Nasdaq National Market. (xiii) To our knowledge, there is not pending or threatened any action, suit, proceeding, inquiry or investigation, to which the Company or any subsidiary is a party, or to which the property of the Company or any subsidiary is subject, before or brought by any court or governmental agency or body, domestic or foreign, which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the properties or assets of the Company or any subsidiary or the consummation of the transactions contemplated in the Purchase Agreement or the performance by the Company of its obligations thereunder. (xiv) The information in the Prospectus under "Management-Limitation of Liability and Indemnification Matters;" "-Severance Arrangements;" "Description of Securities;" "Shares Eligible" and "Certain Relationships and Related Party Transactions" and "Underwriting" and in the Registration Statement under Items 14 and 15, to the extent that it constitutes matters of law, summaries of legal matters, the Company's charter and by-laws or legal proceedings, or legal conclusions, has been reviewed by us and is correct in all material respects. A-2 (xv) To our knowledge, there are no statutes or regulations that are required to be described in the Prospectus that are not described as required. (xvi) All descriptions in the Registration Statement of contracts and other documents to which the Company or its subsidiaries are a party are accurate in all material respects; to the best of our knowledge, there are no franchises, contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed or incorporated by reference as exhibits thereto, and the descriptions thereof or references thereto are correct in all material respects. (xvii) To the best of our knowledge, neither the Company nor any subsidiary is in violation of its charter or by-laws and, to our knowledge, no default by the Company or any subsidiary exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument that is described or referred to in the Registration Statement or the Prospectus or filed or incorporated by reference as an exhibit to the Registration Statement. (xviii) No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency, domestic or foreign (other than under the 1933 Act and the 1933 Act Regulations, which have been obtained, or as may be required under the securities or blue sky laws of the various states, as to which we need express no opinion) is necessary or required in connection with the due authorization, execution and delivery of the Purchase Agreement or for the offering, issuance or sale of the Securities. (xix) The execution, delivery and performance of the Purchase Agreement and the consummation of the transactions contemplated in the Purchase Agreement and in the Registration Statement (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described in the Prospectus under the caption "Use Of Proceeds") and compliance by the Company with its obligations under the Purchase Agreement do not and will not, whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined in Section 1(a)(x) of the Purchase Agreement) under or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any subsidiary pursuant to any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any other agreement or instrument, known to us, to which the Company or any subsidiary is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any subsidiary is subject (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not have a Material Adverse Effect), nor will such action result in any violation of the provisions of the charter or by-laws of the Company or any subsidiary, or any applicable law, statute, rule, regulation, judgment, order, writ or decree, known to us, of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any subsidiary or any of their respective properties, assets or operations. A-3 (xx) To our knowledge, there are no persons with registration rights or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company under the 1933 Act, except as described in the Prospectus and which rights have not been duly waived. (xxi) The Company is not an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the 1940 Act. Nothing has come to our attention that would lead us to believe that the Registration Statement or any amendment thereto, including the Rule 430A Information and Rule 434 Information (if applicable), (except for financial statements and schedules and other financial data included therein or omitted therefrom, as to which we need make no statement), at the time such Registration Statement or any such amendment became effective, contained an 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 that the Prospectus or any amendment or supplement thereto (except for financial statements and schedules and other financial data included therein or omitted therefrom, as to which we need make no statement), at the time the Prospectus was issued, at the time any such amended or supplemented prospectus was issued or at the Closing Time, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering such opinion, such counsel may rely as to matters of fact (but not as to legal conclusions), to the extent they deem proper, on certificates of responsible officers of the Company and public officials. Such opinion shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991). A-4 Exhibit B FORM OF OPINION OF COMPANY'S COUNSEL TO BE DELIVERED PURSUANT TO SECTION 5(b)(ii) (i) The Company owns all patents, trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, licenses, inventions, trade secrets and rights described in the Prospectus as being owned by it or necessary for the conduct of its business, and such counsel is not aware of any claim to the contrary or any challenge by any other person to the rights of the Company with respect to the foregoing other than those identified in the Prospectus; (ii) Such counsel is not aware of any legal actions, claims or proceedings pending or threatened against the Company, its manufacturers, suppliers or customers other than those identified in the Prospectus alleging that the Company is infringing or otherwise violating any patents, trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, licenses, inventions, trade secrets or rights owned by others; (iii) Such counsel has reviewed the descriptions of patents and patent applications under the captions "Risk Factors--[Intellectual Property]" and "Business--Intellectual Property" 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; (iv) For each copyrightable product described in the Prospectus, the Company either (i) has registered all copyrights for such product and has obtained and properly recorded written assignments of all rights and title therein to the Company from all authors and owners of such copyrights other than the Company, including, without limitation, any and all independent contractors; or (ii) was vested with original title to all copyrights for such product and no written assignments for such copyrights are required to perfect Company's rights and title thereto; (v) After review of the file history and patent attorneys' file with respect to the security of patent protection on the Company's technology for each patent or patent application described or referred to in the Prospectus as being owned by the Company or necessary for the conduct of its business, 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 and patent applications under the captions "Risk Factors--[Intellectual Property]" and "Business--Intellectual Property" 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 light of the circumstances under which they were made, not misleading, B-1 including, without limitation, any undisclosed material issue with respect to the subsequent validity or enforceability of such patent or patent issuing from any such pending patent application; and (vi) [Additional opinions to follow pending due diligence investigation.] B-2 Exhibit C February ___, 2000 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated, U.S. Bancorp Piper Jaffray, Inc. Solomon Smith Barney as Representatives of the several Underwriters to be named in the within-mentioned Purchase Agreement c/oMerrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated North Tower World Financial Center New York, New York 10281-1209 Re: Proposed Public Offering by Metawave Communications Corporation --------------------------------------------------------------- Dear Sirs: The undersigned, a stockholder [and an officer and/or director]/2/ of Metawave Communications Corporation, a Delaware corporation (the "Company"), understands that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), U.S. Bancorp Piper Jaffray, Inc. and Solomon Smith Barney proposes to enter into a Purchase Agreement (the "Purchase Agreement") with the Company providing for the public offering of shares (the "Securities") of the Company's common stock, par value $0.0001 per share (the "Common Stock"). In recognition of the benefit that such an offering will confer upon the undersigned as a stockholder [and an officer and/or director]/1/ of the Company, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees with each underwriter to be named in the Purchase Agreement that, during a period of 180 days from the date of the Purchase Agreement, the undersigned will not, without the prior written consent of Merrill Lynch, directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of the Company's Common Stock or any securities convertible into or exchangeable or exercisable for Common Stock, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the - --------------- /1/ Delete or revise bracketed language as appropriate. C-1 power of disposition, or file any registration statement under the Securities Act of 1933, as amended, with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap transaction is to be settled by delivery of Common Stock or other securities, in cash or otherwise. Very truly yours, Signature: ------------------------------ Print Name: ----------------------------- C-2 Annex A FORM OF ACCOUNTANTS' COMFORT LETTER PURSUANT TO SECTION 5(e) We are independent public accountants with respect to the Company within the meaning of the 1933 Act and the applicable published 1933 Act Regulations (i) in our opinion, the audited financial statements and the related financial statement schedules included in the Registration Statement and the Prospectus comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the published rules and regulations thereunder; (ii) on the basis of procedures (but not an examination in accordance with generally accepted auditing standards) consisting of a reading of the unaudited interim [consolidated] financial statements of the Company for the [three month periods ended _________, 19___ and _________, 19___ , the three and six month periods ended _________, 19___ and _________, 19___ and the three and nine month periods ended _________, 19___ and _________, 19___, included in the Registration Statement and the Prospectus (collectively, the "Quarterly Financials")]/1/ [, a reading of the unaudited interim [consolidated] financial statements of the Company for the _____-month periods ended _________, 19___ and _________, 19___, included in the Registration Statement and the Prospectus (the "____-month financials")]/2/ [, a reading of the latest available unaudited interim [consolidated] financial statements of the Company],/3/ a reading of the minutes of all meetings of the stockholders and directors of the Company and its subsidiaries and the _________________ and __________________ Committees of the Company's Board of Directors and any subsidiary committees since January 1, 2000, inquiries of certain officials of the Company and its subsidiaries responsible for financial and accounting matters, a review of interim financial information in accordance with standards established by the American Institute of Certified Public Accountants in Statement on Auditing Standards No. 71, Interim Financial Information ("SAS 71"), with respect to the [description of relevant periods]/4/ and such other inquiries and procedures as may be specified in such letter, nothing came to our attention that caused us to believe that: (A) the Quarterly Financials included in the Registration Statement and the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the 1933 Act Regulations or any material modifications should be made to the - ------------------- 1 Include the appropriate dates of the Quarterly Financials. 2 Include if non-Quarterly unaudited interim financial statements are included in the Registration Statement. 3 Include if the most recent unaudited interim financial statements are not included in the Registration Statement. 4 The relevant periods include all interim unaudited condensed consolidated financial statements included or incorporated by reference in the Registration Statement. Annex A-1 unaudited [consolidated] financial statements included in the Registration Statement and the Prospectus for them to be in conformity with generally accepted accounting principles; ( ) at [_________, 19___ and at] a specified date not more than five days prior to the date of this Agreement, there was any change in the ___________ of the Company [and its subsidiaries] or any decrease in the __________ of the Company [and its subsidiaries] or any increase in the __________ of the Company [and its subsidiaries,]/5/ in each case as compared with amounts shown in the latest balance sheet included in the Registration Statement, except in each case for changes, decreases or increases that the Registration Statement discloses have occurred or may occur; or ( ) [for the period from _________, 19___ to _________, 19___ and ]/6/ for the period from _________, 19___ to a specified date not more than five days prior to the date of this Agreement, there was any decrease in _________, __________ or ___________,/7/ in each case as compared with the comparable period in the preceding year, except in each case for any decreases that the Registration Statement discloses have occurred or may occur; (iii) based upon the procedures set forth in clause (ii) above and a reading of the [Selected Financial Data] included in the Registration Statement nothing came to our attention that caused us to believe that the Selected Financial Data included in the Registration Statement do not comply as to form in all material respects with the disclosure requirements of Item 301 of Regulation S-K of the 1933 Act [, that the amounts included in the [Selected Financial Data] are not in agreement with the corresponding amounts in the audited [consolidated] financial statements for the respective periods or that the financial statements not included in the Registration Statement from which certain of such data were derived are not in conformity with generally accepted accounting principles];/8/ - --------------- /5/ The blanks should be fined in with significant balance sheet items, selected by the banker and tailored to the issuer's industry in general and operations in particular. While the ultimate decision of which items should be included rests with the banker, comfort is routinely requested for certain balance sheet items, including long-term debt, stockholders' equity, capital stock and net current assets. /6/ Include, and insert dates to describe the period from the date of the most recent financial statements in the Registration Statement to the date of the most recent unaudited interim financial statements of the Company, if those dates are different. Regardless of whether this language is inserted or not, the period including five days prior to the date of the Underwriting Agreement should run from the date of the last financial statement included in the Registration Statement, not from the later one that is not included in the Registration Statement. /7/ The blanks should be filled in with significant income statement items, selected by the banker and tailored to the issuer's industry in general and operations in particular. While the ultimate decision of which items should be included rests with the banker, comfort is routinely requested for certain income statement items, including net sales, total and per share amounts of income before extraordinary items and of net income. /8/ In unusual circumstances, the accountants may report on "Selected Financial Data" as described in SAS No. 42, Reporting on Condensed Financial Statements and Selected Financial Data, and include in their report in the Registration Statement the paragraph contemplated by SAS No. 42.9. This situation may arise only if the Selected Financial Data do not include interim period data and the five-year selected data are derived entirely from financial statements audited by the auditors whose report is included in the Registration Statement. If the guidelines set forth in SAS No. 42 are followed and the accountant's report as included in the Registration Statement includes the additional language prescribed by SAS No. 42.9, the bracketed language may be eliminated. Annex A-2 (iv) we have compared the information in the Registration Statement under selected captions with the disclosure requirements of Regulation S-K of the 1933 Act and on the basis of limited procedures specified herein. nothing came to our attention that caused us to believe that this information does not comply as to form in all material respects with the disclosure requirements of Items 302, 402 and 503(d), respectively, of Regulation S-K; [(viii)] in addition to the procedures referred to in clause (ii) above, we have performed other procedures, not constituting an audit, with respect to certain amounts, percentages, numerical data and financial information appearing in the Registration Statement, which are specified herein, and have compared certain of such items with, and have found such items to be in agreement with, the accounting and financial records of the Company. Annex A-3 EX-3.3 3 SIXTH AMENDED & RESTATED CERTIFICATE OF INCORP EXHIBIT 3.3 SIXTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF METAWAVE COMMUNICATIONS CORPORATION, a Delaware Corporation The undersigned, Robert Hunsberger, hereby certifies that: 1. He is the duly elected President and Chief Executive Officer of Metawave Communications Corporation, a Delaware corporation. 2. The Certificate of Incorporation of this corporation was originally filed with the Secretary of State of Delaware on July 11, 1995. 3. The Certificate of Incorporation of this corporation shall be amended and restated to read in full as follows: ARTICLE I The name of this Corporation is Metawave Communications Corporation. ARTICLE II The address of the registered office of this Corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV A. Classes of Stock. This Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock" The total number of shares that this Corporation is authorized to issue is eighty-seven million (87,000,000) shares. Fifty million (50,000,000) shares shall be Common Stock, par value $.0001 per share, and thirty-seven million (37,000,000) shares shall be Preferred Stock, par value $.0001 per share. Immediately upon the filing of this Amended and Restated Certificate of Incorporation, each 3 outstanding shares of the Corporation's Common Stock, $0.0001 par value per share, will be exchanged and combined, automatically, without further action, into 2 shares of Common Stock, $0.0001 par value per share. B. Rights, Preferences and Restrictions of Preferred Stock. The Preferred Stock authorized by this Sixth Amended and Restated Certificate of Incorporation may be issued from time to time in one or more series. The rights, preferences, privileges, and restrictions granted to and imposed on the Series A Preferred Stock, which series shall consist of 5,565,416 shares, and the Series B Preferred Stock, which series shall consist of 2,760,742 shares, and the Series C Preferred Stock, which series shall consist of 2,700,000 shares, the Series D Preferred Stock, which series shall consist of 4,000,000 shares and the Series E Preferred Stock, which series shall consist of 20,500,000 shares, are as set forth below in this Article IV(B). The Board of Directors is hereby authorized to fix or alter the rights, preferences, privileges and restrictions granted to or imposed upon additional series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or of any of them. Subject to compliance with applicable protective voting rights that have been or may be granted to the Preferred Stock or series thereof in Certificates of Determination or this Corporation's Sixth Amended and Restated Certificate of Incorporation ("Protective Provisions"), but notwithstanding any other rights of the Preferred Stock or any series thereof, the rights, privileges, preferences and restrictions of any such additional series may be subordinated to, pari passu with (including, without limitation, inclusion in provisions with respect to dividends, liquidation and acquisition preferences, redemption and/or approval of matters by vote or written consent), or senior to any of those of any present or future class or series of Preferred or Common Stock. Subject to compliance with applicable Protective Provisions and unless otherwise specifically provided in the resolution establishing any series, the Board of Directors shall further have the authority, after the issuance of shares of a series whose number it has designated, to amend the resolution establishing such series to decrease the number of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. 1. Dividend Provisions. Subject to the rights of other series of Preferred Stock that may from time to time come into existence, the holders of shares of Series A, Series B, Series C, Series D and Series E Preferred Stock shall be entitled to receive dividends, when, as and if declared by the Board of Directors, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of this Corporation) on the Common Stock of this Corporation, (a) at the rate of $.08 per share of Series A Preferred Stock, $.27 per share of Series B Preferred Stock, $.49 per share of Series C Preferred Stock, $.64 per share of Series D Preferred Stock and $.40 per share of Series E Preferred Stock, per annum (each of such amounts being subject to equitable adjustment to reflect the effects of any stock dividends, stock splits, combinations, reverse splits, reclassifications or recapitalizations (herein referred to as "Adjustment Events")), or (b) if a dividend is paid on the Common Stock in an amount per share which, when multiplied by the respective numbers of shares of Common Stock into which shares of the Series A, Series B, Series C, Series D or Series E Preferred Stock are then convertible (the "Alternate Rate"), exceeds the preferential dividend per share which holders of shares of such series would otherwise be entitled to receive under clause (a) of this Section 1, then holders of shares of such series shall be entitled to receive the Alternate Rate per share of such series in lieu of the preferential dividend set forth in clause (a) of this Section 1. Such dividends shall not be cumulative until the calendar quarter beginning January 1, 2002. Such dividends shall accrue on each share from January 1, 2002, if declared by the Board of Directors. Such dividends shall be cumulative so that, if such dividends in respect of any previous or current annual dividend period, at the annual rate specified above, shall have been declared but not paid, the deficiency shall first be fully paid before any dividend or other distribution shall be paid on or declared and set apart for the Common Stock. Any accumulation of dividends on the Series A, Series B, Series C, Series D and Series E Preferred Stock shall not bear interest. Cumulative dividends with respect to a share of Series A, Series B, Series C, Series D or Series E Preferred Stock that are accrued, payable and/or in arrears shall, upon conversion of such share to Common Stock, subject to the rights of other series of Preferred Stock that may from time to time come into existence, be paid to the extent assets are legally available therefor either in cash or in Common Stock (valued at the fair market value on the date of payment as determined by the Board of Directors of this Corporation). Any amounts for which assets are not legally available shall be paid promptly as assets become legally available therefor. Any partial payment will be made pro rata among the holders of such shares. 2. Liquidation Preference (a) In the event of any liquidation, dissolution or winding up of this Corporation, either voluntary or involuntary, subject to the rights of other series of Preferred Stock that may from time to time come into existence, the holders of Series E Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this Corporation to the holders of Series A, Series B, Series C and Series D Preferred Stock and Common Stock by reason of their ownership thereof, an amount per share equal to the sum of (i) $5.00 for each outstanding share of Series E Preferred Stock (the "Original Series E Issue Price") (such amount being subject to adjustment for Adjustment Events), and (ii) an amount equal to declared but unpaid dividends and accrued cumulative dividends on the Series E Preferred Stock (collectively, the "Initial Payment"). After the Initial Payment has been made, the holders of Series A, Series B, Series C and Series D Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this Corporation to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the sum of (i) $1.00 for each outstanding share of Series A Preferred Stock (the "Original Series A Issue Price"), $3.375 for each outstanding share of Series B Preferred Stock (the "Original Series B Issue Price"), $6.16 for each outstanding share of Series C Preferred Stock (the "Original Series C Issue Price") and $8.00 for each outstanding share of Series D Preferred Stock (the "Original Series D Issue Price") (each such amount being subject to adjustment for Adjustment Events), and (ii) an amount equal to declared but unpaid dividends and accrued cumulative dividends on each such share of Series A, Series B, Series C and Series D Preferred Stock. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A, Series B, Series C, Series D and Series E Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of other series of Preferred Stock that may from time to time come into existence, the entire assets and funds of this Corporation legally available for distribution shall be distributed first to the holders of the Series E Preferred Stock an amount equal to the Initial Payment per share and then ratably among the holders of the Series A, Series B, Series C and Series D Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. (b) For purposes of subsections (b), (c), (d), (e), (f) and (g) of this Section 2, the following definitions shall apply: "Series A Investment Amount" shall mean the Original Series A Issue Price multiplied by the number of shares of Series A Preferred Stock outstanding. "Series B Investment Amount" shall mean the Original Series B Issue Price multiplied by the number of shares of Series B Preferred Stock outstanding. "Series C Investment Amount" shall mean the Original Series C Issue Price multiplied by the number of shares of Series C Preferred Stock outstanding. "Series D Investment Amount" shall mean the Original Series D Issue Price multiplied by the number of shares of Series D Preferred Stock outstanding. "Series E Investment Amount" shall mean the Original Series E Issue Price multiplied by the number of shares of Series E Preferred Stock outstanding. "Total Preferred Stock Investment Amount" shall mean the sum of the Series A Investment Amount, Series B Investment Amount, Series C Investment Amount, Series D Investment Amount and Series E Investment Amount. "Series A Percentage" shall mean the Series A Investment Amount divided by the Total Preferred Stock Investment Amount. "Series B Percentage" shall mean the Series B Investment Amount divided by the Total Preferred Stock Investment Amount. "Series C Percentage" shall mean the Series C Investment Amount divided by the Total Preferred Stock Investment Amount. "Series D Percentage" shall mean the Series D Investment Amount divided by the Total Preferred Stock Investment Amount. "Series E Percentage" shall mean the Series E Investment Amount divided by the Total Preferred Stock Investment Amount. (c) Upon the completion of the distributions required by subsection (a) of this Section 2 and any other distribution that may be required with respect to other series of Preferred Stock that may from time to time come into existence, the remaining assets of this Corporation available for distribution to stockholders shall be distributed as follows: (i) an aggregate amount (the "First Distribution Amount") equal to the product of $1.50 multiplied by the number of shares of Series A, Series B, Series C, Series D and Series E Preferred Stock then outstanding (as adjusted for Adjustment Events) shall be distributed, on a pari passu basis, in an amount equal to the Series A Percentage multiplied by the First Distribution Amount, ratably among the holders of Series A Preferred Stock, the Series B Percentage multiplied by the First Distribution Amount, ratably among the holders of Series B Preferred Stock, the Series C Percentage multiplied by the First Distribution Amount, ratably among the holders of Series C Preferred Stock, the Series D Percentage multiplied by the First Distribution Amount, ratably among the holders of Series D Preferred Stock, and the Series E Percentage multiplied by the First Distribution Amount, ratably among the holders of Series E Preferred Stock, and (ii) an amount per share equal to $1.50 for each outstanding share of Common Stock (as adjusted for Adjustment Events) shall be distributed ratably among the holders of Common Stock. If the assets and funds thus distributed among the holders of the Series A, Series B, Series C, Series D and Series E Preferred Stock and the holders of the Common Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of other series of Preferred Stock that may from time to time come into existence, the entire assets and funds of this Corporation legally available for distribution pursuant to this subsection (c) shall be distributed ratably among the holders of the Series A, Series B, Series C, Series D and Series E Preferred Stock and the holders of the Common Stock in proportion to the preferential amount each such holder is otherwise entitled to receive under this subsection (c). (d) Upon the completion of the distributions required by subsections (a) and (c) of this Section 2 and any other distribution that may be required with respect to other series of Preferred Stock that may from time to time come into existence, the remaining assets of this Corporation available for distribution to stockholders shall be distributed as follows: (i) an aggregate amount (the "Second Distribution Amount") equal to the product of $3.5625 multiplied by the number of shares of Series B, Series C, Series D and Series E Preferred Stock then outstanding (as adjusted for Adjustment Events) shall be distributed, on a pari passu basis, in an amount equal to the Series A Percentage multiplied by the Second Distribution Amount, ratably among the holders of Series A Preferred Stock, the Series B Percentage multiplied by the Second Distribution Amount, ratably among the holders of Series B Preferred Stock, the Series C Percentage multiplied by the Second Distribution Amount, ratably among the holders of Series C Preferred Stock, the Series D Percentage multiplied by the Second Distribution Amount, ratably among the holders of Series D Preferred Stock, and the Series E Percentage multiplied by the Second Distribution Amount, ratably among the holders of Series E Preferred Stock, and (ii) an amount per share equal to $3.5625 for each outstanding share of Common Stock (as adjusted for Adjustment Events), in addition to the amounts paid pursuant to subsection (c) of this Section 2, shall be distributed ratably among the holders of Common Stock. If the assets and funds thus distributed among the holders of the Series A, Series B, Series C, Series D and Series E Preferred Stock and the holders of the Common Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of other series of Preferred Stock that may from time to time come into existence, the entire assets and funds of this Corporation legally available for distribution pursuant to this subsection (d) shall be distributed ratably among the holders of the Series A, Series B, Series C, Series D and Series E Preferred Stock and the holders of the Common Stock in proportion to the preferential amount each such holder is otherwise entitled to receive under this subsection (d). (e) Upon the completion of the distributions required by subsections (a), (c) and (d) of this Section 2 and any other distribution that may be required with respect to other series of Preferred Stock that may from time to time come into existence, the remaining assets of this Corporation available for distribution to stockholders shall be distributed as follows: (i) an aggregate amount (the "Third Distribution Amount") equal to the product of $2.4375 multiplied by the number of shares of Series C, Series D and Series E Preferred Stock then outstanding (as adjusted for Adjustment Events) shall be distributed, on a pari passu basis, in an amount equal to the Series A Percentage multiplied by the Third Distribution Amount, ratably among the holders of Series A Preferred Stock, the Series B Percentage multiplied by the Third Distribution Amount, ratably among the holders of Series B Preferred Stock, the Series C Percentage multiplied by the Third Distribution Amount, ratably among the holders of Series C Preferred Stock, the Series D Percentage multiplied by the Third Distribution Amount, ratably among the holders of Series D Preferred Stock, and the Series E Percentage multiplied by the Third Distribution Amount, ratably among the holders of Series E Preferred Stock, and (ii) an amount per share equal to $2.4375 for each outstanding share of Common Stock (as adjusted for Adjustment Events), in addition to the amounts paid pursuant to subsections (c) and (d) of this Section 2, shall be distributed ratably among the holders of Common Stock. If the assets and funds thus distributed among the holders of the Series A, Series B, Series C, Series D and Series E Preferred Stock and the holders of the Common Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of other series of Preferred Stock that may from time to time come into existence, the entire assets and funds of this Corporation legally available for distribution pursuant to this subsection (e) shall be distributed ratably among the holders of the Series A, Series B, Series C, Series D and Series E Preferred Stock and the holders of the Common Stock in proportion to the preferential amount each such holder is otherwise entitled to receive under this subsection (e). (f) Upon the completion of the distributions required by subsections (a), (c), (d) and (e) of this Section 2 and any other distribution that may be required with respect to other series of Preferred Stock that may from time to time come into existence, the remaining assets of this Corporation available for distribution to stockholders shall be distributed as follows: (i) an aggregate amount (the "Fourth Distribution Amount") equal to the product of $1.74 multiplied by the number of shares of Series C and Series D Preferred Stock then outstanding (as adjusted for Adjustment Events) shall be distributed, on a pari passu basis, in an amount equal to the Series A Percentage multiplied by the Fourth Distribution Amount, ratably among the holders of Series A Preferred Stock, the Series B Percentage multiplied by the Fourth Distribution Amount, ratably among the holders of Series B Preferred Stock, the Series C Percentage multiplied by the Fourth Distribution Amount, ratably among the holders of Series C Preferred Stock, the Series D Percentage multiplied by the Fourth Distribution Amount, ratably among the holders of Series D Preferred Stock, and the Series E Percentage multiplied by the Fourth Distribution Amount, ratably among the holders of Series E Preferred Stock, and (ii) an amount per share equal to $1.74 for each outstanding share of Common Stock (as adjusted for Adjustment Events), in addition to the amounts paid pursuant to subsections (c), (d) and (e) of this Section 2, shall be distributed ratably among the holders of Common Stock. If the assets and funds thus distributed among the holders of the Series A, Series B, Series C, Series D and Series E Preferred Stock and the holders of the Common Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of other series of Preferred Stock that may from time to time come into existence, the entire assets and funds of this Corporation legally available for distribution pursuant to this subsection (f) shall be distributed ratably among the holders of the Series A, Series B, Series C, Series D and Series E Preferred Stock and the holders of the Common Stock in proportion to the preferential amount each such holder is otherwise entitled to receive under this subsection (f). (g) Upon the completion of the distributions required by subsections (a), (c), (d), (e) and (f) of this Section 2 and any other distribution that may be required with respect to other series of Preferred Stock that may from time to time come into existence, the remaining assets of this Corporation available for distribution to stockholders shall be distributed as follows: (i) an aggregate amount (the "Fifth Distribution Amount") equal to the product of $2.76 multiplied by the number of shares of Series D Preferred Stock then outstanding (as adjusted for Adjustment Events) shall be distributed, on a pari passu basis, in an amount equal to the Series A Percentage multiplied by the Sixth Distribution Amount, ratably among the holders of Series A Preferred Stock, the Series B Percentage multiplied by the Fifth Distribution Amount, ratably among the holders of Series B Preferred Stock, the Series C Percentage multiplied by the Fifth Distribution Amount, ratably among the holders of Series C Preferred Stock, the Series D Percentage multiplied by the Fifth Distribution Amount, ratably among the holders of Series D Preferred Stock, and the Series E Percentage multiplied by the Fifth Distribution Amount, ratably among the holders of Series E Preferred Stock, and (ii) an amount per share equal to $2.76 for each outstanding share of Common Stock (as adjusted for Adjustment Events), in addition to the amounts paid pursuant to subsections (c), (d), (e) and (f) of this Section 2, shall be distributed ratably among the holders of Common Stock. If the assets and funds thus distributed among the holders of the Series A, Series B, Series C, Series D and Series E Preferred Stock and the holders of the Common Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of other series of Preferred Stock that may from time to time come into existence, the entire assets and funds of this Corporation legally available for distribution pursuant to this subsection (g) shall be distributed ratably among the holders of the Series A, Series B, Series C, Series D and Series E Preferred Stock and the holders of the Common Stock in proportion to the preferential amount each such holder is otherwise entitled to receive under this subsection (g). (h) Upon the completion of the distributions required by subsections (a), (c), (d), (e), (f) and (g) of this Section 2 and any other distribution that may be required with respect to other series of Preferred Stock that may from time to time come into existence, if assets remain in this Corporation, the holders of Series A, Series B, Series C, Series D and Series E Preferred Stock shall receive no further distributions and the holders of the Common Stock of this Corporation shall receive all of the remaining assets of this Corporation pro rata based on the number of shares of Common Stock held by each. (i) (i) For purposes of this Section 2, a liquidation, dissolution or winding up of this Corporation shall be deemed to be occasioned by, or to include, (A) the acquisition of this Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) that results in the transfer of fifty percent (50%) or more of the outstanding voting power of this Corporation; or (B) a sale of all or substantially all of the assets of this Corporation. (ii) In any of such events, if the consideration received by this Corporation is other than cash, the value of such consideration will be deemed its fair market value. Any securities shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability covered by (B) below: (1) If traded on a securities exchange or through the NASDAQ National Market, the value shall be deemed to be the average of the closing prices of the securities on such quotation system over the thirty (30) day period ending three (3) days prior to the closing; (2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days prior to the closing; and (3) If there is no active public market, the value shall be the fair market value thereof, as mutually determined by this Corporation and the holders of at least a majority of the voting power of all then outstanding shares of Series A, Series B, Series C, Series D and Series E Preferred Stock. (B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (A)(1), (2) or (3) to reflect the approximate fair market value thereof as mutually determined by this Corporation and the holders of at least a majority of the voting power of all then outstanding shares of Series A, Series B, Series C, Series D and Series E Preferred Stock. (iii) In the event the requirements of this subsection 2(i) are not complied with, this Corporation shall forthwith either: (A) cause such closing to be postponed until such time as the requirements of this Section 2(i) have been complied with; or (B) cancel such transaction, in which event the rights, preferences and privileges of the holders of the Series A, Series B, Series C, Series D and Series E Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in subsection 2(i)(iv) hereof. (iv) This Corporation shall give each holder of record of Series A, Series B, Series C, Series D and Series E Preferred Stock written notice of such impending transaction not later than twenty (20) days prior to the stockholders' meeting called to approve such transaction, if any, or twenty (20) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section 2, and this Corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after this Corporation has given the first notice provided for herein or sooner than ten (10) days after this Corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of all then outstanding shares of Series A, Series B, Series C, Series D and Series E Preferred Stock. 3. Redemption (a) Subject to the rights of other series of Preferred Stock that may from time to time come into existence, upon receipt by this Corporation, within the six (6) month period commencing December 31, 2002, of a written request (the "Redemption Request") from the holders of not less than fifty percent (50%) of the then outstanding shares of Series A, Series B, Series C, Series D and Series E Preferred Stock (voting together as a single class and not as a separate series, and on an as converted basis) that all or, if less than all, a specified percentage of such holders' shares of such series (which percentage shall be the same for the Series A, Series B, Series C, Series D and Series E Preferred Stock) be redeemed, and concurrently with surrender by such holders of the certificates representing such shares, this Corporation shall, to the extent it may lawfully do so, redeem (i) in four (4) equal annual installments commencing no later than the first anniversary of the receipt of the Redemption Request (each such payment date being referred to herein as a "Redemption Date"), or (ii) at the Corporation's election, in fewer annual installments, including without limitation, a single lump sum payment, the shares specified in such request by paying in cash therefor a sum per share equal to $1.00 per share of Series A Preferred Stock (as adjusted for Adjustment Events) to be redeemed plus all declared but unpaid dividends and accrued cumulative dividends on such share (the "Series A Redemption Price"), a sum per share equal to $3.375 per share of Series B Preferred Stock (as adjusted for Adjustment Events) to be redeemed plus all declared but unpaid dividends and accrued cumulative dividends on such share (the "Series B Redemption Price"), a sum per share equal to $6.16 per share of Series C Preferred Stock (as adjusted for Adjustment Events) to be redeemed plus all declared but unpaid dividends and accrued cumulative dividends on such share (the "Series C Redemption Price"), a sum per share equal to $8.00 per share of Series D Preferred Stock (as adjusted for Adjustment Events) to be redeemed plus all declared but unpaid dividends and accrued cumulative dividends on such share (the "Series D Redemption Price") and a sum per share equal to $5.00 per share of Series E Preferred Stock (as adjusted for Adjustment Events) to be redeemed plus all declared but unpaid dividends and accrued cumulative dividends on such share (the "Series E Redemption Price"). The holders of the Series A, Series B, Series C, Series D and Series E Preferred Stock may exercise their redemption rights pursuant to this subsection 3(a) only during the six (6) month period commencing December 31, 2002, and any redemption payments shall be made on a pro rata basis among the holders of all shares of Series A, Series B, Series C, Series D and Series E Preferred Stock to be redeemed in proportion to the aggregate redemption payments due to each such holder. (b) Subject to the rights of other series of Preferred Stock that may from time to time come into existence, at least fifteen (15) but no more than thirty (30) days prior to each Redemption Date, written notice shall be mailed, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of the Series A, Series B, Series C, Series D and Series E Preferred Stock to be redeemed on the Redemption Date, at the address last shown on the records of this Corporation for such holder, notifying such holder of the redemption to be effected, specifying the number of shares to be redeemed from such holder, the Redemption Date or Dates, the Redemption Price (as applicable), the place at which payment may be obtained and calling upon such holder to surrender to this Corporation, in the manner and at the place designated, his, her or its certificate or certificates representing the shares to be redeemed (the "Redemption Notice") on such Redemption Date or Dates. Except as provided in subsection 3(c), on or after each Redemption Date, each holder of Series A, Series B, Series C, Series D and Series E Preferred Stock to be redeemed shall surrender to this Corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the applicable Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. In the event less than all the shares represented by any such certificate are redeemed on a Redemption Date, a new certificate shall be issued representing the unredeemed shares. Any certificate issued after the date of the Redemption Request shall bear a legend indicating that such shares are subject to redemption by the Company pursuant to the Redemption Request. Shares subject to redemption by the Company pursuant to the Redemption Request shall be transferable (subject to redemption by the Company) but shall not be convertible into Common Stock except as provided in subsection 4(a) of Division B of this Article IV. (c) From and after each Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of shares of Series A, Series B, Series C, Series D or Series E Preferred Stock designated for redemption on such Redemption Date, as holders of Series A, Series B, Series C, Series D or Series E Preferred Stock (except the right to receive the applicable Redemption Price without interest upon surrender of their certificate or certificates), shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of this Corporation or be deemed to be outstanding for any purpose whatsoever. Subject to the rights of other series of Preferred Stock that may from time to time come into existence, if the funds of this Corporation legally available for redemption of shares of Series A, Series B, Series C, Series D and Series E Preferred Stock on any Redemption Date are insufficient to redeem the total number of shares of Series A, Series B, Series C, Series D and Series E Preferred Stock to be redeemed on such date, those funds that are legally available will be used to redeem the maximum possible number of such shares ratably among the holders of such shares to be redeemed such that each holder of a share of Series A, Series B, Series C, Series D and Series E Preferred Stock receives the same percentage of the applicable Series A Redemption Price, Series B Redemption Price, Series C Redemption Price, Series D Redemption Price or Series E Redemption Price. The shares of Series A, Series B, Series C, Series D and Series E Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. Subject to the rights of other series of Preferred Stock that may from time to time come into existence, at any time thereafter when additional funds of this Corporation are legally available for the redemption of such shares of Series A, Series B, Series C, Series D and Series E Preferred Stock, such funds will immediately be used to redeem the balance of the shares that this Corporation has become obligated but has failed to redeem on any Redemption Date. (d) On or prior to each Redemption Date, this Corporation shall deposit the Redemption Price of all shares of Series A, Series B, Series C, Series D and Series E Preferred Stock designated for redemption in the Redemption Notice and not yet redeemed or converted with a bank or trust corporation having aggregate capital and surplus in excess of $100,000,000 as a trust fund for the benefit of the respective holders of the shares designated for redemption and not yet redeemed, with irrevocable instructions and authority to the bank or trust corporation to publish the notice of redemption thereof and pay the Redemption Price for such shares to their respective holders on or after the Redemption Date, upon receipt of notification from this Corporation that such holder has surrendered his, her or its share certificate to this Corporation pursuant to subsection 3(b) above. As of the date of such deposit (even if prior to the Redemption Date), the deposit shall constitute full payment of the shares to their holders, and from and after the date of the deposit the shares so called for redemption shall be redeemed and shall be deemed to be no longer outstanding, and the holders thereof shall cease to be stockholders with respect to such shares and shall have no rights with respect thereto except the rights to receive from the bank or trust corporation payment of the Redemption Price of the shares, without interest, upon surrender of their certificates therefor, and the right to convert such shares as provided in Article IV(B)(4) hereof. Such instructions shall also provide that any moneys deposited by this Corporation pursuant to this subsection 3(d) for the redemption of shares thereafter converted into shares of this Corporation's Common Stock pursuant to Article IV(B)(4) hereof prior to the Redemption Date shall be returned to this Corporation forthwith upon such conversion. The balance of any money deposited by this Corporation pursuant to this subsection 3(d) remaining unclaimed at the expiration of two (2) years following each Redemption Date shall thereafter be returned to this Corporation upon its request expressed in a resolution of its Board of Directors. 4. Conversion. The shares of Series A, Series B, Series C, Series D and Series E Preferred Stock shall be subject to conversion as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Series A, Series B, Series C, Series D and Series E Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share and on or prior to the fifth day prior to the first Redemption Date, if any, as may have been fixed in any Redemption Notice with respect to such share, at the office of this Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Original Series A Issue Price, Original Series B Issue Price, Original Series C Issue Price, Original Series D Issue Price or Original Series E Issue Price, as the case may be, by the respective Conversion Price applicable to such share, determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. The initial Conversion Price per share for shares of Series A Preferred Stock shall be the Original Series A Issue Price, the initial Conversion Price per share for shares of Series B Preferred Stock shall be the Original Series B Issue Price, the initial Conversion Price per share for shares of Series C Preferred Stock shall be the Original Series C Issue Price, the initial Conversion Price per share for shares of Series D Preferred Stock shall be the Original Series D Issue Price and the initial Conversion Price per share for shares of Series E Preferred Stock shall be the Original Series E Issue Price; provided, however, that the Conversion Price for the Series A, Series B, Series C, Series D and Series E Preferred Stock shall be subject to adjustment as set forth in subsection 4(d). (b) Automatic Conversion. Each share of the Series A, Series B, Series C, Series D and Series E Preferred Stock shall automatically be converted into shares of Common Stock at the respective Conversion Price at the time in effect for such Series A, Series B, Series C, Series D or Series E Preferred Stock immediately upon the earlier of (i) the closing of a sale of the Corporation's Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, the public offering price of which was not less than $10.00 per share (adjusted to reflect Adjustment Events) and $40,000,000 in the aggregate (the "Initial Public Offering"), or (ii) the date specified by written consent or agreement of the holders of two-thirds (2/3) of the aggregate number of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock then outstanding (voting together as a single class and not as a separate series, and on an as converted basis). (c) Mechanics of Conversion. Before any holder of Series A, Series B, Series C, Series D or Series E Preferred Stock shall be entitled to convert the same into shares of Common Stock, he or she shall surrender the certificate or certificates therefor, duly endorsed, at the office of this Corporation or of any transfer agent for the Series A, Series B, Series C, Series D or Series E Preferred Stock, and shall give written notice to this Corporation at its principal corporate office of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. This Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A, Series B, Series C, Series D or Series E Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A, Series B, Series C, Series D or Series E Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is in connection with an underwritten offering of securities registered pursuant to the Securities Act of 1933, as amended, the conversion may, at the option of any holder tendering Series A, Series B, Series C, Series D or Series E Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock upon conversion of the Series A, Series B, Series C, Series D or Series E Preferred Stock shall not be deemed to have converted such Series A, Series B, Series C, Series D or Series E Preferred Stock until immediately prior to the closing of such sale of securities. (d) Conversion Price Adjustments of Preferred Stock for Certain Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series A, Series B, Series C, Series D and Series E Preferred Stock shall be subject to adjustment from time to time as follows: (i) (A) If this Corporation shall issue, after the date upon which any shares of Series A, Series B, Series C, Series D or Series E Preferred Stock were first issued (the "Purchase Date" with respect to such series), any Additional Stock (as defined below) without consideration or for a consideration per share less than the respective Conversion Price for the Series A, Series B, Series C, Series D or Series E Preferred Stock in effect immediately prior to the issuance of such Additional Stock, the Conversion Price for such series in effect immediately prior to the issuance shall forthwith (except as otherwise provided in this clause (i)) be adjusted to a price determined by multiplying the Conversion Price of such series in effect immediately prior to such issuance by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (including shares of Common Stock deemed to be issued pursuant to subsection 4(d)(i)(E)) plus the number of shares of Common Stock that the aggregate consideration received by this Corporation for such issuance would purchase at such Conversion Price; and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (including shares of Common Stock deemed to be issued pursuant to subsection 4(d)(i)(E)) plus the number of shares of such Additional Stock. Notwithstanding the foregoing, no such Conversion Price adjustment shall occur pursuant to this subsection 4(d)(i) if prior to the issuance of the Additional Stock this Corporation shall have obtained a written waiver of the adjustment provided for in this subsection, which waiver shall have been approved by the holders of not less than sixty-five percent (65%) of each series of Preferred Stock that would otherwise be entitled to adjustment of its Conversion Price hereunder. (B) No adjustment of the Conversion Price for the Series A, Series B, Series C, Series D or Series E Preferred Stock shall be made in an amount less than one cent per share, provided that any adjustments that are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to three (3) years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of the three (3) years from the date of the event giving rise to the adjustment being carried forward. Except to the limited extent provided for in subsections 4(d)(i)(E)(3), (E)(4) and (E)(5), no adjustment of such Conversion Price pursuant to this subsection 4(d)(i) shall have the effect of increasing the Conversion Price above the Conversion Price in effect immediately prior to such adjustment. (C) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by this Corporation for any underwriting or otherwise in connection with the issuance and sale thereof. (D) In the case of the issuance of the Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined by the Board of Directors irrespective of any accounting treatment. (E) In the case of the issuance (whether before, on or after the Purchase Date) of options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock or options to purchase or rights to subscribe for such convertible or exchangeable securities, the following provisions shall apply for all purposes of this subsection 4(d)(i) and subsection 4(d)(ii): (1) The aggregate maximum number of shares of Common Stock deliverable upon exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential antidilution adjustments) of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in subsections 4(d)(i)(C) and 4(d)(i)(D)), if any, received by this Corporation upon the issuance of such options or rights plus the minimum exercise price provided in such options or rights (without taking into account potential antidilution adjustments) for the Common Stock covered thereby. (2) The aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange (assuming the satisfaction of any conditions to convertibility or exchangeability, including, without limitation, the passage of time, but without taking into account potential antidilution adjustments) for any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by this Corporation for any such securities and related options or rights, plus the minimum additional consideration, if any, to be received by this Corporation (without taking into account potential antidilution adjustments) upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in subsections 4(d)(i)(C) and 4(d)(i)(D)). (3) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to this Corporation upon exercise of such options or rights or upon conversion of or in exchange for such convertible or exchangeable securities (excluding a change pursuant to subsection 4(d)(i) in the number of shares of Common Stock issuable upon conversion of shares of Preferred Stock) (unless such options or rights or convertible or exchangeable securities were merely deemed to be included in the numerator and denominator for purposes of determining the number of shares of Common Stock outstanding for purposes of subsection 4(d)(i)(A)), the Conversion Price of the Series A, Series B, Series C, Series D or Series E Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities. (4) Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange, or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price of the Series A, Series B, Series C, Series D or Series E Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities or options or rights related to such securities (unless such options or rights were merely deemed to be included in the numerator and denominator for purposes of determining the number of shares of Common Stock outstanding for purposes of subsection 4(d)(i)(A)) shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities that remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities, or upon the exercise of the options or rights related to such securities. (5) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to subsections 4(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either subsection 4(d)(i)(E)(3) or (4). (ii) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E)) by this Corporation after the Purchase Date other than: (A) shares of Common Stock issued pursuant to a transaction described in subsection 4(d)(iii) hereof; (B) shares of Common Stock issuable or issued to employees, consultants or directors of this Corporation, or affiliates of any such persons, pursuant to a stock option plan, restricted stock plan or grant approved by the Board of Directors of this Corporation; (C) shares of Common Stock issuable or issued to vendors, suppliers, equipment lessors or lenders to this Corporation, or affiliates of any such persons, where such issuance is not principally for the purpose of raising additional equity capital for this Corporation; (D) shares of Common Stock issuable or issued upon conversion or exercise of convertible or exercisable securities of this Corporation outstanding as of the date of this Sixth Amended and Restated Certificate of Incorporation; (E) shares of Common Stock issued pursuant to the acquisition of another corporation or entity, or any product line, intellectual property or technology, by this Corporation or any subsidiary of this Corporation by means of merger, consolidation, purchase of assets or other transaction of series of related transactions approved by the Board of Directors of this Corporation and, in the case of an acquisition of another corporation or entity, whereby this Corporation or its shareholders own a majority of the voting power of such other corporation or entity following such acquisition; and (F) shares of Common Stock issued to corporate partners or in connection with other strategic alliances approved by the Board of Directors of this Corporation. (iii) In the event this Corporation should at any time or from time to time after the Purchase Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the respective Conversion Prices of the Series A, Series B, Series C, Series D and Series E Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of each such series shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents with the number of shares issuable with respect to Common Stock Equivalents determined from time to time in the manner provided for deemed issuances in subsection 4(d)(i)(E). (iv) If the number of shares of Common Stock outstanding at any time after the Purchase Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the respective Conversion Prices for the Series A, Series B, Series C, Series D and Series E Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of each such series shall be decreased in proportion to such decrease in outstanding shares. (e) Performance-Based Conversion Price Adjustments. Unless waived in writing by holders of seventy-five percent (75%) of the then-outstanding Series E Preferred Stock, if the Corporation does not recognize (in accordance with the Corporation's existing revenue recognition policy, which is in accordance with GAAP) net revenue of at least $8 million for the second quarter of the calendar year 1999 or net revenue of at least $14 million for third quarter of the calendar year 1999, as the case may be, the Series E Conversion Price will be automatically adjusted down ten days following the end of such quarter, if necessary, so that the Series E Conversion Price shall be $3.50 per share. (f) Other Distributions. In the event this Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by this Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in subsection 4(d)(iii), then, in each such case for the purpose of this subsection 4(f), the holders of the Series A, Series B, Series C, Series D and Series E Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of this Corporation into which their shares of Series A, Series B, Series C, Series D and Series E Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of this Corporation entitled to receive such distribution. (g) Recapitalization. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 4 or in Section 2) provision shall be made so that the holders of the Series A, Series B, Series C, Series D and Series E Preferred Stock shall thereafter be entitled to receive upon conversion of the Series A, Series B, Series C, Series D and Series E Preferred Stock the number of shares of stock or other securities or property of this Corporation or otherwise to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of the Series A, Series B, Series C, Series D and Series E Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Series A, Series B, Series C, Series D and Series E Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. (h) No Impairment. This Corporation will not, by amendment of its Sixth Amended and Restated Certificate of Incorporation or through any reorganization, recapitalization, 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 hereunder by this Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A, Series B, Series C and Series D Preferred Stock against impairment. (i) No Fractional Shares and Certificate as to Adjustments (i) No fractional shares shall be issued upon the conversion of any share or shares of the Series A, Series B, Series C, Series D or Series E Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Series A, Series B, Series C, Series D or Series E Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price of Series A, Series B, Series C, Series D or Series E Preferred Stock pursuant to this Section 4, this Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A, Series B, Series C, Series D and Series E Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. This Corporation shall, upon the written request at any time of any holder of Series A, Series B, Series C, Series D or Series E Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for such series of Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of such series of Preferred Stock. (j) Notices of Record Date. In the event of any taking by this Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, this Corporation shall mail to each holder of Series A, Series B, Series C, Series D or Series E Preferred Stock, at least 20 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (k) Reservation of Stock Issuable Upon Conversion. This Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A, Series B, Series C, Series D and Series E Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series A, Series B, Series C, Series D and Series E Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A, Series B, Series C, Series D and Series E Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, this Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Sixth Amended and Restated Certificate of Incorporation. (l) Notices. Any notice required by the provisions of this Section 4 to be given to the holders of shares of Series A, Series B, Series C, Series D and Series E Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of this Corporation. 5. Voting Rights (a) General Voting Rights. The holder of each share of Series A, Series B, Series C, Series D and Series E Preferred Stock shall have the right to one vote for each share of Common Stock into which such Series A, Series B, Series C, Series D and Series E Preferred Stock could then be converted, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders' meeting in accordance with the bylaws of this Corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as converted basis (after aggregating all shares into which shares of Series A, Series B, Series C, Series D and Series E Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). (b) Voting for the Election of Directors. As long as an aggregate of at least seventy-five percent (75%) of the shares of Series A, Series B, Series C, Series D and Series E Preferred Stock (which number of shares reflecting this percentage shall be equitably adjusted to reflect Adjustment Events) remain outstanding, the holders of shares of Series A, Series B, Series C, Series D and Series E Preferred Stock (voting together as a single class and not as a separate series, and on an as converted basis), shall be entitled to elect three (3) directors of this Corporation at each annual election of directors. If the aggregate number of shares of Series A, Series B, Series C, Series D and Series E Preferred Stock that remain outstanding shall be between fifty percent (50%) and seventy-five percent (75%), inclusive, of all of the outstanding Series A, Series B, Series C, Series D and Series E Preferred Stock (which number of shares reflecting this percentage shall be equitably adjusted to reflect Adjustment Events), the holders of shares of Series A, Series B, Series C, Series D and Series E Preferred Stock (voting together as a single class and not as a separate series, and on an as converted basis), shall be entitled to elect two (2) directors of this Corporation at each annual election of directors. If the aggregate number of shares of Series A, Series B, Series C, Series D and Series E Preferred Stock that remain outstanding shall be between fifty percent (50%) and twenty-five percent (25%), inclusive, of all of the outstanding Series A, Series B, Series C, Series D and Series E Preferred Stock (which number of shares reflecting this percentage shall be equitably adjusted to reflect Adjustment Events), the holders of shares of Series A, Series B, Series C, Series D and Series E Preferred Stock(voting together as a single class and not as a separate series, and on an as converted basis), shall be entitled to elect one (1) director of this Corporation at each annual election of directors. The holders of outstanding Common Stock shall be entitled to elect two (2) directors of this Corporation at each annual election of directors. The holders of Series A, Series B, Series C, Series D and Series E Preferred Stock and Common Stock (voting together as a single class and not as separate classes, and on an as-converted basis) shall be entitled to elect any remaining directors of this Corporation. In the case of any vacancy (other than a vacancy caused by removal) in the office of a director occurring among the directors elected by the holders of a class or series of stock pursuant to this Section 5(b), the remaining directors so elected by that class or series may by affirmative vote of a majority thereof (or the remaining director so elected if there be but one, or if there are no such directors remaining, by the affirmative vote of the holders of a majority of the shares of that class or series), elect a successor or successors to hold office for the unexpired term of the director or directors whose place or places shall be vacant. Any director who shall have been elected by the holders of a class or series of stock or by any directors so elected as provided in the immediately preceding sentence hereof may be removed during the aforesaid term of office, either with or without cause, by, and only by, the affirmative vote of the holders of the shares of the class or series of stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders, and any vacancy thereby created may be filled by the holders of that class or series of stock represented at the meeting or pursuant to unanimous written consent. 6. Protective Provisions. Subject to the rights of other series of Preferred Stock that may from time to time come into existence, this Corporation shall not take any of the following actions without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the shares of Series A, Series B, Series C, Series D and Series E Preferred Stock then outstanding, voting together as a single class and not as separate series on an as converted basis, provided, however, that in the event that the aggregate number of shares of Series A, Series B, Series C, Series D and Series E Preferred Stock then outstanding represent less than twenty percent (20%) of the sum of the aggregate number of all shares of Preferred Stock then outstanding on an as-converted basis (i.e., after aggregating all shares into which shares of Preferred Stock could be converted) plus Common Stock then outstanding, then the protective provisions of this Section 6 shall cease to be of any force or effect and shall not bind this Corporation: (a) sell, convey, or otherwise dispose of all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly-owned subsidiary corporation) or effect any transaction or series of related transactions in which more than fifty percent (50%) of the voting power of this Corporation is disposed of; (b) dissolve, wind-up or liquidate this Corporation; (c) alter, change or reclassify the rights, preferences or privileges of the shares of Series A, Series B, Series C, Series D or Series E Preferred Stock so as to affect adversely the shares; (d) increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series A, Series B, Series C, Series D or Series E Preferred Stock provided, however, that the Board of Directors may amend the terms of any series to decrease the number of shares of that series (but not below the number of shares of such series then outstanding), and the number of shares constituting the decrease shall thereafter constitute authorized but undesignated shares; (e) authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security having a preference over or being on a parity with the Series A, Series B, Series C, Series D or Series E Preferred Stock with respect to voting, dividends or upon liquidation; (f) enter into any transaction or series of related transactions in which this Corporation borrows more than $5,000,000; (g) amend this Corporation's Sixth Amended and Restated Certificate of Incorporation or Bylaws (excluding an amendment to this Corporation's Sixth Amended and Restated Certificate of Incorporation, which amendment does no more than authorize for issuance an equity security not covered by subsection 6(e) above); (h) change the authorized number of directors of this Corporation; (i) pay any dividends on its Common Stock; or (j) redeem, purchase or otherwise acquire (or pay into or set funds aside for a sinking fund for such purpose) any share or shares of Preferred Stock or Common Stock; provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock (up to a maximum of $500,000) from employees, officers, directors, consultants or other persons performing services for the Company or any subsidiary. 7. Additional Series C Preferred Stock Protective Provisions. Subject to the rights of other series of Preferred Stock that may from time to time come into existence, this Corporation shall not take any of the following actions without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the voting power of all then outstanding shares of Series C Preferred Stock: (a) alter or change the rights, preferences or privileges of the shares of Series C Preferred Stock so as to affect adversely the shares; or (b) amend the automatic conversion provisions applicable to the Preferred Stock as set forth in subsection (4)(b) of Division B of this Article IV. 8. Additional Series D Preferred Stock Protective Provisions. Subject to the rights of other series of Preferred Stock that may from time to time come into existence, this Corporation shall not take any action, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the voting power of all then outstanding shares of Series D Preferred Stock, that would alter, change or reclassify the rights, preferences or privileges of the shares of Series D Preferred Stock so as to affect adversely the shares in a manner different from the Series A, Series B and Series C Preferred Stock. 9. Additional Series E Preferred Stock Protective Provisions. Subject to the rights of other series of Preferred Stock that may from time to time come into existence, this Corporation shall not take any action, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the voting power of all then outstanding shares of Series E Preferred Stock, that would alter, change or reclassify the rights, preferences or privileges of the shares of Series E Preferred Stock so as to affect adversely the shares in a manner different from the Series A, Series B, Series C and D Preferred Stock. 10. Status of Converted or Redeemed Stock. In the event any shares of Series A, Series B, Series C, Series D or Series E Preferred Stock shall be redeemed or converted pursuant to Section 3 or Section 4 hereof, the shares so converted or redeemed shall be canceled and shall not be issuable by this Corporation. The Sixth Amended and Restated Certificate of Incorporation of this Corporation shall be appropriately amended to effect the corresponding reduction in this Corporation's authorized capital stock. C. Common Stock 1. Dividend Rights. Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of this Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. 2. Liquidation Rights. Upon the liquidation, dissolution or winding up of this Corporation, the assets of this Corporation shall be distributed as provided in Section 2 of Division B of this Article IV. 3. Voting Rights. The holder of each share of Common Stock shall have the right to one vote, and shall be entitled to notice of any stockholders' meeting in accordance with the bylaws of this Corporation, and shall be entitled to vote upon such matters in such manner as may be provided by law. ARTICLE V Except as otherwise provided in this Sixth Amended and Restated Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of this corporation. ARTICLE VI The number of directors of this Corporation shall be fixed from time to time by a bylaw or amendment thereof duly adopted by the Board of Directors or by the stockholders. ARTICLE VII Elections of directors need not be by written ballot unless the Bylaws of this Corporation shall so provide. ARTICLE VIII Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of this Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of this Corporation. ARTICLE IX Each director and each officer of this Corporation shall, to the full extent permitted by the Delaware General Corporation Law as it now exists or as it may hereafter be amended, not be liable to this Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director or officer. Neither any amendment or repeal of this Article IX, nor the adoption of any provision of this Sixth Amended and Restated Certificate of Incorporation inconsistent with this Article IX, shall eliminate or reduce the effect of this Article IX in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article IX, would accrue or arise, prior to such amendment, repeal or adoption of any inconsistent provision. ARTICLE X This Corporation reserves the right to amend, alter, change or repeal any provision contained in this Sixth Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. ARTICLE XI This Corporation shall not take any of the following actions without first obtaining the approval (by vote or written consent, as provided by law) of at least sixty-six and two-thirds percent (66 2/3%) of the directors of this Corporation; (a) sell, convey, or otherwise dispose of all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly-owned subsidiary corporation) or effect any transaction or series of related transactions in which more than fifty percent (50%) of the voting power of this Corporation is disposed of; (b) change the authorized number of directors of this Corporation; or (c) consummate any financing pursuant to which the holders of Series A, Series B, Series C, Series D and Series E Preferred Stock are entitled to exercise the right of first offer set forth in Section 2.4 of the Fifth Amended and Restated Investors' Rights Agreement, dated on or about April __, 1999, by and among this Corporation and certain investors and founders, as amended from time to time, unless the existing stockholders of this Corporation purchase less than sixty-six and two-thirds percent (66 2/3%) of the shares sold in such financing. *** The foregoing Sixth Amended and Restated Certificate of Incorporation has been duly adopted by this Corporation's Board of Directors and stockholders in accordance with the applicable provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware. [signature page follows] IN WITNESS WHEREOF, the undersigned has executed this certificate on March __, 2000. ----------------------------------------- Robert Hunsberger President and Chief Executive Officer EX-3.4 4 SEVENTH AMENDED & RESTATED CERTIFICATE OF INCORP EXHIBIT 3.4 SEVENTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF METAWAVE COMMUNICATIONS CORPORATION The undersigned, Robert H. Hunsberger and Kathy Surace-Smith, hereby certify that: 1. They are the duly elected and acting President and Secretary, respectively, of Metawave Communications Corporation, a Delaware corporation. 2. The Certificate of Incorporation of this corporation was originally filed with the Secretary of State of Delaware on July 7, 1995. 3. The Certificate of Incorporation of this corporation shall be amended and restated to read in full as follows: "ARTICLE I The name of this corporation is Metawave Communications Corporation (the "Corporation"). ARTICLE II The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV (A) Classes of Stock. The Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the Corporation is authorized to issue is One Hundred Sixty Million (160,000,000) shares, each with a par value of $0.0001 per share. One Hundred Fifty Million (150,000,000) shares shall be Common Stock and Ten Million (10,000,000) shares shall be Preferred Stock. (B) The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized, by filing a certificate pursuant to the applicable law of the state of Delaware and within the limitations and restrictions stated in this Certificate of Incorporation, to determine or alter the rights, preferences, privileges and restrictions granted -1- to or imposed upon any wholly unissued series of Preferred Stock and the number of shares constituting any such series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. ARTICLE V The number of directors of the Corporation shall be fixed from time to time by a bylaw or amendment thereof duly adopted by at least 66 2/3% of the Board of Directors. ARTICLE VI All directors shall be elected at each annual meeting of stockholders or any special meeting in lieu thereof to hold office until the next annual meeting or special meeting in lieu thereof. Notwithstanding the foregoing provisions of this Article VI, each director shall serve until his or her successor is duly elected and qualified or until his or her death, resignation, or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. In the event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law, may exercise the powers of the full Board of Directors until the vacancy is filled. Any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal, or other causes shall be filled by either (i) the affirmative vote of the holders of a majority of the voting power of the then- outstanding shares of voting stock of the Corporation entitled to vote generally in the election of directors (the "Voting Stock") voting together as a single class; or (ii) by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Subject to the rights of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such newly created directorship shall be filled by the stockholders, be filled only by the affirmative vote of the directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. Any director, or the entire Board of Directors, may be removed from office, with or without cause, by the holders of a majority of the Voting Stock. ARTICLE VII In the election of directors, each holder of shares of any class or series of capital stock of the Corporation shall be entitled to one vote for each share held. No stockholder will be permitted to cumulate votes at any election of directors. -2- ARTICLE VIII No action shall be taken by the stockholders of the Corporation other than at an annual or special meeting of the stockholders, upon due notice and in accordance with the provisions of the Corporation's bylaws. ARTICLE IX The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. ARTICLE X The Board of Directors of the Corporation is expressly authorized to make, alter or repeal Bylaws of the Corporation. In addition to any requirements of law and any other provisions hereof (and notwithstanding the fact that approval by a lesser vote may be permitted by law or any other provision hereof), the affirmative vote of the holders of at least 66 2/3% of the voting power of the then outstanding shares of stock of all classes and all series of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend, alter, repeal, or adopt any provision inconsistent with, this Article X or Article V hereof. ARTICLE XI Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. ARTICLE XII The Corporation shall have perpetual existence. ARTICLE XIII (A) To the fullest extent permitted by the General Corporation Law of Delaware, as the same may be amended from time to time, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law of Delaware is hereafter amended to authorize, with the approval of a corporation's stockholders, further reductions in the liability of the Corporation's directors for breach of fiduciary duty, then a director of the Corporation shall not be liable for any such breach to the fullest extent permitted by the General Corporation Law of Delaware, as so amended. -3- (B) Any repeal or modification of the foregoing provisions of this Article XIII shall not adversely affect any right or protection of a director of the Corporation with respect to any acts or omissions of such director occurring prior to such repeal or modification. ARTICLE XIV (A) To the fullest extent permitted by applicable law, the Corporation is also authorized to provide indemnification of (and advancement of expenses to) such agents (and any other persons to which Delaware law permits the Corporation to provide indemnification) though bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the Delaware General Corporation Law, subject only to limits created by applicable Delaware law (statutory or non-statutory), with respect to actions for breach of duty to a corporation, its stockholders, and others. (B) Any repeal or modification of any of the foregoing provisions of this Article XIV shall not adversely affect any right or protection of a director, officer, agent or other person existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director, officer or agent occurring prior to such repeal or modification." * * * -4- The foregoing Amended and Restated Certificate of Incorporation has been duly adopted by this Corporation's Board of Directors and stockholders in accordance with the applicable provisions of Section 228, 242 and 245 of the General Corporation Law of the State of Delaware. Executed at Redmond, Washington, on __________ __, 2000. ---------------------------------------- Robert H. Hunsberger, President --------------------------------------- Kathy Surace-Smith, Secretary EX-5.1 5 OPINION OF VENTURE LAW GROUP EXHIBIT 5.1 March 24, 2000 Metawave Communications Corporation 10735 Willows Road NE Redmond, WA 98052 Registration Statement on Form S-1 (File No. 333-30568) ------------------------------------------------------- Ladies and Gentlemen: We have examined the Registration Statement on Form S-1 (File No. 333- 30568) (the "Registration Statement") to be filed by you with the Securities and Exchange Commission on March 24, 2000, in connection with the registration under the Securities Act of 1933 of shares of your Common Stock (the "Shares"). As your legal counsel in connection with this transaction, we have examined the proceedings taken and we are familiar with the proceedings proposed to be taken by you in connection with the sale and issuance of the Shares. It is our opinion that the Shares, when issued and sold in the manner described in the Registration Statement, will be legally and validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement and further consent to the use of our name wherever it appears in the Registration Statement and in any amendment to it. Sincerely, VENTURE LAW GROUP A Professional Corporation /s/ VENTURE LAW GROUP WWE EX-10.2 6 1995 STOCK OPTION PLAN, AS AMENDED EXHIBIT 10.2 METAWAVE COMMUNICATIONS CORPORATION THIRD AMENDED AND RESTATED 1995 STOCK OPTION PLAN 1. Purposes of the Plan. This Third Amended and Restated 1995 Stock Option Plan amends and restates the Second Amended and Restated 1995 Stock Option Plan. The purposes of this Third Amended and Restated 1995 Stock Option Plan are to attract and retain the best available personnel, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to promote the success of the Company's business. Options granted under the Plan may be incentive stock options (as defined under Section 422 of the Code) or nonstatutory stock options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code, as amended, and the regulations promulgated thereunder. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or its Committee appointed pursuant to Section 4 of the Plan. (b) "Board" means the Board of Directors of the Company. (c) "Cause" for termination of an Optionee's Continuous Status as an Employee or Consultant will exist if the Optionee is terminated for any of the following reasons: (i) Optionee's willful failure substantially to perform his or her duties and responsibilities to the Company or deliberate violation of a Company policy; (ii) Optionee's commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is reasonably expected to result in material injury to the Company; (iii) unauthorized use or disclosure by Optionee of any proprietary information or trade secrets of the Company or any other party to whom the Optionee owes an obligation of nondisclosure as a result of his or her relationship with the Company; or (iv) Optionee's willful breach of any of his or her obligations under any written agreement or covenant with the Company. The determination as to whether an Optionee is being terminated for Cause shall be made in good faith by the Company and shall be final and binding on the Optionee. The foregoing definition does not in any way limit the Company's ability to terminate a Optionee's employment or consulting relationship at any time as provided in Section 5(c) below, and the term "Company" will be interpreted to include any Subsidiary, Parent, or successor thereto, if appropriate. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means one or more committees or subcommittees of the Board appointed by the Board in accordance with Section 4 below. (f) "Common Stock" means the Common Stock of the Company. (g) "Company" means Metawave Communications Corporation, a Delaware corporation. (h) "Consultant" means any person, including an advisor, who is engaged by the Company or any Parent or Subsidiary to render services and is compensated for such services, and any Director of the Company whether compensated for such services or not. (i) "Continuous Status as an Employee or Consultant" means the absence of any interruption or termination of service as an Employee or Consultant. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Administrator, provided that such leave is for a period of not more than ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (iv) in the case of transfers between locations of the Company or between the Company, its Subsidiaries or their respective successors. For purposes of this Plan, a change in status from an Employee to a Consultant or from a Consultant to an Employee will not constitute an interruption of Continuous Status as an Employee or Consultant. (j) "Control Transaction" means: (a) any merger, consolidation, or statutory or contractual share exchange in which there is no group of persons who held a majority of the outstanding Common Stock immediately prior to the transaction who continue to hold, immediately following the transaction, at least a majority of the combined voting power of the outstanding shares of that class of capital stock (herein, "Voting Stock") which ordinarily (and apart from rights accruing under special circumstances) has the right to vote in the election of Directors of the Company (or of any other corporation or entity whose securities are issued in such transaction wholly or partially in exchange for Common Stock); (b) any liquidation or dissolution of the Company; (c) any transaction (or series of related transactions) involving the sale, lease, exchange or other transfer not in the ordinary course of business of all, or substantially all, of the assets of the Company; or (d) any transaction (or series of related transactions) in which any person (including, without limitation, any natural person, any corporation or other legal entity, and any person as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act, other than the Company or any employee benefit plan sponsored by the Company): (i) purchases any Common Stock (or securities convertible into Common Stock) for cash, securities or any other consideration pursuant to a tender offer or exchange offer subject to the requirements of the Exchange Act, or (ii) directly or indirectly becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company which, when aggregated with such person's beneficial ownership prior to such transaction, either (x) represent 30% or more (50% or more if the Company is not then subject to the requirements of the Exchange Act) (the "Control Percentage") of the combined voting power of the then outstanding Voting Stock of the Company, or (y) if such person's beneficial ownership prior to such transaction already exceeded the applicable Control Percentage, result in an increase in such holder's beneficial ownership percentage (all such percentages being calculated as provided in Rule 13d-3(d) under the Exchange Act with respect to rights to acquire the Company's securities). All references in this definition to specific sections of or rules promulgated under the Exchange Act shall apply whether or not the Company is then subject to the requirements of the Exchange Act. (k) "Director" means a member of the Board. (l) "Employee" means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company, with the status of employment determined based upon such minimum number of hours or periods worked as shall be determined by the Administrator in its discretion, subject to any requirements of the Code. The payment of a director's fee to a Director shall not be sufficient to constitute "employment" of such Director by the Company. (m) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (n) "Fair Market Value" means, as of any date, the fair market value of the Common Stock, as determined by the Administrator in good faith on such basis as it deems appropriate and applied consistently with respect to Plan participants. Whenever possible, the determination of Fair Market Value shall be based upon the closing price for the Shares as reported in the Wall Street Journal for the applicable date. (o) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code, as designated in the applicable written option agreement. (p) "Involuntary Termination" means termination of an Optionee's Continuous Status as an Employee or Consultant under the following circumstances: (i) termination without Cause by the Company or a Subsidiary, Parent, or successor thereto, as appropriate; or (ii) voluntary termination by the Optionee within 60 days following (A) a material reduction in the Optionee's job responsibilities, provided that neither a mere change in title alone nor reassignment following a Control Transaction to a position that is substantially similar to the position held prior to the Control Transaction shall constitute a material reduction in job responsibilities; (B) relocation by the Company or a Subsidiary, Parent, or successor thereto, as appropriate, of the Optionee's work site to a facility or location more than 50 miles from the Optionee's principal work site for the Company at the time of the Control Transaction; or (C) a reduction in Optionee's then-current total compensation by at least 15%, provided that an across-the-board reduction in the salary level of all other employees or consultants in positions similar to the Optionee's by the same percentage amount as part of a general salary level reduction shall not constitute such a salary reduction. (q) "Listed Security" means any security of the Company that is listed or approved for listing on a national securities exchange or designated or approved for designation as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. (r) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option, as designated in the applicable written option agreement. (s) "Option" means a stock option granted pursuant to the Plan. (t) "Optioned Stock" means the Common Stock subject to an Option. (u) "Optionee" means an Employee or Consultant who receives an Option. (v) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code, or any successor provision. (w) "Plan" means this Third Amended and Restated 1995 Stock Option Plan. (x) "Reporting Person" means an officer, Director, or greater than ten percent stockholder of the Company within the meaning of Rule 16a-2 under the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange Act. (y) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, as the same may be amended from time to time, or any successor provision. (z) "Share" means a share of the Common Stock, as adjusted in accordance with Section 11 of the Plan. (aa) "Stock Exchange" means any stock exchange or consolidated stock price reporting system on which prices for the Common Stock are quoted at any given time. (bb) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code, or any successor provision. (cc) "Ten Percent Holder" means a person who owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary. 3. Stock Subject to the Plan. Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of shares that may be optioned and sold under the Plan is 2,766,666 shares of Common Stock. The shares may be authorized, but unissued, or reacquired Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares that were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. In addition, any shares of Common Stock which are retained by the Company upon exercise of an Option in order to satisfy any withholding taxes due with respect to such exercise shall be treated as not issued and shall continue to be available under the Plan. Shares repurchased by the Company pursuant to any repurchase right which the Company may have shall not be available for future grant under the Plan. 4. Administration of the Plan. (a) General. The Plan shall be administered by the Board or a Committee, or a combination thereof, as determined by the Board. The Plan may be administered by different administrative bodies with respect to different classes of participants and, if permitted by the Applicable Laws, the Board may authorize one or more officers to make awards under the Plan. (b) Committee Composition. If a Committee has been appointed pursuant to this Section 4, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of any Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies (however caused) and remove all members of a Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws and, in the case of a Committee administering the Plan in accordance with the requirements of Rule 16b-3 or Section 162(m) of the Code, to the extent permitted or required by such provisions. (c) Powers of the Administrator. Subject to the provisions of the Plan and in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, including the approval, if required, of any Stock Exchange, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(n) of the Plan; (ii) to select the Consultants and Employees to whom Options may from time to time be granted hereunder; (iii) to determine whether and to what extent Options or any combination thereof are granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each such option granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any option granted hereunder; (vii) to determine whether and under what circumstances an Option may be settled in cash under Section 9(f) instead of Common Stock; (viii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; (ix) to construe and interpret the terms of the Plan and Options granted under the Plan; and (x) in order to fulfill the purposes of the Plan and without amending the Plan, to modify grants of Options to participants who are foreign nationals or employed outside of the United States in order to recognize differences in local law, tax policies or customs. (d) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all holders of Options. 5. Eligibility. (a) Recipients of Grants. Nonstatutory Stock Options may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option may, if he or she is otherwise eligible, be granted additional Options. (b) Type of Option. Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designations, to the extent that the aggregate Fair Market Value of the Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares subject to an Incentive Stock Option shall be determined as of the date of the grant of such Option. (c) Employment Relationship. The Plan shall not confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with such Optionee's right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. 6. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the stockholders of the Company as described in Section 18 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan. 7. Term of Option. The term of each Option shall be the term stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, is a Ten Percent Holder, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. 8. Option Exercise Price and Consideration. (a) The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Board, but shall be subject to the following: (i) In the case of an Incentive Stock Option that is: (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, is a Ten Percent Holder, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option that is granted prior to the date, if any, on which the Common Stock becomes a Listed Security: (A) to a person who, at the time of the grant of such Option, is a Ten Percent Holder, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of the grant. (B) to any other person, the per Share exercise price shall be at least 85% of the Fair Market Value as of the date of grant. (iii) In the case of a Nonstatutory Stock Option that is granted on or after the date, if any, on which the Common Stock becomes a Listed Security to any person the per Share exercise price shall be such price as is determined by the Administrator. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash; (2) check; (3) promissory note (subject to the provisions of Section 153 of the Delaware General Corporation Law); (4) other Shares that (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender or such other period as may be required to avoid a charge to the Company's earnings, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised; (5) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price and any applicable income or employment taxes; (6) delivery of an irrevocable subscription agreement for the Shares that irrevocably obligates the option holder to take and pay for the Shares not more than twelve months after the date of delivery of the subscription agreement; or (7) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. Exercise of Option. (a) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, including vesting requirements and/or performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan; provided that prior to the date, if any, on which the Common Stock becomes a Listed Security, Options granted to California residents shall become exercisable at the rate of at least twenty-five percent (25%) per year over four (4) years from the date the Option is granted. In the event that any of the Shares issued upon exercise of an Option granted to a California resident prior to the date, if any, on which the Common Stock becomes a Listed Security should be subject to a right of repurchase in the Company's favor, such repurchase right shall lapse at the rate of at least twenty-five percent (25%) per year over four (4) years from the date the Option is granted. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and the Company has received full payment for the Shares with respect to which the Option is exercised. Full payment may, as authorized by the Board, consist of any consideration and method of payment allowable under Section 8(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, not withstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares that thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Employment or Consulting Relationship. Subject to Section 9(c), in the event of termination of an Optionee's Continuous Status as an Employee or Consultant with the Company, such Optionee may, but only within three (3) months (or such other period of time not less than thirty (30) days as is determined by the Administrator, with such determination in the case of an Incentive Stock Option being made at the time of grant of the Option and not exceeding three (3) months) after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that the Optionee was entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of such termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. No termination shall be deemed to occur and this Section 9(b) shall not apply if (i) the Optionee is a Consultant who becomes an Employee; or (ii) the Optionee is an Employee who becomes a Consultant. (c) Disability of Optionee. (i) Notwithstanding Section 9(b) above, in the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of his or her total and permanent disability (within the meaning of Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months from the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (ii) In the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of a disability which does not fall within the meaning of total and permanent disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but only within six (6) months from the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. However, to the extent that such Optionee fails to exercise an Option which is an Incentive Stock Option ("ISO") (within the meaning of Section 422 of the Code) within three (3) months of the date of such termination, the Option will not qualify for ISO treatment under the Code. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within six months (6) from the date of termination, the Option shall terminate. (d) Death of Optionee. In the event of the death of an Optionee during the period of Continuous Status as an Employee or Consultant since the date of grant of the Option, or within thirty (30) days following termination of Optionee's Continuous Status as an Employee or Consultant, the Option may be exercised, at any time within six (6) months following the date of death (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of death or, if earlier, the date of termination of Optionee's Continuous Status as an Employee or Consultant. To the extent that Optionee was not entitled to exercise the Option at the date of death or termination, as the case may be, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (e) Extension of Exercise Period. The Administrator shall have full power and authority to extend the period of time for which an Option is to remain exercisable following termination of an Optionee's Continuous Status as an Employee or Consultant from the periods set forth in Sections 9(b), 9(c) and 9(d) above or in written option agreement to such greater time as the Administrator shall deem appropriate, provided that in no event shall such Option be exercisable later than the date of expiration of the term of such Option as set forth in the written option agreement. (f) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 10. Stock Withholding to Satisfy Withholding Tax Obligations. At the discretion of the Administrator, Optionees may satisfy withholding obligations as provided in this paragraph. When an Optionee incurs tax liability in connection with an Option, which tax liability is subject to tax withholding under applicable tax laws, and the Optionee is obligated to pay the Company an amount required to be withheld under applicable tax laws, the Optionee may satisfy the withholding tax obligation by one or some combination of the following methods: (a) by cash payment, or (b) out of Optionee's current compensation, (c) if permitted by the Administrator, in its discretion, by surrendering to the Company Shares that (i) in the case of Shares previously acquired from the Company, have been owned by the Optionee for more than six months on the date of surrender, and (ii) have a fair market value on the date of surrender equal to or less than the amount required to be withheld in connection with Optionee's exercise of the Option, or (d) by electing to have the Company withhold from the Shares to be issued upon exercise of the Option, if any, that number of Shares having a fair market value equal to the amount required to be withheld. If the Administrator allows the withholding or surrender of Shares to satisfy an Optionee's withholding obligations under this Section 10, the Administrator shall not allow Shares to be withheld or surrendered in an amount that exceeds the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes. For this purpose, the Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). Any surrender by a Reporting Person of previously owned Shares to satisfy tax withholding obligations arising upon exercise of this Option must comply with the applicable provisions of Rule 16b-3. All elections by an Optionee to have Shares withheld to satisfy tax withholding obligations shall be made in writing in a form acceptable to the Administrator and shall be subject to the following restrictions: (a) the election must be made on or prior to the applicable Tax Date; (b) once made, the election shall be irrevocable as to the particular Shares of the Option as to which the election is made; and (c) all elections shall be subject to the consent or disapproval of the Administrator. In the event the election to have Shares withheld is made by an Optionee and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, the Optionee shall receive the full number of Shares with respect to which the Option is exercised but such Optionee shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date. 11. Adjustments Upon Changes in Capitalization, Merger or Certain Other Transactions. (a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of Shares of Common Stock covered by each outstanding Option, and the number of Shares of Common Stock that have been authorized for issuance under the Plan but as to which no Options have yet been granted or that have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per Share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued Shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination, recapitalization or reclassification of the Common Stock, or any other increase or decrease in the number of issued Shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares of Common Stock subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Board shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, the Option will terminate immediately prior to the consummation of such proposed action. (c) Control Transaction. (i) The Company shall provide each Optionee with notice of the pendency of any Control Transaction (i) at least thirty (30) days prior to the expected date of consummation of a Control Transaction that has been approved or recommended by the Board, or (ii) promptly after the Board becomes aware of the pendency or occurrence of a proposed or completed Control Transaction that has not been approved or recommended by the Board. (ii) Each Optionee shall be entitled to exercise the vested portion of the Option at any time prior to consummation of a Control Transaction. If the terms of the Option prescribe a time-based vesting schedule, the Optionee shall, conditioned upon consummation of the Control Transaction and upon the Optionee's remaining employed by the Company through the date of such consummation, be entitled to accelerated vesting credit equal to either twelve months or twenty-four months of additional vesting beyond that otherwise scheduled, based on whether he or she has been employed by the Company less than two years, or two years or more, respectively, as of the date of such consummation; provided, however, that the acceleration provided for above shall not apply with respect to any Option which is assumed by or as to which the acquiring person or the surviving corporation, as the case may be (the "Successor"), provides for the substitution of a new option on terms which are, as nearly as practicable, the financial equivalent of the Option (taking into account the consideration for which the Common Stock is to be exchanged in the Control Transaction). (iii) Any exercise may be made contingent upon consummation of a Control Transaction if so elected by the Optionee in his or her notice of exercise, and must be made contingent upon such consummation with respect to the exercise of any portion of an Option entitled to accelerated vesting under the second sentence of Section 11(c)(ii) above. (iv) Upon consummation of a Control Transaction that has been approved or recommended by the Board, all unexercised Options shall expire, except to the extent that they are assumed or replaced with equivalent awards pursuant to the second sentence of Section 11(c)(ii) above. (v) Following a Control Transaction in which outstanding awards were assumed or substituted with equivalent awards by the Successor, in the event an Optionee's service relationship with the Company and or the Successor is involuntarily terminated without Cause in connection with, or within 6 months following consummation of, the transaction, then the vesting and exercisability (or lapse of any applicable repurchase right) applicable to any assumed or substituted Option held by such Optionee at the time of termination shall accelerate as to the number of Shares that would otherwise have vested and been exercisable (or as to which the repurchase right would have lapsed) as of the date 12 months, in the case of an Optionee who has been in a service relationship with the Company and/or the Successor for less than 2 years from the date of termination of that relationship, or 24 months, in the case of an Optionee who has been in a service relationship with the Company and/or the Successor for at least 2 years as of such date, in each case assuming the Optionee had remained in Continuous Status as an Employee or Consultant for such 12 or 24 month period; provided that the vesting and exercisability (or lapse of any repurchase right) of assumed or substituted awards held by a person who was a Reporting Person immediately prior to consummation of the Control Transaction shall accelerate in full without regard to the length of such person's service relationship with the Company and/or the Successor if that relationship is Involuntarily Terminated in connection with, or within 6 months following consummation of, the Control Transaction. The acceleration of vesting and lapse of repurchase rights provided for in the previous sentence shall occur immediately prior to the effective date of the Optionee's termination. (vi) For purposes of this Section 11(c), an Option shall be considered assumed, without limitation, if, at the time of issuance of the stock or other consideration upon a Control Transaction, each Optionee would be entitled to receive upon exercise of an Option the same number and kind of shares of stock or the same amount of property, cash or securities as such Optionee would have been entitled to receive upon the occurrence of the transaction if the Optionee had been, immediately prior to such transaction, the holder of the number of Shares of Common Stock covered by the Option at such time (after giving effect to any adjustments in the number of Shares covered by the Option as provided for in this Section 11); provided that if such consideration received in the transaction is not solely common stock of the Successor, the Administrator may, with the consent of the Successor, provide for the consideration to be received upon exercise of the Option to be solely common stock of the Successor equal to the Fair Market Value of the per Share consideration received by holders of Common Stock in the transaction. (d) Certain Distributions. In the event of any distribution to the Company's stockholders of securities of any other entity or other assets (other than dividends payable in cash or stock of the Company) without receipt of consideration by the Company, the Administrator may, in its discretion, appropriately adjust the price per share of Common Stock covered by each outstanding Option to reflect the effect of such distribution. 12. Non-Transferability of Options. Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised or purchased during the lifetime of the Optionee only by the Optionee. 13. Time of Granting Options. The date of grant of an Option shall, for all purposes, be the date on which the Administrator makes the determination granting such Option, or such other date as is determined by the Board; provided however that in the case of any Incentive Stock Option, the grant date shall be the later of the date on which the Administrator makes the determination granting such Incentive Stock Option or the date of commencement of the Optionee's employment relationship with the Company. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. 14. Amendment and Termination of the Plan. (a) Authority to Amend or Terminate. The Board may at any time amend, alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made that would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 or with Section 422 of the Code (or any other applicable law or regulation, including the requirements of any Stock Exchange), the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. No amendment or termination of the Plan shall adversely affect Options already granted, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company. 15. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any Stock Exchange. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by law. 16. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 17. Agreements. Options shall be evidenced by written agreements in such form as the Administrator shall approve from time to time. 18. Stockholder Approval. Continuance of the Plan shall be subject to approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under applicable state and federal law and the rules of any Stock Exchange upon which the Common Stock is listed. All Options issued under the Plan shall become void in the event such approval is not obtained. 19. Information and Documents to Optionees. Until such date, if any, upon which the Common Stock becomes a Listed Security, the Company shall provide financial statements at least annually to each Optionee during the period such Optionee has one or more Options outstanding, and in the case of an individual who acquired Shares pursuant to the Plan, during the period such individual owns such Shares. The Company shall not be required to provide such information if the issuance of Options under the Plan is limited to key employees whose duties in connection with the Company assure their access to equivalent information. In addition, at the time of issuance of any securities under the Plan, the Company shall provide to the Optionee a copy of the Plan and a copy of any agreement(s) pursuant to which securities granted under the Plan are issued. EX-10.3 7 1998 STOCK OPTION PLAN, AS AMENDED EXHIBIT 10.3 METAWAVE COMMUNICATIONS CORPORATION 1998 STOCK OPTION PLAN 1. Purposes of the Plan. The purposes of this 1998 Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to promote the success of the Company's business. Options granted under the Plan may be incentive stock options (as defined under Section 422 of the Code) or nonstatutory stock options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code, as amended, and the regulations promulgated thereunder. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or its Committee appointed pursuant to Section 4 of the Plan. (b) "Affiliate" means an entity other than a Subsidiary (as defined below) in which the Company owns an equity interest. (c) "Applicable Laws" means the legal requirements relating to the administration of stock option plans under applicable U.S. state corporate laws, U.S. federal and applicable state securities laws, the Code, any Stock Exchange rules or regulations and the applicable laws of any other country or jurisdiction where Options are granted under the Plan, as such laws, rules, regulations and requirements shall be in place from time to time. (d) "Board" means the Board of Directors of the Company. (e) "Cause" means the commission of any act of fraud, embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Company or any Parent or Subsidiary, or any other intentional misconduct by such person adversely affecting the business or affairs of the Company or any Parent or Subsidiary in a material manner. The determination as to whether an Optionee is being terminated for Cause shall be made in good faith by the Company and shall be final and binding on the Optionee. The foregoing definition does not in any way limit the Company's ability to terminate an Optionee's service relationship at any time as provided in Section 5(c) below, and the term Company shall include any Subsidiary, Parent, Affiliate or successor thereto, if appropriate. (f) "Code" means the Internal Revenue Code of 1986, as amended. (g) "Committee" means one or more committees or subcommittees of the Board appointed by the Board to administer the Plan in accordance with Section 4 below. (h) "Common Stock" means the Common Stock of the Company. (i) "Company" means Metawave Communications Corporation, a Delaware corporation. (j) "Consultant" means any person, including an advisor, who is engaged by the Company or any Parent or Subsidiary to render services and is compensated for such services, and any Director of the Company whether compensated for such services or not. (k) "Continuous Status as an Employee or Consultant" means the absence of any interruption or termination of service as an Employee or Consultant. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Administrator, provided that such leave is for a period of not more than ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (iv) in the case of transfers between locations of the Company or between the Company, its Subsidiaries or their respective successors. For purposes of this Plan, a change in status from an Employee to a Consultant or from a Consultant to an Employee will not constitute an interruption of Continuous Status as an Employee or Consultant. (l) "Control Transaction" means: (i) any merger, consolidation, or statutory or contractual share exchange in which there is no group of persons who held a majority of the outstanding Common Stock immediately prior to the transaction who continue to hold, immediately following the transaction, at least a majority of the combined voting power of the outstanding shares of that class of capital stock (herein, "Voting Stock") which ordinarily (and apart from rights accruing under special circumstances) has the right to vote in the election of Directors of the Company (or of any other corporation or entity whose securities are issued in such transaction wholly or partially in exchange for Common Stock); (ii) any liquidation or dissolution of the Company; (iii) any transaction (or series of related transactions) involving the sale, lease, exchange or other transfer not in the ordinary course of business of all, or substantially all, of the assets of the Company; or (iv) any transaction (or series of related transactions) in which any person (including, without limitation, any natural person, any corporation or other legal entity, and any person as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act, other than the Company or any employee benefit plan sponsored by the Company): (A) purchases any Common Stock (or securities convertible into Common Stock) for cash, securities or any other consideration pursuant to a tender offer or exchange offer subject to the requirements of the Exchange Act, or (B) directly or indirectly becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company which, when aggregated with such person's beneficial ownership prior to such transaction, either (x) represent 30% or more (50% or more if the Company is not then subject to the requirements of the 2 Exchange Act) (the "Control Percentage") of the combined voting power of the then outstanding Voting Stock of the Company, or (y) if such person's beneficial ownership prior to such transaction already exceeded the applicable Control Percentage, result in an increase in such holder's beneficial ownership percentage (all such percentages being calculated as provided in Rule 13d-3(d) under the Exchange Act with respect to rights to acquire the Company's securities). All references in this definition to specific sections of or rules promulgated under the Exchange Act shall apply whether or not the Company is then subject to the requirements of the Exchange Act. (m) "Director" means a member of the Board. (n) "Employee" means any person, including Officers, Named Executives and Directors, employed by the Company or any Parent or Subsidiary of the Company, with the status of employment determined based upon such minimum number of hours or periods worked as shall be determined by the Administrator in its discretion, subject to any requirements of the Code. The payment of a director's fee to a Director shall not be sufficient to constitute "employment" of such Director by the Company. (o) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (p) "Fair Market Value" means, as of any date, the fair market value of the Common Stock, as determined by the Administrator in good faith on such basis as it deems appropriate and applied consistently with respect to Participants. Whenever possible, the determination of Fair Market Value shall be based upon the closing price for the Shares as reported in the Wall Street Journal for the applicable date. (q) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code, as designated in the applicable written option agreement. (r) "Involuntary Termination" means termination of an Optionee's Continuous Status as an Employee or Consultant under the following circumstances: (i) termination without Cause by the Company or a Subsidiary, Parent, Affiliate or successor thereto, as appropriate; or (ii) voluntary termination by the Optionee within 60 days following (A) a material reduction in the Optionee's job responsibilities, provided that neither a mere change in title alone nor reassignment following a Control Transaction to a position that is substantially similar to the position held prior to the Control Transaction shall constitute a material reduction in job responsibilities; (B) relocation by the Company or a Subsidiary, Parent, Affiliate or successor thereto, as appropriate, of the Optionee's work site to a facility or location more than 50 miles from the Optionee's principal work site for the Company at the time of the Control Transaction; or (C) a reduction in Optionee's then-current total compensation by at least 15%, provided that an across-the-board reduction in the salary level of all other employees or consultants in positions similar to the Optionee's by the same percentage amount as part of a general salary level reduction shall not constitute such a salary reduction. 3 (s) "Listed Security" means any security of the Company that is listed or approved for listing on a national securities exchange or designated or approved for designation as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. (t) "Named Executive" means any individual who, on the last day of the Company's fiscal year, is the chief executive officer of the Company (or is acting in such capacity) or among the four highest compensated officers of the Company (other than the chief executive officer). Such officer status shall be determined pursuant to the executive compensation disclosure rules under the Exchange Act. (u) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option, as designated in the applicable written option agreement. (v) "Option" means a stock option granted pursuant to the Plan. (w) "Optioned Stock" means the Common Stock subject to an Option. (x) "Optionee" means an Employee or Consultant who receives an Option. (y) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code, or any successor provision. (z) "Plan" means this 1998 Stock Option Plan. (aa) "Reporting Person" means an officer, Director, or greater than ten percent stockholder of the Company within the meaning of Rule 16a-2 under the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange Act. (bb) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, as the same may be amended from time to time, or any successor provision. (cc) "Share" means a share of the Common Stock, as adjusted in accordance with Section 11 of the Plan. (dd) "Stock Exchange" means any stock exchange or consolidated stock price reporting system on which prices for the Common Stock are quoted at any given time. (ee) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code, or any successor provision. (ff) "Ten Percent Holder" means a person who owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary. 3. Stock Subject to the Plan. Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of shares that may be optioned and sold under the Plan is 4 1,763,369 shares of Common Stock. The shares may be authorized, but unissued, or reacquired Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares that were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. In addition, any shares of Common Stock which are retained by the Company upon exercise of an Option in order to satisfy any withholding taxes due with respect to such exercise shall be treated as not issued and shall continue to be available under the Plan. Shares repurchased by the Company pursuant to any repurchase right which the Company may have shall not be available for future grant under the Plan. 4. Administration of the Plan. (a) General. The Plan shall be administered by the Board or a Committee, or a combination thereof, as determined by the Board. The Plan may be administered by different administrative bodies with respect to different classes of Participants and, if permitted by the Applicable Laws, the Board may authorize one or more officers to make awards under the Plan. (b) Committee Composition. If a Committee has been appointed pursuant to this Section 4, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of any Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies (however caused) and remove all members of a Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws and, in the case of a Committee administering the Plan in accordance with the requirements of Rule 16b-3 or Section 162(m) of the Code, to the extent permitted or required by such provisions. (c) Powers of the Administrator. Subject to the provisions of the Plan and in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, including the approval, if required, of any Stock Exchange, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(p) of the Plan; (ii) to select the Consultants and Employees to whom Options may from time to time be granted hereunder; (iii) to determine whether and to what extent Options or any combination thereof are granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each such option granted hereunder; (v) to approve forms of agreement for use under the Plan; 5 (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any option granted hereunder; (vii) to determine whether and under what circumstances an Option may be settled in cash under Section 10(h) instead of Common Stock; (viii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; (ix) to construe and interpret the terms of the Plan and Options granted under the Plan; and (x) in order to fulfill the purposes of the Plan and without amending the Plan, to modify grants of Options to participants who are foreign nationals or employed outside of the United States in order to recognize differences in local law, tax policies or customs. (d) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all holders of Options. 5. Eligibility. (a) Recipients of Grants. Nonstatutory Stock Options may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees; provided, however, that Employees of an Affiliate shall not be eligible to receive Incentive Stock Options. An Employee or Consultant who has been granted an Option may, if he or she is otherwise eligible, be granted additional Options. (b) Type of Option. Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designations, to the extent that the aggregate Fair Market Value of the Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares subject to an Incentive Stock Option shall be determined as of the date of the grant of such Option. (c) Employment Relationship. The Plan shall not confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with such Optionee's right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. 6. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the stockholders of the Company as 6 described in Section 19 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 15 of the Plan. 7. Term of Option. The term of each Option shall be the term stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, is a Ten Percent Holder, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. 8. Limitation on Grants to Employees. Subject to adjustment as provided in this Plan, the maximum number of Shares which may be subject to options granted to any one Employee under this Plan for any fiscal year of the Company shall be 566,666. This Section 8 shall not apply prior to the date upon which the Company becomes subject to the Exchange Act and following such date, shall not apply until the (i) earliest of: (A) the first material modification of the Plan (including any increase to the number of shares reserved for issuance under the Plan in accordance with Section 3); (B) the issuance of all of the shares of Common Stock reserved for issuance under the Plan; (C) the expiration of the Plan; or (D) the first meeting of stockholders at which Directors are to be elected that occurs after the close of the third calendar year following the calendar year in which occurred the first registration of any equity security under Section 12 of the Exchange Act; or (ii) such other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder. 9. Option Exercise Price and Consideration. (a) The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Board, but shall be subject to the following: (i) In the case of an Incentive Stock Option that is: (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, is a Ten Percent Holder, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option that is granted prior to the date, if any, on which the Common Stock becomes a Listed Security: (A) to a person who, at the time of the grant of such Option, is a Named Executive Officer the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of the grant. 7 (B) to any person other than a Named Executive Officer, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant. (iii) In the case of a Nonstatutory Stock Option that is granted on or after the date, if any, on which the Common Stock becomes a Listed Security to any person the per Share exercise price shall be such price as is determined by the Administrator; provided that if such eligible person is a Named Executive of the Company at the time of the Option grant, the per share Exercise Price shall be no less than 100% of the Fair Market Value on the grant date if the Option is intended to qualify as performance-based compensation under Section 162(m) of the Code. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash; (2) check; (3) promissory note (subject to the provisions of Section 153 of the Delaware General Corporation Law); (4) other Shares that (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender or such other period as may be required to avoid a charge to the Company's earnings [were not acquired, directly or indirectly from the Company], and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised; (5) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price and any applicable income or employment taxes; or (7) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 10. Exercise of Option. (a) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and the Company has received full payment for the Shares with respect to which the Option is exercised. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 9(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect 8 to the Optioned Stock, not withstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 12 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares that thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Employment or Consulting Relationship. Subject to Sections 10(c) and (d), in the event of termination of an Optionee's Continuous Status as an Employee or Consultant with the Company, such Optionee may, but only within three (3) months (or such other period of time not less than thirty (30) days as is determined by the Administrator, with such determination in the case of an Incentive Stock Option being made at the time of grant of the Option and not exceeding three (3) months) after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that the Optionee was entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of such termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. No termination shall be deemed to occur and this Section 10(b) shall not apply if (i) the Optionee is a Consultant who becomes an Employee; or (ii) the Optionee is an Employee who becomes a Consultant. (c) Disability of Optionee. Notwithstanding Section 10(b) above, (i) In the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of his or her total and permanent disability (within the meaning of Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months from the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (ii) In the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of a disability which does not fall within the meaning of total and permanent disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but only within six (6) months from the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. However, to the extent that such Optionee fails to exercise an Option which is an Incentive Stock Option ("ISO") (within the meaning of Section 422 of the Code) within three (3) months of the date of such termination, the Option will not qualify for ISO treatment under the Code. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within six months (6) from the date of termination, the Option shall terminate. 9 (d) Death of Optionee. Notwithstanding Section 10(b) above, in the event of the death of an Optionee during the period of Continuous Status as an Employee or Consultant since the date of grant of the Option, or within thirty (30) days following termination of Optionee's Continuous Status as an Employee or Consultant, the Option may be exercised, at any time within six (6) months following the date of death (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of death or, if earlier, the date of termination of Optionee's Continuous Status as an Employee or Consultant. To the extent that Optionee was not entitled to exercise the Option at the date of death or termination, as the case may be, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (e) Extension of Exercise Period. The Administrator shall have full power and authority to extend the period of time for which an option is to remain exercisable following termination of an Optionee's Continuous Status as an Employee or Consultant from the periods set forth in Sections 10(b), 10(c) and 10(d) above or in the Option Agreement to such greater time as the Board shall deem appropriate, provided, that in no event shall such option be exercisable later than the date of expiration of the term of such Option as set forth in the Option Agreement. (f) Termination for Cause. Notwithstanding Sections 10(b), (c), (d) and (e) above, in the event of termination of an Optionee's Continuous Status as an Employee or Consultant for Cause, all outstanding Options held by the Optionee shall terminate immediately and cease to be outstanding. (g) Rule 16b-3. Options granted to Reporting Persons shall comply with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption for Plan transactions. (h) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 11. Withholding Taxes. As a condition to the exercise of Options granted hereunder, the Optionee shall make such arrangements as the Administrator may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with the exercise, receipt or vesting of such Option. The Company shall not be required to issue any Shares under the Plan until such obligations are satisfied. 12. Stock Withholding to Satisfy Withholding Tax Obligations. At the discretion of the Administrator, Optionees may satisfy withholding obligations as provided in this paragraph. When an Optionee incurs tax liability in connection with an Option, which tax liability is subject to tax withholding under applicable tax laws, and the Optionee is obligated to pay the Company an amount required to be withheld under applicable tax laws, the Optionee may 10 satisfy the withholding tax obligation by one or some combination of the following methods: (a) by cash payment, or (b) out of Optionee's current compensation, (c) if permitted by the Administrator, in its discretion, by surrendering to the Company Shares that (i) in the case of Shares previously acquired from the Company, have been owned by the Optionee for more than six months on the date of surrender, and (ii) have a fair market value on the date of surrender equal to or less than the amount required to be withheld in connection with Optionee's exercise of the Option, or (d) by electing to have the Company withhold from the Shares to be issued upon exercise of the Option, if any, that number of Shares having a fair market value equal to the amount required to be withheld. If the Administrator allows the withholding or surrender of Shares to satisfy an Optionee's withholding obligations under this Section 12, the Administrator shall not allow Shares to be withheld or surrendered in an amount that exceeds the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes. For this purpose, the fair market value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). Any surrender by a Reporting Person of previously owned Shares to satisfy tax withholding obligations arising upon exercise of this Option must comply with the applicable provisions of Rule 16b-3. All elections by an Optionee to have Shares withheld to satisfy tax withholding obligations shall be made in writing in a form acceptable to the Administrator and shall be subject to the following restrictions: (a) the election must be made on or prior to the applicable Tax Date; (b) once made, the election shall be irrevocable as to the particular Shares of the Option as to which the election is made; and (c) all elections shall be subject to the consent or disapproval of the Administrator. In the event the election to have Shares withheld is made by an Optionee and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, the Optionee shall receive the full number of Shares with respect to which the Option is exercised but such Optionee shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date. 13. Adjustments Upon Changes in Capitalization, Merger or Certain Other Transactions. (a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of Shares of Common Stock covered by each outstanding Option, and the number of Shares of Common Stock that have been authorized for issuance under the Plan but as to which no Options have yet been granted or that have been returned to the Plan upon cancellation or expiration of an Option, the maximum number of Shares of Common Stock for which Options may be granted to any employee under Section 8 of 11 the Plan, as well as the price per Share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination, recapitalization or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Board shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, the Option will terminate immediately prior to the consummation of such proposed action. (c) Control Transaction. (i) The Company shall provide each Optionee with notice of the pendency of any Control Transaction (i) at least thirty (30) days prior to the expected date of consummation of a Control Transaction that has been approved or recommended by the Board, or (ii) promptly after the Board becomes aware of the pendency or occurrence of a proposed or completed Control Transaction that has not been approved or recommended by the Board. (ii) Each Optionee shall be entitled to exercise the vested portion of the Option at any time prior to consummation of a Control Transaction. If the terms of the Option prescribe a time-based vesting schedule, the Optionee shall, conditioned upon consummation of the Control Transaction and upon the Optionee's remaining employed by the Company through the date of such consummation, be entitled to accelerated vesting credit equal to either twelve months or twenty-four months of additional vesting beyond that otherwise scheduled, based on whether he or she has been employed by the Company less than two years, or two years or more, respectively, as of the date of such consummation; provided, however, that the acceleration provided for above shall not apply with respect to any Option which is assumed by or as to which the acquiring person or the surviving corporation, as the case may be (the "Successor"), provides for the substitution of a new option on terms which are, as nearly as practicable, the financial equivalent of the Option (taking into account the consideration for which the Common Stock is to be exchanged in the Control Transaction). (iii) Any exercise may be made contingent upon consummation of a Control Transaction if so elected by the Optionee in his or her notice of exercise, and must be made contingent upon such consummation with respect to the exercise of any portion of an Option entitled to accelerated vesting under the second sentence of Section 13(c)(ii) above. 12 (iv) Upon consummation of a Control Transaction that has been approved or recommended by the Board, all unexercised Options shall expire, except to the extent that they are assumed or replaced with equivalent awards pursuant to the second sentence of Section 13(c)(ii) above. (v) Following a Control Transaction in which outstanding awards were assumed or substituted with equivalent awards by the Successor, in the event an Optionee's service relationship with the Company and or the Successor is involuntarily terminated without Cause in connection with, or within 6 months following consummation of, the transaction, then the vesting and exercisability (or lapse of any applicable repurchase right) applicable to any assumed or substituted Option held by such Optionee at the time of termination shall accelerate as to the number of Shares that would otherwise have vested and been exercisable (or as to which the repurchase right would have lapsed) as of the date 12 months, in the case of an Optionee who has been in a service relationship with the Company and/or the Successor for less than 2 years from the date of termination of that relationship, or 24 months, in the case of an Optionee who has been in a service relationship with the Company and/or the Successor for at least 2 years as of such date, in each case assuming the Optionee had remained in Continuous Status as an Employee or Consultant for such 12 or 24 month period; provided that the vesting and exercisability (or lapse of any repurchase right) of assumed or substituted awards held by a person who was a Reporting Person immediately prior to consummation of the Control Transaction shall accelerate in full without regard to the length of such person's service relationship with the Company and/or the Successor if that relationship is Involuntarily Terminated in connection with, or within 6 months following consummation of, the Control Transaction. The acceleration of vesting and lapse of repurchase rights provided for in the previous sentence shall occur immediately prior to the effective date of the Optionee's termination. (vi) For purposes of this Section 13(c), an Option shall be considered assumed, without limitation, if, at the time of issuance of the stock or other consideration upon a Control Transaction, each Optionee would be entitled to receive upon exercise of an Option the same number and kind of shares of stock or the same amount of property, cash or securities as such Optionee would have been entitled to receive upon the occurrence of the transaction if the Optionee had been, immediately prior to such transaction, the holder of the number of Shares of Common Stock covered by the Option at such time (after giving effect to any adjustments in the number of Shares covered by the Option as provided for in this Section 13); provided that if such consideration received in the transaction is not solely common stock of the Successor, the Administrator may, with the consent of the Successor, provide for the consideration to be received upon exercise of the Option to be solely common stock of the Successor equal to the Fair Market Value of the per Share consideration received by holders of Common Stock in the transaction. (d) Certain Distributions. In the event of any distribution to the Company's stockholders of securities of any other entity or other assets (other than dividends payable in cash or stock of the Company) without receipt of consideration by the Company, the Administrator may, in its discretion, appropriately adjust the price per share of Common Stock covered by each outstanding Option to reflect the effect of such distribution. 13 14. Non-Transferability of Options. (a) General. Except as set forth in this Section 14, Options may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution. The designation of a beneficiary by an Optionee will not constitute a transfer. (b) Limited Transferability Rights. Notwithstanding anything else in this Section 14, prior to the date, if any, on which the Common Stock becomes a Listed Security, the Administrator may in its discretion grant Nonstatutory Stock Options that may be transferred by instrument to an inter vivos or testamentary trust in which the Options are to be passed to beneficiaries upon the death of the trustor (settlor) or by gift to "Immediate Family" (as defined below), on such terms and conditions as the Administrator deems appropriate. Following the date, if any, on which the Common Stock becomes a Listed Security, the Administrator may in its discretion grant transferable Nonstatutory Stock Options pursuant to Option Agreements specifying the manner in which such Nonstatutory Stock Options are transferable. "Immediate Family" means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships. 15. Time of Granting Options. The date of grant of an Option shall, for all purposes, be the date on which the Administrator makes the determination granting such Option, or such other date as is determined by the Board; provided however that in the case of any Incentive Stock Option, the grant date shall be the later of the date on which the Administrator makes the determination granting such Incentive Stock Option or the date of commencement of the Optionee's employment relationship with the Company. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. 16. Amendment and Termination of the Plan. (a) Authority to Amend or Terminate. The Board may at any time amend, alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made that would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 or with Sections 162(m) and 422 of the Code (or any other applicable law or regulation, including the requirements of any Stock Exchange), the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. No amendment or termination of the Plan shall adversely affect Options already granted, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company. 17. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such 14 Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any Stock Exchange and shall be further subject to the approval of counsel to the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by law. 18. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 19. Agreements. Options shall be evidenced by written agreements in such form as the Administrator shall approve from time to time. 20. Stockholder Approval. (a) Continuance of the Plan shall be subject to approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under the Applicable Laws. All Options issued under the Plan shall become void in the event such approval is not obtained. (b) In the event that the Company registers any class of equity securities pursuant to Section 12 of the Exchange Act, any required approval of the stockholders of the Company obtained after such registration shall be solicited substantially in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder. 15 EX-10.4 8 2000 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.4 METAWAVE COMMUNICATIONS CORPORATION 2000 EMPLOYEE STOCK PURCHASE PLAN The following constitute the provisions of the 2000 Employee Stock Purchase Plan of Metawave Communications Corporation. 1. Purpose. The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. Definitions. (a) "Board" means the Board of Directors of the Company. (b) "Code" means the Internal Revenue Code of 1986, as amended. (c) "Common Stock" means the Common Stock of the Company. (d) "Company" means Metawave Communications Corporation, a Delaware corporation. (e) "Compensation" means total cash compensation received by an Employee from the Company or a Designated Subsidiary. By way of illustration, but not limitation, Compensation includes regular compensation such as salary, wages, overtime, shift differentials, bonuses (other than bonuses offered in connection with, and as an inducement for, the commencement of employment), commissions and incentive compensation, but excludes relocation, expense reimbursements, tuition or other reimbursements, cash payments in lieu of sick or vacation time benefits and income realized as a result of participation in any stock option, stock purchase, or similar plan of the Company or any Designated Subsidiary. (f) "Continuous Status as an Employee" means the absence of any interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Administrator, provided that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (iv) in the case of transfers between locations of the Company or between the Company and its Designated Subsidiaries. (g) "Contributions" means all amounts credited to the account of a participant pursuant to the Plan. (h) "Corporate Transaction" means a sale of all or substantially all of the Company's assets, or a merger, consolidation or other capital reorganization of the Company with or into another corporation. (i) "Designated Subsidiaries" means the Subsidiaries which have been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan; provided however that the Board shall only have the discretion to designate Subsidiaries if the issuance of options to such Subsidiary's Employees pursuant to the Plan would not cause the Company to incur adverse accounting charges. (j) "Employee" means any person, including an Officer, who is customarily employed for at least twenty (20) hours per week and more than five (5) months in a calendar year by the Company or one of its Designated Subsidiaries. (k) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (l) "Offering Date" means the first business day of each Offering Period of the Plan. (m) "Offering Period" means a period of twenty-four (24) months commencing on May 1 and November 1 of each year, except for the first Offering Period and as otherwise as set forth in Section 4(a). (n) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (o) "Plan" means this Employee Stock Purchase Plan. (p) "Purchase Date" means the last day of each Purchase Period of the Plan. (q) "Purchase Period" means a period of six (6) months within an Offering Period, except for the first Purchase Period as set forth in Section 4(b). (r) "Purchase Price" means with respect to a Purchase Period an amount equal to 85% of the Fair Market Value (as defined in Section 7(b) below) of a Share of Common Stock on the Offering Date or on the Purchase Date, whichever is lower; provided, however, that in the event (i) of any increase in the number of Shares available for issuance under the Plan as a result of a stockholder-approved amendment to the Plan, and (ii) all or a portion of such additional Shares are to be issued with respect to one or more Offering Periods that are underway at the time of such increase ("Additional Shares"), and (iii) the Fair Market Value of a Share of Common Stock on the date of such increase (the "Approval Date Fair Market Value") is higher than the Fair Market Value on the Offering Date for any such Offering Period, then in such instance the Purchase Price with respect to Additional Shares shall be 85% of the Approval Date Fair Market Value or the Fair Market Value of a Share of Common Stock on the Purchase Date, whichever is lower. -2- (s) "Share" means a share of Common Stock, as adjusted in accordance with Section 19 of the Plan. (t) "Subsidiary" means a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. 3. Eligibility. (a) Any person who is an Employee as of the Offering Date of a given Offering Period shall be eligible to participate in such Offering Period under the Plan, subject to the requirements of Section 5(a) and the limitations imposed by Section 423(b) of the Code. (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) if, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any subsidiary of the Company, or (ii) if such option would permit his or her rights to purchase stock under all employee stock purchase plans (described in Section 423 of the Code) of the Company and its Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of the Fair Market Value (as defined in Section 7(b) below) of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. 4. Offering Periods and Purchase Periods. (a) Offering Periods. The Plan shall be implemented by a series of Offering Periods of approximately twenty-four (24) months duration, with new Offering Periods commencing on or about May 1 and November 1 of each year (or at such other time or times as may be determined by the Board of Directors). The first Offering Period shall commence on the effective date of the Registration Statement on Form S-1 for the initial public offering of the Company's Common Stock (the "IPO Date") and continue until April 30, 2002 (unless the IPO date occurs after May 1, 2000, in which case "May 1" wherever used in this Plan shall be replaced with "August 1" and "November 1" wherever used in this Plan shall be replaced with "February 1" of the following year). The Plan shall continue until terminated in accordance with Section 20 hereof. The Board of Directors of the Company shall have the power to change the duration and/or the frequency of Offering Periods with respect to future offerings without stockholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected. (b) Purchase Periods. Each Offering Period shall consist of four (4) consecutive Purchase Periods of approximately six (6) months' duration. The last day of each Purchase Period shall be the "Purchase Date" for such Purchase Period. A Purchase Period commencing on May 1 shall end on the next October 31 and a Purchase Period commencing on November 1 shall end on the next April 30 (unless the IPO date occurs after May 1, 2000, in which case "May 1" -3- wherever used in this Plan shall be replaced with "August 1," "November 1" wherever used in this Plan shall be replaced with "February 1" of the following year, "October 31" wherever used in this Plan shall be replaced with "January 31" of the following year and "April 30" wherever used in this Plan shall be replaced with "July 31"). The first Purchase Period shall commence on the IPO Date and shall end on October 31, 2000. The Board of Directors of the Company shall have the power to change the duration and/or frequency of Purchase Periods with respect to future purchases without stockholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Purchase Period to be affected. 5. Participation. (a) An eligible Employee may become a participant in the Plan by completing an enrollment agreement on the form provided by the Company and delivering it to the Company prior to the applicable Offering Date. The enrollment agreement shall set forth the percentage of the participant's Compensation (subject to Section 6(a) below) to be paid as Contributions pursuant to the Plan. (b) Payroll deductions shall commence on the first payroll paid following the Offering Date and shall end on the last payroll paid on or prior to the last Purchase Period of the Offering Period to which the enrollment agreement is applicable, unless sooner terminated by the participant as provided in Section 10. 6. Method of Payment of Contributions. (a) A participant shall elect to have payroll deductions made on each payday during the Offering Period in an amount not less than one percent (1%) and not more than fifteen percent (15%) (or such greater percentage as the Board may establish from time to time before an Offering Date) of such participant's Compensation on each payday during an Offering Period; provided that to the extent a participant is participating in more than one Offering Period, the maximum aggregate percentage of Compensation that he or she may contribute under the Plan shall be fifteen percent (15%) (or such greater percentage as the Board may establish from time to time before an Offering Date). All payroll deductions made by a participant shall be credited to his or her account under the Plan. A participant may not make any additional payments into such account. (b) A participant may discontinue his or her participation in the Plan as provided in Section 10, or, may notify the Administrator that he or she wishes to increase or decrease the rate of his or her Contributions with respect to the Offering Period by completing and filing with the Company a new enrollment agreement authorizing a change in the payroll deduction rate. Any change in rate of Contributions pursuant to the preceding sentence shall be effective as of the next succeeding May 1 or November 1, as applicable, provided the agreement indicating such change is filed at least ten (10) business days prior to such date and, if not, then such change shall be effective as of the next following May 1 or November 1, as the case may be. (c) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b), a participant's payroll deductions may be decreased by the Company to 0% at any time during a Purchase Period. Payroll deductions shall -4- re-commence at the rate provided in such participant's enrollment agreement at the beginning of the first Purchase Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10. In addition, a participant's payroll deductions may be decreased by the Company to 0% at any time during a Purchase Period in order to avoid unnecessary payroll contributions as a result of application of the maximum share limit set forth in Section 7(a), in which case payroll deductions shall re-commence at the rate provided in such participant's enrollment agreement at the beginning of the next Purchase Period, unless terminated by the participant as provided in Section 10. 7. Grant of Option. (a) On the Offering Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on each Purchase Date a number of Shares of the Company's Common Stock determined by dividing such Employee's Contributions accumulated prior to such Purchase Date and retained in the participant's account as of the Purchase Date by the applicable Purchase Price; provided however that the maximum number of Shares an Employee may purchase during each Purchase Period shall be 1,333 Shares (subject to any adjustment pursuant to Section 19 below), and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 13. (b) The fair market value of the Company's Common Stock on a given date (the "Fair Market Value") shall be determined by the Board in its discretion; provided that (i) the Fair Market Value as of an Offering Date shall be the closing sales price of the Common Stock as reported by the Nasdaq National Market for the last trading day immediately preceding the Offering Date, and (ii) the Fair Market Value of the Common Stock as of a Purchase Date shall be the closing sales price of the Common Stock as reported by the Nasdaq National Market for the Purchase Date, in each case as reported in The Wall Street Journal. For purposes of the Offering Date under the first Offering Period under the Plan, the Fair Market Value of a share of the Common Stock of the Company shall be the Price to Public as set forth in the final prospectus filed with the Securities and Exchange Commission pursuant to Rule 424 under the Securities Act of 1933, as amended. 8. Exercise of Option. Unless a participant withdraws from the Plan as provided in Section 10, his or her option for the purchase of Shares will be exercised automatically on each Purchase Date of an Offering Period, and the maximum number of full Shares subject to the option will be purchased at the applicable Purchase Price with the accumulated Contributions in his or her account. No fractional Shares shall be issued. The Shares purchased upon exercise of an option hereunder shall be deemed to be transferred to the participant on the Purchase Date. During his or her lifetime, a participant's option to purchase Shares hereunder is exercisable only by him or her. 9. Delivery. As promptly as practicable after each Purchase Date of each Offering Period, the Company shall arrange the delivery to each participant, as appropriate, the Shares purchased upon exercise of his or her option. No fractional Shares shall be purchased; any -5- payroll deductions accumulated in a participant's account which are not sufficient to purchase a full Share shall be retained in the participant's account for the subsequent Purchase Period or Offering Period, subject to earlier withdrawal by the participant as provided in Section 10 below. Any other amounts left over in a participant's account after a Purchase Date shall be returned to the participant. 10. Voluntary Withdrawal; Termination of Employment. (a) A participant may withdraw all but not less than all the Contributions credited to his or her account under the Plan at any time prior to each Purchase Date by giving written notice to the Company. All of the participant's Contributions credited to his or her account will be paid to him or her promptly after receipt of his or her notice of withdrawal and his or her option for the current period will be automatically terminated, and no further Contributions for the purchase of Shares will be made during the Offering Period. (b) Upon termination of the participant's Continuous Status as an Employee prior to the Purchase Date of an Offering Period for any reason, including retirement or death, the Contributions credited to his or her account will be returned to him or her or, in the case of his or her death, to the person or persons entitled thereto under Section 14, and his or her option will be automatically terminated. (c) In the event an Employee fails to remain in Continuous Status as an Employee of the Company for at least twenty (20) hours per week during the Offering Period in which the employee is a participant, he or she will be deemed to have elected to withdraw from the Plan and the Contributions credited to his or her account will be returned to him or her and his or her option terminated. (d) A participant's withdrawal from an offering will not have any effect upon his or her eligibility to participate in a succeeding offering or in any similar plan which may hereafter be adopted by the Company. 11. Automatic Withdrawal. To the extent permitted by any applicable laws, regulations or stock exchange rules, if the Fair Market Value of the Shares on an Offering Date for an Offering Period (the "New Offering Period") commencing within an Offering Period (The "Ongoing Offering Period") then in progress is lower than was the Fair Market Value of the Shares on the Offering Date for the Ongoing Offering Period, then every participant in the Ongoing Offering Period shall automatically be deemed to have (i) withdrawn from the Ongoing Offering Period at the close of the Purchase Period immediately preceding the New Offering Period, and (ii) enrolled in such New Offering Period. In addition, participants shall automatically be withdrawn as of April 30, 2000 from the Offering Period beginning on the IPO Date and re-enrolled in the Offering Period beginning on May 1, 2000 if the Fair Market Value of the Shares on the IPO Date is greater than the Fair Market Value of the Shares for the May 1, 2000 Offering Date unless a participant notifies the Administrator prior to April 30, 2000 that he or she does not wish to be withdrawn and re-enrolled under these circumstances. -6- All payroll deductions accumulated in a participant's account as of any withdrawal date pursuant to this Section 11 shall be returned to the participant. 12. Interest. No interest shall accrue on the Contributions of a participant in the Plan. 13. Stock. (a) Subject to adjustment as provided in Section 19, the maximum number of Shares which shall be made available for sale under the Plan shall be 233,333 Shares, plus an annual increase on the first day of each of the Company's fiscal years beginning in 2001 through 2010 equal to the lesser of (i) 266,666 Shares (before giving effect to a stock split effected in connection with the Company's initial public offering), (ii) one percent (1%) of the Shares outstanding on the last day of the immediately preceding fiscal year, or (iii) such lesser number of Shares as is determined by the Board. If the Board determines that, on a given Purchase Date, the number of shares with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Offering Date of the applicable Offering Period, or (ii) the number of shares available for sale under the Plan on such Purchase Date, the Board may in its sole discretion provide (x) that the Company shall make a pro rata allocation of the Shares of Common Stock available for purchase on such Offering Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Purchase Date, and continue all Offering Periods then in effect, or (y) that the Company shall make a pro rata allocation of the shares available for purchase on such Offering Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Purchase Date, and terminate any or all Offering Periods then in effect pursuant to Section 20 below. The Company may make pro rata allocation of the Shares available on the Offering Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional Shares for issuance under the Plan by the Company's stockholders subsequent to such Offering Date. (b) The participant shall have no interest or voting right in Shares covered by his or her option until such option has been exercised. (c) Shares to be delivered to a participant under the Plan will be registered in the name of the participant or in the name of the participant and his or her spouse. 14. Administration. The Board, or a committee named by the Board, shall supervise and administer the Plan and shall have full power to adopt, amend and rescind any rules deemed desirable and appropriate for the administration of the Plan and not inconsistent with the Plan, to construe and interpret the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. -7- 15. Designation of Beneficiary. (a) A participant may file a written designation of a beneficiary who is to receive any Shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to the end of a Purchase Period but prior to delivery to him or her of such Shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to the Purchase Date of an Offering Period. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. (b) Such designation of beneficiary may be changed by the participant (and his or her spouse, if any) at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such Shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 16. Transferability. Neither Contributions credited to a participant's account nor any rights with regard to the exercise of an option or to receive Shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution, or as provided in Section 15) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 10. 17. Use of Funds. All Contributions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such Contributions. 18. Reports. Individual accounts will be maintained for each participant in the Plan. Statements of account will be given to participating Employees at least annually, which statements will set forth the amounts of Contributions, the per Share Purchase Price, the number of Shares purchased and the remaining cash balance, if any. 19. Adjustments Upon Changes in Capitalization; Corporate Transactions. (a) Adjustment. Subject to any required action by the stockholders of the Company, the number of Shares covered by each option under the Plan which has not yet been exercised and the number of Shares which have been authorized for issuance under the Plan but have not yet been placed under option (collectively, the "Reserves"), as well as the maximum number of shares of Common Stock which may be purchased by a participant in a Purchase Period, the number of shares of Common Stock set forth in Section 13(a) above, and the price per Share of Common Stock covered by each option under the Plan which has not yet been -8- exercised, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock (including any such change in the number of Shares of Common Stock effected in connection with a change in domicile of the Company), or any other increase or decrease in the number of Shares effected without receipt of consideration by the Company; provided however that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an option. (b) Corporate Transactions. In the event of a dissolution or liquidation of the Company, any Purchase Period and Offering Period then in progress will terminate immediately prior to the consummation of such action, unless otherwise provided by the Board. In the event of a Corporate Transaction, each option outstanding under the Plan shall be assumed or an equivalent option shall be substituted by the successor corporation or a parent or Subsidiary of such successor corporation. In the event that the successor corporation refuses to assume or substitute for outstanding options, each Purchase Period and Offering Period then in progress shall be shortened and a new Purchase Date shall be set (the "New Purchase Date"), as of which date any Purchase Period and Offering Period then in progress will terminate. The New Purchase Date shall be on or before the date of consummation of the transaction and the Board shall notify each participant in writing, at least ten (10) days prior to the New Purchase Date, that the Purchase Date for his or her option has been changed to the New Purchase Date and that his or her option will be exercised automatically on the New Purchase Date, unless prior to such date he or she has withdrawn from the Offering Period as provided in Section 10. For purposes of this Section 19, an option granted under the Plan shall be deemed to be assumed, without limitation, if, at the time of issuance of the stock or other consideration upon a Corporate Transaction, each holder of an option under the Plan would be entitled to receive upon exercise of the option the same number and kind of shares of stock or the same amount of property, cash or securities as such holder would have been entitled to receive upon the occurrence of the transaction if the holder had been, immediately prior to the transaction, the holder of the number of Shares of Common Stock covered by the option at such time (after giving effect to any adjustments in the number of Shares covered by the option as provided for in this Section 19); provided however that if the consideration received in the transaction is not solely common stock of the successor corporation or its parent (as defined in Section 424(e) of the Code), the Board may, with the consent of the successor corporation, provide for the consideration to be received upon exercise of the option to be solely common stock of the successor corporation or its parent equal in Fair Market Value to the per Share consideration received by holders of Common Stock in the transaction. The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per Share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of Shares of its outstanding -9- Common Stock, and in the event of the Company's being consolidated with or merged into any other corporation. 20. Amendment or Termination. (a) The Board may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19, no such termination of the Plan may affect options previously granted, provided that the Plan or an Offering Period may be terminated by the Board on a Purchase Date or by the Board's setting a new Purchase Date with respect to an Offering Period and Purchase Period then in progress if the Board determines that termination of the Plan and/or the Offering Period is in the best interests of the Company and the stockholders or if continuation of the Plan and/or the Offering Period would cause the Company to incur adverse accounting charges as a result of a change after the effective date of the Plan in the generally accepted accounting rules applicable to the Plan. Except as provided in Section 19 and in this Section 20, no amendment to the Plan shall make any change in any option previously granted which adversely affects the rights of any participant. In addition, to the extent necessary to comply with Rule 16b-3 under the Exchange Act, or under Section 423 of the Code (or any successor rule or provision or any applicable law or regulation), the Company shall obtain stockholder approval in such a manner and to such a degree as so required. (b) Without stockholder consent and without regard to whether any participant rights may be considered to have been adversely affected, the Board (or its committee) shall be entitled to change the Offering Periods and Purchase Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan. 21. Notices. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 22. Conditions Upon Issuance of Shares. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such Shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, applicable state securities laws and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. -10- As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. 23. Term of Plan; Effective Date. The Plan shall become effective upon the IPO Date. It shall continue in effect for a term of twenty (20) years unless sooner terminated under Section 20. -11- METAWAVE COMMUNICATIONS CORPORATION 2000 EMPLOYEE STOCK PURCHASE PLAN ENROLLMENT AGREEMENT New Election ______ Change of Election ______ 1. I, ________________________, hereby elect to participate in the Metawave Communications Corporation 2000 Employee Stock Purchase Plan (the "Plan") for the Offering Period ______________, ____ to _______________, ____, and subscribe to purchase shares of the Company's Common Stock in accordance with this Enrollment Agreement and the Plan. 2. I elect to have Contributions in the amount of ____% of my Compensation, as those terms are defined in the Plan, applied to this purchase. I understand that this amount (together with any other amounts I am contributing under the Plan) must not be less than 1% and not more than 15% of my Compensation during the Offering Period. (Please note that no fractional percentages are permitted). 3. I hereby authorize payroll deductions from each paycheck during the Offering Period at the rate stated in Item 2 of this Enrollment Agreement. I understand that all payroll deductions made by me shall be credited to my account under the Plan and that I may not make any additional payments into such account. I understand that all payments made by me shall be accumulated for the purchase of shares of Common Stock at the applicable purchase price determined in accordance with the Plan. I further understand that, except as otherwise set forth in the Plan, shares will be purchased for me automatically on the Purchase Date of each Offering Period unless I otherwise withdraw from the Plan by giving written notice to the Company for such purpose. 4. I understand that I may discontinue at any time prior to the Purchase Date my participation in the Plan as provided in Section 10 of the Plan. I also understand that I can increase or decrease the rate of my Contributions during an Offering Period by completing and filing with the Company a new Enrollment Agreement with such increase or decrease taking effect as of the next following May 1 or November 1, as applicable, within the Offering Period, if filed at least ten (10) business days prior to the beginning of such month. Further, I may change the rate of deductions for future Offering Periods by filing a new Enrollment Agreement, and any such change will be effective as of the beginning of the next Offering Period. In addition, I acknowledge that, unless I discontinue my participation in the Plan as provided in Section 10 of the Plan, my election will continue to be effective for each successive Offering Period. 5. I have received a copy of the Company's most recent description of the Plan and a copy of the complete "Metawave Communications Corporation 2000 Employee Stock Purchase Plan." I understand that my participation in the Plan is in all respects subject to the terms of the Plan. 6. Shares purchased for me under the Plan should be issued in the name(s) of (name of employee or employee and spouse only): ____________________________________ ____________________________________ 7. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due to me under the Plan: NAME: (Please print) ____________________________________ (First) (Middle) (Last) __________________________________ ____________________________________ (Relationship) (Address) Social Security #:________________ ____________________________________ 8. I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Offering Date (the first day of the Offering Period during which I purchased such shares) or within 1 year after the Purchase Date, I will be treated for federal income tax purposes as having received ordinary compensation income at the time of such disposition in an amount equal to the excess of the fair market value of the shares on the Purchase Date over the price which I paid for the shares, regardless of whether I disposed of the shares at a price less than their fair market value at the Purchase Date. The remainder of the gain or loss, if any, recognized on such disposition will be treated as capital gain or loss. I hereby agree to notify the Company in writing within 30 days after the date of any such disposition, and I will make adequate provision for federal, state or other tax withholding obligations, if any, which arise upon the disposition of the Common Stock. The Company shall be entitled, to the extent required by applicable law, to withhold from my Compensation any amount necessary to comply with applicable tax withholding requirements with respect to the purchase or sale of shares under the Plan. 9. If I dispose of such shares at any time after expiration of the 2-year and 1-year holding periods, I understand that I will be treated for federal income tax purposes as having received compensation income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares under the option, or (2) 15% of the fair market value of the shares on the Offering Date. The remainder of the gain or loss, if any, recognized on such disposition will be treated as capital gain or loss. -2- I understand that this tax summary is only a summary and is subject to change. I further understand that I should consult a tax advisor concerning the tax implications of the purchase and sale of stock under the Plan. 10. In connection with the initial public offering of the Company's securities and upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, I agree not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company, however or whenever I acquired them, without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the public offering. 11. I hereby agree to be bound by the terms of the Plan. The effectiveness of this Enrollment Agreement is dependent upon my eligibility to participate in the Plan. NAME (print): ----------------------------- SIGNATURE: -------------------------------- SOCIAL SECURITY #: ------------------------ DATE: ------------------------------------- SPOUSE'S SIGNATURE (necessary if beneficiary is not spouse): - ------------------------------------------ (Signature) - ------------------------------------------ (Print name) -3- METAWAVE COMMUNICATIONS CORPORATION 2000 EMPLOYEE STOCK PURCHASE PLAN NOTICE OF WITHDRAWAL I, __________________________, hereby elect to withdraw my participation in the Metawave Communications Corporation 2000 Employee Stock Purchase Plan (the "Plan") for the Offering Period that began on _________ ___, _____. This withdrawal covers all Contributions credited to my account and is effective on the date designated below. I understand that all Contributions credited to my account will be paid to me within ten (10) business days of receipt by the Company of this Notice of Withdrawal and that my option for the current period will automatically terminate, and that no further Contributions for the purchase of shares can be made by me during the Offering Period. The undersigned further understands and agrees that he or she shall be eligible to participate in succeeding offering periods only by delivering to the Company a new Enrollment Agreement. Dated:___________________ _______________________________________ Signature of Employee _______________________________________ Social Security Number EX-10.5 9 1998 AMENDED AND RESTATED DIRECTORS' STOCK PLAN EXHIBIT 10.5 METAWAVE COMMUNICATIONS CORPORATION 1998 DIRECTORS' STOCK OPTION PLAN (as amended February 10, 2000) 1. Purposes of the Plan. The purposes of this Directors' Stock Option Plan are to attract and retain the best available personnel for service as Directors of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to encourage their continued service on the Board. All options granted hereunder shall be nonstatutory stock options. 2. Definitions. As used herein, the following definitions shall apply: (a) "Board" shall mean the Board of Directors of the Company. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. (c) "Common Stock" shall mean the Common Stock of the Company. (d) "Company" shall mean Metawave Communications Corporation, a Delaware corporation. (e) "Continuous Status as a Director" shall mean the absence of any interruption or termination of service as a Director. (f) "Control Transaction" means: (i) any merger, consolidation, or statutory or contractual share exchange in which there is no group of persons who held a majority of the outstanding Common Stock immediately prior to the transaction who continue to hold, immediately following the transaction, at least a majority of the combined voting power of the outstanding shares of that class of capital stock (herein, "Voting Stock") which ordinarily (and apart from rights accruing under special circumstances) has the right to vote in the election of directors of the Company (or of any other corporation or entity whose securities are issued in such transaction wholly or partially in exchange for Common Stock); (ii) any liquidation or dissolution of the Company; (iii) any transaction (or series of related transactions) involving the sale, lease, exchange or other transfer not in the ordinary course of business of all, or substantially all, of the assets of the Company; or (iv) any transaction (or series of related transactions) in which any person (including, without limitation, any natural person, any corporation or other legal entity, and any person as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act, other than the Company or any employee benefit plan sponsored by the Company): (A) purchases any Common Stock (or securities convertible into Common Stock) for cash, securities or any other consideration pursuant to a tender offer or exchange offer subject to the requirements of the Exchange Act, or (B) directly or indirectly becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company which, when aggregated with such person's beneficial ownership prior to such transaction, either (x) represent 30% or more (50% or more if the Company is not then subject to the requirements of the Exchange Act) (the "Control Percentage") of the combined voting power of the then outstanding Voting Stock of the Company, or (y) if such person's beneficial ownership prior to such transaction already exceeded the applicable Control Percentage, result in an increase in such holder's beneficial ownership percentage (all such percentages being calculated as provided in Rule 13d-3(d) under the Exchange Act with respect to rights to acquire the Company's securities). All references in this definition to specific sections of or rules promulgated under the Exchange Act shall apply whether or not the Company is then subject to the requirements of the Exchange Act. (g) "Director" shall mean a member of the Board. (h) "Employee" shall mean any person, including any officer or director, employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient in and of itself to constitute "employment" by the Company. (i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (j) "Option" shall mean a stock option granted pursuant to the Plan. All options shall be nonstatutory stock options (i.e., options that are not intended to qualify as incentive stock options under Section 422 of the Code). (k) "Optioned Stock" shall mean the Common Stock subject to an Option. (l) "Optionee" shall mean an Outside Director who receives an Option. (m) "Outside Director" shall mean a Director who is not an Employee. (n) "Parent" shall mean a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (o) "Plan" shall mean this 1998 Directors' Stock Option Plan. (p) "Share" shall mean a share of the Common Stock, as adjusted in accordance with Section 11 of the Plan. (q) "Stock Exchange" means any stock exchange or consolidated stock price reporting system on which prices for the Common Stock are quoted at any given time. (r) "Subsidiary" shall mean a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 466,666 Shares (the "Pool") of Common Stock. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. If Shares which were acquired upon exercise of an Option are subsequently repurchased by the Company, such Shares shall not in any event be returned to the Plan and shall not become available for future grant under the Plan. 4. Administration of and Grants of Options under the Plan. (a) Administrator. Except as otherwise required herein, the Plan shall be administered by the Board. (b) Procedure for Grants Effective following Initial Public Offering. All grants of Options hereunder after the effectiveness date of a registration statement under the Securities Act of 1933 relating to the Company's initial public offering of securities ("IPO Effective Date") shall be automatic and nondiscretionary and shall be made strictly in accordance with the following provisions: (i) No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options granted to Outside Directors. (ii) Each Outside Director who first becomes an Outside Director after the IPO Effective Date shall automatically be granted an Option to purchase 25,000 Shares (before giving effect to a stock split effected in connection with the Company's initial public offering) (the "First Option") on the date on which such person first becomes an Outside Director, whether through election by the stockholders of the Company or appointment by the Board of Directors to fill a vacancy. (iii) Each Outside Director shall automatically be granted an Option to purchase 10,000 Shares (before giving effect to a stock split effected in connection with the Company's initial public offering) (a "Subsequent Option") on the date of each Annual Meeting of the Company's stockholders immediately following which such Outside Director is serving on the Board, provided that, on such date, the IPO Effective Date shall have occurred and he or she shall have served on the Board for at least six (6) months prior to the date of such Annual Meeting. (iv) Notwithstanding the provisions of subsections (b) and (c) hereof, in the event that a grant would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased upon exercise of Options to exceed the Pool, then each such automatic grant shall be for that number of Shares determined by dividing the total number of Shares remaining available for grant by the number of Outside Directors receiving an Option on such date on the automatic grant date. Any further grants shall then be deferred until such time, if any, as additional Shares become available for grant under the Plan through action of the stockholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder. (v) Notwithstanding the provisions of subsections (ii) and (iii) hereof, any grant of an Option made before the Company has obtained stockholder approval of the Plan in accordance with Section 17 hereof shall be conditioned upon obtaining such stockholder approval of the Plan in accordance with Section 17 hereof. (vi) The terms of each First Option granted hereunder shall be as follows: (A) the First Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Section 9 hereof; (B) the exercise price per Share shall be 100% of the fair market value per Share on the date of grant of the First Option, determined in accordance with Section 8 hereof; and (C) the First Option shall become exercisable in installments cumulatively as to 25% of the Shares subject to the First Option on the first anniversary of the date of grant of the Option and one-forty-eighth (1/48th) of the total number of Shares subject to the Option shall vest ratably at the end of each month thereafter upon Optionee's completion of each month of Continuous Status as a Director. (vii) The terms of each Subsequent Option granted hereunder shall be as follows: (A) the Subsequent Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Section 9 hereof; (B) the exercise price per Share shall be 100% of the fair market value per Share on the date of grant of the Subsequent Option, determined in accordance with Section 8 hereof; and (C) the Subsequent Option shall become exercisable in installments cumulatively as to one-thirty-sixth (1/36th) of the Shares subject to the Subsequent Option at the end of each month following the date of grant upon Optionee's completion of each month of Continuous Status as a Director. (c) Procedure for Grants prior to Initial Public Offering. Prior to the IPO Effective Date, the Board (or one or more committees of the Board) shall administer the Plan and may grant options to Directors on such terms and conditions, not inconsistent with the terms of the Plan, as it determines. (d) Powers of the Board. Subject to the provisions and restrictions of the Plan, the Board shall have the authority, in its discretion: (i) to determine, upon review of relevant information and in accordance with Section 8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine the exercise price per Share of Options to be granted, which exercise price shall be determined in accordance with Section 8(a) of the Plan; (iii) to interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations relating to the Plan; (v) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted hereunder; and (vi) to make all other determinations deemed necessary or advisable for the administration of the Plan. (e) Effect of Board's Decision. All decisions, determinations and interpretations of the Board shall be final and binding on all Optionees and any other holders of any Options granted under the Plan. (f) Suspension or Termination of Option. If the President or his or her designee reasonably believes that an Optionee has committed an act of misconduct, the President may suspend the Optionee's right to exercise any option pending a determination by the Board of Directors (excluding the Outside Director accused of such misconduct). If the Board of Directors (excluding the Outside Director accused of such misconduct) determines an Optionee has committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation owed to the Company, breach of fiduciary duty or deliberate disregard of the Company rules resulting in loss, damage or injury to the Company, or if an Optionee makes an unauthorized disclosure of any Company trade secret or confidential information, engages in any conduct constituting unfair competition, induces any Company customer to breach a contract with the Company or induces any principal for whom the Company acts as agent to terminate such agency relationship, neither the Optionee nor his or her estate shall be entitled to exercise any option whatsoever. In making such determination, the Board of Directors (excluding the Outside Director accused of such misconduct) shall act fairly and shall give the Optionee an opportunity to appear and present evidence on Optionee's behalf at a hearing before the Board or a committee of the Board. 5. Eligibility. Options may be granted only to Outside Directors. After the IPO Effective Date, all Options shall be automatically granted in accordance with the terms set forth in Section 4(b) hereof. An Outside Director who has been granted an Option may, if he or she is otherwise eligible, be granted an additional Option or Options in accordance with such provisions. The Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate his or her directorship at any time. 6. Term of Plan; Effective Date. The Plan shall become effective on the date of its adoption by the Board of Directors. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan. 7. Term of Options. The term of each Option shall be ten (10) years from the date of grant thereof. 8. Exercise Price and Consideration (a) Exercise Price. The per Share exercise price for the Shares to be issued pursuant to exercise of an Option shall be 100% of the fair market value per Share on the date of grant of the Option. (b) Fair Market Value. The fair market value shall be determined by the Board; provided, however, that where there is a public market for the Common Stock, the fair market value per Share shall be the mean of the bid and asked prices of the Common Stock in the over-the-counter market on the date of grant, as reported in The Wall Street Journal (or, if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation ("Nasdaq") System) or, in the event the Common Stock is traded on the Nasdaq National Market or listed on a stock exchange, the fair market value per Share shall be the closing price on such system or exchange on the date of grant of the Option (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date), as reported in The Wall Street Journal. With respect to any Options granted hereunder concurrently with the initial effectiveness of the Plan, the fair market value shall be the Price to Public as set forth in the final prospectus relating to such initial public offering. (c) Form of Consideration. The consideration to be paid for the Shares to be issued upon exercise of an Option shall consist entirely of cash, check, other Shares of Common Stock having a fair market value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised (which, if acquired from the Company, shall have been held for at least six months), or any combination of such methods of payment and/or any other consideration or method of payment as shall be permitted under applicable corporate law. 9. Exercise of Option (a) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder shall be exercisable at such times as are set forth by (i) the Administrator with respect to Options granted prior to the IPO Effective Date and (ii) by 4(b) hereof with respect to Options granted after the IPO Effective Date; provided, however, that after the IPO Effective Date, no Options shall be exercisable prior to stockholder approval of the Plan in accordance with Section 17 hereof. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Status as a Director. If an Outside Director ceases to serve as a Director, he or she may, but only within ninety (90) days after the date he or she ceases to be a Director of the Company, exercise his or her Option to the extent that he or she was entitled to exercise it at the date of such termination. Notwithstanding the foregoing, in no event may the Option be exercised after its term set forth in Section 7 has expired. To the extent that such Outside Director was not entitled to exercise an Option at the date of such termination, or does not exercise such Option (which he or she was entitled to exercise) within the time specified herein, the Option shall terminate. (c) Disability of Optionee. Notwithstanding Section 9(b) above, in the event a Director is unable to continue his or her service as a Director with the Company as a result of his or her total and permanent disability (as defined in Section 22(e)(3) of the Code), he or she may, but only within six (6) months (or such other period of time not exceeding twelve (12) months as is determined by the Board) from the date of such termination, exercise his or her Option to the extent he or she was entitled to exercise it at the date of such termination. Notwithstanding the foregoing, in no event may the Option be exercised after its term set forth in Section 7 has expired. To the extent that he or she was not entitled to exercise the Option at the date of termination, or if he or she does not exercise such Option (which he or she was entitled to exercise) within the time specified herein, the Option shall terminate. (d) Death of Optionee. In the event of the death of an Optionee during the period of Continuous Status as a Director since the date of grant of the Option, or within thirty (30) days following termination of Optionee's Continuous Status as a Director, the Option may be exercised, at any time within six (6) months following the date of death (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise Shares that are not subject to repurchase that had accrued at the date of death or, if earlier, the date of termination of Optionee's Continuous Status as a Director. To the extent that Optionee was not entitled to exercise the Option at the date of death or termination, as the case may be, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. 10. Transferability of Options. Options may not be sold, pledged, assigned, hypothecated, or disposed of in any manner other than by will or by the laws of descent or distribution or pursuant to a qualified domestic relations order; provided, however, that Options shall be transferable under the terms and conditions established by the Administrator to the following recipients: a family trust established by the Optionee, a family limited partnership established by the Optionee, a member of Optionee's immediate family or to a partnership or other entity of which Optionee is a general partner or in which Optionee plays a similar managerial role. Any such transfer shall be subject to the applicable laws. An Option may be exercised, during the lifetime of the Optionee, only by the Optionee or a transferee permitted by this Section 10. 11. Adjustments Upon Changes in Capitalization, Merger or Certain Other Transactions. (a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of Shares of Common Stock covered by each outstanding Option, the number of Shares specified in Section 4(b) above, and the number of Shares of Common Stock that have been authorized for issuance under the Plan but as to which no Options have yet been granted or that have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per Share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued Shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination, recapitalization or reclassification of the Common Stock, or any other increase or decrease in the number of issued Shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares of Common Stock subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Board shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, the Option will terminate immediately prior to the consummation of such proposed action. (c) Control Transaction. (i) Following Initial Public Offering. With respect to Options issued under this Plan following the Company's initial public offering, this Section 11(c)(i) shall govern. In the event of a Control Transaction, each such outstanding Option shall be assumed or an equivalent option or right shall be substituted by the Company's successor corporation or a parent or subsidiary of such successor corporation (the "Successor Corporation"), unless the Successor Corporation does not agree to assume the award or to substitute an equivalent option, in which case the vesting and exercisability of each such Option shall accelerate as to that number of Shares that would otherwise have vested and been exercisable as of the date 12 months or 24 months from the date of consummation of the transaction (assuming the Optionee had remained in Continuous Status as a Director for such 12 or 24 month period), depending upon whether as of the date of such consummation the Optionee has been in Continuous Status as a Director less than two years, or two years or more, respectively. To the extent that an Option is not exercised prior to consummation of a Control Transaction in which the Option is not being assumed or substituted, such Option shall terminate upon the consummation. Any exercise may be made contingent upon consummation of a Control Transaction if so elected by the Optionee in his or her notice of exercise, and must be made contingent upon such consummation with respect to any portion of an Option entitled to accelerated vesting under this Section 11(c)(i). (ii) Prior to Initial Public Offering. With respect to Options issued under the Plan prior to the Company's initial public offering, in the event of a Control Transaction, this Section 11(c)(ii) shall govern: (A) The Company shall provide each Optionee with notice of the pendency of any Control Transaction (i) at least thirty (30) days prior to the expected date of consummation of a Control Transaction that has been approved or recommended by the Board, or (ii) promptly after the Board becomes aware of the pendency or occurrence of a proposed or completed Control Transaction that has not been approved or recommended by the Board. (B) Each Optionee shall be entitled to exercise the vested portion of the Option at any time prior to consummation of a Control Transaction. If the terms of the Option prescribe a time-based vesting schedule, the Optionee shall, conditioned upon consummation of the Control Transaction and upon the Optionee's continuing to serve as a Director through the date of such consummation, be entitled to accelerated vesting credit equal to either twelve months or twenty-four months of additional vesting beyond that otherwise scheduled, based on whether he or she has been in Continuous Status as a Director less than two years, or two years or more, respectively, as of the date of such consummation; provided, however, that the acceleration provided for above shall not apply with respect to any Option which is assumed by or as to which the acquiring person or the surviving corporation, as the case may be, provides for the substitution of a new option for the Option on terms which are, as nearly as practicable, the financial equivalent of the Option (taking into account the consideration for which the Common Stock is to be exchanged in the Control Transaction). (C) Any exercise may be made contingent upon consummation of a Control Transaction if so elected by the Optionee in his or her notice of exercise, and must be made contingent upon such consummation with respect to any portion of an Option entitled to accelerated vesting under the second sentence of Section 11(c)(ii)(B) above. (D) Upon consummation of a Control Transaction that has been approved or recommended by the Board, all unexercised Options shall expire, except to the extent that they are assumed or replaced with equivalent awards pursuant to the second sentence of Section 11(c)(ii)(B) above. (iii) Definition of Assumption. For purposes of this Section 11(c), an Option shall be considered assumed, without limitation, if, at the time of issuance of the stock or other consideration upon a Control Transaction, each holder of an Option would be entitled to receive upon exercise of the award the same number and kind of shares of stock or the same amount of property, cash or securities as such holder would have been entitled to receive upon the occurrence of the transaction if the holder had been, immediately prior to such transaction, the holder of the number of Shares of Common Stock covered by the award at such time (after giving effect to any adjustments in the number of Shares covered by the Option as provided for in this Section 11); provided that if such consideration received in the transaction is not solely common stock of the Successor Corporation, the Administrator may, with the consent of the Successor Corporation, provide for the consideration to be received upon exercise of the award to be solely common stock of the Successor Corporation equal to the Fair Market Value of the per Share consideration received by holders of Common Stock in the transaction. (d) Certain Distributions. In the event of any distribution to the Company's stockholders of securities of any other entity or other assets (other than dividends payable in cash or stock of the Company) without receipt of consideration by the Company, the Administrator may, in its discretion, appropriately adjust the price per Share of Common Stock covered by each outstanding Option to reflect the effect of such distribution. 12. Time of Granting Options. With respect to Options granted after the IPO Effective Date, the date of grant of an Option shall, for all purposes, be the date determined in accordance with Section 4(b) hereof. Notice of the determination shall be given to each Outside Director to whom an Option is so granted within a reasonable time after the date of such grant. 13. Amendment and Termination of the Plan (a) Amendment and Termination. The Board may amend or terminate the Plan from time to time in such respects as the Board may deem advisable; provided that, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act (or any other applicable law or regulation), the Company shall obtain approval of the stockholders of the Company to Plan amendments to the extent and in the manner required by such law or regulation. Notwithstanding the foregoing, the provisions set forth in Section 4 of this Plan (and any other Sections of this Plan that affect the formula award terms required to be specified in this Plan by Rule 16b-3) shall not be amended more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. (b) Effect of Amendment or Termination. Any such amendment or termination of the Plan that would impair the rights of any Optionee shall not affect Options already granted to such Optionee and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company. 14. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, state securities laws, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares, if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 15. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 16. Option Agreement. Options shall be evidenced by written option agreements in such form as the Board shall approve. 17. Stockholder Approval. Continuance of the Plan shall be subject to approval by the stockholders of the Company at or prior to the first annual meeting of stockholders held subsequent to the granting of an Option hereunder. If such stockholder approval is obtained at a duly held stockholders' meeting, it may be obtained by the affirmative vote of the holders of a majority of the outstanding Shares of the Company present or represented and entitled to vote thereon. EX-10.10 10 LOAN AGMT BETWEEN REGISTRANT & IMPERIAL EXHIBIT 10.10 LOAN AGREEMENT THIS LOAN AGREEMENT is entered into as of October 14, 1997 (this "Loan Agreement") between METAWAVE COMMUNICATIONS CORPORATION, a Delaware corporation (herein called "Borrower"), and IMPERIAL BANK (herein called "Bank"). 1. COMMITMENT. A. FACILITY-A COMMITMENT. Subject to all the terms and conditions of this Loan Agreement and prior to the termination of its commitment as hereinafter provided, Bank hereby agrees to make loans (each a "Facility-A Loan") to Borrower, from time to time and in such amounts as Borrower shall request pursuant to this SECTION 1.A., up to an aggregate principal amount outstanding under the Facility-A Loan Account (as hereinafter defined) not to exceed the least of: (a) Eighty percent (80%) of Eligible Accounts (the "Borrowing Base") or (b) $5,000,000.00 (the "Facility-A Commitment"). If at any time or for any reason, the outstanding principal amount of the Facility-A Loan Account is greater than the least of: (x) the Borrowing Base or (y) the Facility-A Commitment, Borrower shall immediately pay to Bank, in cash, the amount of such excess. Any commitment of Bank, pursuant to the terms of this Loan Agreement, to make Facility-A Loans shall expire on the Facility-A Maturity Date (as hereinafter defined), subject to Bank's right to renew said commitment in its sole and absolute discretion at Borrower's request. Any such renewal of said commitment shall not be binding upon Bank unless it is in writing and signed by an officer of Bank. Provided that no Event of Default (as hereinafter defined) has occurred and is continuing, all or any portion of the Facility-A Loans advanced by Bank which are repaid by Borrower shall be available for reborrowing in accordance with the terms hereof. Borrower promises to pay to Bank the entire outstanding unpaid principal balance (and all accrued unpaid interest thereon) of the Facility-A Loan Account on October 14, 1999 ("Facility- A Maturity Date"). (1) FACILITY-A LOANS. The amount of each Facility-A Loan made by Bank to Borrower hereunder shall be debited to the loan ledger account of Borrower maintained by Bank for the Facility-A Commitment (herein called the "Facility-A Loan Account") and Bank shall credit the Facility-A Loan Account with all loan repayments in respect thereof made by Borrower. When Borrower desires to obtain a Facility-A Loan, Borrower shall notify Bank (which notice shall be signed by an officer of Borrower and shall be irrevocable) in accordance with SECTION 2 hereof, to be received no later than 3:00 p.m. Pacific time one (1) Banking Day (as hereinafter defined) before the day on which the Facility-A Loan is to be made. Facility-A Loans may only be used for working capital purposes and the issuance of letters of credits. (a) LETTER OF CREDIT USAGE AND SUBLIMIT. Subject to the availability of the Facility-A Commitment and in reliance on the representations and warranties of Borrower set forth herein, at any time and from time to time from the date hereof through the Banking Day immediately prior to the Facility-A Maturity Date, Bank shall issue for the account of Borrower such standby and commercial letters of credit ("Letters of Credit") as Borrower may request, which request shall be made by delivering to Bank a duly executed letter of credit application on Bank's standard form; provided, however, that the outstanding and undrawn amounts under all such Letters of Credit (i) shall not at any time exceed $3,000,000.00 and (ii) shall be deemed to constitute Facility-A Loans for the purpose of calculating availability under the Facility-A Commitment. Unless Borrower shall have deposited with Bank cash collateral in an amount sufficient to cover all undrawn amounts under each such Letter of Credit and Bank shall have agreed in writing, no Letter of Credit shall have an expiration date that is later than the Facility-A Maturity Date. All Letters of Credit shall be in form and substance acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank's application and letter of credit agreement, in the form of EXHIBIT B attached hereto and incorporated herein by this reference. Borrower will pay any standard issuance and other fees that Bank notifies Borrower will be charged for issuing and processing Letters of Credit for Borrower. (2) LIMITATION ON ADVANCE OF ANY FACILITY-A LOAN. Notwithstanding any of the provisions contained in SECTION 1.A hereof, prior to any advance of a Facility-A Loan, a representative of Bank shall have conducted an audit of Borrower's books and records relating to the Collateral and made extracts therefrom, and arranged for verification of the Accounts, directly with the account debtors or otherwise, all with results reasonably satisfactory to Bank, the cost of such audit of which shall be at Borrower's sole expense. Based on Bank's review of such audit, and prior to the advance of a [***] CERTAIN INFORMATION ON THIS PAGE(S) HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Facility-A Loan in accordance with the terms of SECTION 1.A hereof, Bank may adjust the Borrowing Base percentage, in its sole and reasonable discretion, as provided for under SECTION 9.B. hereof. (3) NON-FORMULA AVAILABILITY. Provided that no Event of Default has occurred and is continuing, and subject to the availability of the Facility- A Commitment and in reliance on the representations and warranties of Borrower set forth herein, at any time from the date hereof through April 30, 1998, Bank hereby agrees to make Facility-A Loans to Borrower in such amounts as Borrower shall request pursuant to this SECTION 1.A.(3), in an aggregate principal amount not to exceed $2,500,000.00 (the "Non-Formula Availability"); provided, however, that the outstanding amounts under this Non-Formula Availability shall be deemed to constitute Facility-A Loans for the purpose of calculating availability under the Facility-A Commitment. (4) INTEREST PAYMENTS ON FACILITY-A LOANS. Borrower further promises to pay to Bank from the date of the advance of the initial Facility-A Loan through the Facility-A Maturity Date, on or before the tenth (10th) day of each month, interest on the average daily unpaid balance of the Facility-A Loan Account during the immediately preceding month at a rate of interest equal to the rate of interest per annum which Bank has announced as its prime lending rate (the "Prime Rate"), which shall vary concurrently with any change in the Prime Rate. Interest shall be computed at the above rate on the basis of the actual number of days during which the principal balance of the Facility-A Loan Account is outstanding divided by 360, which shall for interest computation purposes be considered one (1) year. 2. LOAN REQUESTS. Requests for Loans hereunder shall be in writing duly executed by Borrower in the form of EXHIBIT C attached hereto and incorporated herein by this reference and shall contain a certification setting forth the matters referred to in SECTION 1, which shall disclose that Borrower is entitled to the amount and type of Loan being requested. Bank is hereby authorized to charge Borrower's deposit account with Bank for all principal and interest due Bank under this Loan Agreement. 3. DELIVERY OF PAYMENTS. Payment to Bank of all amounts due hereunder shall be made at its Santa Clara Valley Regional office, or at such other place as may be designated in writing by Bank from time to time. If any payment date fall on a day that is not a day that Bank is open for the transaction of business ("Banking Day"), the payment due date shall be extended to the next Banking Day. 4. LATE CHARGE. If any interest payment, principal payment or principal balance payment required hereunder is not received by Bank on or before ten (10) days from the date in which such payment becomes due, Borrower shall pay to Bank, a late charge equal to the lesser of (a) five percent (5.0%) of the amount of such unpaid payment, in addition to said unpaid payment or (b) the maximum amount permitted to be charged by applicable law, until remitted to Bank; provided; however, nothing contained in this SECTION 4, shall be construed as any obligation on the part of Bank to accept payment of any past due payment or less than the total unpaid principal balance of the Facility-A Loan Account following the FacilityA Maturity Date. All payments shall be applied first to any late charges due hereunder, next to accrued interest then payable and the remainder, if any, to reduce any unpaid principal due under the Facility-A Loan Account. 5. DEFAULT INTEREST. From and after the Facility-A Maturity Date, or such earlier date as all sums owing under the Facility-A Loan Account becomes due and payable by acceleration or otherwise, or upon the occurrence of an Event of Default, at the option of Bank all sums owing under the Facility-A Loan Account shall bear interest until paid in full at a rate equal to the lesser of (a) five percent (5.0%) per annum in excess of the then applicable interest rate provided for in SECTION 1.A.(3) hereof or (b) the maximum amount permitted to be charged by applicable law, until all obligations hereunder are repaid in full or the Event of Default is waived or cured to the satisfaction of Bank, as applicable. 6. DEFINITIONS. As used in this Loan Agreement and unless otherwise defined herein, all initially capitalized terms shall have the meanings set forth on EXHIBIT A attached hereto and incorporated herein by this reference. 7. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Bank: (a) That Borrower is a corporation, duly organized and existing in the State of its incorporation and the execution, delivery and performance of each of the Loan Documents are within Borrower's corporate powers, have been duly authorized and are not in conflict with law or the terms of any charter, by-law or other incorporation papers, or of any indenture, agreement or undertaking to which Borrower is a party or by which Borrower is bound or affected; (b) Borrower is, and at the time the Collateral becomes -2- subject to Bank's security interest will be, the true and lawful owner of and has, and at the time the Collateral becomes subject to Bank's security interest will have, good and clear title to the Collateral, subject only to Bank's rights therein and to Permitted Liens; (c) Each Account is, and at the time the Account comes into existence will be, a true and correct statement of a bona fide indebtedness incurred by the debtor named therein in the amount of the Account for either merchandise sold or delivered (or being held subject to Borrower's delivery instructions) to, or services rendered, performed and accepted by, the account debtor; (d) That there are and will be no defenses, counterclaims, or setoffs which may be asserted against the Accounts from time to time represented by Borrower to be Eligible Accounts, except as permitted in the definition thereof; (e) Any and all financial information, including information relating to the Collateral, submitted by Borrower to Bank, whether previously or in the future, is and will be true and correct in all material respects; (f) There is no material litigation or other proceeding pending or threatened against or affecting Borrower, and Borrower is not in default with respect to any order, writ, injunction, decree or demand of any court or other governmental or regulatory authority; (g) (i) The consolidated balance sheets of Borrower dated as of September, 1997, and the related consolidated profit and loss statements for the fiscal year then ended, copies of which have heretofore been delivered to Bank by Borrower, and all other statements and data submitted in writing by Borrower to Bank in connection with Borrower's request for credit are true and correct, and said balance sheet and profit and loss statement accurately present the financial condition of Borrower as of the date thereof and the results of the operations of Borrower for the period covered thereby, and have been prepared in accordance with GAAP, (ii) since such date, there have been no material adverse changes in the financial condition of Borrower, and (iii) Borrower has no knowledge of any material liabilities, contingent or otherwise, which are not reflected in said balance sheet, and Borrower has not entered into any special commitments or substantial contracts which are not reflected in said balance sheet, other than in the ordinary and normal course of its business, which may have a Material Adverse Effect upon its financial condition, operations or business as now conducted; (h) Borrower has no material liability for any delinquent local, state or federal taxes, and, if Borrower has contracted with any government agency, it has no liability for renegotiation of profits; and (i) to the best of its knowledge, Borrower, as of the date hereof, possesses all necessary trademarks, trade names, copyrights, patents, patent rights, and licenses to conduct its business as now operated, without any known conflict with valid trademarks, trade names, copyrights, patents, patent rights and license rights of others. 8. NEGATIVE COVENANTS. Borrower agrees that so long as any loans, obligations or liabilities remain outstanding or unpaid to Bank or the commitment of Bank hereunder is in effect, neither Borrower, nor any of its subsidiaries ("Subsidiaries") will, without the prior written consent of Bank, which will not be unreasonably withheld: A. Make any substantial change in the character of its business as now conducted; B. Create, incur, assume or permit to exist any Indebtedness other than loans from Bank except obligations now existing as shown in the financial statements referenced in SECTION 7.(G)(I), excluding those being refinanced by Bank, Subordinated Debt and Permitted Indebtedness; or sell or transfer, either with or without recourse, any accounts or notes receivable or any monies due or to become due; C. Create, incur, assume or permit to exist any mortgage, pledge, encumbrance, lien or charge of any kind (including the charge upon property at any time purchased or acquired under conditional sale or other title retention agreement) upon any asset now owned or hereafter acquired by it, other than Permitted Liens and liens in favor of Bank; D. Sell, dispose of or grant a security interest in any of the Collateral other than to Bank (other than the disposing of such Collateral in the ordinary and normal course of its business as now conducted, such Collateral which is disposed in connection with the sale of Network Services Division or other assets which are obsolete or otherwise considered surplus), or execute any financing statements covering the Collateral in favor of any secured party or Person other than Bank; E. Sell, transfer, assign, mortgage, pledge, license (except in the ordinary and normal course of its business as it is now conducted), lease, grant a security interest in, or otherwise encumber any of its Intellectual Property; F. Make any loans or advances to any Person or other entity other than in the ordinary and normal course of its business as now conducted (provided that such loans or advances are not made to any Person or entity which is controlled by or under common control with Borrower); -3- G. Purchase or otherwise acquire all or substantially all of the assets or business of any Person or other entity; or liquidate, dissolve, merge or consolidate, or commence any proceedings therefore; or, except in the ordinary and normal course of its business as now conducted, sell (including, without limitation, the selling of any property or other asset accompanied by the leasing back of the same) any assets including any fixed assets, any property, or other assets necessary for the continuance of its business as now conducted; and H. Declare or pay any dividend or make any other distribution on any of its capital stock now outstanding or hereafter issued or purchase, redeem or retire any of such stock other than in dividends or distributions payable in Borrower's or any such Subsidiary's capital stock, except for the repurchase of Borrower's capital stock from officers, directors, employees or consultants of Borrower upon termination of their employment with or rendering of services to Borrower. 9. AFFIRMATIVE COVENANTS. Borrower affirmatively covenants that so long as any loans, obligations or liabilities remain outstanding or unpaid to Bank or the commitment of Bank hereunder is in effect, it will: A. Furnish Bank from time to time such financial statements and information as Bank may reasonably request and inform Bank immediately upon the occurrence of a material adverse change therein; B. Notwithstanding the provisions contained in SECTION 1.A.(2) hereof, permit representatives of Bank to conduct annual audits of Borrower's books and records relating to the Collateral and make extracts therefrom, with results satisfactory to Bank, provided that Bank shall use its best efforts to not interfere with the conduct of Borrower's business, and to the extent possible to arrange for verification of the Accounts directly with the account debtors obligated thereon or otherwise, all under reasonable procedures acceptable to Bank and at Borrower's sole expense. Borrower hereby acknowledges and agrees that upon completion of any such audit, including any such audit conducted in accordance with the provisions of SECTION 1.A.(2) hereof, Bank shall have the right to adjust the Borrowing Base percentage based on its review of the results of such Collateral audit, if in its reasonable discretion the Accounts have a lower likelihood of collection than Bank previously believed prior to such Collateral audit; C. Promptly notify Bank of any attachment or other material legal process levied against any of the Collateral and any information received by Borrower relative to the Collateral, including the Accounts, the account debtors or other Persons obligated in connection therewith, which may in any way affect the value of the Collateral or the rights and remedies of Bank in respect thereto; D. Reimburse Bank upon demand for any and all legal costs, including reasonable attorneys' fees, and other expense incurred in collecting any sums payable by Borrower under the Facility-A Loan Account or any other obligation secured hereby, enforcing any term or provision of this Loan Agreement or otherwise or in the checking, handling and collection of the Collateral and the preparation and enforcement of any agreement relating thereto; E. Notify Bank of each location and of each office of Borrower at which records of Borrower relating to the Accounts are kept; F. Provide, maintain and deliver to Bank policies insuring the Collateral against loss or damage by such risks and in such amounts, forms and companies as Bank may require (to the extent customarily maintained by businesses similar to Borrower) and with loss payable to Bank, and, in the event Bank takes possession of the Collateral, the insurance policy or policies and any unearned or returned premium thereon, to the extent necessary to repay any indebtedness owed to Bank, shall at the option of Bank become the sole property of Bank, such policies and the proceeds of any other insurance covering or in any way relating to the Collateral, whether now in existence or hereafter obtained, being hereby assigned to Bank; G. In the event the unpaid balance of the Facility-A Loan Account shall exceed the maximum amount of outstanding loans to which Borrower is entitled under SECTION 1 hereof, as applicable, Borrower shall immediately pay to Bank for credit to the Facility-A Loan Account the amount of such excess; -4- H. Maintain and preserve all rights, franchises and other authority adequate and necessary for the conduct of its business and maintain and preserve its existence in the State of its incorporation and any other state(s) in which Borrower conducts its business, except with respect to such other state(s), as the failure to do so would not have a Material Adverse Effect; I. Maintain public liability, property damage and workers compensation insurance and insurance on all its insurable property against fire and other hazards with responsible insurance carriers to the extent usually maintained by similar businesses. Borrower shall provide evidence of property insurance in amounts and types acceptable to Bank, and certificates naming Bank as a loss payee; J. Pay and discharge, before the same becomes delinquent and penalties accrue thereon, all taxes, assessments and governmental charges upon or against it or any of its properties, and any of its other liabilities at any time existing, except to the extent and so long as: (1) the same are being contested in good faith and by appropriate proceedings in such manner as not to cause any Material Adverse Effect or the loss of any right of redemption from any sale thereunder; and (2) it shall have set aside on its books reserves (segregated to the extent required by GAAP); K. Maintain a standard and modern system of accounting in accordance with GAAP on a basis consistently maintained; permit Bank's representatives to have access to, and to examine its properties, books and records at all reasonable times; provided that Bank shall use its best efforts to not interfere with the conduct of Borrower's business; L. Maintain its properties, equipment and facilities in good order and repair; M. Prior to allowing any of Borrower's raw materials, work in process, finished goods inventory and property, plant and equipment to be transported to or be held at any contract manufacturer, warehouse or other location (other than with bona fide distributors and retail accounts), Borrower shall provide notice to Bank and Borrower shall have complied with such filing and notice requirements as shall, in Bank's opinion, assure Borrower's and Bank's priority in such property over creditors of such contract manufacturer, warehouseman or operator of such other location, including, without limitation, making filings under California Commercial Code (S)2326, providing notice under California Commercial Code (S)9114 and making filings and publications as required under California Civil Code (S)3440.1 and (S)3440.5 All such filings, notices and publications shall be in form and substance satisfactory to Bank. 10. FINANCIAL COVENANTS AND INFORMATION. All financial covenants and financial information referenced herein shall be interpreted and prepared in accordance with GAAP as used in the United States of America applied on a basis consistent with previous years. Compliance with the financial covenants shall be calculated and monitored on a monthly basis, except as shall be expressly stated to the contrary. Borrower affirmatively covenants that so long as any loans, obligations or liabilities remain outstanding or unpaid to Bank or any commitment is outstanding hereunder, it will, on a consolidated basis: A. At all times, maintain a Minimum Tangible Net Worth (meaning all assets, excluding any value for goodwill, trademarks, patents, copyrights, organization expense and other similar intangible items, less all liabilities, plus Subordinated Debt) of not less than $6,000,000.00. B. At all times maintain a Maximum Ratio of Total Liabilities (meaning all liabilities, excluding Subordinated Debt) to Tangible Net Worth (as defined in SECTION 10.A. hereof) not to exceed 1.50:1.00; C. At all times maintain a Minimum Quick Ratio (meaning all cash plus Accounts divided by current liabilities) of not less than 1.00:1.00; D. As soon as it is available, but not later than twenty-five (25) days after and as of the end of each month, deliver to Bank an internally- prepared financial statement consisting of a balance sheet and profit and loss statement, in form satisfactory to Bank, and a Compliance Certificate in the form of EXHIBIT D attached hereto and incorporated herein by this reference, certified by an officer of Borrower; -5- E. As soon as it is available, but not later than one hundred twenty (120) days after the end of Borrower's fiscal year, deliver to Bank unqualified copies of Borrower's consolidated financial statements together with changes in financial position audited by an independent certified public accountant selected by Borrower but acceptable to Bank; F. So long as the Facility-A Commitment shall be outstanding or any amounts remain outstanding and unpaid under the Facility-A Loan Account, as soon as it is available, but not later than twenty-five (25) days after and as of the end of each month, deliver to Bank, in such form and detail as Bank may require, statements showing aging of the Accounts and Borrower's accounts payable, together with a Borrowing Base Certificate in the form of EXHIBIT E attached hereto and incorporated herein by this reference, certified by an officer of Borrower. Notwithstanding the foregoing, as a condition to any request for a FacilityA Loan, Borrower shall have delivered to Bank said aging statements as well as a Borrowing Base Certificate covering the most recent month then ended prior to the date of Borrower's request for an advance for a FacilityA Loan; G. Upon the reasonable request of Bank, deliver to Bank current budgets, sales projections, operating plans and other financial exhibits and information in form and substance satisfactory to Bank; and H. Upon any officer becoming aware, deliver immediately to Bank written notice of any pending or threatened litigation claiming, or reasonably likely to result in, damages against Borrower in an amount in excess of $150,000.00. 11. LOAN FEE. Borrower has paid, and Bank hereby acknowledges receipt of a loan fee in the amount of Twenty-five Thousand Dollars ($25,000.00). 12. DEFAULT AND REMEDIES. The occurrence of any one or more of the following shall constitute an "Event of Default": (a) Default be made in the payment of any obligation by Borrower under any Loan Document; (b) Except for any failure to pay as described in clause (a) above, material breach be made in any warranty, statement, promise, term or condition, contained herein or in any other Loan Document and the same shall not have been cured to the satisfaction of Bank within fifteen (15) days after Borrower shall have become aware thereof, whether by written notice from Bank, or otherwise, (except that no cure period shall exist for breaches in respect of Borrower's obligations under SECTION 8, SUBSECTIONS 9.A., 9.B., 9.C., 9.F., 9.G. and 9.H., SUBSECTIONS 10.A., 10.B. and 10.C. of this Loan Agreement, and SECTIONS 1 and 2 of the General Security Agreement and a cure period of five (5) days shall exist for SUBSECTIONS 9.I., 10.D., 10.E. and 10.F.); (c) Any statement, warranty or representation made by Borrower at any time proves materially false; (d) Borrower defaults in the repayment of any principal of or the payment of any interest on any indebtedness exceeding in the aggregate principal amount $100K or breaches or violates any term or provision of any promissory note, loan agreement, mortgage, indenture or other evidence of such indebtedness pursuant to which amounts outstanding in the aggregate exceed $2.0M if the effect of such breach is to permit the acceleration of such indebtedness, whether or not waived by the note holder or obligee, and such failure shall not have been cured to Bank's satisfaction within fifteen (15) calendar days after Borrower shall become aware thereof, whether by written notice from Bank or otherwise, or there has in fact been an acceleration of such indebtedness; (e) Borrower becomes insolvent or makes an assignment for the benefit of creditors; (f) Any proceeding be commenced by Borrower under any bankruptcy, reorganization, arrangement, readjustment of debt or moratorium law or statute or, any such a proceeding is commenced against Borrower and is not dismissed or stayed within ten (10) days (provided that no Loans will be made prior to the dismissal of such proceeding); (g) Any money judgment, writ of attachment, garnishment, execution or other legal process be entered against Borrower or issued against any material property of Borrower which is not fully covered by insurance (subject to reasonable deductibles) and remains unvacated, unbonded, unstayed or unpaid or undischarged for more than fifteen (15) days (whether or not consecutive) or in any event later than five (5) days prior to the date of any proposed sale thereunder, or if any assessment for taxes against Borrower other than against any of its real property, is made by the Federal or State government or any department thereof; or (h) Any change in Borrower's financial condition, prospects or operations which has a Material Adverse Effect. Upon the occurrence and during the continuance of an Event of Default, Bank may, at its option and without demand first made and without notice to Borrower, do any one or more of the following: (i) Terminate its obligation to make loans to Borrower as provided in SECTION 1 hereof; (ii) Declare all sums secured hereby immediately due and payable; (iii) Immediately take possession of the Collateral wherever it may be found, using all legally permissible means to do so, or require Borrower to assemble the Collateral and make it available to Bank at a place designated by Bank which is reasonably convenient to Borrower and -6- Bank, and Borrower waives all claims for damages due to or arising from or connected with any such taking; (iv) Proceed in the foreclosure of Bank's security interest and sale of the Collateral in any manner permitted by law, or provided for herein; (v) Sell, lease or otherwise dispose of the Collateral at public or private sale, with or without having the Collateral at the place of sale, and upon terms and in such manner as Bank may determine, and Bank may purchase same at any such sale; (vi) Retain the Collateral in full satisfaction of the obligations secured thereby to the extent permitted under the Uniform Commercial Code; (vii) Exercise any remedies of a secured party under the Uniform Commercial Code; or (viii) Immediately record the IP Security Agreement with the United States Patent and Trademark Office, the Register of Copyrights and/or the UCC Division of the California Secretary of State, to perfect Bank's security interests created and assignment granted in the Intellectual Property thereunder. Prior to any such disposition, Bank may, at its option, cause any of the Collateral to be repaired or reconditioned in such manner and to such extent as Bank may deem advisable, and any sums expended therefor by Bank shall be repaid by Borrower and secured hereby. Bank shall have the right to enforce one or more remedies hereunder successively or concurrently, and any such action shall not estop or prevent Bank from pursuing any further remedy which it may have hereunder or by law. If a sufficient sum is not realized from any such disposition of the Collateral to pay all obligations secured by this Loan Agreement, Borrower hereby promises and agrees to pay Bank any deficiency. 13. RECORDS RETENTION. Borrower authorizes Bank to destroy all invoices, delivery receipts, reports and other types of documents and records submitted to Bank in connection with the transactions contemplated herein at any time subsequent to four (4) months from the time such items are delivered to Bank. 14. ATTORNEYS' FEES. Borrower agrees to reimburse Bank for its reasonable attorneys' fees and expenses incurred in connection with the negotiation, preparation, execution and delivery of the Loan Documents. 15. GOVERNING LAW; JUDICIAL REFERENCE. A. GOVERNING LAW. This Agreement shall be deemed to have been made in the State of California and the validity, construction, interpretation, and enforcement hereof, and the rights of the parties hereto, shall be determined under, governed by, and construed in accordance with the internal laws of the State of California, without regard to principles of conflicts of law. B. JUDICIAL REFERENCE. (1) Other than (a) nonjudicial foreclosure and all matters in connection therewith regarding security interests in real or personal property; or (b) the appointment of a receiver, or the exercise of other provisional remedies (any and all of which may be initiated pursuant to applicable law), each controversy, dispute or claim between the parties arising out of or relating to this Loan Agreement or the other Loan Documents, which controversy, dispute or claim is not settled in writing within thirty (30) days after the "Claim Date" (defined as the date on which a party subject to this Loan Agreement gives written notice to all other parties that a controversy, dispute or claim exists), will be settled by a reference proceeding in California in accordance with the provisions of Section 638 et seq. of the California Code of Civil Procedure, or their successor section ("CCP"), which shall constitute the exclusive remedy for the settlement of any controversy, dispute or claim concerning this Loan Agreement, including whether such controversy, dispute or claim is subject to the reference proceeding and except as set forth above, the parties waive their rights to initiate any legal proceedings against each other in any court or jurisdiction other than the Superior Court in the County where the real property, if any, is located or Santa Clara County, if none (the "Court"). The referee shall be a retired Judge of the Court selected by mutual agreement of the parties, and if they cannot so agree within forty-five (45) days after the Claim Date, the referee shall be promptly selected by the Presiding Judge of the Court (or his/her representative). The referee shall be appointed to sit as a temporary judge, with all of the powers for a temporary judge, as authorized by law, and upon selection should take and subscribe to the oath of office as provided for in Rule 244 of the California Rules of Court (or any subsequently enacted Rule). Each party shall have one peremptory challenge pursuant to CCP (S) 170.6. The referee shall (x) be requested to set the matter for hearing within sixty (60) days after the date of selection of the referee and (y) try any and all issues of law or fact and report a statement of decision upon them, if possible, within ninety (90) days of the Claim Date. Any decision rendered by the referee will be final, binding and conclusive and judgement shall be entered pursuant to CCP (S) 644 in any court in the State of California having jurisdiction. Any party may apply for a reference proceeding at any time after thirty (30) days following notice to any other party of the nature of the controversy, dispute or claim, by filing a petition for a hearing and/or trial. All discovery -7- permitted by this Loan Agreement shall be completed no later than fifteen (15) days before the first hearing date established by the referee. The referee may extend such period in the event of a party's refusal to provide requested discovery for any reason whatsoever, including, without limitation, legal objections raised to such discovery or unavailability of a witness due to absence or illness. No party shall be entitled to "priority" in conducting discovery. Depositions may be taken by either party upon seven (7) days written notice, and request for production or inspection of documents shall be responded to within ten (10) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee whose decision shall be final and binding upon the parties. Pending appointment of the referee as provided herein, the Superior Court is empowered to issue temporary and/or provisional remedies, as appropriate. (2) Except as expressly set forth in this Loan Agreement, the referee shall determine the manner in which the reference proceeding is conducted including the time and place of all hearings, the order of presentation of evidence, and all other questions that arise with respect to the course of the reference proceeding. All proceedings and hearings conducted before the referee, except for trial, shall be conducted without a court reporter except that when any party so requests, a court reporter will be used at any hearing conducted before the referee. The party making such a request shall have the obligation to arrange for and pay for the court reporter. The costs of the court reporter at the trial shall be borne equally by the parties. (3) The referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California. The rules of evidence applicable to proceedings at law in the State of California will be applicable to the reference proceeding. The referee shall be empowered to enter equitable as well as legal relief, to provide all temporary and/or provisional remedies and to enter equitable orders that will be binding upon the parties. The referee shall issue a single judgment at the close of the reference proceeding which shall dispose of all of the claims of the parties that are the subject of the reference. The parties hereto expressly reserve the right to contest or appeal from the final judgment or any appealable order or appealable judgment entered by the referee. The parties hereto expressly reserve the right to findings of fact, conclusions of laws, a written statement of decision, and the right to move for a new trial or a different judgment, which new trial, if granted, is also to be a reference proceeding under this provision. (4) In the event that the enabling legislation which provides for appointment of a referee is repealed (and no successor statute is enacted), any dispute between the parties that would otherwise be determined by the reference procedure herein described will be resolved and determined by arbitration. The arbitration will be conducted by a retired judge of the Court, in accordance with the California Arbitration Act, (S) 1280 through (S) 1294.2 of the CCP as amended from time to time. The limitations with respect to discovery as set forth hereinabove shall apply to any such arbitration proceeding. 16. MISCELLANEOUS PROVISIONS. A. Borrower agrees that it will review the products and services offered by Bank and use its best efforts to establish its primary banking accounts with Bank, provided, that the products and services offered by Bank are satisfactory to Borrower. B. Nothing herein shall in any way limit the effect of the conditions set forth in any other security or other agreement executed by Borrower, but each and every condition hereof shall be in addition thereto. C. No failure or delay on the part of Bank, in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof. D. All rights and remedies existing under this Loan Agreement or any other Loan Document are cumulative to, and not exclusive of, any rights or remedies otherwise available. E. All headings and captions in this Loan Agreement and any related documents are for convenience only and shall not have any substantive effect. F. This Loan Agreement may be executed in any number of counterparts, each of which when so delivered shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. Each such -8- agreement shall become effective upon the execution of a counterpart hereof or thereof by each of the parties hereto and telephonic notification that such executed counterparts has been received by Borrower and Bank. BANK: BORROWER: IMPERIAL BANK METAWAVE COMMUNICATIONS CORPORATION, A DELAWARE CORPORATION By: /s/ James E. Ellison /s/ Vito Palermo -------------------------------- ------------------------------------- Senior Vice President/Manager Chief Financial Officer and Secretary LIST OF EXHIBITS AND SCHEDULES - ------------------------------ EXHIBIT A: Definitions SCHEDULE 1 TO EXHIBIT A: List of Specific Permitted Indebtedness SCHEDULE 2 TO EXHIBIT A: List of Specific Permitted Liens EXHIBIT B: Form of Application and Letter of Credit Agreement EXHIBIT C: Loan Request Form EXHIBIT D: Compliance Certificate EXHIBIT E: Borrowing Base Certificate -9- ________________________________________________________________________________ ________________________________________________________________________________ EXHIBIT A DEFINITIONS "ACCOUNTS" means any right to payment for goods sold or leased, or to be sold or to be leased, or for services rendered or to be rendered no matter how evidenced, including accounts receivable, contract rights, chattel paper, instruments, purchase orders, notes, drafts, acceptances, general intangibles and other forms of obligations and receivables. "CAPITAL LEASE" means, as to any Person, any lease of any Property by such Person as lessee that is, or should be in accordance with Financing Accounting Standards Board Statement No. 13, classified and accounted for as a "capital lease" on the balance sheet of such Person prepared in accordance with GAAP. "CAPITAL LEASE OBLIGATION" means, with respect to any Capital Lease, the amount of the obligation of the lessee thereunder that, in accordance with GAAP, would appear on a balance sheet of such lessee in respect of such Capital Lease or otherwise be disclosed in a note to such balance sheet. "COLLATERAL" means any and all personal property of Borrower which is assigned or hereafter is assigned to Bank as security or in which Bank now has or hereafter acquires a security interest hereunder (including, without limitation, the Accounts), or pursuant to the terms of the General Security Agreement, the Intellectual Property Security Agreement (upon its recordation in accordance with SECTION 12(VIII) hereof) or otherwise. "CONTINGENT OBLIGATION" means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business), comade or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable, including, without limitation, any such obligation for which that Person is in effect liable through any agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, capital stock purchases, capital contributions or otherwise), or to maintain the solvency of the obligor of such obligation, or to make payment for any products, materials or supplies or for any transportation, services or lease regardless of the nondelivery or nonfurnishing thereof, in any such case if the purpose or intent of such agreement is to provide assurance that such obligation will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof. The amount of any Contingent Obligation of any Person shall be deemed to be an amount equal to the maximum amount of such Person's liability with respect to the stated or determinable amount of the primary obligation for which such Contingent Obligation is incurred or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder). "ELIGIBLE ACCOUNTS" means such of Borrower's Accounts as Bank in its sole reasonable discretion shall determine are eligible from time to time; provided, however, that in no event shall Eligible Accounts include the following: (1) all domestic and pre-approved international (foreign) Accounts under which payment is not received within the earlier of (a) 90 days from the applicable invoice date and (b) 60 days from the applicable payment due date; (2) all Accounts against which the account debtor or any other Person obligated to make payment thereon asserts any defense, offset, counterclaim or other right to avoid or reduce the liability represented by the Accounts; (3) any Accounts if the account debtor or any other Person liable in connection therewith is insolvent, subject to bankruptcy or receivership proceedings or has made an assignment for the benefit of creditors or whose credit standing is unacceptable to Bank and Bank has so notified Borrower; (4) Accounts with respect to which the account debtor is an officer, director, shareholder, employee or Subsidiary; -10- (5) Accounts due from an account debtor if more than twenty-five percent (25%) of the aggregate amount of Accounts of such account debtor have at that time remained unpaid for more than the earlier of (a) ninety (90) days from the applicable invoice date and (b) sixty (60) days from the applicable payment due date; (6) Accounts with respect to international (foreign) transactions unless (a) such Accounts are insured or covered by a letter of credit in a manner and form acceptable to the Bank, (b) the account debtors of such Accounts are foreign companies with sales greater than Five Hundred Million Dollars ($500,000,000) per year, or (c) Bank shall have otherwise permitted in writing in its sole and absolute direction; (7) salesperson's accounts for promotional purposes; (8) the amount by which the aggregate of all Accounts of an account debtor exceeds thirty-five percent (35%) of the total accounts receivable balance; (9) Accounts where the account debtor is a seller to borrower, to the extent that a potential offset exists; and (10) Accounts where the account debtor is a federal governmental entity, federal agency or instrumentality thereof. "EVENT OF DEFAULT" has the meaning set forth in SECTION 12. "FACILITY-A MATURITY DATE" has the meaning set forth in SECTION 1.A. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by the significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination. "GENERAL SECURITY AGREEMENT" means that certain General Security Agreement (Tangible and Intangible Personal Property) dated of even date herewith, made by Borrower in favor of Bank. "INDEBTEDNESS" means, as to any Person, without duplication, (a) all indebtedness of such Person for borrowed money, including, without limitation, all of such indebtedness outstanding under this Loan Agreement and any of the other Loan Documents, (b) all Capital Lease Obligations of such Person, (c) to the extent of the outstanding indebtedness thereunder, any obligation of such Person representing an extension of credit to such Person, whether or not for borrowed money, (d) any obligation of such Person for the deferred purchase price of Property or services (other than (i) trade or other accounts payable in the ordinary course of business in accordance with customary industry terms and (ii) deferred franchise fees), (e) all Contingent Obligations, (f) any obligation of such Person of the nature described in clauses (a), (b), (c), (d) or (e) above, that is secured by a Lien on assets of such Person and which is nonrecourse to the credit of such Person, but only to the extent of the fair market value of the assets so subject to the Lien, (g) obligations of such Person arising under acceptance facilities or under facilities for the discount of accounts receivable of such Person, (h) any obligation of such Person to reimburse the issuer of any letter of credit issued for the account of such Person upon which a draw has been made, and (i) any lease having the effect of indebtedness, whether or not the same shall be treated as such on the balance sheet of Borrower under GAAP. "IP SECURITY AGREEMENT" means that certain Collateral Assignment, Patent Mortgage and Security Agreement executed in blank by Borrower in favor of Bank to be filed by Bank in accordance with SECTION 12(VIII) hereof. "INTELLECTUAL PROPERTY" means collectively, all of Borrower's intellectual property, including, without limitation, the following: (1) Any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret (collectively, the "Copyrights"); 11 (2) Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products; (3) Any and all design rights which may be available to Borrower; (4) All patents, patent applications and like protections including, without limitation, improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same (collectively, the "Patents"); (5) Any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks (collectively, the "Trademarks"); (6) Any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above; (7) All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights; (8) All amendments, renewals and extensions of any of the Copyrights, Patents or Trademarks; and (9) All proceeds and products of the foregoing, including, without limitation, all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing. "LIEN" means any mortgage, pledge, security interest, lien or other charge or encumbrance, including the lien or retained security title of a conditional vendor, upon or with respect to any property or assets. "LOAN DOCUMENTS" means this Loan Agreement, the General Security Agreement and that certain Agreement to Provide Insurance (Real or Personal Property) dated of even date herewith, each as executed by Borrower in favor of Bank, together with all other documents entered into or delivered pursuant to any of the foregoing (including, without limitation, the IP Security Agreement upon its recordation in accordance with SECTION 12(VIII) hereof), in each case as originally executed or as the same may from time to time be modified, amended, supplemented or restated. "LOANS" means the Facility-A Loans advanced pursuant to SECTION 1. "MATERIAL ADVERSE EFFECT" means any set of circumstances or events which (a) has or could reasonably be expected to have any material adverse effect upon the validity or enforceability of any material provision of any Loan Document, (b) is or could reasonably be expected to be material and adverse to the condition (financial or otherwise) or business operations of Borrower, (c) materially impairs or could reasonably be expected to materially impair the ability of Borrower, to perform its material Obligations, (d) materially impairs or could reasonably be expected to materially impair the value or priority of Bank's security interest in any Collateral or (e) materially impairs or could reasonably be expected to materially impair the ability of Bank to enforce any of its legal remedies pursuant to the Loan Documents. "PERMITTED INDEBTEDNESS" means the following: (1) indebtedness of Borrower or Indebtedness and Contingent Obligations of its Subsidiaries in favor of Bank arising under this Loan Agreement and the other Loan Documents; (2) the existing Indebtedness and Contingent Obligations disclosed on SCHEDULE 1 attached hereto and incorporated herein by this reference; provided that the principal amount thereof is not increased and the terms thereof are not modified to impose more burdensome terms upon Borrower or any of its Subsidiaries; (3) the Subordinated Debt; (4) extensions, renewals or refinancings of Indebtedness permitted under this Loan Agreement, other than clause (3) immediately above; (5) accrued dividends on the preferred stock of Borrower; (6) interest rate and currency hedging agreements; (7) guaranties of any Subsidiary's suppliers in connection with the purchase of supplies in the ordinary course of business; 12 (8) guaranties of lease obligations incurred in the ordinary course of business and to the extent otherwise permitted hereunder; (9) Contingent Obligations constituting Permitted Liens; and (10) the indebtedness referred to in clause (3)(a) of the definition of Permitted Liens. "PERMITTED LIENS" means the following: (1) liens and security interests existing as of this date and disclosed in SCHEDULE 2 attached hereto and incorporated herein by this reference; (2) liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings; (3) liens and security interests (a) upon or in any equipment acquired or held by Borrower to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition of such equipment and in an amount not greater than the purchase price thereof or (b) existing on such equipment at the time of its acquisition, provided that the lien and security interest is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment; (4) liens consisting of leases or subleases and licenses and sublicenses granted to others in the ordinary course of Borrower's business not interfering in any material respect with the business of Borrower and any interest or title of a lessor or licensor under any lease or license, as applicable; (5) liens securing claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons or entities imposed without action of such parties; (6) liens incurred or deposits made in the ordinary course of Borrower's business in connection with worker's compensation, unemployment insurance, social security and other like laws; (7) liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default; (8) easements, reservations, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances affecting real property not interfering in any material respect with the ordinary conduct of Borrower's business; (9) liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (10) liens that are not prior to Bank's security interest which constitute rights of set-off of a customary nature; (11) any interest or title of a lessor in equipment subject to any Capitalized Lease otherwise permitted hereunder; and (12) any liens arising from the filing of any financing statements relating to true leases otherwise permitted hereunder. "PERSON" means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency. "PROPERTY" means any interest in any kind of property or asset, whether real, personal or mixed, whether tangible or intangible. "SUBORDINATED DEBT" means indebtedness of Borrower, the repayment of principal of which is fully subordinated in time and right of payment to the Loans, and has been approved in Bank's sole and absolute discretion and in writing. 13 SCHEDULE 1 TO EXHIBIT A SPECIFIC PERMITTED INDEBTEDNESS 14 SCHEDULE 2 TO EXHIBIT A SPECIFIC PERMITTED LIENS 15 EXHIBIT B FORM OF APPLICATION AND LETTER OF CREDIT AGREEMENT [TO BE PROVIDED AND ATTACHED BY BANK] 16 EXHIBIT C LOAN REQUEST FORM [TO BE PROVIDED AND ATTACHED BY BANK] 17 EXHIBIT D COMPLIANCE CERTIFICATE The consolidated financial statements dated as of __________________________ of METAWAVE COMMUNICATIONS CORPORATION, a Delaware corporation ("Borrower") attached hereto and submitted to IMPERIAL BANK ("Bank") pursuant to that certain Loan Agreement dated as of October __, 1997, entered into between Borrower and Bank (the "Loan Agreement"), are in compliance with all financial covenants (unless otherwise noted below) as specified in SECTION 10 therein, as follows: COVENANT: ACTUAL: A. Minimum Tangible Net Worth of: ----------------------------- $6,000,000.00 B. Maximum Liabilities to Tangible Net Worth Ratio: ----------------------------------- 1.50 : 1.00 ___________________ C. Minimum Quick Ratio: ------------------- 1.00 : 1.00 ___________________ Exceptions: (if none, so state): The undersigned authorized officer of Borrower hereby certifies that Borrower is in complete compliance with the terms and conditions of the Loan Agreement for the period ending _____________________, ____, and as of the date of this Compliance Certificate the representations and warranties stated therein are true, accurate and complete as of the date hereof (except as to those representations and warranties which specifically reference a particular date and except as noted above). The undersigned further certifies that s/he knows of no pending conditions which may cause an Event of Default (as defined in the Loan Agreement) to exist in the next thirty (30) days. The required support documents for this certification are attached and prepared in accordance with GAAP consistently applied. Date:____________________ METAWAVE COMMUNICATIONS CORPORATION, a Delaware corporation 18 EXHIBIT E BORROWING BASE CERTIFICATE (To be provided and attached by Bank) 19 Imperial Bank Exhibit 10.10 5330 Carillon Point Kirkland, WA 98033 (425) 832-1233 (425) 576-2810 February 11, 2000 VIA FACSIMILE AND US MAIL ------------------------- METAWAVE COMMUNICATIONS CORPORATION 8700 148th AVENUE NE REDMOND, WA 98052 Re: LOAN EXTENSION Borrower Name: METAWAVE COMMUNICATIONS CORPORATION Loan Number: 736000021 Note Number: 3 Gentlemen: Imperial Bank has approved an extension of Facility-A Maturity Date to March 14, 2000 from its current maturity as evidenced by that certain Loan Agreement dated October 14, 1997. Except as modified and extended hereby, the existing loan documentation as amended concerning your obligation remains in full force and effect. Very truly yours, /s/ Christopher Fenner Christopher Fenner Vice President March 23, 2000 John Schaller Corporate Controller Metawave Communications Corp 10735 Willows Rd NE Redmond, Washington 98052 Dear John: This letter sets forth a commitment from Imperial Bank ("Bank") to provide Metawave Communications Corp ("Borrower") the credit described below. The credit facility will be subject to the terms and conditions of the Bank's definitive loan documents which will include (but not be limited to) the following in detail: I. CREDIT FACILITY A $10,000,000 Revolving Line of Credit ("Line") to support working capital with a $2,500,000 sublimit for issuance of Trade-Related Commercial and Standby Letters of Credit ("Letters of Credit"). II. MATURITY 364 days from completion of definitive loan documents. III. TERMS Interest will be payable monthly with principal due at Maturity. IV. COLLATERAL Bank to have a blanket first priority security interest perfected by UCC filings and related Security Agreements on all assets of Borrower including all present and future inventory, chattel paper, accounts, contract rights, unencumbered equipment, general intangibles, and fixtures and the product thereof, including specific filings on the Company's intellectual property with the US Patent and Trademark Office and the US Copyright Office. V. GUARANTORS Before Borrower may loan any amounts to or enter into any guaranties of amounts owing by its Taiwanese subsidiary as otherwise permitted hereunder, Borrower shall provide a subsidiary guarantee from such Taiwanese subsidiary in form acceptable to Bank. [***] CERTAIN INFORMATION ON THIS PAGE(S) HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. VI. BORROWING FORMULA Advances will be limited to the lesser of: (i) [***]% of Eligible Accounts or (ii) the amount available under the Line. Notwithstanding, non-formula based non-cash advances of up to $2,500,000 will be allowed for Letters of Credit as long as Borrower maintains a Quick Ratio of [***], as outlined in Section VIII.A.1. In the case that the Borrowing Base availability is above the outstanding Letters of Credit, cash advances will be allowed against the Borrower Base, over and above the outstanding Letters of Credit, and Borrower will be required to maintain a Quick Ratio of [***], as outlined in Section VIII.A.1. As used herein, "Eligible Accounts" will include those domestic and pre- approved foreign accounts receivable of Borrower which are outstanding less than 90 days from invoice date subject to certain exclusions for contra, US government and inter-company accounts. Approved foreign accounts receivable include the following: i. Foreign accounts receivable that are fully insured. ii. Foreign accounts receivable that are backed by a site Letter of Credit whose documents have been reviewed and found acceptable to Imperial and where the issuing bank has been found acceptable to Imperial. iii. Foreign accounts receivable that are backed by a usance Letter of Credit whereby the issuing bank and related credit risk has been found acceptable by Imperial. Additional foreign accounts receivable will be eligible to the extent they are approved in writing by Bank. Any account which alone exceeds 35% of total accounts will have the amount in excess of 35% excluded unless approved in writing by Bank. Notwithstanding, [***] will have no concentration limit. Any account 25% or more of which is outstanding over 90 days from invoice date will be excluded in its entirety. VII. PRICING Interest Rate: Bank's Prime Rate per annum. Facility Fee: $[***], due and payable upon acceptance. VIII. COVENANTS A. Financial Covenants: 1) Upon closing, Borrower to maintain on a monthly basis unless otherwise noted: a) Minimum Quick Ratio of [***]. Notwithstanding, Borrower shall maintain a Minimum Quick Ratio of [***] as long as Borrowing Base supports cash advances over and above the outstanding Letters of Credit. b) Minimum Tangible Net Worth of [***] plus 50% of any equity or subordinated debt raised by Borrower. [***] CERTAIN INFORMATION ON THIS PAGE(S) HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. c) Maximum Total Liabilities to Tangible Net Worth of [***]. 1 "Adjusted Quick Ratio" is defined as cash plus accounts receivable divided by current liabilities less deferred revenue and current portion of indebtedness fully subordinated to the debt due to Bank. 2 "Tangible Net Worth" is defined as the financial statement net worth of the Borrower prepared in accordance with GAAP less intangible assets plus indebtedness fully subordinated to the debt due to Bank. 3 "Total Liabilities" is defined as all the Borrower's liabilities except for the indebtedness fully subordinated to the debt due to the Bank B. Borrower to provide Bank prior to a Initial Public Offering: 1) Unqualified audited financial statements within 120 days after each fiscal year. 2) Company prepared monthly financial statements and Compliance Certificate within 30 days after the end of each month. 3) Monthly aging of accounts receivable and accounts payable with Borrowing Base Certificate within 30 days after the end of each month. 4) Operating budgets, annual budgets and forecast within 30 days of fiscal year end. 5) Other financial information that the Bank may reasonably request C. Borrower to provide Bank after the Initial Public Offering: 1) Unqualified audited financial statements and 10-K within 5 days of standard SEC filing date of 10-K. 2) 10-Q and Compliance Certificate within 5 days of standard SEC filing date of 10-Q. 3) Company prepared monthly financial statements and Compliance Certificate within 30 days after the end of each month. 4) Monthly aging of accounts receivable and accounts payable with Borrowing Base Certificate within 30 days after the end of each month. 5) Operating budgets, annual budgets and forecast within 30 days of fiscal year end. 6) Other financial information that the Bank may reasonably request. D. Other Covenants: 1) [***]. 2) [***]; a. [***]. b. [***]; [***] CERTAIN INFORMATION ON THIS PAGE(S) HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. i. [***]. ii. [***]. iii. [***]. iv. [***]. v. [***]. c. [***]. d. [***]. e. [***]. 3) Borrower shall provide Bank proof of insurance on all tangible corporate assets and a Lender's Loss Payable Clause with Bank as loss payee. 4) Borrower shall notify Bank in writing of any legal action commenced against it which may result in damages over $[***]. Borrower shall provide Bank with such notice immediately upon Borrower's receipt of notice of such legal action. 5) Borrower shall pay Bank a $[***] documentation fee at the closing of transaction. IX. OTHER CONDITIONS A. Prior to cash advances over $500,000 against the Line, Bank shall conduct an initial collateral audit by Bank's designated agent at Borrower's expense, with results satisfactory to Bank. Thereafter, Bank shall conduct annual collateral audits by Bank's designated agent at Borrower's expense, with results satisfactory to Bank. B. All reasonable expenses of Bank for legal fees, documentation fees, UCC searches and filing fees, and all other costs involved with documenting and enforcing the loans, including the expenses of Bank's outside counsel, shall be borne by the Borrower, whether or not the Credit Facilities close. This letter is provided solely for your information and is delivered to you with the understanding that neither it nor its substance shall be disclosed to any third person, except those who are in confidential relationship with you, or where the same is required by law. If the terms set forth above are acceptable to you, please so indicate by signing and returning the original of this letter to us. The loan fees of $[***] and the documentation fee of $[***], all referred to above, will be payable at the signing of definitive loan documents. Unless a signed copy of this letter indicating your acceptance has been returned by no later than April 15, 2000, the terms herein will expire and be of no further affect. Upon return of this letter and the payment, the Bank will prepare drafts of definitive loan documents for your review. If you and the Bank do not enter into definitive loan documents, the Bank will refund to you the any amount of the loan fees collected, less any amount for the Bank's expenses for the foregoing. This letter is intended to set forth the terms of the credit facility currently under discussion between us. It is intended that all legal rights and obligations of the Bank and you would be set forth in the signed definitive loan documents. [***] CERTAIN INFORMATION ON THIS PAGE(S) HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. On behalf of the Senior Management of the Bank, we are delighted to propose making this credit facility available to Borrower and look forward to a long and mutually rewarding relationship. Please don't hesitate to call if you have any questions or problems. Sincerely, Sincerely, /s/ Julia Doke /s/ James Ellison Julia Doke James Ellison Assistant Vice President Senior Vice President & Manager Imperial Bank Imperial Bank Emerging Growth Industries Emerging Growth Industries Accepted and agreed to: Metawave Communications Corp By: /s/ John Schaller ---------------------------- Title: Controller and Treasurer ------------------------- Date: March 23, 2000 -------------------------- EX-10.14 11 PURCHASE AGRMT BETWEEN REGISTRANT & SOUTHWESTCO EXHIBIT 10.14 ORIGINAL GENERAL PURCHASING AGREEMENT BETWEEN SOUTHWESTCO WIRELESS, L.P. AND Metawave Communications Corporation Contract No. 880-9810-1020 CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -1- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. TABLE OF CONTENTS
SECTION TITLE PAGE - ------- ----- ---- ARTICLE I................................................................... 5 TERMS AND CONDITIONS APPLICABLE TO.......................................... 5 1. DEFINITIONS....................................................... 5 2. TERM OF AGREEMENT................................................. 6 3. ORDERS............................................................ 6 4. TERMINATION OF ORDERS............................................. 7 5. PRICING AND DELIVERY.............................................. 7 6. INVOICES AND PAYMENT.............................................. 7 7. PRICE PROTECTION.................................................. 8 8. MOST FAVORED CUSTOMER............................................. 9 9. AUDIT............................................................. 9 10. TERMINATION....................................................... 9 11. TRAINING.......................................................... 10 12. MANUALS AND DOCUMENTATION......................................... 10 13. WARRANTIES........................................................ 11 14. BENCHMARK TESTING, PRODUCT AND SOFTWARE TRIAL..................... 12 15. FORCE MAJEURE..................................................... 13 16. TAXES............................................................. 13 17. NOTICE............................................................ 14 18. INDEPENDENT CONTRACTORS........................................... 14 19. INDEMNIFICATION................................................... 14 20. INFRINGEMENT...................................................... 15 21. USE AND PROTECTION OF INFORMATION................................. 16 22. SUPPLIER'S INFORMATION............................................ 17 23. AVAILABILITY...................................................... 17 24. LICENSES.......................................................... 17 25. ASSIGNMENT........................................................ 17 26. SUBCONTRACTING.................................................... 18 27. PUBLICITY AND ADVERTISING......................................... 18 28. CHOICE OF LAW..................................................... 18 29. WAIVER AND ESTOPPEL............................................... 18 30. SEVERABILITY...................................................... 18 31. HEADINGS.......................................................... 19 32. INSURANCE......................................................... 19 33. RELEASES VOID..................................................... 20 34. OCCUPATIONAL SAFETY AND HEALTH ACT (OSHA)......................... 20 35. NON-DISCRIMINATION COMPLIANCE..................................... 20 36. SUCCESSORS AND ASSIGNS............................................ 20 37. SWCO'S PROPERTY................................................... 20 38. LAWS, RULES AND REGULATIONS....................................... 20 39. ATTORNEYS' FEES AND COSTS......................................... 21 40. COUNTERPARTS...................................................... 21
CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -2- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. TABLE OF CONTENTS ARTICLE II.................................................................. 22 TERMS AND CONDITIONS APPLICABLE TO.......................................... 22 1. SCOPE............................................................. 22 2. FORM OF ORDER..................................................... 22 3. SITE PREPARATION.................................................. 22 4. TRANSPORTATION.................................................... 23 5. TITLE AND RISK OF LOSS............................................ 23 6. INSTALLATION AND COMMISSIONING.................................... 23 7. SELF INSTALLATION................................................. 24 8. INSTALLATION, ASSISTANCE AND TECHNICAL SUPPORT.................... 24 9. STANDARD OF PERFORMANCE FOR ACCEPTANCE............................ 25 10. CABLES AND RELATED ITEMS.......................................... 25 11. ENGINEERING CHANGES............................................... 25 12. TRADE-IN.......................................................... 25 13. RELOCATION OF EQUIPMENT........................................... 25 14. SUPPLIES AND/OR REPLACEMENT PARTS................................. 26 15. CONVERSION OF FINANCIAL ARRANGEMENT............................... 26 16. TRANSFER OF TITLE TO A THIRD PARTY................................ 26 17. NEW EQUIPMENT..................................................... 26 18. REMOVAL OF EQUIPMENT.............................................. 26 ARTICLE III................................................................. 28 TERMS AND CONDITIONS APPLICABLE TO THE SUPPLIER'S HARDWARE.................. 28 1. SCOPE............................................................. 28 2. FORM OF ORDER..................................................... 28 3. AVAILABILITY OF MAINTENANCE AND SPARE PARTS....................... 29 4. SUPPLIER RESPONSIBILITIES FOR TYPE 1 EMERGENCY.................... 30 5. SUPPLIER RESPONSIBILITIES FOR TYPE 2 EMERGENCY.................... 30 6. SWCO's RESPONSIBILITIES........................................... 30 7. ON-SITE MAINTENANCE............................................... 31 8. NOTIFICATION AND RESPONSE......................................... 31 9. MAINTENANCE TERM AND MAINTENANCE CHARGES.......................... 31 10. ENGINEERING COMPLAINTS............................................ 32 11. ENGINEERING CHANGES............................................... 32 12. EQUIPMENT NON-PERFORMANCE CREDIT.................................. 33 13. REMEDIES FOR EQUIPMENT FOR FAILURE TO MEET OPERATIONAL LEVEL...... 33 14. WARRANTY.......................................................... 33 15. ESCALATION GUIDELINES............................................. 33 16. PROCEDURES FOR SUPPLIER'S HMP..................................... 34 ARTICLE IV.................................................................. 37 TERMS AND CONDITIONS APPLICABLE TO.......................................... 37 1. SCOPE............................................................. 37 2. DEFINITIONS....................................................... 37 3. FORM OF ORDER..................................................... 37 4. LICENSE........................................................... 38 5. LICENSE TERM...................................................... 39 6. LICENSE FEE....................................................... 39 7. SOFTWARE DELIVERY................................................. 39 8. RISK OF LOSS...................................................... 40 9. INSTALLATION...................................................... 40 10. STANDARD OF PERFORMANCE FOR ACCEPTANCE............................ 40 11. NEW RELEASES...................................................... 40 CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -3- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 12. SOFTWARE MAINTENANCE............................................... 41 13. SOFTWARE MAINTENANCE CHARGE........................................ 42 14. TERMINATION OF MAINTENANCE......................................... 43 15. OBJECT CODE AND TECHNICAL DOCUMENTATION............................ 43 16. RELOCATION OF SOFTWARE............................................. 43 17. ENHANCEMENT OF SERVICES............................................ 43 18. SOFTWARE EVALUATION................................................ 43 19. SOFTWARE VIRUS PROTECTION.......................................... 44 ARTICLE V................................................................... 45 TERMS AND CONDITIONS APPLICABLE TO THE PERFORMANCE ACCEPTANCE............... 45 1. INTRODUCTION...................................................... 45 2. PRODUCT CONFIGURATION PLANNING PHASE.............................. 45 3. MEASUREMENT PROCESS............................................... 45 4. BASELINE PERFORMANCE COLLECTION PHASE............................. 45 5. INSTALLATION AND COMMISSIONING PHASE.............................. 45 6. PRODUCT OPTIMIZATION PHASE........................................ 45 7. PERFORMANCE COLLECTION, EVALUATION AND ACCEPTANCE PHASE.................................................. 45 8. RESPONSIBILITIES.................................................. 45 ARTICLE VI.................................................................. 46 ENTIRE AGREEMENT............................................................ 46 1. ENTIRE AGREEMENT ENTIRE AGREEMENT................................. 46 2. SIGNATURES........................................................ 46 SCHEDULE A.................................................................. 47 PRODUCTS AND RELATED SERVICES............................................... 47 1. PRICING SUMMARY................................................... 47 2. EQUIPMENT DISCOUNTS............................................... 47 3. EQUIPMENT PRICING................................................. 47 4. MAINTENANCE FEES.................................................. 47 5. GENERAL CONDITIONS FOR ORDER...................................... 48
CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -4- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ARTICLE I TERMS AND CONDITIONS APPLICABLE TO THE ENTIRE AGREEMENT THIS GENERAL PURCHASE AGREEMENT is between SOUTHWESTCO WIRELESS, L.P., a Delaware Limited Partnership, doing business as Cellular One, (hereinafter called "SWCO") having an office and place of business at 11333 N. Scottsdale Rd., Suite 200, Scottsdale, Arizona 85254 and Metawave Communications Corporation, a Delaware Corporation, having its principal office and place of business at 10735 Willows Road NE, Redmond, Washington 98073 (hereinafter called "Supplier"). WHEREAS, SWCO may place Orders for the purchase of Product, Software and/or Related Services from Supplier for use in the United States; and WHEREAS, SWCO and Supplier each desire that the terms and conditions controlling all such purchases be consistent, uniform, and agreed to by both parties in advance of the -placement of any such Orders; and WHEREAS, this Agreement is intended to establish consistent and uniform terms and conditions for all purchases that SWCO may make from Supplier; NOW, THEREFORE, in consideration of the mutual promises, covenants, and conditions herein contained, SWCO and Supplier agree as follows: 1. DEFINITIONS 1.1 "Agreement" refers to this General Purchase Agreement. 1.2 "Commissioning" refers to the procedures described in Supplier's Product system manual to place the Equipment into commercial service at a particular site which is documented by SWCO's signature on the Commissioning Certificate attached hereto as Exhibit 1.3 "Equipment" refers to goods, including software necessary for the operation of the equipment, available from Supplier hereunder. 1.4 "Initial Order" refers to the first Order for Equipment and associated Services purchased by SWCO as defined in Schedule A. 1.5 "Order" refers to a written order from SWCO for the purchase, lease or license from Supplier of a Product and/or Related Services. 1.6 "Outstanding Order" refers to an Order for which title/lease/license to the Product and/or license to Software described therein has not passed to SWCO or for which any Related Services described therein have not been accepted. 1.7 "Party" refers to either SWCO or Supplier, as the context requires; both SWCO and Supplier may be collectively referred to as the "Parties." 1.8 "Product" refers to the Equipment and Software described on Schedule A hereto. 1.9 "Related Services" means those services such as installation, technical support, Software development, maintenance, and training, which Supplier will provide to SWCO CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -5- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. hereunder. Those Related Services which will be provided by Supplier, and the charges therefore, if any, are set forth on Schedule A. 1.10 "Software" refers to software purchased by or provided to SWCO including (i) computer programs embedded in the Equipment or Product which control and monitor the operation of the Equipment ("Embedded System Software"), as described in Schedule A; and (ii) the LampLighter(TM) PC-based graphical user interface computer program for the Equipment, and all Features, Major Releases, Point Releases, Software Patches (as defined in Article IV), and other updates and modifications to such Software and any documentation in support thereof. 1.11 "Subcontractor" means any person who or entity which enters into a contract with Supplier but with whom SWCO has no contractual relationship, and all employees, agents and representatives of that person or entity. 2. TERM OF AGREEMENT This Agreement shall be effective on 2/24, 1999 (the "Effective Date"). Unless terminated in accordance with Section 10 of this Article (Termination), this Agreement shall continue in effect for [***] and will be automatically renewed for subsequent one-year terms at each annual anniversary of the "Effective Date" (a "Renewal Term"). 3. ORDERS 3.1 All Orders made by SWCO from Supplier shall be in the form of a SWCO purchase order document that contains the items in the Section " Form of Order" located in each Article of this Agreement. Each Order shall reference and be deemed to incorporate the specifications applicable to the Product or Related Services being ordered and any special terms, in addition to those set forth in this Agreement made in writing by Supplier in SWCO and accepted by SWCO. 3.2 If notice of rejection of an Order is not received by SWCO within [***] from the date of the Order, such Order shall be deemed to have been accepted by Supplier. 3.3 Whenever the provisions of an Order conflict with the provisions of this Agreement, the provisions of the Order which are not preprinted as part of a form shall control. Printed provisions on the reverse side of SWCO's Orders and all provisions on Supplier's forms whether in Supplier's notice of acceptance, catalogue, invoice, confirmation, or otherwise, shall be deemed deleted and of no force or effect. An Order may be modified only by a written instrument signed by SWCO and Supplier. 3.4 It is expressly understood and agreed that this Agreement is intended solely to establish uniform and consistent terms and conditions for any Orders SWCO may choose to place with Supplier, that SWCO is not obligated to place any Orders with Supplier, except for the Initial Order, that this Agreement does not grant Supplier an exclusive privilege to sell to SWCO any or all Products, Software and/or Related Services which SWCO may require by contract with other manufacturers and suppliers for the procurement of comparable products, software and/or services. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -6- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 3.5 SWCO assumes no liability for Product produced, processed or shipped in excess of the amount specified in the Order placed with Supplier. 3.6 If following the completion of the site survey, Supplier reasonably determines that Equipment configuration or the Related Services set forth in the Order must be changed, Supplier shall notify SWCO with a written proposal for changes to the purchase Order. Upon receipt, SWCO shall have [***] business days to accept or reject the written proposal for changes. If accepted, SWCO shall execute a written change Order to reflect the required changes identified by the site survey. If SWCO rejects the written proposal for changes, SWCO may terminate the purchase Order subject to Section 4 of Article I. 4. TERMINATION OF ORDERS SWCO, prior to delivery, may terminate any Order, or portion thereof, except for the Initial Order. In the event SWCO terminates an Order or portion thereof, the following table will determine termination charges for undelivered Product. No termination charge shall apply to Software not delivered or Related Services not performed. Time of Cancellation Prior to Maximum Termination Charge Requested Delivery Date (% of Price) [***] Before Supplier applies these cancellation charges it will take into consideration Supplier's ability to recommit such Product toward the fulfillment of order(s) from other customers; and Supplier agrees to use every reasonable effort to recommit such equipment. 5. PRICING AND DELIVERY 5.1 Upon placement by SWCO of an Order, Supplier agrees to sell to SWCO those Products and/or Software specified on the Order for the applicable price set forth on Schedule A. The price in Schedule A is exclusive of such taxes as may be applicable pursuant to Section 16 of Article 1 (Taxes). 5.2 Supplier shall arrange for the delivery, and, if applicable, installation of the Product or Provision of the Related Services on the date(s) specified in the Order. Time is of the essence as to all dates for provision, delivery and installation, unless mutually agreed to by both Parties. 6. INVOICES AND PAYMENT 6.1 For the Initial Order only, Supplier shall render invoices following the date of acceptance of the Equipment, Software or Related Service as indicated by SWCO's execution of the Certificate of Acceptance attached as a part of Article V. Such invoices shall be sent to the billing address noted on the Order and shall contain a detailed list of charges which shall include, where applicable, type, description, and serial number of Equipment, Software, description of Related Services, basic charge for the Equipment, Software, or Related Service, and other CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -7- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. applicable charges. Any taxes, transportation costs or other associated costs billable hereunder are to be stated separately. Applicable sales/use taxes shall be paid to the state in which taxable items are delivered, based on final destination as noted in the Order for each item. If Order requires shipment to multiple states, than each item invoiced must indicate final shipping destination. Supplier shall attach to the invoices a copy of bills of lading and shipping notice showing through routing and weight. Each invoice shall be paid within thirty (30) days of receipt unless it is disputed by SWCO. For all other Orders, Suppler shall render invoices as follows: for Equipment to be installed by Supplier [***] for Equipment to be installed by SWCO [***] on shipment; and for Related Services, [***] on completion unless otherwise agreed to by both Parties. 6.2 The following detailed information is required on each invoice in order to assure prompt remittance: (1) SWCO's Order number. (2) Supplier's invoice number. (3) Quantity and price of each item shipped. (4) Applicable sales/use tax: i) the value of the taxable Product/Related Service by individual taxing jurisdiction; ii) the sales/use tax for each such Product/Related Service by individual taxing jurisdiction; iii) the value of nontaxable Product/Related Services; and iv) Supplier's sales/use tax registration number for each applicable taxing jurisdiction. (5) Other charges (if applicable). (6) Final total cost. (7) Contract number. 6.3 Charges payable by SWCO will apply and shall be calculated from the date of acceptance for Equipment or Software and the commencement date for a Service. For any period of less than a calendar month, the charges shall be prorated on the basis of a thirty (30) day month. 7. PRICE PROTECTION Supplier shall not increase the prices for any Equipment, Software and/or Related Services set forth on Schedule A during the Term. During a Renewal Term, if any, Supplier may increase the price of Product, Software and/or Related Service not more than [***] CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -8- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. in any annual Renewal Term effective upon sixty (60) days prior written notice and such increased price shall apply only to Orders placed after the effective date of such price increase. 8. [***] 8.1 For the Term and each Renewal Term of this Agreement, Supplier shall [***] as [***]. Supplier represents that all of the [***] by Supplier hereunder are [***]. If during the Term or any Renewal Term of this Agreement Supplier [***], then: (1) Supplier shall, within thirty (30) calendar days after the effective date of such [***]; (2) This Agreement and all applicable Orders shall [***]; and (3) [***]. [***] 8.2 If during the Term of this Agreement, or during any Renewal Term of this Agreement, Supplier [***] 9. AUDIT Supplier shall prepare and maintain complete, legible, and accurate records relating to this Agreement during the Term and maintain such for two (2) years from the date of termination. SWCO shall have the right, through its designated representatives, to examine and audit, at all reasonable times, all such records and such other records and accounts as may, under recognized accounting practices, contain information bearing upon this Agreement. 10. TERMINATION This Agreement may be terminated b written notice only, as follows: (a) By either Party, [***] with such termination being effective as of the end of the Term or Renewal Term. SWCO shall have the right to place Purchase Orders up until the effective date of the termination, and termination of this Agreement pursuant to this subsection (a) shall not affect any Outstanding Purchase Order as of the effective date of the termination. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -9- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. (b) By either Party, in the Event of Default or breach of this Agreement and/or Order by Supplier, when the breach or Default has not been cured after thirty (30) day written notice by the non-breaching Party. Any of the following shall be considered an "Event of Default": i) Either Party is judged bankrupt or insolvent; or ii) Either Party makes a general assignment for the benefit of its creditors; or iii) A trustee or receiver is appointed for either Party or for any of its property; or iv) Any petition by or on behalf of either Party is filed to take advantage of any debtor's act or to reorganize under the bankruptcy or similar laws; or v) Either Party disregards laws, ordinances, rules, regulations or orders of any public authority. In the event of termination pursuant to this subsection (b), SWCO shall have the right, at its option, to confirm in whole or in part any Outstanding Order, in which case Supplier shall be obligated to fulfill the Order to the extent it is confirmed, or to cancel, in whole or in part, any outstanding Order without any liability to SWCO. The foregoing right is in addition to, and not in limitation of, any other remedy SWCO may have at law or equity. 11. TRAINING 11.1 Supplier shall, at Supplier's published rates, provide sufficient training, training materials and technical support to SWCO to enable SWCO to properly and effectively use the Product. Such training shall be conducted at a site selected by SWCO, or at Supplier's offices located in Redmond, Washington, and on dates that are mutually agreed to. 11.2 Supplier shall provide a training class on site in each SWCO MSA where Equipment is installed. Additionally, Supplier shall provide a Refresher course annually at a site selected by SWCO. The content of each course shall include, but not be limited to site preparation, installation, remedial maintenance, failure recovery/backup, failure repair techniques, test equipment, diagnostic software use, and full documentation requirements, and may be changed by Supplier when, in its judgment, such change is warranted. Supplier shall provide sufficient personnel to conduct said course and shall furnish, at no additional cost, instructional aids appropriate for each course, including books, pamphlets and diagrams. 11.3 SWCO may reproduce any training materials originated by Supplier for the purpose of training SWCO personnel. Any such reproductions shall include any copyright 6r similar proprietary notices contained in the items being reproduced. 12. MANUALS AND DOCUMENTATION 12.1 Supplier shall provide, on or before the installation date for Product and at no additional charge, an updated CD Rom covering the installation, maintenance and operation of the Equipment and Software for every Spotlight ordered. Supplier shall provide all future updates of such CD Rom at Supplier's then published rates. 12.2 SWCO may reproduce any manuals for the purpose of installing, maintaining and operating the Equipment and Software. Any such reproductions shall include copyright or CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -10- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. similar proprietary notices contained in the items being reproduced. SWCO may purchase additional sets of manuals at Supplier's published rates. 13. WARRANTIES 13.1 Supplier warrants to SWCO that the Equipment and Software furnished will be free from defects in design (except to the extent designed by SWCO), material and workmanship and will conform to and perform in accordance with the specifications and documentation. Supplier also warrants to SWCO that Services will be performed in a fully workmanlike manner to SWCO's reasonable satisfaction. In addition, if Equipment or Software furnished contains one or more manufacturers' warranties, Supplier hereby assigns such warranties to SWCO. All warranties shall survive inspection, acceptance and payment. Equipment or Software not meeting the warranties will, at SWCO's option, be repaired, adjusted or replaced by Supplier at no cost to SWCO. 13.2 Except as otherwise stated herein, the warranty period for purchased Equipment, Software or Related Services will be in effect for [***] after the date of acceptance of such Equipment, Software or Related Services; provided; however, that such warranty period for Equipment or Software shall be extended by a period equal to the time during which such Equipment or Software is not operational as a result of such Equipment or Software not meeting its warranties. The warranty period for replacement Product shall be the remaining warranty period of the replaced Product or ninety (90) days, whichever is the greater. 13.3 If any breach of warranty occurs with respect to Equipment or Software and if such breach has not been corrected within a reasonable time (not to exceed thirty (30) days from SWCO notice to Supplier of the breach), SWCO may cancel any Outstanding Orders covering such defective Equipment or Software and any other Outstanding Orders for Equipment or Software affected by such breach. In the event a breach occurs during the warranty period on accepted Equipment or Software, and Supplier is unable to correct such breach through the procedures set forth in Articles III and IV within [***] from SWCO notice to Supplier of the breach, Supplier shall promptly remove such defective portion of Equipment or Software and refund to SWCO all monies previously paid to Supplier for such defective portion of Equipment or Software affected by the uncorrected breach. 13.4 Supplier warrants that SWCO shall acquire good and clear title to any Product purchased hereunder, free and clear of all liens and encumbrances And with respect to Software which is licensed, Supplier warrants SWCO shall acquire all rights and interests to use such Software. 13.5 Supplier represents and warrants to SWCO that at the time of delivery, all Products and Software delivered hereunder shall be "CALEA Compliant," meaning that they shall not adversely affect SWCO' s ability to comply with the provisions of Pub L. 103-414, Title 1, October 25, 1994, 108 Stat 4279 as it may be amended from time to time as well as any regulations or industry standards implementing the provisions of the law. 13.6 This warranty does not apply to any claim which arises out of any of the following: (1) the Equipment has been subject to unreasonable misuse, neglect, damage by SWCO or a third party; (ii) only in the event the installation was provided by someone other than Supplier and the Equipment has not been installed or optimized according to Supplier's CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -11- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. guidelines, or parts have been used in the Equipment which are not designed to be used with the Equipment; (iii) the Equipment is not maintained pursuant to Supplier's Maintenance Program only in the event the maintenance was provided by someone other than Supplier; (iv) an event of Force Majeure has occurred; and (v) the Equipment is non-performing as a result of the failure of third party equipment or services including but not limited to antennas, antenna lines or interconnection facilities not provided by Supplier at the site. 13.7 THE WARRANTIES IN THIS AGREEMENT ARE GIVEN IN LIEU OF ALL OTHER WARRANTIES EXPRESS OR IMPLIED WHICH ARE SPECIFICALLY EXCLUDED, 1NCLIJDING, WITHOUT LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 14. BENCHMARK TESTING, PRODUCT AND SOFTWARE TRIAL 14.1 Upon SWCO's request, and subject to availability, Supplier shall [***] be incorporated into the Order. 14.2 Upon SWCO's request, and subject to availability, Supplier shall, at no additional charge, provide SWCO with the use of products similar to Equipment and Software ordered by SWCO, but not yet installed, for purposes of program testing, conversion, compiling and other activities if Supplier normally provides similar use of such products to its other customers. 14.3 Supplier and SWCO may agree to an Equipment and Software trial(s) to demonstrate additional functionality which shall be governed by the following provisions: (1) Supplier shall bear all expenses related to the trial of the Equipment and Software, including the cost of transportation, installation, deinstallation, modification, repair, maintenance, packing, and unpacking, unless otherwise agreed to by the Parties. (2) The trial period will begin the day following SWCO's receipt of Supplier's notice that all Equipment and Software subject to the trial have been installed and are ready for testing. The trial will continue for the period agreed to by Supplier and SWCO. (3) At the end of the trial period, SWCO shall notify Supplier whether or not SWCO will order the trialed Equipment and Software. For any Equipment and Software not ordered by SWCO, Supplier shall remove such Equipment or Software within seven (7) days after Supplier's receipt of the notice, and SWCO will promptly return any Software to Supplier. (4) If, during the [***] CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -12- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 15. FORCE MAJEURE Neither SWCO nor Supplier shall be liable or deemed in default for any delay or failure in performance of an Order or any part of this Agreement to the extent that such delay or failure is caused by accident, fire, industry-wide strike, embargo, act of the government, war or national emergency requirement, act of God, or act of the public enemy ("Force Majeure Conditions"). If any Force Majeure Condition occurs, the Party delayed or unable to perform shall promptly give notice to the other Party. The Party affected by the other Party's delay or inability to perform may elect to: (1) Terminate the Order or part thereof as to Product or Related Services not already received; or (2) Suspend the Order for the duration of the Force Majeure Condition, and resume performance once the Force Majeure Condition ceases. Until notice is given otherwise, option (2) shall be deemed selected. 16. TAXES 16.1 Supplier shall bear the cost of all taxes, including but not limited to gross receipt taxes, imposed upon Supplier. Supplier shall be responsible to invoice SWCO and remit to the appropriate government authorities all applicable sales and use taxes imposed by law. SWCO shall be responsible to reimburse Supplier for applicable sales and use taxes billed and remitted as required hereunder. 16.2 Supplier shall provide to SWCO a sales and use tax registration number for each state in which Related Services are performed or that is the final destination, as set forth on the Order, of Product provided under this Agreement. The registration number for each applicable state will be added to every invoice issued by Supplier to SWCO hereunder. Supplier shall remit the sales/use tax to the state of final destination of Product, or the state in which the Related Services are performed. Supplier shall notify SWCO of any state for which Supplier does not bill and remit sales/use taxes because Supplier does not have nexus with that state. 16.3 If any of the Related Services include contractor services, Supplier shall comply with any applicable state's resident and non-resident contractor laws. Supplier will be responsible for its subcontractors compliance with such laws. Supplier shall provide SWCO with documentation of such compliance (including subcontractor documentation), which, at minimum, shall include a copy of the non-resident compliance certificate issued by each applicable state. 16.4 Each invoice issued by Supplier hereunder shall separately set forth; (i) the value of the taxable Product/Related Service by individual taxing jurisdiction, (ii) the sales/use tax for each such Product/Related Service by individual taxing jurisdiction, and (iii) the value of nontaxable Product/Related Services. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -13- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 16.5 Supplier agrees to pay, and hold SWCO harmless from and against, any penalty, interest, tax or other charge that may be levied or assessed as a result of the delay or failure of Supplier for any reason to pay any tax or file any return or information required by law, rule or regulation or by contract. If SWCO believes that Supplier has failed to comply with any of the terms of this Section 16, SWCO shall discuss such failure with Supplier, and upon the presentation of evidence that such failure has in fact occurred, SWCO may withhold up to ten percent (10%) of any invoice affected by such noncompliance. 17. NOTICE All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed given when either personally served or mailed by certified, registered mail, return receipt requested, or delivered by a reputable overnight delivery service, or by facsimile transmission confirmed by another form of delivery within one (1) business day, to: SWCO: Cellular One 11333 North Scottsdale Road, #200 Scottsdale, Arizona 85254 Attention: Contract Manager Supplier: Metawave Copy to: Metawave 1 10735 Willows Road NE 10735 Willows Road NE Redmond, Washington 98073 Redmond, Washington 98073 Attention: V.P. of Sales & Marketing Attention: General Counsel If either Party changes its address during the term hereof, it shall so advise the other Party in writing, and all notices thereafter required to be given shall be sent to such new address. 18. INDEPENDENT CONTRACTORS Neither Supplier nor its officers and directors and its associated personnel and employees shall be deemed to be employees or agents of SWCO, it being understood that Supplier is an independent contractor for all purposes and at all times. Supplier shall be solely responsible for the safety and supervision of its employees as well as for the withholding or payment of all federal, state and local personal income taxes, social security, unemployment and sickness disability insurance and other payroll taxes with respect to its employees, including contributions from them as required by law. 19. INDEMNIFICATION 19.1 Supplier shall defend, indemnify, and hold harmless SWCO, its parents, subsidiaries and affiliates, and their directors, officers, agents and employees from any and all liabilities, claims or demands whatsoever, (including the costs, expenses and reasonable attorney's fees incurred on account thereof) that may be made: (i) by any person, specifically including, but not limited to, Supplier, its agents or subcontractors, for injuries including bodily injury (including death to persons) or damage to property (including theft) occasioned by or alleged to have been occasioned by the acts or omissions of the Supplier its agents or subcontractors whether negligent or otherwise; or (ii) by persons furnished by Supplier or any CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -14- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. subcontractors under Worker's Compensation or similar acts, except to the extent such liability, claim, or demand arises in whole or in part from the negligence or willful misconduct of SWCO, its agents or employees. 19.2 Supplier shall defend SWCO against any such liability, claim or demand and control the litigation, settlement and defense thereof. The foregoing indemnification shall apply whether the death, injury or property damage is caused by the sole acts or omissions of Supplier or by the concurrent acts or omissions of SWCO or Supplier hereunder, except Supplier shall not be responsible for that portion of any liability, claim or demand to the extent that it arises from the negligence or willful misconduct of SWCO, its employees or agents SWCO agrees to notify Supplier promptly of any written claim or demands against SWCO for which Supplier is responsible hereunder. 19.3 The supplied Equipment, Hardware, Software, Product and Related Services provided hereunder (i) shall perform on and after January 1, 2000 in as good a manner as before such date, and (ii) shall at all times manage, manipulate and report data involving dates (including the year 2000, dates before and after the year 2000, and single-century and multicentury formulas) without generating incorrect values or dates or causing an abnormally-ending scenario within an application. Supplier shall provide SWCO with evidence of successful completion of laboratory testing, that the supplied Equipment, Hardware, Software, Product and Related Services provided hereunder properly performs all internal and external time and date processing. Such certification shall be provided no later than thirty (30) days after the execution of this Agreement. In addition, Supplier agrees to cooperate with SWCO in conducting Year 2000 interoperability tests to ensure that the supplied Equipment, Hardware, Software, Product and Related Services do not adversely `affect the operation, output, functionality or other elements of SWCO's operation. Further, Supplier agrees to cooperate with SWCO in providing information to third parties, such as customers, regulatory bodies, and auditors, regarding Supplier's Year 2000 compliance as it relates to the supplied Equipment, Hardware, Software, Product and Related Services. Supplier shall indemnify SWCO and for any loss, cost, or damages (including attorney's fees) sustained because of Supplier's Year 2000 noncompliance. 20. INFRINGEMENT 20.1 The following terms apply to any infringement, suit for or claim or allegation of infringement of any United States patent, trademark, copyright, trade secret or other proprietary interest (collectively referred to as "IP Claim") based on the manufacture, use, sale, resale, or importation into the United States of any Equipment, Software, Related Service, documentation or other item furnished to SWCO under or in contemplation of this Agreement. Supplier shall indemnify and hold harmless SWCO and any of its affiliates, customers, officers, directors, employees, assigns and successors for any loss, damage, expense, cost (including, but not limited to, any attorney's fees incurred in the enforcement of this indemnity) or liability that may result by reason of any such IP Claim, and Supplier shall defend or settle, at its own expense, any such IP Claim against SWCO. 20.2 SWCO shall provide Supplier with prompt written notice of any IP Claim that identifies Equipment, Software or Related Service provided to SWCO hereunder and tender to Supplier control of any such action or settlement negotiations to the extent covered by the indemnification provided herein. Supplier shall keep SWCO advised of the status of any such IP Claim and of its defense and/or negotiation efforts and shall afford SWCO reasonable CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -15- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. opportunity to review and comment on significant actions planned to be taken by Supplier on behalf of SWCO. If any such IP Claim involves other vendors of SWCO, Supplier shall cooperate as reasonably necessary to effectively defend SWCO. SWCO shall, at Supplier's expense, reasonably cooperate with Supplier in the defense of SWCO. 20.3 If the use, manufacture, sale, or importation in the United States of any Equipment, Software, or Related Service furnished hereunder becomes subject to an IP Claim, Supplier shall, at SWCO's option and at no expense to SWCO, (i) by license or other release from claim of infringement obtain for SWCO and SWCO's customers the right to make, use, sell and/or import into the United States the Product, Software or Related Service, as appropriate; or (ii) substitute an equivalent non-infringing Product, Software or Related Service reasonably acceptable to SWCO, which meets the specifications for the Product, Software or Related Service, and extend this indemnity thereto; or (iii) modify such Product, Software, or Related Service to make it non-infringing but continue to meet the specifications therefore, and extend this indemnity thereto. 20.4 Supplier shall have no obligation to SWCO with respect to any claim of patent or copyright infringement which is based upon (i) adherence to specifications, designs, or -instructions furnished by SWCO, unless such specifications, designs, or instructions are incorporated into Product made generally available to Supplier's customers, (ii) the combination, operation or use of any Equipment supplied hereunder with products, software, or data with which the Equipment is not intended to be used or for which the Equipment is not designed, unless at Supplier's direction, (iii) the alteration of the Equipment or modification of any Software made by any party other than Supplier, unless at Supplier's direction, or (iv) SWCO's use of a superseded or altered release of some or all of the Software if infringement would be avoided by the use of a subsequent, unaltered release of the Software that is provided to SWCO by Supplier. 21. USE AND PROTECTION OF INFORMATION 21.1 The Parties shall, both during the Term of this Agreement and for a period of [***] after termination of this Agreement, hold in strictest confidence information which is confidential and/or proprietary to the other ("Confidential Information", as more fully described below). The Parties shall not disclose or make each other's Confidential Information available, in any form, to any third party or use each other's Confidential Information for any purpose other than as specified in this Agreement. Each Party shall take all reasonable steps to ensure that Confidential Information is not disclosed or distributed by its employees or agents (who have access to same because of and only on a need-to-know basis) in violation of any provision of this Agreement, but in no event less than reasonable means. If in the course of performance of this Agreement Supplier needs to disclose SWCO Confidential Information to a subcontractor or agent, the agent/contractor must sign a Non-Disclosure Agreement substantially in the form of Schedule B. 21.2 SWCO's and Supplier's Confidential Information shall include all information clearly marked as confidential. 21.3 The foregoing shall not prevent either Party from disclosing Confidential Information which: (i) is or becomes a part of the public domain through no act or omission of the other Party; (ii) was in the other Party's lawful possession prior to such access to or the CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -16- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. disclosure of same and had not been obtained by such other Party either directly or indirectly from the Party hereto granting such access or making such disclosure, all of which is so documented by such other party; (iii) is lawfully disclosed to the other Party by a third party without restriction on such disclosure; (iv) is required to be disclosed pursuant to subpoena, law, regulation, or other legal process, provided, however, that the Party responding to such request first provides written notice to the other Party of the request; (v) is approved by the other Party for disclosure; or (vi) with respect to information that is the same as or substantially identical to the Confidential Information, is independently developed and is so documented by the other Party. 21.4 Each Party acknowledges that the other would suffer irreparable damage in the event of any material breach of the provisions of this Section 21. Accordingly, in such event, a Party would be entitled to seek preliminary and final injunctive relief, as well as any other applicable remedies at law or in equity against the Party who has breached or threatened to breach this Section 21 and that Party hereby waives the defense that money damages would be adequate. 22. SUPPLIER'S INFORMATION No specifications, drawings, sketches, models, samples, tools, computer programs, technical information, business information, or data, other than that specified in Section 21 of this Article, written, oral or otherwise, furnished by Supplier to SWCO hereunder or in contemplation hereof shall be considered by SWCO to be confidential or proprietary unless so agreed to by SWCO in writing at the time an Order is placed. 23. AVAILABILITY Supplier represents and warrants that the Equipment and Software listed on Schedule A or its equivalent shall be available for purchase by SWCO from Supplier for a minimum of five (5) years following the initial acquisition of the Product pursuant to this Agreement. 24. LICENSES No licenses, express or implied, under any patents, trademarks or copyright are granted by SWCO to Supplier. No licenses, express or implied, under any patents, trademarks or copyright are granted by Supplier to SWCO except for Software licenses contained in Article IV. 25. ASSIGNMENT 25.1 Any assignment of the work to be performed, in whole or in part, or of any other interest hereunder by Supplier without the prior written consent of SWCO, except an assignment confined solely to monies due or to become due, shall be void. It is expressly agreed that any such assignment of monies shall be void to the extent that it attempts to impose upon SWCO obligations to the assignee additional to the payment of such monies, or to preclude SWCO from dealing solely and directly with Supplier in all matters pertaining hereto, including the negotiation of amendments or settlements of amounts due. SWCO, upon five (5) days prior written notice to Supplier, may assign all its rights, duties and obligations under this Agreement to an affiliate or affiliates of SWCO or to a partnership or partnerships to which SWCO or its affiliate has an ownership interest. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -17- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 25.2 SWCO shall not (i) assign, sublicense or otherwise transfer the Software license set forth in Article IV, to any third party without the prior consent of the Supplier, except as permitted in Section 25.1, (ii) purchase the Equipment solely for the purpose of reselling or distributing it to a third party (third party does not include SWCO's affiliates); or (iii) permit its directors, officers, employees, agents or any other third person to reverse engineer the Equipment or the Software. 26. SUBCONTRACTING Supplier shall not, without SWCO's prior written approval, subcontract any portion of the work to be performed on SWCO property hereunder, except for the purchase of standard commercial supplies and materials. 27. PUBLICITY AND ADVERTISING Supplier shall submit to SWCO all advertising, sales promotion, press releases and other publicity matters relating to the Equipment or Software furnished or the Related Services performed by Supplier under this Agreement wherein SWCO's name, marks or the name or mark of any Bell Atlantic Company is mentioned or language from which the connection of said names or marks therewith may be inferred or implied. Supplier shall not publish or use such advertising, sales promotion, press releases, or publicity matters without SWCO's prior written approval. Supplier shall post no signs at any site at which Equipment or Software is being installed or serviced except those required by local, state or federal law. 28. CHOICE OF LAW This Agreement shall be governed by the laws of the State of New York without reference to its conflicts of law provisions and the Software shall have the definition of goods under the U.C.C. The exclusive jurisdiction for any legal proceeding regarding this Agreement shall be the state or federal courts in New York and the Parties expressly submit to the jurisdiction of said courts. 29. WAIVER AND ESTOPPEL Either Party's failure at any time to enforce any of the provisions of this Agreement or any right with respect thereto, or to exercise any option herein provided, will in no way be construed to be a waiver of such provisions, rights, or options or in any way to affect the validity or enforcement of this Agreement. The exercise by either Party of any right or options under the terms or covenants herein shall not preclude or prejudice the exercising thereafter of the same or any other right under this Agreement. 30. SEVERABILITY If any provision or portion of a provision of this Agreement is invalid under applicable statute or rule of law, it is only to that extent to be deemed omitted, and such unenforceability shall not affect any other provision of this Agreement, but this Agreement shall then be construed as if such unenforceable provision(s) had never been contained herein. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -18- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 31. HEADINGS The headings in this Agreement are for convenience only and shall not be construed to define or limit any of the terms herein. 32. INSURANCE 32.1 Supplier shall maintain, during each Term and Renewal Term of this Agreement, at its own expense, the following insurance: a. Worker's Compensation insurance as prescribed by the law of the state in which the work is performed; b. Employer's liability insurance with limits of at least $1,000,000 each occurrence: c. Comprehensive general liability insurance (including products liability insurance) and, if the use of automobiles is required, comprehensive -automobile liability insurance, each with limits of at least $1,000,000 for bodily injury, including death, to any one person, and $1,000,000 on account of any occurrence, and $1,000,000 for each occurrence of property damage; and d. Excess liability insurance with a combined single limit of $5,000,000. 32.2 The insuring carriers and the form of the insurance policies shall be subject to approval by SWCO. SWCO shall be named as an additional insured on all such policies. Supplier shall furnish to SWCO certificates of such insurance within ten (10) days of the execution of this Agreement. The certificates shall provide that ten (10) days prior written notice of cancellation or material change of the insurance to which the certificates relate shall be given to SWCO. The fulfillment of the obligations hereunder in no way modify Supplier's obligations to indemnify SWCO. 32.3 Supplier shall also require Supplier's subcontractors, if any, who may enter upon SWCO's premises to maintain similar insurance and to agree to furnish SWCO, if requested, certificates or adequate proof of such insurance. Certificates furnished by Supplier's subcontractors shall contain a clause stating that SWCO is to be notified in writing at least ten (10) days prior to cancellation of, or any material change in, the policy. 32.4 SWCO may reasonably require Supplier at any time, and from time to time, subject to Supplier's ability to obtain such additional insurance, to obtain and maintain in force additional insurance with coverage or limits in addition to those above described. However, the additional premium costs of any such additional insurance required by SWCO shall be borne by SWCO, and Supplier shall arrange to have such costs billed separately and directly to SWCO by the insuring carrier(s). SWCO shall be authorized by the Supplier to confer directly with the agent or agents of the insuring carrier(s) concerning the extent and limits of Supplier's insurance coverage in order to assure the sufficiency thereof. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -19- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 33. RELEASES VOID Neither Party shall require waivers or releases of any personal rights from representatives or customers of the other in connection with visits to its premises and both Parties agree that such releases or waivers shall not be pleaded by them or by third persons in any action or proceeding. 34. OCCUPATIONAL SAFETY AND HEALTH ACT (OSHA) Supplier shall be responsible for the safety of its work and shall maintain all lights, guards, signs, temporary passages, and any other necessary protection and precautions for that purpose. Supplier and its Subcontractors shall give access to the authorized representatives of the Secretary of Labor or any state or local official for the purpose of inspecting or investigating or carrying out of any of the duties under the Occupational Safety and Health Act of 1970, and any amendments thereto, or any applicable state, or local laws, rules, or regulations affecting safety and health. Supplier shall be responsible for any violation by it or its subcontractors of any safety or health standards issued thereunder, shall immediately remedy any citation giving rise to such violations, and Supplier shall defend, indemnify, and hold harmless SWCO from any penalty, fine or liability in connection therewith. 35. NON-DISCRIMINATION COMPLIANCE The applicable provisions in Schedule C, entitled "Non-Discrimination Compliance Agreement" shall form a part of this Agreement and any amendments thereto. 36. SUCCESSORS AND ASSIGNS This Agreement shall inure to the benefit of, and shall be binding upon the Parties hereto and their respective successors and permitted assigns. 37. SWCO'S PROPERTY 37.1 Title to all property owned by SWCO and furnished to Supplier shall remain in SWCO 37.2 Any property to which SWCO has title and which is in Supplier's possession or control shall be used only in the performance of this Agreement unless authorized in writing by SWCO. Supplier shall adequately protect such property, and shall deliver or return it to SWCO or otherwise dispose of it as directed by SWCO. 38. LAWS, RULES AND REGULATIONS 38.1 Supplier shall comply, at its own expense, with the applicable provisions of the EEO, Fair Labor Standards Act of 1938, as amended, The Occupational Safety and Health Act, and all other applicable federal, state and local laws, ordinances, regulations and codes including identification and procurement of required permits, certificates, approvals and inspections in performance under this Agreement. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -20- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 38.2 The employee and agents of each Party shall, while on the premises of the other, comply with all governmental rules and regulations in effect at such premises, including security requirements. Supplier's right of entry shall be subject to applicable governmental security laws. 38.3 Both Parties agrees to indemnify and hold the other Party harmless for any loss or damage that may be sustained by reason of any failure to comply with this Section 38. 39. ATTORNEYS' FEES AND COSTS In the event that this Agreement or any Order is breached by Supplier, then, in addition to all other rights and remedies SWCO may have, at equity and in law, Supplier shall be liable for SWCO's reasonable attorneys' fees and costs incurred in collecting any sums that are due and owing under this Agreement or in taking any legal action that is necessary in order to enforce the terms and conditions of this Agreement. 40. COUNTERPARTS This Agreement may be executed in counterparts, all of which shall be considered an original and together they shall constitute one (1) agreement. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -21- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ARTICLE II TERMS AND CONDITIONS APPLICABLE TO EQUIPMENT ACQUISITION 1. SCOPE Supplier shall provide to SWCO the Equipment and Related Services as described in the Orders SWCO may from time to time place hereunder. 2. FORM OF ORDER Each Order for Equipment and Related Services shall contain the following: (1) Date of Order and Order Number, (2) The incorporation by reference of this Agreement: (3) The incorporation by reference of specifications which differ from those in published guides; (4) A detailed list of the Equipment or Related Services that are required. Such list is to include where applicable quantities, model numbers, features, descriptions, specifications, prices, charges, purchase option-credits, and discounts. The last will indicate which equipment is purchased and which is leased; (5) The billing and delivery addresses; (6) The required dates for delivery and installation of Equipment or Related Services; (7) The name and telephone number of the SWCO person to contact regarding delivery and the coordination of other activities; and (8) Any other special terms and conditions that are not provided for elsewhere in the Order or this Agreement. 3. SITE PREPARATION Supplier shall promptly perform a site survey and shall promptly furnish to SWCO site preparation specifications in such detail as to ensure that the Equipment to be installed shall operate efficiently from an environmental point of view. SWCO shall prepare the site at its own expense and in accordance with the site specifications. Supplier shall reimburse SWCO for any site preparation expenses needlessly incurred because of inaccurate site preparation specifications, or because the site was prepared for Equipment which was returned for failure to conform to the provisions of this Agreement. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -22- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 4. TRANSPORTATION 4.1 Supplier shall deliver the Equipment complete and in accordance with SWCO instructions, if any, with transportation charges prepaid by Supplier. Supplier shall deliver the Equipment in sufficient time to meet the required installation date. SWCO may delay the delivery of the Equipment by giving the Supplier notice prior to shipment. 4.2 Supplier shall, at no additional charge, properly pack the Equipment in connection with the shipment of such Equipment to the delivery location and in connection with the removal of such Equipment, if such Equipment is returned to Supplier pursuant to this Agreement. 4.3 Unless SWCO provides special shipping instructions, transportation charges shall not exceed the cost of shipment via surface common carrier between the delivery location and Supplier's facility. SWCO shall reimburse Supplier for such transportation charges for the shipment of the Equipment to the delivery location. SWCO shall reimburse Supplier for rigging and drayage costs incurred at the delivery location. 4.4 If Supplier removes or replaces any Equipment because such Equipment is nonconforming with the provisions of this Agreement, Supplier shall bear all transportation charges including rigging and drayage costs. If SWCO has already paid Supplier for such charges, Supplier shall promptly refund such payment. 4.5 Supplier shall be responsible for dealing with carriers to ensure delivery of shipments, locating missing or late shipments, resolving billing for transportation charges, and submitting and resolving all claims arising from loss of or damage to such shipments. 4.6 Claims for transportation damage shall be filed and processed by Supplier. Without cost to SWCO, and at SWCO's option, damaged Product, Software shall be promptly repaired to the satisfaction of SWCO or replaced, with all replacement parts to be handled on an expedited shipping basis. 5. TITLE AND RISK OF LOSS For the Initial Order only, title shall not vest nor shall risk of loss pass until installation has been fully performed and the equipment has been accepted by SWCO in accordance with Article V. On all subsequent Orders for Equipment title shall vest in SWCO and risk of loss pass to SWCO only when Equipment has been delivered at the F.O.B. point of destination. 6. INSTALLATION AND COMMISSIONING 6.1 Supplier shall install the Equipment, perform its standard test procedures and prepare the Equipment for Commissioning, all on or before the ordered Commissioning date and Supplier shall certify to SWCO that such Equipment is ready for the Commissioning. There shall be no installation or Commissioning charges associated with any Equipment except those charges that are listed in the Order. Supplier shall remove and dispose of all packing materials and other surplus materials upon completion of the installation. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -23- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 6.2 No Equipment shall be deemed to be installed until all Equipment and all Software required by the Order has been installed. However, the Parties may agree that Commissioning can be certified on a site by site basis. 6.3 If Supplier fails to complete such Commissioning and deliver to SWCO its certification of Commissioning on or before the ordered Commissioning date, SWCO may either cancel the Order or extend such ordered Commissioning date to a subsequent date. If SWCO elects to extend the ordered Commissioning date, the Parties agree that SWCO will be damaged in an amount which will be difficult to determine with certainty. Therefore, Supplier agrees to pay SWCO as a late Commissioning-charge, and not as a penalty, an amount equal to one percent (1%) of the purchase price for each week or part thereof of delay occurring after the ordered Commissioning date originally specified on the Order until either the Commissioning date or the date on which SWCO cancels the Order, whichever first occurs. Such late Commissioning-charge shall not accrue beyond twelve (12) weeks of delay and shall take the form of a credit against the purchase price of the Equipment in favor of SWCO. 6.4 The foregoing not withstanding, in the event that construction delays or other causes not covered by Section 15 of Article I (Force Majeure) and not within the reasonable -control of Supplier, force postponement of the installation of a Product, the Product, shall be stored until installation can be resumed. Transfer and storage charges incurred shall be paid by SWCO. Labor costs for loading and unloading shall be based upon an hourly rate to be determined by agreement between SWCO and Supplier. The cost of special services, such as design, warehousing, inventory, etc., shall be negotiated between SWCO and Supplier prior to placement of the Order. 7. SELF INSTALLATION 7.1 SWCO may, at its option, install the Equipment. Such election shall be stated in the Order or anytime prior to delivery. If SWCO so elects to install the Equipment, Supplier shall, if requested by SWCO, provide services relating to installing, Commissioning, and optimizing, at a mutually agreed upon rate. 7.2 If SWCO elects to install the Equipment and Supplier fails to deliver the Equipment by the ordered delivery date, Supplier shall be subject to a late delivery charge in the form of a credit against the purchase price of the Equipment as provided for in Section 6 of this Article (Installation and Commissioning), except that the calculation of damages will be based on the delay occurring after the ordered delivery date until the actual delivery date rather than after the ordered Commissioning date. In addition, SWCO may cancel the Order. 8. INSTALLATION, ASSISTANCE AND TECHNICAL SUPPORT 8.1 During the Warranty period, such technical support shall be provided without charge to SWCO, unless otherwise specified in Schedule A. The availability or performance of this technical support service shall not be construed as altering or affecting Supplier's warranties or any other obligation of Supplier under this Agreement. 8.2 Supplier shall provide SWCO with ongoing technical support, including, field service and assistance. During the Warranty period, such technical support shall be provided without charge to SWCO, unless otherwise specified in Schedule A. The availability or CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -24- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. performance of this technical support service shall not be construed as altering or affecting Supplier's warranties or any other obligation of Supplier under this Agreement. 9. STANDARD OF PERFORMANCE FOR ACCEPTANCE For the Initial Order only, SWCO shall certify to Supplier that the Equipment has been accepted upon the successful achievement of the Performance Acceptance Procedure as specified in Article V. Within ten (10) days after Supplier has certified that the Equipment has been installed and ready for use, SWCO, with Supplier's advice and assistance, shall commence the acceptance tests. 10. CABLES AND RELATED ITEMS An Order shall be deemed to include all items necessary for the proper operation of the Equipment as ordered by SWCO, provided by Supplier, and includes any other components or materials necessary to enable the operation of the Equipment in accordance with the specifications. 11. ENGINEERING CHANGES 11.1 Engineering changes which are (i) generally made available by Supplier to customers on the same Equipment provided hereunder and (ii) are intended to correct defects in the Equipment, shall, with the consent of SWCO, be made by Supplier to the Equipment at no charge. The administration and installation of engineering changes shall be accomplished by Supplier, unless otherwise agreed to by the Parties. 11.2 Engineering changes which correct a safety defect shall be made as soon as possible at no charge. Supplier shall notify SWCO of any such safety defect and recommended interim safety measure to be taken. [***] 13. RELOCATION OF EQUIPMENT SWCO may move Equipment from one location to another. At SWCO's request, Supplier shall arrange for and supervise the dismantling, packing and moving of any purchased Equipment and shall inspect and reinstall such Equipment at the new location. In addition, Supplier shall specify to SWCO, prior to any move, which of the existing cables and ancillary equipment associated with the Equipment to be moved are reusable at the new site. SWCO shall pay Supplier for such Related Services at Supplier's published rates. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -25- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 14. SUPPLIES AND/OR REPLACEMENT PARTS Supplier shall provide SWCO with specifications for all replacement parts which are used or required to operate any Equipment. The relevant supplies shall be available from Supplier upon SWCO request for a minimum of seven (7) years following the acquisition of the Equipment. 15. CONVERSION OF FINANCIAL ARRANGEMENT SWCO may elect to convert any part or all of an Order for purchase Equipment, any time prior to shipment to a third party lease, or, subject to availability by Supplier, to any of Supplier's purchase, installment sale, lease, rental plan, or other marketing pricing policy and may do so with no liability. 16. TRANSFER OF TITLE TO A THIRD PARTY In connection with the financing of Equipment, SWCO may request Supplier to pass title to the Equipment directly to an assignee designated by SWCO. If SWCO requests, Supplier shall execute a bill of sale conveying title to the Equipment to the assignee. In such event, the assignee shall succeed to all of SWCO's rights under the Order with respect to the Equipment, although SWCO shall continue to exercise such rights on behalf of the assignee until Supplier is otherwise notified. Notwithstanding the foregoing, SWCO guarantees payment of the purchase price for the Equipment to Supplier. The right of SWCO to request Supplier to pass title to the Equipment to the assignee shall include the right to sublicense any licensed Software relating to the Equipment without the payment of any additional license fees to Supplier. 17. NEW EQUIPMENT Supplier warrants that the Equipment shall be new and of original manufacture in the United States. 18. REMOVAL OF EQUIPMENT 18.1 Promptly after the cancellation of an Order, pursuant to this Agreement Supplier shall, at its expense, pack and remove the Equipment affected thereby. In addition, Supplier shall make all necessary transportation arrangements to ship the Equipment away from SWCO premises. 18.2 If Supplier for any reason does not remove the Equipment within ten (10) days after the cancellation of an Order or the termination of a lease, SWCO may, at Supplier's expense and risk, arrange to have the Equipment packed and shipped to Supplier. In such event, Supplier shall promptly, after receipt of SWCO invoices, reimburse SWCO for any costs which may thereby be incurred. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -26- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. -- This page intentionally left blank -- CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -27- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ARTICLE III TERMS AND CONDITIONS APPLICABLE TO THE SUPPLIER'S HARDWARE MAINTENANCE PROGRAM 1. SCOPE 1.1 Supplier shall provide to SWCO Supplier's Hardware Maintenance Program ("HMP") which is necessary to maintain the Equipment in accordance with its specifications and to keep the same in good working order and operating condition as described in the Orders SWCO may from time to time place hereunder. 1.2 Equipment maintained hereunder shall include Equipment ordered under this Agreement, and Supplier's equipment acquired from other sources which has been maintained to Supplier's specifications, inspected by Supplier and refurbished, as necessary, to specifications by Supplier at Supplier's published rates. 1.3 Supplier shall make available to SWCO, prior to commencement of HIvIP, at Supplier's published rates, documentation to facilitate installation, operation and preventive and remedial maintenance. If the originally produced documentation is changed as a result of the application of an engineering change to a field installation, SWCO shall be provided with the updated documentation at no charge. 1.4 Pursuant to the terms of this Agreement, Supplier shall provide SWCO with Supplier owned or licensed diagnostic software which is made available by Supplier for commercial use and which is necessary for SWCO's maintenance of the Equipment. 2. FORM OF ORDER Each Order for maintenance Related Services or HMP shall contain the following: (1) Date of Order and Order Number; (2) The incorporation by reference of this Agreement; (3) The billing and Equipment location addresses; (4) The required commencement dates for maintenance Related Services, and the length of term for such Related Services; (5) The name and telephone number of the SWCO contact person regarding the coordination of the activities; and (6) Any other special terms and conditions that are not provided for elsewhere in the Order or this Agreement. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -28- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 3. AVAILABILITY OF MAINTENANCE AND SPARE PARTS 3.1 Supplier shall assist SWCO in determining SWCO's requirements for an inventory of spare parts by providing SWCO with a standard spare parts list and the current usage statistics for such parts. 3.2 Supplier shall make available to SWCO spare parts and HMP for a period of not less than [***] years from the date of the each Order. The price for such spare parts and HMP will be listed in Supplier's published rates. If subsequent to such [***] year period Supplier no longer makes available a spare part, Supplier shall notify SWCO [***] year in advance of its decision to discontinue the spare part. If during the [***] year period, Supplier fails to provide such HMP or spare parts or is unable to obtain an~1iterna~iource acceptable to SWCO, then such inability shall be deemed noncompliance with this Agreement. In addition to the other rights and remedies SWCO may have at law and equity under this Agreement, SWCO shall have the right to require Supplier, without charge, to provide technical information and any other rights to allow SWCO to obtain such HMP and spare parts through its own manufacture or contracts with other vendors. 3.3 The technical information noted above shall include, but is not limited to: (a) manufacturing drawings and specifications of raw materials and components comprising such parts; (b) manufacturing drawings and specifications covering special tooling and the operation thereof; (c) a detailed list of all commercially available parts and components purchased by Supplier on the open market disclosing the part number, and name and location for the purchase thereof; and (d) one (1) complete set of equipment diagrams and maintenance procedures. 3.4 Supplier shall provide spare parts on an emergency basis from Supplier's local office. Emergency spare parts which are unavailable from Supplier's local office shall be made available to SWCO through Supplier's field service channels upon request on an overnight basis. Such parts may be new or refurbished parts and may be exchanged at Supplier's standard exchange rates. 3.5 Supplier shall repair or replace, and return to SWCO within thirty (30) days defective parts which are shipped to Supplier. The estimated cost of repair shall be specified at the time the request for repair is made by SWCO. If during the repair of the part Supplier determines that the cost of repair will deviate by ten percent (10%) or more from the estimate, Supplier shall notify SWCO. If a part is deemed irreparable, Supplier shall notify SWCO. 3.6 The Party shipping any part under this Section 3 shall bear the cost of transportation and risk of loss. 3.7 Supplier shall use only new parts or parts of equal quality and operating specifications in performing maintenance. Parts that are removed and replaced shall become the property of Supplier. All parts placed into operation shall become the property of the owner of the Equipment. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -29- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 4. SUPPLIER RESPONSIBILITIES FOR TYPE 1 EMERGENCY 4.1 During the warranty period or subsequent HMP, Supplier shall provide telephone support for Type 1 Emergencies during Supplier's normal hours of operation. Type I Emergencies are defined as those incidences that are non- Service affecting. Response time shall be within one (1) hour from the time SWCO makes contact with Supplier. Telephone support shall include, but not be limited to: engineering change information, diagnostic error interpretation, diagnostic updates information, etc. Supplier shall provide SWCO with the procedure and name of the responsible contact for providing requested telephone support. 4.2 If required, Supplier shall respond to an emergency repair request for Type 1 Emergency by dispatching qualified personnel within twenty-four (24) hours of the time the request is placed with Supplier. Supplier shall make available such technical support for Type 1 Emergencies during Supplier's normal hours of operation. 5. SUPPLIER RESPONSIBILITIES FOR TYPE 2 EMERGENCY 5.1 During the warranty period or subsequent HMP, Supplier shall provide telephone support for Type 2 Emergency on a twenty-four (24) hour per day basis, seven (7) days a week. Type 2 Emergencies are defined as those incidences that prohibit or severely limit SWCO's ability to provide services. Response time shall be within one (1) hour from the time SWCO makes contact with Supplier. Telephone support may include, but not be limited to: engineering change information, diagnostic error interpretation, diagnostic updates information, etc. Supplier shall provide SWCO with the procedure and name of the contact responsible for providing requested telephone support. 5.2 If required, Supplier shall respond to an emergency repair request for Type 2 Emergencies by dispatching qualified personnel within eight (8) hours of the time the request is placed with Supplier. Supplier shall make available technical support for Type 2 Emergencies twenty-four (24) hours per day, seven (7) days a week. 5.3 On all requests for Type 2 Emergencies, Supplier shall provide continuous effort until the Equipment is restored to operational condition. Supplier's escalation guidelines as specified in Section 15 of this Article 3 (Escalation Guidelines) shall apply from the time the Supplier's representative arrives at SWCO's site. 6. SWCO's RESPONSIBILITIES 6.1 Unless otherwise requested of Supplier by SWCO, SWCO shall perform all preventive and remedial maintenance. 6.2 SWCO shall maintain, at SWCO's site or within a convenient distance, an inventory of spare parts including tools, documentation, diagnostics, and test equipment for all Equipment covered hereunder and shall continually replenish the inventory based upon, but not necessarily in conformity with, Supplier's recommended level. Access to and use of the parts shall be provided to Supplier when providing HMP hereunder. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -30- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 7. ON-SITE MAINTENANCE 7.1 SWCO may order dedicated On-Site field engineers at Supplier's published rates. These rates shall be provided to SWCO upon request. 7.2 On-Site maintenance coverage shall include for the charge specified in the Order, any time during a consecutive ten (10) hour period, daily, Mondays through Fridays, excluding New Year's Day, Washington's Birthday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Unless otherwise specified in that Order, such ten (10) hour period shall be from 7:00 a.m. to 5:00 p.m. local time, with one (1) hour for lunch normally taken between 12:00 noon and 1:00 p.m. 7.3 On-Site maintenance coverage may be extended to include additional time periods and weekends at an additional charge and may be increased to twenty-four (24) hours a day seven (7) days a week for three hundred sixty-five 365 days a year. 7.4 Any absences from the shift described herein shall be by mutual agreement prior to such absences with credit on invoices for such absences. For any extended absences such as during vacation periods, Supplier agrees to assign an alternate resident field engineer for the duration of such absences. 7.5 Additional temporary support personnel shall be sent to support the resident field engineer when this requirement is deemed necessary to assure continued efficient operation. 7.6 On-Site maintenance coverage shall be at the direction of SWCO. 7.7 The coverage period for On-Site maintenance may be changed by SWCO upon thirty (30) days prior notice to Supplier, subject to the terms of Section 7.2 of this Article. 8. NOTIFICATION AND RESPONSE 8.1 Supplier shall furnish its designated point of contact to enable SWCO to promptly notify Supplier of the need for maintenance. 8.2 Supplier shall provide continuously updated charts on its maintenance organization up to and including the national support level. Such charts shall include twenty-four (24) hour contact information. 9. MAINTENANCE TERM AND MAINTENANCE CHARGES 9.1 Supplier's HMP is included in the purchase Price of each piece of Equipment purchased by SWCO and shall extend throughout the duration of the Warranty Period, as set forth in Section 13.2 of Article 1 ("Initial HMP"). Following the expiration of the Initial HMP, SWCO has a choice of (i) subscribing to Supplier's HMP on an annual basis pursuant to the terms herein and at the HMP fees set forth in Schedule A ("Extended HMP") for the duration of the term of the Agreement and thereafter at Supplier's then current HMP fees, or (ii) having defective Field Replaceable Units ("FRUs") repaired or replaced with refurbished FRUs at Supplier's then current repair rates. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -31- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 9.2 The I-IMP charge set forth in Schedule A is not subject to increase during the initial maintenance term. Thereafter the I-IMP charge is subject to change by Supplier upon ninety (90) days prior written notice to SWCO; provided, however, that such I-IMP unit charge shall not be increased more than once in any twelve (12) month period and in no event shall any increase exceed five percent (5%) of the HMP unit charge applicable to the preceding year. 9.3 Supplier shall have no responsibility to repair or replace FRUs which have been repaired or altered in an unauthorized manner not in accordance with Supplier's Maintenance Program, or which have had the bar code, serial number, or other identifying mark modified, removed or obliterated through an intentional action by SWCO. In the event that SWCO sends a FRU to Supplier for which no defects or failures can be found, Supplier may invoice SWCO at the then current fee for the services rendered during the evaluation process. Such charges shall only be rendered after three (3) such occurrences within a sixty (60) day period. 10. ENGINEERING COMPLAINTS 10.1 Receipt of an engineering complaint from SWCO shall be acknowledged by Supplier within fifteen (15) days. Such acknowledgment shall include the proposed resolution of the stated problem, or the date by when a solution might be expected. In the event that Supplier anticipates that the solution to the engineering complaint will exceed thirty (30) days, then Supplier shall issue biweekly progress reports to SWCO, reporting actions taken and progress made during the reporting period. In addition, such reports will indicate the approximate date by which Supplier anticipates that the ongoing engineering complaint may be successfully resolved. 10.2 In the event that the engineering complaint is marked service emergency, then Supplier agrees to exert effort which goes beyond that which is customarily provided to resolve engineering complaints. Supplier further agrees to provide status reports to SWCO's Manager, Engineering/ Inspection Coordination, as frequently as may be mutually determined. 10.3 SWCO's point of contact for all engineering complaint information and correspondence shall be SWCO Manager, Engineering Equipment 2125 East Adams, Phoenix, Arizona 85034. All such engineering complaints should be directed to the numbers identified in 16.1 of this Article. 11. ENGINEERING CHANGES 11.1 Engineering changes which are (i) generally made available by Supplier to customers on the same Equipment provided hereunder and (ii) are intended to correct defects in the Equipment shall, with the consent of SWCO, be made by Supplier to the Equipment at no charge. The administration and installation of engineering changes shall be accomplished by Supplier, unless otherwise agreed to by the Parties. 11.2 Engineering changes which correct a safety defect shall be made as soon as possible at no charge. Supplier shall notify SWCO of any such safety defect and recommended interim safety measure to be taken. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -32- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 12. EQUIPMENT NON-PERFORMANCE CREDIT If any Equipment furnished by Supplier hereunder for commercial service experiences Equipment non-performance period(s) due to malfunction of Equipment as specified below, the credits contained in this Article 3, Section 12, shall apply to SWCO's I-IMP monthly maintenance charge. If the Equipment is operating at less than fifty percent (50%) call processing capacity, (as measured by traffic usage over the previous thirty (30) day period) (i) for any eight (8) consecutive hour period or (ii) for a more than twenty-four (24) total hours in any thirty (30) day period, then Supplier shall grant SWCO a credit against the HMP monthly maintenance charge for each such hour in the amount of one-half (1/2) of one percent (1%) of the monthly maintenance charge for such defective Equipment. An Equipment non-performance period shall begin upon SWCO's notification to Supplier and shall end when the Equipment has achieved ninety percent (90%) call processing capacity. SWCO shall issue a debit memorandum and associated documentation to Supplier reflecting the amount of such credit. The Equipment non-operational periods shall be for periods of time directly caused by the non-performance of the Equipment. Any non-performance caused by third party equipment, force majeure or other events outside the control of Supplier shall not be counted toward non-operational periods. If SWCO receives a credit under this Article III, Section 12, for a particular non-performance -period, then SWCO shall not be eligible to receive a credit under Article IV, Section 12.7. If the non-performance is caused by both Equipment nonperformance and Software nonperformance, SWCO shall receive the higher credit. 13. REMEDIES FOR EQUIPMENT FOR FAILURE TO MEET OPERATIONAL LEVEL If any Equipment maintained hereunder fails to perform at an operational level of as defined in Article III, Section 12, during two (2) consecutive calendar months, SWCO may, at its option, require Supplier to within thirty (30) days after notification to Supplier, replace such Equipment at no additional cost to SWCO. Any Equipment that cannot be restored to good working order and operating condition shall be removed at Supplier's expense. 14. WARRANTY 14.1 In lieu of the warranty period specified in Section 13 of Article I (Warranties), the warranty period for spare parts under this Article III shall be for ninety (90) days from the date shipment to SWCO. 14.2 Supplier's responsibility under this warranty shall be to either replace or repair the defective spare part. 15. ESCALATION GUIDELINES Supplier shall endeavor to initiate support within the specified response time. If the trouble has not been corrected within twenty-four (24) hours after the request for support, the trouble shall be escalated to Supplier's engineering laboratories. No charge will be made for any escalation. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -33- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 16. PROCEDURES FOR SUPPLIER'S HMP 16.1 Metawave's Customer Support Customer Support can be reached by call the following numbers: Domestic phone:....... 888-642-2455 International phone:.. 425-702-6550 16.2 Return Material Authorization (RMA) SWCO must contact Customer Support via telephone, e-mail or fax to obtain a Return Material Authorization (RMA) number. Supplier may return shipments without a RMA number to the SWCO unrepaired and at SWCO's expense. The RMA number must be clearly written on the outside of the package. A RMA number will not be issued until an Order is provided for the repair price for those items not covered under warranty. 16.3 Return Address All Field Replaceable Units (FRUs) must be shipped to: Metawave Communications Corporation 10735 Willows Road N.E. Redmond, WA 98073-9769 USA c/o SWCO Returns 16.4 Packing Instructions SWCO must pack all returned equipment in a manner no less protective to such Equipment than the manner in which Supplier packages similar equipment. 16.5 Repair Purchase Orders Repair purchase orders are required in the following instances: When SWCO returns out of warranty FRUs for repair; or When Supplier sends pre-exchange FRU to SWCO prior to the defective FRU being received by Supplier, and if defective FRU is not received within five (5) days of shipment of replacement FRU. Under these circumstances, a facsimile copy of the purchase order may be transmitted to Supplier and followed up by a confirming hard copy in the mail. 16.6 Expedite Service In an emergency situation that requires an expedited shipment, Supplier offers Expedite Services upon SWCO's request at no additional charge except that SWCO shall pay for additional expedite freight charges, if any. If the HMP has expired, such expedite service will carry an additional fee of $300 plus freight charges (plus the price of FRU if out of warranty) per FRU. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -34- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 16.7 Invoices and Payment Invoices are payable in accordance with the terms of the Agreement between Supplier and SWCO. In the event pre-exchanged FRU's are not returned by SWCO to Supplier within five (5) days then Supplier shall invoice SWCO for the amount of the exchanged FRU's. 16.8 Duties and Taxes All duties, customs clearance fees and any and all taxes will be the responsibility of the Customer. 16.9 Non-compliance Failure to comply with any of the procedures may result in delay or non- delivery of the FRUs. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -35- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -36- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ARTICLE IV TERMS AND CONDITIONS APPLICABLE TO ANY PURCHASE THAT INCLUDES LICENSED SOFTWARE AND/OR SOFTWARE MAINTENANCE SERVICE 1. SCOPE Supplier shall provide to SWCO Supplier's Software and Related Services as described in Orders SWCO may from time to time place hereunder. 2. DEFINITIONS Terms which are capitalized have the meanings set forth below or, absent definition herein, as contained in the Agreement. 2.1 "Feature" refers to an innovation or performance improvement to Software that is made available to all users of the current Software release. Features are licensed to SWCO individually and may be at additional cost. 2.2 "Major Release" indicates a new version of Software that adds new Features (excluding Optional Features) or major enhancements to the currently existing release of Software. 2.3 "Point Release" indicates a modification to Software resulting from planned revisions to the current release, or corrections and/or fixes to the current release of Software. 2.4 "Software Patch" refers to software that corrects or removes a reproducible anomaly or "bug" in an existing Major Release. 3. FORM OF ORDER Each Order for Software and Related Services shall contain the following: (1) Date of Order and Order Number, (2) The incorporation by reference of this Agreement; (3) The incorporation by reference of additional specifications; (4) If, applicable, a detailed list of the Software or Related Services that are required. Such list is to include quantities, descriptions, specifications, prices, charges, and discounts; (5) The billing and delivery addresses; CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -38- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. (6) The required dates for delivery and installation of the Software, commencement dates for licenses or Related Services, and the length of term for licenses or Related Services; (7) The name and telephone number of the SWCO person to contact regarding the coordination of activities; and (8) Any other special terms and conditions that are not provided for elsewhere in the Order or this Agreement. 4. LICENSE 4.1 Supplier grants to SWCO a non-exclusive, nontransferable license, except as otherwise provided herein, for the use including remote access usage of Supplier's Software ordered hereunder, to routinely operate and monitor the Equipment with which the Software was delivered. During the warranty period, all purchased future releases, patches, fixes, corrections, enhancements, improvements and updates relating to such Software are included. Thereafter, all such fixes and enhancements shall be made available to SWCO under Supplier's Software -Maintenance Program as described herein. Remote access functionality requires the purchase of the Remote LampLighter(TM) Software option. 4.2 With each license of Software ordered hereunder, Supplier shall provide SWCO documentation which either is provided by Supplier to any of its other customers for the Software or is reasonably necessary to enable SWCO to adequately use such Software. Documentation shall comply with commonly accepted industry standards with respect to content, size, legibility and reproducibility. 4.3 SWCO shall have the right to reproduce all documentation including all machine-readable documentation for the Software, provided that such reproduction is made solely for SWCO's permitted use hereunder. Any such reproductions shall include any copyright or similar proprietary notices contained on the items being reproduced. 4.4 Supplier warrants that it has the sole and exclusive right to grant the licenses ordered thereunder. 4.5 No title or ownership rights to the Software or any of its parts, including documentation, except as provided herein, is transferred to SWCO. 4.6 SWCO acknowledges that it is the responsibility of SWCO to take reasonable measures to safeguard Software and to prevent its unauthorized use, distribution, or duplication. 4.7 SWCO shall not reverse engineer, decompile, disassemble, or modify the Software or any portion thereof. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -39- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 5. LICENSE TERM 5.1 The license term for Software shall commence on the date of acceptance for the Initial Order and upon shipment for all other Orders of the Equipment and Software and shall continue perpetually or until canceled or terminated as provided herein. 5.2 SWCO may terminate the license term of any Software by giving Supplier thirty (30) days prior written notice. Termination of such license term shall also automatically terminate any maintenance Related Services for such Software. 5.3 Supplier may terminate the license granted hereunder if SWCO is in material default of any of the terms and conditions of this License Agreement and such termination shall be effective if SWCO fails to correct such default within sixty (60) days after written notice thereof by Supplier. 5.4 In the event that SWCO is required to return the Software, pursuant to the Agreement or in the event that SWCO returns the Equipment, this license shall terminate immediately upon such return of the Software or Equipment to Supplier. 5.5 Within one (1) month after termination of the license granted hereunder, SWCO shall furnish to Supplier a document certifying that through its best efforts and to the best of its knowledge, the original and all copies in whole or in part of all Software, in any form, including any copy in an updated work, have been returned to Supplier or destroyed. 6. LICENSE FEE 6.1 The Software licensing fees for the most current versions of the Embedded System Software and LampLighter Software (available at the time of purchase of Equipment) are included in the purchase price of the Equipment. Software Updates are available under the Software Maintenance Program described herein for additional licensing fees. 6.2 If the license term is not perpetual, the license fee set forth in the Order is not subject to increase during the first year. Thereafter, the license fee may be changed by Supplier following the end of the initial license term upon ninety (90) days prior written notice to SWCO; provided, however, that such license fee shall not be increased more than once in any twelve (12) month period and in no event shall any increase exceed [***] of the license fee applicable to the preceding year. 7. SOFTWARE DELIVERY 7.1 Supplier shall deliver the Software complete and in accordance with SWCO's instructions, if any, with transportation charges paid by Supplier. Supplier shall deliver the Software in sufficient time to meet the required delivery date. SWCO may delay the delivery of the Software by giving the Supplier notice prior to shipment. SWCO shall arrange and pay for transportation for Software required to be returned to Supplier under this Agreement. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -39- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 7.2 If Supplier fails to complete such delivery of Software ordered by SWCO on or before the ordered delivery date, SWCO may either cancel the Order or extend such ordered installation date to a subsequent date. If SWCO elects to extend the ordered installation date, the Parties agree that SWCO will be damaged in an amount difficult to determine with certainty. Therefore, Supplier agrees to pay SWCO as a late delivery charge, and not as a penalty, an amount equal to [*] of the purchase price for that Software Feature for each week, or part thereof, of delay occurring after the ordered delivery date originally specified. Such late delivery charge shall not accrue beyond twelve (12) weeks of delay and shall take the form of a credit against the purchase price of the Software or any future Software in favor of SWCO. 8. RISK OF LOSS 8.1 Supplier shall bear the risk of loss of or damage to the Software during shipment. Supplier shall promptly replace such Software when lost or damaged at no additional charge. 8.2 SWCO shall bear the risk of loss or damage to the Software media or documentation in its possession. Supplier shall promptly replace the Software, Software media or documentation when lost or damaged at the charge for the media or documentation. No -additional license fee will be charged for replacement of the Software. 9. INSTALLATION Supplier shall install the embedded Software on the Equipment specified on the Order, perform its standard test procedures and prepare the Software required for Commissioning. With respect to the Initial Order, when Supplier certifies that the Software has passed all of Supplier's acceptance testing, the Software shall be certified as ready for SWCO's acceptance testing, in accordance with Article V. 10. STANDARD OF PERFORMANCE FOR ACCEPTANCE For the Initial Order, Software acceptance shall be performed in conjunction with the Equipment it was Ordered with and as specified in Article V, Performance Acceptance Procedure. For all other Orders acceptance shall occur upon Commissioning of the Equipment. 11. NEW RELEASES 11.1 During the warranty period and if SWCO elects to purchase Software Maintenance, new versions of any Software to be provided as a generic release common to all licensees of such Software, shall be supplied at the prices specified in Schedule A or at Supplier's then current published rates. 11.2 Supplier shall support the current Major Release and associated Point Releases and Features for a minimum period of two (2) years after the issuance of such Software. However, any support provided for Software older than two (2) years from the issue date may be on a time and material basis. An Order is required to render such service. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -40- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 12. SOFTWARE MAINTENANCE During the warranty period and if SWCO elects to purchase Software Maintenance the following shall apply: 12.1 Supplier shall provide maintenance described herein including error corrections, upgrades and modifications to keep the Software in good working order and operating condition or to restore such Software to good working order and operation condition. 12.2 SWCO will be responsible for problem identification of reproducible Software malfunctions. In the event of any such Software malfunction, SWCO shall notify Supplier promptly of the failure through calling Supplier's Customer Support. 12.3 Supplier shall provide a telephone contact point to which SWCO can notify Supplier of the need for maintenance Related Services twenty-four (24) hours per day, seven days (7) per week. Within one (1) hour of notification, a trained, knowledgeable, technically qualified Supplier representative will respond. Such response will serve to acknowledge receipt of notification and to obtain a verbal description of the nature of the need for maintenance Related Services. 12.4 Supplier shall correct any and all errors in the Software in accordance with this Section 12. For major errors substantially effecting Equipment performance, Supplier shall continue error correction activity on a twenty-four (24) hour basis until a permanent correction is made. If Supplier determines that such errors cannot be corrected within twenty-four (24) hours, Supplier shall immediately initiate an escalation procedure to: (1) Immediately assign sufficient skilled personnel to correct the error; and (2) Immediately notify Supplier management personnel that such error has not been corrected and that the escalation procedure has been activated; and (3) Supplier will provide verbal status reports on errors at intervals of not less that twice per day to SWCO on the status of each error correction. 12.5 SWCO shall provide Supplier, at the time of the notification, data required by Supplier to properly analyze the error condition and to provide the proper resolution. 12.6 Supplier shall give notice, on each error reported, to all SWCO locations of Software upon receipt by Supplier and error corrections will be transmitted to all such locations. 12.7 If any Equipment furnished by Supplier hereunder experiences non- performance periods due to malfunction of the Software, as specified below, the credits contained herein shall apply to SWCO's Software monthly maintenance charge. If the Equipment is operating at less than fifty percent (50%) call processing capacity (as measured by traffic usage over the previous thirty (30) day period), (i) for any eight (8) consecutive hour period or (ii) for a period more than twenty-four (24) hours in any thirty (30) day period, then Supplier shall grant SWCO a credit CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -41- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. against the Software monthly maintenance charge for each such hour in an amount of one-half (1/2) of one percent (1%) of the monthly Software maintenance charge for such defective Equipment. A non-performance period shall begin upon SWCO's notification to Supplier and shall end when the Equipment has achieved ninety percent (90%) call processing capacity. SWCO shall issue a debit memorandum and associated documentation to Supplier reflecting the amount of such credit. The Equipment non-operational periods shall be for periods of time directly caused by the non-performance of the Software on the Equipment. Any non-performance caused by third-party equipment or software, force majeure or other events outside the control of Supplier shall not be counted toward non-performance periods. If SWCO receives a credit under this section, for a particular non- performance period, then SWCO is not able to receive a credit under Article HI, Section 12. 12.8 Unless requested by SWCO or necessary to correct performance failures or degradation, Supplier shall introduce maintenance releases no more than once per calendar quarter. Such maintenance releases shall include program code changes and revised documentation necessitated by correction of such error condition. Maintenance releases shall include improvements and updates relating to the Software which are developed by Supplier. Supplier shall notify SWCO the expected date of release and the error corrections or -improvements to be included. 13. SOFTWARE MAINTENANCE CHARGE 13.1 The annual charge for Software Maintenance is specified in the Price List attached hereto as Schedule A. Supplier's Software Maintenance is included in the purchase Price of each piece of Equipment purchased by SWCO and shall extend throughout the duration of the Warranty Period, as set forth in the Warranty section of the Agreement. Thereafter, Software Maintenance is provided by Supplier to SWCO pursuant to the terms herein and is included in the Software Maintenance charges set forth in Schedule A for a period of 12 months. Any Software provided to SWCO during the term of the Software Maintenance will be provided pursuant to this Software License Agreement. 13.2 The Software maintenance charge is not subject to increase during the first twelve months following the commencement of such charge. The Software maintenance charge is subject to change by Supplier following the end of such twelve (12) month period upon ninety (90) days prior written notice; provided, however, that such Software maintenance charge shall not be increased more than once in any twelve (12) month period and in no event shall any increase exceed five percent (5%) of the Software maintenance charge applicable to the preceding year, for like volumes of Equipment. The total increase for Software Maintenance charges shall not exceed ten percent (10%) for the term plus any subsequent renewal term for like volumes not to exceed fifty-five thousand, one hundred, twenty five dollars ($55,125.00) per market system per year as defined in Schedule A. 13.3 During the term of Software Maintenance, all Major Releases, Point Releases, Software Patches and standard Features made generally available by Supplier shall be available to SWCO at no additional charge. SWCO shall promptly install such Software. 13.4 Optional Features and certain significant enhancements shall be made available to SWCO at an additional charge and are not include in the price of Software Maintenance. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -42- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 13.5 Certain optional Features shall be sold on a per-unit basis and may have price levels that reflect unit capacity. 14. TERMINATION OF MAINTENANCE 14.1 SWCO may terminate maintenance for Software by giving Supplier thirty (30) days prior written notice. 14.2 Supplier may terminate maintenance for Software by providing one (1) year prior notice of its intent to terminate. In such event, Supplier shall furnish the latest version of Software object code, operating and design documentation, training material and any other necessary information to enable SWCO to maintain and enhance such Software or to contract with others for such work. 15. OBJECT CODE AND TECHNICAL DOCUMENTATION In the event Supplier becomes insolvent, ceases to carry on business on a regular basis or fails to perform its maintenance obligations herein, Supplier shall furnish the latest version of Software object code, operating and design documentation, training material and any other necessary information to enable SWCO to maintain and enhance such Software or to contract with others for such work. 16. RELOCATION OF SOFTWARE SWCO may redesignate the location at which the Software will be used, and shall notify Supplier of the new location and the effective date of the relocation. Concurrent operation of the Software at a second location for a period not to exceed ninety (90) days to achieve uninterrupted operation and orderly cut over shall not require an additional license. 17. ENHANCEMENT OF SERVICES 17.1 SWCO may request Supplier to make changes to the Software. Such requests will describe in detail the changes to the Software desired by SWCO. 17.2 Supplier will respond within sixty (60) days of receipt of such request, and if the response indicates a development cost to SWCO, such response shall provide estimates of time and costs to develop the change described in the request. 17.3 SWCO, at its option, may provide Supplier authorization to proceed with the work described in Supplier's response by placing an Order. 18. SOFTWARE EVALUATION 18.1 Supplier, at no charge, will provide new Software features and functionality on a trial basis to allow SWCO to evaluate the applicability of such Software to its business needs and purposes. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -43- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. (1) SWCO shall issue an Order to Supplier in accordance with this Agreement. (2) The term of the evaluation shall be thirty (30) days unless otherwise stated in the Order. (3) SWCO shall use the Software provided under this Section 18 for the sole purpose of evaluation. Use of the Software for evaluation shall not obligate SWCO to license Software for future use. 18.2 SWCO shall promptly return the Software and accompanying documentation to Supplier upon completion of the evaluation period or shall notify Supplier of its intent to license the Software. If SWCO intends to license such Software, SWCO shall issue an Order. 18.3 SWCO shall not duplicate the Software, any portion thereof, or any associated documentation, unless necessary for the evaluation. 19. SOFTWARE VIRUS PROTECTION 19.1 Supplier represents and warrants to SWCO that the Software provided to SWCO by Supplier does not contain or will not contain any Self-Help Code or any Unauthorized Code (defined below). 19.2 As used in this Agreement, "Self-Help Code" means any back door, "time bomb", drop dead device, or other software routine designed to disable a computer program automatically with the passage of time or under the positive control of a person other than a licensee of the program. Self-Help Code does not include software routines in a computer program, if any, designed to permit the licenser of the computer program (or other person acting by authority of the licensor) to obtain access to a licensee's computer system(s) (e.g., remote access via modem) for purposes of maintenance or technical support. 19.3 As used in this Agreement, "Unauthorized Code" means any virus, Trojan horse, worm, or any other software routines or hardware components designed to permit unauthorized access to disable, erase, or otherwise harm software, hardware, or data or to perform any other such actions. The term Unauthorized Code does not include Self-Help Code. 19.4 Supplier shall remove promptly any such Self-Help Code or Unauthorized Code in the Software of which it is notified or may discover. 19.5 Supplier shall indemnify SWCO against any loss or expense arising out of any breach of this warranty. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -44- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ARTICLE V TERMS AND CONDITIONS APPLICABLE TO THE PERFORMANCE ACCEPTANCE PROCEDURE FOR INITIAL ORDER 1. INTRODUCTION The Performance Acceptance Procedure consists of a comparison of test results from a baseline period prior to commercial operation of Products (Baseline Performance Collection Phase) with results from a period of time in which the Products are installed and have been optimized in the SWCO's network (Performance Collection, Evaluation and Acceptance Phase) The Performance Acceptance Procedure consists of separate tests for Analog and CDMA. [***] [***]ARTICLE VI CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -45- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ENTIRE AGREEMENT 1. ENTIRE AGREEMENT ENTIRE AGREEMENT 1.1 This Agreement, together with all Orders, Articles, and subordinate documents incorporated by reference and all descriptions, drawings, specifications, and other literature published by Supplier in connection with or in contemplation of any Order or of this Agreement shall constitute the entire agreement between the Parties with respect to the subject matter. 1.2 This Agreement may not be modified except by an instrument in writing signed by a duly authorized representative of each of the Parties. 2. SIGNATURES IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly authorized officers or representatives.
Metawave Communications Corporation Southwestco Wireless, L.P. by Southwestco Wireless, Inc. its managing general partner By: /s/ W. David McCarley By: /s/ Robert Hunsberger ------------------------------------- ------------------------------------ (Signature) (Signature) Name: W. David McCarley Name: Robert Hunsberger ------------------------------------ ---------------------------------- (Please Print) (Please Print) Title: VP-Network Title: President & CEO ----------------------------------- ---------------------------------- (Please Print) (Please Print) Date: 2/18/99 Date: Feb. 17, 1999 ------------------------------------ ----------------------------------- (Please Print) (Please Print)
CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -46- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. SCHEDULE A PRODUCTS AND RELATED SERVICES DESCRIPTION AND PRICE LIST For the purposes of uniformity and brevity, references to Agreement, Articles or Schedules shall refer to the Agreement to which this document is Schedule A and to the other Articles and Schedules to that Agreement. All definitions set forth in the Agreement shall apply hereto unless otherwise expressly defined herein. The prices included herein are for equipment installed and services performed in the U.S.A. 1. PRICING SUMMARY [***] CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -47- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 5. GENERAL CONDITIONS FOR ORDER 5.1. SWCO shall provide air time with local phone numbers at no charge and test mobiles at no charge, if required by Supplier. 5.2. If Supplier's Services are delayed for reasons beyond the control of Supplier, or if additional Related Services are required by SWCO, the Related Services shown herein shall be adjusted accordingly. 5.3. Towers and transmission lines to the towers, or any costs associated with the preparation of towers and the Site including adequate electrical power, are not included in the prices shown herein and are the responsibility of SWCO. 5.4. SpotLight multibeam antenna panels are included in the SpotLight system pricing given in Section 3 above. The mounting and physical and electrical connection of these antennas is the responsibility of the SWCO. The installation and connection of - these antennas to the transmission lines is not included in the system price in Section 3 above, nor is it included in the Engineering Related Services pricing contained in Section 3 above. 5.5. Performance of the Services set forth herein is dependent upon SWCO and/or Supplier obtaining any and all necessary licenses, permits and governmental approvals required to perform the Related Services set forth herein. Supplier shall not be held liable for any non- performance due to delays in obtaining any of the above documentation and or approvals. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -48- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. SCHEDULE B NONDISCLOSURE AGREEMENT SOUTHWESTCO WIRELESS MUTUAL NON-DISCLOSURE AGREEMENT ------------------------ THIS AGREEMENT is entered into this 24th day of February, 1999 between Southwestco Wireless Limited Partnership, a Delaware limited partnership, doing business as Cellular One, (hereinafter "Cellular One"), having an office at 11333 North Scottsdale Road, #200, Scottsdale, Arizona 85254 and Metawave Communications Corporation a Washington corporation, having an office at 10735 Willows Road NE, Redmond, Washington 98073. WHEREAS, the above parties contemplate discussions and analyses concerning the Agreement; and WHEREAS, in order to facilitate such discussions and analyses, certain confidential and proprietary, technical, financial or business information may be disclosed between the parties; NOW, THEREFORE, the parties agree to the following: 1. The term "Information," as used in this Agreement, includes all specifications, drawings, sketches, models, samples, reports, forecasts, current or historical data, computer programs or documentation and all other technical, financial or business data. 2. "Proprietary Information" is defined as Information which is in the possession of the disclosing party, is not generally available to the public, and which the disclosing party desires to protect against unrestricted disclosure or competitive use. 3. All Information which is disclosed by one Party to the other Party and which is to be protected hereunder as Proprietary Information of the disclosing Party shall: (a) if in writing or other tangible form, be conspicuously labeled as Proprietary, Confidential or the like at the time of delivery; and (b) if oral, be identified as Proprietary prior to disclosure and be reduced to a writing labeled as indicated in (a) above within fifteen (15) business days after its disclosure. Either Party shall have the right to correct any inadvertent failure to designate information as Proprietary Information by written notification as soon as practical (but in no event later than three (3) business days) after such error is determined. The Party receiving said notification shall, from that time forward treat such information as Proprietary. 4. Subject to the provisions of paragraph 6 with respect to any Proprietary Information, provided hereunder, the receiving Party shall, for a period of [*] from the date of disclosure, use the same care and discretion to limit disclosure of such Proprietary Information as it uses with similar Proprietary Information of its own which it does not desire to disclose or disseminate including taking steps to: CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -49- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. (a) restrict disclosure of Proprietary Information solely to its employees, agents, advisors, consultants, contractors and/or subcontractors with a need to know and not disclose such Proprietary Information to any other parties; and (b) advise all receiving Party employees with access to the Proprietary Information of the obligation to protect Proprietary Information provided hereunder and obtain the agent's, advisor's, contractor's and/or consultant's agreement to be so bound as evidenced by their signature on the form attached hereto as Exhibit B; and (c) use the Proprietary Information provided hereunder only for purposes directly related to the Agreement and for no other purposes. 5. The obligations imposed upon either Party herein shall not apply to Information whether or not designated as Proprietary: (a) already known by the receiving Party without an obligation of confidentiality; (b) publicly known or becomes publicly known through no unauthorized act of the receiving Party; (c) rightfully received from a third party without restriction and without breach of this Agreement; (d) independently developed by the receiving Party without use of the other Party's Proprietary Information and so documented; (e) disclosed without similar restrictions to a third party by the Party owning the Proprietary Information; (f) approved in writing by the disclosing Party for disclosure; (g) which the receiving Party is required to disclose pursuant to a valid order of a court or other governmental body or any political subdivision thereof; provided, however, that the recipient of the Proprietary Information shall first have given notice to the disclosing Party and made a reasonable effort to obtain a protective order requiring that the Proprietary Information and/or documents so disclosed be used only for the purposes for which the order was issued. 6. Nothing contained in this Agreement shall be construed as granting or conferring any rights by license or otherwise in any Proprietary Information disclosed to the receiving Party. All Proprietary Information shall remain the property of the disclosing Party and shall be returned by the receiving Party to the disclosing Party upon written request. If the Parties hereto decide to enter into any licensing arrangement regarding any Proprietary Information or present or future patent claims disclosed hereunder, it shall only be done on the basis of a separate written agreement between them. No disclosure of any Proprietary Information hereunder shall be construed to be a public disclosure of such Proprietary Information by either Party for any purpose whatsoever. 7. The furnishing of Proprietary Information hereunder shall not obligate either -Party to enter into any further agreement or negotiation with the other or to refrain from entering into an agreement or negotiation with any other Party. 8. In the event either Party discloses, disseminates or releases any Proprietary Information received from the other Party, except as provided above, such disclosure, dissemination or release will be deemed a material breach of this Agreement and the other Party may demand prompt return of all Proprietary Information previously provided to such Party. The provisions of this paragraph are in addition to any other legal right or remedies the Party whose Proprietary Information has been disclosed, disseminated or released may have under federal or state law. 9. Each Party acknowledges that the unauthorized use or disclosure of a disclosing Party's Proprietary Information would cause irreparable harm and significant injury, the degree CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -50- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. of which may be difficult to ascertain. Accordingly, each Party agrees that the disclosing Party will have the right to obtain an immediate injunction enjoining any breach, or threatened breach, of this Agreement, as well as the right to pursue any and all other rights at law or equity for such a breach. 10. This Agreement constitutes the entire agreement between the Parties and supersedes any prior or contemporaneous oral or written representation with regard to the subject matter hereof. This Agreement may not be modified except by a writing signed by both Parties. 11. This Agreement shall be governed by the law of the State of New York without reference to its conflict of law rules. All actions under this Agreement shall be brought in a court of competent subject matter jurisdiction in New York and both Parties agree to accept the personal jurisdiction of such court. IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives as of the date on the first page.
Metawave Communications Corporation Southwestco Wireless, L.P. by Southwestco Wireless, Inc. its managing general partner By: /s/ W. David McCarley By: /s/ Robert H. Hunsberger ----------------------------------------- ---------------------------------------- (Signature) (Signature) Name: W. David McCarley Name: Robert H. Hunsberger --------------------------------------- -------------------------------------- (Please Print) (Please Print) Title: VP-Network Title: President & CEO -------------------------------------- ------------------------------------- (Please Print) (Please Print) Date: 2/18/99 Date: Feb. 17, 1999 --------------------------------------- -------------------------------------- (Please Print) (Please Print)
CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -51- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. EXHIBIT A --------- ACKNOWLEDGMENT OF NON-DISCLOSURE OBLIGATIONS -------------------------------------------- I have read the Non-Disclosure Agreement dated _____________________________ between __________________________ and _______________________________ and agree to be bound by the terms and conditions therein. ___________________________________ Signature ___________________________________ Name ___________________________________ Title ___________________________________ Company CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -52- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. SCHEDULE C NON-DISCRIMINATION COMPLIANCE AGREEMENT To the extent that this contract is subject to them, Contractor shall comply with the applicable provisions of the following Exec. Order No. 11246, Exec. Order No. 11625, Exec. Order No. 12138, Exec. Order No. 11701, Exec. Order No. 11758, Section 503 of the Rehabilitation Act of 1973, Section 402 of the Vietnam Era Veterans' Readjustment Assistance Act of 1974 and the rules, regulation and relevant Orders of the Secretary of Labor pertaining to the Executive Orders and Statutes listed above. The following table describes the clauses which are included in the contract.
ANNUAL CONTRACT VALUE CLAUSES Under $2,500...... 5* $2,500-$10,000.... 5*8 $10,000-$50,000... 1,2,5*,6,7,8,9 $50,000-$500,000.. 1,2,3**,4**,5,6,7,8,9 Over $500,000..... l,2,3**,4**,5,6,7,8,9***
1. Equal Employment Opportunity Provisions In accordance with executive Order 11246, dated September 24, 1965, and Subpart 22.8 of Subchapter D of Chapter 1 of Title 48 of the Code of Federal Regulations as may be amended from time to time, the Parties incorporate herein by this reference the regulations and contract clauses required by those provisions to be made a pan of government contracts and subcontracts. 2. Certification of Non-Segregated Facilities The Contractor certifies that it does not and will not maintain any facilities it provides for its employees in a segregated manner; or permit its employees to perform their services at any location under its control where segregated facilities are maintained and that it will obtain a similar certification prior to the award of any nonexempt subcontract. 3. Certification of Affirmative Action Program The Contractor affirms that it has developed and is maintaining an Affirmative Action Plan as required by Subpart 22.8 of Subchapter D of Chapter I of Title 48 of the Code of Federal Regulations. 4. Certification of Filing of Employer Information Reports The Contractor agrees to file annually on or before the 31st day of March complete and accurate reports on Standard Form 100 (EEO-l) or such forms as may be promulgated in its place. 5. Utilization of Small Business Concerns and Small Disadvantaged Business Concerns (a) it is the policy of the United States that small business concerns and small business concerns owned and controlled by socially and economically disadvantaged individuals shall have the maximum practicable opportunity to participate in performing contracts let by any Federal agency. (b) The Contractor hereby agrees to carry out this policy in the awarding of subcontracts to the fullest extent consistent with efficient contract performance. The Contractor further agrees to cooperate in studies or surveys as may be conducted by the United States Small Business Administration or the awarding agency of the United States as may be necessary to determine the extent of the Contractor's compliance with this clause. (c) As used in this contract, the term "small business concern" shall mean a small business as defined pursuant to section 3 of the Small Business Act and relevant regulations promulgated pursuant thereto. The term "small business concern owned and controlled by socially and economically disadvantaged individuals" shall mean a small business concern. (1) Which is at least 51 percent owned by one or more socially and economically disadvantaged individuals; or, in the case of any publicly owned business, at least 51 percent of the stock of which is owned by one or more socially and economically disadvantaged individuals; and (2) Whose management and daily business operations are controlled by one or more of such individuals. The Contractor shall presume that socially and economically disadvantaged individuals include Black Americans, Hispanic Americans, Native Americans, Asian-Pacific Americans, Asian-Indian Americans and other minorities, or any other individual found to be disadvantaged by the Administration pursuant to section 8(a) of the Small Business Act. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -53- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. (d) Contractors acting in good faith may rely on written representations by their subcontractors regarding their status as either a small business concern or a small business concern owned and controlled by socially and economically disadvantaged individuals. 6. Utilization of Women-Owned Small Businesses (a) "Women-owned small business," as used in this clause, means businesses that are at least 51 percent owned by women who are United States citizens and who also control and operate the business. "Control," as used in this clause, means exercising the power to make policy decisions. "Operate," as used in this clause, means being actively involved in the day-to-day management of the business. (b) it is the policy of the United States that women-owned small businesses shall have the maximum practicable opportunity to participate in performing contracts awarded by any Federal agency. (c) The Contractor agrees to use its best efforts to give women-owned small businesses the maximum practicable opportunity to participate in the subcontracts it awards to the fullest extent consistent with the efficient performance of its contract. 7. Affirmative Action for Special Disabled Veterans and Veterans of the Vietnam Era In accordance with Exec. Order 11701, dated January 24, 1973, and Subpart 22.13 of Subchapter D of Chapter 1 of Title 48 of the Code of Federal Regulations, as may be amended from time to time, the Parties incorporate herein by this reference the regulations and contract clauses required by those provisions to be made a part of Government contracts and subcontracts. 8. Affirmative Action for Handicapped Workers In accordance with Exec. Order 11758, dated January 15, 1974, and Subpart 22.14 of Subchapter D of Chapter I of Title 48 of the Code of Federal Regulations, as may be amended from time to time, the Parties incorporate herein by this reference the regulations and contract clauses required by those provisions to be made a part of Government contracts and subcontracts. 9. Employment Reports on Special Disabled Veterans and Veterans of the Vietnam Era (a) The contractor agrees to report at least annually, as required by the Secretary of Labor, on: (1) The number of special disable veterans and the number of veterans of the Vietnam era in the workforce of the contractor by job category and hiring location; and (2) The total number of new employees hired during the period covered by the report, and of that total, the number of special disabled veterans, and the number of veterans of the Vietnam era. (b) The above items shall be reported by completing the form entitled "Federal Contractor Veterans' Employment Report VETS-100." (c) Reports shall be submitted no later than March31 of each year beginning March 31, 1988. (d) The employment activity report required by paragraph (a) (2) of this section shall reflect total hues during the most recent 12-month period as of the ending date selected for the employment profile report required by paragraph (a) (1) of this section. Contractors may select an ending date: (1) as of the end of any pay period during the period January through March 1st of the year the report is due, or (2) as of December 31, if the contractor has previous written approval from the Equal Employment Opportunity Commission to do so for purposes of submitting the Employer Information Report EEO-1 (Standard Form 100). (e) The count of veterans reported according to paragraph (a) above shall be based on voluntary disclosure. Each contractor subject to the reporting requirements at 38 U.S.C. 2012(d) shall invite all special disabled veterans and veterans of the Vietnam era who wish to benefit under the affirmative action program at 38 U.S.C. 2012 to identify themselves to the contractor. The invitation shall state that the information is voluntarily provided, that the information will be kept confidential, that disclosure or refusal to provide the information will not subject the applicant or employee to any adverse treatment, and that the information will be used only in accordance with the regulations promulgated under 38 U.S.C. 2012. Nothing in this paragraph (e) shall preclude an employee from informing a contractor at a future time of his or her desire to benefit from this program. Nothing in this paragraph (e) shall relieve a contractor from liability for discrimination under 38 U.S.C. 2012. * Applies only if contract has further subcontracting opportunities. ** Applies only to businesses with 50 or more employees. *** Contractor must also adopt and comply with a small business and small disadvantaged business subcontracting plan pursuant to Title 48 of the Code of Federal Regulations. CONFIDENTIAL & PROPRIETARY General Purchase Agreement 3/98 -54- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. EX-10.18 12 PURCHASE AGMT BETWEEN REGISTRANT & GRUPO IUSACELL EXHIBIT 10.18 Metawave Communications Corporation/ GRUPO IUSACELL S.A. DE C.V. Supply Agreement Document Number # ______ Metawave Communications Corporation 10735 Willows Road N.E. Redmond, WA 98052 USA Tel. 425.702.5600 Fax 425.702.5970 http://www.metawave.com CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. TABLE OF CONTENTS
SECTION TITLE PAGE - --------- ----------------------------------------- ---- 1. AGREEMENT................................ 1 2. DEFINITIONS.............................. 1 3. PURCHASE ORDERS / CANCELLATIONS.......... 3 4. SHIPPING / TITLE / RISK OF LOSS.......... 4 5. INSTALLATION / TRAINING / DOCUMENTATION.. 5 6. INVOICES AND PAYMENT..................... 5 7. WARRANTY................................. 6 8. INFRINGEMENT INDEMNITY................... 7 9. INDEMNIFICATION.......................... 8 10. TERM AND TERMINATION..................... 9 11. ASSIGNMENT/LIMITATIONS ON TRANSFERS...... 9 12. NOTICES.................................. 9 13. INSURANCE................................ 10 14. COMPLIANCE WITH LAWS..................... 10 15. FORCE MAJEURE............................ 12 16. GOVERNING LAW / DISPUTE RESOLUTION....... 12 17. CONFIDENTIALITY.......................... 12 18. INTELLECTUAL PROPERTY.................... 12 19. GENERAL PROVISIONS....................... 13
Exhibit A - Products and Services Price List Exhibit B - Commissioning Certificate Exhibit C - Product Maintenance Program Exhibit D - Software License -i- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Exhibit E - Engineering and Optimization Services Certificate -ii- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. METAWAVE COMMUNICATIONS CORPORATION SUPPLY AGREEMENT THIS SUPPLY AGREEMENT (this "Agreement") is made as of this 17th day of December, 1999 (the "Effective Date") between Metawave Communications Corporation, a Delaware corporation ("Seller"), and Grupo IUSACELL S.A. de C.V., a Mexican corporation ("Customer"). The parties, in consideration of the mutual covenants, agreements and promises of the other set forth in this Agreement and intending to be legally bound, agree as follows: 1. AGREEMENT Seller agrees to sell to Customer, and Customer agrees to purchase by submitting a Purchase Order(s) to Seller, the Products and Services identified on Exhibit A to this Agreement in accordance with the terms and conditions hereof and at the Purchase Prices set forth in Exhibit A. Except for the Initial Order Commitment contained in Exhibit A, it is expressly understood and agreed that this Agreement is intended solely to establish uniform and consistent terms and conditions for any Purchase Orders Customer may choose to place with Seller and that Customer is not obligated to place any Purchase Orders with Seller. Notwithstanding any other provision of this Agreement or any other contract between the parties to the contrary, the provisions of this Agreement shall apply to all Purchase Orders for the Products and Services during the term of this Agreement unless the parties expressly agree by written modification to this Agreement that the provisions of this Agreement shall not apply. Any additional or different terms in any acknowledgment, confirmation, invoice, Purchase Order or other communication from one party to the other shall be deemed objected to without need of further notice of objection and shall be of no effect and not in any circumstance binding upon either party unless expressly accepted by both parties in writing. 2. DEFINITIONS As used in this Agreement, the following terms shall have the meanings set forth below: "Change Order" shall mean any subsequent change to a Purchase Order initiated by either party and mutually agreed to by both parties in writing, including but not limited to, changes due to Site configuration and Products and Services needed at the Site. "Commissioning" shall mean the procedures described in Seller's Product system manual to place the Product into commercial service at a particular Site. The completion of Commissioning is documented by Customer's signature on the Commissioning Certificate attached hereto as Exhibit B. Both parties agree to fulfill their respective CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. obligations defined in this Agreement to complete Commissioning at each Site when Seller installs such Products. "Engineering and Optimization Services" shall mean the engineering and optimization services provided by Seller to optimize the Product at a Site as described in Exhibit A. The completion of Engineering and Optimization Services is documented by Customer's signature on the Engineering and Optimization Services Certificate attached hereto as Exhibit E which shall be signed by Customer no later than two weeks following completion of the Engineering and Optimization Services. [***] "Product" or "Products" shall mean the SpotLight(R) 2000 spectrum management system(s) or component(s) consisting of hardware and Software as listed in Exhibit A or any additional product(s) set forth in any amendments thereto as may be subsequently agreed to from time to time by Seller and Customer. "Purchase Order" shall mean any Purchase Order Customer may submit to Seller for the purchase of the Products or Services which shall be subject to the terms and conditions of this Agreement and which has been accepted by Seller. "Purchase Price" shall mean the price of the Products and the price of the Services shown in Exhibit A or any other amount set forth in any amendments to Exhibit A as may be subsequently agreed to from time to time by Seller and Customer. All prices shown herein are in U.S. dollars. "Services" shall mean installation, optimization, engineering or other additional services set forth in Exhibit A or in any amendments to Exhibit A as may be subsequently agreed to from time to time by Seller and Customer. "Site" shall mean each of the Customer cell site locations that Seller's Products are installed. "Site Survey" shall mean the survey of a Site performed by Seller to determine the Product configuration and scope of Services required for the proper installation and Commissioning of the Products. "Software" shall mean the (i) object-code computer programs embedded in the Products which control and monitor the operation of the Products ("Embedded System Software"), and (ii) the PC-based graphical user interface computer program for the Products, and all -2- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Features, Major Releases, Point Releases, and Software Patches (as such terms are defined in "Product Maintenance Program" attached hereto as Exhibit C), other updates and modifications to such Software (the "Software Updates") and any documentation in support thereof. "Software License" shall mean the licensing of the Software set forth in Exhibit D, the terms of which shall apply to any Software purchased by Customer from Seller pursuant to this Agreement. 3. PURCHASE ORDERS / CANCELLATIONS a. Customer shall order Products and Services pursuant to this Agreement by submitting a Purchase Order that provides the information specific to the order, including but not limited to the quantity of Products and Services to be ordered, delivery destination, the name and address of the Customer's representative to whom the Products are to be shipped at the delivery destination, the price of each Product and Service per Exhibit A, the desired delivery date(s) and whether partial shipments are acceptable. Purchase orders should be submitted by Customer to Seller at least [***] prior to date of delivery of Products or the rendering of Services. b. Upon receipt of the Purchase Order, Seller shall have [***] business days to accept or reject the Purchase Order in writing. Any acceptances further subject to completion of Site Survey. c. If following the completion of the Site Survey, Seller determines that Product configurations or the Services set forth in the Purchase Order must be changed, Seller shall notify Customer with a written proposal for changes to the Purchase Order. Upon receipt, Customer shall have [***] business days to accept or reject the written proposal for changes. If accepted, Customer shall execute a written Change Order to reflect the required changes identified by the Site Survey. If Customer rejects the written proposal for changes Customer may cancel the Purchase Order subject to Section 3(e) below. d. At its sole option, Seller may decline to fulfill an Order if Seller determines that (i) the costs associated with the sale of the Products for the Sites are prohibitive or the conditions at such Sites are unacceptable; (ii) the sale and delivery of the Products would contravene Section 14(e) (export restrictions) of this Agreement; or (iii) Seller's personnel may be exposed to unsafe conditions. e. Customer may cancel or delay delivery of Products contained in any Purchase Order or Change Order prior to Seller's shipment of the Products subject to the terms herein. Any such cancellation or delay must be made by written notification to Seller. Customer may delay the delivery date for any Products on any purchase Order or Change Order once, and such delay shall not exceed [***] days. If Customer directs such cancellation or delay with less than -3- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. [***] written notice from the delivery date specified in Purchase Order or Change Order, Customer shall pay to Seller reasonable and documented nonrecurring costs, if any, associated with such cancellation or delay provide however, that any such costs shall not exceed in the [***] of the Purchase Price of each canceled or delayed Products. f. During the period of time commencing on or before the effective date of this Agreement and [***], Customer agrees to order from Seller [***] 4. SHIPPING / TITLE / RISK OF LOSS a. Subject to Section 3, Seller shall ship in accordance with Seller's standard shipping practices all Products to Customer's designated representative at the designated delivery destination on or before the delivery date(s) specified in a Purchase Order. [***] b. Seller shall arrange, on behalf of Customer the following items: [***] Customer shall reimburse Seller at cost for [***] Seller shall separately invoice Customer for such charges in accordance with Section 6 herein. c. Products shall be packed by Seller in containers adequate to prevent damage during reasonable shipping, handling and storage. Customer shall be responsible for payment of any warehousing. or storage charges for the Products following delivery of the Products to Customer, except as noted in paragraph 4(a), above. d. Title to and risk of loss or damage to Products sold by Seller to Customer hereunder shall pass to Customer upon delivery to Customer's representative at the delivery destination specified on the Purchase Order. Title to Software shall remain with Seller in all cases pursuant to the terms of the Software License attached as Exhibit D hereto. -4- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 5. INSTALLATION / TRAINING / DOCUMENTATION a. Seller shall install and commission each Product in accordance with a mutually agreed upon deployment schedule. Customer agrees to furnish reasonable access to the cell sites and the necessary resources to assist Seller during installation and optimization. Such deployment schedule shall be agreed to in writing by Seller and Customer. b. If Seller fails to complete installation and commissioning of a Product within the specified deadline (or any extension agreed to in writing by the parties), and such failure is due to delays or causes within the reasonable control of Seller, then Seller will not charge Customer for the installation and commissioning of that Product at the designated site. In the event of any delay beyond the reasonable control of Seller, the date(s) of installation and commissioning shall be extended for as many days as are reasonably required due to the delay. c. Product training courses will be offered at Seller's offices in Redmond, WA or on site in Mexico by mutual agreement the prices listed in Exhibit A. If Seller conducts training on site in Mexico, [***] The course schedule and availability will be coordinated with Seller's training organization. Seller will provide at no cost to Customer one set of manuals and documentation with each Product. 6. INVOICES AND PAYMENT a. For Product to be installed by Seller, Seller shall render invoices to Customer as follows: [***] -5- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. b. All invoices shall be computed on the basis of the prices set forth in Exhibit A [***] and shall separately identify categories of charges, including but not limited o quantities of Products, type of Services, total amounts for each item, shipping charges, applicable sales or use taxes and total amount due in U.S. dollars. Customer shall promptly pay Seller the amount due within thirty (30) days of the date of invoice. Customer shall pay a late fee at the rate of one and one-half percent (1.5%) of the amount due for each month or portion thereof that the amount remains unpaid. c. The prices specified in Exhibit A do not include any taxes. Customer shall pay all local and government sales, excise, or any other taxes, fees, duties, tariffs, or other governmental charges or customs processing fees which may be levied upon the use, sale, transfer of ownership, or installation of Product or Services purchased hereunder or the import, movement, delivery, possession of Products, including the replacement and repair of Products, excluding, however, any taxes on the income, business or licenses of Seller. Any such taxes or fees required to be paid or collected by Seller shall be added to the invoice as separate charges and paid by Customer to Seller unless Customer provides Seller with proof of exemption acceptable to the appropriate authority. d. Payment shall be made by wire transfer in U.S. dollars to the following account: Imperial Bank 2015 Manhattan Beach Blvd. Redondo Beach, CA 90278 Attn: Merchant Banking Group ABA: 122201444 Swift: 1MPUS66 Account Number: 36-001348 Account Name: Metawave Communications Corporation 7. WARRANTY a. Seller warrants the Products for a period of [***] ("Warranty Period"). During the Warranty Period, Seller warrants that (i) all Products furnished hereunder will be free from defects in materials, workmanship and title; (ii) all Products as delivered and properly installed and operated will function substantially as described in the user documentation and specifications provided by Seller; and (iii) the media on which the Software is contained will be free from defects in material and workmanship under normal use. THE WARRANTIES IN THIS AGREEMENT ARE GIVEN IN LIEU OF -6- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ALL OTHER WARRANTIES EXPRESS OR IMPLIED WHICH ARE SPECIFICALLY EXCLUDED, INCLUDING, WITHOUT LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. b. Customer and Seller shall handle all warranty claims in accordance with the procedures set forth in Exhibit C, the Product Maintenance Program. The actions taken by Seller under the Product Maintenance Program procedures shall be the full extent of Seller's liability and Customer's exclusive remedy with respect to a claim under this Section 7. The supplied Products provided hereunder by Seller to Customer (i) shall perform on and after January 1, 2000 in as good a manner as before such date, and (ii) shall at all times manage, manipulate and report data involving dates (including the year 2000, dates before and after the year 2000, and single-century and multi-century formulas) without generating incorrect values or dates or causing an abnormally- ending scenario within an application. c. This warranty does not apply to any claim which arises out of any of the following: (i) the Product is used in other than its normal and customary manner; (ii) the Product has been subject to misuse, accident, neglect or damage by Customer; (iii) the Product has been installed, optimized or moved from its original installation site by any person other than Seller or a person who has been certified by Seller through completion of a Seller-sponsored training course to provide such services; (iv) unauthorized alterations or repairs have been made to the Product, or parts have been used in the Product which are not approved by Seller; (v) the Product is not maintained pursuant to Seller's Maintenance Programs or under the supervision of a person who has been certified by Seller to provide such maintenance service through completion of a Seller-sponsored training course; (vi) an event of Force Majeure has occurred; (vii) the failure of third party antennas, antenna lines or interconnection facilities not provided by Seller at the Site. 8. INFRINGEMENT INDEMNITY a. Seller shall indemnify and hold harmless Customer against any and all liabilities, losses, costs, damages and expenses, including reasonable attorney's fees, associated with any claim or action for actual or alleged infringement by any Product or Software supplied in accordance with this Agreement of any United States patent, trademark, copyright, trade secret or other intellectual property right incurred by Customer as a result of Customer's use of such Products or Software in accordance with this Agreement provided that (i) Customer promptly notifies Seller in writing of the claim; (ii) Customer gives Seller full opportunity and authority to assume sole control of the defense and all related settlement negotiations; and (iii) Customer gives Seller information and assistance for the defense (Customer will be reimbursed for reasonable costs and expenses incurred in rendering such assistance, against receipt of invoices therefor). Subject to the conditions and limitations of liability stated in section 9(b) of this Agreement, -7- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Seller shall indemnify and hold harmless Customer from all payments, which by final judgments in such claims, may be assessed against Customer on account of such alleged infringement and shall pay resulting settlements, costs and damages finally awarded against Customer by a court of law, arbitration or other adjudication of the claim. b. Customer agrees that if the Products or Software become, or in Seller's opinion are likely to become, the subject of such a claim, Customer will permit Seller, at Seller's option and expense, either to procure the right for Customer to continue using such Products or Software or to replace or modify same so that they become non- infringing as long as they continue to conform in all material respects to the Product specifications, and, if neither of the foregoing alternatives is available on terms that are acceptable to Seller, Customer shall at the written request of Seller, return the infringing or potentially infringing Products or Software and all the rights thereto at Seller's expense. Customer shall receive a refund of the prorated undepreciated portion of the Purchase Price actually paid by Customer to Seller for the returned portion of the Products. The Purchase Price shall be depreciated over a five (5) year period. c. Seller shall have no obligation to Customer with respect to any claim of patent or copyright infringement which is based upon (i) adherence to specifications, designs or instructions furnished by Customer; (ii) the combination, operation or use of any Products supplied hereunder with products, software or data with which the Products are not intended to be used or for which the Products are not designed; (iii) the alteration of the Products or modification of any Software made by any party other than Seller; or (iv) the Customer's use of a superseded or altered release of some or all of the Software if infringement would have been avoided by the use of a subsequent unaltered release of the Software that is provided to the Customer. 9. INDEMNIFICATION a. Seller, shall indemnify Customer, its employees and directors, and each -of them, against any loss, damage, claim, or liability, arising out of, as a result of, or in connection with the use of the Product in accordance with this Agreement or the acts or omissions, negligent or otherwise, of Seller in the performance of this Agreement, or a contractor or an agent of Seller or an employee of anyone of them, except where such loss, damage, claim, or liability arises from the negligence or willful misconduct of Customer, agents or its employees. Seller shall, at its own expense, defend any suit asserting a claim for any loss, damage or liability specified above, and Seller shall pay. any costs, expenses and attorneys' fees that may be incurred by Customer in connection with any such claim or suit or in enforcing the indemnity granted above, provided that Seller is given (i) prompt notice of any such claim or suit and (ii) full opportunity to assume control of the defense or settlement. -8- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. b. In no event will either party or their respective suppliers be liable under this Agreement for (i) the cost. of substitute procurement, special, indirect, incidental, or consequential damages, or (ii) any damages resulting from the loss of use or profits arising out of or in connection with this Agreement, the furnishing of Services, or the use or performance of Products even if informed of the possibility of such damages. Except for damages resulting from bodily injury or death to persons, in no event will Seller's total liability for (i) any damages in any action based on or arising out of or in connection with this Agreement exceed the total amount paid to Seller for such Products under this Agreement, or (ii) claims based upon Seller's obligations for Services exceed the total amount paid to Seller for such Services. 10. TERM AND TERMINATION The term of this Agreement shall be [***] from the Effective Date. Either party may terminate this Agreement at any time with thirty (30) days' notice in which case Customer shall have the right to place Purchase Orders up until the effective date of the termination and such termination shall not affect any purchase order outstanding as of the effective date of the termination. If either party is in material default of any of its obligations under this Agreement and such default continues for thirty (30) days after written notice thereof by the party not in default, the nondefaulting party may terminate this Agreement. In addition, a party may terminate this Agreement if a petition in bankruptcy or a petition under any insolvency law is filed by or against the other party and is not dismissed within sixty (60) days of the commencement thereof. Any notice of termination under this section 10 shall be in writing. 11. ASSIGNMENT/LIMITATIONS ON TRANSFERS a. Any assignment by either party to this Agreement or any other interest hereunder without the other party's prior written consent, shall be void, except assignment to a parent company, subsidiary or person or entity who acquires all or substantially all of the assets, business or stock of either party, whether by sale, merger or otherwise. b. Customer shall not purchase a Product solely for the purpose of reselling or distributing it to another party. c. Subject to the provisions of paragraphs a and b above, this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns, if any, of the parties hereto. 12. NOTICES Except as otherwise specified in this Agreement, all notices or other communications hereunder shall be deemed to have been duly given when made in writing and delivered in person or deposited in the United States mail, postage prepaid, certified mail, return -9- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. receipt requested, or by a reputable overnight courier service providing proof of delivery, or by confirmed facsimile transmission and addressed as follows: To Seller: To Customer: Metawave Communications Corporation Grupo Iusacell S.A. de C.V. 10735 Willows Road NE Avenida Prolongacion, Paseo de la Redmond, WA 98052 Reforma Colonia Sante Fe 05348 Mexico D.F. Attn: Richard Henderson, VP, Sales Attn: Thomas A. Burgos Fax: 425 702 5976 Fax: 52-5-109-5407 Copy to: Kathy Surace-Smith Copy to: Ruben Perlmutter General Counsel General Counsel Fax: 425-702-5978 Fax: 52-5-109-5791 The address to which notices or communications may be given to either party may be changed by written notice given by such party to the other pursuant to this Section 11. 13. INSURANCE Seller agrees at its expense to maintain adequate insurance coverage to protect against its liabilities under this Agreement. Insurance coverage will include (a) worker's compensation insurance; (b) comprehensive general liability insurance, including coverage for product liability, bodily injury and property damage; and (c) automobile liability insurance. 14. COMPLIANCE WITH LAWS a. Each party shall comply with all applicable federal, state and local laws, regulations and codes, including the procurement of permits and licenses relating to the purchase or sale of Product and Services pursuant to this Agreement. b. Seller agrees to obtain all necessary Mexican telecommunication authorizations, certifications, permits or licenses as required for the installation and operation of the Products and for which Seller is responsible for under Mexican. law or regulations(the "Licenses"). Customer shall provide consultation or upon request from Seller, reasonable assistance in the form of personnel, expertise and contacts to Seller (other than financial assistance) in obtaining the Licenses, customs clearances (subject to section 4(c)), visas, permits, work permits, temporary import/export permits for tools and test equipment, and any other required documentation required for the importation, installation and operation of the Products in Mexico. c. When Customer imports the Products into Mexico, Customer shall comply with all importation formalities and obtain any customs or regulatory permits required to import the Products into Mexico, including but not limited to, NOM certificates -10- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. issued by NYCE relating to compliance with electrical safety standards (the "NYCE Certificate"). Seller agrees to indemnify Customer, its employees and directors, and each of them, against any loss, damage, claim, or liability, arising out of, as a result of, or in connection with the issuance of the NYCE Certificate to, and the holding or maintenance of the NYCE Certificate by, Customer except where such loss, damage, claim, or liability arises from the negligence or willful misconduct of Customer, agents or its employees. Seller shall, at its own expense, defend any suit asserting a claim for any loss, damage or liability specified above, and Seller shall pay any costs, expenses and attorneys' fees that may be incurred by Customer in connection with any such claim or suit or in enforcing the indemnity granted above, provided that Seller is given (i) prompt notice of any such claim or suit and (ii) full opportunity to assume control of the defense or settlement. In addition, Seller shall be responsible for maintaining the Products' compliance with applicable NOM standards and for conducting additional testing if needed `to maintain the NYCE Certificate. Customer and Seller agree that the NYCE certificate shall only be used by Customer as the importer of Products for its own use, and that Seller shall not rely on the NYCE certificate issued to Customer for importation on behalf of Seller or any other purchaser of the Products in Mexico. d. Customer agrees that Seller may conduct testing for purposes of obtaining any Licenses for the Products at the Sites where they are installed and will allow Seller access to the Sites at times acceptable to Customer for such purposes during installation and afterwards if requested by Seller. e. The parties agree to comply with all applicable U.S. and Mexican export control laws and regulations and shall not export or re-export any technical data or products except in compliance with the applicable export control laws and regulations of the U.S. and Mexico. -11- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 15. FORCE MAJEURE Except for payment of moneys due, neither party shall be liable for delays in delivery or performance or for failure to manufacture, deliver or perform resulting from acts beyond the reasonable control of the party responsible for performance. Such acts shall include, but not be limited to (a) acts of God, acts of a public enemy, acts or failures to act by the other party, acts of civil or military authority, governmental priorities, strikes or other labor disturbances, hurricanes, earthquakes, fires, floods, epidemics, embargoes, war, riots, and loss or damage to goods in transit; (b) inability to obtain necessary products, components, services or facilities on account of causes beyond the reasonable control of the delayed party or its suppliers; or (c) delay in obtaining or the failure to obtain the necessary customs clearances, equipment authorizations, licenses, permits, governmental approvals and any other documentation required for the delivery, installation and operation of the Products at the Sites, including visas and work permits for Seller's personnel. In the event of any such delay, the date(s) of delivery or performance shall be extended for as many days are reasonably required due to the delay. If such delay continues for forty-five (45) days, either party may terminate the Purchase Order affected by the event by providing written notice. 16. GOVERNING LAW / DISPUTE RESOLUTION a. This Agreement and each Purchase Order shall be construed in accordance with the internal laws of the State of New York, without regard to its choice of law provisions. The terms and conditions of the United Nations Convention CISG are excluded from application under this Agreement. b. Any dispute, controversy, or claim arising out of or relating to this Agreement shall first be settled by non-binding mediation to be conducted in English by a mutually agreed non-affiliated neutral party. In the event mediation is unsuccessful, the matter shall be settled by binding arbitration in New York, New York, under the rules of the International Chamber of Commerce in effect at the time of the arbitration to be conducted in English. The arbitration decision shall be final and binding upon the parties and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the above, regarding intellectual property claims, Metawave reserves the right to initiate and conduct litigation proceedings in any court it deems appropriate. 17. CONFIDENTIALITY All information, data and materials provided by either party pursuant to this Supply Agreement will be subject to the terms and conditions of the Non-disclosure Agreement between Metawave and IUSACELL, dated May 19, 1999. 18. INTELLECTUAL PROPERTY -12- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. All concepts, designs, ideas, techniques, software programs, inventions, discoveries, data, business processes, business procedures and any other intellectual property developed by Seller in connection with this Agreement, or arising out of its performance of this Agreement, shall be the exclusive property of Seller. The performance by Seller of its obligations under this Agreement shall not be deemed work-for-hire but shall instead be subject to this section. 19. GENERAL PROVISIONS a. Seller and Customer may agree to issue a joint press release concerning the execution of this Agreement. Such press release shall be subject to prior review and written approval by both parties, such approval not to be unreasonably withheld. b. Any waiver by any party of any breach or failure to comply with any provision of this Agreement by the other party must be in writing and shall not be construed as, or constitute, a continuing waiver of such provision, or a waiver of any other provision of this Agreement. c. If any of the provisions of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall not invalidate or render unenforceable the entire Agreement, but rather the entire Agreement shall be construed as if not containing the particular invalid or unenforceable provisions, and the rights and obligations of Seller and Customer shall be construed and enforced accordingly. d. Except the Non-Disclosure Agreement dated May 19, 1999 which shall remain in full force and effect, this Agreement, including all Exhibits that are attached to and hereby incorporated into this Agreement, shall constitute the entire agreement between Customer and Seller with respect to the subject matter hereof and supersedes all prior agreements, covenants, arrangements, communications, representations or warranties, whether oral or written, by any party or any officer, employee or representative of any party with respect to the subject matter hereof. Upon certification by Customer of performance acceptance of the Products purchased pursuant to the Letter Agreement between Seller and Customer dated June 29, 1999 (the "Initial Order"), such Letter Agreement shall be terminated and the terms and conditions of this Agreement shall apply to the Initial Order as if the Initial Order were a Purchase Order under this Agreement. In addition, all outstanding Purchase Orders from Customer and all Products sold to Customer by Seller as of the Effective Date of this Agreement shall be subject to this Agreement, which shall supersede and replace any additional or different terms of those Purchase Orders or other order documentation. e. Any amendment or modification of this Agreement or any Exhibit must be in writing and signed by a duly authorized representative of each of the parties. -13- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. f. This Agreement applies only to sales of Products and Services to be installed at Customer Sites in Mexico.' IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives. Metawave Communications Corporation Grupo IUSACELL S.A. de C.V. By: /s/: Richard Henderson By: /s/: Thomas Burgos ------------------------ ------------------ Name: Richard Henderson Name: Thomas Burgos ------------------------ ------------------ Title: VP Sales and Marketing Title: VP Network ------------------------ ------------------ -14- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Exhibit A 1. Product Pricing Summary All Product prices shown are list prices and unless other wise indicated do not include Services, taxes, shipping and duties. Services prices shown are for Product installed and services performed in the Mexico. [***] CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 2. Optional Software Pricing Summary [***] 3. Services Pricing Summary [***] 4. Maintenance Pricing [***] -2- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 5. Training Supplier offers SpotLight training courses designed for the cellular technician. The content of the courses shall include but not be limited to site preparation, installation, remedial maintenance, failure recovery/backup, failure repair techniques, operation of test equipment and diagnostic software use. The content of said courses may be changed by Supplier when, in its judgement, such change is warranted, the current course offered is three (3) days in length. The courses assume no prior knowledge of SpotLight systems but do require a proficient level of understanding of cellular system operation, installation and optimization. Supplier shall provide sufficient personnel to conduct each course and shall furnish instructional aids including manuals. The training courses will be conducted at Supplier's offices located in Redmond, Washington [***]. The price for attending the training course is [***]. Course schedules and availability will vary and shall be coordinated through Supplier's training organization. 6. General Conditions for Order 6.1 Towers and transmission lines to the towers, or any costs associated with the preparation of towers and the cell site including adequate electrical power and HVAC are not included in the prices shown herein and are the responsibility of Customer. 6.2 The mounting, physical and electrical connection of the SpotLight panel antennas is not included in the prices shown herein and is the responsibility of Customer. 6.3 Customer shall provide air time with local phone numbers at no charge and/or a reasonable number of test mobiles at no charge if required by Supplier for completion of services including Installation, Commissioning and Optimization of the Product. 6.4 Site surveys must be completed to determine the final Product configurations and to complete the scope of work. If upon completion of the site survey and scope of work, it is determined that the Product requirements have changed, Supplier shall notify Customer with a written proposal for changes to the Purchase Order. 6.5 Customer shall provide safe and secure access to the sites for Supplier's employees during the performance of Services. Customer shall make each site available to Supplier during a mutually agreed upon period of time. 6.6 Customer is responsible for maintaining proper site environmental conditions and proper grounding of Supplier's equipment including proper lightening protection. 6.7 Customer shall provide, at Supplier's reasonable request, cell site data necessary for the performance of Services including database information, baseline network statistics, call traffic and performance levels and revisions levels of cell site infrastructure hardware and software. All such information provided by Customer shall be treated as confidential Information in accordance with this Agreement. -3- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 6.8 If performance of Services by Supplier is delayed for reasons beyond the control of Supplier, or if additional Services are required by Customer, the prices for Services shown herein may be adjusted accordingly. 6.9 Performance of the Services set forth herein is dependent on Customer and/or Supplier obtaining any and all necessary licenses, permits and governmental approvals required to perform the Service. Supplier shall not be held liable for any non-performance due to delays in obtaining any of the above documentation and/or approvals. -4- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 7. [***] The prices shown in this Exhibit A are given in consideration of Customer's [*] set forth in this Section 7. [***] -5- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Region #9 [***] -6- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Exhibit B Commissioning Certificate CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. [***] CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Exhibit C Product Maintenance Program CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 1. INTRODUCTION Seller's product maintenance program includes both a Hardware Maintenance Program (HMP) and a Software Maintenance Program (SMP). This document describes each of the two programs. 2. HARDWARE MAINTENANCE PROGRAM (HMP) Seller repairs its Product(s) down to the Field Replaceable Unit (FRU). In this Exhibit C, the term hardware refers to the non-Software components making up a FRU. The following describes Seller's Hardware Maintenance Program ("HMP"): 2.1. Term 21.1. Seller's HMP is included in the Purchase Price of each Product purchased by Customer and shall extend throughout the duration of the Warranty Period, as set forth in the Warranty Section of the Agreement (the "Initial HMP"). Hardware repair services are made available to Customer for a period of [***] from the date Product is shipped from Seller's factory to Customer. Following the expiration of the Initial HMP, Customer has a choice of (i) subscribing to Seller's HMP on an annual basis pursuant to the terms herein and at the HMP fees set forth in Exhibit A ("Extended HMP") for the duration of the term of the Agreement and thereafter at Seller's then current HMP fees, or (ii) having defective FRUs repaired or replaced with refurbished FRUs at Seller's then current repair rates. 2.2. Seller shall: 2.2.1. If a defect occurs, either (i) repair the defective FRU or (ii) replace said FRU with a new or refurbished FRU. Any item replaced will be deemed to be on an exchange basis, and any item retained by Seller through replacement will become the property of Seller. 2.2.2. FRUs that have been repaired or replaced will be warranted for a period of time which is the longer of (i) [***] from the date of shipment of FRU to Customer or (ii) [***]. 2.2.3. At the request of Customer and if an emergency situation exists and requires an expedited shipment, Seller shall ship a replacement FRU in advance of Customer returning the defective FRU to Seller. 2.2.4. In a non-emergency situation, Seller shall ship a repaired or replacement FRU to Customer within [***] days of receipt of a defective FRU from Customer. Equipment not manufactured by Seller will be repaired or replaced as promptly as arrangements with the manufacturers or vendors thereof permit. -2- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 2.2.5. Issue a Return Material Authorization ("RMA") number to Customer prior to Customer's return of the defective FRU. 2.2.6. Pay all transportation charges for the return of the repaired or replacement FRU to Customer. 2.2.7. Provide telephone technical support 24 hours a day, 7 days a week with a telephone call-back response time to Customer not to exceed one hour from Customer's call to Customer Support. 2.3. Customer shall: 2.3.1. Contact Seller via telephone, e-mail or fax to obtain an RMA prior to returning a defective FRU. 2.3.2. Package FRU in a manner to prevent damage during shipment and clearly identify RMA number on outside of package. 2.3.3. Ship the defective FRU to the address shown in Annex A to this exhibit. 2.3.4. Pay all costs of transportation for sending the defective FRU to Seller. 2.3.5. If Seller has shipped a replacement FRU in advance of Customer returning a defective FRU to Seller, as a result of an emergency situation that required an expedited shipment, Customer agrees to provide confirmation of shipment of such defective FRU, freight prepaid, to Seller (at address shown in Annex A to this exhibit) within 5 days of Seller's shipment of replacement FRU. Customer agrees to promptly pay Seller's invoice for the replacement FRU (billed at the then current FRU price) shipped to Customer if the defective FRU is not returned to Seller within the specified 5 day period. 2.3.6. Be responsible for the initial identification of Product problems down to the FRU level and for the removal, shipment and re-installation of the malfunctioning FRU. 2.4. On-Site Repair On-Site Repair can be performed at an additional charge. Such charge will be quoted to Customer and agreed upon in writing prior to dispatch of service personnel. 2.5. Service Limitations -3- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 2.5.1. Seller shall have no responsibility to repair or replace FRUs which have been repaired or altered in an unauthorized manner or which have had the bar code, serial number, or other identifying mark modified, removed or obliterated through action or inaction of Customer. 2.5.2. In the event that Customer sends a FRU to Seller for which no defects or failures can be found, Seller may invoice Customer at the then current fee for the services rendered during the evaluation process. 3. SOFTWARE MAINTENANCE PROGRAM (SMP) The following describes Seller's SMP: 3.1. Definitions Terms which are capitalized have the meanings set forth below or, absent definition herein, as contained in the Agreement. Feature An innovation or performance improvement to Software that is made available to all users of the current Software release. Features are licensed to Customer individually and may be at additional cost. Major Release Indicates a new version of Software that adds new Features (excluding Optional Features) or major enhancements to the currently existing release of Software. Point Release Indicates a modification to Software resulting from planned revisions to the current release, or corrections and/or fixes to the current release of Software. Software Patch Software that corrects or removes a reproducible anomaly or "bug" in an existing Major Release. 3.2. Term 3.2.1. Seller's SMP is included in the Purchase Price of each Product purchased by Customer and shall extend throughout the duration of the Warranty Period, as set forth in the Warranty Section of the Agreement (the "Initial SMP Term"). Thereafter, SMP is provided by Seller to Customer pursuant to the terms herein and is included in the SMP fees set forth in Exhibit A for a period of 12 months. Any Software provided to Customer during the term of the SMP will be provided pursuant to Seller's Software License as set forth in the Software License exhibit of the Purchase Agreement. 3.3. Scope -4- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 3.3.1. During the term of SMP, all Major Releases, Point Releases, Software Patches and standard Features made generally available by Seller shall be available to Customer at no additional charge. Customer shall install such Software promptly upon receipt. 3.3.2. Optional Features and certain significant enhancements shall be made available to Customer at an additional charge. 3.3.3 Certain optional Features shall be sold on a per-unit basis and may have price levels that reflect unit capacity. 3.3.4 Customer will be responsible for problem identification of reproducible Software malfunctions. In the event of any such Software malfunction, Customer shall notify Seller promptly of the failure through calling Seller's Customer Support. 3.3.5 Seller shall provide, at a Seller authorized repair depot, such service as is necessary to correct Software defects. Such service will be provided by Seller as soon as is possible and on a priority basis according to the severity of the problem. 3.3.6. Seller shall provide telephone technical support 24-hour a day, 7 days a week with a telephone call-back response time to Customer not to exceed one hour from Customer's call to Customer Support. Additionally, Seller shall provide telephone assistance and guidance during the installation of new Software. 3.3.7. Seller shall support the current Major Release and associated Point Releases and Features as well as the immediately preceding Major Release and associated Point Releases and Features. 3.3.8. Seller shall have no obligation to support any Software that is older than the immediately preceding Major Release. However, any support provided by Seller for Software older than the immediately preceding Major Release and associated Point Releases and Features shall be on a time and material basis. An open purchase order will be required before any such services are rendered. 3.3.9. Seller shall perform its services hereunder in a good workmanlike manner and in accordance with industry standards where applicable. -5- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Annex A: Procedures for Metawave's Hardware Maintenance Program A. Metawave's Customer Support Customer Support Customer Support can be reached by call the following numbers: Domestic phone: 888-642-2455 International phone: 425-702-6550 Fax: 425 702 5975 Email: support@metawave.com B. Return Material Authorization (RMA) Customer must contact Customer Support via telephone, e-mail or fax to obtain a Return Material Authorization (RMA) number. Seller may return shipments without a RMA number to the Customer unrepaired and at Customer's expense. The RMA number must be clearly written on the outside of the package. A RMA number will not be issued until a purchase order is provided for the repair price for those items not covered under warranty. C. Return Address All Field Replaceable Units (FRUs) must be shipped to: Metawave Communications Corporation 10735 Willows Road N.E. Redmond, WA 98073-9769 USA D. Packing Instructions Customer must pack all returned equipment in a manner no less protective to such equipment than the manner in which Seller packages similar equipment. E. Repair Purchase Orders Repair purchase orders are required in the following instances: 1. When Customer returns out of warranty FRUs for repair. 2. When Seller sends pre-exchange FRU to Customer prior to the defective FRU being received by Seller, and if defective FRU is not received within five (5) days of shipment of replacement FRU. Under these circumstances, a facsimile copy of the purchase order may be transmitted to Seller and followed-up by a confirming hard copy in the mail. F. Expedited Service In an emergency situation that requires an expedited shipment, Seller offers Expedite Services upon Customer's request at no additional charge except that Customer shall pay for additional expedited freight charges, if any. If the HMP CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. has expired, such expedite service will carry an additional fee of $300 plus freight charges (plus the price of FRU if out of warranty) per FRU. G. Invoices and Payment Invoices are payable in accordance with the terms of the Agreement. If pre-exchanged FRU's are not returned by Customer to Seller within five (5) days then Seller shall invoice Customer for the amount of the exchanged FRU's. H. Freight FRUs covered under Initial HMP or Extended HMP: Customer shall ship the FRU to Seller on a prepaid basis and Seller will return the FRU to Customer on a prepaid basis, not billing Customer for return freight. FRUs out of Warranty: Customer shall ship the FRU to Seller on a prepaid basis and Seller will utilize the freight carrier number furnished by Customer for return freight. I. Duties and Taxes All duties, customs clearance fees and any and all taxes will be the responsibility of the Customer. J. Non-compliance Failure to comply with any of the procedures may result in delay or non-delivery of the FRUs. -2- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Exhibit D Software License CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 1. DEFINITIONS For the purposes of uniformity and brevity, references to Agreement or to an Exhibit shall refer to the Agreement that this document is attached as Exhibit D and to the other Exhibits to that Agreement. All definitions set forth in the Agreement shall apply hereto unless otherwise expressly defined herein. 2. SCOPE Pursuant to the Agreement, Software will be delivered by Seller to Customer for use with a Product according to the terms of the Agreement and this Exhibit. Customer shall then become a licensee with respect to such Software. 3. LICENSING GRANT 3.1. Concurrent with execution of the Agreement, and subject to the terms and conditions set forth herein, Seller grants to Customer a revocable, non-exclusive and non-transferable license under Seller's applicable proprietary rights to use Software delivered to Customer hereunder to routinely operate and monitor the Product with which the Software was delivered. 3.2. The Software licensing fees for the most current versions of the Software including the Embedded System Software and LampLighter Software (available at the time of purchase of a Product) are included in the Purchase Price of a Product. Software Updates are available under the Software Maintenance Program described in Exhibit C or for additional licensing fees. 4. LIMITATIONS ON USE OF SOFTWARE 4.1. Without the prior written consent of Seller, Customer shall only use the Software in conjunction with a single Product delivered to Customer under the terms of the Agreement. 4.2. The license granted to Customer in Section 3 may not be transferred to another Product or Site or another entity without the written consent of Seller. 4.3. The Software is subject to laws protecting patents, trade secrets, know-how, confidentiality and copyright. 4.4. Customer shall not translate, modify, adapt, decompile, disassemble, or reverse engineer the Software or any portion thereof. 4.5. Unless otherwise expressly agreed to by Seller, Customer shall not permit its directors, officers, employees or any other person under its direct or indirect control, to write, develop, produce, sell, or license any software that performs the same functions as the Software by means directly attributable to access to the Software (e.g. reverse engineering or copying). -2- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 4.6. Customer shall not export the Software from the United States without the written permission of Seller. If written permission is granted for export of the Software, then Customer shall comply with all U.S. laws and regulations for such exports and shall hold Seller harmless, including legal fees and expenses for any violation or attempted violation of the U.S. export laws. 4.7. Customer acknowledges that Seller owns the Software and that any rights therein not specifically granted in this License are the exclusive property of Seller. 5. RIGHT TO COPY, PROTECTION AND SECURITY 5.1. Software provided hereunder may be copied (for back-up purposes and disaster recovery only) in whole or in part, in printed or machine- readable form for Customer's internal use only, provided, however, that no more than two (2) printed copies and two (2) machine-readable copies (other than copies electronically resident in Products) shall be in existence at any one time `Without the prior written consent of Seller. 5.2. With reference to any copyright notice of Seller associated with Software, Customer agrees to include the same on all copies it makes in whole or in part. Seller's copyright notice may appear in any of several forms, including machine-readable form. Use of a copyright notice on the Software does not imply that such has been published or otherwise made generally available to the public. 5.3. Customer agrees to keep confidential, in accordance with the terms of the Agreement or a non-disclosure agreement signed by the parties, and not provide or otherwise make available in any form any Software or its contents, or any portion thereof, or any documentation pertaining to the Software, to any person other than employees of Customer or Seller. 5.4. Software is the sole and exclusive property of Seller and no title or ownership rights to the Software or any of its parts, including documentation, is transferred to Customer. 5.5. Customer acknowledges that it is the responsibility of Customer to take all reasonable measures to safeguard Software and to prevent its unauthorized use or duplication. 6. REMEDIES Customer acknowledges that violation of the terms of this License Agreement or the Agreement shall cause Seller irreparable harm for which monetary damages may be inadequate, and Customer agrees that Seller may, in addition to any other legal or equitable remedy, seek temporary or permanent injunctive relief without the need to prove actual harm in order to protect Seller's interests. -3- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 7. TERM Unless otherwise terminated, pursuant to Section 8 hereof, the term of the license granted pursuant to Section 3 herein shall be perpetual. 8. TERMINATION 8.1. The license granted hereunder may be terminated by Customer upon one (1) month's prior written notice. 8.2. Seller may terminate the license granted hereunder if Customer is in material default of any of the terms and conditions of this Software License and such termination shall be effective if Customer fails to correct such default within thirty (30) days after written notice thereof by Seller. The provisions of Sections 4 and 5 herein shall survive termination of any such license. 8.3. Within one (1) month after termination of the license granted hereunder, Customer shall furnish to Seller a document certifying that through its best efforts and to the best of its knowledge, the original and all copies in whole or in part of all Software, in any form, including any copy in an updated work, have been returned to Seller or destroyed. With prior written consent from Seller, Customer may retain one (1) copy for archival purposes only. 9. RIGHTS OF THE PARTIES 9.1. Nothing contained herein shall be deemed to grant, either directly or by implication, estoppel, or otherwise, any license under any patents, patent applications or copyrights of Seller except as expressly granted herein. 9.2. Rights in programs or operating systems of third parties, if any, are further limited by their license agreements with such third parties, which agreements are hereby incorporated by reference thereto and made a part hereof as if fully set forth herein. Customer agrees to abide thereby. 9.3. During the term of the license granted pursuant to Section 3 herein and for a period of one (1) year after expiration or termination, Seller, and where applicable, its licenser(s), or their representatives may, upon prior notice to Customer, a) inspect the files, computer processors, equipment, facilities and premises of Customer during normal working hours to verify Customer's compliance with this Software License, and b) while conducting such inspection, copy and/or retain all Software, including the medium on which it is stored and all documentation that Customer may possess in violation of the license or the Agreement. 9.4. Customer acknowledges that the provisions of this Exhibit D are intended to inure to the benefit of Seller and its licensors and their respective successors in interest. -4- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Customer acknowledges that Seller or its licensers have the right to enforce these provisions against Customer, whether in Seller's or its licenser's name. -5- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 10. LIMITATIONS ON SOFTWARE Customer understands that errors occur in Software and Seller makes no warranty that the Software will perform without error. Customer accepts the Software "as is" subject to the warranty set forth in Section 7 of the Agreement. 11. YEAR 2000 WARRANTY In addition to the warranties contained in Section 7 of the Agreement, Seller warrants, covenants and agrees that the Software will perform, operate and function when used in accordance with its associated documentation, and will be capable upon Commissioning to accurately process, provide and/or receive date data from, into and between the twentieth and twenty-first centuries, including the years 1999 and 2000, and leap year calculations, provided that all other products (e.g. hardware, software and firmware) used in combination with the Products(s) properly exchanges date data with it. 12. ENTIRE UNDERSTANDING 12.1. This Exhibit D is a part of, and is to be read together with, the Agreement which contains additional terms and conditions, warranties and indemnities applicable to the Software. 12.2. Notwithstanding anything to the contrary in other agreements, purchase orders or order acknowledgments, the Agreement, the Software specifications set forth in the Products specifications and this Exhibit D set forth the entire understanding and obligations regarding use of Software, implied or expressed. -6- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Exhibit E Engineering and Optimization Procedure CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Introduction This exhibit establishes the Performance Criteria and Procedure to be used for the Engineering and Optimization for the Products ("Product" shall mean Seller's SpotLight 2000 product). The Engineering and Optimization Procedure consists of [***]. The Engineering and Optimization Procedure consists of separate activities for analog and CDMA consisting of: [***] Comp1etion of the Engineering and Optimization of a SpotLight shall be indicated by [***] found at the end of this Exhibit E. [***] In order for Customer and Seller to configure the Product, Customer must provide the following specific cell site information for all current and planned sites in the area of Customer's network where Product is to be installed. The information is required for all sites regardless of whether the SpotLight Product is to be installed in that particular site, unless specifically designated as "Required for Product sites only" in the list below, which indicates that the information is required only for sites where Product is to be installed. [***] -2- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. [***] The collection and measurement process described in this section will be followed during both the Baseline Performance Collection and the Performance Collection and Evaluation. Drive test route(s), drive test equipment, data to be collected during drive tests, number of runs per drive test route and frequency of data sampling all must be agreed to by Customer and Seller prior to beginning the Measurement Process. Information discovered in the drive tests and information that must be provided by customer and included in both the Baseline Performance Collection and the Performance Collection and Evaluation include but are not limited to: [***] In addition to collecting the above information, switch statistics from the previous year must be analyzed to determine if adjustments due to seasonal variation between the baseline data collection phase and the Product data collection phase need to be made. Customer must provide either the actual switch statistics or summaries of seasonal statistical traffic trends. Customer must provide a log of all system changes during both the Baseline Performance Collection phase and the Performance Collection and Evaluation phase, recording the occurrences of such events as cell site additions, frequency re-tunes, outages, etc. Customer must collect the switch statistics and provide them to Metawave on a daily basis. The calculation for Lost Calls Percentage and Ineffective Attempts Percentage will be calculated using the following equations unless otherwise agreed to by Seller and Customer: [***] [***] -3- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. [***] Using the procedure set forth in the Measurement Process section of this exhibit, Customer and Seller will perform drive tests to determine the current performance characteristics of the existing CDMA and analog networks. Customer and Seller must agree in writing as to the validity of baseline switch statistic data and drive test data. The duration of the baseline sampling time period shall be mutually agreed upon. [***]. Switch statistics collected during the baseline sampling time period will include both daily summaries (excluding maintenance windows) and system busy hour summaries. [***] [***] -4- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. [***] [***] [***] [***] -5- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. [***] Cell Site Name & Identification ______________________ Date:_________________ Purchase Order:___________________________________ Metawave Communications Corporation Grupo IUSACELL S.A. de C.V. By:____________________________ By:____________________________________ Name:__________________________ Name:__________________________________ Title:_________________________ Title:_________________________________ Date:__________________________ Date:__________________________________ Comments -------- ______________________________________________________________________________ ______________________________________________________________________________ -6- CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. EX-10.25 13 EMPLOYMENT AGMT WITH MR. STUART FUHLENDORF EXHIBIT 10.25 March 10, 2000 Mr. Stuart Fuhlendorf 1396 Gold Mine Lane Evergreen, CO 80439 Dear Stuart: On behalf of Metawave Communications Corporation, it is my pleasure to offer you the position of Senior Vice President and Chief Financial Officer, as detailed in this letter. You will report to Bob Hunsberger, Chief Executive Officer and President, with a start date to be mutually agreed upon. Base compensation for your duties will be [***] per year, to be earned and paid monthly, equivalent to [***] per pay period, subject to federal income tax and other normal withholding. Metawave has a bi-weekly payroll schedule where paydays occur every other Thursday. You will also be eligible for Metawave's bonus program in effect at the time, appropriate for your grade. You are eligible for our Medical, Dental and Life insurance starting on the first day of the month following or equivalent to your hire date. You are also eligible to participate in our 401(k) program. You will be eligible to enroll on the first of the quarter following your employment date. These programs are, of course, subject to change. A summary outlining the Metawave benefit package is enclosed. Your performance and salary will be reviewed once per year. Your first performance review will occur on or around January 2001. Any salary adjustment will be determined based on performance, and will be set by your manager on an annual basis. A recommendation will be made to the Board of Directors that you be granted an option to purchase [***] shares of Metawave common stock (subject to any stock splits or other changes in capitalization that may be effected in connection with Metawave's initial public offering). The price will be determined by the board of directors at the board meeting following your hire date. One quarter of the shares vest after one year of employment with the remaining three quarters progressively vesting on a monthly basis over the next three (3) subsequent years. [***]. In the event that the Company terminates your employment without cause, you will receive a lump sum severance payment within 30 days of such termination equal to six months' base salary, in exchange for executing the normal severance release agreement. CONFIDENTIAL [***] CONFIDENTIAL TREATEMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Page 2 Stuart Fuhlendorf March 10, 2000 Metawave is prepared to assist you in your move to the Seattle-area by paying the costs of moving your household goods from Evergreen, CO to Washington. These costs include packing, transporting, insurance and unloading of your household goods. This includes moving two automobiles. Relocation costs include 30 days of storage for your household goods upon arrival in Washington. Metawave will also pay for temporary living upon your arrival in the Seattle area. Temporary living will be paid through June 2000, if needed. (Temporary living is defined as reasonable apartment rent. Costs for food will be your expense.) Additionally, Metawave is prepared to pay for expenses associated with the sale of your home in Colorado and the purchase of a new residence in the Seattle area, as follows: Closing costs for sale of Colorado home - --------------------------------------- . Appraisal fees . Lawyer fees . Title insurance . Revenue stamps . Recording fees . Brokerage fees . Unique closing costs Closing costs for purchase of home in Seattle area - -------------------------------------------------- . Appraisal fees . Lawyer fees . Title insurance . Revenue stamps . Recording fees . Unique closing costs including county fees . Inspection fees . Buyers points/origination fees not to exceed $6,000. This will not be grossed up. Any fees or costs that are not tax deductible will be grossed up, otherwise actual expenses will be reimbursed. This represents Metawaves complete commitment to relocation expenses. Should you leave the company prior to completing 12 months of employment, you will be required to repay Metawave (on a prorated basis). It is the policy of Metawave that employees not disclose nor use any confidential information from prior employment while employed by Metawave. If you have entered into specific Non-Disclosure agreements, non-competitive agreements, or any other agreements with any previous employer that might affect or restrict your employment with us, please provide us with a copy so that we can ensure that both you and Metawave abide by the terms thereof. CONFIDENTIAL [***] CONFIDENTIAL TREATEMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Page 3 Stuart Fuhlendorf March 10, 2000 Employment with Metawave is at the mutual consent of each employee and the company. Accordingly, while Metawave has every expectation that employment relationships will be mutually beneficial and rewarding, both you and Metawave retain the right to terminate the employment relationship at will, at any time, with or without cause. In addition, you will be required to read and comply with the policies and procedures as outlined in the Metawave Employee Handbook during your employment with the company. This offer represents the entire offer of Metawave and supersedes any prior verbal or written agreements. This offer will remain open until 5:00 p.m. on Monday, March 13, 2000. As a condition of your employment, you are required to sign a copy of the enclosed Confidentiality Agreement (which should be returned to Human Resources). You will be required to provide your proof of identification and your proof of your right to work in the United States to Human Resources by your third day of employment. Stuart, we are excited about you joining our team, and we hope you will be able to achieve both your personal and professional objectives here at Metawave. If we can answer any questions, please feel free to call Bob Hunsberger at 425-702- 5623. Please sign your acceptance below and return the original to me. The copy is for your records. Sincerely, METAWAVE COMMUNICATIONS CORPORATION /s/ Monica Chester-Bristow - -------------------------------------- Monica Chester-Bristow Director, Human Resources This will acknowledge my acceptance of this offer of employment. /s/ Stuart Fuhlendorf - -------------------------------------- Stuart Fuhlendorf March 10, 2000 - -------------------------------------- Date CONFIDENTIAL [***] CONFIDENTIAL TREATMENT REQUESTED. OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. EX-10.26 14 2000 STOCK PLAN EXHIBIT 10.26 METAWAVE COMMUNICATIONS CORPORATION 2000 STOCK PLAN 1. Purposes of the Plan. The purposes of this 2000 Stock Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code and the regulations promulgated thereunder. Stock purchase rights may also be granted under the Plan. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or its Committee appointed pursuant to Section 4 of the Plan. (b) "Affiliate" means an entity other than a Subsidiary (as defined below) which, together with the Company, is under common control of a third person or entity. (c) "Applicable Laws" means the legal requirements relating to the administration of stock option and restricted stock purchase plans under applicable U.S. state corporate laws, U.S. federal and applicable state securities laws, the Code, any Stock Exchange rules or regulations and the applicable laws of any other country or jurisdiction where Options or Stock Purchase Rights are granted under the Plan, as such laws, rules, regulations and requirements shall be in place from time to time. (d) "Board" means the Board of Directors of the Company. (e) "Cause" for termination of a Participant's Continuous Service Status will exist if the Participant is terminated for any of the following reasons: (i) Participant's willful failure substantially to perform his or her duties and responsibilities to the Company or deliberate violation of a Company policy; (ii) Participant's commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is reasonably expected to result in material injury to the Company; (iii) unauthorized use or disclosure by Participant of any proprietary information or trade secrets of the Company or any other party to whom the Participant owes an obligation of nondisclosure as a result of his or her relationship with the Company; or (iv) Participant's willful breach of any of his or her obligations under any written agreement or covenant with the Company. The determination as to whether a Participant is being terminated for Cause shall be made in good faith by the Company and shall be final and binding on the Participant. The foregoing definition does not in any way limit the Company's ability to terminate a Participant's employment or consulting relationship at any time as provided in Section 5(d) below, and the term "Company" will be interpreted to include any Subsidiary, Parent, Affiliate or successor thereto, if appropriate. (f) "Code" means the Internal Revenue Code of 1986, as amended. (g) "Committee" means one or more committees or subcommittees of the Board appointed by the Board to administer the Plan in accordance with Section 4 below. (h) "Common Stock" means the Common Stock of the Company. (i) "Company" means Metawave Communications Corporation, a Delaware corporation. (j) "Consultant" means any person, including an advisor, who is engaged by the Company or any Parent, Subsidiary or Affiliate to render services and is compensated for such services, and any Director of the Company whether compensated for such services or not. (k) "Continuous Service Status" means the absence of any interruption or termination of service as an Employee or Consultant. Continuous Service Status as an Employee or Consultant shall not be considered interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Administrator, provided that such leave is for a period of not more than ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (iv) in the case of transfers between locations of the Company or between the Company, its Parents, Subsidiaries, Affiliates or their respective successors. A change in status from an Employee to a Consultant or from a Consultant to an Employee will not constitute an interruption of Continuous Service Status. (l) "Control Transaction" means: (i) any merger, consolidation, or statutory or contractual share exchange in which there is no group of persons who held a majority of the outstanding Common Stock immediately prior to the transaction who continue to hold, immediately following the transaction, at least a majority of the combined voting power of the outstanding shares of that class of capital stock (herein, "Voting Stock") which ordinarily (and apart from rights accruing under special circumstances) has the right to vote in the election of directors of the Company (or of any other corporation or entity whose securities are issued in such transaction wholly or partially in exchange for Common Stock); (ii) any liquidation or dissolution of the Company; (iii) any transaction (or series of related transactions) involving the sale, lease, exchange or other transfer not in the ordinary course of business of all, or substantially all, of the assets of the Company; or (iv) any transaction (or series of related transactions) in which any person (including, without limitation, any natural person, any corporation or other legal entity, and any person as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act, other than the Company or any employee benefit plan sponsored by the Company): (A) purchases any Common Stock (or securities convertible into Common Stock) for cash, securities or any other consideration pursuant to a tender offer or exchange offer subject to the requirements of the Exchange Act, or -2- (B) directly or indirectly becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company which, when aggregated with such person's beneficial ownership prior to such transaction, either (x) represent 30% or more (50% or more if the Company is not then subject to the requirements of the Exchange Act) (the "Control Percentage") of the combined voting power of the then outstanding Voting Stock of the Company, or (y) if such person's beneficial ownership prior to such transaction already exceeded the applicable Control Percentage, result in an increase in such holder's beneficial ownership percentage (all such percentages being calculated as provided in Rule 13d-3(d) under the Exchange Act with respect to rights to acquire the Company's securities). All references in this definition to specific sections of or rules promulgated under the Exchange Act shall apply whether or not the Company is then subject to the requirements of the Exchange Act. (m) "Director" means a member of the Board. (n) "Employee" means any person employed by the Company or any Parent, Subsidiary or Affiliate, with the status of employment determined based upon such factors as are deemed appropriate by the Administrator in its discretion, subject to any requirements of the Code or the Applicable Laws. The payment by the Company of a director's fee to a Director shall not be sufficient to constitute "employment" of such Director by the Company. (o) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (p) "Fair Market Value" means, as of any date, the fair market value of the Common Stock, as determined by the Administrator in good faith on such basis as it deems appropriate and applied consistently with respect to Participants. Whenever possible, the determination of Fair Market Value shall be based upon the closing price for the Shares as reported in the Wall Street Journal for the applicable date. (q) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code, as designated in the applicable Option Agreement. (r) "Involuntary Termination" means termination of a Participant's Continuous Service Status under the following circumstances: (i) termination without Cause by the Company or a Subsidiary, Parent, Affiliate or successor thereto, as appropriate; or (ii) voluntary termination by the Participant within 60 days following (A) a material reduction in the Participant's job responsibilities, provided that neither a mere change in title alone nor reassignment following a Control Transaction to a position that is substantially similar to the position held prior to the Control Transaction shall constitute a material reduction in job responsibilities; (B) relocation by the Company or a Subsidiary, Parent, Affiliate or successor thereto, as appropriate, of the Participant's work site to a facility or location more than 50 miles from the Participant's principal work site for the Company at the time of the Control Transaction; or (C) a reduction in Participant's then-current total compensation by at least 15%, provided that an across-the-board reduction in the salary level of all other employees or consultants in positions -3- similar to the Participant's by the same percentage amount as part of a general salary level reduction shall not constitute such a salary reduction. (s) "Listed Security" means any security of the Company that is listed or approved for listing on a national securities exchange or designated or approved for designation as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. (t) "Named Executive" means any individual who, on the last day of the Company's fiscal year, is the chief executive officer of the Company (or is acting in such capacity) or among the four most highly compensated officers of the Company (other than the chief executive officer). Such officer status shall be determined pursuant to the executive compensation disclosure rules under the Exchange Act. (u) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option, as designated in the applicable Option Agreement. (v) "Option" means a stock option granted pursuant to the Plan. (w) "Option Agreement" means a written document, the form(s) of which shall be approved from time to time by the Administrator, reflecting the terms of an Option granted under the Plan and includes any documents attached to or incorporated into such Option Agreement, including, but not limited to, a notice of stock option grant and a form of exercise notice. (x) "Option Exchange Program" means a program approved by the Administrator whereby outstanding Options are exchanged for Options with a lower exercise price or are amended to decrease the exercise price as a result of a decline in the Fair Market Value of the Common Stock. (y) "Optioned Stock" means the Common Stock subject to an Option. (z) "Optionee" means an Employee or Consultant who receives an Option. (aa) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code, or any successor provision. (bb) "Participant" means any holder of one or more Options or Stock Purchase Rights, or the Shares issuable or issued upon exercise of such awards, under the Plan. (cc) "Plan" means this 2000 Stock Plan. (dd) "Reporting Person" means an officer, Director, or greater than ten percent stockholder of the Company within the meaning of Rule 16a-2 under the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange Act. (ee) "Restricted Stock" means Shares of Common Stock acquired pursuant to a grant of a Stock Purchase Right under Section 11 below. -4- (ff) "Restricted Stock Purchase Agreement" means a written document, the form(s) of which shall be approved from time to time by the Administrator, reflecting the terms of a Stock Purchase Right granted under the Plan and includes any documents attached to such agreement. (gg) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, as amended from time to time, or any successor provision. (hh) "Share" means a share of the Common Stock, as adjusted in accordance with Section 14 of the Plan. (ii) "Stock Exchange" means any stock exchange or consolidated stock price reporting system on which prices for the Common Stock are quoted at any given time. (jj) "Stock Purchase Right" means the right to purchase Common Stock pursuant to Section 11 below. (kk) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code, or any successor provision. (ll) "Ten Percent Holder" means a person who owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary. 3. Stock Subject to the Plan. Subject to the provisions of Section 14 of the Plan, the maximum aggregate number of Shares that may be sold under the Plan is 1,333,333 Shares of Common Stock plus an annual increase on the first day of each of the Company's fiscal years beginning in 2001 through 2009 equal to the lesser of (i) 2,000,000 Shares (ii) five percent (5%) of the Shares outstanding on the last day of the immediately preceding fiscal year, or (iii) such lesser number of Shares as the Board shall determine. The Shares may be authorized, but unissued, or reacquired Common Stock. If an award should expire or become unexercisable for any reason without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares that were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. In addition, any Shares of Common Stock which are retained by the Company upon exercise of an award in order to satisfy any withholding taxes due with respect to such exercise or purchase shall be treated as not issued and shall continue to be available under the Plan. Shares issued under the Plan and later repurchased by the Company pursuant to any repurchase right which the Company may have shall not be available for future grant under the Plan. 4. Administration of the Plan. (a) General. The Plan shall be administered by the Board or a Committee, or a combination thereof, as determined by the Board. The Plan may be administered by different administrative bodies with respect to different classes of Participants and, if permitted by the Applicable Laws, the Board may authorize one or more officers to make awards under the Plan. -5- (b) Committee Composition. If a Committee has been appointed pursuant to this Section 4, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of any Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies (however caused) and remove all members of a Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws and, in the case of a Committee administering the Plan in accordance with the requirements of Rule 16b-3 or Section 162(m) of the Code, to the extent permitted or required by such provisions. (c) Powers of the Administrator. Subject to the provisions of the Plan and in the case of a Committee, the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(p) of the Plan; (ii) to select the Employees and Consultants to whom Options and Stock Purchase Rights may from time to time be granted; (iii) to determine whether and to what extent Options and Stock Purchase Rights are granted; (iv) to determine the number of Shares of Common Stock to be covered by each award granted; (v) to approve the form(s) of agreement(s) used under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder, which terms and conditions include but are not limited to the exercise or purchase price, the time or times when awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option, Optioned Stock, Stock Purchase Right or Restricted Stock, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vii) to determine whether and under what circumstances an Option may be settled in cash under Section 10(c) instead of Common Stock; (viii) to implement an Option Exchange Program on such terms and conditions as the Administrator in its discretion deems appropriate, provided that no amendment or adjustment to an Option that would materially and adversely affect the rights of any Optionee shall be made without the prior written consent of the Optionee; (ix) to adjust the vesting of an Option held by an Employee or Consultant as a result of a change in the terms or conditions under which such person is providing services to the Company; -6- (x) to construe and interpret the terms of the Plan and awards granted under the Plan, which constructions, interpretations and decisions shall be final and binding on all Participants; and (xi) in order to fulfill the purposes of the Plan and without amending the Plan, to modify grants of Options or Stock Purchase Rights to Participants who are foreign nationals or employed outside of the United States in order to recognize differences in local law, tax policies or customs. 5. Eligibility. (a) Recipients of Grants. Nonstatutory Stock Options and Stock Purchase Rights may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees, provided that Employees of Affiliates shall not be eligible to receive Incentive Stock Options. (b) Type of Option. Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. (c) ISO $100,000 Limitation. Notwithstanding any designation under Section 5(b), to the extent that the aggregate Fair Market Value of Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(c), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares subject to an Incentive Stock Option shall be determined as of the grant date of such Option. (d) No Employment Rights. The Plan shall not confer upon any Participant any right with respect to continuation of an employment or consulting relationship with the Company, nor shall it interfere in any way with such Participant's right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without Cause. 6. Term of Plan. The Plan shall become effective upon the effective date of the registration statement on Form S-1 for the initial public offering of the Company's Common Stock. It shall continue in effect for a term of ten (10) years thereafter unless sooner terminated under Section 16 of the Plan. 7. Term of Option. The term of each Option shall be the term stated in the Option Agreement; provided that the term shall be no more than ten years from the date of grant thereof or such shorter term as may be provided in the Option Agreement and provided further that, in the case of an Incentive Stock Option granted to a person who at the time of such grant is a Ten Percent Holder, the term of the Option shall be five years from the grant date thereof or such shorter term as may be provided in the Option Agreement. -7- 8. Limitation on Grants to Employees. Subject to adjustment as provided in Section 14 below, the maximum number of Shares that may be subject to Options and Stock Purchase Rights granted to any one Employee under this Plan for any fiscal year of the Company shall be 2,000,000 (before giving effect to a stock split effected in connection with the Company's initial public offering), provided that this Section 8 shall apply only after such time, if any, as the Common Stock becomes a Listed Security. 9. Option Exercise Price and Consideration. (a) Exercise Price. The per Share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Administrator and set forth in the Option Agreement, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who at the time of grant is a Ten Percent Holder, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant; or (B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option, the per share Exercise Price shall be such price as determined by the Administrator, provided that if such eligible person is a Named Executive of the Company at the time of the Option grant, the per share Exercise Price shall be no less than 100% of the Fair Market Value on the grant date if the Option is intended to qualify as performance-based compensation under Section 162(m) of the Code. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate transaction. (b) Permissible Consideration. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash; (2) check; (3) delivery of Optionee's promissory note with such recourse, interest, security and redemption provisions as the Administrator determines to be appropriate (subject to the provisions of Section 153 of the Delaware General Corporation Law); (4) cancellation of indebtedness; (5) other Shares that have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which the Option is exercised, provided that in the case of Shares acquired, directly or indirectly, from the Company, such Shares must have been owned by the Optionee for more than six months on the date of surrender (or such other period as may be required to avoid the Company's incurring an adverse accounting charge); (6) delivery of a properly executed exercise notice together with such other documentation as the Administrator and a securities broker approved by the Company shall require to effect exercise of the Option and prompt delivery to the Company of the sale or loan proceeds required to pay the exercise price and any applicable -8- withholding taxes; (7) any combination of the foregoing methods of payment; or (8) such other consideration and method of payment for the issuance of Shares to the extent permitted under the Applicable Laws. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company and the Administrator may, in its sole discretion, refuse to accept a particular form of consideration at the time of any Option exercise. 10. Exercise of Option. (a) General. (i) Exercisability. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, consistent with the term of the Plan and reflected in the Option Agreement, including vesting requirements and/or performance criteria with respect to the Company and/or the Optionee. (ii) Minimum Exercise Requirements. An Option may not be exercised for a fraction of a Share. The Administrator may require that an Option be exercised as to a minimum number of Shares, provided that such requirement shall not prevent an Optionee from exercising the full number of Shares as to which the Option is then exercisable. (iii) Procedures for and Results of Exercise. An Option shall be deemed exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and the Company has received full payment for the Shares with respect to which the Option is exercised. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 9(b) of the Plan, provided that the Administrator may, in its sole discretion, refuse to accept any form of consideration at the time of exercise. Exercise of an Option in any manner shall result in a decrease in the number of Shares that thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (iv) Rights as Stockholder. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 14 of the Plan. (b) Termination of Employment or Consulting Relationship. Except as otherwise set forth in this Section 10(b), the Administrator shall establish and set forth in the applicable Option Agreement the terms and conditions upon which an Option shall remain exercisable, if at all, following termination of an Optionee's Continuous Service Status, which provisions may be waived or modified by the Administrator at any time. To the extent that the Optionee is not entitled to exercise an Option at the date of his or her termination of Continuous Service Status, or if the Optionee (or other person entitled to exercise the Option) does not -9- exercise the Option to the extent so entitled within the time specified in the Option Agreement or below (as applicable), the Option shall terminate and the Optioned Stock underlying the unexercised portion of the Option shall revert to the Plan. In no event may any Option be exercised after the expiration of the Option term as set forth in the Option Agreement (and subject to Section 7). The following provisions shall apply to the extent an Option Agreement does not specify the terms and conditions upon which an Option shall terminate upon termination of an Optionee's Continuous Service Status: (i) Termination other than Upon Disability or Death or for Cause. In the event of termination of an Optionee's Continuous Service Status, such Optionee may exercise an Option for three months following such termination to the extent the Optionee was entitled to exercise it at the date of such termination. No termination shall be deemed to occur and this Section 10(b)(i) shall not apply if (i) the Optionee is a Consultant who becomes an Employee, or (ii) the Optionee is an Employee who becomes a Consultant. (ii) Disability of Optionee. In the event of termination of an Optionee's Continuous Service Status as a result of his or her disability (including a disability within the meaning of Section 22(e)(3) of the Code), such Optionee may exercise an Option at any time within 12 months following such termination to the extent the Optionee was entitled to exercise it at the date of such termination. (iii) Death of Optionee. In the event of the death of an Optionee during the period of Continuous Service Status since the date of grant of the Option, or within 30 days following termination of Optionee's Continuous Service Status, the Option may be exercised by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance at any time within 12 months following the date of death, but only to the extent of the right to exercise that had accrued at the date of death or, if earlier, the date the Optionee's Continuous Service Status terminated. (iv) Termination for Cause. In the event of termination of an Optionee's Continuous Service Status for Cause, any Option (including any exercisable portion thereof) held by such Optionee shall immediately terminate in its entirety upon first notification to the Optionee of termination of the Optionee's Continuous Service Status. If an Optionee's employment or consulting relationship with the Company is suspended pending an investigation of whether the Optionee shall be terminated for Cause, all the Optionee's rights under any Option likewise shall be suspended during the investigation period and the Optionee shall have no right to exercise any Option. This Section 10(b)(iv) shall apply with equal effect to vested Shares acquired upon exercise of an Option, in that the Company shall have the right to repurchase such Shares from the Participant at the Participant's original cost for the Shares within 90 days following termination of Optionee's Continuous Service Status for Cause. Nothing in this Section 10(b)(iv) shall in any way limit the Company's right to purchase unvested Shares issued upon exercise of an Option as set forth in the applicable Option Agreement. (c) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares an Option previously granted under the Plan based on such terms -10- and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 11. Stock Purchase Rights. (a) Rights to Purchase. When the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer. The purchase price of Shares subject to Stock Purchase Rights shall be as determined by the Administrator. The offer to purchase Shares subject to Stock Purchase Rights shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator. (b) Repurchase Option. (i) General. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's employment with the Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original purchase price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine. (ii) Termination for Cause. In the event of termination of a Participant's Continuous Service Status for Cause, the Company shall have the right to repurchase from the Participant vested Shares issued upon exercise of a Stock Purchase Right at the Participant's original cost for the Shares within 90 days of termination of the Optionee's Continuous Service Status for Cause. Nothing in this Section 11(b)(ii) shall in any way limit the Company's right to purchase unvested Shares as set forth in the applicable Restricted Stock Purchase Agreement. (c) Other Provisions. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of Restricted Stock Purchase Agreements need not be the same with respect to each purchaser. (d) Rights as a Stockholder. Once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a stockholder, and shall be a stockholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 14 of the Plan. 12. Taxes. (a) As a condition of the exercise of an Option or Stock Purchase Right granted under the Plan, the Participant (or in the case of the Participant's death, the person -11- exercising the Option or Stock Purchase Right) shall make such arrangements as the Administrator may require for the satisfaction of any applicable federal, state, local or foreign withholding tax obligations that may arise in connection with the exercise of the Option or Stock Purchase Right and the issuance of Shares. The Company shall not be required to issue any Shares under the Plan until such obligations are satisfied. If the Administrator allows the withholding or surrender of Shares to satisfy a Participant's tax withholding obligations under this Section 12 (whether pursuant to Section 12(c), (d) or (f), or otherwise), the Administrator shall not allow Shares to be withheld in an amount that exceeds the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes. (b) In the case of an Employee and in the absence of any other arrangement, the Employee shall be deemed to have directed the Company to withhold or collect from his or her compensation an amount sufficient to satisfy such tax obligations from the next payroll payment otherwise payable after the date of an exercise of the Option or Stock Purchase Right. (c) This Section 12(c) shall apply only after the date, if any, upon which the Common Stock becomes a Listed Security. In the case of Participant other than an Employee (or in the case of an Employee where the next payroll payment is not sufficient to satisfy such tax obligations, with respect to any remaining tax obligations), in the absence of any other arrangement and to the extent permitted under the Applicable Laws, the Participant shall be deemed to have elected to have the Company withhold from the Shares to be issued upon exercise of the Option or Stock Purchase Right that number of Shares having a Fair Market Value determined as of the applicable Tax Date (as defined below) equal to the amount required to be withheld. For purposes of this Section 12, the Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined under the Applicable Laws (the "Tax Date"). (d) If permitted by the Administrator, in its discretion, a Participant may satisfy his or her tax withholding obligations upon exercise of an Option or Stock Purchase Right by surrendering to the Company Shares that have a Fair Market Value determined as of the applicable Tax Date equal to the amount required to be withheld. In the case of shares previously acquired from the Company that are surrendered under this Section 12(d), such Shares must have been owned by the Participant for more than six (6) months on the date of surrender (or such other period of time as is required for the Company to avoid adverse accounting charges). (e) Any election or deemed election by a Participant to have Shares withheld to satisfy tax withholding obligations under Section 12(c) or (d) above shall be irrevocable as to the particular Shares as to which the election is made and shall be subject to the consent or disapproval of the Administrator. Any election by a Participant under Section 12(d) above must be made on or prior to the applicable Tax Date. (f) In the event an election to have Shares withheld is made by a Participant and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, the Participant shall receive the full number of Shares with respect to which the Option or Stock Purchase Right is exercised but such Participant shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date. -12- 13. Non-Transferability of Options and Stock Purchase Rights. Except as set forth in this Section 13, Options and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution; provided that the Administrator may in its discretion grant transferable Nonstatutory Stock Options pursuant to Option Agreements specifying the manner in which such Nonstatutory Stock Options are transferable. The designation of a beneficiary by an Optionee will not constitute a transfer. An Option or Stock Purchase Right may be exercised, during the lifetime of the holder of Option or Stock Purchase Right, only by such holder or a transferee permitted by this Section 13. 14. Adjustments Upon Changes in Capitalization, Merger or Certain Other Transactions. (a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of Shares of Common Stock covered by each outstanding Option or Stock Purchase Right, the numbers of Shares set forth in Sections 3(a)(i) and 8 above, and the number of Shares of Common Stock that have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or that have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per Share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued Shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination, recapitalization or reclassification of the Common Stock, or any other increase or decrease in the number of issued Shares of Common Stock effected without receipt of consideration by the Company; provided that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares of Common Stock subject to an Option or Stock Purchase Right. (b) Dissolution or Liquidation. In the event of the dissolution or liquidation of the Company, the Board shall notify each Optionee or holder of Stock Purchase Rights at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, each outstanding award will terminate immediately prior to consummation of the transaction. (c) Corporate Transaction. (i) Corporate Transaction. In the event of a Corporate Transaction, each outstanding Option or Stock Purchase Right shall be assumed or an equivalent option or right shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation (the "Successor Corporation"), unless the Successor Corporation does not agree to assume the award or to substitute an equivalent option or right, in which case such Option or Stock Purchase Right shall terminate upon the consummation of the transaction. -13- (ii) Control Transaction. Notwithstanding Section 14(c)(i) above, the following shall apply under the circumstances described below: (A) In the event of a Control Transaction in which the Successor Corporation does not agree to assume or substitute outstanding awards, the vesting and exercisability of each outstanding Option and Stock Purchase Right, and the lapsing of any repurchase right in favor of the Company applicable to Shares issued upon exercise of an award, shall accelerate as to the number of Shares that would otherwise have vested and been exercisable, or as to which the Company repurchase right would have lapsed, as of the date 12 months, in the case of a Participant who has been in a service relationship with the Company for less than 2 years as of the date of consummation of the transaction, or 24 months, in the case of a Participant who has been in a service relationship with the Company for at least 2 years as of such date, in each case assuming the Participant had remained in Continuous Service Status for such 12 or 24 month period. Such acceleration shall be effective as of immediately prior to consummation of the transaction. To the extent that an award is not exercised prior to consummation of a transaction in which the award is not being assumed or substituted, such award shall terminate upon such consummation and the Administrator shall notify the Optionee or holder of such fact at least five (5) days prior to the date on which the Option or Stock Purchase Right terminates. (B) Following a Control Transaction in which outstanding awards were assumed or substituted with equivalent awards by the Successor Corporation, in the event a Participant's service relationship with the Company and/or the Successor Corporation is involuntarily terminated without Cause in connection with, or within 6 months following consummation of, the transaction, then the vesting and exercisability (or lapse of a repurchase right) applicable to any assumed or substituted Option or Stock Purchase Right held by the terminated Participant at the time of termination shall accelerate as to the number of Shares that would otherwise have vested and been exercisable (or as to which the repurchase right would have lapsed) as of the date 12 months, in the case of a Participant who has been in a service relationship with the Company and/or the Successor Company for less than 2 years from the date of termination of that relationship, or 24 months, in the case of a Participant who has been in a service relationship with the Company and/or the Successor Company for at least 2 years as of such date, in each case assuming the Participant had remained in Continuous Service Status for such 12 or 24 month period; provided that the vesting and exercisability (or lapse of any repurchase right) of assumed or substituted awards held by a person who was a Reporting Person immediately prior to consummation of the Control Transaction shall accelerate in full without regard to the length of such person's service relationship with the Company and/or the Successor Corporation if that relationship is Involuntarily Terminated in connection with, or within 6 months following consummation of, the Control Transaction. The acceleration of vesting and lapse of repurchase rights provided for in the previous sentence shall occur immediately prior to the effective date of the Participant's termination. (iii) For purposes of this Section 14(c), an award shall be considered assumed, without limitation, if, at the time of issuance of the stock or other consideration upon a Corporate Transaction or a Control Transaction, as the case may be, each holder of an award would be entitled to receive upon exercise of the award the same number and kind of shares of stock or the same amount of property, cash or securities as such holder would have been entitled -14- to receive upon the occurrence of the transaction if the holder had been, immediately prior to such transaction, the holder of the number of Shares of Common Stock covered by the award at such time (after giving effect to any adjustments in the number of Shares covered by the Option or Stock Purchase Right as provided for in this Section 14); provided that if such consideration received in the transaction is not solely common stock of the Successor Corporation, the Administrator may, with the consent of the Successor Corporation, provide for the consideration to be received upon exercise of the award to be solely common stock of the Successor Corporation equal to the Fair Market Value of the per Share consideration received by holders of Common Stock in the transaction. (d) Certain Distributions. In the event of any distribution to the Company's stockholders of securities of any other entity or other assets (other than dividends payable in cash or stock of the Company) without receipt of consideration by the Company, the Administrator may, in its discretion, appropriately adjust the price per Share of Common Stock covered by each outstanding Option or Stock Purchase Right to reflect the effect of such distribution. 15. Time of Granting Options and Stock Purchase Rights. The date of grant of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other date as is determined by the Administrator, provided that in the case of any Incentive Stock Option, the grant date shall be the later of the date on which the Administrator makes the determination granting such Incentive Stock Option or the date of commencement of the Optionee's employment relationship with the Company. Notice of the determination shall be given to each Employee or Consultant to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant. 16. Amendment and Termination of the Plan. (a) Authority to Amend or Terminate. The Board may at any time amend, alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation (other than an adjustment pursuant to Section 14 above) shall be made that would materially and adversely affect the rights of any Optionee or holder of Stock Purchase Rights under any outstanding grant, without his or her consent. In addition, to the extent necessary and desirable to comply with the Applicable Laws, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. No amendment or termination of the Plan shall materially and adversely affect Options or Stock Purchase Rights already granted, unless mutually agreed otherwise between the Optionee or holder of the Stock Purchase Rights and the Administrator, which agreement must be in writing and signed by the Optionee or holder and the Company. (c) Accounting Issues. Notwithstanding anything else to the contrary in this Section 16, the Administrator may at any time amend or adjust the Plan or an outstanding award issued under the Plan without the consent of the affected Participant if such amendment or adjustment is necessary to avoid the Company's incurring adverse accounting charges. -15- 17. Conditions Upon Issuance of Shares. Notwithstanding any other provision of the Plan or any agreement entered into by the Company pursuant to the Plan, the Company shall not be obligated, and shall have no liability for failure, to issue or deliver any Shares under the Plan unless such issuance or delivery would comply with the Applicable Laws, with such compliance determined by the Company in consultation with its legal counsel. As a condition to the exercise of an Option or Stock Purchase Right, the Company may require the person exercising the award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by law. 18. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 19. Agreements. Options and Stock Purchase Rights shall be evidenced by Option Agreements and Restricted Stock Purchase Agreements, respectively, in such form(s) as the Administrator shall from time to time approve. 20. Stockholder Approval. If required by the Applicable Laws, continuance of the Plan shall be subject to approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such stockholder approval shall be obtained in the manner and to the degree required under the Applicable Laws. -16- EX-23.1 15 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Financial Data" and "Experts" and to the use of our reports dated February 11, 2000, except for Note 14 as to which the date is March 27, 2000, in the Registration Statement (Form S-1 No. 333-30568) and related Prospectus of Metawave Communications Corporation. ERNST & YOUNG LLP Seattle, Washington March , 2000 - -------------------------------------------------------------------------------- The foregoing consent is in the form that will be signed upon the completion of the two for three stock split described in Note 14 to the financial statements. ERNST & YOUNG LLP Seattle, Washington March 27, 2000 -----END PRIVACY-ENHANCED MESSAGE-----