-----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, A5sBuwYrIq1CgR6VgsaduyQxQHYWlhA/XimEihDOpZCA7rDGL3z2x0dtp4tZQvjs WWOFwqs0AWZggHqL/sCYMA== 0001032210-98-001130.txt : 19981016 0001032210-98-001130.hdr.sgml : 19981016 ACCESSION NUMBER: 0001032210-98-001130 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19981014 SROS: NONE 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: 333-59621 FILM NUMBER: 98725672 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.2 TO FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 14, 1998 REGISTRATION NO. 333-59621 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- AMENDMENT NO. 2 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 (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
10735 WILLOWS ROAD NE P.O. BOX 97069 REDMOND, WA 98073-9769 (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 P.O. BOX 97069 REDMOND, WA 98073-9769 (425) 702-5600 (NAME, ADDRESS INCLUDING ZIP CODE AND TELEPHONE NUMBER INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: WILLIAM W. ERICSON JEFFREY D. SAPER SONYA F. ERICKSON PATRICK J. SCHULTHEIS JOHN W. ROBERTSON ROBERT G. DAY 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. [_] --------------- 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 THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION OCTOBER , 1998 3,500,000 SHARES [LOGO OF METAWAVE COMMUNICATIONS CORPORATION] COMMON STOCK All of the 3,500,000 shares of Common Stock offered hereby are being sold by Metawave Communications Corporation ("Metawave" or the "Company"). Prior to this offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $14 and $16 per share. See "Underwriting" for information relating to the method of determining the initial public offering price. The Company has applied to have the Common Stock listed on the Nasdaq National Market under the symbol MTWV. --------- THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 6. --------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) - ------------------------------------------------------------------------------------------ Per Share....................... $ $ $ - ------------------------------------------------------------------------------------------ Total(3)........................ $ $ $ - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------
(1) See "Underwriting" for information relating to indemnification of the Underwriters. (2) Before deducting estimated expenses payable by the Company estimated at $1,000,000. (3) The Company has granted to the Underwriters a 30-day option to purchase up to 525,000 additional shares of Common Stock solely to cover over- allotments, if any. To the extent that the option is exercised, the Underwriters will offer the additional shares at the Price to Public shown above. If the option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." --------- The shares of Common Stock are offered by the several Underwriters subject to prior sale, when, as and if delivered to and accepted by them, and subject to the right of the Underwriters to reject any order in whole or in part and certain other conditions. It is expected that delivery of the shares of Common Stock will be made, at the offices of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about , 1998. BT ALEX. BROWN MERRILL LYNCH & CO. NATIONSBANC MONTGOMERY SECURITIES LLC , 1998 [Inside front cover and gatefold graphics: The global communications infrastructure, including wireless communications, is enabling the worldwide evolution to the digital information age. The number of worldwide wireless users in 1997 was over 194 million and is expected to grow to approximately 550 million by the year 2001. Metawave is dedicated to providing spectrum management solutions to enable this growth to continue. Graphic of frequency spectrum and artwork using a depiction of cellular telephones and the cellular Block A frequency illustrating the Company's current and potential technology, products and markets. The Company's current product offerings are for AMPs and AMPs/CDMA dual-mode networks. The Company is also developing solutions for GSM.] Metawave has applied for federal registration of the marks "Metawave," "Metawave Communications," "SpotLight," "LampLighter," "SiteNet" and its stylized cube logo. All other trademarks or service marks appearing in this Prospectus are the property of their respective owners. PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the Financial Statements and Notes thereto appearing elsewhere in this Prospectus. See "Risk Factors." Unless otherwise indicated, the information in this Prospectus assumes (i) a 7-for-10 reverse stock split that will be effective prior to the effective date of the offering, (ii) no exercise of the Underwriters' over-allotment option, (iii) no exercise of outstanding warrants, (iv) the filing of the Company's Amended and Restated Certificate of Incorporation (the "Restated Certificate") authorizing a class of 10,500,000 shares of undesignated Preferred Stock upon completion of this offering and (v) the automatic conversion on a one-for-one basis of an aggregate of 9,191,222 outstanding shares of Series A, Series B, Series C and Series D Preferred Stock into Common Stock upon completion of this offering. See "Description of Securities" and "Underwriting." Each of the Company's fiscal quarters is the 13-week period that ends on the Sunday nearest the end of the last calendar month of such 13-week period. For convenience of presentation, all fiscal periods in these financial statements are treated as ending on a calendar month end. This Prospectus contains forward-looking statements that involve risks and uncertainties. Actual events or results could differ materially from those expressed in or implied by these forward-looking statements as a result of a number of factors, including those set forth under "Risk Factors" and elsewhere in this Prospectus. THE COMPANY Metawave Communications Corporation ("Metawave" or the "Company") designs, develops, manufactures and markets spectrum management solutions for the wireless communications industry. Metawave believes that its spectrum management solutions, consisting of smart antenna systems, applications software and engineering services, enable cellular network operators to increase overall network capacity, reduce network operation costs, better manage network infrastructure and stimulate end user demand through improved system quality. The Company's smart antenna systems utilize fixed beam-switching hardware and software algorithms to reduce system interference in order to enable more efficient utilization of finite radio frequency spectrum or "wireless bandwidth." The Company's products offer highly integrated system solutions that can reduce the need for costly infrastructure upgrades and additional cell site deployments, thereby enabling cellular network operators to reduce otherwise capital intensive outlays and to keep pace with subscriber growth. The Company's technology is designed to be leveraged across a variety of the market segments in the wireless communications industry, including the AMPS, CDMA, GSM, PCS, TDMA and wireless local loop ("WLL") segments. The Company's customers include ALLTEL Communications Inc. ("ALLTEL"), 360(degrees) Communications Company ("360(degrees) Communications") (which was recently acquired by ALLTEL), GTE Wireless, Inc. ("GTE") and Millicom International Cellular S.A. ("Millicom") affiliates, Telefonica Celular del Paraguay S.A. ("Telefonica Celular") and OJSC St. Petersburg Telecom ("St. Petersburg Telecom"). The Company has completed a field trial with AirTouch Communications, Inc. ("AirTouch") and is currently conducting a field trial with Southwestco Wireless, Inc. ("Southwestco"). St. Petersburg Telecom, Telefonica Celular and ALLTEL accounted for approximately 27.4%, 24.0% and 44.2%, respectively, of the Company's net revenue in the six months ended June 30, 1998. The worldwide demand for wireless communications services has grown significantly, largely as a result of technological advancements, deregulation and economies of scale that have substantially reduced the cost and improved the quality and reliability of wireless services for the business and consumer mass market. Increased demand for wireless services places a significant strain on wireless network operators which have a fixed amount of radio frequency spectrum or wireless bandwidth available to deliver wireless services. Unlike traditional data and telephony communications bandwidth, which is an expandable physical medium, wireless spectrum is generally allocated in fixed amounts by governments 3 in U.S. and foreign markets. Thus, the fundamental challenge for wireless network operators is to increase capacity, coverage and call quality within a fixed amount of wireless spectrum. To address capacity, coverage and call quality issues, cellular network operators have begun to deploy more spectrum-efficient digital technologies. However, because analog and digital technologies share the same fixed amount of spectrum in a cellular network, cellular network operators must remove analog channels to implement digital technologies, while simultaneously providing analog cellular service to increasing numbers of subscribers. Traditionally, cellular network operators have addressed capacity, coverage and call quality problems by building new cell sites or adopting variations on antenna design such as sectorized antennas. Metawave's spectrum management platform, the Spotlight 2000 system, is a multibeam smart antenna technology that enables the transition from traditional wireless network infrastructure design to an architecture which actively optimizes finite spectrum or wireless bandwidth. The SpotLight 2000 system is compatible with the Motorola, Inc. ("Motorola") HDII and Lucent Technologies Inc. ("Lucent") Series II base stations and AMPS and CDMA air interface protocols. Metawave's SpotLight 2000 system is currently deployed in cellular networks in North America, South America and Europe. Commercial shipment of the SpotLight 2000 system began in late 1997 for the Motorola HDII analog-only version and Metawave recently completed a field trial of a Lucent Series II dual-mode AMPS/CDMA SpotLight 2000 system. The Company has begun development of a product designed for the GSM market and intends to explore other high-growth markets such as PCS, TDMA and WLL and, if appropriate, to develop similar solutions for these markets. There can be no assurance, however, that the Company will successfully develop these new products or that field trials will lead to commercial sales. Metawave's objective is to be a leading provider of spectrum management solutions to the worldwide wireless communications market. Key elements of the Company's strategy include: (i) identifying rapidly growing wireless markets and developing highly integrated solutions to their spectrum management problems; (ii) building and expanding strategic customer relationships; (iii) leveraging its proprietary core technology, which includes ten issued U.S. patents and 23 pending patent applications, by investing substantial resources in the research and the product development necessary to address additional markets; and (iv) offering system level solutions, including pre-sales system planning, configurable products and on-site installation and optimization, that enhance the performance of cellular operators' networks. Metawave sells its products through a technical direct sales force supported by systems engineers. Direct sales personnel are assigned on a customer account basis and are responsible for generating product sales and providing product and customer support. As of June 30, 1998, the Company had 200 employees, including 43 in sales, marketing and customer support, located in the Company's Redmond, Washington, Washington, D.C. and Dallas, Texas offices. The Company was in the development stage until late 1997, when it commenced shipments for commercial sale of its first spectrum management system. At June 30, 1998, the Company had generated total net revenues of $9.2 million and a cumulative net loss of approximately $50.1 million. The Company intends to continue to make significant investments in its operations, particularly to support product development, to increase manufacturing capacity and to market new products. Accordingly, the Company expects to continue to generate losses for the foreseeable future. The Company believes that current capital resources, together with the estimated net proceeds from this offering, are adequate to fund its operations for at least 12 months. Thereafter, the Company may be required to raise additional capital. The Company's principal executive offices are located at 10735 Willows Road NE, Redmond, Washington 98073-9769, and its telephone number is (425) 702-5600. The Company was originally incorporated in the state of Washington in January 1995 and was reincorporated in the state of Delaware in July 1995. 4 THE OFFERING Common Stock offered by the Company........... 3,500,000 shares Common Stock to be outstanding after the offering..................................... 14,816,347 shares(1) Use of proceeds............................... Repayment of approximately $16.2 million of outstanding debt for working capital and general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market symbol........ MTWV
SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
PERIOD FROM YEAR ENDED SIX MONTHS ENDED JANUARY 19, 1995 DECEMBER 31, JUNE 30, (INCEPTION) TO ------------------ ----------------- DECEMBER 31, 1995 1996 1997 1997 1998 ----------------- -------- -------- ------- -------- STATEMENT OF OPERATIONS DATA: Net revenue............. $ -- $ 1,291 $ 1,450 $ 392 $ 6,501 Gross profit (loss)..... -- 194 (278) (124) 105 Total operating expenses............... 1,135 11,324 22,228 8,976 14,541 Loss from operations.... (1,135) (11,130) (22,506) (9,100) (14,436) Other income (expense), net.................... 135 335 402 173 (1,747) ------- -------- -------- ------- -------- Net loss................ $(1,000) $(10,795) $(22,104) $(8,927) $(16,183) ======= ======== ======== ======= ======== Basic and diluted net loss per share......... (1.09) (5.67) (11.59) (4.80) (7.92) ======= ======== ======== ======= ======== Shares used in computation of basic and diluted net loss per share(2)........... 918 1,904 1,907 1,859 2,043 ======= ======== ======== ======= ======== Pro forma net loss per share.................. (.37) (1.51) (2.19) (.95) (1.44) ======= ======== ======== ======= ======== Shares used in computation of pro forma net loss per share(2)............... 2,722 7,140 10,076 9,372 11,234 ======= ======== ======== ======= ========
JUNE 30, 1998 ------------------------ ACTUAL AS ADJUSTED(4) -------- -------------- BALANCE SHEET DATA: Cash and cash equivalents.............................. $ 20,311 $ 51,936 Working capital........................................ 3,787 51,612 Total assets........................................... 46,557 78,182 Senior Secured Bridge Notes(3)......................... 29,708 13,508 Other debt, including capital lease obligations........ 5,392 5,392 Convertible and redeemable preferred stock............. 49,282 -- Convertible and redeemable preferred stock warrants.... 4,423 -- Accumulated deficit.................................... (50,082) (50,082) Stockholders' equity (deficit)......................... $(48,797) $ 52,733
- ------- (1) Based on the number of shares outstanding on June 30, 1998. Excludes as of June 30, 1998, (i) 2,294,449 shares issuable upon exercise of outstanding options at a weighted average exercise price of $2.81 per share (ii) 462,960 shares issuable upon exercise of outstanding warrants at a weighted average exercise price of $0.98 per share and (iii) an aggregate of 1,407,448 shares available for future issuance of such options under the Company's Amended and Restated 1995 Stock Option Plan (the "1995 Stock Option Plan"), 1998 Stock Option Plan (the "1998 Stock Option Plan"), 1998 Directors' Stock Option Plan (the "Directors' Plan") and 1998 Employee Stock Purchase Plan (the "Purchase Plan"). See "Management--Stock Plans," "Certain Relationships and Related Transactions," "Description of Securities" and Notes 4 and 6 of Notes to Financial Statements. (2) See Note 1 and Note 7 of Notes to Financial Statements for an explanation of the method employed to determine the number of shares used to compute per share amounts. (3) In April 1998, the Company issued $29.0 million in aggregate principal 13.75% Senior Secured Bridge Notes due April 28, 2000 (the "13.75% Senior Secured Bridge Notes"). In connection with the 13.75% Senior Secured Bridge Notes, the Company issued warrants to purchase an aggregate of 376,245 shares of Series D Preferred Stock at a purchase price of $0.01 per share (the "Note Warrants"). Concurrently with the automatic conversion of the Company's outstanding Preferred Stock on a one-for-one basis into Common Stock upon the closing of this offering, the Note Warrants will automatically convert into warrants to purchase 376,245 shares of the Company's Common Stock at an exercise price of $0.01 per share. See "Certain Relationships and Related Transactions," "Description of Securities" and Note 4 of Notes to Financial Statements. (4) Adjusted to reflect (i) the sale and issuance of the shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $15.00 per share net of offering expenses; (ii) the conversion of convertible and redeemable Preferred Stock into 9,191,222 shares of Common Stock and the conversion of Preferred Stock warrants into Common Stock warrants, and (iii) the application of the estimated net proceeds of the offering including the repayment of approximately $16.2 million of outstanding principal and the estimated accrued interest on the Company's 13.75% Senior Secured Bridge Notes. See "Use of Proceeds" and "Capitalization." 5 RISK FACTORS An investment in the shares offered hereby involves a high degree of risk. The following risk factors should be considered carefully in addition to the other information in this Prospectus before purchasing the shares of Common Stock offered hereby. The discussion in this Prospectus contains certain forward-looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The cautionary statements made in this Prospectus should be read as being applicable to all related forward-looking statements wherever they appear in this Prospectus. The Company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include those discussed below as well as those discussed elsewhere herein. Limited Operating History; Accumulated Deficit; Anticipated Losses. The Company was incorporated in 1995 and was in the development stage until late 1997, when it commenced shipments for commercial sale of its first spectrum management system. From inception through June 30, 1998, the Company generated total net revenues of approximately $9.2 million, of which $6.5 million, or 70.6%, was generated in the six months ended June 30, 1998. For the quarters ended March 31, 1998 and June 30, 1998, the Company's net losses were $7.0 million and $9.2 million, respectively and, at June 30, 1998, the Company had a cumulative net loss of approximately $50.1 million. The revenue and profit potential of the Company's business is unproven and the Company's limited operating history makes its future operating results difficult to predict. The Company believes that its growth and future success will be dependent upon the widespread acceptance of the SpotLight 2000 system by cellular network operators. Because the SpotLight 2000 system was only recently introduced, the Company is unable to predict with any degree of certainty whether the system will achieve market acceptance. There can be no assurance that the Company will ever achieve profitability or significant revenues on a quarterly or an annual basis. The Company intends to continue to make significant investments in its operations, particularly to support product development, to increase manufacturing capacity and to market new products. Accordingly, the Company expects to continue to generate losses for the foreseeable future, even if revenues increase. In view of the Company's limited production history, an investment in the Common Stock offered hereby must be considered in light of the problems, expenses, complications and delays frequently encountered in connection with the development of new technologies, products, markets and operations. As a result of the Company's net losses and limited operating history, period-to-period comparisons of operating results may not be meaningful and operating results from prior periods may not be indicative of future performance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Significant Fluctuations in Operating Results. The Company will likely experience significant fluctuations in its operating results on a quarterly and an annual basis in the future. In connection with its efforts to increase production of its recently introduced SpotLight 2000 system, the Company expects to continue to make substantial investments in capital equipment, to recruit and train additional personnel and to invest in facilities and management information systems. These expenditures may be made in advance of, and in anticipation of, increased sales and, therefore, gross profits may be adversely affected by short-term inefficiencies associated with the addition of equipment, personnel or facilities, and costs may increase as a percentage of revenues from time-to-time on a periodic basis. As a result, the Company's operating results will vary from period to period. Because of the limited size of the Company's customer base and the large size of customer orders, revenues derived from a small number of customers will likely represent a significant portion of revenue in any given period. Accordingly, a decrease in demand for the Company's systems from any customer for any reason is likely to result in significant periodic fluctuations in revenue. In addition, most of the Company's contracts contain conditional acceptance provisions for certain product sales and the Company delays recognition of revenues that are subject to such contingencies until all such conditions are satisfied. If the Company could not satisfy conditions in such 6 contracts or satisfaction of conditions were delayed for any reason, revenues in any particular period could fall significantly below the Company's expectations. A delay in a shipment or customer acceptance of the Company's product near the end of a particular quarter, due to, for example, an unanticipated shipment rescheduling, cancellation or deferral by a customer, competitive or economic factors, unexpected manufacturing, installation or other difficulties, failure to satisfy customer acceptance conditions, unavailability or delays in deliveries of components, subassemblies or services by suppliers, or the failure to receive an anticipated order, may cause revenue in a particular period to fall significantly below the Company's expectations and may materially adversely affect the Company's business and operating results for such period. A significant portion of the Company's expenses are fixed in advance and based in large part on revenue forecasts. If revenues do not meet the Company's expectations in any given period, the adverse impact on operating results of such a shortfall may be magnified by the Company's inability to adjust spending to compensate for the shortfall. In addition, the Company plans to increase operating expenses to fund additional research and development, sales and marketing and general and administrative activities. To the extent that these expenses are not accompanied by an increase in revenues, the Company's business and operating results would be materially adversely affected. Other factors that may cause the Company's revenue, gross profits and results of operations to vary significantly from period to period include: gain or loss by the Company of significant customers; delays in, or prohibition of, installing the Company's systems due to topological or zoning issues or customer installation schedules; the Company's ability to reduce costs; existing and new product development; market acceptance and the timing of availability of new products by the Company or its customers; changes in pricing by the Company, its customers or suppliers; introduction and enhancement of products by the Company and its competitors; increases in warranty and customer support expenses; limitations on manufacturing capacity; inventory obsolescence; introduction of new distribution and sales channels; fluctuations in foreign currency exchange rates; delays or changes in regulatory approval of the Company's systems or those of its customers; natural disasters or adverse weather; and general economic and political conditions. In addition, the Company's results of operations have been, and will continue to be, influenced significantly by competitive factors including the pricing and availability of, and demand for, competitive or substitute products. It is likely that, in a future period, the Company's operating results will not meet the expectations of public market analysts and investors. In such event, the price of the Company's Common Stock could be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." In addition, while the Company's revenues have not been impacted by seasonality to date, the telecommunications industry historically has been subject to some degree of seasonality, with lower sales in the first calendar quarter. There can be no assurance that the Company's business and operating results will not be adversely affected by such seasonal fluctuations in the future. The Company's current backlog consists of a relatively small number of orders for its SpotLight 2000 system. Purchase orders are received and accepted in advance of shipment and are generally cancelable prior to shipment. As a result, backlog may not result in revenues and, as of any particular date, may not be a reliable indicator of sales for any future period. Furthermore, the Company intends to increase production capacity in order to reduce the period of time between receipt and shipment of orders. Thus, the Company does not expect backlog will remain at current levels as a percentage of sales. Furthermore, due to the many factors affecting decisions by customers to place orders and the impact of a small number of large orders, backlog at any given time may fluctuate significantly. Such fluctuations may adversely affect the Company's business and operating results. See "Business-- Sales, Marketing and Customer Support." Significant Customer Concentration. The Company has derived a substantial portion of its revenue from sales of the SpotLight 2000 system to a limited number of cellular network operators, and the 7 Company expects this customer concentration to continue for the foreseeable future. To date, five customers have accounted for all of the Company's product sales. For the six months ended June 30, 1998, three customers, St. Petersburg Telecom, Telefonica Celular and ALLTEL, accounted for approximately 27.4%, 24.0% and 44.2%, respectively, of the Company's net revenues. Due to the highly concentrated nature of the cellular industry and industry consolidation, the Company believes that the number of potential customers for future products, if any, will be small. In this regard, on July 1, 1998, ALLTEL completed the acquisition of 360(degrees) Communications, another customer of the Company. Failure by the Company to capture a significant number of the cellular network operators as customers could have a material adverse effect on the Company's business and operating results. The Company expects that a small number of customers will continue to represent a significant percentage of its total revenues for the foreseeable future, although the companies that comprise the largest percentage of sales in any given quarter may change from quarter to quarter. Because of the small size of the Company's customer base, the loss of any customer or reduced demand for systems from any customer, could have a material adverse effect on the Company's business and operating results. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business-- Customers." Uncertainty of Market Acceptance; Lengthy Sales Cycle. The Company's future success will depend upon the degree of market acceptance of the Company's spectrum management solutions. The Company believes that substantially all of its revenues in the foreseeable future will be derived from sales of its SpotLight 2000 system. In light of the recent introduction of the SpotLight 2000 system and the rapidly evolving nature of the wireless communications industry, the Company is unable to predict with any degree of assurance whether its current or future products will achieve market acceptance. There can be no assurance that the Company will be able to reduce its reliance on sales of its SpotLight 2000 system by developing interfaces to other wireless protocols or base stations manufactured by vendors other than Motorola or Lucent, or that if developed, such new system versions will achieve market acceptance. If the SpotLight 2000 system fails to achieve broad market acceptance, the Company's business and operating results would be materially adversely affected. See "Business--Metawave Products." In order for its spectrum management solutions to achieve market acceptance, the Company must demonstrate to cellular network operators that the systems provide a spectrum management solution that addresses the cellular network operators' challenges of capacity, coverage and call quality in a cost- effective manner. The Company must demonstrate product performance to a cellular network operator based on such operator's unique network configuration and specifications. The Company's ability to optimize its product in any given cell site varies greatly depending on such operator's specifications and the local geographical terrain. Typically, performance of the Company's product must be accepted in an initial cell site or cluster of cell sites prior to completing any additional sales to such cellular network operator. If the Company's spectrum management solutions are not accepted by cellular network operators in a timely manner, or at all, the Company's business and operating results could be materially adversely affected. See "-- Risks Related to Base Station Manufacturers," "--Competition" and "Business-- Metawave Products." Because the SpotLight 2000 system represents a new approach to increasing network capacity and affects the key function of a cellular operator's network, purchase of the SpotLight 2000 system 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. Historically, the Company has conducted field trials and has been required to satisfy performance conditions prior to the completion of a sale. For these and other reasons, the sales process associated with the purchase of the Company's systems is typically complex, lengthy and subject to a number of significant risks, including changes in customers' budgets and approval at senior levels of customers' organizations and approval by governmental agencies. In addition, given the regional divisions of many cellular networks, an order from one region does not necessarily result in subsequent orders from other regions of the same cellular network without additional trials and substantial selling efforts by the Company. The Company's sales cycle can last up to 18 months or more and varies substantially from 8 customer to customer. Because of the lengthy sales cycle and the dependence of the Company's quarterly revenues upon a small number of orders that represent large dollar amounts, if revenues from any order forecasted for a particular quarter are not received in that quarter, the Company's business and operating results could be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business-- Sales, Marketing and Customer Support." Dependence on Cellular Network Operator Capital Spending. The Company expects that it will derive substantially all of its revenues for the foreseeable future from sales of its SpotLight 2000 system to cellular network operators. These operators are located in the United States and foreign markets. Demand for the Company's products will depend to a significant degree upon the magnitude and timing of capital spending by cellular network operators for constructing, rebuilding or upgrading their systems. The capital spending patterns of cellular network operators depend on a variety of factors, including access to financing, the status of federal, local and foreign government regulation and deregulation, changing standards for cellular technology, overall demand for analog and digital cellular services, competitive pressures and general economic conditions. In addition, capital spending patterns in the cellular industry can be subject to some degree of seasonality, with lower levels of spending in the first calendar quarter, based on annual budget cycles. Capital spending levels in the U.S. cellular industry have fluctuated significantly in the past, and there can be no assurance that such fluctuations will not occur in the future. Any substantial decrease or delay in capital spending by cellular network operators in the United States or abroad would have a material adverse effect on the Company's business and operating results. Risk of Declining Prices; No Assurance of Cost Reductions. The Company believes that for its systems to achieve broad market acceptance and to compete effectively with alternative systems, the Company's average selling prices must decline. The Company may be subject to price competition from base station manufacturers which could lower base station prices thereby making the addition of new base stations a more cost-effective alternative for cellular network operators seeking increased capacity. In order to achieve lower average selling prices without adversely affecting gross profits, the Company must successfully reduce the manufacturing costs of its product through engineering improvements and economies of scale in production and purchasing. There can be no assurance that the Company will achieve cost savings at a rate needed to keep pace with competitive pricing pressures. In addition, if the cellular industry does not shift to digital protocols that yield higher product margins for the Company, the Company's gross profits could be adversely affected in future periods. To the extent that the Company is unable to reduce costs sufficiently to offset declining average selling prices or the mix of the Company's sales is comprised substantially of analog-based technologies, the Company may not achieve positive gross profits. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Research and Development." Risks Related to Base Station Manufacturers. The Company's product strategy relies on ensuring the compatibility of the Company's systems with base stations sold by cellular equipment manufacturers. The Company's product strategy is competitive in some respects with such manufacturers, and it may be difficult or impossible for the Company to obtain technical cooperation from such manufacturers, which may be required to make the Company's systems compatible with their base stations. The initial version of the SpotLight system relied on analog technologies and did not require significant cooperation from such base station manufacturers. As the cellular industry continues the conversion to digital technologies, increased signal and connection complexity may require the Company, at a minimum, to obtain customer or manufacturer cooperation on technical specifications and may possibly require the Company to obtain manufacturer cooperation to embed the Company's systems in the base station equipment. There can be no assurance that the Company will be able to obtain cooperation to make the Company's products compatible with manufacturers' base stations on reasonable terms, or at all, and the failure to do so could materially and adversely affect the Company's business and operating results. Competition. The market for spectrum management solutions is relatively new but is expected to become increasingly competitive. The Company's products compete with other smart antenna systems 9 and alternative wireless infrastructure devices such as repeaters, cryogenic filters and tower-top amplifiers. The Company believes the principal competitive factors are the cost-effective delivery of increased capacity, expanded coverage and improved call quality to cellular network operators. There can be no assurance that the Company will compete favorably with respect to the foregoing factors. The Company believes that base station manufacturers, who provide cellular network capacity through sales of additional base stations, represent a significant competitive threat to the Company. These manufacturers, including Ericsson LM Telephone Co. ("Ericsson"), Lucent, Motorola, Nokia Corporation ("Nokia"), Northern Telecom, Ltd. ("Northern Telecom") and Siemens Corporation ("Siemens"), have long-term, established relationships with the cellular network operators. Deployment of the Company's SpotLight 2000 system by cellular network operators can improve base station performance, and therefore may result in fewer sales opportunities for base station manufacturers. Smart antenna technology represents an area of opportunity for such manufacturers. The Company believes that certain of these manufacturers are developing smart antenna systems and are likely to offer smart antenna capabilities in the future. In addition to having more established relationships with cellular network operators, these manufacturers have significantly greater financial, technical, manufacturing, sales, marketing and other resources than the Company and have significantly greater name recognition for their existing products and technologies than has the Company. The Company's current primary direct competitors for spectrum management solutions are ArrayComm, Inc. and GEC-Marconi Hazeltine Corporation. In addition, Ericsson recently began a commercial trial of a GSM base station which utilizes adaptive antenna technology. Other companies, such as Raytheon E-Systems, Watkins-Johnson Company, Texas Instruments Incorporated and ARGOSystems, Inc. (a subsidiary of The Boeing Company), offer systems that utilize digital signal processing and interference cancellation techniques to extend cell site coverage and improve call quality. Several companies offer alternative technologies such as cryogenic filters, tower-top low noise amplifiers and repeaters that can be used to provide service in network coverage holes and improve call quality. The Company may also face competition in the future from new market entrants offering competing technologies. The Company believes that its ability to compete in the future will depend in part on a number of competitive factors outside its control, including the development by others of products that are competitive with the Company's products and the price at which others offer comparable products. To be competitive, the Company will need to continue to invest substantial resources in engineering, research and development and sales and marketing. There can be no assurance that the Company will have sufficient resources to make such investments or that the Company will be able to make the technological advances necessary to remain competitive. Accordingly, there can be no assurance that the Company will be able to compete successfully in the future. See "Business--Competition." Management of Growth; New Management Team. The growth of the Company's operations has placed, and is expected to continue to place, a significant strain on the Company's financial and management resources as well as its product design, manufacturing, sales and customer support capabilities. In May 1998, the Company moved to significantly larger facilities to accommodate the Company's expanded research and development and manufacturing needs. As the Company expands its operations to multiple locations, including internationally, management of the Company's operations will become increasingly complex. To manage its anticipated growth, the Company must, among other things, continue to implement and improve its operational, financial and management information systems, hire and train additional qualified personnel, continue to expand and upgrade core technologies and effectively manage multiple relationships with various customers, suppliers and other third parties. The Company recently upgraded its financial and accounting software to an enterprise resource planning software package that integrates manufacturing, finance and sales order management. The Company anticipates that additional upgrades to its management information systems will be required in the near future to address 10 the expected increased volume and complexity of the Company's transactions. There can be no assurance that the Company will successfully integrate the newly purchased software with its existing systems or that the integration of the new systems will not cause unanticipated system disruptions, slower response times, degradation in levels of performance or reliability, impaired quality of production, and delays in reporting accurate financial information. Failure to successfully implement and integrate these systems, procedures and controls to effectively manage the Company's growth in operations in a timely manner could have a material adverse effect on the Company's business and operating results. From January 1, 1997 to June 30, 1998, the Company expanded from 91 to 200 employees. A majority of the Company's executive officers joined the Company within the last 18 months and many of these officers have no prior experience as executive officers of publicly traded companies. The Company's new employees include the Chief Executive Officer and Chief Financial Officer as well as a number of other key managerial, technical and operations personnel who have not yet been fully integrated into the Company, and the Company expects to add additional key personnel in the near future. There can be no assurance that the Company's current and planned personnel will be adequate to support the Company's future operations, that management will be able to hire, train, retain, motivate and manage required personnel or that Company management will be able to successfully identify, manage and exploit existing and potential market opportunities. If the Company is unable to manage growth effectively, its business and operating results will be materially adversely affected. Rapid Technological Change and Requirement for Frequent New Product Introductions. The Company's future success will depend in large part on its ability to develop new products designed to operate with different digital technologies such as CDMA and GSM as well as across other principal manufacturer base stations. There can be no assurance that the Company will successfully develop and introduce such products in a timely manner. In this regard, the Company is currently conducting trials of its recently developed dual-mode AMPS/CDMA based SpotLight 2000 system. There can be no assurance that the trials will be successful or that the cellular network operators will accept the product. The market for the Company's current products and planned future products is subject to rapid technological change, frequent new product introductions and enhancements, product obsolescence, changes in customer requirements and evolving industry standards. To be competitive, the Company must successfully develop, introduce and sell new products or product enhancements that respond to changing customer requirements on a timely and cost-effective basis. The Company's success in developing new and enhanced products will depend on a variety of factors, many of which are beyond the Company's control. Such factors include the timely and efficient completion of system design; the timely and efficient implementation of assembly, calibration and test processes; sourcing of components; the development and completion of related software; the reliability, cost and quality of new products; the degree of market acceptance; and the development and introduction of competitive products by competitors. The Company has experienced and may continue to experience delays in development and introduction of products. In addition, the Company may be required to obtain licenses to intellectual property rights held by third parties to develop new products or product enhancements and there can be no assurance that such licenses will be available on acceptable terms, if at all. The inability of the Company to introduce in a timely manner new products or product enhancements that contribute to sales could have a material adverse effect on the Company's business and operating results. In addition, changes in manufacturing operations to incorporate new products and processes could cause disruptions in production of existing products, which, in turn, could adversely affect customer relationships and the market's acceptance of the Company's products, and have a material adverse effect on the Company's business and operating results. See "Business--Research and Development" and "--Manufacturing." Limited Manufacturing Experience; No Assurance of Successful Expansion of Operations. The Company's manufacturing operations consist primarily of supplier and commodity management and assembling finished goods from components and subassemblies purchased from outside suppliers. 11 Because the Company configures each SpotLight 2000 system to meet customer specifications, the Company's ability to achieve manufacturing efficiencies by assembling products before orders are received is limited. The Company intends to expand its manufacturing capacity by purchasing additional equipment, hiring additional personnel, further developing its proprietary test software to improve productivity, increasing the efficiency of its production processes, and, in certain instances, subcontracting additional assembly, calibration and testing processes. If the Company is to achieve its objectives, it will also be required to significantly expand its sales, marketing and customer support capabilities. The Company intends to subcontract a significant portion of its field installation work to third parties. There can be no assurance that the Company will be successful in identifying subcontractors with adequate experience or will be able to retain experienced subcontractors on acceptable terms, if at all, or that the Company will effectively manage multiple subcontractors working on multiple installation projects. Due to the Company's limited experience with large scale operations, there can be no assurance that the Company will be able to develop internally, or contract with third parties for, additional manufacturing capacity and field support on acceptable terms, that it will be able to maintain the quality of its products as production increases, or that it will develop the administrative and other structures necessary to support expanded operations. The Company's success depends on its ability to significantly increase its production capacity and field support. The Company's arrangements with its customers typically require that orders be shipped not more than 90 days after the order. There can be no assurance that the Company will be able to increase its production capacity at an acceptable cost or rapidly enough to fill its orders. The failure to assemble and ship products on a timely basis could damage relationships with customers and result in cancellation of orders or lost orders, which would have a material adverse effect on the Company's business and operating results. See "Business--Manufacturing." The Company currently manufactures all of its products in a single facility in Redmond, Washington. If the Company's facilities or the facilities of its suppliers were incapable of operating, even temporarily, or were unable to operate at or near full capacity for any extended period, the Company's business and operating results could be materially adversely affected. In connection with its capacity expansion, the Company may seek to develop one or more additional manufacturing facilities, including, possibly, facilities located outside the Redmond, Washington area. Although there can be no assurance that such a facility will be added, the operation of any such facility would significantly increase the complexity of the Company's operations. No Assurance of Product Quality, Performance and Reliability. Manufacturing and installing the Company's SpotLight 2000 system is a complex process and requires significant expertise. Because of the Company's limited operating history and the short time that the SpotLight 2000 system has been in production, the Company's personnel have limited experience in installing and integrating the Company's systems. If the Company were unable to successfully and efficiently deploy its systems in the field, or were unable to attract and retain the required trained technicians to deploy products in the field, the Company's business and operating results would be materially adversely affected. The Company's ability to achieve future revenue growth will depend in significant part upon its ability to obtain and fulfill orders from, maintain good relationships with and provide support to existing and new customers, and to manufacture products on a timely and cost-effective basis to meet stringent customer performance requirements and shipment and delivery dates. Because of the Company's limited operating history and the short time that the SpotLight 2000 system has been in production, there can be no assurance that problems will not occur with respect to the integration, quality, performance and reliability of the Company's systems. If such problems occur, the Company could experience significant warranty claims or increased costs or delays in, cancellations of, or rescheduling of orders or shipments, any of which could have a material adverse effect on the Company's business and operating results. 12 Dependence on Attraction and Retention of Key Personnel. The Company's future operating results depend in significant part upon the continued contributions of each of its key technical and senior management personnel, including Douglas O. Reudink, the Company's founder and Chief Technical Officer, each of whom would be difficult to replace, as there is a limited number of people with the necessary skills and experience to develop and manufacture the Company's products. The Company has not entered into employment agreements with any of its employees other than severance arrangements with Richard Henderson, Robert H. Hunsberger, Vito E. Palermo, Dr. Reudink and Victor K. Liang. See "Management--Severance Arrangements." Except for Dr. Reudink, the Company has not entered into any non-competition agreements with any of its employees. The Company does not maintain key-man life insurance on any of its key technical or senior management personnel. In addition, the Company anticipates that it will need additional management personnel if it is to be successful in increasing production capacity and the scale of its operations. There can be no assurance that it will be able to obtain and retain such personnel on acceptable terms. The Company's future operating results also depend in significant part upon its ability to attract and retain qualified engineering, manufacturing, quality assurance, sales, marketing and customer support personnel. Competition for such personnel, particularly qualified engineers, is intense. The Company has experienced difficulties in recruiting sufficient numbers of qualified engineers, and there can be no assurance that the Company will be successful in attracting or retaining such personnel. There may be only a limited number of persons with the requisite skills to serve in these positions, particularly in the market where the Company is located, and it may be increasingly difficult for the Company to hire such personnel over time. As the Company's product development efforts relate to cellular standards that are widely deployed in foreign countries, the Company may be required to recruit foreign engineers who have expertise in such standards. Current U.S. immigration laws restrict the Company's ability to hire foreign employees, which could have a material adverse effect on the Company's product development efforts. The loss of any key employee, the failure of any key employee to perform in his or her current position, the Company's inability to attract and retain skilled employees as needed or the inability of the officers and key employees of the Company to expand, train and manage the Company's employee base could materially adversely affect the Company's business and operating results. See "Business--Employees" and "Management." Sole Source Suppliers; Dependence on Key Suppliers. Certain parts and components used in the Company's products, including linear power amplifiers supplied by Powerwave Technologies, Inc. ("Powerwave") are presently only available from a sole source. Certain other parts and components used in the Company's products are available from a limited number of sources. The Company's 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 and reduced control over delivery schedules, manufacturing capability, quality and cost. Any reduced availability of such parts or components when required could materially impair the Company's ability to manufacture and deliver its products on a timely basis and result in the cancellation of orders, which could have a material adverse effect on the Company's business and operating results. In addition, the purchase of certain key components involves long lead times and, in the event of unanticipated increases in demand for the Company's products, the Company may be unable to obtain such components in sufficient quantities to meet its customers' requirements. The Company does not have guaranteed supply arrangements with any of its sole or limited source suppliers, does not maintain an extensive inventory of parts or components and customarily purchases 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 the Company by increasing product costs, or eliminating or delaying the availability of such parts or components. In such event, the inability of the Company to develop alternative sources of supply quickly and on a cost-effective basis could materially impair the Company's ability to manufacture and deliver its products on a timely basis and could have a material adverse effect on its business and operating results. See "Business-- Manufacturing." 13 Dependence on Growth of Cellular Communications Market. The future operating results of the Company will depend to a significant extent upon the continued growth and increased availability and acceptance of cellular communications services internationally and in the United States. There can be no assurance that the volume and variety of cellular services or the markets for and acceptance of such services will grow, or that such services will create a demand for the Company's systems. If the cellular communications market fails to grow, or grows more slowly than anticipated, the Company's business and operating results may be materially adversely affected. The cellular 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 cellular technologies will continue to achieve market acceptance in the future. If a digital technology for which the Company develops a product is not widely adopted, the potential size of the market for the Company's product will be limited, and the Company may not recover the cost of development of such product. Further, the Company may not be able to re-direct its development efforts toward digital cellular technologies that do sustain market acceptance in a timely manner, which would have a material adverse effect on the Company's business and operating results. Need for Additional Capital. The Company requires substantial working capital to fund its business and expects to use a portion of the net proceeds of this offering to fund its operating losses. The Company has experienced negative cash flow from operations since inception and expects to continue to experience significant negative cash flow from operations for the foreseeable future. The Company's future capital requirements will depend upon many factors, including the success or failure of the Company's efforts to expand its production, sales and marketing efforts, the status of competitive products, and the requirements of the Company's efforts to develop new products and product enhancements. The Company believes that current capital resources, together with the estimated net proceeds from this offering, are adequate to fund its operations for at least twelve months. Thereafter, the Company may be required to raise additional capital. There can be no assurance that additional financing will be available to the Company on acceptable terms, if at all, or that such financing may not result in further dilution to existing stockholders. The Company may be required to obtain funds through its arrangements with partners or others that may require the Company to relinquish rights to certain of its technologies or potential products or other assets. If adequate funds are not available, the Company may be required to delay, scale back or eliminate expansion of its production, administration or research and development programs. Any inability to obtain needed financing by the Company could have a material adverse effect on its business and operating results. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Risks Associated with International Markets. Approximately 51.4% of net revenue for the six months ended June 30, 1998 was from sales of the Company's SpotLight 2000 system to customers located outside of the U.S. For the quarter ended June 30, 1998, 39.0% of net revenue was related to the sale of the SpotLight 2000 system to a single customer in Paraguay. Although the Company believes that international sales will decline as a percentage of net revenues over time, the Company anticipates that international sales will continue to account for a significant portion of its revenue for the foreseeable future. To date, the Company's international sales have been denominated in U.S. dollars; however, in the future a portion of the Company's international sales may be denominated in foreign currencies. The Company does not currently engage in foreign currency hedging transactions as all sales to date have been in U.S. dollars. However, if a material amount of future sales are denominated in foreign currency, a decrease in the value of foreign currencies relative to the U.S. dollar could result in losses from such transactions. In such event, the Company might seek to limit its exposure to foreign currency transactions by engaging in hedging activities. There can be no assurance that any such activity would be successful in avoiding exchange-related losses. With respect to the Company's international sales that are United States dollar denominated, an increase in the relative value of the U.S. 14 dollar could make the Company's systems less price-competitive, or could cause customers to renegotiate prices for subsequent purchases, both of which could have a material adverse effect upon the Company's business and operating results. Additional risks inherent in the Company's international business activities include delays due to customs inspections and procedures, changes in regulatory requirements, tariffs and other trade barriers, political and economic instability in developing countries, difficulties in staffing and managing foreign operations, difficulties in managing distributors, potentially adverse tax consequences, the burden of complying with a wide variety of complex foreign laws and treaties, difficulties in obtaining necessary equipment authorizations and the possibility of difficulty in accounts receivable collections. Distribution and sales agreements entered into with foreign customers may be governed by foreign laws which may differ significantly from U.S. laws. Therefore, the Company may be limited in its ability to enforce its rights under such agreements and to collect damages, if awarded. There can be no assurance that any of these factors will not have a material adverse effect on the Company's business and operating results. To date, the Company has sold its products directly to cellular network operators. In the future, it may be desirable to establish distribution relationships in the international market. The Company has not established any distribution relationships and there can be no assurance that the Company will be able to establish such distribution relationships on acceptable terms, if at all. The failure to establish any distribution relationships, or the failure to implement an alternative distribution strategy in a cost-effective manner, or any delays in establishing such channels, could reduce or eliminate the Company's opportunity to sell its systems in foreign markets, which could have a material adverse effect on the Company's business and operating results. Further, if the Company is unable to produce and sell its systems at margins that permit it to provide distribution partners with a sufficient financial incentive to distribute the Company's systems without adversely affecting the Company's profitability, the Company's distribution strategy could adversely affect the Company's business and operating results. Risks Associated with Potential Acquisitions. The Company intends to review acquisition prospects that would complement its existing product offerings, augment its market coverage or enhance its technological capabilities. Although the Company has no current agreements or negotiations underway with respect to any material acquisitions, the Company may make acquisitions of businesses, products or technologies in the future. However, there can be no assurance that the Company will be able to locate suitable acquisition opportunities. Future acquisitions by the Company could result in potentially dilutive issuances of equity securities, large write-offs, the incurrence of debt and contingent liabilities or amortization expenses related to goodwill and other intangible assets, any of which could materially adversely affect the Company's operating results or the price of the Company's Common Stock. Further, acquisitions entail numerous operational risks, including difficulties in the assimilation of 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 the Company has no or limited prior experience. Since the Company has not made any material acquisitions in the past, no assurance can be given as to the ability of the Company to successfully integrate any businesses, products, technologies or personnel that might be acquired in the future, and the failure of the Company to do so could have a material adverse effect on the Company's business and operating results. Government Regulation. Wireless communications are subject to extensive regulation by foreign and U.S. laws and international treaties. The Company's systems must conform to certain international and domestic regulations established to, among other things, avoid interference among users of frequencies. In order for the Company's products to be used, regulatory approval must be obtained. In the United States, the products must be certified by the Federal Communications Commission before sales to customers may commence. Other countries have similar regulations that must be complied with before product sales may commence. This governmental approval process frequently involves substantial delay which could result in the cancellation, postponement or rescheduling of orders by the Company's customers, which in turn may have a material adverse effect on the sale of systems by the Company to 15 such customers. The Company believes that its SpotLight 2000 system currently complies with all applicable U.S. and foreign regulations in countries in which its sales are material. However, changes in these regulations, the need to comply with regulations in additional countries in the event of sales to cellular network operators in those countries, or a failure to obtain necessary approvals or permits in connection with sales to cellular network operators in a country could preclude sales of the Company's products to such operators or could require the Company to change the features of its SpotLight 2000 system and thereby incur substantial costs and experience delays in system installation or operation. The regulatory environments in which the Company operates are subject to significant change. Regulatory changes, which are affected by political, economic and technical factors, could significantly affect the Company's operations by increasing or reallocating the amount of spectrum available to wireless operators, restricting network development efforts by the Company's customers or end users, making current systems obsolete, increasing the opportunity for additional competition or requiring the Company's products to comply with new regulations. Any such regulatory changes could have a material adverse effect on the Company's business and operating results. The Company might deem it necessary or advisable to modify its systems to operate in compliance with such regulations. Such modifications could be expensive and time-consuming. See "--Risks Associated with International Markets" and "Business--Government Regulation." Uncertainty Regarding Protection of Intellectual Property. The Company relies on a combination of patent, trade secret, copyright and trademark protection, nondisclosure agreements and other measures to protect its proprietary rights. The Company currently has ten issued U.S. patents and 23 pending U.S. patent applications. The Company's future success will depend in large part on its ability to obtain patent protection in the U.S. and foreign markets, to defend patents once obtained, to maintain trade secrets and to operate without infringing upon the patents and proprietary rights of others. The patent positions of companies in the worldwide wireless communications industry, including the Company, are generally uncertain and involve complex legal and factual questions. There can be no assurance that any issued patents owned by or licensed to the Company will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide competitive advantages to the Company. Further, there can be no assurance that patents will issue from any patent applications or that, if patents do issue, the claims allowed would be sufficiently broad to protect the Company's technology. In addition, there can be no assurance that patents issued in the U.S. will receive corresponding patent protection in foreign markets or that the Company will pursue similar patent protection in all foreign markets. Patents and patent applications relating to products used in the wireless communications industry are numerous and current and potential competitors and other third parties may have filed or may in the future file applications for, or 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 the Company. The Company may not be aware of all patents or patent applications that may materially affect the Company's 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 the Company. The Company expects that it 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 the Company in the future, and such assertions could result in costly litigation or require the Company to obtain a license to intellectual property rights of such parties. There can be no assurance that any such licenses would be available on terms acceptable to the Company, 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 have a material adverse effect on the Company's business and operating results. The Company also relies on unpatented trade secrets to protect its proprietary technology, and there can be no assurance that others will not independently develop or otherwise acquire the same or substantially equivalent technologies or otherwise gain access to the Company's proprietary technology 16 or disclose such technology or that the Company can ultimately protect its rights to such unpatented proprietary technology. Further, third parties may obtain patent rights to such unpatented trade secrets, which patent rights could be used to assert infringement claims against the Company. The Company also relies on confidentiality agreements with its employees, suppliers, consultants and customers to protect its proprietary technology. There can be no assurance that these agreements will not be breached, that the Company would have adequate remedies for any breach or that the Company's trade secrets will not otherwise become known to or be independently developed by competitors. Failure to obtain or maintain patent and trade secret protection, for any reason, could have a material adverse effect on the Company's business and operating results. See "Business--Intellectual Property." Year 2000 Compliance. Many existing computer systems and applications, and other control devices, use only two digits to identify a year in the date field, without considering the impact of the upcoming change in the century. As a result, such systems and applications could fail or create erroneous results unless corrected so that they can process data related to the year 2000. The Company relies on its systems, applications and devices in operating and monitoring all major aspects of its business, including financial and accounting systems, customer services, networks and telecommunications equipment and end products. The Company also relies, directly and indirectly, on external systems of business enterprises such as customers, suppliers, creditors, financial organizations, and of governmental entities, both domestic and international, for accurate exchange of data. Although the Company believes that its internally developed products, systems and applications are designed to be year 2000 compliant, the Company utilizes third party equipment and software that may not be year 2000 compliant. The Company has not fully assessed the compliance of its third party systems. Failure of such third party systems to properly process data related to the year 2000 could cause interruptions in the Company's operations and could require the Company to incur unanticipated expenses to remedy any problems. In addition, if the Company's customers or suppliers experience difficulties with year 2000 issues, it could adversely impact sales of the Company's products to such customers or disrupt the supply of necessary components to the Company by such suppliers. The Company is in the early stages of assessing the risk and impact of its customers' and suppliers' year 2000 issues and significant uncertainty exists concerning the potential costs and effects associated with any year 2000 compliance issues. Any year 2000 compliance problems of either the Company, its customers or its suppliers could have a material adverse effect on the Company's business, results of operations and financial condition. No Prior Public Market; Possible Volatility of Stock Price. Prior to this offering, there has been no public market for the Common Stock. The initial public offering price of the Common Stock will be determined by negotiations between the Company and the Representatives of the Underwriters and may not be indicative of the market price for the Common Stock in the future. See "Underwriting" for a discussion of the factors considered in determining the initial public offering price. There can be no assurance that an active trading market will develop or be sustained after this offering. The Company believes that factors such as announcements of developments related to the Company's business, announcements of technological innovations or new products or enhancements by the Company or its competitors, sales by competitors, including sales to the Company's customers, sales of the Company's Common Stock into the public market, including by members of management, developments in the Company's relationships with its customers, partners, distributors and suppliers, shortfalls or changes in revenues, gross profits, earnings or losses or other financial results from analysts' expectations, regulatory developments, fluctuations in results of operations, and general conditions in the Company's market, of the markets served by the Company's customers, or the economy could cause the price of the Company's Common Stock to fluctuate, perhaps substantially. In addition, in recent years the stock market, in general, and the market for shares of small capitalization and technology stocks in particular, have experienced extreme price fluctuations, which have often been unrelated to the operating performance of affected companies. There can be no assurance that the market price of the Company's Common Stock will not experience significant fluctuations in the future, including fluctuations that are unrelated to the 17 Company's performance. Such fluctuations could materially adversely affect the market price of the Company's Common Stock. Broad Discretion of Management to Allocate Offering Proceeds. The Company will use approximately $16.2 million of the proceeds from this offering to repay one-half of the outstanding principal and estimated interest on its 13.75% Senior Secured Bridge Notes and the remaining $31.8 million for working capital and other general corporate purposes including working capital to fund anticipated operating losses and capital expenditures. The Company may, when and if the opportunity arises, use a portion of the proceeds to acquire or invest in complimentary business, products or technologies. The Company's management will have broad discretion to allocate the remaining proceeds of this offering, and the amounts actually expended for each use listed above may vary significantly depending on a number of factors, including the amount of future revenues, the amount of cash generated or used by the Company's operations, the progress of the Company's product development efforts, technological advances, and the status of competitive products. There can be no assurance that the proceeds will be utilized in a manner that the stockholders deem optimal, or that the proceeds can or will be invested to yield a significant return. Shares Eligible for Future Sale After the Offering. Sales of substantial amounts of Common Stock in the public market after this offering or the anticipation of such sales could materially affect then prevailing market prices. All of the 3,500,000 shares offered hereby and an additional 142,836 shares held by current stockholders may be resold immediately in the public market. Beginning 90 days after the date of this Prospectus, approximately 46,147 additional shares may be resold in the public market. Beginning 180 days after the date of this Prospectus, upon expiration of pre-existing lock- up agreements and lock-up agreements between the representatives of the Underwriters and officers, directors and certain stockholders of the Company, approximately 691,369 total shares will be eligible for sale without restriction under Rule 144(k) or Rule 701 under the Securities Act of 1933, as amended (the "Securities Act"), and 10,458,787 shares will be eligible for sale subject to compliance with the restrictions of Rule 144 and, under certain circumstances, Rule 701 under the Securities Act. Any early release of the lock-up agreement by the Underwriters, which, if granted, could permit sales of a substantial number of shares and could adversely affect the trading price of the Company's shares, may not be accompanied by an advance public announcement by the Company. Holders of approximately 10,736,787 shares of Common Stock and the holders of the Note Warrants (collectively the "Registrable Securities") also will have the right to include such shares in any future registration of securities effected by the Company and to require the Company to register their shares for future sale, subject to certain exceptions. See "Description of Securities--Registration Rights of Certain Holders" and "Shares Eligible for Future Sale." Control by Existing Stockholders. Following the completion of this offering, members of the Board of Directors and the officers of the Company, together with entities that may be deemed affiliates of or related to such persons or entities, will beneficially own approximately 58.4% of the outstanding shares of Common Stock of the Company. Accordingly, these stockholders are able to significantly influence the election of the members of the Company's Board of Directors and significantly influence the outcome of corporate actions requiring stockholder approval, such as mergers and acquisitions. This level of ownership may have a significant effect in delaying, deferring or preventing a change in control of the Company and may adversely affect the voting and other rights of other holders of Common Stock. See "Management-- Directors and Executive Officers," "--Principal Stockholders" and "Description of Capital Stock." Effect of Certain Charter and Bylaw Provisions. Certain provisions of the Company's Restated Certificate of Incorporation and Bylaws may have the effect of making it more difficult for a third party to acquire or of discouraging a third party from attempting to acquire, control of the Company. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of 18 the Company's Common Stock. Certain of these provisions allow the Company to issue up to 10,500,000 shares of Preferred Stock and fix the rights and preferences thereof without any vote or further action by the stockholders, eliminate the right of stockholders to act by written consent without a meeting and eliminate cumulative voting in the election of directors. The rights of holders of Common Stock will be subject to, and may be adversely affected by, the rights of holders of any Preferred Stock that may be issued in the future. These provisions may make it more difficult for stockholders to take certain corporate actions and could have the effect of delaying or preventing a change in control of the Company. Certain provisions of Delaware law and Washington law applicable to the Company could also delay or make more difficult a merger, tender offer or proxy contest involving the Company. Such provisions include Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years unless certain conditions are met, and Chapter 23B.19 of the Washington Business Corporation Act, which prohibits a corporation operating in Washington from engaging in certain significant business transactions with a person or group of persons who beneficially own 10% of the voting securities of such corporation for a period of five years unless certain conditions are met. After the five-year period, such significant business transaction must still comply with certain fair price provisions of such statute. See "Management" and "Description of Securities--Anti-Takeover Provisions of Delaware and Washington Law and Charter Documents." Immediate and Substantial Dilution. Investors in Common Stock in this offering will experience immediate dilution in the net tangible book value of their shares. At the initial public offering price of $15.00 per share, dilution to new investors will be $11.44 per share. Additional dilution will occur upon exercise of outstanding stock options and warrants. If the Company seeks additional capital in the future, the issuance of shares or convertible debt to obtain such capital may lead to further dilution. See "Dilution." 19 USE OF PROCEEDS The net proceeds to the Company from the sale and issuance of the 3,500,000 shares of Common Stock offered hereby, at an assumed initial public offering price of $15.00 per share, are estimated to be $47.8 million ($55.1 million if the Underwriters' over-allotment option is exercised in full). The Company will use approximately $16.2 million of the net proceeds to repay one-half of the outstanding principal and estimated accrued interest on its 13.75% Senior Secured Bridge Notes and the remaining proceeds for general corporate purposes, including working capital to fund anticipated operating losses and capital expenditures. The Company may, when and if the opportunity arises, use a portion of the proceeds to acquire or invest in complimentary businesses, products or technologies. The Company's management will have broad discretion to allocate the remaining proceeds of this offering, and the amounts actually expended for each use listed above may vary significantly depending on a number of factors, including the amount of future revenues, the amount of cash generated or used by the Company's operations, the progress of the Company's product development efforts, technological advances, and the status of competitive products. Pending such uses, the Company intends to invest such funds in short-term, investment grade, interest-bearing obligations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." DIVIDEND POLICY The Company has never declared or paid any cash dividends on its capital stock or other securities. The Company currently anticipates that it will retain all of its future earnings for use in the expansion and operation of its business and does not anticipate paying cash dividends in the foreseeable future. See Note 5 of Notes to Financial Statements. 20 CAPITALIZATION The following table sets forth the capitalization of the Company as of June 30, 1998 (i) on an actual basis the conversion of convertible and redeemable Preferred Stock to Common Stock and the conversion of Preferred Stock warrants to Common Stock warrants, and the receipt by the Company of the net proceeds from the sale of the 3,500,000 shares of Common Stock offered hereby at an assumed initial public offering price of $15.00 per share, (ii) and as adjusted to give effect to the sale by the Company of the 3,500,000 shares of Common Stock offered hereby at an assumed offering price of $15.00 per share, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company, and the application of the estimated net proceeds therefrom as set forth in "Use of Proceeds." This table should be read in conjunction with the Financial Statements and the Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
AS OF JUNE 30, 1998 ----------------- AS ACTUAL ADJUSTED ------- -------- (IN THOUSANDS) 13.75% Senior Secured Bridge Notes........................... $29,708 $13,508 Other debt, including capital lease obligations.............. 5,392 5,392 Convertible and redeemable preferred stock................... 49,282 -- Convertible and redeemable preferred stock warrants.......... 4,423 -- Stockholders' equity:........................................ Preferred stock, 14,000,000 shares authorized, 9,191,222 shares which have been designated as convertible and redeemable, actual; 10,500,000 shares authorized, none issued or outstanding, as adjusted(1)..................... -- -- Common stock, 28,000,000 shares authorized, 2,125,125 shares issued and outstanding, actual; 105,000,000 shares authorized, 14,816,347 shares issued and outstanding, as adjusted(1)............................................... 2,162 103,692 Deferred stock compensation.................................. (877) (877) Accumulated deficit.......................................... (50,082) (50,082) ------- ------- Total stockholders' equity (deficit)..................... (48,797) 52,733 ------- ------- Total capitalization..................................... $40,008 $71,633 ======= =======
- -------- (1) Based on the number of shares outstanding on June 30, 1998 and as adjusted to reflect the post-offering capitalization of the Company. Excludes as of June 30, 1998 (a) 2,294,449 shares issuable upon exercise of outstanding options at a weighted average exercise price of $2.81 per share as of June 30, 1998, (b) 462,960 shares issuable upon exercise of outstanding warrants at a weighted average exercise price of $0.98 per share as of such date and (c) an aggregate of 1,407,448 shares available for future issuance of stock options under the 1995 Stock Option Plan, the 1998 Stock Option Plan, the Directors' Plan and the Purchase Plan. See "Management-- Stock Plans" and Note 6 of Notes to Financial Statements. 21 DILUTION As of June 30, 1998, the Company had a pro forma net tangible book value of approximately $4.9 million, or $0.43 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 June 30, 1998, other than to give effect to the receipt by the Company of the net proceeds from the sale of the 3,500,000 shares of Common Stock offered hereby at an assumed initial public offering price of $15.00 per share, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company, the pro forma net tangible book value at June 30, 1998 would have been approximately $52.7 million, or $3.56 per share. This represents an immediate increase in net tangible book value of $3.13 per share to existing stockholders and an immediate dilution of $11.44 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................ $15.00 Pro forma net tangible book value per share as of June 30, 1998........................................................ $0.43 Increase per share attributable to new investors............. 3.13 ----- Pro forma net tangible book value per share after the offering. 3.56 ------ Dilution per share to new investors............................ $11.44 ======
The following table summarizes, on a pro forma basis, as of June 30, 1998, the number of shares of Common Stock purchased from the Company, the total consideration paid and the average price per share paid by (i) existing stockholders and (ii) new investors (before deducting estimated underwriting discounts and commissions and offering expenses payable by the Company):
AVERAGE SHARES PURCHASED TOTAL CONSIDERATION PRICE ------------------ -------------------- PER NUMBER PERCENT AMOUNT PERCENT SHARE ---------- ------- ------------ ------- ------- Existing stockholders(1).... 11,316,347 76.4% $ 49,562,853 48.6% $ 4.38 New investors............... 3,500,000 23.6 52,500,000 51.4% 15.00 ---------- ----- ------------ ----- Total..................... 14,816,347 100.0% $102,062,853 100.0% ========== ===== ============ =====
- -------- (1) Based on the pro forma number of shares outstanding on June 30, 1998. Excludes as of June 30, 1998 (a) 2,294,449 shares issuable upon exercise of outstanding options at a weighted average exercise price of $2.81 per share as of June 30, 1998, (b) 462,960 shares issuable upon exercise of outstanding warrants at a weighted average exercise price of $0.98 per share as of such date and (c) an aggregate of 1,407,448 shares available for future issuance under the 1995 Stock Option Plan, the 1998 Stock Option Plan, the Directors' Plan and the Purchase Plan. See "Management-- Stock Plans" and Note 6 of Notes to Financial Statements. 22 SELECTED FINANCIAL DATA The statement of operations data for the period from January 19, 1995 (inception) to December 31, 1995, and for the years ended December 31, 1996 and 1997 and the balance sheet data as of December 31, 1996 and 1997, have been derived from the audited financial statements of the Company included elsewhere in this Prospectus that have been audited by Ernst & Young LLP, independent auditors. The balance sheet data as of December 31, 1995 have been derived from the audited financial statements of the Company not included herein. The statement of operations data for the six months ended June 30, 1997 and 1998 and the balance sheet data at June 30, 1998 are derived from unaudited financial statements included elsewhere in this Prospectus and contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position and results of operations for such periods. The results of operations for the six months ended June 30, 1998 are not necessarily indicative of results to be expected for the full fiscal year. The data set forth below should be read in conjunction with the financial statements of the Company, including the notes thereto, and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
PERIOD FROM JANUARY 19, 1995 YEAR ENDED SIX MONTHS ENDED (INCEPTION) TO DECEMBER 31, JUNE 30, DECEMBER 31, ------------------ ----------------- 1995 1996 1997 1997 1998 ---------------- -------- -------- ------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net revenue............. $ -- $ 1,291 $ 1,450 $ 392 $ 6,501 Cost of sales........... -- 1,097 1,728 516 6,396 ------- -------- -------- ------- -------- Gross profit (loss)..... -- 194 (278) (124) 105 ------- -------- -------- ------- -------- Operating expenses: Research and development............ 883 7,186 13,083 5,365 8,025 Sales and marketing..... 84 1,704 5,383 2,244 4,087 General and administrative......... 168 2,434 3,762 1,367 2,429 ------- -------- -------- ------- -------- Total operating expenses............... 1,135 11,324 22,228 8,976 14,541 ------- -------- -------- ------- -------- Loss from operations.... (1,135) (11,130) (22,506) (9,100) (14,436) Other income (expense), net.................... 135 335 402 173 (1,747) ------- -------- -------- ------- -------- Net loss................ $(1,000) $(10,795) $(22,104) $(8,927) $(16,183) ======= ======== ======== ======= ======== Basic and diluted net loss per share......... (1.09) (5.67) (11.59) (4.80) (7.92) ======= ======== ======== ======= ======== Shares used in computation of basic and diluted net loss per share(1)........... 918 1,904 1,907 1,859 2,043 ======= ======== ======== ======= ======== Pro forma net loss per share.................. (.37) (1.51) (2.19) (.95) (1.44) ======= ======== ======== ======= ======== Shares used in computation of pro forma net loss per share(1)............... 2,722 7,140 10,076 9,372 11,234 ======= ======== ======== ======= ========
DECEMBER 31, JUNE 30, 1998 --------------------------- ---------------------- 1995 1996 1997 ACTUAL PRO FORMA(2) ------- -------- -------- -------- ------------ (IN THOUSANDS) (UNAUDITED) BALANCE SHEET DATA: Cash and cash equivalents.............. $ 1,422 $ 19,092 $ 13,334 $ 20,311 20,311 Working capital........... 4,280 17,722 15,677 3,787 3,787 Total assets.............. 6,135 21,747 22,575 46,557 46,557 13.75% Senior Secured Bridge Notes............. -- -- -- 29,708 29,708 Other debt................ 128 2,319 4,147 5,392 5,392 Convertible and redeemable preferred stock.......... 5,500 30,100 49,282 49,282 -- Convertible and redeemable preferred stock warrants................. -- -- 128 4,423 -- Accumulated deficit....... (1,000) (11,795) (33,899) (50,082) (50,082) Stockholders' equity (deficit)................ (990) (11,785) (33,136) (48,797) 4,908
- -------- (1) See Note 1 and Note 7 of Notes to Financial Statements for an explanation of the method used to compute the number of shares used in computing net loss per share. (2) Adjusted to reflect the conversion of convertible and redeemable Preferred Stock into Common Stock and the conversion of Preferred Stock warrants to Common Stock warrants. See "Description of Securities." 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with "Selected Financial Data" and the Company's Financial Statements and Notes included elsewhere in this Prospectus. The discussion in this Prospectus contains forward-looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The cautionary statements made in this Prospectus should be read as being applicable to all related forward-looking statements wherever they appear in this Prospectus. The Company's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include those discussed in "Risk Factors," as well as those discussed elsewhere herein. See "Risk Factors." OVERVIEW Metawave designs, develops, manufactures and markets spectrum management solutions for the wireless communications industry. Metawave believes that its spectrum management solutions, consisting of smart antenna systems, applications software and engineering services, enable cellular network operators to increase overall network capacity, reduce network operation costs, better manage network infrastructure and stimulate end user demand through improved system quality. Using its proprietary technologies, the Company has developed products that address the capacity, coverage, and call quality problems faced by cellular network operators. The Company was incorporated in January 1995. Net revenue since inception has been attributable to an engineering consulting contract in 1996, services rendered by the Company's Network Services division during 1997 and sales of the SpotLight 2000 system during the six months ended June 30, 1998. The Company's Network Services division was discontinued during the first quarter of 1998. Since inception, the Company has incurred significant losses and as of June 30, 1998, had an accumulated deficit of $50.1 million. From inception through June 30, 1998, the Company's operating activities related primarily to conducting research and development, building market awareness, recruiting management and technical personnel and building an operating infrastructure. In 1997, the Company hired a new Chief Executive Officer and a new Chief Financial Officer and added managerial personnel in the engineering, product management, sales and administrative areas. Shipment for commercial sale of the SpotLight 2000 system began late in the fourth quarter of 1997. Since launching its SpotLight 2000 system, the Company has increased operating expenditures in an effort to increase sales and expand manufacturing capacity. In light of the progression of the Company from a development stage to an operating stage during the past two years, the Company believes that period to period comparisons of its financial results should not be relied upon as an indicator of future performance. There are two components of net revenue attributable to the SpotLight 2000 system, product revenue and service revenue. Product revenue is comprised of both the sale of hardware and the licensing of software. Service revenue is derived from installation, consulting services and maintenance contracts. The Company believes that substantially all of its revenues in the foreseeable future will be derived from sales of its SpotLight 2000 system. Sales cycles can be lengthy and the related contracts typically include performance specifications and customer acceptance conditions in connection with the initial sale of each system to each customer. The Company recognizes net revenue when the product has been shipped and all customer acceptance conditions have been satisfied. The Company recognizes service revenue when the services have been performed. If the Company does not satisfy conditions in such contracts or satisfaction of conditions is delayed, revenues in any particular period could fall significantly below the Company's expectations. Contract terms, including pricing and acceptance criteria, will typically vary depending upon the order, and the nature and extent of installation and consulting services. Consequently, net revenue may vary from quarter to quarter depending on the length of the sales cycle 24 and the applicable contract terms. If anticipated sales and shipments in any quarter do not occur when expected, expenses and inventory levels could be disproportionately high. To date, the Company's international sales have been denominated in U.S. dollars; however, in the future a portion of the Company's international sales may be denominated in foreign currencies. If a material amount of future sales are denominated in foreign currencies, a decrease in the value of foreign currencies relative to the U.S. dollar could result in losses from such transactions. Cost of sales typically consists of material components, manufacturing assembly and test, and overhead expenses. The Company believes that for its SpotLight 2000 system to achieve broad market acceptance and compete effectively with alternative systems, the Company's average selling prices must decline. In order to achieve lower average selling prices without adversely affecting gross profits, the Company must successfully reduce the manufacturing costs of its product through engineering improvements and economies of scale in production and purchasing. There can be no assurance, however, that the Company will be able to achieve cost savings at a rate necessary to keep pace with competitive pricing pressures. The Company expects that its gross profits will continue to be affected by a variety of other factors, including increased investment in manufacturing facilities and equipment, changes in labor costs, changes in product mix due to a shift from analog-only to analog/CDMA dual-mode system sales, changes in warranty expense or inventory obsolescence, increased sourcing and changes in prices of components and subassemblies from third party manufacturers and increased price competition. The Company's manufacturing operations consist primarily of supplier and commodity management and assembling finished goods from components and subassemblies purchased from outside suppliers. In May 1998, the Company moved to significantly larger facilities to accommodate the Company's current research, development and manufacturing needs in the near term. The Company plans to further expand its manufacturing capacity in the future if and to the extent the Company's products achieve market acceptance and demand increases. If such expansion occurs, substantial investments in additional capital equipment and the recruiting and training of additional personnel will be required, which may include increased sourcing of components from third parties as well as increased system integration and full-configuration testing or investment in additional manufacturing facilities. See "Risk Factors-- Limited Manufacturing Experience; No Assurance of Successful Expansion of Operations." The Company recently upgraded its financial and accounting software to an enterprise resource planning software package that integrates manufacturing, finance and sales order management. The Company anticipates that additional upgrades to its management information systems will be required in the near future to address the expected increased volume and complexity of the Company's transactions. See "Risk Factors--Management of Growth; New Management Team." Research and development expense consists principally of salaries and related personnel expenses, consultant fees and prototype expenses related to the design, development, testing and enhancement of the Company's SpotLight 2000 system. As of June 30, 1998, all research and development costs had been expensed as incurred. The Company believes that continued investment in research and development is critical to attaining its strategic product and cost reduction objectives and, as a result, expects these expenses to increase significantly in absolute dollars in the future. Sales and marketing expense consists of salaries, sales commissions and related expenses for personnel engaged in marketing, sales and field service support functions, as well as promotional expenditures. The Company expects sales and marketing expense to increase significantly in absolute dollars in the future. General and administrative expense consists primarily of salaries and personnel related expenses, recruiting expenses, professional fees and other general corporate expenses. The Company expects general and administrative expense to increase in absolute dollars as the Company adds personnel and incurs additional costs related to the growth of its business and operation as a public company. The revenue and profit potential of the Company's business is unproven and the Company's limited operating history makes its future operating results difficult to predict. The Company believes that its growth and future success will be dependent upon the broad acceptance of the SpotLight 2000 system by cellular network operators. Because the SpotLight 2000 system was only recently introduced, the Company is unable to predict with any degree of certainty whether it will achieve market acceptance. 25 There can be no assurance that the Company will ever achieve profitability or significant revenues on a quarterly or an annual basis. Because of the limited size of the Company's customer base and the large size of customer orders, revenues derived from a small number of customers will likely represent a significant portion of revenue in any given period. Thus, a decrease in demand for the Company's systems from any customer for any reason is likely to result in significant periodic fluctuations in revenue. Due to the highly concentrated nature of the cellular industry, the Company believes that the number of potential customers for future products, if any, will be small. Failure by the Company to capture a significant number of the cellular network operators as customers could have a material adverse effect on the Company's business and operating results. See "Risk Factors--Limited Operating History; Accumulated Deficit; Anticipated Losses," "--Significant Fluctuations in Operating Results," "--Significant Customer Concentration" and "--Uncertainty of Market Acceptance; Lengthy Sales Cycle." RECENT DEVELOPMENT Net revenue for the quarter ended September 30, 1998 was $6.6 million, of which 2.1% was international sales. RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1998 AND 1997 Net Revenue. Net revenue for the six months ended June 30, 1998 was $6.5 million, substantially all of which was derived from sales of the Motorola HDII analog version of the Spotlight 2000 system to three customers. Net revenue for the six months ended June 30, 1997 was $392,000 all of which was service revenue. International sales were 51.4% of net revenue for the six months ended June 30, 1998. Although the Company anticipates that international sales will continue to account for a significant portion of its net revenues, the Company expects international sales to decrease as a percentage of net revenue in the near term as sales of the Company's Spotlight 2000 system for the CDMA protocol in North America are expected to increase. Gross Profit (Loss). Cost of sales was $6.4 million and gross profit was $105,000 for the six months ended June 30, 1998. Gross profit was adversely affected by unabsorbed fixed manufacturing overhead costs due to the expansion of manufacturing capacity in advance of unit sales volume increases. Additionally, increases to the warranty and inventory obsolescence reserves negatively impacted gross profit. Cost of sales was $516,000 and gross profit (loss) was $(124,000) for the six months ended June 30, 1997. Cost of sales in this period reflected the direct costs of the Network Services division related supplies and expenses, and gross profit (loss) was adversely affected by these relatively high fixed costs. Research and Development. For the six months ended June 30, 1998, research and development expense was $8.0 million, of which $5.0 million was payroll and benefits. For the six months ended June 30, 1997, research and development expense was $5.4 million, of which $3.4 million was payroll and benefits. The increase in research and development expense was primarily attributable to increased staffing, prototype material costs and other associated expenses relating to enhancing the features and functionality of the SpotLight 2000 system. Sales and Marketing. For the six months ended June 30, 1998, sales and marketing expense was $4.1 million, of which $2.2 million was payroll and benefits. For the six months ended June 30, 1997, sales and marketing expense was $2.2 million, of which $1.4 million was payroll and benefits. The increase in sales and marketing expense was primarily attributable to expansion of the Company's direct sales force, as well as increased public relations and other promotional expenditures. General and Administrative. For the six months ended June 30, 1998, general and administrative expense was $2.4 million, of which $1.8 million was payroll, $360,000 was in connection with certain patent license agreements and $255,000 was stock compensation charges. For the six months ended June 30, 1997, general and administrative expense was $1.4 million, of which $1.2 million was payroll and related expenses. The increase in general and administrative expense was primarily attributable to increased personnel and facility expenses necessary to support the Company's growth. The stock compensation charge for the six months ended June 30, 1998 also contributed to the increase over the prior year. 26 Deferred Stock Compensation. In connection with the grant of certain stock options during 1997, the Company recorded aggregate deferred stock compensation of approximately $1.9 million, representing the difference between the deemed value of the Common Stock for accounting purposes and the option exercise price of such options at the date of grant. Such amount is recorded as deferred stock compensation and amortized ratably over the vesting period as stock compensation expense. For the six months ended June 30, 1998, stock compensation expense was $328,000. For the six months ended June 30, 1997, the Company recorded deferred stock compensation of $224,000 and amortized a stock compensation expense of $22,000. For the year ended December 31, 1997, the aggregate stock compensation expense was $676,000. Interest Expense and Net Other Income. Interest expense increased to $2.2 million for the six months ended June 30, 1998, compared to $236,000 for the six months ended June 30, 1997. The increase was primarily attributable to the $2.0 million interest expense and associated fees to secure the $29.0 million of 13.75% Senior Secured Bridge Notes. Net other income consists primarily of earnings on the Company's cash and cash equivalents and short-term investments. Net other income increased to $484,000 for the six months ended June 30, 1998, from $409,000 for the six months ended June 30, 1997. The increase was attributable to higher average cash and cash equivalent balances. Income Taxes. The Company has had a net loss for each period since inception. As of June 30, 1998, the Company had approximately $45.6 million of net operating loss carryforwards and $1.0 million of research and development credit carryforward for federal income tax purposes, which begin to expire in 2009. The Company has provided a full valuation allowance on the deferred tax asset, consisting primarily of net operating loss carryforward, because of uncertainty regarding its realizability. See Note 8 of Notes to Financial Statements. YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (INCEPTION PERIOD) Net Revenue. Net revenue for 1997 and 1996 was $1.5 million and $1.3 million, respectively, and was attributable to services provided by the Network Services division in 1997 and a one-time engineering consulting contract in 1996. During 1995, the Company was primarily engaged in product development and accordingly, recorded no revenue. The Network Services division was discontinued in March 1998. Gross Profit (Loss). Cost of sales was $1.7 million and gross profit (loss) was $(278,000) for the year ended December 31, 1997. Gross profit (loss) in 1997 was adversely affected by the establishment of an inventory obsolescence reserve of $870,000 and the high fixed cost of the Network Services division during its initial year of operation. Cost of sales in this period consists primarily of direct labor and materials related to services rendered in generating the revenue for the period. Cost of sales was $1.1 million and gross profit was $194,000 for the year ended December 31, 1996. Gross profit in 1996 was attributable to a one-time engineering consulting contract. Research and Development. Research and development expense was $13.1 million, $7.2 million and $883,000 in 1997, 1996 and 1995, respectively. The increases in research and development expense were primarily attributable to increased staffing and associated costs related to product development. During 1997, research and development expense also included the design and development of manufacturing infrastructure that was initially used for prototyping activities. Sales and Marketing. Sales and marketing expense was $5.4 million, $1.7 million and $84,000 in 1997, 1996 and 1995, respectively. The increases in sales and marketing expense were primarily attributable to expansion of the Company's direct sales force and costs associated with initial field trials of the SpotLight 2000 system. General and Administrative. General and administrative expense was $3.8 million, $2.4 million and $168,000 in 1997, 1996 and 1995, respectively. The increases in general and administrative expense were 27 primarily attributable to increased payroll and related expenses in hiring additional personnel and increased occupancy expenses necessary to support the Company's growth. Interest Expense and Net Other Income. Interest expense was $449,000, $150,000 and $22,000 in 1997, 1996 and 1995, respectively. The increases in interest expense were primarily attributable to increased capital lease obligations and notes payable. Net other income was $851,000, $485,000 and $157,000 in 1997, 1996 and 1995, respectively. The increases in net other income were primarily attributable to interest income resulting from higher cash and cash equivalent balances and short-term investments. QUARTERLY RESULTS OF OPERATIONS The following table sets forth certain unaudited quarterly statement of operations data for the six quarters ended June 30, 1998. In the opinion of management, this information has been prepared substantially on the same basis as the audited financial statements appearing elsewhere in this Prospectus, and all necessary adjustments, (consisting only of normal recurring adjustments) have been included in the amounts stated below to present fairly the unaudited quarterly results. The quarterly data should be read in conjunction with the audited financial statements of the Company and the notes thereto appearing elsewhere in this Prospectus. Such quarterly operating results are not necessarily indicative of the operating results for any future period.
THREE MONTHS ENDED ------------------------------------------------------ JUNE SEPT. DEC. JUNE MARCH 31, 30, 30, 31, MARCH 31, 30, 1997 1997 1997 1997 1998 1998 --------- ------- ------- ------- --------- ------- (IN THOUSANDS) Net revenue............. $ 129 $ 263 $ 547 $ 511 $ 2,538 $ 3,963 Cost of sales........... 114 402 557 655 2,910 3,486 ------- ------- ------- ------- ------- ------- Gross profit (loss)..... 15 (139) (10) (144) (372) 477 ------- ------- ------- ------- ------- ------- Operating expenses: Research and development.......... 2,693 2,672 3,559 4,159 3,575 4,450 Sales and marketing... 922 1,322 1,753 1,385 1,996 2,091 General and administrative....... 655 712 1,073 1,322 1,044 1,385 ------- ------- ------- ------- ------- ------- Total operating expenses........... 4,270 4,706 6,385 6,866 6,615 7,926 ------- ------- ------- ------- ------- ------- Operating loss.......... (4,255) (4,845) (6,395) (7,010) (6,987) (7,449) Other income, net....... 204 205 191 250 165 319 Interest expense........ (99) (136) (90) (124) (152) (2,079) ------- ------- ------- ------- ------- ------- Net loss................ $(4,150) $(4,776) $(6,294) $(6,884) $(6,974) $(9,209) ======= ======= ======= ======= ======= ======= Pro forma net loss per share.................. $ (0.44) $ (0.51) $ (0.61) $ (0.61) $ (0.60) $ (0.82) ======= ======= ======= ======= ======= =======
The Company's net revenue for the quarters in 1997 consisted primarily of service revenue. Net revenue for the quarters ended March 31, 1998 and June 30, 1998 was primarily attributable to sales of the Company's SpotLight 2000 system. The significant fluctuations in the Company's historical quarterly operating results are principally a function of the fact that the Company was a development stage company through the latter part of the fourth quarter of 1997. These fluctuations are largely explained by significant increases and large variations in expenses incurred in connection with the transition from development stage to operating stage. Operating expense increased in each quarter, primarily reflecting the increased expenditures related to the Company's product development and its expanding workforce. 28 The Company will likely experience significant fluctuations in its operating results on a quarterly and an annual basis in the future. In connection with its efforts to increase production of its recently introduced SpotLight 2000 system, the Company expects to continue to make substantial investments in capital equipment, to recruit and train additional personnel and to invest in facilities and management information systems. These expenditures may be made in advance of, and in anticipation of, increased sales and, therefore, gross profits may be adversely affected by short-term inefficiencies associated with the addition of equipment, personnel or facilities and costs may increase as a percentage of revenues from time to time on a periodic basis. As a result, the Company's operating results will vary from period to period. Because of the limited size of the Company's customer base and the large size of customer orders, revenues derived from a small number of customers will likely represent a significant portion of revenue in any given period. Accordingly, a decrease in demand for the Company's systems from any customer for any reason is likely to result in significant periodic fluctuations in revenue. In addition, most of the Company's contracts contain conditional acceptance provisions for certain product sales and the Company delays recognition of revenues that are subject to such contingencies until all such conditions are satisfied. If the Company could not satisfy conditions in such contracts or satisfaction of conditions were delayed for any reason, revenues in any particular period could fall significantly below the Company's expectations. Many other factors may affect the Company's business and operating results in future periods. See "Risk Factors--Limited Operating History; Accumulated Deficit; Anticipated Losses" and "--Significant Fluctuations in Operating Results." YEAR 2000 COMPLIANCE Many existing computer systems and applications, and other control devices, use only two digits to identify a year in the date field, without considering the impact of the upcoming change in the century. As a result, such systems and applications could fail or create erroneous results unless corrected so that they can process data related to the year 2000. The Company relies on its systems, applications and devices in operating and monitoring all major aspects of its business, including financial and accounting systems, customer services, networks and telecommunications equipment and end products. The Company also relies, directly and indirectly, on external systems of business enterprises such as customers, suppliers, creditors, financial organizations, and of governmental entities, both domestic and international, for accurate exchange of data. Although the Company believes that its internally developed products, systems and applications are designed to be year 2000 compliant, the Company utilizes third party equipment and software that may not be year 2000 compliant. The Company has not fully assessed the compliance of its third party systems. Failure of such third party systems to properly process data related to the year 2000 could cause interruptions in the Company's operations and could require the Company to incur unanticipated expenses to remedy any problems. In addition, if the Company's customers or suppliers experience difficulties with year 2000 issues, it could adversely impact sales of the Company's products to such customers or disrupt the supply of necessary components to the Company by such suppliers. The Company is in the early stages of assessing the risk and impact of its customers' and suppliers' year 2000 issues and significant uncertainty exists concerning the potential costs and effects associated with any year 2000 compliance issues. Any year 2000 compliance problems of either the Company, its customers or its suppliers could have a material adverse effect on the Company's business, results of operations and financial condition. LIQUIDITY AND CAPITAL RESOURCES Since inception, the Company has financed its operations primarily through private sales of Preferred Stock and Common Stock, the issuance of debt instruments, capital leases arrangements and borrowings under various lines of credit. Net proceeds from these transactions totaled $85.8 million as of June 30, 1998. For the six months ended June 30, 1998, net cash used in operating activities was $20.8 million resulting from a net loss of $16.2 million and increases of $8.1 million in inventories offset by decreases 29 of $4.9 million in accounts payable, accrued liabilities and other liabilities. Net cash used in operating activities was $23.6 million, $10.2 million and $309,000 in 1997, 1996 and 1995, respectively. For 1997, cash used in operating activities resulted from a net loss of $22.1 million and increases of $4.1 million in inventories, $1.3 million in accounts receivable and $34,000 in prepaid expenses and deposits partially offset by increases of $926,000 in accounts payable, accrued liabilities and other liabilities and $1.8 million in depreciation and amortization. For 1996, cash used in operating activities resulted from a net loss of $10.8 million and increases of $67,000 in accounts receivable and $222,000 in prepaid expenses partially offset by increases of $906,000 in accounts payable, accrued liabilities and other liabilities and $520,000 in depreciation and amortization. Cash used in operating activities in 1995 was attributable to a net loss of $1.0 million and an increase of $55,000 in prepaid expenses partially offset by an increases of $206,000 in accounts payable, accrued liabilities and other liabilities and $19,000 in depreciation and amortization. Net cash provided by (used in) investing activities of $(504,000), $(621,000), $3.1 million and $(3.8 million) for the six months ended June 30, 1998 and the years ended December 31, 1997, 1996 and 1995, respectively, was primarily related to purchases of property and equipment and purchases of short term investments offset by maturities of short term investments. The large increases in working capital on a period-to-period basis are a direct result of the rapid growth of the Company in support of the product development and sales and marketing efforts as well as the development of an operational infrastructure to support the sales of product in the recent quarters. Such growth has required the Company to purchase additional equipment and software and increase purchase of materials, which resulted in corresponding increases in inventories and accounts payable. Cash provided by (used in) financing activities of $28.2 million for the six months ended June 30, 1998 consisted of $29.0 million in proceeds from issuance of 13.75% Senior Secured Bridge Notes offset by $130,000 in payments on debt securities and $717,000 in principal payments on capital lease obligations. Cash provided by financing activities of $18.4 million in 1997 consisted primarily of $19.2 million in net proceeds from the issuance of Series D Preferred Stock. Cash provided by financing activities of $24.8 million in 1996 was primarily from net proceeds of $24.6 million from the issuance of Series B and C Preferred Stock and $500,000 of proceeds from the issuance of a note payable. Cash provided by financing activities of $5.5 million in 1995 consisted primarily of $5.5 million in net proceeds from the issuance of Series A Preferred Stock. In April 1998, the Company issued $29.0 million in aggregate principal 13.75% Senior Secured Bridge Notes due April 28, 2000 to certain institutional and corporate investors. The 13.75% Senior Secured Bridge Notes are secured by the Company's personal property and intellectual property. The Company is required to comply with certain covenants and certain reporting requirements determined by the noteholders. On April 28, 1999 and each 180-day period thereafter until the 13.75% Senior Secured Bridge Notes are repaid in full, the interest rate will increase by 200 basis points up to a maximum of 18.0%. In addition, the Company issued the Note Warrant to purchase an aggregate of 376,245 shares of Series D Preferred Stock at a purchase price of $0.01 per share. The Note Warrants expire on April 28, 2000. Pursuant to the terms of the 13.75% Senior Secured Bridge Notes, upon the closing of this offering, the Company is obligated to repay one-half of the aggregate principal amount of the 13.75% Senior Secured Bridge Notes outstanding, together with accrued but unpaid interest thereon. The remaining outstanding 13.75% Senior Secured Bridge Notes are redeemable at the Company's option at any time prior to the maturity date. Upon the closing of this offering, the Company has the right to redeem all of the 13.75% Senior Secured Bridge Notes, Note Warrants and to repurchase any stock issued upon exercise of the Note Warrants for an aggregate redemption price of $40.6 million. The Company has a credit facility with a commercial bank, which 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, which matures on October 14, 1999. Outstanding balances on the credit line bear interest at the bank's prime rate and are secured by the Company's accounts receivable 30 and inventory. As of the date hereof, no amounts were outstanding under this revolving credit line secured by accounts receivable and $2.5 million is outstanding related to issuance of a standby letter of credit. See Note 4 of Notes to Financial Statements. The Company has several capital leases with terms ranging from 36 to 48 months. At June 30, 1998, the Company's outstanding capital lease obligations were $5.1 million, accruing interest at rates ranging from 7.25% to 14.50%. On April 17, 1998, the Company entered into an additional $3,500,000 capital lease line with a 36 month term. See Note 9 of Notes to Financial Statements. As of June 30, 1998, the Company had $20.3 million of cash and cash equivalents. As of June 30, 1998, the Company's principal commitments consisted of accounts payable, current debt payable, convertible and redeemable preferred stock and obligations outstanding under operating and capital leases. Although the Company has no material commitments for capital expenditures, management anticipates a substantial increase in its capital expenditures and lease commitments consistent with anticipated growth in operations, infrastructure and personnel. The Company may establish additional field service and customer support locations, which would require it to commit to additional lease obligations. In the future, the Company may support larger inventories in order to provide shorter lead times to customers and achieve purchasing efficiencies. The Company will use approximately $16.2 million of the net proceeds received from this offering to repay one-half of the outstanding principal and estimated accrued interest on the 13.75% Senior Secured Bridge Notes and the remaining proceeds of $31.8 million will be used for general corporate purposes, including working capital to fund anticipated operating losses and capital expenditures. See "Use of Proceeds." Following the expected application of the estimated net proceeds of this offering together with repayments of debt prior to this offering the Company will have $14.5 million in outstanding principal 13.75% Senior Secured Bridge Notes. The Company believes that the net proceeds from this offering, together with its cash and cash equivalents, will be sufficient to meet its capital requirements for at least twelve months. The Company's future capital requirements will depend upon many factors, including the success or failure of the Company's efforts to expand its production, sales and marketing efforts, the status of competitive products and the requirements of the Company's efforts to develop new products and product enhancements. To the extent that the funds generated by this offering, together with existing resources and future earnings, are insufficient to fund the Company's future activities, the Company may need to raise additional funds through public or private financing. There can be no assurance that additional financing will be available to the Company on acceptable terms, or at all, or that such financing would not result in further dilution to existing stockholders. See "Risk Factors--Need for Additional Capital" and "Use of Proceeds." 31 BUSINESS OVERVIEW Metawave designs, develops, manufactures and markets spectrum management solutions for the wireless communications industry. Metawave believes that its spectrum management solutions, consisting of smart antenna systems, applications software and engineering services, enable cellular network operators to increase overall network capacity, reduce network operation costs, better manage network infrastructure and stimulate end user demand through improved system quality. Using its proprietary technologies, the Company has developed products that address the capacity, coverage and call quality problems faced by cellular network operators. The Company's smart antenna systems utilize fixed beam-switching hardware and software algorithms to reduce system interference in order to enable more efficient utilization of finite radio frequency spectrum or "wireless bandwidth." The Company's products offer highly integrated system solutions that can reduce the need for costly infrastructure upgrades and additional cell site deployments, thereby enabling cellular network operators to reduce otherwise capital intensive outlays and to keep pace with subscriber growth. The Company's technology is designed to be leveraged across a variety of the market segments in the wireless communications industry, including the AMPS, CDMA, GSM, PCS, TDMA and WLL segments. The Company's customers include ALLTEL, 360(degrees) Communications (which was recently acquired by ALLTEL), GTE and Millicom affiliates, Telefonica Celular and St. Petersburg Telecom. The Company has completed a field trial with AirTouch and is currently conducting a field trial with Southwestco. INDUSTRY BACKGROUND The worldwide demand for wireless communications services has grown significantly in recent years, largely as a result of technological advancements and economies of scale that have substantially reduced the cost and improved the quality and reliability of wireless services for the business and consumer mass market. In addition, worldwide deregulation of the wireless communications industry and increased government allocation of spectrum have resulted in wider availability of wireless radio frequency and increased competition among existing and new wireless network operators, further reducing cost to the end user and stimulating demand. According to Dataquest, the number of cellular and PCS subscribers increased 45% in 1997, from 134 million to 194 million, and is projected to be approximately 550 million by 2001. The demand for wireless communications services is expected to continue to grow rapidly, as communications technology is driving the evolution of the digital information age. The convergence of data communications, telephony and wireless communications is straining public and private networks worldwide and requiring the development of new technologies in order to enable the rate of change to continue. Devices with wireless access such as mobile phones and palm computers and the combination of wireless and internet protocol-based LAN infrastructure may enable mobile customers to access services such as web initiated telephony, unified messaging and advanced conferencing. The need for mobile communications ubiquity places a significant strain on wireless service providers given the fixed amount of radio frequency spectrum or wireless bandwidth available to deliver wireless services. Unlike traditional data and telephony communications bandwidth, which is a physical medium, wireless spectrum is an invisible medium and is generally allocated in fixed amounts by governments in U.S. and foreign markets. Traditional methods used in data and telephony networks for increasing available bandwidth through the adoption of new technologies, such as frame or cell based switching or dense wave division multiplexing, generally do not apply in wireless networks. Thus, the fundamental challenge for wireless network operators is to increase capacity, coverage and call quality within a fixed amount of wireless spectrum. 32 To address capacity, coverage and call quality issues, wireless operators have begun to deploy more spectrum-efficient digital technologies such as CDMA, GSM and TDMA since the late 1980s. However, because analog and digital cellular networks share the same fixed amount of spectrum, cellular network operators must remove analog channels to implement digital technology. To install one CDMA carrier into a network, an operator must clear 15 percent of its existing analog spectrum. Removal of analog spectrum creates additional capacity constraints within an existing analog network that is already nearing capacity limits from the growing demand for analog minutes of use. As digital traffic grows within analog systems, additional digital carriers must be added, requiring more analog channels to be cleared. According to the Cahners In-Stat Group, clearing analog spectrum to accommodate digital growth is expected to continue for the next five to seven years as demand for digital capacity increases. The need to provide analog cellular service to increasing numbers of subscribers while simultaneously clearing fixed spectrum for digital deployment creates numerous challenges for cellular network operators. Traditionally, operators of 800 MHz cellular networks addressed capacity, coverage and call quality problems by building new cell sites. According to the Cellular Telecommunication Industry Association ("CTIA"), wireless network operators added approximately 21,000 new cell sites worldwide in 1997. However, constructing a new site, including land, building and equipment, can cost up to $1,000,000, and technical factors such as frequency reuse limitations diminish the marginal benefits of adding cell sites to networks. For example, building cell sites closer together increases interference and noise in the network, which reduces capacity and call quality, exacerbating the very problems the additional cell sites are intended to resolve. Cellular network operators also face significant community resistance arising from environmental concerns and aesthetic objections to the appearance of cell site towers. In addition to building more cell sites, cellular network operators have adopted variations on antenna design. Traditionally, operators used omni- directional (360(degrees)) antennas, which receive and transmit in all directions around a cell site. This has the advantage of making all radio channels available to any cellular caller, but has the disadvantage of being susceptible to interference from all directions. In areas where interference is a problem, cellular network operators have often installed sectorized antennas, usually consisting of a suite of three antennas, each covering a different 120(degrees) sector around a cell site. While sectorized antennas reject signals from outside their sector, decreasing the overall level of interference within a cell site, they can also reduce cell site capacity because each radio channel is permanently allocated to a specific sector, and therefore cannot be reused to cover other sectors. The growing demand for wireless services and the difficulties encountered by cellular network operators in building additional cell sites and implementing digital technologies contribute to the need for a cost-effective solution to capacity, coverage and call quality problems. Cellular network operators need solutions that work within the framework of intense wireless service competition and reduced capital budgets. As they seek to provide ubiquitous wireless service and support increased subscriber demand, cellular network operators must address the fundamental challenge of achieving maximum capacity from finite spectrum resources. Metawave believes that the growing demand for wireless services as well as the set of technological problems and economic constraints imposed by finite spectrum resources presents an attractive market opportunity for providers of spectrum management solutions. THE METAWAVE SOLUTION Metawave's spectrum management solutions, consisting of smart antenna systems, applications software and engineering services, enable cellular network operators to increase overall network capacity, reduce network operation costs, better manage network infrastructure and stimulate end user demand through improved system quality. The Company's initial spectrum management platform, the SpotLight 2000 system, is a multibeam smart antenna technology that is compatible with the Motorola HDII and Lucent Series II base stations and AMPS and CDMA air interface protocols. The SpotLight 2000 system divides the cell site coverage pattern into 12 fixed beams and incorporates electronics and software to 33 create the optimum signal for each radio in the cell site. The Company's spectrum management solutions provide cellular network operators with the following benefits: Cost-Effective Capacity Expansion. The SpotLight 2000 system enables cellular network operators to increase the capacity of their networks without the increased network complexity and expenses associated with new cell site development. The SpotLight 2000 system integrates narrow-beam antennas with RF signal-processing hardware and beam-switching algorithms to provide stronger signal reception and reduced interference. This enables cellular network operators to more efficiently allocate radio frequencies and thereby increase network capacity. The SpotLight 2000 system can be installed in a single cell site or in multiple sites in a network. The system can be used to increase analog capacity only or can be deployed in a dual-mode configuration to simultaneously increase both analog and CDMA capacity. Based on field trials, the Company estimates that the SpotLight 2000 system, when installed in a network of cell sites, can improve analog capacity by as much as 100% and, when used in a dual-mode system, can improve CDMA capacity by up to 40%. Efficient Conversion to Digital Network Capability. The SpotLight 2000 system enables cellular network operators to use existing cell site infrastructure to support current traffic levels with less of their allocated spectrum and fewer channels. As a result, the SpotLight 2000 system facilitates the transition from frequency-intensive analog service to more spectrum-efficient digital service. Operators can use the SpotLight 2000 system to clear spectrum for the first and each subsequent CDMA carrier while maintaining analog capacity and service quality. Improved Network Performance. By providing a stronger signal and by reducing interference, the SpotLight 2000 system can improve coverage in certain portions of a cell site's geographic footprint, such as the interior of buildings, where coverage is often insufficient. This stronger signal and reduced interference can improve network quality. In addition, the SpotLight 2000 system provides RF engineers with the ability to measure and report performance statistics in 30(degrees) increments around the cell site. Using this data, engineers can better isolate specific network performance metrics and determine optimum sector configurations. STRATEGY The Company's objective is to be a leading provider of spectrum management solutions to the worldwide wireless communications market. The Company's strategy to achieve this objective incorporates the following key elements: Provide Solutions to High-Growth Wireless Communications Markets. The Company seeks to identify rapidly growing wireless markets and to develop highly integrated solutions to spectrum management problems in those markets. The Company designed the SpotLight 2000 system initially for use in AMPS cellular networks. In order to address the capacity and system quality problems facing AMPS operators implementing CDMA digital technologies, the Company has leveraged the SpotLight 2000 system technology to develop a dual- mode solution that incorporates CDMA and AMPS protocols. In addition, the Company has recently accelerated its engineering and market development activities aimed at the GSM market. The Company intends to explore other high- growth markets such as PCS, TDMA and WLL and, if appropriate, to develop similar solutions for such markets. There can be no assurance, however, that the Company will successfully develop and commercialize products for these markets. Build and Expand Strategic Customer Relationships. Metawave is dedicated to serving those cellular network operators which the Company believes are most likely to adopt and promote the Company's solution across their networks. The Company uses a direct sales model and has established significant field engineering expertise that enables the Company to install and optimize its equipment within customers' cell sites. The Company's system engineers work closely with the Company's direct sales personnel and customers to ensure that the Company's product performance is optimized for each 34 operator's network. In addition, the Company has developed expertise in assisting cellular network operators in planning and improving overall network performance. Leverage Proprietary Core Technology. The Company seeks to continue to build its core technology, which includes eight issued and 25 pending patents, and to invest substantial resources in technology research and product development. The Company has leveraged its core technology and expanded its customer base by modifying its SpotLight 2000 system for use with the Lucent Series II base station in addition to the Motorola HDII base station for which it was initially developed. The Company is currently modifying the SpotLight 2000 system to interface with equipment made by other manufacturers, such as the Motorola SC2450 and SC9600 base stations, and intends to expand into new technology markets by developing spectrum management solutions for the GSM, PCS, TDMA and WLL markets, as appropriate. There can be no assurance, however, that the Company will successfully develop and commercialize products for these additional markets. To facilitate the adoption and deployment of the Company's spectrum management solutions, the Company intends to develop stand- alone products and applications that are readily installed in existing or new cell sites. The Company may establish strategic relationships both to develop new technologies and to expand into new markets. Focus on Highly Integrated System Solutions. The Company seeks to offer system level products that enhance the performance of cellular network operators' base station equipment. The Company will provide highly integrated solutions that include pre-sales system planning, products configurable to specific base station requirements and on-site installation and optimization services to ensure a high level of system performance. The Company's highly integrated system approach differentiates it from the component level product offerings currently available in the market. MARKETS Today's wireless communications industry is characterized by several protocols that divide the industry into broad markets. Currently, networks based on the AMPS and GSM protocols have the greatest number of subscribers and, correspondingly, the largest number of cell sites. The Company expects digital technologies to grow rapidly and account for increased levels of infrastructure spending. Many analog cellular network operators are migrating their analog networks to digital to increase capacity and improve their competitive position relative to emerging PCS providers. Regardless of the protocol adopted or the frequency band used, the Company believes wireless network operators worldwide will need to address capacity, coverage or call quality issues. Analog Cellular Market. The analog cellular market consists of operators that provide cellular service within the 800 MHz and 900 MHz frequency bands using analog technology. The predominant analog protocol is AMPS, which according to the Strategis Group serves 71.0% of total analog subscribers worldwide. In areas of the world where digital technology has not yet been introduced, AMPS networks are growing to serve continued subscriber demand. In areas where deployment of digital service is underway or planned, maintaining analog capacity, coverage and call quality during this transition is essential. In addition to currently serving the majority of subscribers and minutes of use in North America, AMPS technology will also serve digital customers in cases where they roam to other networks, in areas where digital service is not yet in place and in circumstances where digital capacity is not sufficient to carry the level of traffic. AMPS cellular phones also remain significantly less expensive than digital and dual-mode phones. For these reasons, the Company believes the migration to digital service will be an extended process. Moreover, the Company believes that cellular network operators may be reluctant to allow AMPS service quality to deteriorate during this process due to the presence of significant competition from other cellular and emerging PCS operators. The Company's SpotLight 2000 system enables cellular network operators to provide enhanced capacity, coverage and call quality to facilitate this transition to digital service. 35 CDMA Digital Cellular Market. The CDMA digital cellular market consists of operators overlaying CDMA technology onto existing AMPS technology in the 800 MHz frequency band. To deploy a single CDMA carrier, cellular network operators must clear a portion of spectrum (approximately 15% in North and South America) that was previously utilized for AMPS service. This involves taking analog channels off the air, exacerbating capacity shortages and deteriorating network quality. The Company believes that approximately half of the cellular networks in North America are ultimately expected to migrate to CDMA technology as are many cellular network operators in South America. Cellular network operators must separately optimize the CDMA portion of their network in order to achieve the necessary capacity and performance. The Company's SpotLight 2000 system provides additional analog capacity facilitating spectrum clearing without adversely affecting capacity or network quality. The SpotLight 2000 system also provides additional CDMA capacity to manage the transition from analog-only networks to dual-mode networks. GSM Market. The GSM market consists of networks that operate at 900 MHz and 1800 MHz. GSM was the first widely implemented digital technology and is deployed in 111 countries, predominantly in Europe and Asia. As the most widely deployed digital technology, GSM served 48.5 million subscribers at the end of 1997, according to the Strategis Group, and Allied Business Intelligence estimates that GSM will account for over 50% of worldwide wireless subscribers by 2000. GSM is not as spectrally efficient as other digital technologies. Consequently, GSM networks are beginning to experience capacity constraints, particularly in heavily subscribed areas. The Company believes that these capacity shortfalls will become more common. The Company is currently developing a GSM product that is intended to provide cost- effective spectrum management solutions for GSM network operators. The product is currently in the engineering prototype stage. TDMA Market. The TDMA digital cellular market consists of operators overlaying TDMA technology onto existing AMPS technology in the 800 MHz frequency band. The TDMA market represented approximately 50% of the North American digital cellular market, as well as a significant portion of the South American market at the end of 1997, according to the Strategis Group. TDMA operates on analog channels, and therefore can reduce analog capacity. As subscriber growth continues on these networks, the capacity gains of TDMA may not be sufficient to accommodate subscriber growth. Although the Company currently has no TDMA solution under development, the Company believes that its technology is applicable to the issues facing TDMA operators. The Company continues to evaluate the economic viability of a TDMA solution and may in the future undertake product development for TDMA. PCS Market. In 1995 and 1996, the U.S. government auctioned new licenses at frequencies of 1900 MHz, known as PCS. These licenses represent 120 MHz of new spectrum compared to 50 MHz of spectrum held by the existing cellular network operators. In doing so, the government opened up each wireless market to new competitors. These new PCS operators represent a significant competitive threat to cellular network operators. Since entering the market in 1997, deployed PCS networks currently provide coverage to geographic regions covering approximately 75% of the U.S. population and, according to The Yankee Group, PCS accounted for 20% of all new wireless accounts in the United States in 1997. PCS operators deploy digital networks, using CDMA, TDMA or GSM technology, which offer enhanced services, better security and more capacity than analog networks. In addition, customer churn has intensified as a result of new consumer choices. As these networks grow, it is expected that they will experience capacity and optimization issues similar to cellular networks. The Company continues to evaluate potential spectrum management solutions for PCS. 36 The following table presents a summary of the principal wireless protocols, geographic markets and estimated subscribers as of December 31, 1997. The Company's products currently are compatible only with AMPS and CDMA wireless products.
PREDOMINANT GEOGRAPHIC ESTIMATED SUBSCRIBERS MARKET PROTOCOL REGIONS WORLDWIDE, 1997(2) Analog Cellular AMPS (Advanced Mobile North America 68,421,482 Phone Services)(1) Latin America Asia ------------------------------------------------------------------- TACS/ETACS (Total Access Europe 21,366,610 Communications System) Asia ------------------------------------------------------------------- NMT (Nordic Mobile Europe 4,933,956 Telephone) Asia - --------------------------------------------------------------------------------- Digital Cellular CDMA (Code Division North America 3,963,162 Multiple Access)(1) Latin America Asia ------------------------------------------------------------------- TDMA (Time Division North America 6,721,635 Multiple Access) Latin America Asia ------------------------------------------------------------------- GSM (Global System for Europe 48,495,238 Mobile Asia Communications)(3) ------------------------------------------------------------------- PDC (Pacific Digital Japan 21,959,350 Cellular) - --------------------------------------------------------------------------------- PCS/Other PCN/DCS-1800 (Digital Europe 5,065,119 Communications System) Asia ------------------------------------------------------------------- PCS 1900 North America 1,319,138 ------------------------------------------------------------------- TDMA (1.9 GHz) North America 834,141 ------------------------------------------------------------------- CDMA (1.9 GHz) North America 2,197,355 Asia ------------------------------------------------------------------- PHS (Personal Handyphone Asia 8,161,656 System) - ---------------------------------------------------------------------------------
(1) Indicates markets the Company's products currently address. (2) As reported by the Strategis Group, 1997. (3) The Company is currently developing a GSM engineering prototype. There can be no assurance, however, that the Company will successfully develop a product that addresses the needs of the GSM market or the other markets that it does not currently address. See "Risk Factors--Rapid Technological Change and Requirement for Frequent New Product Introductions." METAWAVE PRODUCTS The Company has developed spectrum management solutions, consisting of smart antenna systems, applications software and engineering services, that enable cellular network operators to increase overall network capacity, reduce network operation costs, better manage network infrastructure and stimulate end user demand through improved system quality. The Company's initial spectrum management platform, the SpotLight 2000 system, is a multibeam smart antenna technology that interfaces with Motorola HDII and Lucent Series II base stations and is compatible with AMPS and CDMA air interface protocols. Metawave's proprietary spectrum management solutions enable the transition from traditional wireless network infrastructure designs to an architecture which actively optimizes finite spectrum or 37 wireless bandwidth, thereby enhancing the performance and increasing overall network capacity of the cellular operator's network. The architecture, shown in the figure below, adds smart antenna performance to the cellular operator's network. [GRAPHIC APPEARS HERE] SpotLight Platform. The Company's SpotLight 2000 smart antenna system was initially designed for use in AMPS networks and was first shipped for commercial sale in November 1997. The second generation SpotLight 2000 system was designed as a dual-mode system and is currently in field trials. The SpotLight 2000 system divides cell site antennas into 12 beams and incorporates electronics and software to optimize the signal for each radio in the cell site, resulting in increased network capacity and improved call quality. Designed for 800 MHz networks, the SpotLight 2000 system currently provides solutions for AMPS networks or dual-mode AMPS and CDMA networks. Based on field trials, the Company estimates that the SpotLight 2000 system, when installed in a network of cell sites, can improve analog capacity by as much as 100% and, when used in a dual-mode system, can improve CDMA capacity by up to 40% without increasing the number of cell sites. Accordingly, the SpotLight 2000 system is a cost-effective tool for clearing spectrum of analog use to accommodate the transition of networks to digital service. Capacity is increased by allowing for tighter re-use of frequency or by obtaining increased trunking efficiency or a combination of both. The Spotlight 2000 system interfaces with base stations by coupling directly to the I/O ports of base station radios and by processing transmit and receive signals through its smart antenna spectrum management system. The Company provides all necessary hardware and software to process, transmit and receive signals, including Spectrum Management Units ("SMUs"), linear power amplifiers, filters and other equipment, including base station antennas. 38 As the SpotLight 2000 system reduces interference in a network through implementation of smart antennas, more channels can be added to each cell site because frequencies can be reused more times over a given area, thereby increasing network capacity. In areas where interference is a problem, cellular network operators have often installed sectorized antennas, usually consisting of a suite of three antennas, each covering a 120(degrees) sector around a cell site. Sectorization reduces the amount of interference received by a given cell site radio. The SpotLight 2000 system's 12 beam smart antenna has four times the interference rejection potential of a three-sector antenna. As shown in the figure below, the 12 beam antenna rejects potential signal interference that is outside the caller's narrow 30(degrees) beam, reducing network interference. This enables a cellular network operator to reuse the same frequencies more often over a given service area, thereby adding more channels to each cell site. INTERFERENCE ISOLATION [GRAPHIC APPEARS HERE] Trunking efficiency represents a statistical measure of the call carrying capacity of a set of channels. Trunking efficiency is increased whenever a greater number of channels is made available for use by a group of subscribers at a given location and time. Conventional three-sector antennas tend to reduce capacity because they restrict the callers in any given sector to the cell site radio channels assigned to that sector. In contrast, the SpotLight 2000 system's SMU's permit any caller in any beam to be assigned to any cell site radio, thereby increasing the trunking efficiency and the cell site's capacity. The primary interface between the SpotLight 2000 system and the cell site is the set of RF connections between the transmit and receive terminals on cell site radios and the SpotLight 2000 system's SMUs, which contain the core of SpotLight's smart antenna capability. While any call is active, the SMUs continuously measure call quality and make adjustments in beam assignment to maintain the best possible call quality. Through the SpotLight 2000 system, cellular network operators deploying dual-mode smart antenna systems can use a single set of antennas for both their analog and CDMA networks, and can optimize each network's performance independently. The SpotLight 2000 system also increases CDMA capacity because it allows operators to manage and distribute traffic loading more effectively. The geographic distribution of traffic loading across a CDMA network or within a single cell varies considerably. In a typical three-sector cell, the traffic density in the most heavily loaded sector is often significantly higher than the least-loaded sector. As a result, some cells may have sectors that are fully loaded with cellular traffic while other sectors of the same cell are well below peak loading and have spare capacity. On a network scale, high cellular traffic areas, such as highway interchanges, urban centers and shopping centers, can become "hot spots" that strain network capacity even as network resources go unused in low cellular traffic areas. This variability in traffic density creates network inefficiencies and lower network capacity, particularly in CDMA networks. To address traffic loading, the SpotLight 2000 system controls the transmission and reception of CDMA radio signals by base stations through a process called sector synthesis. The SpotLight 2000 system 39 adapts the sector coverage of the base stations' CDMA radios to the local traffic patterns around cell sites. The system's phased-array antenna makes it possible to create custom sector antenna patterns of varying degrees though an embedded software-driven process. Optimization of the SpotLight 2000 system for CDMA requires information about the CDMA signals on the network, which the CDMA equipment within the system gathers through the antennas. Sector synthesis occurs through software algorithms, which can be modified remotely to respond to changing local traffic patterns in real time. Through sector synthesis, cellular network operators also optimize their CDMA networks with increased flexibility and precision, enhancing network capacity and performance in response to changing traffic patterns as well as local terrain and variable RF conditions, as illustrated in the following diagram. SECTOR SYNTHESIS [GRAPHIC APPEARS HERE] Other Spectrum Management Products. The SpotLight 2000 system can be administered and monitored locally or remotely through LampLighter, SpotLight 2000's system configuration product. LampLighter, a Windows-based software tool, configures the SpotLight 2000 system for optimal cell site performance. In addition, LampLighter allows real time monitoring of system performance through graphical displays and log files. In addition to the configuration capabilities of LampLighter, the Company offers networked access to the SpotLight 2000 system configuration with its SiteNet software product. SiteNet also provides a means for centralized collection and analysis of RF performance statistics in analog and CDMA networks. Cellular network operators can use the networked configuration capability, as well as networked RF performance statistics, to attain remote control of antenna operations across a network of SpotLight 2000 systems. CORE TECHNOLOGY The Company believes that one of its key competitive advantages is its investment and expertise in the core technologies that enable efficient spectrum management of wireless communications networks. Spectrum management encompasses a number of technical components, including advanced antenna concepts, radiowave propagation models, network performance monitoring tools, common air interface knowledge and communications systems hardware implementations. These core competencies, when applied in combination, allow cellular network operators to optimize capacity, coverage and quality across their networks. The Company has developed, and continues to expand upon, the following four fundamental technical elements: Phased-Array Antenna Systems. The Company has 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. The 40 Company has designed antennas to synthesize multiple narrow fixed-beams, which can be used to track individual users within a cell site. In addition, the Company has 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 protocol independent, and as such can be applied to analog, TDMA and CDMA and other wireless networks. The phased-array technology is extendible to as many as 128 simultaneous narrow fixed-beams for high density applications or high bit rate services. Phased-array antenna technology has potential applications in ground-based mobile radio (cellular, PCS, enhanced specialized mobile radio ("SMR")), two-way paging, local multipoint distribution service ("LMDS") as well as in emerging satellite- based wireless services. Multibeam Hardware Architectures. The Company has 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. The Company has designed compact high-density RF switch matrices for use in fast beam- switching applications. The Company's beam-switching technology is modular, reliable and readily adaptable to both TDMA and analog protocols, where rapid beam switching is required. The Company holds proprietary technology for the implementation of modular, scalable architectures that support beam-switching and beam-forming. The Company has developed proprietary hardware techniques for feeding and calibrating phased-arrays integrated into existing cell site configurations. To monitor the radio environment, the Company has developed high-speed, frequency-agile scanning receivers designed to accurately operate over various channel bandwidths. The Company's controlled impedance circuit board designs implement low-loss routing of hundreds of microwave signal paths while maintaining low voltage standing wave ratio ("VSWR") and minimal crosstalk. Additionally, the Company has patents related to architectures to implement beam-switching for the CDMA protocol. The Company's spatial technology allows the simultaneous operation of multiple protocols (for example AMPS/CDMA or AMPS/TDMA) through the same physical antenna structure, while maintaining independent optimization of the performance for each protocol. Real-Time Network Control Algorithms. The Company has developed algorithms to control beam switching hardware based upon extensive drive testing, data gathering, statistical analysis and propagation modeling in complex, 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. The Company has patents related to cellular beam spectrum management and forward-looking interference cancellation technology. In addition, the Company has developed expertise in the optimization of cellular network performance for AMPS/NAMPS and CDMA protocols. Such expertise allows network control algorithms to be customized based on the specific protocol and network deployment scenario. The Company has also developed internal software tools for performance modeling cellular networks. These proprietary tools allow evaluation of new algorithms for spectrum management on mixed analog and digital cellular networks. Adaptive Beam-Forming Techniques. The Company designs and builds antenna systems with a broad range of standard and custom beam types and shapes using adaptive beam-forming technology. With respect to CDMA, the Company's system makes use of the phased-array antenna to create custom sector antenna patterns through an embedded software-driven process known as sector synthesis. Under software control, independent selection of sector azimuth pointing angles, beamwidths and per-beam gains can provide flexibility to fine-tune network performance. With sector synthesis, cellular network operators can create completely different sector mappings for AMPS and CDMA, thus allowing independent network optimization while sharing the cell site's equipment, including antennas. 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. 41 CUSTOMERS Metawave works closely with its customers to establish long-term relationships and to provide opportunities to expand the delivery of its spectrum management solutions to these customers. Since 1996, the Company has conducted field trials with a number of cellular network operators to test its technology and to demonstrate the SpotLight 2000 system's capability to these customers. These trials are an essential element in the Company's sales cycle. Late in the fourth quarter of 1997, the Company began commercial shipment of the Motorola HD-II analog-only version of its SpotLight 2000 system. In early 1998, the Company began a field trial to demonstrate the capability of its SpotLight 2000 Lucent Series II system for both analog and CDMA, which was completed in July 1998. The following table sets forth a list of companies that have purchased or are evaluating the purchase of the SpotLight 2000 system as of October 1, 1998.
CUSTOMER OR PROSPECTIVE CUSTOMER LOCATION SALES STATUS ALLTEL(1) Augusta, Georgia Commercial Sale Columbia, South Carolina Commercial Sale Savannah, Georgia Commercial Sale Springfield, Missouri Commercial Sale --------------------------------------------------- 360(degrees) Communications(1) Ft. Walton, Florida Commercial Sale --------------------------------------------------- GTE Fremont, California Commercial Sale(2) --------------------------------------------------- Millicom--Telefonica Paraguay Commercial Sale Celular --------------------------------------------------- Millicom--St. Petersburg Telecom St. Petersburg, Russia Commercial Sale --------------------------------------------------- AirTouch San Diego, California Field Trial Completed 1997 --------------------------------------------------- Southwestco Phoenix, Arizona Field Trial in Process - -------------------------------------------------------------------------------
(1) On July 1, 1998, ALLTEL completed the acquisition of 360(degrees) Communications. (2) These sales are conditional upon the achievement of certain performance criteria set forth in the sales contracts. There can be no assurance that the performance criteria will be met. No revenue is recognized by the Company until all customer acceptance conditions have been met. There can be no assurance that successful completion of a given field trial will result in a system sale. The sale of the Company's products is subject to numerous risks and uncertainties. In order for its products to achieve market acceptance, the Company must demonstrate to cellular network operators that the products provide a spectrum management solution that addresses the cellular network operators' challenges of capacity, coverage and call quality in a cost-effective manner. The Company must demonstrate product performance to a cellular network operator based on such operator's needs and specifications and the difficulty in optimizing the Company's product in any given cell site varies greatly depending on such operator's specifications and the geographical terrain. Typically, performance of the Company's product must be accepted in an initial cell site or cluster of cell sites prior to completing any additional sales to such cellular network operator. If the Company's products are not accepted by cellular network operators in a timely manner, or at all, the Company's business and operating results will be materially adversely affected. See "Risk Factors--Uncertainty of Market Acceptance; Lengthy Sales Cycle," "--Dependence on Cellular Network Operator Capital Spending" and "--Competition." During the six months ended June 30, 1998, sales to St. Petersburg Telecom, Telefonica Celular and ALLTEL accounted for 95.7% of net revenue. Sales to these three customers are expected to continue to account for a substantial majority of sales through the remainder of fiscal 1998. The loss of any of these customers, or a significant loss, reduction or rescheduling of orders from any of these customers, could have a material adverse effect on the Company's business and operating results. See "Risk Factors--Significant Customer Concentration" and "--Dependence on Growth of Cellular Communications Market." 42 SALES, MARKETING AND CUSTOMER SUPPORT Metawave sells its products through a technical direct sales force supported by systems engineers. Direct sales personnel are assigned on a customer account basis and are responsible for generating product sales, providing product and customer support and soliciting customer feedback for product development. In addition, sales personnel receive support from the Company's marketing organization. The Company's marketing efforts are primarily focused on establishing and developing long-term relationships with potential customers. As is customary in the industry, sales are made through standard purchase orders which can be subject to cancellation, postponement or other types of delays. While certain customers provide the Company with forecasted needs, they are not bound by such forecasts. Historically, the Company has conducted field trials and has been required to satisfy performance conditions prior to the completion of a sale. For these and other reasons, the sales process associated with the purchase of the Company's systems is typically complex, lengthy (up to 18 months or more) and subject to a number of significant risks, including changes in customers' budgets and approval at senior levels of customers' organizations and approval by governmental agencies. See "Risk Factors-- Uncertainty of Market Acceptance; Lengthy Sales Cycle." International sales of the Company's products accounted for 51.4% of net revenue for the six-month period ended June 30, 1998. There were no international sales for the years ended December 31, 1995, 1996 and 1997. Foreign sales of the Company's products may be subject to national security and export regulations and may require the Company to obtain a permit or license. See "Risk Factors--Government Regulation." The Company has not experienced any material difficulty in obtaining required permits or licenses. Installation and operation of the Company's products may also require approval from governmental agencies in these countries. Foreign sales are also subject to risks related to political instability and economic downturns in foreign nations. The Company's foreign customers typically pay for the Company's products with U.S. dollars. As such, a strengthening of the U.S. dollar as compared to a foreign customers' local currency would effectively increase the price of the Company's products for that customer, thereby making the Company's products less attractive to such customers. See "Risk Factors--Risks Associated with International Markets." The Company's customer support organization performs network design, product installation, network optimization, training, consulting and repair and maintenance services to support its SpotLight 2000 system. The Company offers consulting services to optimize the network following the SpotLight 2000 system installation. Optimizing a network requires expertise in RF network design, individual network peculiarities and knowledge of the SpotLight 2000 system capabilities. The Company offers repair and maintenance services. The Company's warranties vary by customer and range from 12 to 18 months. Warranty obligations and other maintenance services for the Company's products are performed at the Company's headquarters in Redmond, Washington. As of June 30, 1998, the Company had approximately $5.0 million of unrecognized revenue for customer sales that are subject to the satisfaction of customer acceptance conditions set forth in the sales agreements related thereto. In addition, the Company's backlog of orders was approximately $802,000 on June 30, 1998, compared to no backlog of orders on June 30, 1997. The Company includes in backlog only customer commitments for which it has received signed purchase orders and scheduled shipment dates within the following six months. The Company intends to increase its manufacturing capacity and believes that backlog will decrease, as a percentage of sales, as the Company becomes able to fill orders on a more timely basis. Moreover, product orders in the Company's 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 scheduling production, backlog as of any particular date may not be a reliable measure of sales for any future period. See "Risk Factors--Significant Fluctuations in Operating Results." Because of the limited size of the Company's customer base and the relatively large dollar amount of customer orders, revenues derived from a small number of customers will likely represent a significant 43 portion of revenue in any given period. A decrease in demand for the Company's systems from any customer for any reason is likely to result in significant periodic fluctuations in revenue. Due to the highly concentrated nature of the cellular industry, the Company believes that the number of potential customers for future products, if any, will be small. Failure by the Company to capture a significant number of the cellular network operators as customers could have a material adverse effect on the Company's business and operating results. See "Risk Factors--Significant Fluctuations in Operating Results," "--Significant Customer Concentration." RESEARCH AND DEVELOPMENT The Company's research and development efforts focus primarily on enhancing the features and functionality, improving the quality and reducing the manufacturing cost of the SpotLight 2000 system. The Company's efforts also focus on using existing product architecture and technology to maintain commonality and minimize time-to-market for new product enhancements and technology platforms. The Company is investing resources in extending the SpotLight 2000 system to other principal manufacturers' base station equipment both in the United States and abroad. The Company is also investing resources in the development of a spectrum management platform for GSM and in early- stage research regarding CDMA for PCS and TDMA. Research and development expenses were approximately $883,000, $7.2 million and $13.1 million for the fiscal years ended December 31, 1995, 1996 and 1997, respectively, and $8.0 million for the six months ended June 30, 1998. The Company believes that continued investment in research and development is critical to attaining its strategic objectives and, as a result, expects research and development expenses to increase in absolute dollars for the foreseeable future. As of June 30, 1998, 91 employees were engaged in the Company's research, development and product management efforts. The market for the Company's current product and planned future products is subject to rapid technological change, frequent new product introductions and enhancements, product obsolescence, changes in customer requirements and evolving industry standards. To be competitive, the Company must successfully develop, introduce and sell new products or product enhancements that respond to changing customer requirements on a timely and cost-effective basis. The Company's success in developing new and enhanced products will depend on a variety of factors, many of which are beyond the Company's control. Such factors include the timely and efficient completion of system design; the timely and efficient implementation of assembly, calibration and test processes; sourcing of components; the development and completion of related software; the reliability, cost and quality of new products; the degree of market acceptance; and the development and introduction of competitive products by competitors. The inability of the Company to introduce in a timely manner new products or product enhancements that contribute to sales could have a material adverse effect on the Company's business and operating results. See "Risk Factors--Rapid Technological Change and Requirement for Frequent New Product Introductions." MANUFACTURING The Company relies to a substantial extent on outside suppliers to manufacture many of the components and subassemblies used in the SpotLight 2000 system. The Company's manufacturing operations consist primarily of supplier and commodity management and assembling finished goods from components and subassemblies purchased from such outside suppliers. The Company monitors 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. The Company considers quality, cost and timing of delivery in selecting its component suppliers. Final assembly, system integration and full-configuration testing operations are performed at the Company's headquarters in Redmond, Washington. Certain parts and components used in the Company's products, including linear power amplifiers supplied by Powerwave, are presently only available from a sole source. Certain other parts and 44 components used in the Company's products are available from a limited number of sources. The Company's reliance on these sole source or limited source suppliers involves certain risks and uncertainties, including the possibility of a shortage or discontinuation of certain key components and reduced control over delivery schedules, manufacturing capability, quality and cost. Any reduced availability of such parts or components when required could materially impair the Company's ability to manufacture and deliver its products on a timely basis and result in the cancellation of orders which could have a material adverse effect on the Company's business and operating results. See "Risk Factors--Sole Source Suppliers; Dependence on Key Suppliers." The Company has had only limited experience manufacturing and arranging for the manufacture of its products, and there can be no assurance that the Company or any manufacturer of the Company's products will be successful in increasing its manufacturing volume. The Company may need to procure additional manufacturing facilities and equipment, adopt new inventory controls and procedures, substantially increase its personnel and revise its quality assurance and testing practices, and there can be no assurance that any of these efforts will be successful. In September 1998, the Company received its registration pursuant to the ISO 9001 standard. See "Risk Factors--Limited Manufacturing Experience; No Assurance of Successful Expansion of Operations" and "--Risks Associated with International Markets." COMPETITION The market for spectrum management solutions is relatively new but is expected to become increasingly competitive. The Company's products compete with other smart antenna systems and alternative wireless infrastructure devices such as repeaters, cryogenic filters and tower-top amplifiers. The Company believes that the principal competitive factors are the cost-effective delivery of increased capacity, expanded coverage and improved system quality to cellular network operators. There can be no assurance that the Company will compete favorably with respect to the foregoing factors. The Company believes that base station manufacturers, who provide cellular network capacity through sales of additional base stations, represent a significant competitive threat to the Company. These manufacturers, including Ericsson, Lucent, Motorola, Nokia, Northern Telecom and Siemens, have long-term, established relationships with the cellular network operators. Deployment of the Company's SpotLight 2000 system by cellular network operators can improve base station performance, and therefore may result in fewer sales opportunities for base station manufacturers. Smart antenna technology represents an area of opportunity for such manufacturers. The Company believes that certain of these manufacturers are developing smart antenna systems and are likely to offer smart antenna capabilities in the future. In addition to having more established relationships with cellular network operators, these manufacturers have significantly greater financial, technical, manufacturing, sales, marketing and other resources than the Company and significantly greater name recognition for their existing products and technologies than the Company. The Company's current primary direct competitors for spectrum management solutions are ArrayComm, Inc. and GEC-Marconi Hazeltine Corporation. In addition, Ericsson recently began a commercial trial of a GSM base station which utilizes adaptive antenna technology. Other companies, such as Raytheon E-Systems, Watkins-Johnson Company, Texas Instruments Incorporated and ARGOSystems, Inc. (a subsidiary of the Boeing Company), offer systems that utilize digital signaling processing and interference cancellation techniques to extend cell site coverage and improve call quality. Several companies offer alternative technologies such as cryogenic filters, tower-top low noise amplifiers and repeaters that can be used to provide service in network coverage holes and improve call quality. The Company may also face competition in the future from new market entrants offering competing technologies. The Company believes that its ability to compete in the future will depend in part on a number of competitive factors outside its control, including the development by others of products that are competitive with the Company's products and the price at which others offer comparable products. To 45 be competitive, the Company will need to continue to invest substantial resources in research and development and sales and marketing. There can be no assurance that the Company will have sufficient resources to make such investments or that the Company will be able to make the technological advances necessary to remain competitive. Accordingly, there can be no assurance that the Company will be able to compete successfully in the future. See "Risk Factors--Competition." INTELLECTUAL PROPERTY The Company relies on a combination of patent, trade secret, copyright and trademark protection, nondisclosure agreements and other measures to protect its proprietary rights. The Company currently has ten issued U.S. patents and 23 pending U.S. patent applications. The Company's future success will depend in large part on its ability to obtain patent protection, in the U.S. and other world markets to defend patents once obtained, to maintain trade secrets and to operate without infringing upon the patents and proprietary rights of others. The patent positions of companies in the worldwide wireless communications industry, including the Company, are generally uncertain and involve complex legal and factual questions. There can be no assurance that any issued patents owned by or licensed to the Company will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide competitive advantages to the Company. Further, there can be no assurance that patents will issue from any patent applications or that, if patents do issue, the claims allowed would be sufficiently broad to protect the Company's technology. In addition, there can be no assurance that patents issued in the U.S. will receive corresponding patent coverage in foreign markets or that the Company will pursue similar patent coverage in all foreign markets. Patents and patent applications relating to products used in the worldwide wireless communications industry are numerous and current and potential competitors and other third parties may have filed or may in the future file applications for, or 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 the Company. The Company may not be aware of all patents or patent applications that may materially affect the Company's 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 the Company. The Company expects that it 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 the Company in the future, and such assertions could result in costly litigation or require the Company to obtain a license to intellectual property rights of such parties. There can be no assurance that any such licenses would be available on terms acceptable to the Company, 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 have a material adverse effect on the Company's business and operating results. The Company also relies on unpatented trade secrets to protect its proprietary technology, and there can be no assurance that others will not independently develop or otherwise acquire the same or substantially equivalent technologies or otherwise gain access to the Company's proprietary technology or disclose such technology or that the Company can ultimately protect its rights to such unpatented proprietary technology. Further, third parties may obtain patent rights to such unpatented trade secrets, which patent rights could be used to assert infringement claims against the Company. The Company also relies on confidentiality agreements with its employees, vendors, consultants and customers to protect its proprietary technology. There can be no assurance that these agreements will not be breached, that the Company would have adequate remedies for any breach or that the Company's trade secrets will not otherwise become known to or be independently developed by competitors. Failure to obtain or maintain patent and trade secret protection, for any reason, could have a material adverse effect on the Company's business and operating results. See "Risk Factors--Uncertainty Regarding Protection of Intellectual Property." 46 GOVERNMENT REGULATION Wireless communications are subject to extensive regulation by foreign and U.S. laws and international treaties. The Company's systems must conform to certain international and domestic regulations established to, among other things, avoid interference among users of frequencies. In order for the Company's products to be used, regulatory approval must be obtained. In the United States, the products must be certified by the Federal Communications Commission before sales to customers may commence. Other countries have similar regulations that must be complied with before product sales may commence. This governmental approval process frequently involves substantial delay which could result in the cancellation, postponement or rescheduling of products by the Company's customers, which in turn may have a material adverse effect on the sale of systems by the Company to such customers. The Company believes that its SpotLight 2000 system currently complies with all applicable U.S. and foreign regulations in countries in which its sales are material, but changes in these regulations, the need to comply with regulations in additional countries in the event of sales into those countries, or a failure to obtain necessary approvals or permits in connection with sales to service providers in a country could require the Company to change the features of its SpotLight 2000 system and thereby incur substantial costs and experience delays in system installation or operation. Regulatory bodies frequently promulgate new standards and regulations for wireless communications systems and products. To the extent that the Company's customers are delayed in deploying these cellular systems as a result of such new standards or regulations, the Company could experience delays in orders. These delays could have a material adverse effect on the Company's business and operating results. The regulatory environment in which the Company operates is subject to significant change. Regulatory changes, which are affected by political, economic and technical factors, could significantly affect the Company's operations by restricting network development efforts by the Company's customers or end users, making current systems obsolete or increasing the opportunity for additional competition. Any such regulatory changes could have a material adverse effect on the Company's business and operating results. The Company might deem it necessary or advisable to modify its systems to operate in compliance with such regulations. Such modifications could be expensive and time-consuming. See "Risk Factors--Government Regulation." EMPLOYEES As of June 30, 1998, the Company had 200 employees of which 91 were primarily engaged in research, development and product management, 34 in manufacturing, 43 in sales, marketing and customer support and 32 in general and administration. The Company has no collective bargaining agreement with its employees and the Company has never experienced a work stoppage. The Company believes that its employee relations are good. See "Risk Factors-- Management of Growth; New Management Team" and "--Dependence on Attraction and Retention of Key Personnel." FACILITIES The Company is headquartered in Redmond, Washington, where it leases an aggregate of approximately 96,000 square feet, housing its principal administrative, sales and marketing, customer support and manufacturing facilities. The Company's lease for such facility expires on May 31, 2005 and the Company has an option to renew such lease for two additional five year terms. In addition, the Company has sales and service offices in Dallas, Washington, D.C. and Sao Paulo, Brazil that are subject to short-term leases. 47 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company and their ages as of October 1, 1998 are as follows:
NAME AGE POSITION ---- --- -------- President, Chief Executive Officer and Robert H. Hunsberger..... 52 Director Chief Technical Officer and Chairman of the Douglas O. Reudink....... 59 Board Senior Vice President, Chief Financial Officer Vito E. Palermo.......... 34 and Secretary Victor K. Liang.......... 46 Senior Vice President, GSM Products Group Ray K. Butler............ 40 Vice President of Engineering Martin J. Feuerstein..... 35 Vice President of Advanced Technology Richard Henderson........ 37 Vice President of Sales and Marketing Mark P. Johnson.......... 40 Vice President of Manufacturing Robert N. Shuman......... 37 Vice President of Product Management Bandel L. Carano(1)...... 37 Director Bruce C. Edwards(2)...... 44 Director David R. Hathaway(1)..... 54 Director Scot B. Jarvis(1)........ 37 Director Jennifer Gill Roberts(2). 35 Director David A. Twyver.......... 51 Director
- -------- (1) Member of the Compensation Committee. (2) Member of the Audit Committee. Robert H. Hunsberger has served as President and Chief Executive Officer of Metawave 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 Northern Telecom Inc., a telecommunications company ("Nortel"), 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 graduated from the University of Virginia with a B.S. in Commerce and received an M.B.A. from Arizona State University. Douglas O. Reudink co-founded Metawave in 1995 and has served as Chief Technical Officer of Metawave since its inception and as Chairman of the Board of Directors of Metawave 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 ("US WEST"). From 1986 to 1991, he served as 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 ("AT&T"), in various research and management positions. Dr. Reudink holds more than 30 patents and has published more than 50 technical papers. He is currently a Fellow of the Institute of Electrical and Electronics Engineers. Dr. Reudink graduated from Linfield College with a B.S. in Physics and received a Ph.D. in Mathematics from Oregon State University. Vito E. Palermo has served as Senior Vice President, Chief Financial Officer and Secretary of Metawave since January 1997. From 1992 to 1996, Mr. Palermo served in various positions at Bay Networks, Inc., a networking communications company, most recently serving as Vice President and Corporate Controller and previously serving as Director of Technology Finance, Corporate Financial and Planning Manager, and Manufacturing and Customer Service Controller. From 1986 to 1992, Mr. Palermo held several financial management positions at the Digital Equipment Corporation, a computer hardware and software company. Mr. Palermo graduated from California State University at Chico with a B.S. in Business Administration and received an M.B.A. from St. Mary's College. 48 Victor K. Liang has served as Senior Vice President, GSM Products Group of Metawave since July 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 The People's Republic of China, Siemens Shanghai Mobile Communications and Siemens Shanghai Communication Terminals. From 1995 to 1996, 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 graduated from Chiao Tung University in Taiwan with a B.S. in Electrical Engineering and from the business school of Cheng Chih University with a degree in business administration. Ray K. Butler has served as Vice President of Engineering of Metawave since December 1997 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 graduated from Brigham Young University with a B.S. in Electrical Engineering and received an M.S. in Electrical Engineering from Polytechnic University. Martin J. Feuerstein has served as Vice President of Advanced Technology of Metawave since August 1998 and Director of Research from March 1997 to July 1998. From 1995 to March 1997, Mr. Feuerstein served as Technical Manager at Lucent. From 1992 to 1995, he served as a Senior Member Technical Staff at U S WEST. Mr. Feuerstein graduated from Vanderbilt University with a B.E. in Electrical Engineering and received an M.S. in Electrical Engineering from Northwestern University and a Ph.D. in Electrical Engineering from Virginia Polytechnic Institute. Richard Henderson has served as Vice President of Sales and Marketing of Metawave 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 graduated from Texas A&M University with a B.S. in Industrial Engineering and received an M.B.A. from the University of Dallas. Mark P. Johnson has served as Vice President of Manufacturing of Metawave since 1996 and as Director of Operations from 1995 to 1996. From 1994 to 1995, Mr. Johnson was Director of Manufacturing at NeoPath, Inc., a medical products company. From 1989 to 1994, he served in various management positions at Motorola Inc., a telecommunications company, most recently serving as Operations Manager. From 1980 to 1988, Mr. Johnson held various management positions at Intermec Technologies Corporation, a computer hardware company, most recently serving as Manufacturing Manager. Mr. Johnson graduated from the University of Washington with a B.S. in Mechanical Engineering. Robert N. Shuman has served as Vice President of Product Management of Metawave since December 1997 and Director of Product Management from March 1997 to December 1997. From 1992 to March 1997, Mr. Shuman held various positions at Lucent, most recently serving as Product Team Leader for CDMA. Mr. Shuman graduated from Tufts University with a B.S. in Mechanical Engineering and received an M.S. in Mechanical Engineering from Stanford University. Bandel L. Carano has served as a director of Metawave since 1995. Mr. Carano has been a general partner of Oak Investment Partners, a venture capital firm ("Oak"), since 1987. Mr. Carano currently 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., Polycom, Inc. and PulsePoint Communications, as well as several private companies. Mr. Carano graduated from Stanford University with a B.S. in Electrical Engineering and received an M.S. in Electrical Engineering from Stanford University. Bruce C. Edwards has served as a director of Metawave since May 1998. Mr. Edwards has served as President, Chief Executive Officer and a member of the Board of Directors of Powerwave since 1996. 49 Mr. Edwards was Executive Vice President, Chief Financial Officer and a director of AST Research, Inc., a personal computer company ("AST"), from 1994 to December 1995 and Senior Vice President of Finance and Chief Financial Officer of AST from 1988 to 1994. Mr. Edwards also serves as a member of the Board of Directors of Diamond Multimedia Systems, Inc. and HMT Technology Corporation. Mr. Edwards graduated from Rider University with a B.S. in Commerce and received an M.B.A. from the New York Institute of Technology. David R. Hathaway has served as a director of Metawave since 1995. Mr. Hathaway has been a general partner of the venture capital firms Venrock Associates ("Venrock") and Venrock Associates II, L.P. since 1980 and 1995, respectively. Mr. Hathaway serves as a member of the Board of Directors of several private companies. Mr. Hathaway graduated from Yale University with a B.A. in American Studies. Scot B. Jarvis has served as a director of Metawave 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 Executive Vice President of Nextlink Communications, Inc., a wireless service operator ("Nextlink"). From 1994 to 1996, Mr. Jarvis was Vice President- Operations of Eagle River, Inc., an investment company. From 1985 to 1994, Mr. Jarvis held several management positions at AT&T Wireless Services, Inc., formerly McCaw Cellular Communications Inc., a wireless communications company ("McCaw Cellular"), most recently serving as Vice President of McCaw Development Corporation from 1993 to 1994 and Vice President of McCaw Cellular from 1985 to 1994. Mr. Jarvis serves as a member of the Board of Directors of Nextlink and PulsePoint Communications. Mr. Jarvis graduated from the University of Washington with a B.A. in Business Administration. Jennifer Gill Roberts has served as a director of Metawave since 1995. Ms. Roberts has been a general partner of Sevin Rosen Funds, a venture capital firm ("Sevin Rosen"), since 1994. From 1993 to 1994, she was a senior associate at Technology Venture Investors, a venture capital firm. Ms. Roberts serves as a member of the Board of Directors of several private companies. Ms. Roberts graduated from Stanford University with a B.S. in Electrical Engineering and received an M.S. in Electrical Engineering from the University of Texas and an M.B.A. from Stanford University. David A. Twyver has served as a director of Metawave since May 1998. From 1996 to 1997, Mr. Twyver served as Chief Executive Officer of Teledesic Corporation, a satellite telecommunications company. From 1984 to 1996, Mr. Twyver served in several management positions at Nortel, most recently serving as President of the Wireless Networks division from 1993 to 1996. Mr. Twyver serves as a member of the Board of Directors of Innova Corporation. Mr. Twyver graduated from the University of Saskatchewan with a B.S. in Mathematics and Physics. BOARD COMPOSITION The Company's Bylaws currently provide for a Board of Directors consisting of nine members. All directors hold office until the next annual meeting of stockholders of the Company and until their successors have been duly elected and qualified. The officers of the Company 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 Mr. Edwards and Ms. Roberts. The Audit Committee reviews the results and scope of the audit and other services provided by the Company's independent accountants. The members of the Compensation Committee are Messrs. Carano, Hathaway and Jarvis. The Compensation Committee reviews and approves the compensation and benefits for the Company's executive officers, administers the Company's stock purchase and stock option plans and makes recommendations to the Board of Directors regarding such matters. 50 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 Messrs. Jarvis, Edwards and Twyver who each receive $1,000 for each Board meeting attended and $500 for each committee meeting attended. Directors who are employees of the Company are eligible to participate in the 1995 Stock Option Plan, the 1998 Stock Option Plan and the Purchase Plan. Directors who are not employees of the Company are eligible to participate in the Directors' Plan. See "Stock Plans." COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of Messrs. Carano, Hathaway or Jarvis has at any time been an officer or employee of the Company or any subsidiary of the Company. See "Certain Relationships and Related Transactions" for a description of certain transactions and relationships between the Company and Messrs. Carano, Hathaway and Jarvis and entities affiliated with them. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Company's Certificate of Incorporation limits the liability of directors to the maximum extent permitted by the Delaware General Corporation Law (the "DGCL"). The DGCL 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 (i) for any breach of such director's duty of loyalty to the Company or to its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases or redemptions or (iv) for any transaction from which a director derives an improper personal benefit. The Company's Bylaws provide that the Company shall indemnify its directors and officers and may indemnify its other employees and agents to the fullest extent permitted by law. The Company believes that indemnification under its Bylaws covers at least negligence and gross negligence on the part of an indemnified party. The Company's Bylaws also permit the Company 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 the Company upon an undertaking by such party to repay such advances if it is ultimately determined that such party is not entitled to indemnification, such advancement of expenses is subject to authorization by the Board of Directors in the case of non- executive officers, employees and agents. The Company has entered into separate indemnification agreements with each of its directors and officers. These agreements require the Company, among other things, to indemnify such director or officer against expenses (including attorney's fees), judgments, fines and settlements (collectively, "Liabilities") paid by such individual in connection with any action, suit or proceeding arising out of such individual's status or service as a director or officer of the Company (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 the Company. The Company believes that its Certificate of Incorporation and Bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. The Company also maintains directors' and officers' liability insurance. At present the Company is not aware of any pending litigation or proceeding involving any director, officer, employee or agent of the Company where indemnification will be required or permitted. The Company is not aware of any threatened litigation or proceeding that might result in a claim for such indemnification. 51 EXECUTIVE COMPENSATION The following table sets forth certain compensation awarded to, earned by, or paid to the Company's Chief Executive Officer, the Company's four other most highly compensated executive officers, the Company's former Chief Executive Officer and two other former officers whose total cash compensation exceeded $100,000 during the year ended December 31, 1997 (collectively, the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION ---------------- ----------------------- SECURITIES UNDERLYING ALL OTHER SALARY BONUS OPTIONS COMPENSATION NAME AND PRINCIPAL POSITION ($)(1) ($)(2) (#) ($)(3) --------------------------- -------- ------- ---------- ------------ Robert H. Hunsberger, President and Chief Executive Officer.............. $ 90,751 $54,167 630,000 $ 50,660 Douglas O. Reudink, Chairman and Chief Technology Officer................... 161,545 14,100 -- 2,466 Vito E. Palermo, Senior Vice President and Chief Financial Officer.......... 136,294 15,000 140,000 169,633 Ray K. Butler, Vice President of Engineering.......................... 108,238 6,900 70,000 40,322 Robert N. Shuman, Vice President of Product Management................... 67,649 5,600 70,000 60,129 Thomas Huseby, former Chief Executive Officer(4)........................... 7,431 -- -- 121,807 James J. Daley, former Vice President(4)......................... 107,953 -- -- 137,318 Harold Carey, former Vice President(4)......................... 110,001 32,356 -- 63,026
- -------- (1) Mr. Hunsberger's employment began on July 28, 1997 and his base salary on an annualized basis was $220,000. Mr. Palermo's employment began on January 20, 1997 and his base salary on an annualized basis, at year end, was $160,000. Mr. Butler's employment began on January 27, 1997 and his base salary on an annualized basis, at year-end, was $120,000. Mr. Shuman's employment began on March 31, 1997 and his base salary on an annualized basis, at year-end, was $120,000. (2) Bonus represents the amount earned by the employee in 1997. (3) Consists of relocation and temporary living expenses and life insurance premiums paid by the Company, and with respect to Mr. Huseby and Mr. Daley, includes severance payments of $121,281 and $97,268, respectively. (4) Mr. Huseby resigned as Chief Executive Officer of the Company on January 7, 1997. Mr. Daley resigned from the Company on August 29, 1997. Mr. Carey resigned from the Company on March 17, 1998. 52 The following table shows certain information regarding stock options granted to the Named Executive Officers during the year ended December 31, 1997. No stock appreciation rights were granted to these individuals during the year. OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK NUMBER OF PERCENTAGE OF PRICE SHARES TOTAL OPTIONS APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OPTION TERM(4) OPTIONS EMPLOYEES PRICE PER EXPIRATION ----------------- NAME(1) GRANTED(2) IN 1997(3) SHARE DATE 5% 10% ------- ---------- ------------- --------- ---------- -------- -------- Robert H. Hunsberger.... 630,000 44.3% $0.89 7/28/07 $352,621 $893,611 Vito E. Palermo......... 94,500 6.6% $0.89 1/20/07 52,638 133,396 45,500 3.2% $0.89 5/22/07 25,467 64,539 Ray K. Butler........... 9,800 0.7% $0.89 1/27/07 5,459 13,834 12,600 0.9% $0.89 4/01/07 7,052 17,872 47,600 3.3% $4.80 12/16/07 143,690 364,138 Robert N. Shuman........ 10,500 0.7% $0.89 4/01/07 5,877 14,893 7,000 0.5% $1.71 10/21/07 7,413 19,077 52,500 3.7% $4.80 12/16/07 158,481 401,623
- -------- (1) None of Dr. Reudink and Messrs. Huseby, Daley and Carey received any stock option grants during the year ended December 31, 1997. (2) These stock options, which were granted under the 1995 Stock Option Plan, become vested at a rate of 25% of the total number of shares of Common Stock subject to the option on the first anniversary of the date of grant, and 1/48th of the total number of shares subject to the grant each month thereafter, as long as the optionee remains an employee with, consultant to, or director of the Company. The exercise price per share of each option was equal to the fair market value on the date of grant as determined by the Board of Directors at such time. (3) Based on an aggregate of 1,421,887 options granted by the Company during the year ended December 31, 1997 to employees of the Company, including the Named Executive Officers. (4) The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by the Securities and Exchange Commission and do not represent the Company's estimate or projection of future Common Stock prices. 53 OPTION EXERCISES AND HOLDINGS There were no option exercises by the Named Executive Officers during fiscal year 1997 other than an exercise by Mr. Daley of options to purchase 34,528 shares with a value realized of $41,928. The following table provides certain summary information concerning the shares of Common Stock represented by outstanding stock options held by each of the Named Executive Officers as of December 31, 1997. FISCAL YEAR-END OPTION VALUES
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED IN-THE- OPTIONS AT MONEY OPTIONS AT DECEMBER 31, DECEMBER 31, 1997(2) 1997 ($)(3) ------------ ------------------- NAME(1) VESTED UNVESTED VESTED UNVESTED ------- ------ -------- -------- ---------- Robert H. Hunsberger....................... -- 630,000 -- $8,892,000 Douglas O. Reudink......................... -- -- -- -- Vito E. Palermo............................ -- 140,000 -- $1,976,000 Ray K. Butler.............................. -- 70,000 -- $ 801,680 Robert N. Shuman........................... -- 70,000 -- $ 776,700 Harold Carey............................... 24,905 54,790 $351,511 $ 773,327
- -------- (1) As a result of his separation from the Company, all unexercised options held by Mr. Daley had expired as of December 31, 1997. Mr. Huseby did not hold any options as of December 31, 1997. (2) All options to be granted under the 1998 Stock Option Plan and all options granted after July 15, 1997 under 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 the Company with respect to any unvested shares. Under such agreement, the optionee grants the Company an option to repurchase any unvested shares at their original purchase price in the event the optionee's employment or consulting relationship with the Company is terminated. The Company's right of repurchase lapses as the shares vest in a series of equal monthly or annual installments in accordance with the vesting schedule of the exercised options. (3) Based on an assumed initial public offering price of $15.00 per share, minus the exercise price, multiplied by the number of shares underlying the option. The Company has not granted options to purchase Common Stock to any of the Named Executive Officers in 1998. SEVERANCE ARRANGEMENTS The Company has entered into severance arrangements with Douglas O. Reudink, Chief Technical Officer, Robert H. Hunsberger, President and Chief Executive Officer, Vito E. Palermo, Senior Vice President and Chief Financial Officer, Richard Henderson, Vice President of Sales and Marketing and Victor K. Liang, Senior Vice President, GSM Products Group. On July 7, 1995, in connection with the Series A Preferred Stock financing, the Company entered into an agreement with Dr. Reudink which provides that if the Company were to terminate his employment without cause after July 7, 1996, the Company 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 the Company. On June 27, 1997, in connection with the employment of Mr. Hunsberger, the Company entered into an arrangement with Mr. Hunsberger which provides that if the Company were to terminate his employment without cause, the Company 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. On July 23, 1997, in connection with the employment of Mr. Palermo, the Company entered into an agreement with Mr. Palermo which provides that if the Company were to terminate his employment 54 without cause after January 20, 1998, the Company would be obligated to make a lump-sum payment to Mr. Palermo equal to six months' of his then-current base salary and 50% of his target bonus, if any, for the year in which the termination occurs and to provide benefits for six months following termination. In addition, Mr. Palermo's stock options would continue to vest in accordance with the Company's 1995 Stock Option Plan, as amended from time to time, during the period that Mr. Palermo would receive continued benefits from the Company. Mr. Palermo's voluntary resignation will not constitute termination without cause unless Mr. Palermo were to resign for good reason, in which case the Company would be obligated to make a lump-sum payment to Mr. Palermo equal to nine months' of his then-current base salary and to pay for the reasonable cost of relocating Mr. Palermo back to his primary residence. If the Company were to terminate Mr. Palermo within six months following certain changes in control of the Company, the Company would pay to Mr. Palermo an amount equal to twelve months' of his then-current base salary and 100% of his target bonus for the year in which the change in control transaction occurs. In addition, Mr. Palermo's outstanding unvested stock options would vest during such period in accordance with the Company's stock option plan as in effect at that time. On October 29, 1997, in connection with the employment of Mr. Henderson, the Company entered into an agreement with Mr. Henderson which provides that if the Company were to terminate his employment without cause, the Company 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, the Company entered into an agreement with Mr. Liang that provides that if the Company were to terminate his employment without cause within the first two years of his employment, the Company would be obligated to make a lump-sum payment to Mr. Liang equal to six months' of his then-current base salary. STOCK PLANS 1998 Stock Option Plan and 1995 Third Amended and Restated Stock Option Plan. The 1998 Stock Option Plan (the "1998 Stock Option Plan") was adopted by the Board of Directors in May 1998 and approved by the stockholders of the Company in September 1998. A total of 595,000 shares of Common Stock has been reserved for issuance under the 1998 Stock Option Plan, and, as of September 30, 1998, 531,500 shares remained available for grant under the 1998 Stock Option Plan. 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 Stock Option Plan shall automatically be increased by an amount equal to three percent (3%) of the Company's outstanding Common Stock, up to a maximum of 1,000,000 shares in any calendar year, or such lower amount as determined by the Board of Directors. The 1995 Third Amended and Restated Stock Option Plan (the "1995 Stock Option Plan") was originally adopted by the Board of Directors in August 1995 and was approved by the stockholders of the Company in January 1996. The 1995 Stock Option Plan was amended by the Board of Directors in December 1995, February 1997, July 1997 and May 1998 and such amendments were approved by the stockholders in January 1996, February 1997 and July 1997. A total of 2,905,000 shares of Common Stock has been reserved for issuance under the 1995 Stock Option Plan, and, as of September 30, 1998, 1,266 options remained available for grant under such plan. Both the 1998 Stock Option Plan and the 1995 Stock Option Plan provide for the grant to employees of the Company (including officers and employee directors) of "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and for the grant of nonstatutory stock options to employees, officers, directors (including non-employee directors) and consultants of the Company. To the extent an optionee would have the right in any calendar year to exercise for the first time one or more incentive stock options for shares having an aggregate fair market value (under all plans of the Company and determined for each share as of the date the option to purchase 55 the share was granted) in excess of $100,000, any such excess options shall be treated as nonstatutory options. Both the 1998 Stock Option Plan and the 1995 Stock Option Plan are administered by the Board of Directors or a committee of the Board of Directors (the "Administrator"). The Administrator determines the terms of options granted under the 1998 Stock Option Plan and 1995 Stock Option Plan, including the number of shares subject to the option, exercise price, term and exercisability. The exercise price of all incentive stock options granted under either the 1998 Stock Option Plan or 1995 Stock Option Plan must be at least equal to the fair market value of the Common Stock of the Company on the date of grant. The exercise price of any incentive stock option granted to an optionee who owns stock representing more than 10% of the voting power of the Company's outstanding capital stock (a "10% Stockholder") must be at least equal to 110% of the fair market value of the Common Stock on the date of grant. The exercise price of all nonstatutory stock options cannot be less than 85% of the fair market value of the Common Stock of the Company on the date of grant, except in the case of 10% Stockholders, in which case the exercise price cannot be less than 110% of the fair market value of the Common Stock. Payment of the exercise price, subject to approval by the Administrator, may be made in cash, check, promissory note, delivery of shares of the Company's Common Stock, subject to certain conditions, net exercise of the option, delivery of an irrevocable subscription agreement that obligates the option holder to take and pay for the shares issuable upon exercise not more than 12 months after the date of delivery of the subscription agreement, any combination of the foregoing or other consideration approved by the Administrator. The term of options granted under either the 1998 Stock Option Plan or the 1995 Stock Option Plan may not exceed 10 years; provided, however, that the term of an incentive stock option granted to a 10% stockholder may not exceed five years. An option may not be transferred by the optionee other than by will or the laws of descent or distribution. Each option may be exercised during the lifetime of the optionee only by such optionee or by a permitted transferee. Options granted to each employee under either the 1998 Stock Option Plan or the 1995 Stock Option Plan generally become exercisable at the rate of 25% of the total number of shares subject to the options after the first anniversary following the date of grant, with 1/48th vesting monthly thereafter. The Board of Directors has the authority to amend or terminate both the 1998 Stock Option Plan and the 1995 Stock Option Plan as long as such action does not adversely affect any outstanding option and provided that, to the extent necessary and desirable to comply with Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or Section 422 of the Code, stockholder approval shall be obtained for any amendment to either the 1998 Stock Option Plan or the 1995 Stock Option Plan. If not terminated earlier, the 1998 Stock Option Plan will terminate in 2008 and the 1995 Stock Option Plan will terminate in 2007. With respect to all options granted under the 1998 Stock Option Plan and those options granted on or after February 12, 1997 under the 1995 Stock Option Plan, in the event of certain changes in control of the Company (a "Corporate Transaction"), an optionee is, provided such optionee is employed at the time such Corporate Transaction occurs, entitled to accelerated vesting of one year if such optionee has been employed by the Company less than two years or accelerated vesting of two years if such optionee has been employed by the Company for two years or more as of the date of the Corporate Transaction; provided, however, this acceleration shall not occur if the Administrator determines that the Board, the acquiring person or the surviving corporation, as the case may be, has made equitable and appropriate provision for the assumption of existing options or substitution of new options on terms which are equivalent to the foregone option. The Board has the discretion to authorize the issuance of unvested shares of Common Stock pursuant to the exercise of all stock options granted under the 1998 Stock Option Plan and any stock options granted after July 15, 1997 under the 1995 Stock Option Plan. If the optionee ceases to be employed by or provide services to the Company, all shares of Common Stock issued on exercise of a stock option which are unvested at the time of cessation shall be subject to repurchase by the Company at the exercise 56 price paid for such shares. The terms and conditions upon which the repurchase rights are exercisable by the Company are determined by the Board and set forth in the agreement evidencing such right. The Board has discretionary authority to cancel the Company's outstanding repurchase rights with respect to the shares purchased or purchasable under an option granted pursuant to such plans. In the event of a Corporate Transaction, if vesting of the options accelerates, the repurchase rights of the Company with respect to shares previously acquired on exercise of options granted under such plans shall terminate. 1998 Employee Stock Purchase Plan. The Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors in May 1998 and approved by the stockholders in September 1998. A total of 350,000 shares of Common Stock has been reserved for issuance under the Purchase Plan. The Purchase Plan, which is intended to qualify under Section 423 of the Code, generally will be implemented in a series of offering periods of 12 months duration with new offering periods (other than the first offering period) commencing on or about February 1 and August 1 of each year. Each offering period will consist of two consecutive purchase periods of six months duration, with the last day of each period being designated a purchase date. However, the first such offering period is expected to commence on the date of this offering and continue through July 31, 1999, with the first purchase date occurring on January 31, 1999, and subsequent purchase dates to occur every six months thereafter. The Purchase Plan will be administered by the Board of Directors or by a committee appointed by the Board of Directors. Employees (including officers and employee directors) of the Company, or of any subsidiary designated by the Board of Directors, are eligible to participate if they are employed by the Company or any such subsidiary for at least 20 hours per week and more than five months per year. The Purchase Plan permits eligible employees to purchase Common Stock through payroll deductions, which may not exceed 15% of an employee's compensation, at a price equal to the lower of 85% of the fair market value of the Company's Common Stock at the beginning of the offering period or the purchase date; provided, however, an employee shall not be permitted to purchase more than 1,750 shares of Common Stock in any single purchase period. If the fair market value of the Common Stock on a purchase date is less than the fair market value at the beginning of the offering period, a new 12-month offering period will automatically begin on the first business day following the purchase date with a new fair market value. Employees may end their participation in the offering at any time during the offering period, and an employee's participation ends automatically on termination of employment with the Company. In addition, participants may decrease their level of payroll deductions once during an offering period. The Purchase Plan provides that in the event of a merger of the Company with or into another corporation or a sale of substantially all of the Company's assets, each right to purchase Common Stock under the Purchase Plan will be assumed or an equivalent right substituted by the successor corporation unless the Board of Directors shortens the offering period so that employees' rights to purchase stock under the Purchase Plan are exercised prior to the merger or sale of assets. On the first trading day of each of the five calendar years beginning in 1999 and ending in 2003, the number of authorized shares shall automatically increase by an amount equal to two percent (2%) of the Company's outstanding Common Stock, up to a maximum of 262,500 shares in any calendar year, or such lower amount as determined by the Board of Directors. The Board of Directors has the power to amend or terminate the Purchase Plan as long as such action does not adversely affect any outstanding rights to purchase stock thereunder. If not terminated earlier, the Purchase Plan will have a term of 20 years. 1998 Directors' Stock Option Plan. The 1998 Directors' Stock Option Plan (the "Directors' Plan") was adopted by the Board of Directors in February 1998 and approved by the stockholders on April 20, 1998. A total of 210,000 shares of Common Stock has been reserved for issuance under the Directors' Plan and as of June 30, 1998, 157,500 options remained available for grant under such plan. The Directors' Plan provides for the automatic grant of nonstatutory stock options to nonemployee directors of the Company. The Directors' Plan is designed to work automatically without administration; however, to the extent administration is necessary, it will be performed by the Board of Directors. 57 The Directors' Plan provides that each person who becomes a nonemployee director of the Company after the date of this offering shall be granted a nonstatutory stock option to purchase 17,500 shares of Common Stock (the "First Option") on the date on which the optionee first becomes a nonemployee director of the Company. However, for individuals already serving as nonemployee directors as of the date of this offering, the First Option shall be an option to purchase 12,600 shares of Common Stock, except in the case of Messrs. Jarvis, Edwards and Twyver who were granted options to purchase 17,500 shares of Common Stock on February 12, 1998, May 19, 1998 and May 19, 1998, respectively. Thereafter, on the date of each annual meeting of the Company's stockholders following which a nonemployee director is serving on the Board of Directors, each nonemployee director (including directors who were not granted a First Option prior to the date of such annual meeting) shall be granted an option to purchase 4,900 shares of Common Stock (a "Subsequent Option") if, on such date, he or she has served on the Company's Board of Directors for at least six months. The Directors' Plan sets neither a maximum nor a minimum number of shares for which options may be granted to any one nonemployee director, but does specify the number of shares that may be included in any grant and the method of making a grant. No option granted under the Directors' Plan is transferable by the optionee other than by will or the laws of descent or distribution or pursuant to a qualified domestic relations order, or to a family trust or 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 plays a similar role. Each option is exercisable, during the lifetime of the optionee, only by such optionee or by a permitted transferee. Provided an individual remains a director, the Directors' Plan provides that each First Option and Subsequent Option shall become exercisable in installments cumulatively as to 25% of the total number of shares subject to the Option on the first anniversary of the date of grant of the option and 1/48th of the total number of shares subject to the option each month thereafter. The exercise price of all stock options granted under the Directors' Plan shall be equal to the fair market 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. In the event of a Corporate Transaction, an optionee is, provided such optionee continues to serve as a director until such Corporate Transaction occurs, entitled to accelerated vesting of one year if such optionee has been a director of the Company less than two years or accelerated vesting of two years if such optionee has been a director of the Company for more than two years as of the date of the Corporate Transaction; provided, however, this acceleration shall not occur if the Board of Directors determines that the acquiring person or the surviving corporation, as the case may be, has made equitable and appropriate provision for the assumption or substitution of new options on terms which are equivalent to the foregone option. The Board of Directors may amend or terminate the Directors' Plan; provided, however, that no such action may adversely affect any outstanding option, and the provisions regarding the grant of options under the plan may be amended only once in any six-month period, other than to comport with changes in the Code. If not terminated earlier, the Directors' Plan will have a term of ten years. 401(k) Plan. The Company maintains a 401(k) plan that covers all employees who satisfy certain eligibility requirements relating to minimum age, length of service and hours worked. Under the profit-sharing portion of the plan, the Company may make an annual contribution for the benefit of eligible employees in an amount determined by the Board of Directors. The Company has not made any such contribution to date. Under the 401(k) plan, eligible employees may make pretax elective contributions of up to 15% of their compensation, subject to maximum limits on contributions prescribed by law. 58 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS SALES OF EQUITY SECURITIES Certain stock option grants to directors and executive officers of the Company are described herein under the caption "Management--Executive Compensation." Since July 1995, the Company has issued, in private placement transactions, shares of Preferred Stock as follows: an aggregate of 3,849,998 shares of Series A Preferred Stock at $1.43 per share beginning in July 1995, an aggregate of 1,918,513 shares of Series B Preferred Stock at $4.82 per share in May 1996, an aggregate of 1,744,306 shares of Series C Preferred Stock at $8.80 per share beginning in October 1996 and an aggregate of 1,678,405 shares of Series D Preferred Stock at $11.43 per share in August 1997. Upon completion of this offering, each outstanding share of Series A, Series B, Series C and Series D Preferred Stock will convert into one share of the Company's Common Stock. Listed below are those directors, executive officers and five percent stockholders who have made equity investments in the Company during the last three fiscal years. The Company believes 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 the Company could have obtained from unaffiliated third parties.
SERIES A SERIES B SERIES C SERIES D COMMON PREFERRED PREFERRED PREFERRED PREFERRED AGGREGATE INVESTOR(1) STOCK STOCK STOCK STOCK STOCK CONSIDERATION ----------- --------- --------- --------- --------- --------- ------------- Entities affiliated with Venrock Associates(2).. -- 1,277,032 622,221 227,272 127,953 $ 8,295,652 Entities affiliated with Oak Investment Partners(3)............ -- 1,283,333 622,221 227,272 127,953 $ 8,295,651 Entities affiliated with The Sevin Rosen Funds(4)............... -- 1,283,333 622,220 227,271 127,953 $ 8,295,651 Entities affiliated with Worldview Technology Partners............... -- -- -- 568,179 32,777 $ 5,374,598 Entities affiliated with Bowman Capital Management............. -- -- -- -- 875,000 $10,000,000 Douglas O. Reudink...... 1,155,000 -- -- -- -- $ 16,500 Jennifer Gill Roberts(4)............. -- 3,500 5,185 -- -- $ 30,002
- -------- (1) Shares held by affiliated persons and entities have been aggregated. See "Principal Stockholders." (2) David R. Hathaway, a director, is a general partner of Venrock. (3) Bandel L. Carano, a director, is a general partner of Oak. (4) Jennifer Gill Roberts, a director, is a general partner of the Sevin Rosen. In addition to the equity investment made by entities affiliated with Sevin Rosen, (i) Ms. Roberts purchased 3,500 shares of Series A Preferred Stock and 5,185 shares of Series B Preferred Stock for her own account and (ii) Steven L. Domenik, a general partner of Sevin Rosen, purchased 4,148 shares of Series B Preferred Stock for his own account. Holders of Preferred Stock and certain holders of Common Stock are entitled to certain registration rights with respect to the Common Stock issued or issuable upon conversion of the Preferred Stock. See "Description of Securities--Registration Rights." On May 2, 1997, Thomas S. Huseby, the former Chief Executive Officer of the Company, sold a total of 140,000 shares of Common Stock to entities affiliated with Sevin Rosen, Venrock and Oak at a price per share of $2.86. Sevin Rosen and Venrock each purchased 46,666 shares of Common Stock and Oak purchased 46,668 shares of Common Stock. On May 28, 1997, Douglas O. Reudink, Chairman of the Board and Chief Technical Officer of the Company, sold 38,500 shares of Common Stock to each of Sevin Rosen, Venrock and Oak at a price per share of $2.86. On October 22, 1997, the Company made an unsecured loan of $75,000 to Vito E. Palermo, Senior Vice President and Chief Financial Officer of the Company pursuant to a Promissory Note bearing interest at a rate of 5.50% per annum. Fifty thousand dollars of the principal amount of the loan is to be forgiven 59 over a three-year period provided that Mr. Palermo remains employed with the Company with the remaining balance of $25,000 plus interest due on the earlier of October 22, 2000 or the date his employment terminates. The outstanding indebtedness under the Promissory Note as of October 1, 1998 was $63,236. On October 28, 1997, the Company made a second loan of $162,500 to Mr. Palermo pursuant to a Secured Promissory Note bearing interest at a rate of 5.50% per annum, which is secured by a second deed of trust on his principal residence and a pledge of up to 35,000 shares of Common Stock held by Mr. Palermo. The secured loan is payable in full on October 28, 2002 or earlier based upon certain events specified in the loan agreement. The outstanding indebtedness under the Secured Promissory Note as of October 1, 1998 was $170,262. On January 10, 1998, the Company repurchased 96,443 shares of Common Stock from Mr. Huseby for nominal consideration pursuant to the Company's right of repurchase set forth in a Stock Repurchase Agreement dated July 7, 1995 by and between the Company and Mr. Huseby. The Stock Repurchase Agreement specified that the price per share to be paid by the Company was to be equal to the price per share paid by Mr. Huseby for the shares. The shares repurchased by the Company were subsequently canceled. In addition, the Company caused Mr. Huseby to surrender 70,000 shares of Common Stock in 1996 for no consideration. 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 Mr. Harold Carey, who at the time was the Company's Vice President, Network Services. Mr. Carey resigned from the Company in March 1998 to run AWE on a full time basis. On April 3, 1998, Dr. Reudink sold 21,539 shares of Common Stock at a price of $9.29 per share to Cedar Grove Investment L.L.C., a limited liability corporation which is managed by Mr. Scot Jarvis, a director of the Company. On April 17, 1998, Dr. Reudink sold 14,000 shares of Common Stock at a price of $9.29 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, the Company 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, whose chief executive officer is a director of the Company. On April 28, 1999 and at the end of each 180-day period thereafter until the 13.75% Senior Secured Bridge Notes are repaid in full, the interest rate will increase by 200 basis points up to a maximum of 18.0%. In addition, the Company issued Note Warrants to purchase an aggregate of 376,245 shares of Series D Preferred Stock at a purchase price of $0.01 per share. The Note Warrants expire on April 28, 2000. Pursuant to the terms of the 13.75% Senior Secured Bridge Notes, upon the closing of this offering, the Company is obligated to repay one-half of the aggregate principal amount of the 13.75% Senior Secured Bridge Notes outstanding, together with accrued but unpaid interest thereon. The remaining outstanding 13.75% Senior Secured Bridge Notes are redeemable at the Company's option at any time. On or before the closing of this offering, the Company has the right to redeem all of the 13.75% Senior Secured Bridge Notes and Note Warrants and to repurchase any Series D Preferred Stock issued upon exercise of the Note Warrants for an aggregate redemption and repurchase price of $40,600,000. Powerwave purchased $2,500,000 in aggregate principal amount of the 13.75% Senior Secured Bridge Notes and was issued a Note Warrant to purchase up to an aggregate of 32,435 shares of Series D Preferred Stock at an exercise price of $0.01 per share. Upon the closing of this offering, the Note Warrants will automatically convert into warrants to purchase up to an aggregate of 376,245 shares of the Company's Common Stock at an exercise price of $0.01 per share. Powerwave is currently the Company's sole supplier of linear power amplifiers, a component in the Company's products. From January 1, 1997 to June 30, 1998, the Company purchased a total of $8,015,545 of linear power amplifiers and related components from Powerwave. Pursuant to a manufacturing agreement with Powerwave, 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. 60 PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to beneficial ownership of the Company's Common Stock as of September 30, 1998, and as adjusted to reflect the sale of Common Stock offered hereby, as to (i) each person (or group of affiliated persons) known by the Company to own beneficially more than 5% of the outstanding shares of the Company's Common Stock (a "5% Stockholder"), (ii) each of the Company's directors, (iii) each of the Named Executive Officers, and (iv) all directors and executive officers of the Company as a group.
PERCENT OF SHARES BENEFICIALLY OWNED(1) SHARES ----------------- BENEFICIALLY PRIOR TO AFTER NAME AND ADDRESS OWNED(1) OFFERING OFFERING ---------------- ------------ -------- -------- Oak Investment Partners(2).................... 2,345,944 20.7% 15.8% 525 University Avenue, Suite 1300 Palo Alto, CA 94301-1902 Venrock Associates(3)......................... 2,339,644 20.6% 15.8% 30 Rockefeller Plaza New York, NY 10112-0184 The Sevin Rosen Funds(4)...................... 2,333,106 20.6% 15.7% 550 Lytton Avenue, Suite 200 Palo Alto, CA 94301-1542 Douglas O. Reudink(5)......................... 982,961 8.7% 6.6% Bowman Capital Management(6).................. 889,000 7.8% 6.0% 1875 South Grant Street, Suite 600 San Mateo, CA 94402 Robert H. Hunsberger(7)....................... 630,000 5.3% 4.1% Worldview Technology Partners(8).............. 600,956 5.3% 4.0% 435 Tasso Street, Suite 120 Palo Alto, CA 94301-1546 Thomas Huseby(9).............................. 463,557 4.1% 3.1% Vito E. Palermo(10)........................... 140,000 1.2% * Robert N. Shuman(11).......................... 70,000 * * Ray K. Butler(12)............................. 70,000 * * James J. Daley................................ 34,528 * * Harold Carey.................................. 29,885 * * Bandel L. Carano(2)........................... 2,345,944 20.7% 15.8% Jennifer Gill Roberts(13)..................... 2,341,791 20.6% 15.8% David R. Hathaway(3).......................... 2,339,644 20.6% 15.8% Scot B. Jarvis(14)............................ 39,039 * * Bruce C. Edwards(15).......................... 17,500 * * David A. Twyver(16)........................... 17,500 * * All directors and officers as a group (15 persons)(17)................................. 9,501,879 74.5% 58.5%
- -------- * Less than 1%. (1) Applicable beneficial ownership percentage is based on 11,346,969 shares of Common Stock outstanding prior to this offering and 14,846,969 shares outstanding after this offering, and assuming no exercise of the Underwriters' over-allotment option, together with applicable options and warrants, if any, for such stockholder. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission (the "SEC Rules"). The number of shares beneficially owned by a person includes shares of Common Stock subject to options and warrants, if any, held by that person that are currently exercisable or exercisable within 60 days of September 30, 1998. Such shares issuable pursuant to such options and warrants are deemed outstanding for computing the percentage ownership of the person holding such options but are not deemed outstanding for the purposes of computing the percentage ownership of each other person. A portion of the shares issued or issuable upon exercise of such stock options is subject to repurchase by the Company at the original exercise price in the event of termination of employment, which repurchase right lapses over time. To the Company's knowledge, the persons named in 61 this table have sole voting and investment power with respect to all shares of Common Stock shown as owned by them, subject to community property laws where applicable and except as indicated in the other footnotes to this table. Unless otherwise indicated, the address of each 5% Stockholder is: c/o Metawave Communications Corporation, 10735 Willows Road NE, P.O. Box 97069, Redmond, WA 98073-9769. (2) Includes 2,292,458 shares held by Oak Investment Partners VI, L.P. and 53,486 shares held by Oak VI Affiliates Fund, L.P. Bandel L. Carano, a director, 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. (3) Includes 1,486,778 shares held by Venrock Associates and 852,866 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. (4) Includes 10,653 shares held by Sevin Rosen Bayless Management Co., 1,801,398 shares held by Sevin Rosen Fund IV L.P., 499,695 shares held by Sevin Rosen Fund V L.P. and 21,360 shares held by Sevin Rosen V Affiliates Fund L.P. Jennifer Gill Roberts, a director, 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 such shares, except to the extent of her pecuniary interest in such shares. (5) Includes 10,500 shares held in trust for Matthew Reudink, Dr. Reudink's son. (6) Includes 30,625 shares held by Spinnaker Clipper Fund, L.P., 280,000 shares held by Spinnaker Founders Fund, L.P., 301,875 shares held by Spinnaker Technology Fund, L.P., 262,500 shares held by Spinnaker Technology Offshore Fund Limited and 14,000 shares held by Spinnaker Offshore Founders Fund Ltd. (7) Includes 630,000 shares issuable upon the exercise of immediately exercisable options held by Mr. Hunsberger, 210,000 of which are fully vested within 60 days of September 30, 1998 and 420,000 shares of which remain subject to the Company Repurchase Right. (8) Includes 35,072 shares held by Worldview Strategic Partners I, L.P., 158,702 shares held by Worldview Technology International I, L.P. and 407,182 shares held by Worldview Technology Partners I, L.P. (9) Includes 5,530 shares held by Margaret D. Huseby, spouse of Mr. Huseby, and 22,120 shares held in trust for Katheryn Huseby, Max Huseby, Conor Huseby and Devin Huseby, Mr. Huseby's children. (10) Includes 140,000 shares issuable upon the exercise of outstanding options held by Mr. Palermo, of which 60,374 are exercisable and vested within 60 days of September 30, 1998. In accordance with the SEC Rules, Mr. Palermo is the beneficial owner of 60,374 shares. (11) Includes 2,625 shares owned by Mr. Shuman, and 67,375 shares issuable upon the exercise of outstanding options held by Mr. Shuman, 57,604 of which are immediately exercisable and subject to the Company's right of repurchase, and an additional 3,427 shares of which are vested and exercisable within 60 days of September 30, 1998. In accordance with the SEC Rules, Mr. Shuman is the beneficial owner of 63,656 shares. (12) Includes 70,000 shares issuable upon the exercise of outstanding options held by Mr. Butler, 47,600 of which are immediately exercisable and subject to the Company's right of repurchase and an additional 9,479 of which are vested and exercisable within 60 days of September 30, 1998. In accordance with the SEC Rules, Mr. Butler is the beneficial owner of 57,079 shares. (13) Includes the shares referenced in footnote (4) and 8,685 shares held by Ms. Roberts. Ms. Roberts disclaims beneficial ownership of the shares referenced in footnote (4), except to the extent of her pecuniary interest in such shares. (14) Includes 21,539 shares owned by Cedar Grove Investments, LLC ("Cedar Grove") and 17,500 shares issuable upon the exercise of immediately exercisable options held by Mr. Jarvis within 60 days of September 30, 1998, all of which are subject to the Company's right of repurchase. 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 17,500 shares issuable upon the exercise of immediately exercisable options held by Mr. Edwards within 60 days of September 30, 1998, all of which are subject to the Company's right of repurchase. (16) Includes 17,500 shares issuable upon the exercise of immediately exercisable options held by Mr. Twyver within 60 days of September 30, 1998, all of which are subject to the Company's right of repurchase. (17) Includes (i) shares referred to in footnotes (2), (3), (5), (7) and (10)- (16) and (ii) 47,600 shares owned by four other executive officers and 459,900 shares issuable upon the exercise of outstanding options held by the same four executive officers, 323,146 of which are immediately exercisable and subject to the Company's right of repurchase and an additional 89,730 of which are vested and exercisable within 60 days of September 30, 1998. In accordance with the SEC Rules, such other officers are the beneficial owners of 459,476 shares. 62 DESCRIPTION OF SECURITIES Following the closing of the sale of the shares of Common Stock offered hereby, the authorized capital stock of the Company will consist of 105,000,000 shares of Common Stock, $0.001 par value, and 10,500,000 shares of Preferred Stock, $0.001 par value. COMMON STOCK As of September 30, 1998, there were 11,346,969 shares of Common Stock outstanding that were held of record by approximately 41 stockholders. There will be 14,846,969 shares of Common Stock outstanding (assuming no exercise of outstanding options after September 30, 1998) after giving effect to the sale of the shares of Common Stock offered hereby. 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. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior 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. All outstanding shares of Common Stock are fully paid and non-assessable. PREFERRED STOCK The Board of Directors is authorized to issue up to 10,500,000 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 the Company 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 the Company currently has no plans to issue any shares of Preferred Stock. WARRANTS As of September 30, 1998, the Company has warrants outstanding to purchase an aggregate of 45,791 shares of Series A Preferred Stock, 13,999 shares of Series B Preferred Stock, 23,863 shares of Series C Preferred Stock and 379,307 shares of Series D Preferred Stock. Concurrently with the automatic conversion of the Company's outstanding Preferred Stock on a one-for-one basis into Common Stock upon the closing of this offering, all warrants to purchase Preferred Stock will automatically convert into warrants to purchase Common Stock. In connection with an equipment lease line entered into in December 1995, the Company issued a warrant to purchase up to an aggregate of 34,125 shares of Series A Preferred Stock to Comdisco, Inc. ("Comdisco") at an exercise price of $2.14 per share. The warrant expires on December 13, 2002. In connection with a second equipment lease line entered into in April 1996, the Company issued a warrant to purchase up to an aggregate of 11,666 shares of Series A Preferred Stock to Comdisco at an exercise 63 price of $3.13 per share. The warrant expires on April 9, 2003. In connection with a third equipment lease line entered into in August 1996, the Company issued a warrant to purchase up to an aggregate of 13,999 shares of Series B Preferred Stock to Comdisco at an exercise price of $6.74 per share. The warrant expires on August 20, 2003. In connection with a fourth equipment lease line entered into in June 1997, the Company issued a warrant to purchase up to an aggregate of 23,863 shares of Series C Preferred Stock to Comdisco at an exercise price of $8.80 per share. The warrant expires on June 9, 2004. In connection with the issuance of the 13.75% Senior Secured Bridge Notes in April 1998, the Company issued the holders of the 13.75% Senior Secured Bridge Notes warrants to purchase an aggregate of 376,245 shares of Series D Preferred Stock at an exercise price of $0.01 per share (the "Note Warrants"). The Note Warrants expire on April 28, 2000. In connection with an equipment lease line entered into with Insight Investments Corporation in April 1998, the Company issued a warrant to purchase up to an aggregate of 3,062 shares of Series D Preferred Stock at an exercise price of $11.43 per share. The warrant expires on the closing of this offering. REGISTRATION RIGHTS OF CERTAIN HOLDERS The holders of 10,736,787 shares of Common Stock and the holders of the Note Warrants (collectively, the "Registrable Securities") or certain of their transferees are entitled to certain rights with respect to the registration of such shares under the Securities Act. These rights are provided under the terms of an agreement between the Company 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 the Company use its best efforts to register the Registrable Securities for public resale, provided that the proposed aggregate offering price is at least $7,500,000. If the Company registers any of its Common Stock either for its own account or for the account of other security holders, the holders of Registrable Securities are entitled to include their shares of Common Stock in the registration. The holders of the Note Warrants are also entitled to include shares issuable upon exercise of the Note Warrants 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 the Company 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. ANTI-TAKEOVER PROVISIONS OF DELAWARE AND WASHINGTON LAW AND CHARTER DOCUMENTS The Company is subject to the provisions of Section 203 of the DGCL. 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 the Company without further action by the stockholders. The laws of the State of Washington, where the Company's principal executive offices are located, impose restrictions on certain transactions between certain foreign corporations and significant 64 stockholders. Chapter 23B.19 of the Washington Business Corporation Act (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 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 (i) the corporation has a class of voting stock registered pursuant to Section 12 or 15 of the Exchange Act, (ii) the corporation's principal executive office is located in Washington, and (iii) 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, the Company anticipates this statute will apply to it. Depending upon whether the Company meets 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 the Company. In addition, upon completion of this offering, certain provisions of the Company's 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 the Company, which could have an adverse effect on the market price of the Company's Common Stock. The Company's 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 the Company 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 10,500,000 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 the outstanding voting stock of the Company, thereby delaying, deferring or preventing a change in control of the Company. 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. The Company has no present plan to issue shares of Preferred Stock. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Company's Common Stock is ChaseMellon Shareholder Services L.L.C. LISTING The Company has applied to list its Common Stock on the Nasdaq National Market under the trading symbol "MTWV." 65 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the Company will have outstanding 14,846,969 shares of Common Stock, assuming no exercise of options after September 30, 1998. Of these shares, the 3,500,000 shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act unless purchased by "affiliates" of the Company as that term is defined in Rule 144 of the Securities Act. The remaining 11,346,969 shares outstanding upon completion of this offering will be "restricted securities" as that term is defined under Rule 144 (the "Restricted Shares") 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 directors and executive officers and certain other stockholders of the Company, holding in the aggregate 11,156,477 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 (the "Lockup Period") without the prior written consent of BT Alex. Brown Incorporated or the Company (the "Lockup"). See "Underwriting." 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 the Company or by BT Alex. Brown Incorporated), 142,836 shares in addition to the 3,500,000 shares offered hereby will be eligible for sale in the public market. Beginning 90 days after the effective date of this offering, approximately 46,147 Restricted Shares will be eligible for sale in the public market. Beginning 180 days after the effective date of this offering, approximately 11,150,286 Restricted Shares (as well as an additional 462,960 shares of Common Stock issuable upon exercise of currently outstanding warrants) 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 7,700 shares will be eligible for sale.
SHARES DAYS AFTER DATE ELIGIBLE OF THIS PROSPECTUS FOR SALE COMMENT ------------------ ---------- ------- Upon Effectiveness............... 3,500,000 Shares sold in offering Upon Effectiveness............... 142,836 Freely tradable shares salable under Rule 144(k) that are not subject to the Lockup 91 days.......................... 46,147 Shares salable under Rules 701 and 144 and not subject to the Lockup 181 days......................... 11,150,286 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 "affiliates" of the Company, 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 the Company. In addition, a person who is not deemed to have been an affiliate of the Company at any time during the 90 days preceding a sale, and who has 66 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, the Company intends to register on a registration statement on Form S-8, (i) a total of 2,579,754 shares of Common Stock reserved for issuance under the 1995 Stock Option Plan (assuming no exercise of options after September 30, 1998), (ii) a total of 531,500 shares of Common Stock reserved for issuance under the 1998 Stock Option Plan (assuming no exercise of options after September 30, 1998), (iii) a total of 210,000 shares of Common Stock reserved for issuance under the Directors' Plan (assuming no exercise of options after September 30, 1998), and (iv) a total of 350,000 shares of Common Stock reserved for issuance under the Purchase Plan. Such registration will permit the resale of shares so registered by non-affiliates in the public market without restriction under the Securities Act. Prior to this offering, there has been no public market for securities of the Company. 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 Common Stock of the Company in the public market after the lapse of the restrictions described above could adversely affect the prevailing market price and the ability of the Company to raise equity capital in the future at a time and price which it deems 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 such shares under the Securities Act. Registration of such shares under the Securities Act would result in such shares becoming freely tradable without restriction under the Securities Act (except for shares purchased by affiliates of the Company) immediately upon the effectiveness of such registration. See "Description of Securities--Registration Rights of Certain Holders." 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 the Company's Common Stock. If the Company were to include in a Company initiated registration any Registrable Securities pursuant to the exercise of piggyback registration rights, such sales may have an adverse effect on the Company's ability to raise needed capital. 67 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Underwriters named below, through their representatives, BT Alex. Brown Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated and NationsBanc Montgomery Securities LLC (the "Representatives"), have severally agreed to purchase from the Company the following respective numbers of shares of Common Stock at the initial public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus:
NUMBER OF UNDERWRITER SHARES ----------- --------- BT Alex. Brown Incorporated........................................ Merrill Lynch, Pierce, Fenner & Smith Incorporated.............................................. NationsBanc Montgomery Securities LLC.............................. --------- Total.............................................................. 3,500,000 =========
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will purchase all shares of the Common Stock offered hereby if any such shares are purchased. The Company has been advised by Representatives of the Underwriters that they propose to offer the shares of Common Stock directly to the public at the initial public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the initial public offering of the shares, the offering price and other selling terms may be changed by the Representatives of the Underwriters. The Company has 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 525,000 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 the Company 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 3,500,000 shares are being offered. The offering of the shares is made for delivery when, as and if accepted by the Underwriters and subject to prior sale and to withdrawal, cancellation or modification of the offering without notice. The Underwriters reserve the right to reject an order for the purchase of shares in whole or in part. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments the Underwriters may be required to make in respect thereof. All officers and directors of the Company and certain stockholders have agreed with the Underwriters that, until 180 days after the effective date of this Prospectus, they will not directly or indirectly offer, sell, pledge, contract to sell (including any short sale), grant any option to purchase or otherwise dispose of any shares of Common Stock (including, without limitation, shares of Common Stock of the Company which may be deemed to be beneficially owned by the undersigned on the date hereof in accordance with 68 the rules and regulations of the Commission and shares of Common Stock which may be issued upon exercise of a stock option or warrant) or enter into any hedging transaction relating to the Common Stock. The Company has also agreed not to sell, offer to sell, contract to sell, grant any option to purchase or otherwise dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or any rights to acquire Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of BT Alex. Brown Incorporated, except that the Company may issue shares upon the exercise of options granted prior to the date hereof, and may grant additional options under its Plans, provided that, without the prior written consent of BT Alex. Brown Incorporated, such additional options shall be exercisable, but not transferable, during such period. The lockup agreements may be released at any time as to all or any portion of the shares subject to such agreements at the sole discretion of BT Alex. Brown Incorporated. Prior to this offering, there has been no public market for the Common Stock of the Company. Consequently, the initial public offering price for the Common Stock will be determined by negotiation between the Company and the Representatives of the Underwriters. Among the factors to be considered in such negotiations will be prevailing market conditions, the results of operations of the Company in recent periods, the market capitalizations and stages of development of other companies that the Company and the Representatives of the Underwriters believe to be comparable to the Company, estimates of the business potential of the Company and its industry in general and the present state of the Company's development and other factors deemed relevant. BT Alex. Brown Incorporated acted as the placement agent in the private placement of the Company's 13.75% Senior Secured Bridge Notes and Note Warrants issued on April 28, 1998, and in connection with that placement received cash compensation. BT Holdings (NY), Inc., an affiliate of BT Alex. Brown Incorporated, purchased a 13.75% Senior Secured Bridge Note in the principal amount of $4,500,000 and a Note Warrant to purchase 58,383 shares of Series D Preferred Stock. See "Certain Relationships and Related Transactions" for a description of the terms of the 13.75% Senior Secured Bridge Notes and the Note Warrants. In view of this relationship, the offering is being made in accordance with Section 2720 of the Conduct Rules of the National Association of Securities Dealers, Inc., which provides, among other things, that the price of the Common Stock can be no higher than that recommended by a "qualified independent underwriter" meeting certain standards. In accordance with this requirement, Merrill Lynch, Pierce, Fenner & Smith Incorporated is serving in such role and will recommend the maximum public offering price of the Common Stock. Merrill Lynch, Pierce, Fenner & Smith Incorporated has also participated in the preparation of this Prospectus and has performed due diligence with respect thereto. The Company has been advised by the Representatives that during and after this offering, the Underwriters may purchase and sell Common Stock in the open market. These transactions may include over-allotment and stabilizing transactions and purchases to cover syndicate short positions created in connection with this offering. Stabilizing transactions consist of certain bids or purchases for the purpose of preventing or retarding a decline in the market price of the Common Stock. Syndicate short positions involve the sale by the Underwriters of a greater number of shares of Common Stock than they are required to purchase from the Company in this offering. The Underwriters also may impose penalty bids, whereby selling concessions allowed to the syndicate members or other broker-dealers in respect of the Common Stock sold in this offering for their account may be reclaimed by the syndicate if such securities are repurchased by the syndicate in stabilizing or short-covering transactions. These activities may stabilize, maintain or otherwise affect the market price of the Common Stock, which may be higher than the price that might otherwise prevail in the open market. These transactions may be effected on the Nasdaq National Market or otherwise and these activities, if commenced, may be discontinued at any time. The Representatives of the Underwriters have advised the Company that the Underwriters do not intend to confirm orders to any account over which they exercise discretionary authority. 69 LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by its counsel, Venture Law Group, A Professional Corporation, Kirkland, Washington. Certain legal matters will be passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. EXPERTS The financial statements and schedule of Metawave Communications Corporation as of December 31, 1996 and 1997 and the related statements of operations, shareholders' equity (deficit), and cash flows for the years then ended and the period from January 19, 1995 (inception) to December 31, 1995 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 The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement, of which this Prospectus constitutes a part, under the Securities Act with respect to the shares of Common Stock offered hereby. This Prospectus omits certain information contained in the Registration Statement, and reference is made to the Registration Statement and the exhibits and schedules thereto for further information with respect to the Company and the Common Stock offered hereby. Statements contained herein concerning the provisions of any documents are not necessarily complete, and in each instance reference is made to the copy of such document filed as an exhibit to the Registration Statement. Each such statement is qualified in its entirety by such reference. Copies of the Registration Statement, including exhibits and schedules filed therewith, may be inspected without charge at the Commission's principal office in Washington, D.C. or obtained at prescribed rates from the Public Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information regarding the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission 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 Commission. The Company has filed the Registration Statement, including the exhibits and schedules thereto, electronically with the Commission via the Commission's EDGAR system. The Company intends to distribute to its stockholders annual reports containing audited financial statements and will make available copies of quarterly reports for the first three quarters of each fiscal year containing unaudited interim financial information. 70 GLOSSARY OF TECHNICAL TERMS AMPLIFIER................... A device used to increase the signal strength of analog or digital radio frequency (RF) signals. AMPS (ADVANCED MOBILE PHONE SERVICE)................... An analog wireless protocol adopted in North and South America. ANALOG...................... The traditional method of modulating radio signals to carry information. The analog method employs a continuous signal that varies the amplitude, frequency or phase of the radio transmission. ANTENNA..................... A device for transmitting and/or receiving radiowave signals. Antennas can be designed to offer various radiation patterns. Omni-directional antennas typically radiate equally in all directions. Other antennas are more directional, radiating largely in one area and not in others. ATTENUATION................. The weakening of a signal along some path, often due to partial blocking or absorption. BANDWIDTH................... The total frequency range of spectrum available. BASE STATION................ A transmit and receive station that controls and relays signals between a switch and the remote handset or subscriber unit (fixed or mobile). BSC (BASE STATION CONTROLLER)................ Equipment that manages the radio transmission for a set of base stations by handling radio channel management, message transport and hand-offs. BEAM........................ A directed RF signal radiating from an antenna in a narrow pattern which carries cellular phone traffic. CARRIER TO INTERFERENCE RATIO (C/I)................ The ratio of strength in the carrier signal to the total strength of interfering signals, expressed in dB. CAPACITY.................... The maximum amount of call traffic that a cellular network can handle. CDMA (CODE DIVISION MULTIPLE ACCESS).................... A digital wireless protocol adopted in North America and Asia. In this protocol, each voice call is labeled with a unique code and transmitted on the same frequency channel with other calls. CARRIER..................... A CDMA channel with 1.23 MHz bandwidth. CELL........................ The term used to define a geographic area that is served by a cell site. CELL SITE................... The location of the base station equipment servicing the cell. CELL-SPLITTING.............. The splitting of one large cell into smaller ones. With proper splitting and allocation of frequencies, channels can be reused more frequently, making it possible to increase capacity.
71 GLOSSARY OF TECHNICAL TERMS--(CONTINUED) CELLULAR NETWORK............ A network of interconnected low-powered radio transceivers that provides mobile telephone service. CHANNEL..................... The communication path which transfers information between elements in a wireless network. This radio channel requires a unique RF frequency that is used for communication between subscriber unit and cell site base station and is assigned by the FCC. COVERAGE AREA............... The geographic area in which the signal strength from a cellular network is sufficient to provide service to users of the wireless network. DB.......................... Abbreviation for decibel, a unit for expressing the relative strength of two signals. DIGITAL..................... A method of storing, processing, and transmitting voice and data that uses distinct electronic pulses to represent the information. DIGITAL CELLULAR............ A wireless protocol that breaks up cellular voice or data transmission and sends them in a digital format. Common digital cellular protocols include CDMA, GSM and TDMA. DUAL-BAND................... A mobile or portable phone that is capable of operating in more than one frequency band. An example of a dual-band phone is a unit that operates on both a 900 MHz and 1.9 GHz system. DUAL-MODE................... A mobile or portable phone that is capable of operating using more than one standard. An example of a dual-mode phone is a unit that primarily operates on a digital system and defaults to analog AMPS operation if the digital system is unavailable. FCC......................... The Federal Communications Commission; a U.S. government agency which regulates wireless communications services and equipment. FOOTPRINT................... The coverage area of a cell site. FREQUENCY................... The rate at which the electric and magnetic fields of a radio wave oscillate, expressed as the number of cycles per unit of time. Frequency is typically measured in Hertz (Hz), or cycles per second. GHZ (GIGAHERTZ)............. One gigahertz is equal to one billion cycles per second. GSM (GLOBAL SYSTEM FOR MOBILE COMMUNICATIONS)..... A digital wireless protocol which serves as the European standard for digital cellular. HZ (HERTZ).................. A measurement of frequency, equivalent to one "wave" or cycle per second. INFRASTRUCTURE.............. All parts of the wireless network, excluding the subscriber's phone. Includes the Mobile Telephone Switching Office, Base Stations, and all links between them.
72 GLOSSARY OF TECHNICAL TERMS--(CONTINUED) INTERFERENCE................ Reception of unwanted signals which degrades call quality and limits wireless capacity. Refers to undesired signals from the standpoint of any particular listener. KHZ (KILOHERTZ)............. One kilohertz is equal to one thousand cycles per second. LAN (LOCAL AREA NETWORK).... A private data communications network linking a variety of data services such as computers and printers within an office or home environment. LMDS (LOCAL MULTIPOINT DISTRIBUTION SERVICE)...... A broadband wireless communications network that uses millimeter wave frequencies around 28 to 38 GHz to transmit video and data over a cellular-like network at distances under a few miles. LOCAL LOOP.................. A wired communications channel between the subscriber's location and the subscriber's local central office, also known as the subscriber loop. MHZ (MEGAHERTZ)............. One megahertz is equal to one million cycles per second. MSC (MOBILE SWITCHING CENTER).................... A high-capacity, traffic handling device that routes incoming and outgoing wireless calls by determining which base station will handle each call and also provides inter- system hand-offs. MTSO (MOBILE TELEPHONE SWITCHING OFFICE).......... The hub of a cellular network, which incorporates the mobile switching center and the network operating software for the switching, database, and maintenance functions. NAMPS (NARROW-BAND AMPS).... An analog wireless protocol which operates in the 800-MHz band in the United States. Developed by Motorola, NAMPS divides traditional 30-MHz channels into three 10-MHz channels to add capacity. PCS (PERSONAL COMMUNICATIONS SERVICES).................. A two-way, digital, wireless telecommunications system operating in the 1.8 GHz to 2.4 GHz range in the United States. PHASED-ARRAY................ A type of antenna design in which the relative phases of the respective signals feeding the group of antennas are varied to vary the radiation pattern of the antenna. PSTN (PUBLIC SWITCHED TELEPHONE NETWORK)......... Refers to the collection of networks providing public telephone switching service; the wired or landline network. RECEIVER.................... A device that receives signals. REUSE/FREQUENCY REUSE....... The utilization of frequency (channels) more than once in a wireless network. To minimize interference, cells are assigned only a portion of an operator's available frequencies; adjacent cells do not use the identical channels. The reuse pattern determines how many cells the available frequencies are divided among before being reused and therefore how much distance separates cells using the same frequency.
73 GLOSSARY OF TECHNICAL TERMS--(CONTINUED) RF (RADIO FREQUENCY)........ The range of electromagnetic frequencies above the audio range and below visible light. All broadcast transmission, from AM radio to microwaves, falls into this range, which is between 30-KHz and 300-GHz. RF SIGNAL................... Information transmitted over a communications network by a modulated RF channel. ROAMING..................... The ability to use a wireless phone to make and receive calls in places outside a user's home coverage area. SECTORIZING................. The process of dividing a cell site into sectors by using directional antennas. Sectorizing is typically used as a means of reducing interference in order to increase frequency reuse and therefore network capacity. SECTOR SYNTHESIS............ A proprietary method incorporated into Metawave's smart antenna system to better control the transmission and reception of CDMA radio signals by cell sites, thereby reducing interference. SMART ANTENNA............... A system that can respond to changes in the radio frequency environment through the use of software algorithms that control an integrated antenna array. SMR (SPECIALIZED MOBILE RADIO)..................... A two-way radio telephony service making use of macrocells that cover an area up to 50 miles in diameter. Widely used in dispatch operations by truck and taxi fleets. SMR systems have much less radio spectrum than cellular systems, but have a much greater range. SPATIAL DIVERSITY........... An antenna configuration of two or more elements that are physically spaced (spatially diverse) to combat signal fading and improve signal quality. The desired spacing depends on the frequency band and the RF environment. SPECTRUM.................... A continuous range of frequencies, ranging from 30 Hz to 3000 GHz, available for radio transmission and reception. The FCC has set aside fixed portions of the spectrum for cellular service, PCS service, television, FM radio, and satellite transmissions. SPECTRUM ALLOCATION......... Federal government designation of a range of frequencies for a category of use or uses. SPECTRUM MANAGEMENT......... A way to improve a network's capacity, coverage, and call quality by using hardware and software tools for network configuration and RF enhancement. SUBSCRIBER.................. A customer of a wireless service provider or other communications company. SWITCH...................... See MTSO.
74 GLOSSARY OF TECHNICAL TERMS--(CONTINUED) TDMA (TIME DIVISION MULTIPLE ACCESS).................... A method of digital wireless communications transmission by which a large number of users can access, in sequence, a single radio frequency channel without interference because each user is allocated a unique time slot within each frequency channel. TRANSCEIVER................. Equipment that both receives and transmits radio waves. TRANSMITTER................. A device that generates signals. TRUNKING.................... Allowing a subscriber unit to be connected to any unused channel in a group of channels for an incoming or outgoing call. Trunking efficiency is increased whenever greater numbers of channels can be made available to any group of subscribers at a given location and time. WIRELESS.................... Describing a type of technology using radio-based systems that allows transmission of voice and data signals through radio frequencies without a physical connection. WLL (WIRELESS LOCAL LOOP)... A type of wireless technology which is used to provide subscribers with standard telephone service. Eliminates the need for a wire, or loop, connecting users to the PSTN by transmitting voice communications over radio waves between the end user and a base station that is connected to the network equipment.
75 METAWAVE COMMUNICATIONS CORPORATION INDEX TO FINANCIAL STATEMENTS Report of Ernst & Young, LLP, Independent Auditors.......................... F-2 Balance Sheets.............................................................. F-3 Statements of Operations.................................................... F-4 Statements of Stockholders' Equity (Deficit)................................ F-5 Statements of Cash Flows.................................................... F-6 Notes to Financial Statements............................................... F-7
F-1 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Metawave Communications Corporation We have audited the accompanying balance sheets of Metawave Communications Corporation as of December 31, 1996 and 1997 and the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended and the period from January 19, 1995 (inception) to December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Metawave Communications Corporation at December 31, 1996 and 1997, and the results of its operations and its cash flows for the years then ended and the period from January 19, 1995 (inception) to December 31, 1995, in conformity with generally accepted accounting principles. Seattle, Washington March 13, 1998, except for Note 13,as to which the date is April 28, 1998 and paragraphs 1 and 2 of Note 6 as to which the date is October , 1998. - ------------------------------------------------------------------------------- The foregoing report is in the form that will be signed upon completion of the reverse stock split described in paragraph 2 of Note 6 to the financial statements. ERNST & YOUNG LLP Seattle, Washington October 14, 1998 F-2 METAWAVE COMMUNICATIONS CORPORATION BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PRO FORMA DECEMBER 31, STOCKHOLDERS' ------------------ JUNE 30, EQUITY AT 1996 1997 1998 JUNE 30, 1998 -------- -------- ----------- ------------- (UNAUDITED) (UNAUDITED) ASSETS Current assets: Cash and cash equivalents...... $ 19,092 $ 13,334 $ 20,311 Accounts and notes receivable, net........................... 120 1,444 3,792 Inventories.................... -- 4,080 12,000 Debt issuance costs, net of amortization of 1,275......... -- -- 4,545 Prepaid expenses and other assets........................ 185 142 708 -------- -------- -------- Total current assets............. 19,397 19,000 41,356 Property and equipment--net (Note 3).............................. 2,258 3,406 5,032 Other noncurrent assets.......... 92 169 169 -------- -------- -------- Total assets..................... $ 21,747 $ 22,575 $ 46,557 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable .............. $ 484 $ 729 $ 3,581 Accrued liabilities............ 622 1,304 2,663 Current portion of notes payable....................... 104 140 29,838 Current portion of capital lease obligations............. 465 1,035 1,182 Deferred revenue............... -- 115 305 -------- -------- -------- Total current liabilities........ 1,675 3,323 37,569 Notes payable, less current portion......................... 321 263 143 Capital lease obligations, less current portion................. 1,429 2,709 3,937 Other long-term liabilities...... 7 6 -- -------- -------- -------- Total liabilities................ 3,432 6,301 41,649 Commitments and contingencies Convertible and redeemable preferred stock, issued and outstanding 7,512,817 shares in 1996 and 9,191,222 in 1997 and June 30, 1998; aggregate preference in liquidation of $49,282 at December 31, 1997 and June 30, 1998............................ 30,100 49,282 49,282 $ -- Convertible and redeemable preferred stock warrants........ -- 128 4,423 -- Stockholders' equity (deficit): Preferred stock, $.0001 par value, authorized 14,000,000 shares, of which 9,191,222 have been designated as convertible and redeemable at June 30, 1998 and December 31,1997....................... -- -- -- -- Common stock, $.0001 par value, authorized 28,000,000 shares; issued and outstanding 1,855,000 in 1996, 2,052,458 in 1997 and 2,125,125 at June 30, 1998 and 11,316,347 shares pro forma.............. 10 1,968 2,162 55,867 Deferred stock compensation.... -- (1,205) (877) (877) Accumulated deficit............ (11,795) (33,899) (50,082) (50,082) -------- -------- -------- ------- Total stockholders' equity (deficit)....................... (11,785) (33,136) (48,797) $ 4,908 -------- -------- -------- ======= Total liabilities and stockholders' equity (deficit).. $ 21,747 $ 22,575 $ 46,557 ======== ======== ========
See accompanying notes. F-3 METAWAVE COMMUNICATIONS CORPORATION STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
PERIOD FROM JANUARY 19, 1995 YEAR ENDED SIX MONTHS ENDED (INCEPTION) TO DECEMBER 31, JUNE 30, DECEMBER 31, ------------------ ---------------------- 1995 1996 1997 1997 1998 ---------------- -------- -------- ----------- ---------- (UNAUDITED) (UNAUDITED) Net revenue............. $ -- $ 1,291 $ 1,450 $ 392 $ 6,501 Cost of sales........... -- 1,097 1,728 516 6,396 ------- -------- -------- ------- -------- Gross profit (loss)..... -- 194 (278) (124) 105 Operating expenses: Research and development.......... 883 7,186 13,083 5,365 8,025 Sales and marketing... 84 1,704 5,383 2,244 4,087 General and administrative....... 168 2,434 3,762 1,367 2,429 ------- -------- -------- ------- -------- Total operating expenses............... 1,135 11,324 22,228 8,976 14,541 ------- -------- -------- ------- -------- Operating loss.......... (1,135) (11,130) (22,506) (9,100) (14,436) Other income, net....... 157 485 851 409 484 Interest expense........ (22) (150) (449) (236) (2,231) ------- -------- -------- ------- -------- 135 335 402 173 (1,747) ------- -------- -------- ------- -------- Net loss................ $(1,000) $(10,795) $(22,104) $(8,927) $(16,183) ======= ======== ======== ======= ======== Basic and diluted net loss per share......... (1.09) (5.67) (11.59) (4.80) (7.92) ======= ======== ======== ======= ======== Shares used in computation of basic and diluted net loss per share.............. 918 1,904 1,907 1,859 2,043 ======= ======== ======== ======= ======== Pro forma net loss per share.................. (.37) (1.51) (2.19) (.95) (1.44) ======= ======== ======== ======= ======== Shares used in computation of pro forma net loss per share.................. 2,722 7,140 10,076 9,372 11,234 ======= ======== ======== ======= ========
See accompanying notes. F-4 METAWAVE COMMUNICATIONS CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE PERIOD FROM JANUARY 19, 1995 (INCEPTION) THROUGH JUNE 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMMON STOCK -------------- DEFERRED TOTAL STOCK ACCUMULATED STOCKHOLDERS' SHARES AMOUNT COMPENSATION DEFICIT EQUITY (DEFICIT) ------ ------ ------------ ----------- --------------- Sale of common stock at $.0036 per share for cash................... 1,925 $ 10 $ -- $ -- $ 10 Net loss for the period from January 19, 1995 to December 31, 1995... -- -- -- (1,000) (1,000) ----- ------ ------- -------- -------- Balance, December 31, 1995................... 1,925 10 -- (1,000) (990) Shares surrendered to Company for no consideration......... (70) -- -- -- -- Net loss for the year ended December 31, 1996.................. -- -- -- (10,795) (10,795) ----- ------ ------- -------- -------- Balance, December 31, 1996................... 1,855 10 -- (11,795) (11,785) Exercise of stock options............... 197 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, December 31, 1997................... 2,052 1,968 (1,205) (33,899) (33,136) Repurchased restricted stock *............... (96) -- -- -- -- Exercise of stock options *............. 161 84 -- -- 84 Exercise of stock warrants*............. 8 110 -- -- 110 Stock compensation expense *............. -- -- 328 -- 328 Net loss for the period ended June 30, 1998 *. -- -- -- (16,183) (16,183) ----- ------ ------- -------- -------- Balance, June 30, 1998 *...................... 2,125 $2,162 $ (877) $(50,082) $(48,797) ----- ------ ------- -------- --------
- -------- * Unaudited See accompanying notes. F-5 METAWAVE COMMUNICATIONS CORPORATION STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PERIOD FROM JANUARY 19, 1995 YEAR ENDED SIX MONTHS ENDED (INCEPTION) TO DECEMBER 31, JUNE 30, DECEMBER 31, ------------------ ---------------------- 1995 1996 1997 1997 1998 ---------------- -------- -------- ----------- ---------- (UNAUDITED) (UNAUDITED) OPERATING ACTIVITIES Net loss................ $(1,000) $(10,795) $(22,104) $ (8,927) $ (16,183) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense. 19 520 1,841 756 2,441 Loss on disposal of assets .............. -- -- -- -- 24 Stock compensation.... -- -- 676 22 438 Reserve for loss on assets............... -- -- 425 -- -- Changes in operating assets and liabilities: Increase in accounts receivable.......... (53) (67) (1,323) (267) (2,349) Increase in inventories......... -- -- (4,080) (2,209) (8,091) Increase in other assets.............. (55) (222) (34) (63) (2,091) Increase in accounts payable, accrued liabilities and other liabilities... 206 906 926 878 4,864 (Increase) decrease in projects in process............. (717) 717 -- -- Increase (decrease) in deferred revenue. 1,291 (1,291) 114 -- 191 ------- -------- -------- -------- --------- Net cash used in operating activities... (309) (10,232) (23,559) (9,810) (20,756) INVESTING ACTIVITIES Purchases of securities. (3,612) -- -- -- -- Proceeds on sale of securities............. -- 3,612 -- -- -- Proceeds on sale of assets................. -- -- -- -- 78 Purchases of equipment.. (151) (549) (621) (870) (582) ------- -------- -------- -------- --------- Net cash provided by (used in) investing activities............. (3,763) 3,063 (621) (870) (504) FINANCING ACTIVITIES Proceeds from issuance of preferred stock..... 5,500 24,600 19,182 -- -- Proceeds from issuance of common stock........ 10 -- 77 1 84 Proceeds from notes payable................ -- 500 -- -- 29,000 Payments on notes payable................ -- (81) (115) (60) (130) Principal payments on capital lease obligations............ (16) (180) (722) (290) (717) ------- -------- -------- -------- --------- Net cash provided by (used in) financing activities............. 5,494 24,839 18,422 (349) 28,237 ------- -------- -------- -------- --------- Net increase (decrease) in cash................ 1,422 17,670 (5,758) (11,029) 6,977 Cash and cash equivalents at beginning of period.... -- 1,422 19,092 19,092 13,334 ------- -------- -------- -------- --------- Cash and cash equivalents at end of period................. $ 1,422 $ 19,092 $ 13,334 $ 8,063 $20,311 ======= ======== ======== ======== ========= NONCASH TRANSACTIONS AND SUPPLEMENTAL DISCLOSURES Capital lease obligations incurred to purchase assets........ $ 144 $ 1,952 $ 2,665 $ 1,458 $ 2,099 Inventories reclassified to property and equipment.............. -- -- -- -- 171 Deferred compensation on stock option grants.... -- -- 1,881 224 -- Interest paid........... 22 150 450 304 214
See accompanying notes. F-6 METAWAVE COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES Description of Business Metawave designs, develops, manufactures and markets spectrum management solutions for the wireless communications industry. The Company believes that its spectrum management solutions, consisting of smart antenna systems, applications software and engineering services, enable cellular network operators to increase overall network capacity, reduce network operation costs, better manage network infrastructure and stimulate end user demand through improved system quality. Using its proprietary technologies, the Company has developed products that address the capacity, coverage, and call quality problems faced by cellular network operators. The Company was incorporated in January 1995. Net revenue since inception has been attributable to an engineering consulting contract in 1996, services rendered by the Company's Network Services division during 1997 and sales of the SpotLight 2000 system during the six months ended June 30, 1998. The Company's Network Services division was discontinued during the first quarter of 1998. Since inception, the Company has incurred significant losses and as of June 30, 1998, had an accumulated deficit of $50.1 million. Unaudited Interim Financial Information The financial information as of June 30, 1998 and for the periods ended June 30, 1997 and 1998 is unaudited, but includes all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for a fair presentation of the financial position at such dates and the operations and cash flows for the periods then ended. Operating results for the period ended June 30, 1998 are not necessarily indicative of results that may be expected for the entire year. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. Significant estimates made in preparing the financial statements include the allowance for doubtful accounts, inventory reserves and warranty accruals. Revenue Recognition Product revenues are recognized when the product has been shipped and all customer acceptance conditions have been satisfied. Service revenues, generally installation and consulting, are recognized when the services have been performed. Revenue from maintenance contracts is deferred and recognized ratably over the term of the agreement (which is typically one year). Any billings in excess of revenue are classified as deferred revenue and projects in process are recorded as inventory. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. Property and Equipment Property and equipment and leasehold improvements are recorded at cost. Depreciation is provided on the straight-line method for financial statement purposes and on accelerated methods for federal F-7 METAWAVE COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) income tax purposes over estimated useful lives of two to seven years. Leasehold improvements are amortized over the lesser of the lease term or estimated useful life. Pro Forma Net Loss per Share Pro forma net loss per share is computed using the weighted average number of shares of common stock outstanding and the weighted average convertible and redeemable preferred stock 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 antidilutive. For the periods presented, there is no difference between the basic and diluted net loss per share. Historical basic and diluted earnings per share are not presented on the accompanying statement of operations because they are considered meaningless due to the significant change in capital structure upon the mandatory conversion of convertible redeemable preferred stock upon completion of the initial public offering. Warranty The Company provides a 12 to 18 month warranty which may vary depending upon specific contractual terms, on all products 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. The Company had no material advertising expense for the period ended December 31, 1995 while $355,000, $535,000 and $342,000 were recorded for the years ended December 31, 1996, 1997 and the six months ended June 30, 1998, respectively. Cash Equivalents, Fair Values of Financial Instruments, and Concentration of Credit Risk 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. Cash equivalents consist of investments with maturities of three months or less when purchased. The Company invests with various high-quality institutions and, by policy, limits the amount of credit exposure to any one institution. The Company sells its products and provides services to customers in the wireless communications industry. The Company performs on-going 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. F-8 METAWAVE COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Stock-Based Compensation The Company has adopted the disclosure-only provisions of Financial Accounting Standards Board Statement No. 123 and applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock option plans. Accordingly, the Company's stock-based compensation expense is recognized based on the intrinsic value of the option on the date of grant. Recognition of stock-based compensation expense under Statement 123 requires the use of a fair value method to value stock options using option valuation models that were developed for purposes other than valuing employee stock options. Pro forma disclosure of net loss under Statement 123 is provided in Note 6. Reclassifications The Company adopted a manufacturing fiscal year in 1998. The fiscal year 1998 is the 52 week period that ends the Sunday following the calendar year end. For convenience of presentation, all fiscal periods in these financial statements are treated as ending on a calendar month end. Certain prior year amounts have been reclassified to conform to the current year presentation. Recently Issued Accounting Standards In 1997, the following accounting standards were issued: SFAS No. 129, Disclosure of Information About Capital Structure requiring supplemental disclosure of capital structure, SFAS No. 131, Disclosures About Segments of an Enterprise and Required Information, and SOP 97-2, Software Revenue Recognition, SFAS No. 130, Reporting Comprehensive Income, establishing standards for reporting and disclosure of comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive loss is the same as net loss for all periods reported. Each of these standards became effective for the Company on January 1, 1998. The adoption of these standards did not impact the Company's financial statements or disclosures. In March 1998, the AICPA issued SOP 98-1, Accounting For the Costs of Computer Software Developed For or Obtained For Internal-Use. The SOP is effective for the Company beginning on January 1, 1999 but earlier adoption is encouraged. The SOP requires the capitalization of certain costs incurred after the date of adoption in connection with developing or obtaining software for internal-use. The Company elected to adopt the SOP in 1998. The SOP did not have a material impact on the Company's operations or financial position. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which is required to be adopted in 2000. Because the Company does not currently use derivatives, management does not anticipate that the adoption of SFAS No. 133 will have a significant effect on earnings or the financial condition of the Company. F-9 METAWAVE COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) 2. INVENTORIES
DECEMBER 31, JUNE 30, 1997 1998 ------------ -------- (IN THOUSANDS) Purchased parts........................................ $1,331 $ 6,766 Subassemblies.......................................... 274 472 Finished goods......................................... 2,475 4,762 ------ ------- $4,080 $12,000 ====== =======
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. 3. PROPERTY AND EQUIPMENT
DECEMBER 31, ---------------- JUNE 30, 1996 1997 1998 ------- ------- -------- (IN THOUSANDS) Equipment........................................ $ 2,131 $ 4,738 $ 6,932 Furniture and fixtures........................... 394 605 796 Leasehold improvements........................... 272 315 693 ------- ------- ------- 2,797 5,658 8,421 Accumulated depreciation and amortization........ (539) (2,252) (3,389) ------- ------- ------- $ 2,258 $ 3,406 $ 5,032 ======= ======= =======
4. NOTES PAYABLE
DECEMBER 31, ------------ JUNE 30, 1996 1997 1998 ---- ---- -------- (IN THOUSANDS) Senior Secured Bridge Notes maturing in April 2000, bearing interest at 13.75% accrued semi-annually..... $ -- $ -- $ 29,708 Note payable to U.S. Bank with monthly payments of $217 maturing in July 2000, bearing interest at 11%.. 7 6 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............................................ 418 308 252 Notes payable to GMAC with monthly payments aggregating $2,190, maturing between December 2001 and April 2002, bearing interest at rates between 3.9% and 8.75%....................................... -- 89 17 ----- ----- -------- 425 403 29,981 Current portion....................................... (104) (140) (29,838) ----- ----- -------- $ 321 $ 263 $ 143 ===== ===== ========
F-10 METAWAVE COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) 4. NOTES PAYABLE (CONTINUED) Notes payable are secured by equipment and vehicles. Future principal payments on notes payable at December 31, 1997 are as follows: 1998--$139,439; 1999--$159,926; 2000--$84,929; 2001--$16,202; and 2002--$2,071. The Company has a credit facility with a commercial bank, which 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, which matures on October 14, 1999. Outstanding balances on the credit line bear interest at the bank's prime rate (8.5%) as of December 31, 1997 and June 30, 1998, respectively, and are secured by the Company's accounts receivable and inventory. At December 31, 1997 and June 30, 1998, no amounts were outstanding under this revolving credit line secured by accounts receivable and $2.5 million was outstanding related to issuance of a standby letter of credit. On April 28, 1998, the Company issued $29 million of Senior Secured Bridge Notes (Notes), which mature on April 28, 2000. The Notes accrue interest at 13.75%, payable semi-annually at the option of the Company in either additional Notes or cash. Until the Notes are repaid in full, the interest rate will increase by 200 basis points up to a maximum of 18.0%. On April 28, 1999 and at the end of each subsequent six-month period; to a maximum rate of 18.00%. One-half of the outstanding Notes and any accrued and unpaid interest is due upon the occurrence of an Initial Public Offering (IPO). The other one- half of the Notes may be redeemed at any time, prior to the maturity date, by the Company by payment in cash of the principal and accrued interest. The Notes are secured by personal property and intellectual property of the Company. The Company is required to comply with certain covenants and certain reporting requirements determined by the noteholders. In connection with the Senior Secured Bridge financing, the noteholders received warrants to purchase 376,245 shares of series D Preferred Stock at $.01 per share. The Company recorded debt issuance fees of approximately $5,820,000 related to the issuance of these warrants. The fees are amortized over the life of the Notes. The warrants have a two-year term. On April 28, 1999 and at the end of each subsequent three-month period, the Company will issue the noteholders warrants to purchase an additional 140,000 shares of the Company's Series D Preferred Stock. This provision will terminate upon an IPO by the Company and redemption of at least one-half of the issued and outstanding Notes. The Company may redeem the balance of the Notes and warrants on or before the completion of an IPO or on April 28, 1999 for and aggregate redemption and repurchase price of $40.6 million. 5. CONVERTIBLE AND REDEEMABLE PREFERRED STOCK In July 1995, the Company issued 3,849,998 shares of Series A Preferred Stock (Series A) through a private offering. Proceeds from the financing amounted to $5,500,000. In May 1996, the Company issued 1,897,772 shares of Series B Preferred Stock (Series B) through a private offering. Proceeds from the financing amounted to $9,150,006. An additional 20,741 shares of Series B were issued in November 1996 with proceeds of $100,002. F-11 METAWAVE COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) 5. CONVERTIBLE AND REDEEMABLE PREFERRED STOCK (CONTINUED) In October and November 1996, the Company issued 1,744,306 shares of Series C Preferred Stock (Series C) through a private offering. Proceeds from the financing amounted to $15,349,980. In August 1997, the Company issued 1,678,405 shares of Series D Preferred Stock (Series D) through a private offering. Proceeds from the financing amounted to $19,181,816. Holders of Series A, B, C, and D have preferential rights to dividends ($.11, $.39, $.70, and $.91 per share per annum, respectively) when and if declared by the Board of Directors. Dividends are not cumulative until July 1999. 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. Each share of preferred stock is convertible into one share of common stock at the option of the holder, or automatically upon the vote or written consent of the holders of the majority of the shares of Series A, B, C, and D originally issued or upon the closing of an initial public offering of the Company's common stock from which the aggregate proceeds are not less than $15 million. The conversion rate is subject to adjustment, as provided by the Company's Amended and Restated Articles of Incorporation. In the event of liquidation, the holders of Series A, B, C, and D have preferential rights to liquidation payments of $1.43, $4.82, $8.80, and $11.43 per share, respectively, plus any declared but unpaid dividends. The preferred stock has redemption rights for a six-month period beginning on December 31, 2000 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 34,125 shares and 11,666 shares of Series A Preferred Stock at an exercise price of $2.14 and $3.13 per share respectively, subject to adjustment as provided in the warrant agreements. The warrant agreements expire after seven years or eighteen months to three years, respectively, from the effective date of an initial public offering, whichever comes later. During 1996, the Company entered into an additional lease line which included the issuance of a warrant to purchase 13,999 shares of Series B Preferred Stock with an exercise price of $6.74 per share. During 1997, the Company entered into an additional lease line which included the issuance of a warrant to purchase 23,863 shares of Series C Preferred Stock with an exercise price of $8.80 per share. The Black-Scholes valuation model was used to calculate the value of the warrants at the date of grant with the following weighted-average assumptions: risk free interest rate of 6.0%; dividend yields of 0%; volatility factors of the expected market price of the Company's stock of .00; and a weighted-average life of the warrants of three years. 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 lease agreements. During 1998, the Company entered into a new equipment lease line. The new lease included the issuance of a warrant to purchase 3,062 shares of Series D Preferred Stock with an exercise price of $11.43 per share. The Black-Scholes valuation model was used to calculate the value of the warrants at the date of grant with the following weighted-average assumptions: risk free interest rate of 6.0%; dividend yields of 0%; volatility factors of the expected market price of the Company's stock of .66; and a weighted-average life of the warrants of four years. 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 lease agreement. F-12 METAWAVE COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) 5. CONVERTIBLE AND REDEEMABLE PREFERRED STOCK (CONTINUED) In connection with the Senior Secured Bridge financing, the Company has issued warrants providing for the purchase of an aggregate of 376,245 shares of Series D Preferred Stock at an exercise price of $.01 per share (Note 4). The Black-Scholes valuation model was used to calculate the value of the warrants at the date of grant with the following weighted-average assumptions: risk free interest rate of 6.0%; dividend yields of 0%; volatility factors of the expected market price of the Company's stock of .66; and a weighted- average life of the warrants of two years. 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 Notes. Concurrently with the automatic conversion of the Company's outstanding Preferred Stock on a one-for-one basis into Common Stock upon the closing of this offering, all warrants to purchase Preferred Stock will automatically convert into warrants to purchase Common Stock. 6. STOCKHOLDERS' EQUITY Authorized Shares In anticipation of the IPO of the Company's Common Stock, in May 1998, the Board of Directors approved the amendment and restatement of the Certificate of Incorporation to change the authorized number of shares of preferred stock to 10,500,000 shares and increase the number of authorized shares of Common Stock of the Company to 105,000,000 shares. These changes are to take effect upon completion of the IPO. In October 1998, the Board of Directors authorized a 7:10 reverse stock split to become effective prior to the effective date of the offering. These consolidated financial statements and notes thereto have been restated to reflect this action. Stock Repurchases Prior to June 30, 1998, the Company had common stock repurchase agreements with two founders, whereby if the shareholder ceases to be an employee of the Company, the Company has the right to repurchase shares of common stock at the original issuance price paid by the founder. The stock held by the founders, and subject to the terms of these agreements, vested during each full fiscal quarter commencing after June 30, 1995 at a rate of 33% per year and became fully vested on June 30, 1998. As of December 31, 1997, there were 241,106 shares subject to repurchase with an aggregate purchase price of $1,240. On January 10, 1998, the Company repurchased 96,443 shares of common stock from one of the founders for $501 pursuant to the terms of the stock repurchase agreement. In addition, the Company caused Mr. Huseby to surrender 70,000 shares of Common Stock in 1996 for no consideration. Proforma Stockholders' Equity (Unaudited) The proforma stockholders' equity in the accompanying balance sheet reflects the conversion of convertible and redeemable Preferred Stock and the conversion of Preferred Stock warrants to Common Stock warrants coincident with the IPO. Stock Option Plan The Company's 1995 Stock Option Plan (the Plan) provides for the granting of incentive stock options and nonqualified stock options to employees, officers, directors, and consultants. Options under F-13 METAWAVE COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) 6. STOCKHOLDERS' EQUITY (CONTINUED) the Plan have been granted at fair market value on the date of grant and expire between five and ten years. Options granted under this 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 2,905,000 shares of common stock for issuance under the Plan. In anticipation of an IPO of the Company's common stock, in May 1998, the Board of Directors approved the 1998 Stock Option Plan and the 1998 Employees Stock Purchase Plan, subject to stockholder approval. Shares reserved for issuance under these plans were 595,000 shares and 350,000 shares, respectively. The 1998 Directors' Stock Option Plan was adopted by the Board of Directors in February 1998 and approved by the stockholders on April 20, 1998. A total of 210,000 shares of Common Stock has been reserved for issuance under the Directors' Plan. The Directors' Plan provides for the automatic grant of nonstatutory stock options to nonemployee directors of the Company upon joining the Board or upon the effectiveness of the Company's initial public offering. Provided an individual remains a director, the Directors' Plan provides that each option granted under the Plan shall become exercisable in installments cumulatively as to 25% of the total number of shares subject to the option on the first anniversary of the date of grant of the option and 2.083% of the total number of shares subject to the option each month thereafter. The exercise price of all stock options granted under the Directors' Plan shall be equal to the fair market value of a share of the Company's Common Stock on the date of grant of the option. The fair market value of any option granted concurrently with the initial effectiveness of the Purchase Plan shall be the Price to Public set forth in the final prospectus relating to this Offering. Options granted under the Directors' Plan have a term of ten years. In 1997, deferred compensation of $1,881,382 was recorded for options granted under the 1995 Plan. The deferred compensation was calculated as the difference between the exercise price and the deemed value of the Company's stock options granted under the 1995 Plan. The deferred compensation is amortized over the vesting period of the related options. Amortized stock compensation of $676,491 and $328,000 was recorded in the year ended December 31,1997 and the six months ended June 30, 1998, respectively. 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, except per share data):
1995 1996 1997 ------- -------- -------- Net loss: As reported................................. $(1,000) $(10,795) $(22,104) Pro forma................................... (1,002) (10,816) (22,109) Basic and diluted net loss per share: As reported................................. (1.09) (5.67) (11.59) Pro forma................................... (1.09) (5.68) (11.59)
F-14 METAWAVE COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) 6. STOCKHOLDERS' EQUITY (CONTINUED) 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 stock price 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 1995 through 1997 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, 1996, and 1995 grants. A summary of the Company's stock option activity and related information follows:
DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997 JUNE 30, 1998 ----------------- ------------------- ------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ------- -------- --------- -------- --------- -------- --------- -------- Outstanding at beginning of period.............. -- -- 696,850 $.14 1,359,998 $ .35 2,204,163 $ 1.14 Granted at deemed value................. 708,400 .14 831,847 .49 481,587 2.79 371,312 11.70 Granted at below deemed value................. -- -- -- -- 940,300 .98 -- Canceled............... (11,550) .14 (168,699) .17 (380,264) .41 (120,381) 2.59 Exercised.............. -- -- -- -- (197,458) .39 (160,645) .52 ------- --------- --------- --------- Outstanding at end of period................. 696,850 .14 1,359,998 .35 2,204,163 1.14 2,294,449 2.81 ======= ========= ========= ========= Exercisable at end of period................. -- -- 225,304 .14 1,495,391 1.38 1,843,968 3.36 ======= ========= ========= ========= Weighted average fair value of options granted during the period................. Granted at value....... $.14 $.49 $2.79 $11.70 Granted at below value. -- -- -- $2.70 --
The following information is provided for options outstanding and exercisable at December 31, 1997:
OUTSTANDING EXERCISABLE ------------------------------ ------------------ WEIGHTED WEIGHTED AVERAGE WEIGHTED AVERAGE REMAINING AVERAGE EXERCISE NUMBER OF EXERCISE CONTRACTUAL NUMBER OF EXERCISE RANGE OPTIONS PRICE LIFE (YEARS) OPTIONS PRICE -------- --------- -------- ----------- --------- -------- $ .14- .50................ 639,179 $ .21 7.98 349,277 $ .18 .89-1.71................ 1,260,268 .94 9.36 841,404 .97 2.86-4.80................ 304,716 3.89 9.91 304,710 3.89 --------- --------- .14-4.80................ 2,204,163 1.14 9.03 1,495,391 1.38 ========= =========
In connection with the Company's stock option and stock purchase plans, 1,407,448 shares of common stock are available for future issuance at June 30, 1998. F-15 METAWAVE COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) 6. STOCKHOLDERS' EQUITY (CONTINUED) Common Shares Reserved for Future Issuance. The Company has reserved shares of common stock as follows:
DECEMBER 31, JUNE 30, 1997 1998 ------------ ---------- Series A Preferred Stock............................. 3,849,998 3,849,998 Series B Preferred Stock............................. 1,918,513 1,918,513 Series C Preferred Stock............................. 1,744,306 1,744,306 Series D Preferred Stock............................. 1,678,405 1,678,405 Convertible redeemable preferred stock warrants...... 83,653 651,085 Stock option and stock purchase plans................ 2,567,535 3,701,896 ---------- ---------- 11,842,410 13,544,203 ========== ==========
7. 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 and warrants have not been included 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 using the if-converted method as follows:
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------ ----------------- 1995 1996 1997 1997 1998 -------- --------- --------- ------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net loss (A)................ $(1,000) $(10,795) $(22,104) $(8,927) $(16,183) ======== ========= ========= ======= ======== Weighted average outstanding: Common stock (B).......... 918 1,904 1,907 1,859 2,043 Convertible preferred stock.................... 1,804 5,236 8,169 7,513 9,191 -------- --------- --------- ------- -------- Total weighted average outstanding (C)............ 2,722 7,140 10,076 9,372 11,234 ======== ========= ========= ======= ======== Basic and diluted net loss per share (A/B)............ $ (1.09) $ (5.67) $ (11.59) $ (4.80) $ (7.92) ======== ========= ========= ======= ======== Pro forma net loss per share (A/C)...................... $ (0.37) $ (1.51) $ (2.19) $ (0.95) $ (1.44) ======== ========= ========= ======= ========
8. INCOME TAXES As of December 31, 1997, the Company had federal net operating loss carryforwards (NOL) of approximately $28.5 million and research and development tax credit carryforwards of approximately $677,500. 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 financings, 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 $9,200,000 of the NOL is limited to $920,000 per year. The remaining NOL is not subject to limitation as of December 31, 1997, but is estimated to be subject to annual limitation of $8,000,000 upon completion of the IPO. F-16 METAWAVE COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) 8. 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 liabilities and assets as of December 31 are as follows (in thousands):
1996 1997 ------- -------- Deferred tax liabilities: Prepaid assets.......................................... $ 18 $ 11 Deferred tax assets: Net operating loss carryforwards........................ 3,865 9,674 Research and development tax credit carryforwards....... 210 678 Accrued compensation.................................... 82 167 Fixed assets............................................ 70 86 Accrued expenses and reserves........................... 1 431 Deferred revenue........................................ -- 906 Stock compensation...................................... -- 80 ------- -------- Total deferred tax assets................................ 4,228 12,022 ------- -------- 4,210 12,011 Less valuation reserve................................... (4,210) (12,011) ------- -------- Net deferred taxes....................................... $ -- $ -- ======= ========
9. COMMITMENTS The Company has entered into capital lease agreements to acquire certain furniture and equipment, with lease terms ranging from 36 to 48 months. The furniture and equipment, which serves as collateral for the leases, was recorded at $4,635,553 and had accumulated amortization of $1,639,816 at December 31, 1997. Amortization of the assets was included in depreciation expense. Operating leases are for office and manufacturing facilities. In September 1997, the Company entered into a build-to-suit lease arrangement for 95,838 square feet that will replace the current facilities. The Company occupied the new building in June 1998, at which time the lease commenced, and expires 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 twelve 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-17 METAWAVE COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) 9. COMMITMENTS (CONTINUED) Following is a summary of future minimum payments under capital leases and operating leases, including the new facility, that have initial or remaining noncancelable lease terms in excess of one year at December 31, 1997 (in thousands):
CAPITAL OPERATING LEASES LEASES ------- --------- 1998................................................. $ 1,302 $1,256 1999................................................. 1,333 1,461 2000................................................. 1,162 1,390 2001................................................. 475 1,557 2002................................................. -- 1,557 ------- ------ 4,272 $7,221 ====== Less interest........................................ (528) ------- 3,744 Current portion...................................... (1,035) ------- $ 2,709 =======
Rental expense for operating leases was $667,939, $304,619, and $21,167 for the years ended December 31, 1997, 1996, and 1995, respectively. The Company entered into agreements with certain leasing companies to provide up to $2 million in 1996, $3 million in 1997 and $3.5 million at June 30, 1998 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 8.756% for 1996, 7.25% in 1997 and 14.5% at June 30, 1998 all are secured by the underlying equipment. 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. 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 Chief Financial Officer. Both loans bear interest at 5.5%. The secured loan is payable in full on October 28, 2002 or earlier based upon certain events specified in the agreement. Fifty thousand dollars of the principal amount of the loan is to be forgiven over a three year period provided that the Company's Chief Financial Officer remains 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 terminates. The portion of the loan being forgiven is expensed ratably as compensation over the three-year period. F-18 METAWAVE COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) 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 The Company's customers are primarily cellular 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 an aggregate 51.4% of net revenue for the six month period ended June 30, 1998 and none in 1997. Export sales were made in Russia and Latin America, representing 27.4% and 24.0%, respectively, of the Company's net revenue for the six months ended June 30, 1998. To date, four customers have accounted for all of the Company's product sales. For the six months ended June 30, 1998, three customers, St. Petersburg Telecom, Telfonica Celular and ALLTEL, accounted for approximately 27.4%, 24.0% and 44.2%, respectively, of the Company's net revenue. During 1997, two customers of the Network Services division represented 63% and 27% of net revenue. In addition, the Company's current product design includes two key components that are each currently supplied by a single supplier. Purchases from these key suppliers aggregated $2,046,975 and $1,565,086 during 1997. In December 1997, the Company determined that it would discontinue the Network Services division. Accordingly, the carrying value of these fixed assets has been 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 net revenue for the year ended December 31, 1997 and the six months ended June 30, 1997 and 1998 were revenue of $1.5 million, $392,000 and $252,000, respectively, relating to the Network Services division and the cost of sales were $858,000, $516,000 and $242,000, respectively. In June 1998, in connection with certain patent licenses, the Company issued 11,000 Common Stock warrants and recorded fees for an aggregate amount of $360,000. The Common Stock warrants had an exercise price of $.01 per share and were immediately exercised. The Black-Scholes valuation model was used to calculate the value of the warrants at the date of grant with the following weighted-average assumptions: risk free interest rate of 6.0%; dividend yields of 0%; volatility factors of the expected market price of the Company's stock of .66; and a weighted-average life of the warrants of .01 years. The value of these warrants of $110,000 and cash of $250,000 was appropriately recorded as an operating expense for the period ended June 30, 1998. F-19 [INSIDE BACK COVER ARTWORK: MAP OF THE WORLD INDICATING THE LOCATION OF THE COMPANY'S COMMERCIAL SALES AND FIELD TRIALS.] (FIELD TRIALS MAY NOT RESULT IN COMMERCIAL SALES.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary........................................................ 3 Risk Factors.............................................................. 6 Use of Proceeds........................................................... 20 Dividend Policy........................................................... 20 Capitalization............................................................ 21 Dilution.................................................................. 22 Selected Financial Data................................................... 23 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 24 Business.................................................................. 32 Management................................................................ 48 Certain Relationships and Related Transactions............................ 59 Principal Stockholders.................................................... 61 Description of Securities................................................. 63 Shares Eligible for Future Sale........................................... 66 Underwriting.............................................................. 68 Legal Matters............................................................. 70 Experts................................................................... 70 Additional Information.................................................... 70 Glossary of Technical Terms............................................... 71 Index to Financial Statements F-1
------------ UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 3,500,000 SHARES [LOGO OF METAWAVE COMMUNICATIONS CORPORATION] COMMON STOCK ----------------- PROSPECTUS ----------------- BT ALEX. BROWN MERRILL LYNCH & CO. NATIONSBANC MONTGOMERY SECURITIES LLC , 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the Company in connection with the sale of Common Stock being registered. All amounts are estimates except the SEC registration fee, the NASD filing fee and the Nasdaq National Market Listing Fee.
AMOUNT TO BE PAID ---------- SEC Registration Fee............................................. $ 19,507 NASD Filing Fee.................................................. 7,113 Nasdaq National Market Listing Fee............................... 90,500 Printing Fees and Expenses....................................... 175,000 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.................................................... 192,880 ---------- Total.......................................................... $1,000,000 ==========
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES (a) Since January 1, 1995, the Registrant has issued and sold (without payment of any selling commission to any person) the following unregistered securities (as adjusted to reflect the automatic conversion of its outstanding Preferred Stock into Common Stock upon completion of this Offering): (1) In July and November 1995, the Registrant issued and sold shares of Series A Preferred Stock convertible into an aggregate of 3,849,998 shares of Common Stock to 6 investors for an aggregate purchase price of $5,500,000. (2) In May 1996, the Registrant issued and sold shares of Series B Preferred Stock convertible into an aggregate of 1,918,513 shares of Common Stock to 13 investors for an aggregate purchase price of $9,250,008. (3) In October and November 1996, the Registrant issued and sold shares of Series C Preferred Stock convertible into an aggregate of 1,744,306 shares of Common Stock to 19 investors for an aggregate purchase price of $15,349,981. (4) In August 1997, the Registrant issued and sold shares of Series D Preferred Stock convertible into an aggregate of 1,678,405 shares of Common Stock to 17 investors for an aggregate purchase price of $19,181,816. (5) The Registrant has issued to an equipment lease provider the following warrants: (A) in December 1995, a warrant to purchase shares of Series A Preferred Stock convertible into 34,125 shares of Common Stock for an aggregate purchase price of $106,641; (B) in April 1996, a warrant to purchase shares of Series A Preferred Stock convertible into 11,666 shares of Common Stock for an aggregate purchase price of $36,457; (C) in August 1996, a warrant to purchase shares of Series B Preferred Stock convertible into 13,999 shares of Common Stock for an aggregate purchase price of $94,396; (D) in June 1997, a warrant to purchase shares of Series C Preferred Stock convertible into 23,863 shares of Common Stock for an aggregate purchase price of $210,001. II-1 (6) In April 1998, the Registrant 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, the Registrant issued warrants to purchase shares of Series D Preferred Stock convertible into 376,245 shares of Common Stock for an aggregate purchase price of $5,375. (7) In April 1998, the Registrant issued to an equipment lease provider a warrant to purchase shares of Series D Preferred Stock convertible into 3,062 shares of Common Stock for an aggregate purchase price of $35,000. (8) In June 1998, in connection with certain patent licenses, the Registrant issued the licensor a warrant to purchase 7,700 shares of Common Stock for an aggregate purchase price of $110. Such licensor subsequently exercised the warrant and purchased 7,700 shares of Common Stock for an aggregate purchase price of $110. (9) As of June 30, 1998, an aggregate of 358,103 shares of Common Stock had been issued upon exercise of options under the Registrant's 1995 Stock Option Plan. (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)(8) 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 the Company, to information about the Registrant. The issuances described in Items 15(a)(9) 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 Underwriting Agreement.(a) 3.1 Certificate of Incorporation of the Registrant.(a) 3.2 Bylaws of the Registrant.(a) 3.3 Form of Amended and Restated Certificate of Incorporation of the Registrant, to effect the reverse stock split to be effected prior to the effective date of the offering.(c) 3.4 Form of Amended and Restated Certificate of Incorporation of the Registrant, to be filed and effective upon completion of this offering.(b) 5.1 Opinion of Venture Law Group, A Professional Corporation.(b) 10.1 Form of Indemnification Agreement.(a) 10.2 1995 Stock Option Plan, as amended, and form of stock option agreement.(a) 10.3 1998 Stock Option Plan, as amended, and form of stock option agreement.(b) 10.4 1998 Employee Stock Purchase Plan and form of subscription agreement.(a) 10.5 1998 Directors' Stock Option Plan and form of stock option agreement.(a) 10.6 Third Amended and Restated Investors Rights Agreement dated August 6, 1997 by and among the Registrant and certain holders of the Registrant's capital stock.(a) 10.7 [Intentionally Omitted]
II-2 10.8 Lease for Willow Creek Corporate Center dated September 29, 1997 by and between the Registrant and Carr America Realty Corporation.(b) 10.9+ Purchase Agreement dated October 21, 1997 by and between the Registrant and 360 Degree Communications Company.(b) 10.10+ Purchase Agreement dated December 12, 1997 by and between the Registrant and Telefonica Celular de Paraguay S.A.(b) 10.11+ Purchase Agreement dated March 4, 1998 by and between the Registrant and ALLTEL Supply Inc.(b) 10.12+ Purchase Agreement dated March 5, 1998 by and between the Registrant and OJSC St. Petersburg Telecom.(b) 10.13 Loan Agreement dated October 14, 1997 by and between Registrant and Imperial Bank.(a) 10.14 Amendment No. 1 to the Loan Agreement dated October 14, 1997 by and between Registrant and Imperial Bank.(a) 10.15 Metawave Communications Corporation Note Agreement dated as of April 27, 1998 regarding $29,000,000 13.75% Senior Secured Bridge Notes due April 28, 2000.(a) 10.16+ Manufacturing Agreement between the Registrant and Powerwave Technologies, Inc. dated as of September 3, 1998.(b) 10.17+ Purchase Agreement between the Registrant and GTE Wireless Incorporated dated as of September 8, 1998.(b) 10.18 Founders Stock Repurchase Agreement dated as of July 7, 1995 between the Registrant and Thomas Huseby.(a) 10.19 Employment Agreement with Mr. Douglas O. Reudink dated July 7, 1995.(a) 10.20 Employment Agreement with Mr. Robert H. Hunsberger dated July 27, 1997.(a) 10.21 Employment Agreement with Mr. Vito E. Palermo dated July 23, 1997.(a) 10.22 Employment Agreement with Mr. Richard Henderson dated October 29, 1997.(a) 10.23 Employment Agreement with Mr. Victor K. Liang dated July 23, 1998.(a) 21.2 Subsidiaries of the Registrant.(a) 23.1 Consent of Ernst & Young LLP, Independent Auditors.(b) 23.2 Consent of Counsel (included in Exhibit 5.1).(b) 24.1 Power of Attorney (see page II-6).(a) 27.1 Financial Data Schedule.(a) 99.1 Report of Ernst & Young LLP, Independent Auditors on Financial Statement Schedule.(a) 99.2 Financial Statement Schedule.(a)
- -------- (a) Previously filed. (b) Filed herewith. (c) To be filed by subsequent amendment. + 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. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the undersigned Registrant has duly caused this Amendment No. 2 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 October 14, 1998. 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. 2 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 October 14, 1998 ____________________________________ Officer and Director Robert H. Hunsberger (Principal Executive Officer) /s/ Vito E. Palermo* Senior Vice President, Chief October 14, 1998 ____________________________________ Financial Officer and Vito E. Palermo Secretary (Principal Financial and Accounting Officer) /s/ Douglas O. Reudink* Chief Technical Officer and October 14, 1998 ____________________________________ Chairman of the Board of Douglas O. Reudink Directors /s/ Bandel L. Carano* Director October 14, 1998 ____________________________________ Bandel L. Carano /s/ Bruce C. Edwards* Director October 14, 1998 ____________________________________ Bruce C. Edwards /s/ David R. Hathaway* Director October 14, 1998 ____________________________________ David R. Hathaway /s/ Scot B. Jarvis* Director October 14, 1998 ____________________________________ Scot B. Jarvis /s/ Jennifer Gill Roberts* Director October 14, 1998 ____________________________________ Jennifer Gill Roberts /s/ David A. Twyver* Director October 14, 1998 ____________________________________ David A. Twyver
/s/ Robert H. Hunsberger *By: ---------------------------- Robert H. Hunsberger II-4 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION ------- ----------- 1.1 Underwriting Agreement.(a) 3.1 Certificate of Incorporation of the Registrant.(a) 3.2 Bylaws of the Registrant.(a) 3.3 Form of Amended and Restated Certificate of Incorporation of the Registrant, to effect the reverse stock split to be effected prior to the effective date of the offering.(c) 3.4 Form of Amended and Restated Certificate of Incorporation of the Registrant, to be filed and effective upon completion of this Offering.(b) 5.1 Opinion of Venture Law Group, A Professional Corporation.(b) 10.1 Form of Indemnification Agreement.(a) 10.2 1995 Stock Option Plan, as amended, and form of stock option agreement.(a) 10.3 1998 Stock Option Plan, as amended, and form of stock option agreement.(b) 10.4 1998 Employee Stock Purchase Plan and form of subscription agreement.(a) 10.5 1998 Directors' Stock Option Plan and form of stock option agreement.(a) 10.6 Third Amended and Restated Investors Rights Agreement dated August 6, 1997 by and among the Registrant and certain holders of the Registrant's capital stock.(a) 10.7 [Intentionally Omitted] 10.8 Lease for Willow Creek Corporate Center dated September 29, 1997 by and between the Registrant and Carr America Realty Corporation.(b) 10.9+ Purchase Agreement dated October 21, 1997 by and between the Registrant and 360 Degree Communications Company.(b) 10.10+ Purchase Agreement dated December 12, 1997 by and between the Registrant and Telefonica Celular de Paraguay S.A.(b) 10.11+ Purchase Agreement dated March 4, 1998 by and between the Registrant and ALLTEL Supply Inc.(b) 10.12+ Purchase Agreement dated March 5, 1998 by and between the Registrant and OJSC St. Petersburg Telecom.(b) 10.13 Loan Agreement dated October 14, 1997 by and between Registrant and Imperial Bank.(a) 10.14 Amendment No. 1 to the Loan Agreement dated October 14, 1997 by and between Registrant and Imperial Bank.(a) 10.15 Metawave Communications Corporation Note Agreement dated as of April 27, 1998 regarding $29,000,000 13.75% Senior Secured Bridge Notes due April 28, 2000.(a) 10.16+ Manufacturing Agreement between the Registrant and Powerwave Technologies, Inc. dated as of September 3, 1998.(b) 10.17+ Purchase Agreement between the Registrant and GTE Wireless Incorporated dated as of September 8, 1998.(b) 10.18 Founders Stock Repurchase Agreement dated as of July 7, 1995 between the Registrant and Thomas Huseby.(a) 10.19 Employment Agreement with Mr. Douglas O. Reudink dated July 7, 1995.(a) 10.20 Employment Agreement with Mr. Robert H. Hunsberger dated July 27, 1997.(a) 10.21 Employment Agreement with Mr. Vito E. Palermo dated July 23, 1997.(a) 10.22 Employment Agreement with Mr. Richard Henderson dated October 29, 1997.(a) 10.23 Employment Agreement with Mr. Victor K. Liang dated July 23, 1998.(a) 21.2 Subsidiaries of the Registrant.(a)
EXHIBIT NO. DESCRIPTION ------- ----------- 23.1 Consent of Ernst & Young LLP, Independent Auditors.(b) 23.2 Consent of Counsel (included in Exhibit 5.1).(b) 24.1 Power of Attorney (see page II-6).(a) 27.1 Financial Data Schedule.(a) 99.1 Report of Ernst & Young LLP, Independent Auditors on Financial Statement Schedule.(a) 99.2 Financial Statement Schedule.(a)
- -------- (a) Previously filed. (b) Filed herewith. (c) To be filed by subsequent amendment. + 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-3.4 2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3.4 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF METAWAVE COMMUNICATIONS CORPORATION THE UNDERSIGNED, ROBERT H. HUNSBERGER AND VITO E. PALERMO, 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 Five Million (115,500,000) shares, each with a par value of $0.001 per share. One Hundred Fifty Million (105,000,000) shares shall be Common Stock and Fifteen Million (10,500,000) 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, within the limitations and restrictions stated in this Certificate of Incorporation, to determine or alter the rights, preferences, privileges and restrictions granted 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 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. Vacancies in the Board of Directors and newly created directorships resulting from any increase in the authorized number of directors shall be filled by a vote of the majority of the directors then in office, though less than a quorum, or by a sole remaining director. Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. 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. 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 -2- 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. (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 -3- 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 November __, 1998. ----------------------------------- Robert H. Hunsberger, President ----------------------------------- Vito E. Palermo, Secretary EX-5.1 3 OPINION OF VENTURE LAW GROUP, A PROFESSIONAL CORP. EXHIBIT 5.1 October 14, 1998 Metawave Communications Corporation 10735 Willows Road NE P.O. Box 97069 Redmond, WA 98073 REGISTRATION STATEMENT ON FORM S-1 (FILE NO. 333-59621) Ladies and Gentlemen: We have examined the Registration Statement on Form S-1 (File No. 333-59621) (the "Registration Statement") filed by you, Metawave Communications Corporation, with the Securities and Exchange Commission on July 22, 1998, and as amended, in connection with the registration under the Securities Act of 1933, as amended, of shares of your Common Stock (the "Shares"). As your 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 upon conclusion of the proceedings being taken or contemplated by us, as your counsel, to be taken prior to the issuance of the Shares, and upon completion of the proceedings being taken in order to permit such transactions to be carried out in accordance with the securities laws of the various states where required, 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 appearing in the Registration Statement, including the Prospectus constituting a part thereof, and in any amendment thereto. Very truly yours, VENTURE LAW GROUP A Professional Corporation /s/ Venture Law Group WWE EX-10.3 4 1998 STOCK OPTION PLAN 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 any of its Committees 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" shall have the meaning set forth in Section 4(b)(iii) below. (d) "Board" means the Board of Directors of the Company. (e) "Code" means the Internal Revenue Code of 1986, as amended. (f) "Committee" means the Committee appointed by the Board of Directors in accordance with Section 4(a) of the Plan. (g) "Common Stock" means the Common Stock of the Company. (h) "Company" means Metawave Communications Corporation, a Delaware corporation. (i) "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. (j) "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. (k) "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. (l) "Director" means a member of the Board. (m) "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. (n) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (o) "Fair Market Value" means, as of any date, the fair market value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system including without limitation the National Market of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported), as quoted on such system or exchange, or the exchange with the greatest volume of trading in Common Stock for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is quoted on the NASDAQ System (but not on the National Market thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (p) "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. (q) "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. (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 1998 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. 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 850,000 shares of Common Stock (the "Pool"). On the first trading day of each of the five calendar years beginning in 1999 and ending in 2003, the Pool shall be increased by an amount equal to three percent (3%) of the outstanding Common Stock up to a maximum of 1,000,000 in any calendar year, or such lower amount as determined by the Board of Directors. 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 the exercise or purchase price for such Option or 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) Initial Plan Procedure. Prior to the date, if any, upon which the Company becomes subject to the Exchange Act, the Plan shall be administered by the Board or a committee appointed by the Board. (b) Plan Procedure After the Date, if any, Upon Which the Company Becomes Subject to the Exchange Act. (i) Multiple Administrative Bodies. If permitted by Rule 16b-3, grants under the Plan may be made by different bodies with respect to directors, non-director officers and Employees or Consultants who are not Reporting Persons. (ii) Administration With Respect to Reporting Persons. With respect to grants of Options to Employees who are Reporting Persons, such grants shall be made by (A) the Board if the Board may make grants to Reporting Persons under the Plan in compliance with Rule 16b-3 and Section 162(m) of the Code as it applies so as to qualify grants of options to Named Executive Officers as performance-based compensation, or (B) a committee designated by the Board to make grants to Reporting Persons under the Plan, which committee shall be constituted in such a manner as to permit grants under the Plan to comply with Rule 16b-3 and to qualify grants of Options to Named Executives as performance- based compensation under Section 162(m) of the Code and otherwise so as to satisfy the Applicable Laws. Once appointed, 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 the 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 the committee and thereafter directly make grants to Reporting Persons under the Plan, all to the extent permitted by Rule 16b-3. (iii) Administration With Respect to Consultants and Other Employees. With respect to grants of Options to Employees or Consultants who are not Reporting Persons, the Plan shall be administered by (A) the Board or (B) a committee designated by the Board, which committee shall be constituted in such a manner as to satisfy the legal requirements relating to the administration of incentive stock option plans, if any, of applicable corporate and securities laws, of the Code and of any applicable Stock Exchange (the "Applicable Laws"). Once appointed, 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 the 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 the Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws. (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(o) 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; 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 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, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, 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 850,000. 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 shareholders at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which occurred the first registration of 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, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, 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: (A) granted 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. (B) granted 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. (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) authorization for the Company to retain from the total number of Shares as to which the Option is exercised that number of Shares having a Fair Market Value on the date of exercise equal to the exercise price for the total number of Shares as to which the Option is exercised, (6) 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, (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 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. 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 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 Section 10(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 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 (i) Notwithstanding Section 10(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 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 Misconduct. 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 Misconduct, all outstanding Options held by the Optionee shall terminate immediately and cease to be outstanding. For purposes of this Section 10(f), Misconduct shall mean 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. (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 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 applicable taxes on the ordinary income recognized 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. 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 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 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 this sentence shall not apply with respect to any Option as to which the Administrator determines, in its sole discretion, that the Board or the acquiring person or the surviving corporation, as the case may be, has made equitable and appropriate provision for the assumption of or 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). (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 any portion of an Option entitled to accelerated vesting under the second sentence of Section 13(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 the Administrator determines otherwise pursuant to the second sentence of Section 13(c)(ii) above. (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. 14. 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. The designation of a beneficiary by an Optionee will not constitute transfer. 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 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 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. (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. (c) If any required approval by the stockholders of the Plan itself or of any amendment thereto is solicited at any time otherwise than in the manner described in Section 20(b) hereof, then the Company shall, at or prior to the first annual meeting of stockholders held subsequent to the later of (1) the first registration of any class of equity securities of the Company under Section 12 of the Exchange Act or (2) the granting of an Option hereunder to an officer or director after such registration, do the following: (i) furnish in writing to the holders entitled to vote for the Plan substantially the same information that would be required (if proxies to be voted with respect to approval or disapproval of the Plan or amendment were then being solicited) by the rules and regulations in effect under Section 14(a) of the Exchange Act at the time such information is furnished; and (ii) file with, or mail for filing to, the Securities and Exchange Commission four copies of the written information referred to in subsection (i) hereof not later than the date on which such information is first sent or given to stockholders. EX-10.8 5 LEASE FOR WILLOW CREEK CORPORATE CENTER EXHIBIT 10.8 * * * * * * * * * * * * * * * * * * * * --------------------------------------- Lease ----- WILLOW CREEK CORPORATE CENTER ----------------------------- * * * * * * * * * * * * * * * * * * * * --------------------------------------- Between ------- METAWAVE COMMUNICATIONS CORPORATION, INC. ----------------------------------------- (Tenant) -------- and --- CARR AMERICA REALTY CORPORATION ------------------------------- (Landlord) ---------- TABLE OF CONTENTS
Page ---- 1. LEASE AGREEMENT 2 2. RENT 2 A. Types of Rent 2 (1) Base Rent 3 (2) Operating Cost Share Rent 3 (3) Tax Share Rent 3 (4) Additional Rent 3 (5) Rent 3 (6) Skybridge 3 B. Payment of Operating Cost Share Rent and Tax Share Rent 4 (1) Payment of Estimated Operating Cost Share Rent and Tax Share Rent 4 (2) Correction of Operating Cost Share Rent 4 (3) Correction of Tax Share Rent 4 C. Definitions 4 (1) Included Operating Costs 4 (2) Excluded Operating Costs 5 (3) Taxes 6 (4) Lease Year 7 (5) Fiscal Year 7 D. Computation of Base Rent and Rent Adjustments 7 (1) Prorations 7 (2) Default Interest 7 (3) Rent Adjustments 8 (4) Books and Records 8 (5) Miscellaneous 8 3. PREPARATION AND CONDITION OF PREMISES; POSSESSION AND SURRENDER OF PREMISES 8 A. Condition of Premises 8 B. Tenant's Possession 9 C. Surrender 9 4. BUILDING AND LANDLORD REPAIR 9 A. Heating and Air Conditioning 9 B. Electricity 10 C. Water 10 D. Janitorial Service 10 E. Landlord's Repair Obligations 10 F. Interruption of Services 11
5. ALTERATIONS AND REPAIRS BY TENANT 11 A. Landlord's Consent and Conditions 11 B. Damage to Systems 12 C. No Liens 12 D. Ownership of Improvements 13 E. Removal at Termination 13 F. Tenant's Repair Obligation 13 6. USE OF PREMISES 14 7. GOVERNMENTAL REQUIREMENTS AND BUILDING RULES 14 8. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE 15 A. Waiver of Claims 15 B. Indemnification 15 C. Tenant's Insurance 15 D. Insurance Certificates 17 E. Landlord's Insurance 17 9. FIRE AND OTHER CASUALTY 17 A. Termination 17 B. Restoration 17 10. EMINENT DOMAIN 18 11. RIGHTS RESERVED TO LANDLORD 18 A. Name 18 B. Signs 18 C. Window Treatments 18 D. Keys 18 E. Access 18 F. Preparation for Reoccupancy 19 G. Heavy Articles 19 H. Show Premises 19 I. Use of Lockbox 19 J. Repairs and Alterations 19 K. Landlord's Agents 19 L. Building Services 19 M. Other Actions 19 12. TENANT'S DEFAULT 20 A. Rent Default 20 B. Assignment/Sublease Default 20 C. Other Performance Default 20
D. Credit Default 20 13. LANDLORD REMEDIES 20 A. Termination of Lease or Possession 20 B. Lease Termination Damages 20 C. Possession Termination Damages 21 D. Landlord's Remedies Cumulative 21 E. WAIVER OF TRIAL BY JURY 21 F. Litigation Costs 22 14. SURRENDER 22 15. HOLDOVER 22 16. SUBORDINATION TO GROUND LEASES AND MORTGAGES 22 A. Subordination 22 B. Termination of Ground Lease or Foreclosure of Mortgage 22 C. Security Deposit 23 D. Notice and Right to Cure 23 E. Definitions 23 17. ASSIGNMENT AND SUBLEASE 23 A. In General 23 B. Landlord's Consent 23 C. Procedure 24 D. Change of Ownership 24 E. Excess Payments 24 18. CONVEYANCE BY LANDLORD 24 19. ESTOPPEL CERTIFICATE 25 20. SECURITY DEPOSIT 25 21. FORCE MAJEURE 26 22. TENANT'S PERSONAL PROPERTY AND FIXTURES 26 23. NOTICES 26 A. Landlord 26 B. Tenant 26 24. QUIET POSSESSION 27 25. REAL ESTATE BROKER 28
26. MISCELLANEOUS 28 A. Successors and Assigns 28 B. Date Payments Are Due 28 C. Meaning of "Landlord", "Re-Entry, "including" and "Affiliate" 28 D. Time of the Essence 28 E. No Option 28 F. Severability 28 G. Governing Law 28 H. Lease Modification 29 I. No Oral Modification 29 J. Landlord's Right to Cure 29 K. Captions 29 L. Authority 29 M. Landlord's Enforcement of Remedies 29 N. Entire Agreement 29 O. Landlord's Title 29 P. Light and Air Rights 29 Q. Singular and Plural 29 R. No Recording by Tenant 30 S. Exclusivity 30 T. No Construction Against Drafting Party 30 U. Survival 30 V. Rent Not Based on Income 30 W. Building Manager and Service Providers 30 X. Late Charge and Interest on Late Payments 30 Y. Parking 30 Z. Signage 30 27. UNRELATED BUSINESS INCOME 31 28. HAZARDOUS SUBSTANCES 31 29. EXCULPATION 31
LEASE ----- THIS LEASE (the "Lease") is made as of September 29, 1997 between ----------- CARRAMERICA REALTY CORPORATION, a Maryland corporation (the "Landlord") and the -------- Tenant as named in the Schedule below. The term "Project" means the buildings ------- one through six (individually the "Building" and collectively the "Buildings") -------- --------- known as "Willow Creek Corporate Center" and the land (the "Land") located at ---- 10525 Willows Road, Redmond, Washington 98073. "Premises" means that part of -------- the Project leased to Tenant described in the Schedule and outlined on Appendix A. The following schedule (the "Schedule") is an integral part of this Lease. -------- Terms defined in this Schedule shall have the same meaning throughout the Lease. SCHEDULE I. TENANT: Metawave Communications Corporation, Inc., a Delaware corporation. II. PREMISES: Buildings 1 and 2 of the Project. III. RENTABLE SQUARE FEET OF THE PREMISES: Approximately 95,838 square feet (Building 1 - 51,286 square feet, Building 2 - 44,552 square feet). IV. TENANT'S PROPORTIONATE SHARE: 28.62% (based upon a total of 334,906 rentable square feet in the Buildings). V. SECURITY DEPOSIT: $2,500,000 Letter of Credit. VI. TENANT'S REAL ESTATE BROKER FOR THIS LEASE: CB Commercial Real Estate Group, Inc. VII. LANDLORD'S REAL ESTATE BROKER FOR THIS LEASE: N/A. VIII. TENANT IMPROVEMENTS, IF ANY: See the Tenant Improvement Agreement attached hereto as Appendix C. IX. COMMENCEMENT DATE: June 1, 1998. If the Commencement Date is other than June 1, 1998, Landlord and Tenant shall execute a Commencement Date Confirmation substantially in the form of Appendix E promptly following the Commencement Date. X. TERMINATION DATE/TERM: May 31, 2005, seven (7) years after the Commencement Date, or if the Commencement Date is not the first day of a month, then after the first day of the following month. XI. GUARANTOR: N/A. 1 - XII. BASE RENT.
Annual Monthly Per Sq. Ft. Period Base Rent Base Rent Rent - -------------------------------------------------------------------------------- 6-1-98 through 5-31-01 $1,389,651.00 $115,804.25 $14.50 nnn/rsf 6-1-01 through 5-31-03 $1,557,367.50 $129,780.63 $16.25 nnn/rsf 6-1-03 through 5-31-05 $1,677,165.00 $139,763.75 $17.50 nnn/rsf
I. APPENDICES: The following attached Appendices are an integral part of this Lease and incorporated herein by this reference: Appendix A-1 - Plan of the Premises Appendix A-2 - Plan of the Project Appendix B - Rules and Regulations Appendix C - Tenant Improvement Agreement Appendix D - Mortgages Affecting Project Appendix E - Commencement Date Conformation Appendix F - Legal Description Appendix G - Extension Option Appendix H - Expansion Option 1. LEASE AGREEMENT. On the terms stated in this Lease, Landlord leases --------------- the Premises to Tenant, and Tenant leases the Premises from Landlord, for the Term beginning on the Commencement Date and ending on the Termination Date unless extended or sooner terminated pursuant to this Lease. 2. RENT. ---- A. Types of Rent. Tenant shall pay the following Rent in the form of a ------------- check to Landlord at the following address: CARRAMERICA REALTY CORPORATION WILLOW CREEK CORPORATE CENTER P.O. Box 198456 Atlanta, GA 30384-7918 2 - or by wire transfer as follows: Account Name: CarrAmerica Realty Corporation Account Number: 3255807986 ABA Number: 061-000-052 Bank Name: NationsBank of Georgia Notification: Jennifer Malone (CarrAmerica) Telephone: 202-639-3829 or in such other manner as Landlord may notify Tenant: (1) Base Rent in monthly installments in advance on or before the --------- first day of each month of the Term in the amount set forth on the Schedule. Notwithstanding the foregoing, Landlord and Tenant agree that for the first six (6) months of the Lease Term Tenant's monthly Base Rent payment shall be [***] and, thereafter, Tenant s Base Rent obligation shall be as set forth in the Schedule. Landlord and Tenant agree that in the event Tenant shall occupy any portion of the approximately 23,000 square feet of Pocket Space as identified in the Tenant Improvement Agreement, Appendix C, Section 1, the Base Rent during months one through six (1-6) of the Lease Term shall be increased proportionately based on [***] PSF for that portion of the Pocket Space occupied by Tenant. (2) Operating Cost Share Rent in an amount equal to the Tenant's ------------------------- Proportionate Share of the Operating Costs for the applicable fiscal year of the Lease, paid monthly in advance in an estimated amount. Definitions of Operating Costs and Tenant's Proportionate Share, and the method for billing and payment of Operating Cost Share Rent are set forth in Sections 2B, 2C and 2D. (3) Tax Share Rent in an amount equal to the Tenant's Proportionate -------------- Share of the Taxes for the applicable fiscal year of this Lease, paid monthly in advance in an estimated amount. A definition of Taxes and the method for billing and payment of Tax Share Rent are set forth in Sections 2B, 2C and 2D. (4) Additional Rent in the amount of all costs, expenses, --------------- liabilities, and amounts which Tenant is required to pay under this Lease, excluding Base Rent, Operating Cost Share Rent, and Tax Share Rent, but including any interest for late payment of any item of Rent. (5) Rent as used in this Lease means Base Rent, Operating Cost Share ---- Rent, Tax Share Rent and Additional Rent. Tenant's agreement to pay Rent is an independent covenant, with no right of setoff, deduction or counterclaim of any kind, except as otherwise expressly stated herein. (6) Skybridge. Tenant hereby agrees to pay to Landlord the costs and --------- expenses incurred by Landlord in the construction of the skybridge pursuant to Appendix C(6)(b) as follows: Tenant shall pay monthly throughout the term of this Lease an amount per month equal to the total cost and expenses of constructing the skybridge amortized over the seven year term of this Lease at an annual interest rate of 10.5%. Tenant shall not be required to remove the skybridge at the termination of the Lease. [***] 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. 3 - B. Payment of Operating Cost Share Rent and Tax Share Rent. ------------------------------------------------------- (1) Payment of Estimated Operating Cost Share Rent and Tax Share Rent ----------------------------------------------------------------- Landlord shall estimate the Operating Costs and Taxes of the Project by April 1 of each fiscal year, or as soon as reasonably possible thereafter. Landlord may revise these estimates whenever it obtains more accurate information, such as the final real estate tax assessment or tax rate for the Project. Within ten (10) days after receiving the original or revised estimate from Landlord, Tenant shall pay Landlord one-twelfth (1/12th) of Tenant's Proportionate Share of this estimate, multiplied by the number of months that have elapsed in the applicable fiscal year to the date of such payment including the current month, minus payments previously made by Tenant for the months elapsed. On the first day of each month thereafter, Tenant shall pay Landlord one-twelfth (1/12th) of Tenant's Proportionate Share of this estimate, until a new estimate becomes applicable. (2) Correction of Operating Cost Share Rent. Landlord shall deliver --------------------------------------- to Tenant a report for the previous fiscal year (the "Operating Cost Report") by --------------------- April 1 of each year, or as soon as reasonably possible thereafter, setting forth (a) the actual Operating Costs incurred, (b) the amount of Operating Cost Share Rent due from Tenant, and (c) the amount of Operating Cost Share Rent paid by Tenant. Within twenty (20) days after such delivery, Tenant shall pay to Landlord the amount due minus the amount paid. If the amount paid exceeds the amount due, Landlord shall apply the excess to Tenant's payments of Operating Cost Share Rent next coming due. (3) Correction of Tax Share Rent. Landlord shall deliver to Tenant a ---------------------------- report for the previous fiscal year (the "Tax Report") by April 1 of each year, ---------- or as soon as reasonably possible thereafter, setting forth (a) the actual Taxes, (b) the amount of Tax Share Rent due from Tenant, and (c) the amount of Tax Share Rent paid by Tenant. Within twenty (20) days after such delivery, Tenant shall pay to Landlord the amount due from Tenant minus the amount paid by Tenant. If the amount paid exceeds the amount due, Landlord shall apply any excess as a credit against Tenant's payments of Tax Share Rent next coming due. C. Definitions. ----------- (1) Included Operating Costs. "Operating Costs" means any expenses, ------------------------ --------------- costs and disbursements of any kind other than Taxes, paid or incurred by Landlord in connection with the management, maintenance, operation, insurance, repair and other related activities in connection with any part of the Project and of the personal property, fixtures, machinery, equipment, systems and apparatus used in connection therewith, including the cost of providing those repair, maintenance and services required to be furnished by Landlord to the Premises and Building under this Lease, a management fee 4 - in an amount equal to three percent (3%) of the annual Base Rent and accounting and administration costs incurred by Landlord with respect to the Project. Operating Costs shall also include the costs of any capital improvements (other than Landlord's Work, Initial Improvements, and Additional Improvements) which reduce Operating Costs or improve safety, and those made to keep the Project in compliance with governmental requirements applicable from time to time (collectively, "Included Capital Items"); provided, that the costs of any Included Capital Item shall be amortized by Landlord, together with an amount equal to interest at ten percent (10%) per annum, over the estimated useful life of such item and such amortized costs are only included in Operating Costs for that portion of the useful life of the Included Capital Item which falls within the Term. If the Project is not fully occupied during any portion of any fiscal year, Landlord may adjust (an "Equitable Adjustment") Operating Costs to equal -------------------- what would have been incurred by Landlord had the Project been fully occupied. This Equitable Adjustment shall apply only to Operating Costs which are variable and therefore increase as occupancy of the Project increases. Landlord may incorporate the Equitable Adjustment in its estimates of Operating Costs. If Landlord does not furnish any particular service whose cost would have constituted an Operating Cost to a tenant other than Tenant who has undertaken to perform such service itself, Operating Costs shall be increased by the amount which Landlord would have incurred if it had furnished the service to such tenant. (2) Excluded Operating Costs. Operating Costs shall not include: ------------------------ (a) costs of alterations of tenant premises; (b) costs of capital improvements other than Included Capital Items; (c) interest and principal payments on mortgages or any other debt costs, or rental payments on any ground lease of the Project; (d) real estate brokers' leasing commissions; (e) legal fees, space planner fees and advertising expenses incurred with regard to leasing the Building or portions thereof; (f) any cost or expenditure for which Landlord is reimbursed, by insurance proceeds or otherwise, except by Operating Cost Share Rent; 5 - (g) the cost of any service furnished to any office tenant of the Project which Landlord does not make available to Tenant; (h) depreciation (except on any Included Capital Items); (i) franchise or income taxes imposed upon Landlord; (j) costs of correcting defects in construction of the Building, including Building Shell, Initial Improvements and Additional Improvements (as opposed to the cost of normal repair, maintenance and replacement expected with the construction materials and equipment installed in the Building in light of their specifications); (k) legal and auditing fees which are for the benefit of Landlord such as collecting delinquent rents, preparing tax returns and other financial statements, and audits other than those incurred in connection with the preparation of reports required pursuant to Section 2B above; (l) the wages of any employee for services not related directly to the day to day management, maintenance, operation and repair of the Building; and (m) fines, penalties and interest. (n) amounts paid for deductibles on insurance carried by Landlord relating to the Project in excess of industry standard deductibles for insurance policies covering comparable Projects. (3) Taxes. "Taxes" means any and all taxes, assessments and charges ----- ----- of any kind, general or special, ordinary or extraordinary, levied against the Project, which Landlord shall pay or become obligated to pay in connection with the ownership, leasing, renting, management, use, occupancy, control or operation of the Project or of the personal property, fixtures, machinery, equipment, systems and apparatus used in connection therewith. Taxes shall include real estate taxes, personal property taxes, sewer rents, water rents, special or general assessments, transit taxes, ad valorem taxes, and any tax levied on the rents hereunder or the interest of Landlord under this Lease (the "Rent Tax"). Taxes shall also include all fees and other costs and expenses -------- paid by 6 - Landlord in reviewing any tax and in seeking a refund or reduction of any Taxes, whether or not the Landlord is ultimately successful. For any year, the amount to be included in Taxes (a) from taxes or assessments payable in installments, shall be the amount of the installments (with any interest) due and payable during such year, and (b) from all other Taxes, shall at Landlord's election be the amount accrued, assessed, or otherwise imposed for such year or the amount due and payable in such year. Any refund or other adjustment to any Taxes by the taxing authority, shall apply during the year in which the adjustment is made. Taxes shall not include any net income (except Rent Tax), capital, stock, succession, transfer, franchise, gift, estate or inheritance tax, except to the extent that such tax shall be imposed in lieu of any portion of Taxes. (4) Lease Year. "Lease Year" means each consecutive twelve-month ---------- ---------- period beginning with the Commencement Date, except that if the Commencement Date is not the first day of a calendar month, then the first Lease Year shall be the period from the Commencement Date through the final day of the twelve months after the first day of the following month, and each subsequent Lease Year shall be the twelve months following the prior Lease Year. (5) Fiscal Year. "Fiscal Year" means the calendar year, except that ----------- ----------- the first fiscal year and the last fiscal year of the Term may be a partial calendar year. D. Computation of Base Rent and Rent Adjustments. --------------------------------------------- (1) Prorations. If this Lease begins on a day other than the first ---------- day of a month, the Base Rent, Operating Cost Share Rent and Tax Share Rent shall be prorated for such partial month based on the actual number of days in such month. If this Lease begins on a day other than the first day, or ends on a day other than the last day, of the fiscal year, Operating Cost Share Rent and Tax Share Rent shall be prorated for the applicable fiscal year. (2) Default Interest. Any sum due from Tenant to Landlord not paid ---------------- when due shall bear interest from the date due until paid at ten and one half percent (10.5%). (3) Rent Adjustments. The square footage of the Premises and the ---------------- Building set forth in the Schedule are conclusively deemed to be the actual square footage thereof, without regard to any subsequent remeasurement of the Premises or the Building. If any Operating Cost paid in one fiscal year relates to more than one fiscal year, Landlord may proportionately allocate such Operating Cost among the related fiscal years. 7 - (4) Books and Records. Landlord shall maintain books and records ----------------- reflecting the Operating Costs and Taxes in accordance with sound accounting and management practices. Tenant and its certified public accountant shall have the right to inspect Landlord's records at Landlord's office upon at least seventy- two (72) hours' prior notice during normal business hours during the ninety (90) days following the respective delivery of the Operating Cost Report or the Tax Report. The results of any such inspection shall be kept strictly confidential by Tenant and its agents, and Tenant and its certified public accountant must agree, in their contract for such services, to such confidentiality restrictions and shall specifically agree that the results shall not be made available to any other tenant of the Building. Unless Tenant sends to Landlord any written exception to either such report within said ninety (90) day period, such report shall be deemed final and accepted by Tenant. Tenant shall pay the amount shown on both reports in the manner prescribed in this Lease, whether or not Tenant takes any such written exception, without any prejudice to such exception. If Tenant makes a timely exception, Landlord shall cause its independent certified public accountant to issue a final and conclusive resolution of Tenant's exception. Tenant shall pay the cost of such certification unless Landlord's original determination of annual Operating Costs or Taxes overstated the amounts thereof by more than five percent (5%). (5) Miscellaneous. So long as Tenant is in default of any obligation ------------- under this Lease, Tenant shall not be entitled to any refund of any amount from Landlord. If this Lease is terminated for any reason prior to the annual determination of Operating Cost Share Rent or Tax Share Rent, either party shall pay the full amount due to the other within fifteen (15) days after Landlord's notice to Tenant of the amount when it is determined. Landlord may commingle any payments made with respect to Operating Cost Share Rent or Tax Share Rent, without payment of interest. 3. PREPARATION AND CONDITION OF PREMISES; POSSESSION AND SURRENDER OF ------------------------------------------------------------------ PREMISES. - -------- A. Condition of Premises. Except to the extent of the Tenant --------------------- Improvements item on the Schedule, and without limiting Landlord s duties under other provisions of this Lease, Landlord is leasing the Premises to Tenant "as is", without any obligation to alter, remodel, improve, repair or decorate any part of the Premises. Landlord shall cause the Premises to be completed in accordance with the Tenant Improvement Agreement attached as Appendix C. B. Tenant's Possession. Tenant's taking possession on the Commencement ------------------- Date of any portion of the Premises shall be conclusive evidence that the Premises was in good order, repair and condition, other than latent and other defects which are not discoverable upon reasonable inspection by Tenant at the time of taking possession. If Landlord authorizes Tenant to take possession of any part of the Premises prior to the Commencement Date for purposes of doing business, all terms of this Lease shall apply to such pre-Term possession, including Base Rent at the rate set forth for the First Lease 8 - Year in the Schedule prorated for any partial month. Notwithstanding the foregoing, Tenant shall be granted access to the Premises thirty (30) days prior to the Commencement Date for the purposes of installing Tenant s furniture, fixtures and equipment. In the event that through no fault of Tenant, and subject to force majeure, Landlord has not substantially completed (as defined in Appendix C) the Premises in accordance with Appendix C by the Commencement Date, as Tenant s sole and exclusive remedy, Landlord shall provide Tenant with two (2) days of Base Rent abatement credit for each day of late delivery until the Premises are substantially complete provided, however, that in the event that Premises are not delivered within 120 days of the Commencement Date, Tenant shall have the right to terminate this Lease. C. Surrender. Subject to Landlord's obligations set forth herein and --------- paragraph 4E, throughout the Term, Tenant shall maintain, repair and replace the Premises in their condition as of the Completion Date, loss or damage caused by the elements, ordinary wear, and fire and other casualty excepted, and at the termination of this Lease, or Tenant's right to possession, Tenant shall return the Premises to Landlord in broom-clean condition. To the extent Tenant fails to perform either obligation, Landlord may, but need not, restore the Premises to such condition and Tenant shall pay the cost thereof. 4. BUILDING AND LANDLORD REPAIR. ---------------------------- Landlord shall furnish the services, repair and maintenance to the Premises and Buildings ("Building Services"), unless otherwise stated herein, as follows: A. Heating and Air Conditioning. Landlord shall furnish heating and air ---------------------------- conditioning system to the Premises as part of the Building Shell to provide a comfortable temperature, in Landlord's judgment, for normal business operations. Tenant may install supplementary stand alone air conditioning units in the Premises, if necessary to maintain comfortable temperature for normal business operations, provided that such improvements by Tenant shall be of Tenant's sole cost and expense, and subject to Landlord's reasonable prior approval and the terms of Article 5 hereof. Tenant shall pay to Landlord upon demand as Additional Rent the cost of operation, repair and maintenance thereof. B. Electricity. Landlord shall furnish to the Premises as part of the ----------- Building Shell sufficient electricity to operate normal office equipment. Tenant shall not install or operate in the Premises any electrically operated equipment or other machinery, other than business machines and equipment normally employed for general office use (other than equipment installed in Tenant's "equipment demo rooms", engineering laboratories and on the production floor) which do not require high electricity consumption for operation. If any of Tenant's equipment requires electricity consumption in excess of the capacity of the electrical system installed by Landlord in the Premises, all additional 9 - transformers, distribution panels and wiring that may be required to provide the amount of electricity required for Tenant's equipment shall be installed by Landlord at the cost and expense of Tenant except to the extent covered by the Landlord Contribution. Tenant shall pay the cost of electricity it consumes as recorded by the electric meter serving the Premises directly to the electric company. In the event that the Premises are not separately metered, Tenant shall be billed periodically by Landlord based upon such consumption or shall be made part of the Operating Cost Share Rent. C. Water. Landlord shall furnish hot and cold tap water for drinking and ----- toilet purposes to the Premises as part of the Building Shell. Tenant shall pay directly to the water company for water furnished and consumed. Tenant shall not permit water to be wasted. D. Janitorial Service. Tenant shall provide, at its own cost and ------------------ expense, janitorial services to the Premises. At Tenant's request, Landlord may furnish janitorial to the Premises. Tenant shall reimburse Landlord such costs as Additional Rent. E. Landlord's Repair Obligations. Subject to Tenant's obligations set ----------------------------- forth in paragraph 5F below and Landlord's rights to reimbursement of costs and expenses as set forth in this Lease, Landlord shall repair, maintain and replace, as necessary, the Building shell, the roof, exterior walls and structural parts of the Premises, and equipment and fixtures comprising the Building Services (unless otherwise expressly excluded as set forth in this paragraph 4). Tenant shall pay to and reimburse Landlord for the cost and expense of Landlord's obligations hereunder as Operating Costs, or if such services are provided solely to Tenant and the Premises, Landlord shall invoice Tenant and Tenant shall pay Landlord, as Additional Rent, the cost of such services. Notwithstanding the foregoing, Landlord shall not (i) be required to make repairs necessitated by reason of the negligence or willful misconduct of Tenant or anyone claiming under Tenant, by reason of the failure of Tenant to perform or observe any conditions or agreements of this Lease, or by reason of any improvements or alterations made by Tenant, or (ii) be liable to Tenant for failure to make repairs as herein specifically required of it unless Tenant has notified Landlord, in writing (except in emergencies) of the need for such repairs and Landlord has failed to commence said repairs within ten (10) business days following receipt of Tenant's notification. F. Interruption of Services. If any of the Building utilities systems, ------------------------ equipment or machinery provided or maintained by Landlord ceases to function properly for any cause, Landlord shall use reasonable diligence to repair the same promptly. Landlord's inability to furnish, to any extent, the Building Services set forth in this Section 4, or any cessation thereof resulting from any causes, including any entry for repairs pursuant to this Lease, and any renovation, redecoration or rehabilitation of any area of the Building shall not render Landlord liable for damages to either person or property or for interruption or loss to Tenant's business, nor be construed as an eviction of Tenant, nor work an abatement of any portion of rent, nor relieve Tenant from fulfillment 10 -- of any covenant or agreement hereof; provided, however, in the event that an interruption of the Building Services set forth in this Section 4 to the extent caused by Landlord's negligence or performance of its duties under this Lease causes the Premises to be untenantable for a period of at least five (5) consecutive business days, monthly Rent shall be abated proportionately. 5. ALTERATIONS AND REPAIRS BY TENANT. --------------------------------- A. Landlord's Consent and Conditions. --------------------------------- Tenant shall not make any improvements or alterations to the Premises (the "Work"), in excess of ten thousand dollars ($10,000) without in each instance ---- submitting plans to Landlord and obtaining Landlord's prior written consent, which shall not be unreasonably withheld. For purposes of this Section, the term "Work" shall not include Tenant's furniture, fixtures or equipment. Landlord will be deemed to be acting reasonably in withholding its consent for any Work which (a) impacts the base structural components or systems of the Building, (b) impacts any other tenant's premises, or (c) is visible from outside the Premises, with the exception of antennas installed pursuant to Section 6 hereof. With respect to any consent required herein, Landlord shall respond within ten (10) days. Tenant shall reimburse Landlord for actual costs incurred for review of the plans and all other items submitted by Tenant. Tenant shall pay for the cost of all Work. All Work shall become the property of Landlord upon its installation, except for Tenant's trade fixtures and for items which Landlord requires Tenant to remove at Tenant's cost at the termination of the Lease pursuant to Section 5E. The following requirements shall apply to all Work: (1) Prior to commencement, Tenant shall furnish to Landlord building permits, certificates of insurance satisfactory to Landlord, and, at Landlord's request, security for payment of all costs. (2) Tenant shall perform all Work so as to maintain peace and harmony among other contractors serving the Project and shall avoid interference with other work to be performed or services to be rendered in the Project. (3) The Work shall be performed in a good and workmanlike manner, meeting the standard for construction and quality of materials in the Building, and shall comply with all insurance requirements and all applicable governmental laws, ordinances and regulations ("Governmental Requirements"). ------------------------- 11 -- (4) Tenant shall perform all Work so as to minimize or prevent disruption to other tenants, and Tenant shall comply with all reasonable requests of Landlord in response to complaints from other tenants. (5) Tenant shall perform all Work in compliance with Landlord's "Policies, Rules and Procedures for Construction Projects" in effect at the time the Work is performed. (6) Tenant shall permit Landlord to supervise all Work. Landlord may charge a supervisory fee not to exceed five percent (5%) of labor, material, and all other costs of the Work, if Landlord's employees or contractors perform the Work. (7) Upon completion, Tenant shall furnish Landlord with contractor's affidavits and full and final statutory waivers of liens, as-built plans and specifications, and receipted bills covering all labor and materials. B. Damage to Systems. If any part of the mechanical, electrical or other ----------------- systems in the Premises provided or maintained by landlord shall be damaged as a result of Tenant's improvements or alterations, Tenant shall promptly notify Landlord, and Landlord shall repair such damage. Landlord may also at any reasonable time make any repairs or alterations which Landlord deems necessary for the safety or protection of the Project, or which Landlord is required to make by any court or pursuant to any Governmental Requirement. During any period of Tenant's alteration or improvement of the Premises, Tenant shall at its expense make all other repairs required as a result or caused by Tenant's construction of alterations and improvements necessary to keep the Premises, and Tenant's fixtures and personal property, in good order, condition and repair; to the extent Tenant fails to do so, Landlord may make such repairs itself. The cost of any repairs made by Landlord on account of Tenant's default, or on account of the mis-use or neglect by Tenant or its invitees, contractors or agents anywhere in the Project, shall become Additional Rent payable by Tenant on demand. C. No Liens. Tenant has no authority to cause or permit any lien or -------- encumbrance of any kind to affect Landlord's interest in the Project; any such lien or encumbrance shall attach to Tenant's interest only. If any mechanic's lien shall be filed or claim of lien made for work or materials furnished to Tenant, then Tenant shall at its expense within ten (10) days thereafter either discharge or contest the lien or claim. If Tenant contests the lien or claim, then Tenant shall (i) within such ten (10) day period, provide Landlord adequate security for the lien or claim, (ii) contest the lien or claim in good faith by appropriate proceedings that operate to stay its enforcement, and (iii) pay promptly any final adverse judgment entered in any such proceeding. If Tenant does not comply with these requirements, Landlord may discharge the lien or claim, and the amount paid, as well as attorney's fees and other expenses incurred by Landlord, shall become Additional Rent payable by Tenant on demand. 12 -- D. Ownership of Improvements. All improvements, alterations or work to ------------------------- the Premises as defined in this Section 5, partitions, hardware, equipment, machinery and all other improvements and all fixtures except trade fixtures, constructed in the Premises by either Landlord or Tenant, (i) shall become Landlord's property upon installation without compensation to Tenant, unless Landlord consents otherwise in writing, and (ii) shall at Landlord's option either (a) be surrendered to Landlord with the Premises at the termination of the Lease or of Tenant's right to possession, or (b) be removed in accordance with Subsection 5E below (unless Landlord at the time it gives its consent to the performance of such construction expressly waives in writing the right to require such removal). E. Removal at Termination. Upon the termination of this Lease or ---------------------- Tenant's right of possession Tenant shall remove from the Project its trade fixtures, furniture, moveable equipment and other personal property, any improvements which Landlord elects shall be removed by Tenant pursuant to Section 5D, and any improvements to any portion of the Project other than the Premises, provided, however, that Tenant is not required to remove any Initial Improvements, Additional Improvements, Landlord's Work, or the skybridge. If Tenant does not timely remove such property, then Tenant shall be conclusively presumed to have, at Landlord's election (i) conveyed such property to Landlord without compensation or (ii) abandoned such property, and Landlord may dispose of or store any part thereof in any manner at Tenant's sole cost, without waiving Landlord's right to claim from Tenant all expenses arising out of Tenant's Sailure to remove the property, and without liability to Tenant or any other person. Landlord shall have no duty to be a bailee of any such personal property. If Landlord elects abandonment, Tenant shall pay to Landlord, upon demand, any expenses incurred for disposition. F. Tenant's Repair Obligation. Subject to Landlord's obligations set -------------------------- forth in paragraph 4E, Tenant shall, throughout the term of this Lease and at its own cost and expense, maintain, repair and replace, as necessary, or required by applicable law or ordinances, the Premises improvements, fixtures, equipment, mechanical and electrical systems in their condition as of the Commencement Date, ordinary wear and tear excepted. Tenant shall provide its own garbage service to the Premises at its own cost and expense. All replacements made by Tenant shall be of like kind and quality to the items replaced as they existed when originally installed. With respect to any maintenance or repair of mechanical and electrical systems in the Premises and required be maintained by Tenant hereunder, Tenant shall contract and pay for periodic inspection and maintenance and the repair and replacement, as necessary, subject to the Landlord's approval and satisfaction which shall not be unreasonably withheld or delayed. 6. USE OF PREMISES. Tenant shall use the Premises only for general --------------- office and light manufacturing purposes, which shall include product demonstration to customers, equipment testing and storage. Tenant shall not allow any use of the Premises which will negatively affect the cost of coverage of Landlord's insurance on the Project. 13 -- Tenant shall not allow any inflammable or explosive liquids or materials to be kept on the Premises (other than propane tanks used for vehicles on the Premises). Tenant shall not allow any use of the Premises which would cause the value or utility of any part of the Premises to diminish or would interfere with any other Tenant or with the operation of the Project by Landlord. Tenant shall not permit any nuisance or waste upon the Premises, or allow any offensive noise or odor in or around the Premises. If any governmental authority shall deem the Premises to be a "place of public accommodation" under the Americans with Disabilities Act or any other comparable law as a result of Tenant's use, Tenant shall either modify its use to cause such authority to rescind its designation or be responsible for any alterations, structural or otherwise, required to be made to the Building or the Premises under such laws. Tenant, its employees, agents, contractors or invitees shall be allowed access to the building roof for the purpose of installing servicing, monitoring, testing and changing its equipment; provided that Landlord shall be notified prior to any installation work and such work satisfies the requirements of Section 3 and 5. 7. GOVERNMENTAL REQUIREMENTS AND BUILDING RULES. Landlord shall comply -------------------------------------------- with all Governmental Regulations applicable to the design or construction of the Premises, the Building shell, the Initial Improvements and the Additional Improvements. Tenant shall comply with all Governmental Requirements applying to its use of the Premises. Tenant shall also comply with all reasonable rules established for the Project from time to time by Landlord. The present rules and regulations are contained in Appendix B. Failure by another tenant to comply with the rules or failure by Landlord to enforce them shall not relieve Tenant of its obligation to comply with the rules or make Landlord responsible to Tenant in any way. Landlord shall use reasonable efforts to apply the rules and regulations uniformly with respect to Tenant and tenants in the Project under leases containing rules and regulations similar to this Lease. In the event of alterations and repairs performed by Tenant, Tenant shall comply with the provisions of Section 5 of this Lease and also landlord s Policies, Rules and Regulations for Construction Projects". 8. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE. -------------------------------------------- A. Waiver of Claims. To the extent permitted by law, Tenant waives any ---------------- claims it may have against Landlord or its officers, directors, employees or agents for business interruption or damage to property sustained by Tenant constituting insurable risks covered by the insurance policies required to be maintained by the parties hereunder as the result of any act or omission of Landlord. To the extent permitted by law, Landlord waives any claims it may have against Tenant or its officers, directors, employees or agents for loss of rents or damage to property sustained by Landlord constituting insurable risks covered by the insurance 14 -- policies required to be maintained by the parties hereunder as the result of any act or omission of Tenant. B. Indemnification. Tenant shall indemnify, defend and hold harmless --------------- Landlord and its officers, directors, employees and agents against any claim by any third party for injury to any person or damage to or loss of any property occurring in the Project and arising from the use of the Premises or from any other act or omission or negligence of Tenant or any of Tenant's employees or agents. Tenant's obligations under this section shall survive the termination of this Lease. Landlord shall indemnify, defend and hold harmless Tenant and its officers, directors, employees and agents against any claim by any third party for injury to any person or damage to or loss of any property occurring in the Project and arising from any other act or omission or negligence of Landlord or any of Landlord's employees or agents. Landlord's obligations under this section shall survive the termination of this Lease. TENANT HEREBY WAIVES ITS IMMUNITY WITH RESPECT TO LANDLORD UNDER THE INDUSTRIAL INSURANCE ACT (RCW TITLE 51) AND/OR THE LONGSHOREMAN S AND HARBORWORKER S ACT AND/OR ANY EQUIVALENT ACTS AND TENANT EXPRESSLY AGREES TO ASSUME POTENTIAL LIABILITY FOR ACTIONS BROUGHT AGAINST LANDLORD BY TENANT S EMPLOYEES EXCEPT TO THE EXTENT CAUSED BY LANDLORD. THIS WAIVER HAS BEEN SPECIFICALLY NEGOTIATED BY THE PARTIES TO THIS LEASE AND TENANT HAS HAD THE OPPORTUNITY TO, AND HAS BEEN ENCOURAGED, TO CONSULT WITH INDEPENDENT COUNSEL REGARDING THIS WAIVER. C. Tenant's Insurance. Tenant shall maintain insurance as follows, with ------------------ such other terms, coverages and insurers, as Landlord shall reasonably require from time to time: (1) Commercial General Liability Insurance, with (a) Contractual Liability including the indemnification provisions contained in this Lease, (b) a severability of interest endorsement, (c) limits of not less than One Million Dollars ($1,000,000) combined single limit per occurrence and not less than Two Million Dollars ($2,000,000) in the aggregate for bodily injury, sickness or death, and property damage, and umbrella coverage of not less than Five Million Dollars ($5,000,000). (2) Property Insurance against "Special Form, All Risks" of physical loss covering the replacement cost of all improvements, fixtures and personal property. (3) Workers compensation or similar insurance in form and amounts required by law, and Employers Liability with not less than the following limits: 15 -- Each Accident $100,000 Disease--Policy Limit $500,000 Disease--Each Employee $100,000 Tenant's insurance shall be primary and not contributory to that carried by Landlord, its agents, or mortgagee. Landlord, and if any, Landlord s building manager or agent and ground lessor shall be named as additional insureds as respects to insurance required of the Tenant in Section 8C(1). The company or companies writing any insurance which Tenant is required to maintain under this Lease, as well as the form of such insurance, shall at all times be subject to Landlord's approval, and any such company shall be licensed to do business in the state in which the Building is located. Such insurance companies shall have a A.M. Best rating of A VI or better. Tenant shall cause any contractor of Tenant performing work on the Premises to maintain insurance as follows, with such other terms, coverages and insurers, as Landlord shall reasonably require from time to time: (1) Commercial General Liability Insurance, including contractor's liability coverage, contractual liability coverage, completed operations coverage, broad form property damage endorsement, and contractor's protective liability coverage, to afford protection with limits, for each occurrence, of not less than One Million Dollars ($1,000,000) with respect to personal injury, death or property damage. (2) Workers compensation or similar insurance in form and amounts required by law, and Employer's Liability with not less than the following limits: Each Accident $100,000 Disease--Policy Limit $500,000 Disease--Each Employee $100,000 Tenant's contractor's insurance shall be primary and not contributory to that carried by Tenant, Landlord, their agents or mortgagees. Tenant and Landlord, and if any, Landlord's building manager or agent, mortgagee or ground lessor shall be named as additional insured on Tenant's contractor's insurance policies. D. Insurance Certificates. Tenant shall deliver to Landlord certificates ---------------------- evidencing all required insurance no later than five (5) days prior to the Commencement Date and each renewal date. Each certificate will provide for thirty (30) days prior written notice of cancellation to Landlord and Tenant. E. Landlord's Insurance. Landlord shall maintain "Special Form, All- -------------------- Risk" property insurance at replacement cost, including loss of rents, on the Building, and Commercial General Liability insurance policies covering the common areas of the 16 -- Building, each with such terms, coverages and conditions as are normally carried by reasonably prudent owners of properties similar to the Project. F. Waiver of Subrogation. With respect to all policies of insurance to --------------------- be maintained hereunder by Tenant and Landlord, Landlord and Tenant mutually waive all rights of subrogation, and the respective "All-Risk" coverage property insurance policies carried by Landlord and Tenant shall contain enforceable waiver of subrogation endorsements. 9. FIRE AND OTHER CASUALTY. ----------------------- A. Termination. If a fire or other casualty causes substantial damage to ----------- the Building or the Premises, Landlord shall engage a registered architect to certify within one (1) month of the casualty to both Landlord and Tenant the amount of time needed to restore the Building and the Premises to tenantability, using standard working methods. If the time needed exceeds twelve (12) months from date of damage, or two (2) months therefrom if the restoration would begin during the last twelve (12) months of the Lease, then in the case of the Premises, either Landlord or Tenant may terminate this lease, and in the case of the Building, Landlord may terminate this Lease, by notice to the other party within ten (10) days after the notifying party's receipt of the architect's certificate. The termination shall be effective thirty (30) days from the date of the notice and Rent shall be paid by Tenant to that date, with an abatement for any portion of the Premises which has been untenantable after the casualty. B. Restoration. If a casualty causes damage to the Building or the ----------- Premises but this Lease is not terminated for any reason, then subject to the rights of any mortgagees or ground lessors, Landlord shall obtain the applicable insurance proceeds and diligently restore the Building and the Premises subject to current Governmental Requirements. Tenant shall replace its damaged improvements, personal property and fixtures. Rent shall be abated on a per diem basis during the restoration for any portion of the Premises which is untenantable, except to the extent that Tenant's negligence caused the casualty. 10. EMINENT DOMAIN. If a part of the Project is taken by eminent domain -------------- or deed in lieu thereof which is so substantial that the Premises cannot reasonably be used by Tenant for the operation of its business, then either party may terminate this Lease effective as of the date of the taking. In the event that seventy five percent (75%) or more of the Project is taken without affecting the Premises, then Landlord may terminate this Lease as of the date of such taking. Rent shall abate from the date of the taking in proportion to any part of the Premises taken. Subject to Tenant's rights to pursue claims described below, the entire award for a taking of any kind shall be paid to Landlord, and Tenant shall have no right to share in the award. All obligations accrued to the date of the taking shall be performed by each party. Notwithstanding the foregoing, nothing herein shall be deemed a waiver of Tenant's rights to receive an award for a 17 -- taking of its personal property, good will, relocation expense and/or interest in the Lease provided Tenant's award does not reduce or adversely affect Landlord's award. 11. RIGHTS RESERVED TO LANDLORD. --------------------------- Landlord may exercise at any time any of the following rights respecting the operation of the Project without liability to the Tenant of any kind: A. Name. To change the name or street address (but only to extent such ---- changes in street address is required by a governmental authority) of the Building or the suite number(s) of the Premises. B. Signs. Subject to applicable law, to install and maintain any signs ----- on the exterior and in the interior of the Building, and to approve at its reasonable discretion, prior to installation, any of Tenant's signs in the Premises visible from the common areas or the exterior of the Building. C. Window Treatments. To approve, at its discretion, prior to ----------------- installation, any shades, blinds, ventilators or window treatments of any kind, as well as any lighting within the Premises that may be visible from the exterior of the Building or any interior common area. D. Keys. To retain and use at any time passkeys to enter the Premises or ---- any door within the Premises after reasonable notice (except in emergency). E. Access. To have access to inspect the Premises, and to perform its ------ obligations, or make repairs, alterations, additions or improvements, as permitted by this Lease. F. Preparation for Reoccupancy. To decorate, remodel, repair, alter or --------------------------- otherwise prepare the Premises for reoccupancy at any time after Tenant abandons the Premises, without relieving Tenant of any obligation to pay Rent. G. Heavy Articles. To approve the weight, size, placement and time and -------------- manner of movement within the Building of any safe, central filing system or other heavy article of Tenant's property. Tenant shall move its property entirely at its own risk. H. Show Premises. To show the Premises to prospective purchasers, ------------- tenants, brokers, lenders, investors, rating agencies or others at any reasonable time, provided that Landlord gives prior notice to Tenant and does not materially interfere with Tenant's use of the Premises. I. Use of Lockbox. To designate a lockbox collection agent for -------------- collections of amounts due Landlord. In that case, the date of payment of Rent or other sums shall be 18 -- the date of the agent's receipt of such payment or the date of actual collection if payment is made in the form of a negotiable instrument thereafter dishonored upon presentment. However, Landlord may reject any payment for all purposes as of the date of receipt or actual collection by mailing to Tenant within 21 days after such receipt or collection a check equal to the amount sent by Tenant. J. Repairs and Alterations. To make repairs or alterations to the ----------------------- Project and in doing so transport any required material through the Premises, to close entrances, doors, corridors, elevators and other facilities in the Project, to open any ceiling in the Premises, or to temporarily suspend services or use of common areas in the Building. Landlord may perform any such repairs or alterations during ordinary business hours, provided that Landlord gives prior notice to Tenant and does not materially interfere with Tenant s use of the Premises, except that Tenant may require any Work in the Premises to be done after business hours if Tenant pays Landlord for overtime and any other expenses incurred. Landlord may do or permit any work on any nearby building, land, street, alley or way. K. Landlord's Agents. If Tenant is in default under this Lease, ----------------- possession of Tenant's funds or negotiation of Tenant's negotiable instrument by any of Landlord's agents shall not waive any breach by Tenant or any remedies of Landlord under this Lease. L. Building Services. To install, use and maintain through the Premises, ----------------- pipes, conduits, wires and ducts serving the Building, provided that such installation, use and maintenance does not unreasonably interfere with Tenant's use of the Premises. M. Other Actions. To take any other action which Landlord deems ------------- reasonable in connection with the operation, maintenance or preservation of the Building. 12. TENANT'S DEFAULT. ---------------- Any of the following shall constitute a default by Tenant: A. Rent Default. Tenant fails to pay any Rent when due within five (5) ------------ days of written notice to Tenant. B. Assignment/Sublease Default. Tenant defaults in its obligations under --------------------------- Section 17 Assignment and Sublease; C. Other Performance Default. Tenant fails to perform any other ------------------------- obligation to Landlord under this Lease, and, in the case of only the first two (2) such failures during the Term of this Lease, this failure continues for ten (10) days after written notice from Landlord, except that if Tenant begins to cure its failure within the ten (10) day period but cannot reasonably complete its cure within such period, then, so long as Tenant continues 19 -- to diligently attempt to cure its failure, the ten (10) day period shall be extended to sixty (60) days, or such lesser period as is reasonably necessary to complete the cure; D. Credit Default. One of the following credit defaults occurs: -------------- (1) Tenant commences any proceeding under any law relating to bankruptcy, insolvency, reorganization or relief of debts, or seeks appointment of a receiver, trustee, custodian or other similar official for the Tenant or for any substantial part of its property, or any such proceeding is commenced against Tenant and either remains undismissed for a period of thirty days or results in the entry of an order for relief against Tenant which is not fully stayed within seven days after entry; (2) Tenant becomes insolvent or bankrupt, does not generally pay its debts as they become due, or admits in writing its inability to pay its debts, or makes a general assignment for the benefit of creditors; 13. LANDLORD REMEDIES. ----------------- A. Termination of Lease or Possession. If Tenant defaults, Landlord may ---------------------------------- elect by notice to Tenant either to terminate this Lease or to terminate Tenant's possession of the Premises without terminating this Lease. In either case, Tenant shall immediately vacate the Premises and deliver possession to Landlord, and Landlord may repossess the Premises and may, at Tenant's sole cost, remove any of Tenant's signs and any of its other property, without relinquishing its right to receive Rent or any other right against Tenant. B. Lease Termination Damages. If Landlord terminates the Lease, Tenant ------------------------- shall pay to Landlord all Rent due on or before the date of termination, plus Landlord's reasonable estimate of the aggregate Rent that would have been payable from the date of termination through the Termination Date, reduced by the rental value of the Premises calculated as of the date of termination for the same period, taking into account reletting expenses and market concessions, both discounted to present value at the rate of five percent (5%) per annum. If Landlord shall relet any part of the Premises for any part of such period before such present value amount shall have been paid by Tenant or finally determined by a court, then the amount of Rent payable pursuant to such reletting (taking into account any concessions) shall be deemed to be the reasonable rental value for that portion of the Premises relet during the period of the reletting. C. Possession Termination Damages. If Landlord terminates Tenant's right ------------------------------ to possession without terminating the Lease and Landlord takes possession of the Premises itself, Landlord may relet any part of the Premises for such Rent, for such time, and upon such terms as Landlord in its sole discretion shall determine, without any obligation to do so prior to renting other vacant areas in the Building. Any proceeds from reletting the Premises shall first be applied to the expenses of reletting, including redecoration, repair, alteration, advertising, brokerage, legal, and other reasonably necessary expenses. If the 20 -- reletting proceeds after payment of expenses are insufficient to pay the full amount of Rent under this Lease, Tenant shall pay such deficiency to Landlord monthly upon demand as it becomes due. Any excess proceeds shall be retained by Landlord. D. Landlord's Remedies Cumulative. All of Landlord's remedies under this ------------------------------ Lease shall be in addition to all other remedies Landlord may have at law or in equity. Waiver by Landlord of any breach of any obligation by Tenant shall be effective only if it is in writing, and shall not be deemed a waiver of any other breach, or any subsequent breach of the same obligation. Landlord's acceptance of payment by Tenant shall not constitute a waiver of any breach by Tenant, and if the acceptance occurs after Landlord's notice to Tenant, or termination of the Lease or of Tenant's right to possession, the acceptance shall not affect such notice or termination. Acceptance of payment by Landlord after commencement of a legal proceeding or final judgment shall not affect such proceeding or judgment. Landlord may advance such monies and take such other actions for Tenant s account as reasonably may be required to cure or mitigate any default by Tenant. Tenant shall immediately reimburse Landlord for any such advance, and such sums shall bear interest at the default interest rate until paid. E. WAIVER OF TRIAL BY JURY. EACH PARTY WAIVES TRIAL BY JURY IN THE EVENT ----------------------- OF ANY LEGAL PROCEEDING BROUGHT BY THE OTHER IN CONNECTION WITH THIS LEASE. EACH PARTY SHALL BRING ANY ACTION AGAINST THE OTHER IN CONNECTION WITH THIS LEASE IN A FEDERAL OR STATE COURT LOCATED IN WASHINGTON, CONSENTS TO THE JURISDICTION OF SUCH COURTS, AND WAIVES ANY RIGHT TO HAVE ANY PROCEEDING TRANSFERRED FROM SUCH COURTS ON THE GROUND OF IMPROPER VENUE OR INCONVENIENT FORUM. F. Litigation Costs. Tenant shall pay Landlord's reasonable attorneys' ---------------- fees and other costs in any action brought to enforce this Lease. 14. SURRENDER. Upon termination of this Lease or Tenant's right to --------- possession, Tenant shall return the Premises to Landlord in good order and condition, ordinary wear and casualty damage excepted. If Landlord requires Tenant to remove any alterations, then Tenant shall remove the alterations in a good and workmanlike manner and restore the Premises to its condition prior to their installation. 15. HOLDOVER. If Tenant retains possession of any part of the Premises -------- after the Term, Tenant shall become a month-to-month tenant for the entire Premises upon all of the terms of this Lease as might be applicable to such month-to-month tenancy, except that Tenant shall pay all of Base Rent, Operating Cost Share Rent and Tax Share Rent at one hundred twenty five percent (125%) of the rate in effect immediately prior to such holdover, computed on a monthly basis for each full or partial month Tenant remains in possession. Tenant shall also pay Landlord all of Landlord's 21 direct and consequential damages if such holdover is without consent. No acceptance of Rent or other payments by Landlord under these holdover provisions shall operate as a waiver of Landlord's right to regain possession or any other of Landlord's remedies. 16. SUBORDINATION TO GROUND LEASES AND MORTGAGES. -------------------------------------------- A. Subordination. Subject to Section 16B, this Lease shall be ------------- subordinate to any present or future ground lease or mortgage respecting the Project, and any amendments to such ground lease or mortgage, at the election of the ground lessor or mortgagee as the case may be, effected by notice to Tenant in the manner provided in this Lease. The subordination shall be effective upon such notice, but at the request of Landlord or ground lessor or mortgagee, Tenant shall within ten (10) days of the request, execute and deliver to the requesting party any reasonable documents provided to evidence the subordination. B. Termination of Ground Lease or Foreclosure of Mortgage. If any ground ------------------------------------------------------ lease is terminated or mortgage foreclosed or deed in lieu of foreclosure given and the ground lessor, mortgagee, or purchaser at a foreclosure sale shall thereby become the owner of the Project, Tenant shall attorn to such ground lessor or mortgagee or purchaser without any deduction or setoff by Tenant, and this Lease shall continue in effect as a direct lease between Tenant and such ground lessor, mortgagee or purchaser. The ground lessor or mortgagee or purchaser shall be liable as Landlord only during the time such ground lessor or mortgagee or purchaser is the owner of the Project. At the request of Landlord, ground lessor or mortgagee, Tenant shall execute and deliver within ten (10) days of the request any document furnished by the requesting party to evidence Tenant's agreement to attorn. C. Security Deposit. Any ground lessor or mortgagee shall be responsible ---------------- for the return of any security deposit by Tenant only to the extent the security deposit is received by such ground lessor or mortgagee. D. Notice and Right to Cure. The Project is subject to any ground lease ------------------------ and mortgage identified with name and address of ground lessor or mortgagee in Appendix D to this Lease (as the same may be amended from time to time by written notice to Tenant). Tenant agrees to send by registered or certified mail to any ground lessor or mortgagee identified either in such Appendix or in any later notice from Landlord to Tenant a copy of any notice of default sent by Tenant to Landlord. If Landlord fails to cure such default within the required time period under this Lease, but ground lessor or mortgagee begins to cure within ten (10) days after such period and proceeds diligently to complete such cure, then ground lessor or mortgagee shall have such additional time as is necessary to complete such cure, including any time necessary to obtain possession if possession is necessary to cure, and Tenant shall not begin to enforce its remedies so long as the cure is being diligently pursued. 22 E. Definitions. As used in this Section 16, "mortgage" shall include ----------- "trust deed" and "mortgagee" shall include "trustee", "mortgagee" shall include the mortgagee of any ground lessee, and "ground lessor", "mortgagee", and "purchaser at a foreclosure sale" shall include, in each case, all of its successors and assigns, however remote. 17. ASSIGNMENT AND SUBLEASE. ----------------------- A. In General. Tenant shall not, without the prior consent of Landlord ---------- in each case, (i) make or allow any assignment or transfer, by operation of law or otherwise, of any part of Tenant's interest in this Lease, (ii) grant or allow any lien or encumbrance, by operation of law or otherwise, upon any part of Tenant's interest in this Lease, (iii) sublet any part of the Premises, or (iv) permit anyone other than Tenant and its employees to occupy any part of the Premises. Tenant shall remain primarily liable for all of its obligations under this Lease, notwithstanding any assignment or transfer. No consent granted by Landlord shall be deemed to be a consent to any subsequent assignment or transfer, lien or encumbrance, sublease or occupancy. Tenant shall pay reasonable Landlord's attorneys' fees and other expenses incurred in connection with any consent requested by Tenant or in reviewing any proposed assignment or subletting. Any assignment or transfer, grant of lien or encumbrance, or sublease or occupancy without Landlord's prior written consent shall be void. B. Landlord's Consent. Landlord will not unreasonably withhold its ------------------ consent to any proposed assignment or subletting. It shall be reasonable for Landlord to withhold its consent to any assignment or sublease if (i) Tenant is in default under this Lease, (ii) the proposed assignee or sublessee is a tenant in the Project and Landlord has appropriate available space in the Project, (iii) the financial condition, nature of business, and character of the proposed assignee or subtenant are not all reasonably satisfactory to Landlord, (iv) in the reasonable judgment of Landlord the purpose for which the assignee or subtenant intends to use the Premises (or a portion thereof) is not in keeping with Landlord's standards for the Building or are in violation of the terms of this Lease or any other leases in the Project. The foregoing shall not exclude any other reasonable basis for Landlord to withhold its consent. C. Procedure. Tenant shall notify Landlord of any proposed assignment or --------- sublease at least thirty (30) days prior to its proposed effective date. The notice shall include the name and address of the proposed assignee or subtenant, its corporate affiliates in the case of a corporation and its partners in a case of a partnership, an execution copy of the proposed assignment or sublease, and sufficient information to permit Landlord to determine the financial condition and character of the proposed assignee or subtenant. As a condition to any effective assignment of this Lease, the assignee shall execute and deliver in form satisfactory to Landlord at least fifteen (15) days prior to the effective date of the assignment, an assumption of all of the obligations of Tenant under this Lease. As a condition to any effective sublease, subtenant shall execute and deliver in form satisfactory to Landlord at least fifteen (15) days prior to the 23 -- effective date of the sublease, an agreement to comply with all of Tenant's obligations under this Lease, and at Landlord's option, an agreement (except for the economic obligations which subtenant will undertake directly to Tenant) to attorn to Landlord under the terms of the sublease in the event this Lease terminates before the sublease expires. D. Change of Ownership. Any direct or indirect change in 50% or more of ------------------- the ownership interest in Tenant shall constitute an assignment of this Lease; provided, however, that Landlord hereby consents to any such assignment that is in connection with (i) transfer of shares between existing shareholders, (ii) redemption of shares by Tenant, or (iii) a public offering of Tenant s stock under the Securities Act of 1933, as amended. Notwithstanding Landlord's prior consent to the foregoing, Tenant shall provide Landlord with written notice required hereunder. E. Excess Payments. If Tenant shall assign this Lease or sublet any part --------------- of the Premises for consideration in excess of the pro-rata portion of Rent applicable to the space subject to the assignment or sublet, then Tenant shall pay to Landlord as Additional Rent 50% of any such excess immediately upon receipt. 18. CONVEYANCE BY LANDLORD. If Landlord shall at any time transfer its ---------------------- interest in the Project or this Lease, provided that the transferee shall expressly assume in writing all duties of Landlord in this Lease, Landlord shall be released of any obligations accruing after such transfer, except the obligation to return to Tenant any security deposit not delivered to its transferee, and Tenant shall look solely to Landlord's successors for performance of such obligations. This Lease shall not be affected by any such transfer. 19. ESTOPPEL CERTIFICATE. Each party shall, within ten (10) days of -------------------- receiving a request from the other party, execute, acknowledge in recordable form, and deliver to the other party or its designee a certificate stating, subject to a specific statement of any applicable exceptions, that the Lease as amended to date is in full force and effect, that the Tenant is paying Rent and other charges on a current basis, and that to the best of the knowledge of the certifying party, the other party has committed no uncured defaults and has no offsets or claims. The certifying party may also be required to state the date of commencement of payment of Rent, the Commencement Date, the Termination Date, the Base Rent, the current Operating Cost Share Rent and Tax Share Rent estimates, the status of any improvements required to be completed by Landlord, the amount of any security deposit, and such other matters as may be reasonably requested. Failure to deliver such statement within the time required shall be conclusive evidence against the non-certifying party that this Lease, with any amendments identified by the requesting party, is in full force and effect, that there are no uncured defaults by the requesting party, that not more than one month's Rent has been paid in advance, that the non-certifying party has not paid any security deposit, and that the non-certifying party has no claims or offsets against the requesting party. 24 -- 20. SECURITY DEPOSIT. Tenant shall arrange for the issuance and delivery ---------------- to Landlord on the date of this Lease, as security for the performance of all of its obligations of Tenant hereunder an irrevocable, standby letter of credit (the "Letter of Credit") from Silicon Valley Bank, Imperial Bank or such other commercial bank of Tenant's choosing and reasonably acceptable and in form and content reasonably satisfactory to Landlord, in the amount set forth on the Schedule. Upon the execution of this Lease, Tenant shall deliver a Letter of Credit in the amount of $1,000.000. The amount of the Letter of Credit shall be increased by $1,000,000 on January 1, 1998 and then by $500,000 on the Commencement Date. If Tenant defaults under this Lease, Landlord may use any part of the Letter of Credit or Security Deposit to make any defaulted payment, to pay for Landlord's cure of any defaulted obligation, or to compensate Landlord for any loss or damage resulting from any default. Landlord agrees to release the Letter of Credit upon satisfaction of all of the following conditions: (i) Tenant s Operating Income from continuing operations under GAAP exceeds $500,000 for four consecutive quarters; (ii) Tenant s cash and receivables are a minimum of $10,000,000; (iii) a current ratio (defined as current assets divided by current liabilities) of at least two times; and (iv) Tenant has delivered a certificate of the President of Tenant representing and warranting the foregoing and the amount of one month s rent as a Security Deposit. Landlord may keep the Security Deposit, if cash, in its general funds and shall not be required to pay interest to Tenant on the deposit amount. If Tenant shall perform all of its obligations under this Lease and return the Premises to Landlord at the end of the Term, Landlord shall return all of the remaining Security Deposit to Tenant within thirty (30) days after the end of the Term. The Security Deposit shall not serve as an advance payment of Rent or a measure of Landlord's damages for any default under this Lease. If Landlord transfers its interest in the Project or this Lease, Landlord shall transfer the Security Deposit to its transferee. Upon such transfer, Landlord shall have no further obligation to return the Security Deposit to Tenant, and Tenant's right to the return of the Security Deposit shall apply solely against Landlord's transferee. 21. FORCE MAJEURE. Landlord shall not be in default under this Lease to ------------- the extent Landlord is unable to perform any of its obligations on account of any strike or labor problem, energy shortage, governmental pre-emption or prescription, national emergency, or any other cause of any kind beyond the reasonable control of Landlord ("Force Majeure"). This Section 21 shall not limit Tenant's rights to any abatement of rent expressly allowed in this Lease. 22. TENANT'S PERSONAL PROPERTY AND FIXTURES. Intentionally omitted. --------------------------------------- 23. NOTICES. All notices, consents, approvals and similar communications ------- to be given by one party to the other under this Lease, shall be given in writing, mailed or personally delivered as follows: 25 A. Landlord. To Landlord as follows: -------- CARRAMERICA REALTY CORPORATION 18640 NE 67th Court, Suite 150 Redmond, WA 98052 Attn: Market Officer Fax No. 425-558-2246 with a copy to: CarrAmerica Realty Corporation 1700 Pennsylvania Avenue, N.W. Washington, D.C. 20006 Attn: Lease Administration or to such other person at such other address as Landlord may designate by notice to Tenant. B. Tenant. To Tenant as follows: ------ (i) After Commencement Date: Metawave Communications Corporation, Inc. 10525 Willows Road Redmond, WA 98073 Attn: CFO with a copy to: Metawave Communications Corporation, Inc. 10525 Willows Road Redmond, WA 98073 Attn: General Counsel (ii) Prior to Commencement Date: Metawave Communications Corporation, Inc. 8700 - 148th Avenue N.E. Redmond, WA 98052 Attn: CFO Fax No. 425-702-5972 with a copy to: Metawave Communications Corporation, Inc. 26 8700 - 148th Avenue N.E. Redmond, WA 98052 Attn: General Counsel Fax No. 425-702-5976 or to such other person at such other address as Tenant may designate by notice to Landlord. Notices shall be sent by United States certified or registered mail, by a reputable national overnight courier service, postage prepaid, hand delivery, or by facsimile transmission. Mailed notices shall be deemed to have been given on the earlier of actual delivery or three (3) business days after posting in the United States mail in the case of registered or certified mail, and one business day in the case of overnight courier. 24. QUIET POSSESSION. So long as Tenant shall perform all of its ---------------- obligations under this Lease, Tenant shall enjoy peaceful and quiet possession of the Premises against Landlord or any party claiming through the Landlord. Interruption of Tenant's peaceful and quiet possession, unless caused by Tenant, shall title Tenant to an appropriate abatement of rent. 25. REAL ESTATE BROKER. Tenant represents to Landlord that Tenant has not ------------------ dealt with any real estate broker with respect to this Lease except for any broker(s) listed in the Schedule, and no other broker is in any way entitled to any broker's fee or other payment in connection with this Lease. Tenant shall indemnify and defend Landlord against any claims by any other broker or third party for any payment of any kind in connection with this Lease. Landlord shall pay to CB Commercial Real Estate Group Inc. a real estate leasing commission per a separate agreement and Tenant shall have no responsibility for such commission. 26. MISCELLANEOUS. ------------- A. Successors and Assigns. Subject to the limits on Tenant's assignment ---------------------- contained in Section 17, the provisions of this Lease shall be binding upon and inure to the benefit of all successors and assigns of Landlord and Tenant. B. Date Payments Are Due. Except for payments to be made by Tenant under --------------------- this Lease which are due upon demand, Tenant shall pay to Landlord any amount for which Landlord renders a statement of account within ten days of Tenant's receipt of Landlord's statement. C. Meaning of "Landlord", "Re-Entry, "including" and "Affiliate". The ------------------------------------------------------------- term "Landlord" means only the owner of the Project and the lessor's interest in this Lease from time to time. The words "re-entry" and "re-enter" are not restricted to their technical legal meaning. The words "including" and similar words shall mean "without limitation." 27 The word "affiliate" shall mean a person or entity controlling, controlled by or under common control with the applicable entity. "Control" shall mean the power directly or indirectly, by contract or otherwise, to direct the management and policies of the applicable entity. D. Time of the Essence. Time is of the essence of each provision of this ------------------- Lease. E. No Option. This document shall not be effective for any purpose until --------- it has been executed and delivered by both parties; execution and delivery by one party shall not create any option or other right in the other party. F. Severability. The unenforceability of any provision of this Lease ------------ shall not affect any other provision. G. Governing Law. This Lease shall be governed in all respects by the ------------- laws of the state of Washington, without regard to the principles of conflicts of laws. H. Lease Modification. Tenant agrees to modify this Lease in any way ------------------ requested by a mortgagee which does not cause increased expense to Tenant or otherwise materially adversely affect Tenant's interests under this Lease. I. No Oral Modification. No modification of this Lease shall be -------------------- effective unless it is a written modification signed by both parties. J. Landlord's Right to Cure. If Landlord breaches any of its obligations ------------------------ under this Lease, Tenant shall notify Landlord in writing and shall take no action respecting such breach so long as Landlord immediately begins to cure the breach and diligently pursues such cure to its completion. Landlord may cure any default by Tenant; any expenses incurred shall become Additional Rent due from Tenant on demand by Landlord. K. Captions. The captions used in this Lease shall have no effect on the -------- construction of this Lease. L. Authority. Landlord and Tenant each represents to the other that it --------- has full power and authority to execute and perform this Lease. M. Landlord's Enforcement of Remedies. Landlord may enforce any of its ---------------------------------- remedies under this Lease either in its own name or through an agent. N. Entire Agreement. This Lease, together with all Appendices, ---------------- constitutes the entire agreement between the parties. No representations or agreements of any kind have been made by either party which are not contained in this Lease. 28 O. Landlord's Title. Without limiting Tenant s right to peaceful and ---------------- quiet possession of the Premises, Landlord's title shall always be paramount to the interest of the Tenant, and nothing in this Lease shall empower Tenant to do anything which might in any way impair Landlord's title. P. Light and Air Rights. Landlord does not grant in this Lease any -------------------- rights to light and air in connection with Project. Landlord reserves to itself, the Land, the Building below the improved floor of each floor of the Premises, the Building above the ceiling of each floor of the Premises, the exterior of the Premises and the areas on the same floor outside the Premises, along with the areas within the Premises required for the installation and repair of utility lines and other items required to serve other tenants of the Building. Q. Singular and Plural. Wherever appropriate in this Lease, a singular ------------------- term shall be construed to mean the plural where necessary, and a plural term the singular. For example, if at any time two parties shall constitute Landlord or Tenant, then the relevant term shall refer to both parties together. R. No Recording by Tenant. Tenant shall not record in any public records ---------------------- any memorandum or any portion of this Lease except as may be required by applicable securities laws. S. Exclusivity. Landlord does not grant to Tenant in this Lease any ----------- exclusive right except the right to occupy its Premises. T. No Construction Against Drafting Party. The rule of construction that -------------------------------------- ambiguities are resolved against the drafting party shall not apply to this Lease. U. Survival. All obligations of Landlord and Tenant under this Lease -------- shall survive the termination of this Lease. V. Rent Not Based on Income. No rent or other payment in respect of the ------------------------ Premises shall be based in any way upon net income or profits from the Premises. Tenant may not enter into or permit any sublease or license or other agreement in connection with the Premises which provides for a rental or other payment based on net income or profit. W. Building Manager and Service Providers. Landlord may perform any of -------------------------------------- its obligations under this Lease through its employees or third parties hired by the Landlord. X. Late Charge and Interest on Late Payments. Without limiting the ----------------------------------------- provisions of Section 12A, if Tenant fails to pay any installment of Rent or other charge 29 to be paid by Tenant pursuant to this Lease within five (5) business days after the same becomes due and payable, then Tenant shall pay a late charge equal to the greater of three and one-half percent (3-1/2%) of the amount of such payment or $250. In addition, interest shall be paid by Tenant to Landlord on any late payments of Rent from the date due until paid at the rate provided in Section 2D(2). Such late charge and interest shall constitute additional Rent due and payable by Tenant to Landlord upon the date of payment of the delinquent payment referenced above. Y. Parking. Landlord will provide an allowance of three (3) cars per ------- 1,000 rentable square feet of Premises to Tenant on the Premises. Z. Signage. Tenant shall have exclusive right, subject to Landlord's ------- reasonable approval to install Tenant's signage on the exterior of Buildings 1 & 2, provided the signage complies with all ordinances and orders. 27. UNRELATED BUSINESS INCOME. If Landlord is advised by its counsel at ------------------------- any time that any part of the payments by Tenant to Landlord under this Lease may be characterized as unrelated business income under the United States Internal Revenue Code and its regulations, then Tenant shall enter into any amendment proposed by Landlord to avoid such income, so long as the amendment does not require Tenant to make more payments or accept fewer services from Landlord, than this Lease provides. 28. HAZARDOUS SUBSTANCES. Tenant shall not cause or permit any Hazardous -------------------- Substances to be brought upon, produced, stored, used, discharged or disposed of in or near the Project unless Landlord has consented to such storage or use in its sole discretion. "Hazardous Substances" include those hazardous substances -------------------- described in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et seq., any other applicable federal, state or local law, and the regulations adopted under these laws. If any lender or governmental agency shall require testing for Hazardous Substances in the Premises, Tenant shall pay for such testing. 29. EXCULPATION. Without limiting Tenant's rights to abatement of rent as ----------- expressly allowed in this Lease, Landlord shall have no personal liability under this Lease; its liability shall be limited to its interest in the Project, and shall not extend to any other property or assets of the Landlord. In no event shall any officer, director, employee, agent, shareholder, partner, member or beneficiary of Landlord be personally liable for any of Landlord's obligations hereunder. IN WITNESS WHEREOF, the parties hereto have executed this Lease. LANDLORD: 30 -- CARRAMERICA REALTY CORPORATION a Maryland corporation By: /s/ Philip L. Hawkins -------------------------------------- Print Name: Philip L. Hawkins -------------------------------------- Print Title: Managing Director -------------------------------------- TENANT: METAWAVE COMMUNICATIONS CORPORATION, INC. a Delaware corporation By: /s/ Vito Palermo --------------------------------------- Print Name: Vito Palermo --------------------------------------- Print Title: Chief Financial Officer --------------------------------------- DISTRICT OF COLUMBIA ) ) ss. ) On this _______ day of __________, 1997, before me, the undersigned, a Notary Public in and for the District of Columbia, duly commissioned and sworn as such, personally appeared _________________, to me known to be the ___________________ of __________________________, the corporation that executed the within and foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said corporation for the uses and purposes therein mentioned, and on oath stated that he was authorized to execute said instrument, and that the seal affixed is the corporate seal of said corporation. WITNESS my hand and official seal the day and year in this certificate first above written. Printed Name: ______________________ NOTARY PUBLIC in and for the District of Columbia, residing at ________________ My commission expires: _______________ STATE OF DELAWARE ) 31 ) ss. COUNTY OF KING ) On this _______ day of _________________, 1997, before me, the undersigned, a Notary Public in and for the State of Delaware, duly commissioned and sworn as such, personally appeared __________________________________, to me known to be the _______________ of _________________________, the corporation that executed the within and foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said corporation for the uses and purposes therein mentioned, and on oath stated that he/she was authorized to execute said instrument, and that the seal affixed is the corporate seal of said corporation. WITNESS my hand and official seal the day and year in this certificate first above written. Printed Name: ______________________ NOTARY PUBLIC in and for the State of Delaware, residing at ________________ My commission expires: _______________ 32 APPENDIX A PLAN OF THE PREMISES (attach floor plan depicting the Premises) APPENDIX A Page 1 of 1 APPENDIX B RULES AND REGULATIONS 1. Tenant shall not place anything, or allow anything to be placed near the glass of any window, door, partition or wall which may, in Landlord's judgment, appear unsightly from outside of the Project. 2. The Project directory shall be available to Tenant solely to display names and their location in the Project, which display shall be as directed by Landlord. 3. The sidewalks, halls, passages, exits, entrances, elevators and stairways shall not be obstructed by Tenant or used by Tenant for any purposes other than for ingress to and egress from the Premises. Tenant shall lend its full cooperation to keep such areas free from all obstruction and in a clean and sightly condition and shall move all supplies, furniture and equipment as soon as received directly to the Premises and move all such items and waste being taken from the Premises (other than waste customarily removed by employees of the Building) directly to the shipping platform at or about the time arranged for removal therefrom. The halls, passages, exits, entrances, elevators, stairways, balconies and roof are not for the use of the general public and Landlord shall, in all cases, retain the right to control and prevent access thereto by all persons whose presence in the judgment of Landlord, reasonably exercised, shall be prejudicial to the safety, character, reputation and interests of the Project. Except as allowed in the Lease, neither Tenant nor any employee or invitee of Tenant shall go upon the roof of the Project. 4. The toilet rooms, urinals, wash bowls, showers and other apparatuses shall not be used for any purposes other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein, and to the extent caused by Tenant or its employees or invitees, the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by Tenant. 5. Tenant shall not cause any unnecessary janitorial labor or services by reason of Tenant's carelessness or indifference in the preservation of good order and cleanliness. 6. Tenant shall not install or operate any refrigerating, heating or air conditioning apparatus, or carry on any mechanical business without the prior written consent of Landlord; use the Premises for housing, lodging or sleeping purposes (other than wellness rooms used by sick employees); or permit preparation or warming of food in the Premises (warming of coffee and individual or group meals with employees and guests excepted). Tenant shall not occupy or use the Premises or permit the Premises to APPENDIX B Page 1 of 5 be occupied or used for any purpose, act or thing which is in violation of any Governmental Requirement or which may be dangerous to persons or property. 7. Tenant shall not bring upon, use or keep in the Premises or the Project any kerosene, gasoline or inflammable or combustible fluid or material, or any other articles deemed hazardous to persons or property (other than propane tanks used for vehicles such as forklifts), or use any method of heating or air conditioning other than that supplied by Landlord. 8. Landlord shall have sole power to direct electricians as to where and how telephone and other wires are to be introduced. No boring or cutting for wires is to be allowed without the consent of Landlord. The location of telephones, call boxes and other office equipment affixed to the Premises shall be subject to the approval of Landlord. 9. No additional locks shall be placed upon any doors, windows or transoms in or to the Premises and Tenant shall not change existing locks or the mechanism thereof without prior notification to Landlord. During the Term and upon termination of the lease, Tenant shall deliver to Landlord all keys and passes for offices, rooms, parking lot and toilet rooms which shall have been furnished Tenant. In the event of the loss of keys so furnished, Tenant shall pay Landlord therefor. Tenant shall not make, or cause to be made, any such keys and shall order all such keys solely from Landlord and shall pay Landlord for any keys in addition to the two sets of keys originally furnished by Landlord for each lock. 10. Tenant shall not install linoleum, tile, carpet or other floor covering so that the same shall be affixed to the floor of the Premises in any manner except as approved by Landlord. 11. Tenant shall not take or permit to be taken in or out of other entrances of the Building, or take or permit on other elevators, any item normally taken in or out through the trucking concourse or service doors or in or on freight elevators. 12. Tenant shall cause all doors to the Premises to be closed and securely locked before leaving the Project at the end of the day. 13. Without the prior written consent of Landlord, Tenant shall not use the name of the Project or any picture of the Project in connection with, or in promoting or advertising the business of, Tenant, except Tenant may use the address of the Project as the address of its business. 14. Tenant shall cooperate fully with Landlord to assure the most effective operation of the Premises' or the Project's heating and air conditioning, and shall refrain APPENDIX B ---------- Page 1 of 5 ----------- from attempting to adjust any controls, other than room thermostats installed for Tenant's use. Tenant shall keep corridor doors closed. 15. Tenant assumes full responsibility for protecting the Premises from theft, robbery and pilferage, which may arise from a cause other than Landlord's negligence, which includes keeping doors locked and other means of entry to the Premises closed and secured. 16. Peddlers, solicitors and beggars shall be reported to the office of the Project or as Landlord otherwise requests. 17. Tenant shall not advertise the business, profession or activities of Tenant conducted in the Project in any manner which violates the letter or spirit of any code of ethics adopted by any recognized association or organization pertaining to such business, profession or activities. 18. No motorized vehicle (other than freight handling equipment) and no animals or pets shall be allowed in the Premises, halls, freight docks, or any other parts of the Building except that blind persons may be accompanied by "seeing eye" dogs. Tenant shall not make or permit any noise, vibration or odor to emanate from the Premises, or do anything therein tending to create, or maintain, a nuisance, or do any act tending to injure the reputation of the Building. 19. Tenant acknowledges that Building security problems may occur which may require the employment of extreme security measures in the day-to-day operation of the Project. Accordingly: (a) Landlord may, at any time, or from time to time, or for regularly scheduled time periods, as deemed advisable by Landlord and/or its agents, in their sole discretion, require that persons entering or leaving the Project or the Property identify themselves to watchmen or other employees designated by Landlord, by registration, identification or otherwise. (b) Tenant agrees that it and its employees will cooperate fully with Project employees in the implementation of any and all security procedures. (c) Such security measures shall be the sole responsibility of Landlord, and Tenant shall have no liability for any action taken by Landlord in connection therewith, it being understood that Landlord is not required to provide any security procedures and shall have no liability for such security procedures or the lack thereof. 20. Tenant shall not do or permit the manufacture, sale or purchase of any fermented, intoxicating or alcoholic beverages without obtaining written consent of Landlord. 21. Tenant shall not disturb the quiet enjoyment of any other tenant. 22. Landlord may retain a pass key to the Premises and be allowed admittance thereto at all times to enable its representatives to examine the Premises from time to time and to exhibit the same in accordance with Section 11(H) of the Lease and Landlord may place and keep on the windows and doors of the Premises at any time signs advertising the Premises for Rent. 23. No equipment, mechanical ventilators, awnings, special shades or other forms of window covering shall be permitted either inside or outside the windows of the Premises without the prior written consent of Landlord, and then only at the expense and risk of Tenant, and they shall be of such shape, color, material, quality, design and make as may be approved by Landlord. 24. Tenant shall not during the term of this Lease canvas or solicit other tenants of the Building for any purpose except as expressly allowed in the Lease or these regulations. 25. Except as allowed in the Lease or related to Tenant's use of the Premises, Tenant shall not install or operate any phonograph, musical or sound- producing instrument or device, radio receiver or transmitter, TV receiver or transmitter, or similar device in the Building which would interfere with any tenant in the Project, nor install or operate any antenna, aerial, wires or other equipment inside or outside the Building, nor operate any electrical device from which may emanate electrical waves which may interfere with or impair radio or television broadcasting or reception from or in the Building or elsewhere, without in each instance the prior written approval of Landlord. The use thereof, if permitted, shall be subject to control by Landlord to the end that others shall not be disturbed. 26. Tenant shall promptly remove all rubbish and waste from the Premises. 27. Tenant shall not exhibit, sell or offer for sale, Rent or exchange in the Premises or at the Project any article, thing or service, except those ordinarily embraced within the use of the Premises specified in Section 6 of this Lease, without the prior written consent of Landlord. 28. Tenant shall not overload any floors in the Premises or any public corridors or elevators in the Building. 29. Whenever Landlord's consent, approval or satisfaction is required under these Rules, then unless otherwise stated, any such consent, approval or satisfaction must be obtained in advance, such consent or approval may be granted or withheld in Landlord's sole discretion, and Landlord's satisfaction shall be determined in its sole judgment provided, however, Landlord shall respond to any such request within ten (10) days. 30. Tenant and its employees shall cooperate in all fire drills conducted by Landlord in the Building. 31. In the event of a conflict between these Rules and Regulations and the provisions of the Lease, the provisions of the Lease shall prevail. APPENDIX C TENANT IMPROVEMENT AGREEMENT 1. INITIAL IMPROVEMENTS. Landlord shall cause to be performed the improvements (the "Initial Improvements") in the Premises provided for in the -------------------- plans and specifications prepared by _________________________ dated _______________ and agreed to by Landlord and Tenant (the "Plans"). The Initial ----- Improvements shall be performed by _________________________ (the "Contractor"), ---------- using Building standard materials. Landlord shall use commercially reasonable efforts to cause the Work to be substantially completed on or before the Commencement Date specified in the Schedule to the Lease, subject to Tenant Delay (as defined in Section 4 hereof) and any Force Majeure. Notwithstanding the foregoing, Landlord shall be required to deliver only 73,000 square feet of the Premises on the Commencement Date. The remaining 23,000 square feet shall be delivered within 180 days of Tenant s written notice of its intent to occupy the remaining space; provided, however, that rent shall commence no later than January 1, 1999 regardless of the date Tenant occupies such space. Landlord may charge a supervisory fee not to exceed three percent (3%) of labor, material and all other costs of the Initial Improvements and the Additional Improvements. 2. ADDITIONAL IMPROVEMENTS. If Tenant shall require improvements ("Additional Improvements") to the Premises in addition, revision of, or ----------------------- substitution for the Initial Improvements, Tenant shall deliver to Landlord for its approval plans and specifications for such Additional Improvements. If Landlord does not approve of the plans for Additional Improvements, Landlord shall advise Tenant of the revisions required. Tenant shall revise and redeliver the plans and specifications to Landlord within five (5) business days of Landlord's advice or Tenant shall be deemed to have abandoned its request for such Additional Improvements. Tenant shall pay for all such preparations and revisions of plans and specifications, and the construction of all Additional Improvements, subject to Landlord s Contribution. 3. LANDLORD'S CONTRIBUTION. Landlord shall contribute an amount of Twenty Dollars ($20.00) per square foot ("Landlord's Contribution") toward the ----------------------- costs incurred by Landlord for the Initial Improvements or Additional Improvements or other items Tenant is responsible for hereunder that constitute a physical improvement to the Premises such as cabling and security. Landlord has no obligation to pay for costs of the Initial Improvements in excess of Landlord's Contribution. If the cost of the Initial Improvements exceeds the Landlord's Contribution, Tenant shall pay such overage to Landlord upon completion of construction of the Initial Improvements. Tenant shall also pay to Landlord prior to commencement of construction, the cost of all Additional Improvements above the Landlord's Contribution. 4. COMMENCEMENT DATE DELAY. Commencement Date shall be APPENDIX C Page 1 of 4 delayed until the Initial Improvements have been substantially completed (the "Completion Date"), except to the extent that the delay shall be caused by any --------------- one or more of the following (a "Tenant Delay"): ------------ (a) Tenant's request for Additional Improvements whether or not any such Additional Improvements are actually performed; or (b) Contractor's performance of any Additional Improvements; or (c) Tenant's request for materials, finishes or installations requiring unusually long lead times; or (d) Tenant's delay in reviewing, revising or approving plans and specifications beyond the periods set forth herein; or (e) Any other act or omission by Tenant, its agents, contractors or persons employed by any of such persons. If the Commencement Date is delayed for any reason, then Landlord shall cause Landlord's Architect to certify the date on which the Initial Improvements would have been completed but for such Tenant Delay, or were in fact completed without any Tenant Delay. 5. ACCESS BY TENANT PRIOR TO COMMENCEMENT OF TERM. Landlord shall permit Tenant and its agents to enter the Premises thirty (30) days prior to the Commencement Date to prepare the Premises for Tenant's use and occupancy. Any such permission shall constitute a license only, conditioned upon Tenant's: (a) working in harmony with Landlord and Landlord's agents, contractors, workmen, mechanics and suppliers and with other tenants and occupants of the Building; (b) obtaining in advance Landlord's approval of the contractors proposed to be used by Tenant and depositing with Landlord in advance of any work (i) security satisfactory to Landlord for the completion thereof, and (ii) the general contractor's affidavit for the proposed work and the waivers of lien from the general contractor and all subcontractors and suppliers of material; and (c) furnishing Landlord with such insurance as Landlord may require against liabilities which may arise out of such entry. Landlord shall not be liable in any way for any injury, loss or damage which may occur to any of Tenant's property or installations in the Premises prior to the Commencement Date. Tenant shall protect, defend, indemnify and save harmless APPENDIX C Page 2 of 4 Landlord from all liabilities, costs, damages, fees and expenses arising out of the activities of Tenant or its agents, contractors, suppliers or workmen in the Premises or the Building. Any entry and occupation permitted under this Section shall be governed by Section 5 and all other terms of the Lease. 6. MISCELLANEOUS. (a) Landlord s Work. In addition to the Initial Improvements, Landlord shall construct Building 1 and Building 2 in accordance with Plans and Specifications dated ____________ ("Landlord s Work"). Landlord shall use its best efforts to substantially complete the Landlord s Work on or before the Commencement Date, subject to force majeure and actions or omissions of Tenant causing delay. The Improvements to be constructed by Landlord shall include as part of the Building Shell (and shall not be included in the Initial Improvements) the following: Landlord shall provide as part of the Building Shell: Building HVAC system per the building specifications dated 7-1-97 and the McKinstry Drawings dated 6-30-97 Finished Building Restroom and Core per the building specifications dated 7-1-97 and the G2 Architectural Drawings dated 6-30-97. Landlord to provide one set of showers per building as a component of the shell. Elevator per G2 Architectural Drawings dated 6-30-97 and building specifications dated 7-1-97. One on grade loading door per building per the G2 Architectural Drawings dated 6-30-97. Landlord to provide one dock height loading area at Building One per mutually developed and approved drawings. Insulated perimeter walls. Blinds installed on the exterior windows. Ceiling tiles, grid and lights for the entire Premises of the types identified in the building specifications dated ______________. In the event that the plans and specifications for the Initial Improvements are such that fewer ceiling tiles, less grid or fewer lights are required than if the entire Premises were improved for initial use as office space, Tenant shall receive a credit equal to Landlord's resulting cost savings, which shall be applied against any part of the Initial APPENDIX C Page 3 of 4 Improvements, Additional Improvements or other items that become a physical part of the Building (such as security systems, rooftop work and telecommunications improvements) for which Tenant would otherwise be responsible to pay. Landlord to provide a comprehensive signage program for Willow Creek Corporate Center. The park signage package will include park entry and park directional signage, building directory signage and building informational signage. (b) Landlord shall construct a skybridge between Building 1 and Building 2, in accordance with plans and specifications prepared by Landlord, subject to Tenant s approval of such plans and specifications. The construction of the skybridge shall be undertaken, if possible, in conjunction with Landlord s work and the Initial Improvements. Costs of the skybridge shall be advanced by Landlord and repaid by Tenant in accordance with the terms of the Lease. Tenant shall not be required to remove the Skybridge at the termination of the Lease. (c) Substantial Completion as used in this Lease and Appendix shall mean completion of work so that (i) Tenant can use the Premises and Building for intended use without material interference to Tenant, (ii) the only incomplete items are minor or insubstantial details of construction and "punch list" items, and (iii) Landlord has obtained a temporary or permanent certificate of occupancy from the appropriate governmental agency. (d) Landlord shall provide Tenant with two (2) preliminary Space Planning meetings and two (2) Space Plans at its sole cost and expense, exclusive of the Tenant Allowance. (e) Landlord shall cooperate with Tenant to assist Tenant in its efforts to allow Tenant the benefits of the R&D Tax Deferral available from the State of Washington, provided that Landlord shall not be required to undertake any act or take any position that in Landlord s reasonable judgment would expose Landlord to any liability, cost or expense. Terms used in this Appendix C shall have the meanings assigned to them in the Lease. The terms of this Appendix C are subject to the terms of the Lease. APPENDIX C Page 4 of 4 APPENDIX D MORTGAGES CURRENTLY AFFECTING THE PROJECT APPENDIX D Page 1 APPENDIX E COMMENCEMENT DATE CONFIRMATION Landlord: CARRAMERICA REALTY CORPORATION, a Maryland corporation Tenant: ____________________, a _____________ This Commencement Date Confirmation is made by Landlord and Tenant pursuant to that certain Lease dated as of _________, 199__ (the "Lease") for certain premises known as Suite ____ in the building commonly known as WILLOW CREEK CORPORATE CENTER (the "Premises"). This Confirmation is made pursuant to Item 9 of the Schedule to the Lease. 1. Lease Commencement Date, Termination Date. Landlord and Tenant hereby ----------------------------------------- agree that the Commencement Date of the Lease is _____________, 199__, and the Termination Date of the Lease is _______________, _____. 2. Acceptance of Premises. Subject to the terms of the Lease, Tenant has ---------------------- inspected the Premises and affirms that the Premises is acceptable in all respects in its current "as is" condition. 3. Incorporation. This Confirmation is incorporated into the Lease, and ------------- forms an integral part thereof. This Confirmation shall be construed and interpreted in accordance with the terms of the Lease for all purposes. TENANT: , a Name:_________________________________ Title:________________________________ LANDLORD: CARRAMERICA REALTY CORPORATION, a Maryland corporation By:__________________________________ Name:________________________________ Title:_______________________________ APPENDIX E Page 1 APPENDIX F LEGAL DESCRIPTION PARCEL A: THE SOUTH 10 ACRES OF THE SOUTHEAST QUARTER OF THE NORTHWEST QUARTER OF SECTION 34, TOWNSHIP 26 NORTH, RANGE 5 EAST, W.M., IN KING COUNTY, WASHINGTON. PARCEL B: BEGINNING AT THE SOUTHEAST CORNER OF THE NORTH THREE-FOURTHS OF THE SOUTHEAST QUARTER OF THE NORTHWEST QUARTER OF SAID SECTION 34, TOWNSHIP 26 NORTH, RANGE 5 EAST, W.M., IN KING COUNTY, WASHINGTON; THENCE NORTH 88 29 27" WEST ALONG THE SOUTH LINE THEREOF 333.48 FEET; THENCE NORTH 1 30 33" EAST 700.00 FEET; THENCE SOUTH 88 29 27" EAST 703.19 FEET TO THE WESTERLY MARGIN OF THE C.D. STIMSON ROAD (NOW KNOWN AS WILLOWS ROAD); THENCE SOUTH 6 20 48" EAST ALONG SAID WESTERLY MARGIN 708.26 FEET TO THE SOUTH LINE OF THE NORTH THREE-FOURTHS OF THE SOUTHWEST QUARTER OF THE NORTHEAST QUARTER OF SAID SECTION 34; THENCE NORTH 88 17 35" WEST ALONG SAID SOUTH LINE 466.52 FEET TO THE POINT OF BEGINNING; EXCEPT THAT PORTION, IF ANY, LYING WITHIN WILLOWS ROAD AS CONVEYED TO THE CITY OF REDMOND BY DEED RECORDED UNDER RECORDING NO. 8002070845; (BEING KNOWN AS PARCEL 2 OF CITY OF REDMOND LOT LINE ADJUSTMENT NO. SS-83-29 RECORDED UNDER RECORDING NO. 8310270925). PARCEL C: THAT PORTION OF THE SOUTH HALF OF THE SOUTH HALF OF THE SOUTHWEST QUARTER OF THE NORTHEAST QUARTER OF SECTION 34, TOWNSHIP 26 NORTH, RANGE 5 EAST, W.M., IN KING COUNTY, WASHINGTON, LYING WESTERLY OF RIGHT-OF-WAY OF NORTHERN PACIFIC RAILWAY COMPANY; EXCEPT ANY PORTION LYING WITHIN THE WILLOWS ROAD. APPENDIX F Page 1 of 3 PARCEL D: THE NORTH 100 FEET OF THAT PORTION OF THE NORTHWEST QUARTER OF THE SOUTHEAST QUARTER OF SECTION 34, TOWNSHIP 26 NORTH, RANGE 5 EAST, W.M., IN KING COUNTY, WASHINGTON, LYING WESTERLY OF THE RIGHT-OF-WAY OF THE NORTHERN PACIFIC RAILWAY COMPANY; EXCEPT THAT PORTION THEREOF CONVEYED TO KING COUNTY FOR ROAD BY DEED RECORDED UNDER RECORDING NO. 956171. PARCEL E: LOTS 1, 2 AND 3 OF CITY OF REDMOND SHORT PLAT NO. SS-79-37 RECORDED UNDER RECORDING NO. 8010230411; PARCEL F: THE NORTH HALF OF THE NORTHEAST QUARTER OF THE SOUTHWEST QUARTER OF SECTION 34, TOWNSHIP 26 NORTH, RANGE 5 EAST, W.M., IN KING COUNTY, WASHINGTON; EXCEPT THE SOUTH 400 FEET OF THE NORTH 430 FEET OF THE EAST 228 FEET THEREOF. PARCEL G: THE SOUTH 400 FEET OF THE NORTH 430 FEET OF THE EAST 228 FEET OF THE FOLLOWING DESCRIBED PROPERTY: THE NORTH HALF OF THE NORTHEAST QUARTER OF THE SOUTHWEST QUARTER OF SECTION 34, TOWNSHIP 26 NORTH, RANGE 5 EAST, W.M., IN KING COUNTY, WASHINGTON. PARCEL H: THE NORTH HALF OF THE SOUTH HALF OF THE NORTHEAST QUARTER OF THE SOUTHWEST QUARTER OF SECTION 34, TOWNSHIP 26 NORTH, RANGE 5 EAST, W.M., IN KING COUNTY, WASHINGTON. APPENDIX F Page 2 of 3 PARCEL I: THE EAST ONE-HALF OF THE FOLLOWING DESCRIBED TRACT: THE SOUTH 10 ACRES OF THE NORTHEAST QUARTER OF THE SOUTHWEST QUARTER OF SECTION 34, TOWNSHIP 26 NORTH, RANGE 5 EAST, W.M., IN KING COUNTY, WASHINGTON, ACCORDING TO SURVEY THEREOF AS SHOWN BY THE SUBDIVISIONAL PLAT APPROVED BY DECREE OF THE SUPERIOR COURT OF KING COUNTY IN CAUSE NO. 106237. PARCEL I-1: AN EASEMENT FOR SANITARY SEWER AND UNDERGROUND UTILITIES OVER AND ACROSS THE NORTH 25 FEET OF THE FOLLOWING DESCRIBED PROPERTY: BEGINNING AT THE NORTHWEST CORNER OF THE SOUTHWEST QUARTER OF THE SOUTHEAST QUARTER OF SECTION 34, TOWNSHIP 26 NORTH, RANGE 5 EAST, W.M.; THENCE SOUTH 370 FEET ALONG THE WESTERLY BOUNDARY OF SAID SOUTHWEST QUARTER OF THE SOUTHEAST QUARTER; THENCE EAST PARALLEL TO THE NORTH BOUNDARY LINE OF SAID SOUTHWEST QUARTER OF THE SOUTHEAST QUARTER TO THE COUNTY ROAD AS NOW LAID OUT AND ESTABLISHED; THENCE NORTHWEST ALONG SAID COUNTY ROAD TO THE NORTH BOUNDARY LINE OF SAID SOUTHWEST QUARTER OF THE SOUTHEAST QUARTER; THENCE WEST ALONG SAID NORTH BOUNDARY LINE OF SAID SOUTHWEST QUARTER OF THE SOUTHEAST QUARTER TO THE POINT OF BEGINNING; TOGETHER WITH THE NORTH 70.42 FEET OF THE SOUTH 295 FEET OF THE NORTH 665 FEET OF THAT PORTION OF THE SOUTHWEST QUARTER OF THE SOUTHEAST QUARTER OF SECTION 34, TOWNSHIP 26 NORTH, RANGE 5 EAST, W.M., LYING WESTERLY OF COUNTY ROAD (ALSO KNOWN AS WILLOWS ROAD) IN KING COUNTY, WASHINGTON. ALL SITUATE IN THE COUNTY OF KING, STATE OF WASHINGTON. APPENDIX F Page 3 of 3 APPENDIX G EXTENSION OPTION EXTENSION OPTION. Subject to Subsection B below, Tenant may at its option ---------------- extend the Term of this Lease for TWO (2) successive periods of FIVE (5) YEARS each. Each such period is called a "Renewal Term", and the first such FIVE (5) ------------ YEAR period is called the "First Renewal Term" and the second such five (5) year ------------------ period is called the "Second Renewal Term". Each Renewal Term shall be upon the ------------------- same terms contained in this Lease except for the payment of Base Rent during the Renewal Term; and any reference in the Lease to the "Term" of the Lease shall be deemed to include any Renewal Term and apply thereto, unless it is expressly provided otherwise. Tenant shall have no additional extension options. A. The Base Rent during a Renewal Term shall be the greater of (i) the Base Rent applicable to the last day of the final Lease Year prior to the applicable Renewal Term, or (ii) 100% of the Market Rate (defined hereinafter) for such space for a term commencing on the first day of the Renewal Term. "Market Rate" shall mean the then prevailing market rate for a five (5) year ----------- term commencing on the first day of the Renewal Term for tenants of comparable size and creditworthiness for comparable buildings in the general vicinity of the Project. Determination of the Market Rate shall include, without limitation, then current applicable market conditions such as rent abatements, tenant allowances, cash incentives, broker commissions, Tenant's use, availability of space in the Redmond area, the build out of the Premises and such additional factors as might reasonably be considered in determining the Market Rate. B. To exercise any option, Tenant must deliver a binding notice to Landlord not less than twelve (12) months prior to the expiration of the initial Term of this Lease, or the first Renewal Term, as the case may be. Thereafter, the Market Rate for the particular Renewal Term shall be calculated pursuant to Subsection C below and Landlord shall inform Tenant of the Market Rate. Such calculations shall be final and shall not be recalculated at the actual commencement of such Renewal Term. If Tenant fails to timely give its notice of exercise, Tenant will be deemed to have waived its option to extend. C. Market Rate shall be determined as follows: (i) If Tenant provides Landlord with its binding notice of exercise pursuant to Subsection B above, then at some point between thirteen (13) and eleven (11) months prior to the commencement of the applicable Renewal Term (or, at Landlord s election, at an earlier point), Landlord shall calculate and inform Tenant of the Market Rate. At the same time Landlord shall provide to Tenant in writing supporting information used by Landlord to calculate the Market Rate including rental rates and lease terms on comparable buildings, which Landlord APPENDIX G Page 1 of 2 shall identify by name and location. If Tenant rejects the Market Rate as calculated by Landlord, Tenant shall inform Landlord of its rejection within twenty (20) days after Tenant s receipt of Landlord s calculation, and Landlord and Tenant shall commence negotiations to agree upon the Market Rate. If Tenant fails to timely reject Landlord s calculation of the Market Rate it will be deemed to have accepted such calculation. If Landlord and Tenant are unable to reach agreement within twenty-one (21) days after Landlord s receipt of Tenant s notice of rejection, then the Market Rate shall be determined in accordance with (ii) below. (ii) If Landlord and Tenant are unable to reach agreement on the Market Rate within said twenty-one (21) day period, then within seven (7) days, Landlord and Tenant shall each simultaneously submit to the other in a sealed envelope its good faith estimate of the Market Rate. If the higher of such estimates is not more than one hundred five percent (105%) of the lower, then the Market Rate shall be the average of the two. Otherwise, the dispute shall be resolved by arbitration in accordance with (iii) below. (iii) Within seven (7) days after the exchange of estimates, the parties shall select as an arbitrator an independent MAI appraiser with at least five (5) years of experience in appraising office space in the metropolitan area in which the Project is located (a "Qualified Appraiser"). If the parties cannot agree on a Qualified Appraiser, then within a second period of seven (7) days, each shall select a Qualified Appraiser and within ten (10) days thereafter the two appointed Qualified Appraisers shall select a third Qualified Appraiser and the third Qualified Appraiser shall be the sole arbitrator. If one party shall fail to select a Qualified Appraiser within the second seven (7) day period, then the Qualified Appraiser chosen by the other party shall be the sole arbitrator. (iv) Within twenty-one (21) days after submission of the matter to the arbitrator, the arbitrator shall determine the Market Rate by choosing whichever of the estimates submitted by Landlord and Tenant the arbitrator judges to be more accurate. The arbitrator shall notify Landlord and Tenant of its decision, which shall be final and binding. If the arbitrator believes that expert advice would materially assist him, the arbitrator may retain one or more qualified persons to provide expert advice. The fees of the arbitrator and the expenses of the arbitration proceeding, including the fees of any expert witnesses retained by the arbitrator, shall be paid by the party whose estimate is not selected. Each party shall pay the fees of its respective counsel and the fees of any witness called by that party. D. Tenant's option to extend this Lease is subject to the conditions that: (i) on the date that Tenant delivers its binding notice exercising an option to extend, Tenant is APPENDIX G Page 2 of 2 not in default under this Lease after the expiration of any applicable notice and cure periods. APPENDIX G Page 3 of 2 APPENDIX H EXPANSION OPTION AND LETTER OF CREDIT 1. EXPANSION OPTION. Subject to the terms and conditions of this ---------------- paragraph, Landlord hereby grants to Tenant an option (the "Option") to lease Building 6 located in the Project as shown on Exhibit A attached hereto (the "Expansion Space"). To exercise the Option, Tenant must deliver a binding written notice to Landlord of its intent to lease the Expansion Space on or before May 1, 1999. In the notice of intent to lease, Tenant shall specify the date on which the Landlord shall deliver the Expansion Space to Tenant, which date (i) shall not be less than nine (9) months from the date of the notice, and (ii) shall be no later than February 1, 2000 . Tenant hereby acknowledges that time is of the essence with respect to delivery of the notice and that failure to deliver such written notice to Landlord within the time required shall result in the termination of Tenant s Option to lease the Expansion Space. Upon proper exercise of Tenant s Option, Landlord shall deliver to Tenant the Expansion Space on the specific delivery date, unless otherwise mutually agreed by Landlord and Tenant. Tenant s notice of its election to exercise its Option for the Expansion Space shall be subject to the following conditions: (a) the Lease shall be in full force and effect at the time of the exercise of such Option; and (b) Tenant shall not be in default (subject to any notice and cure periods) under the Lease. Tenant s lease of the Expansion Space shall be on the same terms and conditions of this Lease of the Premises, including, without limitation, at the rental rates paid at the time of such election for the Premises and, except for Extension Options without further extension of the term of the Lease (it being the intent of the parties that the lease of the Expansion Space shall be co- terminus with the lease of the Premises). Landlord and Tenant hereby agree to execute an Amendment to Lease evidencing the lease of the Expansion Space in form consistent with the terms hereof and satisfactory to the parties. Landlord shall deliver to Tenant the Expansion Space in a similar condition and terms as the Premises were delivered to Tenant, including, Landlord s work and the Tenant improvement allowance set forth in the Lease for the initial Premises. 2. LETTER OF CREDIT. Section 12 of the Lease is hereby supplemented and ---------------- modified by adding the following language as Section 12E: APPENDIX H Page 1 of 2 E. Default Relating to Letter of Credit. In the event that thirty (30) ------------------------------------ days prior to the expiry date set forth in the Letter of Credit or replacement Letter of Credit required to be provided by Tenant pursuant to Article 20 hereof and which is in effect at such time, Tenant fails to (1) obtain an extension of such Letter of Credit or (2) provide a new Letter of Credit, as security for the performance of all of its obligations hereunder in form and substance satisfactory to Landlord, Landlord may, at its sole and exclusive remedy for such default, present drafts for payment of the entire amount of the Letter of Credit and such amounts shall be held by Landlord as a Security Deposit pursuant to the terms of Article 20 hereof. APPENDIX H Page 2 of 2 EX-10.9 6 PURCHASE AGREEMENT DATED OCTOBER 21, 1997 EXHIBIT 10.9 REDACTED VERSION [***] INDICATES THAT CONFIDENTIAL TREATMENT IS REQUESTED FOR CERTAIN INFORMATION THAT HAS BEEN DELETED. EXHIBIT 10.9 360 degrees PURCHASE AGREEMENT THIS PURCHASE AGREEMENT (this "Agreement") is made as of this 21st day of October, 1997 (the "Effective Date") between Metawave Communications Corporation, a Delaware corporation ("Seller"), and 360 COMMUNICATIONS COMPANY, a Delaware corporation (the "Company"). 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 manufacture, sell and deliver to the Company, and the Company agrees to purchase, the Products identified in Exhibit A to this Agreement (the "Initial Order") in accordance with the specifications and the terms and conditions hereof. As part of the Initial Order, Seller agrees to provide and the Company agrees to purchase, the Services identified in Exhibit A to this Agreement. 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 the Initial Order as well as all additional Orders for the Products in excess of the Initial Order (the "Additional Orders") 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, INVOICE OR OTHER COMMUNICATION TO THE COMPANY SHALL BE DEEMED OBJECTED TO BY THE COMPANY WITHOUT NEED OF FURTHER NOTICE OF OBJECTION AND SHALL BE OF NO EFFECT AND NOT IN ANY CIRCUMSTANCE BINDING UPON THE COMPANY UNLESS EXPRESSLY ACCEPTED BY THE COMPANY IN WRITING. 2. DEFINITIONS As used in this Agreement, the following terms shall have the meanings set forth below: "Acceptance Test Procedure" shall mean the testing procedures and protocols described and administered as set forth in Exhibit C. "Certification of Acceptance" shall mean the Company's certification of Seller's satisfactory completion of the Acceptance Test Procedure in the form set forth in Exhibit C. "Order" shall mean this Agreement, together with any purchase order or other communication the Company may deliver to Seller for the purchase of the Products and Services which incorporates the terms and conditions of this Agreement and which has been accepted by Seller. [***] [***] 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. "Performance Criteria" shall mean the [***] to be [**] for the [**] of the Products in the Initial Order [**] Performance Evaluation Period as set forth in Exhibit D. "Performance Evaluation Period" shall mean the [***] the Products in the Initial Order [***] in [***] the Performance Criteria set forth in Exhibit D. "Performance Results" shall mean the [***] Performance Evaluation Period as agreed by the Company and the Seller which shall be [***] as a [***] of a [***]. "Products" shall mean the products listed on Exhibit A hereto and the Software referenced in Exhibit E or any additional products set forth in any amendments to Exhibit A or E as may be subsequently agreed to from time to time by Seller and the Company or in an Order. "Purchase Price" shall mean the price of the Products shown on Exhibit A attached hereto and incorporated herein 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 the Company. "Software" shall mean the object-code computer programs, including firmware object code, licensed by Seller for use solely with the Products which enables the Products to perform its functions and processes. "Software License" shall mean the software license for the software to be delivered to the Company for use with the Products set forth in Exhibit E. "Specifications" shall mean the specifications for the Products set forth in Exhibit B attached hereto and incorporated herein. 3. PURCHASE PRICE The Purchase Price(s) for the Products set forth in Exhibit A are no higher than the prices quoted by Seller to the Company in Seller's written bid therefor, unless agreed to by the Company in writing. 4. DELIVERY OF PRODUCTS All dates for delivery of Products are firm, and time is of the essence. Seller shall deliver the Products in the Initial Order to the Company's designated location on or before the date(s) specified in Exhibit A hereto, or to the location on or before the date specified in an Order, failing which Seller shall pay to the Company a charge, for every [***] of delay, equal to the rate of [***] of the Purchase Price of the Products which have been delayed, such charge to begin to accrue [***] after the date specified for delivery. Such charges shall not exceed in the aggregate [***]. In the event that the delivery of an Order is delayed more than [***] beyond the delivery date specified in such Order, Customer shall have the right to cancel such Order without penalty. 5. SHIPPING INSTRUCTIONS, CHARGES AND PACKING a. Unless otherwise instructed by the Company, Seller shall (1) ship all Products for a designated location complete; (2) ship to the destination designated in Exhibit A or in an Order; (3) enclose a packing memorandum with each shipment; (4) reference this Agreement on all packages and shipping papers; and (5) render [***] 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. invoices in accordance with Section 10 below. The Company shall be responsible for payment of all shipping charges. b. Shipping charges to the destinations specified in Exhibit A shall be as specified in Exhibit A. If the Company rejects or cancels for good cause any Products, Seller shall bear all shipping charges relating to such Products. c. Products shall be packed by Seller, at no additional charge to the Company, in containers adequate to prevent damage during shipping, handling and storage. 6. ORDERS; CHANGES AND CANCELLATIONS a. The Company shall order all Products and Services pursuant to this Agreement (other than the Initial Order set forth in Exhibit A) by an Order, which shall be delivered to Seller not later than [***] days prior to the date of delivery for such Products and Services specified in the Order. Each Order shall only become binding on Seller and Customer when agreement has been reached by the parties on all of the terms therein and Seller has confirmed its acceptance of the Purchase Order. b. Customer shall give Seller, for planning purposes, a non-binding forecast of its estimated requirements for the Products and Services for the forthcoming [***] and such forecast shall be updated on a quarterly basis. The first such forecast shall be delivered by the Company to the Seller in December 1997. c. The Company may, by 30 days' written notice to Seller at any time before delivery is made, make changes, including changes to quantities, specifications, destinations or other terms set forth in an Order, [***]. d. In the event of destruction of all or a portion of a Product located at one of Customer's cell sites (e.g., by fire, flood, theft or other natural or man-made causes), the Company shall ship a replacement Product (or parts) within [***] of receipt of notice from Customer to be followed within [***] by an Order from Customer. [***] 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. 7. TITLE; RISK OF LOSS a. Unless otherwise specified herein, title to Products sold by Seller to the Company shall vest in the Company when the Products have been delivered to the Company to the location specified in Exhibit A hereto or in an Order (except title to software shall never pass). b. Seller shall bear the risk of loss of or damage to any Product until delivery of the Product to the destination specified in Exhibit A or in an Order and acceptance by the Company. 8. PERFORMANCE EVALUATION FOR INITIAL ORDER a. At the end of the Performance Evaluation Period for the Initial Order, Seller and the Company shall review the data for the Products in the Initial Order in accordance with the methodology set forth in Exhibit D and shall mutually agree on the Performance Results. [***]. b. There shall be no Performance Evaluation Period for any Additional Order. 9. WARRANTY a. Seller warrants that all Products furnished hereunder will conform in all material respects with the requirements of this Agreement and the Specifications; that all Products are free from defects in design, materials, workmanship and title. These warranties shall survive delivery, acceptance and payment of the Purchase Price for a period of [***] from the date of delivery of each such Product to the Company. The warranties in this Agreement are given in lieu of all other warranties express or implied which are specifically excluded, including, without limitation, implied warranties of merchantibility and fitness for a particular purpose. b. If the Company believes that there is a breach of any warranty set forth herein, the Company will notify Seller, setting forth in writing the nature of the claimed [***] 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. breach. Seller shall promptly investigate such breach and advise the Company of Seller's planned corrective action. Thereafter, Seller shall promptly repair or replace such Product or Products or take such other action as may be acceptable to the Company to correct such breach of warranty at no additional charge to the Company. If such breach of warranty has not been corrected to the Company's satisfaction within a reasonable time (not to exceed thirty (30) days from the date of the Company's notice to Seller of the breach), the Company may, in addition to all other rights and remedies provided by law or this Agreement, suspend delivery of any then undelivered portion of the Products to be sold by the Seller to the Company under this Agreement. c. This warranty is void if (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; (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 trained by Seller to provide such services; or (iv) unauthorized alterations or repairs have been made, or unapproved parts used in the equipment. d. Seller warrants that the Software will not abnormally end or provide invalid or incorrect results arising from the use of date data beyond the year 1999. 10. INVOICES AND PAYMENT a. Seller shall render an invoice for the Initial Order promptly following agreement by the parties on the Performance Results. Seller shall render an invoice for Additional Orders promptly upon Acceptance of the Products and Services. In either case, the invoice shall be computed on the basis of the prices set forth in Exhibit A [***] and shall identify and show separately quantities, type of Services, total amounts for each item, shipping charges, applicable sales or use taxes and total amount due. The Company shall promptly pay Seller the amount due within 30 days of the date of invoice, unless it is in dispute; provided, however, that unless otherwise agreed, payment for shortages and/or non-conforming Products may be withheld by the Company. The Company 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. b. If the Company disputes any invoices rendered or amount paid, the Company will so notify Seller, and the parties will use their reasonable efforts to resolve such dispute expeditiously. [***]. [***] 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. 11. TAXES The Purchase Price(s) set forth herein include all taxes of whatever nature except state sales and use taxes, which shall be added as applicable and stated as separate items on the invoice applicable to each delivery of Products. 12. INFRINGEMENT INDEMNITY a. Seller shall defend the Company against (or, at its option, settle) a claim that the Products supplied hereunder infringe a United States patent or copyright provided that (i) the Company promptly notifies Seller in writing of the claim, (ii) the Company gives Seller full opportunity and authority to assume sole control of the defense and all related settlement negotiations, and (iii) the Company gives Seller information and assistance for the defense (the Company 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 this Agreement, Seller shall indemnify and hold harmless the Company from all payments, which by final judgments in such suits, may be assessed against the Company on account of such alleged infringement and shall pay resulting settlements, costs (including reasonable attorneys' fees) and damages finally awarded against the Company by a court of law. b. The Company agrees that if the Products become, or in Seller's opinion are likely to become, the subject of such a claim, the Company will permit Seller, at its option and expense, either to procure the right for the Company to continue using such Products or to replace or modify same so that they become non-infringing, and, if neither of the foregoing alternatives is available on terms which are acceptable to Seller, the Company shall at the written request of Seller, return the infringing or potentially infringing Products. The Company shall receive a refund of the prorated undepreciated portion of the Purchase Price actually paid by the Company to Seller for the returned portion of the Products. The Purchase Price shall be depreciated over a five (5) year period. c. Seller disclaims any and all liability for any claim of patent or copyright infringement (i) based upon adherence to specifications, designs or instructions furnished by the Company, (ii) based upon the combination, operation or use of any Products supplied hereunder with products, software or data not supplied by Seller, or (iii) based upon alteration of the Products or modification of any Software made by any party other than Seller. 13. [***] Product Seller [***] to the Company [***] Product. This Product will be an [***] in the Product to allow both [***] in the Product. This [***] product [***] when attached to a [***] available for [***] to the Company on or before [***]. The purchase price for the [***], excluding [***]. [***] 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. [***] 14. INDEPENDENT CONTRACTOR Seller hereby declares and agrees that Seller is engaged in an independent business and will perform its obligations under this Agreement as an independent contractor and not as the agent or employee of the Company; that the persons performing services hereunder are not agents or employees of the Company; that Seller has and hereby retains the right to exercise full control of and supervision over the performance of Seller's obligations hereunder and full control over the employment, direction, compensation and discharge of all employees assisting in the performance of such obligations; that Seller will be solely responsible for all matters relating to payment of such employees, including compliance with workers' compensation, unemployment, disability insurance, social security, withholding and all other federal, state and local laws, rules and regulations governing such matters; and that Seller will be responsible for Seller's own acts and those of Seller's agents, employees and contractors during the performance of Seller's obligations under this Agreement. 15. NONEXCLUSIVE MARKET RIGHTS It is expressly understood that this Agreement does not grant Seller an exclusive privilege to furnish to the Company any or all of the type of products which are the subject of this Agreement which the Company may require. The Company expressly reserves the right to contract with others for the purchase of products comparable or identical to the products and services which are the subject of this Agreement. 16. INDEMNIFICATION Seller shall indemnify the Company, its employees and directors, and each of them, against any loss, cost, damage, claim, expense or liability, including but not limited to liability as a result of injury to or death of any person or damage to or loss or destruction of any property arising out of, as a result of, or in connection with the performance of this Agreement and directly caused, in whole or in part, by the acts or omissions, negligent or otherwise, of Seller or a contractor or an agent of Seller or an employee of anyone of them, except where such loss, cost, damage, claim, expense or liability arises from the sole negligence or willful misconduct of the Company or its employees. As used in the preceding sentence, the words "any person" shall include but shall not be limited to, a contractor or an agent of the Company or Seller, and an employee of the Company, Seller or any such contractor or agent; and the words " any property" shall include, but shall not be limited to, property of the Company, Seller or any such contractor or agent, or an employee of any of them. 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 and attorneys' fees that may me incurred by the Company in connection with any such claim or suit or in enforcing [***] 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. the indemnity granted above, provided that Seller (i) is given prompt notice of any such claim or suit and (ii) full opportunity to assume control of the defense or settlement. 17. TERM AND TERMINATION The term of this Agreement shall be three (3) years from the Effective Date. 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 cancel this Agreement and/or the delivery of any Products which may be affected by such default. 18. ASSIGNMENT a. Any assignment by Seller of this Agreement or any other interest hereunder without the Company's prior written consent, shall be void, except assignment to a person or entity who acquires all or substantially all of the assets, business or stock of Seller, whether by sale, merger or otherwise. b. The Company reserves the right to assign this Agreement or any portion hereof to any present or future affiliate, subsidiary or parent corporation. 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. 19. 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 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 THE COMPANY: Metawave Communications Corporation 360 degrees Communications Company 8700 148th Avenue NE 8725 Higgins Road Redmond WA 98052 Chicago, Illinois 60636 Attn:VP, Sales Attn: Tim Thompson Copy to: General Counsel Copy to: Steve Podrzycki Fax: 425 702 5970 Fax: 773-399-7291 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 18. [***] 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. 20. COMPLIANCE WITH LAWS Seller shall comply with all applicable federal, state and local laws, regulations and codes, including the procurement of permits and licenses when needed, in the performance of this Agreement. Seller shall indemnify the Company against any loss or damage that may be sustained by reason of Seller's failure to comply with such federal, state and local laws, regulations and codes. 21. 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; or (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. 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. 22. GENERAL PROVISIONS a. All information, data and materials provided by either party under this Agreement shall be subject to the terms and conditions of the Non- Disclosure Agreement between the parties dated March 26, 1996. b. Except as otherwise provided in this Agreement, the provisions of this Agreement are for the benefit of the parties hereto and not for any other person. c. Waiver by either party of any obligation or default by the other party shall not be deemed a waiver by such party of any other obligation or default. d. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. e. This Agreement and each Order shall be construed in accordance with the internal laws of the State of Illinois, without regard to its choice of law provisions . f. Any rights of cancellation, termination or other remedies prescribed in this Agreement are cumulative and are not intended to be exclusive of any other remedies to which the injured party may be entitled at law or equity (including but not limited to the remedies of specific performance and cover) in case of any breach or threatened breach by the other party of any provision of this Agreement, unless such other remedies which are not prescribed in this Agreement are specifically limited or excluded by this Agreement. The use of one or more available remedies shall not bar the use of any other remedy for the purpose of enforcing the provisions of this Agreement; provided, however, that a party shall not be entitled to retain the benefit of inconsistent remedies. g. 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 or Seller and the Company shall be construed and enforced accordingly. h. This Agreement, including all Exhibits attached to or referenced in this Agreement, shall constitute the entire agreement between the Company and Seller with respect to the subject matter hereof. i. No provision of this Agreement shall be deemed waived, amended or modified by any party hereto, unless such waiver, amendment or modification is in writing and signed by a duly authorized representative of each of the parties. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives. Metawave Communications Corporation 360 degrees Communications Company By:/s/ Robert Hunsberger By:/s/ Gary Burge ---------------------- ------------------------ Title: President & CEO Title: Senior Vice President of ------------------- ------------------------- Engineering & Network Operations -------------------------------- Date Signed: 10/20/97 Date Signed: 10/21/97 ------------- -------------------- EXHIBITS ATTACHED: A Products and Services Pricing B Product Specifications C Acceptance Test Procedure D Performance Criteria for Initial Order E Software License EXHIBIT A --------- TO THE PURCHASE AGREEMENT BETWEEN METAWAVE COMMUNICATIONS CORPORATION ("SELLER") AND 360 COMMUNICATIONS COMPANY ("COMPANY") PRODUCTS AND SERVICES PRICING ----------------------------- For the purposes of uniformity and brevity, references to Agreement or to an Exhibit shall refer to the Purchase Agreement to which this document is Exhibit A and to the other Exhibits to that Agreement. All definitions set forth in the Agreement shall apply hereto unless otherwise expressly defined herein. INTRODUCTION This Exhibit A (Products and Services Pricing) lists the pricing for the Initial Order of Products and Services as of the Effective Date of the Agreement. All payments for the Products and Services shall be made according to the terms set forth in the Agreement. EXHIBIT A: PRODUCTS AND SERVICES PRICING (CONT.) ------------------------------------------------
SPOTLIGHT PRICING (LPAS WITH 30 WATT MODULES) - ---------------------------------------------------------------------------- SPOTLIGHT CONFIGURATIONS [***] [***] [***] [***] - ---------------------------------------------------------------------------- [***] [***] [***] [***] [***] - ---------------------------------------------------------------------------- [***] [***] [***] [***] [***] - ---------------------------------------------------------------------------- [***] [***] [***] [***] [***] - ---------------------------------------------------------------------------- [***] [***] [***] [***] [***] - ----------------------------------------------------------------------------
* The software licensing fee for the current version of LampLighter is included in the purchase price of each unit.
SPOTLIGHT PRICING (LPAS WITH 40 WATT MODULES) - ------------------------------------------- SPOTLIGHT CONFIGURATIONS [***] - ------------------------------------------- [***] [***] - ------------------------------------------- [***] [***] - ------------------------------------------- [***] [***] - ------------------------------------------- [***] [***] - ------------------------------------------- [***] [***] - ------------------------------------------- [***] [***] - ------------------------------------------- [***] [***] - -------------------------------------------
SPOTLIGHT RECOMMENDED SPARES - ------------------------------------------------------------------------- PART NUMBER DESCRIPTION [***] [***] - ------------------------------------------------------------------------- [***] [***] [***] [***] - ------------------------------------------------------------------------- [***] [***] [***] [***] - ------------------------------------------------------------------------- [***] [***] [***] [***] - ------------------------------------------------------------------------- [***] [***] [***] [***] - ------------------------------------------------------------------------- [***] [***] [***] [***] - ------------------------------------------------------------------------- [***] [***] [***] [***] - ------------------------------------------------------------------------- [***] [***] [***] [***] - ------------------------------------------------------------------------- [***] [***] [***] [***] - ------------------------------------------------------------------------- TOTAL [***] - -------------------------------------------------------------------------
[***] [***] 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. EXHIBIT A: PRODUCTS AND SERVICES PRICING (CONT.) INITIAL ORDER [***] [***] 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. EXHIBIT A: PRODUCTS AND SERVICES PRICING (CONT.) [***] [***] 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. EXHIBIT A: PRODUCTS AND SERVICES PRICING (CONT.) 2.0 SPOTLIGHT FIELD REPLACEABLE UNITS PRICING LIST [***] [***] 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. Exhibit B: Performance Specifications to the Products and Services Purchase Agreement SpotLight(TM) Multibeam Antenna Platform 2.0 Transmit/Receive (for use with Motorola HDII Base Station Equipment) ________________________________________________________________________________ This document and the information in it is the proprietary and confidential information of Metawave Communications Corporation and is provided by Metawave under an agreement of nondisclosure to the Customer for internal evaluation purposes only and is protected by applicable copyright and trade secret law. This document may only be disclosed or disseminated to those employees of the Customer who have a need to use it for evaluation purposes; no other use or disclosure can be made by Customer without Metawave's consent. (C)1997 METAWAVE COMMUNICATIONS CORPORATION CONFIDENTIAL PROPRIETARY ________________________________________________________________________________ 1. INTRODUCTION........................................................ 3 2. SYSTEM DESCRIPTION.................................................. 4 2.1 Introduction.................................................... 4 2.2 General System Overview......................................... 4 2.2.1 Operational Overview.................................... 5 2.2.2 SIG/SCAN................................................ 7 2.2.3 Antennas................................................ 7 2.2.4 Lightning Arrestor...................................... 7 2.2.5 Rack Mounted Components................................. 7 2.2.6 Interfaces.............................................. 9 2.3 SpotLight Specifications........................................ 10 2.3.1 RF Performance.......................................... 10 2.3.2 Electrical Specifications............................... 10 2.3.3 Environmental Specifications............................ 10 2.3.4 Physical Specifications................................. 11 2.3.5 Alarming................................................ 11 2.3.6 Reset................................................... 11 2.3.7 SMAP Frequency Reference................................ 11 2.4 RF Performance.................................................. 11 2.4.1 Angular Diversity....................................... 11 2.4.2 Improved C/I Ratio...................................... 12 2.4.3 Increased Range Extension............................... 12 2.4.4 Transmit Output Power................................... 12 2.4.5 Transmit Spurious Emissions............................. 12 2.5 System Software................................................. 12 2.5.1 LampLighter Software.................................... 12 2.5.2 Embedded System Software................................ 13 2.6 Software Performance............................................ 13 2.6.1 Program Upgrades........................................ 13 2.6.2 Programming and Development Standards................... 13 2.6.3 Built-In-Self-Test...................................... 14 2.6.4 Response Times.......................................... 14 3. REGULATORY REQUIREMENTS............................................. 14 3.1 US.......................................................... 14
For purposes of uniformity and brevity, references to Agreement or to an Exhibit shall refer to the Products and Services Purchase Agreement to which this document is Exhibit B and to the other Exhibits to that Agreement. All definitions set forth in the Agreement shall apply hereto. 1. INTRODUCTION The purpose of this document is to describe and specify Metawave's SpotLight 2.0 Multibeam Antenna Platform including: . System operation . Hardware and software elements of the SpotLight equipment . Interconnect between SpotLight equipment and the base station equipment While the specifications contained in this document are based on the most current information available, such information is based on cell site specific data and may not apply to all cell sites contained within a system. The specifications contained in this document may change from cell site to cell site. Metawave reserves the right to make changes to any design, specification, manufacturing techniques and/or product testing procedures. ACRONYMS AND TERMS DEFINITION ----------------------------- C/I Carrier to Interference Ratio FRU Field Replaceable Unit LNA Low Noise Amplifier LPA Linear Power Amplifier RCU Radio Channel Unit (P/O Motorola Cell Equipment) RF Radio Frequency RX Receive SMAP Spotlight Multibeam Antenna Platform SMU Spectrum Management Unit TX Transmit TXCD Transmit Combiner Driver 2. SYSTEM DESCRIPTION 2.1 Introduction The Spotlight Multibeam Antenna Platform (SMAP) brings enhanced performance to existing cellular technology. The system replaces the existing antenna components at a cell site with a high performance antenna array coupled to an RF switch matrix and control system. This upgrade provides a dramatically improved carrier-to-interference ratio (C/I) and is the basis for many other performance enhancements, such as improved audio quality, extended range and greater traffic capacity. 2.2 General System Overview The SMAP provides the necessary hardware and software to allow the most appropriate narrow beam antennas (2 receive paths and 1 transmit path) to be connected to base station RCUs. The major subsystem components which make up the SpotLight Multibeam Antenna Platform (SMAP) including antennas, RF switch matrix, and controller are depicted in Figure 1. [***] [***] 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. 3. REGULATORY REQUIREMENTS This section specifies requirements which are set primarily by local and/or national governing bodies, consortiums and standards committees. 3.1 US The SpotLight system complies with appropriate US FCC regulations (includes both RF and EMI). Specifically, the SMAP shall comply with the regulations defined in CFR 47 part 22 and part 15. EXHIBIT C: ACCEPTANCE TEST PROCEDURE (ATP) TO THE PRODUCTS AND SERVICES PURCHASE AGREEMENT SPOTLIGHT MULTIBEAM ANTENNA PLATFORM Metawave Communications Corporation 8700 148th Avenue NE Redmond, WA 98052 USA Tel. 425 702-5600 Fax 425 702-5970 http://www.metawave.com ________________________________________________________________________________ This document and the information in it is the proprietary and confidential information of Metawave Communications Corporation and is provided by Metawave under an agreement of nondisclosure to the Customer for internal evaluation purposes only and is protected by applicable copyright and trade secret law. This document may only be disclosed or disseminated to those employees of the Customer who have a need to use it for evaluation purposes; no other use or disclosure can be made by Customer without Metawave's consent. (C)1997, Metawave Communications Corporation CONFIDENTIAL PROPRIETARY ________________________________________________________________________________ TABLE OF CONTENTS 1. INTRODUCTION...................................................... 3 2. ACCEPTANCE TESTS.................................................. 3 2.1. LampLighter Installation Test................................ 4 2.2. System Configuration Test.................................... 5 2.3. Transmit Effective Radiated Power (Tx ERP) Test.............. 6 2.4. Receive Sensitivity Test..................................... 7 2.5. Call Processing Test......................................... 8 2.6. Alarm Functionality Test..................................... 9
SPOTLIGHT ACCEPTANCE TEST PROCEDURE For purposes of uniformity and brevity, references to Agreement or to an Exhibit shall refer to the Products and Services Purchase Agreement to which this document is Exhibit C and to the other Exhibits to that Agreement. All definitions set forth in the Agreement shall apply hereto. 1. INTRODUCTION The objective of the Acceptance Test Procedure (ATP) is to demonstrate the proper installation and operation of the SpotLight Multibeam Antenna Platform ("SpotLight"). Acceptance shall occur upon the demonstration of the proper installation and optimization of SpotLight. Within [***] after Metawave has advised Customer that installation and optimization are complete, Customer shall furnish representatives to witness the Acceptance Tests as set forth in this Exhibit C. The representatives shall then be available on a continuous basis to witness the ATP. A SpotLight Certificate of Acceptance, included at the end of this Exhibit C, contains a test results checklist that Metawave and Customer fill out and sign. 2. [***] [***] 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. [***] [***] 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. EXHIBIT D --------- TO THE PURCHASE AGREEMENT BETWEEN METAWAVE COMMUNICATIONS CORPORATION ("SELLER") AND 360 DEGREES COMMUNICATIONS COMPANY ("COMPANY") SPOTLIGHT PERFORMANCE CRITERIA ------------------------------ For the purposes of uniformity and brevity, references to Agreement or to an Exhibit shall refer to the Purchase Agreement to which this document is Exhibit D and to the other Exhibits to that Agreement. 360 degrees Communications - Southeast Region [***] [***] 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. EXHIBIT E TO THE PURCHASE AGREEMENT BETWEEN METAWAVE COMMUNICATIONS CORPORATION ("SELLER") AND 360 DEGREES COMMUNICATIONS COMPANY ("COMPANY") SOFTWARE LICENSE ---------------- For purposes of uniformity and brevity, references to Agreement or to an Exhibit shall refer to the Purchase Agreement to which this document is Exhibit E and to the other Exhibits to that Agreement. All definitions set forth in the Agreement shall apply hereto. 1. SCOPE Pursuant to the above-identified Agreement, Software will be delivered by Seller to Company for use with the Products according to the terms of the Agreement and this Exhibit. Company shall then become a licensee with respect to such Software. 2. LICENSING GRANT 2.1 Concurrent with execution of the Agreement, Seller grants to Company a revocable, non-exclusive and non-transferable license under Seller's applicable proprietary rights to use Software delivered to Company hereunder in accordance with the terms and conditions set forth herein. 2.2 Company agrees to pay the Licensing Fees for the right to use the Software and features and for any support thereof as set forth in Exhibit A (Price List) or in an Amendment thereto. 3. LIMITATIONS ON USE OF SOFTWARE 3.1 Without the prior written consent of Seller, Company shall only use the Software in conjunction with a single Product existing within the site specified in the Order ("Designated Product"). 3.2 Company may use the Software to routinely operate and maintain the Designated Product. For purposes of this Subsection, "maintain" shall be construed to mean performing diagnostic testing consistent with Company's obligation to provide the first level of maintenance. Under no condition shall the Software be used for any other purpose, including, but not limited to, substituted products, or products not owned by Company, or products located at a location other than the site specified in the Order. 3.3 The License granted to Company in Section 2 is personal and may not be transferred to another product or site without the written consent of Seller. 3.4 To the extent specified in Exhibit A or an Amendment thereto and provided Company has paid any applicable licensing fees, Company shall have the right to use features in accordance with the terms of this Exhibit. Company acknowledges that the Software may contain therein several additional features which are each covered by separate licensing fees. Company agrees not to use, and the license specifically does not extend to, such additional features unless they are specified in Exhibit A or an amendment thereto and provided Company has paid the applicable licensing fees for such additional features. 3.5 The Software is subject to laws protecting trade secrets, know-how, confidentiality and copyright. 3.6 Company shall not translate, modify, adapt, decompile, disassemble, or reverse engineer the Software or any portion thereof. 3.7 Unless otherwise expressly agreed by Seller, Company 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). 3.8 Company 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 Company 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. RIGHT TO COPY, PROTECTION AND SECURITY 4.1 Software provided hereunder may be copied (for back-up purposes only) in whole or in part, in printed or machine-readable form for Company's internal use only, provided, however, that no more than two (2) printed copies and two (2) machine-readable copies shall be in existence at any one time without the prior written consent of Seller, other than copies resident in the Products. 4.2 With reference to any copyright notice of Seller associated with Software, Company 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. 4.3 Company agrees to keep confidential, in accordance with the terms of the Agreement, 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 Company or Seller. 4.4 Software, including features 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 Company. 4.5 Company acknowledges that it is the responsibility of Company to take all reasonable measures to safeguard Software and to prevent its unauthorized use or duplication. 5. REMEDIES Company acknowledges that violation of the terms of this Exhibit or the Agreement shall cause Seller irreparable harm for which monetary damages may be inadequate, and Company agrees that Seller may seek temporary or permanent injunctive relief without the need to prove actual harm in order to protect Seller's interests. 6. TERM Unless otherwise terminated pursuant to Section 7 herein, the term of the license granted pursuant to Section 2 herein shall be co-extensive with the term of any licensing and/or maintenance fees paid by Company to Seller pursuant to Exhibit A or an Amendment thereto. 7. TERMINATION 7.1 The license granted hereunder may be terminated by Company upon one (1) month's prior written notice. 7.2 Seller may terminate the license granted hereunder if Company is in default of any of the terms and conditions of the Agreement or Exhibits, and such termination shall be effective if Company fails to correct such default within ten (10) days after written notice thereof by Seller. The provisions of Sections 4 and 5 herein shall survive termination of any such license. 7.3 Within one (1) month after termination of the license granted hereunder, Company 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, Company may retain one (1) copy for archival purposes only. 8. RIGHTS OF THE PARTIES 8.1 Nothing contained herein shall be deemed to grant, either directly or by implication, estoppel, or otherwise, any license under any patents or patent applications of Seller; except that Company shall have a non-exclusive, license under Seller's patents and patent applications to use, in Seller-supplied equipment only, Software supplied hereunder, when such license is implied or otherwise arises by operation of law by virtue of the purchase of such copies from Seller. 8.2 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. Company agrees to abide thereby. 8.3 During the term of the license granted pursuant to Section 2 herein and for a period of one (1) year after expiration or termination, Seller, and where applicable, its licensor(s), or their representatives may, upon prior notice to Company, a) inspect the files, computer processors, equipment, facilities and premises of Company during normal working hours to verify Company's compliance with this Agreement, and b) while conducting such inspection, copy or retain all Software, including the medium on which it is stored and all documentation that Company may possess in violation of the license or the Agreement. 8.4 Company acknowledges that the provisions of this Exhibit E are intended to inure to the benefit of Seller and its licensors and their respective successors in interest. Company acknowledges that Seller or its licensors have the right to enforce these provisions against Company, whether in Seller's or its licesnsor's name. 9. LIMITATIONS ON SOFTWARE Company understands that errors occur in Software and Seller makes no warranty that the Software will perform without error. Company agrees that it is Company's responsibility to select and test the Software to be sure it meets Company's needs. Company accepts the Software "as is". 10. ENTIRE UNDERSTANDING Notwithstanding anything to the contrary in other agreements, purchase orders or order acknowledgments; the Agreement and this Exhibit E set forth the entire understanding and obligations regarding use of Software, implied or expressed. EX-10.10 7 PURCHASE AGREEMENT DATED DECEMBER 12, 1997 EXHIBIT 10.10 Certain information in this Exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request. EXHIBIT 10.10 METAWAVE COMMUNICATIONS CORPORATION PURCHASE AGREEMENT THIS PURCHASE AGREEMENT (this "Agreement") is made as of this 12th day of December, 1997, (the "Effective Date") between Metawave Communications Corporation, a Delaware corporation ("Seller"), and Telefonica Celular del Paraguay S.A., a Paraguay corporation ("Customer"), a subsidiary of Millicom International Cellular S.A., a Luxembourg corporation ("Millicom"). 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, the Products and Services identified on Exhibit A to this Agreement in accordance with the specifications and the terms and conditions hereof and at the Purchase Prices set forth in Exhibit A. 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, 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: "Acceptance Date" shall mean for the Initial Order, a date which is no later than the date specified in Exhibit C on which the Products in the Initial Order shall satisfy the Acceptance Test Procedure and for Follow-on Orders, the date that the Products satisfy the Acceptance Test Procedure. "Acceptance Test Procedure" shall mean the testing procedures and protocols to be agreed by the parties by January 15, 1998 and set forth in Exhibit C. "Affiliate" shall mean any partnership, corporation or other entity (i) in which Customer, directly or indirectly, owns a controlling interest or (ii) which owns a controlling interest in Customer. "Certificate of Acceptance" shall mean the Customer's certification of Seller's satisfactory completion of the Acceptance Test Procedure in the form set forth in Exhibit C. "Change Order" shall mean any subsequent change to a Purchase Order initiated by either Seller or Customer, including but not limited to, changes in Site configuration, pricing and delivery date, which is mutually agreed to by both parties. "Follow-on Order" shall mean any Products (and associated Services) in excess of the Initial Order purchased by Customer pursuant to the terms and conditions of this Agreement. "Initial Order" shall mean the Products (and any associated Services) identified in Exhibit A as the Initial Order which are purchased by Customer pursuant to the terms and conditions of this Agreement. "Performance Acceptance" shall mean Customer's [***] Product's [***] to the Performance Criteria set forth in Exhibit E. "Performance Criteria" shall mean [***] to be [***] of the Products in the Initial Order [***] Performance Evaluation Period [***] the parties by January 15, 1998 and set forth in Exhibit E. "Performance Evaluation Period" shall mean the [***] in Exhibit E [***] on the [***] Certificate of Acceptance [***] the Products in the Initial Order [***] the Performance Criteria set forth in Exhibit E. "Products" shall mean the products listed on Exhibit A hereto or any additional products set forth in any amendments to Exhibit A as may be subsequently agreed to from time to time by Seller and Customer. "Purchase Order" shall mean any purchase order Customer may deliver to Seller for the purchase of the Products and Services which incorporates 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 on 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. "Services" shall mean the engineering services listed on Exhibit A hereto or any additional services set forth 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 at which a Product is installed. "Software" shall mean the object-code computer programs, including firmware object code, licensed by Seller for use solely with the Products which enables the Products to perform its functions and processes. [***] 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. "Software License" shall mean the software license for the software to be delivered to Customer for use with the Products as set forth in Exhibit D. "Specifications" shall mean the specifications for the Products set forth in Exhibit B and incorporated herein. 3. DELIVERY AND ACCEPTANCE OF PRODUCTS Seller shall, for both the Initial Order and Follow-on Orders, (i) properly deliver the Products to Customer's designated location on or before the date(s) specified in a Purchase Order, and (ii) satisfy the Acceptance Test Procedure by the Acceptance Date, failing which Seller shall pay to Customer (or credit against amounts owed to Seller by Customer) a charge, [***] of delay in delivery, equal to the rate of [***] of the Products which have been delayed, provided, however, that such charge shall not apply to any delay caused by an act of force majeure, as set forth in section 15 hereof or to any delays in the Acceptance Date for the Initial Order. Such charges shall not exceed [***] of each Product so delayed. 4. SHIPPING, CHARGES AND PACKING a. Unless otherwise instructed by Customer, Seller shall ship all Products to the destination designated in a Purchase Order and render invoices in accordance with Section 8 below. b. Products shall be packed by Seller, at no additional charge to Customer, in containers adequate to prevent damage during shipping, handling and storage. Seller shall adequately insure Products during shipment from Seller's facility to the Sites. c. Customer shall reimburse Seller at cost for (or pay directly) all shipping costs, insurance costs, customs clearance charges, duties, levies and any other charges in connection with the sale of the Products and their delivery to the Sites. 5. PURCHASE ORDERS; CHANGES AND CANCELLATIONS a. Customer shall order all Products and Services pursuant to this Agreement by a Purchase Order, which shall specify the date of delivery for such Products and Services mutually agreed by the parties. Each Purchase Order shall only become binding on Seller and Customer when agreement has been reached by the parties on all of the terms therein and Seller has confirmed its acceptance of the Purchase Order in writing (such acceptance not to be unreasonably withheld) subject to completion of the Site survey for each Product pursuant to section 5(b) below. At its sole option, Seller may decline acceptance of a Purchase Order if (i) Seller has determined that the costs associated with the sale of the Products and Services to the Sites specified in the Purchase Order are prohibitive or the conditions at such Sites are unacceptable; or (ii) the sale and delivery of the Products and Services would contravene section 18(h) of this Agreement. [***] 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. b. The Product configurations set forth in Exhibit A hereto or in a Purchase Order are subject to change following the completion of a Site survey by Seller. A change to such configurations may result in a change in the Purchase Price of the Products or Services or in the delivery date. Any such change shall be agreed to in a written Change Order executed by both parties. c. Promptly following execution of this Agreement, Customer shall give Seller, for planning purposes, a non-binding forecast of its estimated requirements for the Products and Services for the forthcoming [***] and such forecast shall be updated on a quarterly basis. d. Customer may, by written notice no less than 30 days prior to Seller's shipment of a Product , make changes to destinations specified in the Purchase Order, provided the new destination is within the same country as the original destination. e. Customer may, by written notice no less than 45 days prior to delivery date specified in Purchase Order, delay the delivery schedule, provided that such delay does not extend the delivery date specified in the Purchase Order beyond 180 days from Seller's acceptance of the Purchase Order. f. Customer may cancel delivery of a Product prior to the Seller's shipment of a Product provided that if Customer directs such cancellation (a) with less than [***] written notice from delivery date specified in Purchase Order, Customer shall pay to Seller [***] and (b) with between [***] written notice from delivery date specified in Purchase Order, Customer shall pay to Seller a fee [***] of each Product affected by such cancellation. 6. TITLE; RISK OF LOSS a. [***]. b. Title to the Products supplied hereunder shall pass to Customer upon delivery to a carrier at Metawave's factory in Redmond WA, USA. 7. WARRANTY a. Seller warrants that (i) all Products furnished hereunder will conform in all material respects with the requirements of this Agreement and the Specifications, (ii) all Products are free from defects in materials, workmanship and title, (iii) the media on which the Software is contained will be free from defects in material and workmanship under normal use and (iv) the Software will substantially conform to the documentation provided by Seller for a period of [***] from the date of execution of the Certificate of Acceptance for each [***] 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. Product. The warranties in this Agreement are given in lieu of all other warranties express or implied which are specifically excluded, including, without limitation, implied warranties of merchantibility and fitness for a particular purpose. b. If Customer believes that there is a breach of any warranty set forth herein, Customer will notify Seller, setting forth in writing the nature of the claimed breach. Seller shall promptly investigate such breach and advise Customer of Seller's planned corrective action. Thereafter, Seller shall promptly repair or replace such Product or Products which includes Software or take such other action as may be acceptable to Customer to correct such breach of warranty at no additional charge to Customer. 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. Items repaired or replaced will be warranted for (i) ninety (90) days from the date that any such item is placed into operation (Customer shall place any repaired or replaced item into operation promptly upon receipt from Seller) and functions properly (the repaired or replaced items shall be deemed to have been placed into operation and to be functioning properly within 30 days of receipt by Customer unless Seller is otherwise notified in writing of non-operation by Customer) or (ii) the balance of the remaining warranty period, whichever period of time is longer. Such action on the part of Seller shall be the full extent of Seller's liability and Customer's exclusive remedy hereunder. c. This warranty is void if (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; (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 trained by Seller to provide such services; or (iv) unauthorized alterations or repairs have been made, or unapproved parts used in the equipment. d. Seller shall negotiate in good faith an agreement with Customer regarding its Product Maintenance Program to be set forth in Exhibit G hereof and to be completed January 15, 1998. The Product Maintenance Program will include an extended hardware and software warranty. 8. INVOICES AND PAYMENT a. For the Products in the Initial Order, the payment schedule shall be as follows: 1. Seller [***] for [***] of the Purchase Price [***] Product [***] Product. 2. [***] of a Product, [***] Acceptance Test Procedure for the Product [***] Customer. [***] of the Acceptance Test Procedure, Seller and Customer [***] Certificate of Acceptance and Seller [***] an [***] Purchase Price for each Product. [***] 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. 3. [***] Performance Evaluation Period, Seller and Customer [***] Performance Results. [***] the Performance Results [***] the Performance Criteria [***] Performance Evaluation Period set forth in Exhibit E, [***] Performance Acceptance and Seller [***] for the [***] the Purchase Price for each Product and [***] of the Purchase Price of the Services. 4. [***] the Performance Results [***] the Performance Criteria set forth in Exhibit E, Customer [***] (i) [***] of the Products and Services at the Purchase Price set forth in Exhibit A [***] Seller [***] in [***] set forth in Section 8(a) or (ii) [***] Products to the Seller. If Customer [***] the Products [***] Initial Order to Seller, Seller [***] such Products and [***] Customer [***] Purchase Price [***] Seller for the Services provided for such Products. In the [***] by Customer to Seller [***] from Customer, Seller [***] for [***] and Customer [***] with subsection (e) hereof. Customer [***] the Products [***] Seller's [***]. b. For Products and Services in all Follow-on Orders, Seller [***] for [***] of the Purchase Price of each Product upon [***] Product by Seller. Seller [***] of the Purchase Price of the Product and for [***] of [***] Services to occur of (i) the [***] Certificate of Acceptance [***] and (ii) the last day of a [***] during which Product [***] at the [***]. c. If [***] Customer's [***] Products and Services pursuant to this Agreement [***], Customer may utilize such financing in making payments required under this subsection. The parties agree that the foregoing does not constitute an offer by Seller to make available such financing, or to arrange such financing for Customer and any such financing is subject to agreement of the parties and the negotiation and execution of separate documentation. d. For the Initial Order only, Seller shall render invoices to Customer every seven (7) days for reimbursement of air and ground transportation and other expenses (as set forth in Exhibit A or an Amendment) for Seller personnel providing Services. For all Follow-on Orders, Seller shall charge a flat fee for Services, which shall include expenses for the provision of the Services. [***] 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. e. All invoices sent by Seller to Customer shall be computed on the basis of the prices set forth in Exhibit A and any Change Orders or amendments and shall identify and show separately quantities of Products, type of Services, total amounts for each item, shipping charges, applicable sales or use taxes and total amount due. Customer shall pay Seller the total amount due in an invoice (in U.S. Dollars) and shall use best efforts to pay by wire transfer the amount due within fifteen (15) days of the date of the invoices rendered pursuant to subsections a(1) and (2) hereof. For all other invoices rendered pursuant to subsections a(3), a(4), b and d hereof, Customer shall promptly pay Seller by wire transfer in U.S. Dollars the amount due within forty-five (45) days of the date of the 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, provided, however, that such late fee shall not apply in the case of payments due under subsections a(1) and (2) hereof for the first ten (10) days of delay. f. Customer shall be responsible for the payment of all sales, use and any other taxes applicable to the Products and Services outside the United States provided by the Seller pursuant to this Agreement. When Seller is required by law to collect such taxes, 100% thereof will be added to invoices as separately stated charges and paid by Customer in accordance with this section. g. If Customer disputes any invoices rendered or amount paid, Customer will so notify Seller, and the parties will use their reasonable efforts to resolve such dispute expeditiously. [***]. 9. INFRINGEMENT INDEMNITY a. Seller shall defend Customer against (or, at its option, settle) a claim that the Products supplied hereunder infringe a United States patent or copyright 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 this Agreement, Seller shall indemnify and hold harmless Customer from all payments, which by final judgments in such suits, 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. [***] 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. b. Customer agrees that if the Products become, or in Seller's opinion are likely to become, the subject of such a claim, Customer will permit Seller, at its option and expense, either to procure the right for Customer to continue using such Products or to replace or modify same so that they become non-infringing, and, if neither of the foregoing alternatives is available on terms which are acceptable to Seller, Customer shall at the written request of Seller, return the infringing or potentially infringing Products. 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 seven (7) year period. c. Seller shall have no obligation to Customer with respect to any claim of patent or copyright infringement which is based upon or related to (i) adherence to customized specifications, designs or instructions furnished by Customer, (ii) the interconnection or interface of any Products supplied hereunder with base station products or software not approved by Seller (such products approved by Seller are set forth in Exhibit B, section 2.2.7.), or (iii) the alteration of the Products or modification of any Software made by any party other than Seller. 10. INDEPENDENT CONTRACTOR Seller hereby declares and agrees that Seller is engaged in an independent business and will perform its obligations under this Agreement as an independent contractor and not as the agent or employee of Customer. 11. INDEMNIFICATION Seller shall indemnify Customer, its employees and directors, and each of them, against any loss, cost, damage, claim, expense or liability, including but not limited to liability as a result of injury to or death of any person or damage to or loss or destruction of any property arising out of, as a result of, or in connection with the performance of this Agreement and directly caused, in whole or in part, by the acts or omissions, negligent or otherwise, of Seller or a contractor or an agent of Seller or an employee of anyone of them, except where such loss, cost, damage, claim, expense or liability arises from the sole negligence or willful misconduct of Customer 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 and attorneys' fees that may me incurred by Customer in connection with any such claim or suit or in enforcing the indemnity granted above, provided that Seller (i) is given prompt notice of any such claim or suit and (ii) full opportunity to assume control of the defense or settlement. Seller shall not be liable to Customer for indirect or consequential damages, including but not limited to lost profits. 12. TERM AND TERMINATION The term of this Agreement shall be two (2) years from the Effective Date. 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 cancel this Agreement. In addition, a party may cancel this Agreement if a petition in bankruptcy or 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 agreements between the parties pursuant to the terms and conditions of Exhibit G hereto (Product Maintenance Program) shall survive the termination of this Agreement. 13. ASSIGNMENT a. Any assignment by either party of this Agreement or any other interest hereunder without the other party's prior written consent, shall be void, except assignment to a 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. The Software license granted to Customer in the form of Exhibit D (Software License), may not be sublicensed, assigned or otherwise transferred by Customer. 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. 14. 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 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 Telefonica Celular del Paraguay S.A. 8700 148th Avenue NE F.R. Moreno 509.6to.PISO Redmond WA 98052 Asuncion, Paraguay Attn: VP, Sales Attn.: Mr. Mario Zanotti-Cavazzoni Copy to: General Counsel Copy to: Fax: 425 702 5976 Fax: (1-595-21) 505 661 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 17. 15. COMPLIANCE WITH LAWS Subject to section 5(a)(ii), Seller shall comply with all applicable federal, state and local laws, regulations and codes, including the procurement of type acceptance, permits and licenses when needed, in the performance of this Agreement. Customer shall assist Seller (including making available to Seller the assistance of Customer's employees in the countries where the Sites are located) in obtaining such type acceptance, permits and licenses (including the local equivalents of FCC equipment authorization). 16. 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) a delay in 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 Metawave personnel providing Services if such visas and work permits are unreasonably withheld and can not be obtained from another source.). 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. 17. 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. b. Any and all disputes arising between the parties shall be resolved in the following order: (i) by good faith negotiation between representatives of Customer and Seller who have authority to fully and finally resolve the dispute to commence within ten (10) days of the request of either party; (ii) in the event that the parties have not succeeded in negotiating a resolution of the dispute within ten (10) days after the first meeting, then the dispute will be resolved by nonbinding mediation in a mutually agreed location and to be conducted in English by a mutually agreed upon non-affiliated neutral party having experience with or knowledge in the wireless communications equipment industry to be chosen within twenty (20) days after written notice by either party demanding mediation(the costs therefor to be shared equally); and (iii) if within sixty (60) days of the initial demand for mediation by one of the parties, the dispute cannot be resolved by mediation, then the dispute shall be submitted by the parties to final and binding arbitration under the then current arbitration rules of the International Chamber of Commerce to be conducted in English by three (3) arbitrators having experience with or knowledge in the wireless telecommunications industry to be held in a mutually agreeable location (the costs therefor to be shared equally). 18. GENERAL PROVISIONS a. All information, data and materials provided by either party under this Agreement or prior to the Effective Date of this Agreement shall be subject to the terms and conditions of the Non-Disclosure Agreement to be executed by the parties concurrently with this Agreement and attached hereto as Exhibit E. b. Seller and Customer may 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, not to be unreasonably withheld. c. Waiver by either party of any obligation or default by the other party shall not be deemed a waiver by such party of any other obligation or default. d. Any rights of cancellation, termination or other remedies prescribed in this Agreement are cumulative and are not intended to be exclusive of any other remedies to which the injured party may be entitled at law or equity (including but not limited to the remedies of specific performance and cover) in case of any breach or threatened breach by the other party of any provision of this Agreement, unless such other remedies which are not prescribed in this Agreement are specifically limited or excluded by this Agreement. The use of one or more available remedies shall not bar the use of any other remedy for the purpose of enforcing the provisions of this Agreement; provided, however, that a party shall not be entitled to retain the benefit of inconsistent remedies. e. 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 or Seller and Customer shall be construed and enforced accordingly. f. This Agreement, including all Exhibits attached to or referenced in this Agreement, shall constitute the entire agreement between Customer and Seller with respect to the subject matter hereof and supersedes all prior discussions, agreements and representations, whether oral or written. g. No provision of this Agreement shall be deemed waived, amended or modified by any party hereto, unless such waiver, amendment or modification is in writing and signed by a duly authorized representative of each of the parties. h. Each party shall comply with all applicable U.S. and foreign export control laws and regulations and shall not export or re-export any technical data or Products or Services except in compliance with the applicable export control laws and regulations of the U.S. and any foreign country. i. The parties shall not disclose the financial value of this Agreement to third parties unless the parties mutually agreed to disclose such information. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives. Metawave Communications Corporation Telefonica Celular del Paraguay S.A. By: /s/ Robert Hunsberger By: /s/ Mario Zanotti ----------------------------- ---------------------------- Name: Robert Hunsberger Name: /s/ Mario Zanotti -------------------------- -------------------------- Title: President & CEO Title: General Manager -------------------------- ------------------------- EXHIBITS ATTACHED: A Product and Services Pricing B Performance Specifications C Acceptance Test Procedure D Software License E Performance Criteria F Nondisclosure Agreement G Product Maintenance Program EXHIBIT A: PRODUCTS AND SERVICES PRICING TO THE PURCHASE AGREEMENT BETWEEN ("SELLER") AND ("CUSTOMER") Metawave Communications Corporation 8700 148th Avenue NE Redmond, WA 98052 USA Tel. 425 702-5600 Fax 425 702-5970 http://www.metawave.com - -------------------------------------------------------------------------------- This document and the information in it is the proprietary and confidential information of Metawave Communications Corporation and is provided by Metawave under an agreement of nondisclosure to the Customer for internal evaluation purposes only and is protected by applicable copyright and trade secret law. This document may only be disclosed or disseminated to those employees of the Customer who have a need to use it for evaluation purposes; no other use or disclosure can be made by Customer without Metawave's consent. (C)1997, METAWAVE COMMUNICATIONS CORPORATION CONFIDENTIAL PROPRIETARY - ------------------------------------------------------------------------------- TABLE OF CONTENTS 1. Introduction................................................... 3 2. SpotLight Pricing.............................................. 3 3. Services Pricing............................................... 4 4. Software Licensing Fee......................................... 4 5. Software Maintenance Fee....................................... 4 6. Initial Order.................................................. 5 7. Pricing Assumptions For All Orders............................. 6
PRODUCTS AND SERVICES PRICING For the purposes of uniformity, references to Agreement or to an Exhibit shall refer to the Purchase Agreement to which this document is Exhibit A and to the other Exhibits to that Agreement. All definitions set forth in the Agreement shall apply hereto unless otherwise expressly defined herein. 1. Introduction This Exhibit A lists the Products and Services pricing as of the Effective Date of the Agreement. All payments for the Products and Services shall be in US dollars and in accordance with the payment terms set forth in the Agreement. The Product configurations set forth herein or in a Purchase Order are subject to change following the completion of a Site survey by Seller. A change to such configurations may result in a change in the Purchase Price of the Products and Services and a change in the delivery dates. Any such change shall be agreed to in a written Change Order executed by both parties. 2. SpotLight Pricing SPOTLIGHT TX/RX PRICING [***]
- ------------------------------------------- NO. OF CHANNELS PRICE - ------------------------------------------- [***] $[***] - ------------------------------------------- [***] $[***] - ------------------------------------------- [***] $[***] - ------------------------------------------- [***] $[***] - ------------------------------------------- [***] $[***] - ------------------------------------------- [***] $[***] - ------------------------------------------- [***] $[***] - ------------------------------------------- [***] $[***] - ------------------------------------------- [***] $[***] - ------------------------------------------- [***] $[***] - ------------------------------------------- [***] $[***] - ------------------------------------------- [***] $[***] - ------------------------------------------- [***] $[***] - -------------------------------------------
Note: [***] [***] 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. SPOTlIGHT RECOMMENDED SPARES KIT
- ----------------------------------------------------------------------------- Part Number DESCRIPTION QTY. PRICE - ----------------------------------------------------------------------------- [***] Tx Driver [***] [***] - ----------------------------------------------------------------------------- [***] [***] [***] [***] - ----------------------------------------------------------------------------- [***] [***] [***] [***] - ----------------------------------------------------------------------------- [***] [***] [***] [***] - ----------------------------------------------------------------------------- [***] [***] [***] [***] - ----------------------------------------------------------------------------- [***] [***] [***] [***] - ----------------------------------------------------------------------------- [***] [***] [***] [***] - ----------------------------------------------------------------------------- [***] [***] [***] [***] - ----------------------------------------------------------------------------- TOTALS: [***] - -----------------------------------------------------------------------------
Note: The SpotLight Recommended Spares Kit list is for SpotLight configurations supporting up to 90 channels. 3. Services Pricing ENGINEERING SERVICES PRICING FOR FOLLOW-ON ORDERS
- ---------------------------------------------------------------------------- DESCRIPTION OF SERVICES PRICE - ---------------------------------------------------------------------------- [***] [***] - ----------------------------------------------------------------------------
Notes: [***] 4. [***] 5. [***] [***] 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. Initial Order PRODUCTS AND SERVICES PRICING FOR INITIAL ORDER (USD)
- ------------------------------------------------------------------------------------------------ PRODUCT DESCRIPTION [***] NO. OF EXTENDED PRICE UNITS - ------------------------------------------------------------------------------------------------- [***] [***] [***] [***] [***] - ------------------------------------------------------------------------------------------------- [***] [***] [***] [***] - ------------------------------------------------------------------------------------------------- Total Product Purchase Price for Initial Order [***] - -------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------ SERVICES/PERSONNEL DESCRIPTION UNIT PRICE NO. OF EXTENDED PRICE SITES - ------------------------------------------------------------------------------------------------ [***] [***] [***] [***] - ------------------------------------------------------------------------------------------------ [***] [***] - ------------------------------------------------------------------------------------------------ Total Services Purchase Price for Initial Order [***] - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Total Purchase Price for Initial Order [***] - ------------------------------------------------------------------------------------------------
Notes: 1. [***] 2. [***] [***] 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. Pricing Assumptions For All Orders: [***] [***] 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. EXHIBIT B: PERFORMANCE SPECIFICATIONS TO THE PURCHASE AGREEMENT SPOTLIGHT MULTIBEAM ANTENNA PLATFORM 2.0 TRANSMIT/RECIEVE (for use with Motorola HDII Base Station Equipment) Metawave Communications Corporation 8700 148th Avenue NE Redmond, WA 98052 USA Tel. 425 702-5600 Fax 425 702-5970 http://www.metawave.com - -------------------------------------------------------------------------------- This document and the information in it is the proprietary and confidential information of Metawave Communications Corporation and is provided by Metawave under an agreement of nondisclosure to the Customer for internal evaluation purposes only and is protected by applicable copyright and trade secret law. This document may only be disclosed or disseminated to those employees of the Customer who have a need to use it for evaluation purposes; no other use or disclosure can be made by Customer without Metawave's consent. 1997, METAWAVE COMMUNICATIONS CORPORATION CONFIDENTIAL PROPRIETARY - -------------------------------------------------------------------------------- TABLE OF CONTENTS [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] 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. [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] 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. 2. System Description [***] [***] 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. 3. Regulatory Requirements This section specifies requirements which are set primarily by local and/or national governing bodies, consortiums and standards committees. 3.1 US The SpotLight system complies with appropriate US FCC regulations (includes both RF and EMI). Specifically, the SMAP shall comply with the regulations defined in CFR 47 part 22 and part 15. The SpotLight system complies with the UL Certification process. Final UL approval is expected by the end of 1997. EXHIBIT C: ACCEPTANCE TEST PROCEDURE (ATP) TO THE PURCHASE AGREEMENT SPOTLIGHT MULTIBEAM ANTENNA PLATFORM Metawave Communications Corporation 8700 148th Avenue NE Redmond, WA 98052 USA Tel. 425 702-5600 Fax 425 702-5970 http://www.metawave.com ________________________________________________________________________________ This document and the information in it is the proprietary and confidential information of Metawave Communications Corporation and is provided by Metawave under an agreement of nondisclosure to the Customer for internal evaluation purposes only and is protected by applicable copyright and trade secret law. This document may only be disclosed or disseminated to those employees of the Customer who have a need to use it for evaluation purposes; no other use or disclosure can be made by Customer without Metawave's consent. (C) 1997, METAWAVE COMMUNICATIONS CORPORATION CONFIDENTIAL PROPRIETARY ________________________________________________________________________________ TABLE OF CONTENTS 1. Introduction............................................ 3 2. Acceptance Tests........................................ 3 2.1. LampLighter Installation Test.................... 4 2.2. System Configuration Test........................ 5 2.3. Transmit Effective Radiated Power (Tx ERP) Test.. 6 2.4. Receive Sensitivity Test......................... 8 2.5. Alarm Functionality Test......................... 9 2.6. Call Processing Test............................. 11
SPOTLIGHT ACCEPTANCE TEST PROCEDURE [***] [***] 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. [***] [***] 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. EXHIBIT D: SOFTWARE LICENSE TO THE PURCHASE AGREEMENT BETWEEN ("SELLER") AND ("CUSTOMER") Metawave Communications Corporation 8700 148th Avenue NE Redmond, WA 98052 USA Tel. 425 702-5600 Fax 425 702-5970 http://www.metawave.com - -------------------------------------------------------------------------------- This document and the information in it is the proprietary and confidential information of Metawave Communications Corporation and is provided by Metawave under an agreement of nondisclosure to the Customer for internal evaluation purposes only and is protected by applicable copyright and trade secret law. This document may only be disclosed or disseminated to those employees of the Customer who have a need to use it for evaluation purposes; no other use or disclosure can be made by Customer without Metawave's consent. (C)1997, METAWAVE COMMUNICATIONS CORPORATION CONFIDENTIAL PROPRIETARY - -------------------------------------------------------------------------------- TABLE OF CONTENTS 1. Scope.................................................. 3 2. Licensing Grant........................................ 3 3. Limitations On Use Of Software......................... 3 4. Right To Copy, Protection And Security................. 4 5. Remedies............................................... 4 6. Term................................................... 5 7. Termination............................................ 5 8. Right Of The Parties................................... 5 9. Limitations On Software................................ 6 10. Entire Understanding......................................
SOFTWARE LICENSE For purposes of uniformity and brevity, references to Agreement or to an Exhibit shall refer to the Purchase Agreement to which this document is Exhibit D and to the other Exhibits to that Agreement. All definitions set forth in the Agreement shall apply hereto. 1. Scope Pursuant to the above-identified Agreement, Software will be delivered by Seller to Customer for use with the Products according to the terms of the Agreement and this Exhibit. Customer shall then become a licensee with respect to such Software. 2. Licensing Grant 2.1 CONCURRENT WITH EXECUTION OF THE AGREEMENT, 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 IN ACCORDANCE WITH THE TERMS AND CONDITIONS SET FORTH HEREIN. 2.2 CUSTOMER AGREES TO PAY THE LICENSING FEES FOR THE RIGHT TO USE THE SOFTWARE AND FEATURES AND FOR ANY SUPPORT THEREOF AS SET FORTH IN EXHIBIT A (PRICING) OR IN AN AMENDMENT THERETO. THE LICENSING FEE IS A ONE TIME FEE WHICH GRANTS THE CUSTOMER THE RIGHT TO USE THE VERSION OF SOFTWARE LICENSED FOR AS LONG AS THE CUSTOMER OWNS THE PRODUCT. 3. Limitations On Use Of Software 3.1 WITHOUT THE PRIOR WRITTEN CONSENT OF SELLER, CUSTOMER SHALL ONLY USE THE SOFTWARE IN CONJUNCTION WITH A SINGLE PRODUCT EXISTING WITHIN THE SITE SPECIFIED IN THE PO ("DESIGNATED PRODUCT"). 3.2 CUSTOMER MAY USE THE SOFTWARE TO ROUTINELY OPERATE AND MAINTAIN THE DESIGNATED PRODUCT. FOR PURPOSES OF THIS SUBSECTION, "MAINTAIN" SHALL BE CONSTRUED TO MEAN PERFORMING DIAGNOSTIC TESTING CONSISTENT WITH CUSTOMER'S OBLIGATION TO PROVIDE THE FIRST LEVEL OF MAINTENANCE. UNDER NO CONDITION SHALL THE SOFTWARE BE USED FOR ANY OTHER PURPOSE, INCLUDING, BUT NOT LIMITED TO, SUBSTITUTED PRODUCTS, OR PRODUCTS NOT OWNED BY CUSTOMER, OR PRODUCTS LOCATED AT A LOCATION OTHER THAN THE SITE SPECIFIED IN THE PO. 3.3 THE LICENSE GRANTED TO CUSTOMER IN SECTION 2 IS PERSONAL AND MAY NOT BE TRANSFERRED TO ANOTHER PRODUCT OR SITE WITHOUT THE WRITTEN CONSENT OF SELLER. 3.4 TO THE EXTENT SPECIFIED IN EXHIBIT A OR AN AMENDMENT THERETO AND PROVIDED CUSTOMER HAS PAID ANY APPLICABLE LICENSING FEES, CUSTOMER SHALL HAVE THE RIGHT TO USE FEATURES IN ACCORDANCE WITH THE TERMS OF THIS EXHIBIT. CUSTOMER ACKNOWLEDGES THAT THE SOFTWARE MAY CONTAIN THEREIN SEVERAL ADDITIONAL FEATURES WHICH ARE EACH COVERED BY SEPARATE LICENSING FEES. CUSTOMER AGREES NOT TO USE, AND THE LICENSE SPECIFICALLY DOES NOT EXTEND TO, SUCH ADDITIONAL FEATURES UNLESS THEY ARE SPECIFIED IN EXHIBIT A OR AN AMENDMENT THERETO AND PROVIDED CUSTOMER HAS PAID THE APPLICABLE LICENSING FEES FOR SUCH ADDITIONAL FEATURES. 3.5 THE SOFTWARE IS SUBJECT TO LAWS PROTECTING TRADE SECRETS, KNOW-HOW, CONFIDENTIALITY AND COPYRIGHT. 3.6 CUSTOMER SHALL NOT TRANSLATE, MODIFY, ADAPT, DECOMPILE, DISASSEMBLE, OR REVERSE ENGINEER THE SOFTWARE OR ANY PORTION THEREOF. 3.7 UNLESS OTHERWISE EXPRESSLY AGREED 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). 3.8 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. Right To Copy, Protection And Security 4.1 SOFTWARE PROVIDED HEREUNDER MAY BE COPIED (FOR BACK-UP PURPOSES 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 SHALL BE IN EXISTENCE AT ANY ONE TIME WITHOUT THE PRIOR WRITTEN CONSENT OF SELLER, OTHER THAN COPIES RESIDENT IN THE PRODUCTS. 4.2 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. 4.3 CUSTOMER AGREES TO KEEP CONFIDENTIAL, IN ACCORDANCE WITH THE TERMS OF THE AGREEMENT, 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. 4.4 SOFTWARE, INCLUDING FEATURES 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. 4.5 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. 5. Remedies Customer acknowledges that violation of the terms of this Exhibit or the Agreement shall cause Seller irreparable harm for which monetary damages may be inadequate, and Customer agrees that Seller may seek temporary or permanent injunctive relief without the need to prove actual harm in order to protect Seller's interests. 6. Term Unless otherwise terminated pursuant to Section 7 herein, the term of the license granted pursuant to Section 2 herein shall be co-extensive with the term of any licensing and/or maintenance fees paid by Customer to Seller pursuant to Exhibit A or an Amendment thereto. 7. Termination 7.1 THE LICENSE GRANTED HEREUNDER MAY BE TERMINATED BY CUSTOMER UPON ONE (1) MONTH'S PRIOR WRITTEN NOTICE. 7.2 SELLER MAY TERMINATE THE LICENSE GRANTED HEREUNDER IF CUSTOMER IS IN DEFAULT OF ANY OF THE TERMS AND CONDITIONS OF THE AGREEMENT OR EXHIBITS, AND SUCH TERMINATION SHALL BE EFFECTIVE IF CUSTOMER FAILS TO CORRECT SUCH DEFAULT WITHIN TEN (10) DAYS AFTER WRITTEN NOTICE THEREOF BY SELLER. THE PROVISIONS OF SECTIONS 4 AND 5 HEREIN SHALL SURVIVE TERMINATION OF ANY SUCH LICENSE. 7.3 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. 8. Rights Of The Parties 8.1 NOTHING CONTAINED HEREIN SHALL BE DEEMED TO GRANT, EITHER DIRECTLY OR BY IMPLICATION, ESTOPPEL, OR OTHERWISE, ANY LICENSE UNDER ANY PATENTS OR PATENT APPLICATIONS OF SELLER; EXCEPT THAT CUSTOMER SHALL HAVE A NON-EXCLUSIVE, LICENSE UNDER SELLER'S PATENTS AND PATENT APPLICATIONS TO USE, IN SELLER-SUPPLIED 8.2 EQUIPMENT ONLY, SOFTWARE SUPPLIED HEREUNDER, WHEN SUCH LICENSE IS IMPLIED OR OTHERWISE ARISES BY OPERATION OF LAW BY VIRTUE OF THE PURCHASE OF SUCH COPIES FROM SELLER. 8.3 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. 8.4 DURING THE TERM OF THE LICENSE GRANTED PURSUANT TO SECTION 2 HEREIN AND FOR A PERIOD OF ONE (1) YEAR AFTER EXPIRATION OR TERMINATION, SELLER, AND WHERE APPLICABLE, ITS LICENSOR(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 AGREEMENT, AND B) WHILE CONDUCTING SUCH INSPECTION, COPY 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. 8.5 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. CUSTOMER ACKNOWLEDGES THAT SELLER OR ITS LICENSORS HAVE THE RIGHT TO ENFORCE THESE PROVISIONS AGAINST CUSTOMER, WHETHER IN SELLER'S OR ITS LICESNSOR'S NAME. 9. Limitations On Software Customer understands that errors occur in Software and Seller makes no warranty that the Software will perform without error. Customer agrees that it is Customer's responsibility to select and test the Software to be sure it meets Customer's needs. Customer agrees to accept Software in its current condition. Seller agrees to repair any service effecting Software defect promptly per the warranty terms during the Warranty Period. 10. Entire Understanding Notwithstanding anything to the contrary in other agreements, purchase orders or order acknowledgments; the Agreement and this Exhibit D set forth the entire understanding and obligations regarding use of Software, implied or expressed. EXHIBIT E: PERFORMANCE CRITERIA TO THE PURCHASE AGREEMENT BETWEEN METAWAVE COMMUNICATIONS CORP. ("SELLER") AND TELEFONICA CELULAR DEL PARAGUAY ("CUSTOMER") Metawave Communications Corporation 8700 148th Avenue NE Redmond, WA 98052 USA Tel. 425 702-5600 Fax 425 702-5970 http://www.metawave.com - -------------------------------------------------------------------------------- This document and the information in it is the proprietary and confidential information of Metawave Communications Corporation and is provided by Metawave under an agreement of nondisclosure to the Customer for internal evaluation purposes only and is protected by applicable copyright and trade secret law. This document may only be disclosed or disseminated to those employees of the Customer who have a need to use it for evaluation purposes; no other use or disclosure can be made by Customer without Metawave's consent. (C)1998, METAWAVE COMMUNICATIONS CORPORATION CONFIDENTIAL PROPRIETARY - -------------------------------------------------------------------------------- PERFORMANCE CRITERIA For the purposes of uniformity, references to Agreement or to an Exhibit shall refer to the Purchase Agreement to which this document is Exhibit E and to the other Exhibits to that Agreement. All definitions set forth in the Agreement shall apply hereto unless otherwise expressly defined herein. The Performance Evaluation Period(s) definition set forth herein shall take the place of the Performance Evaluation Period set forth in the Definitions section of the Agreement. 1. Introduction This Exhibit E lists the Performance Criteria required for Performance Acceptance of the Products in the Initial Order. The purpose of the Performance Evaluation is to demonstrate that the Products of the Initial Order meet or exceed the Performance Criteria required for Performance Acceptance. 2. Performance Criteria [***] [***] 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. [LOGO OF METAWAVE COMMUNICATIONS CORPORATION] NON-DISCLOSURE AGREEMENT ------------------------ This Non-Disclosure Agreement ("Agreement"), effective October 16, 1997 ("Effective Date"), is by and between Telefonica Celular del Paraguay, S.A. ("Recipient") having a place of business at F.R. Moreno 509, 6to. Piso, Asuncion, Paraguay, and Metawave Communications Corporation ("Metawave") having a place of business at 8700 148th Ave. NE, Redmond, WA 98052 U.S.A. 1. The purpose of this Agreement is to allow each party to obtain from the other certain technical and business information related to wireless systems under terms that will protect the confidential and proprietary nature of such information. 2. As used in this Agreement, "Confidential Information" shall mean any and all technical or business information furnished, in whatever form or medium, or disclosed by one party to the other including, but not limited to, product/service specifications, prototypes, computer programs, models, drawings, marketing plans, financial data, and personnel statistics, which are marked as confidential or proprietary by the disclosing party, or, for information which is orally disclosed, the disclosing party indicates to the other at the time of disclosure the confidential or proprietary nature of the information and confirms in writing to the receiving party within thirty (30) days after such disclosure that such information is confidential. Any technical or business information of a third person furnished or disclosed by one party to the other shall be deemed "Confidential Information" of the disclosing party unless otherwise specifically indicated in writing to the contrary. 3. Each party agrees to hold such Confidential Information in confidence for a period of three (3) years from the date of receipt of same unless otherwise agreed to in writing by the disclosing party, and that during such period each party will use such information solely for the purposes of this Agreement unless otherwise allowed in this Agreement or by written permission of the disclosing party. Each party agrees not to copy such Confidential Information of the other unless specifically authorized. Each party agrees that it shall not make disclosure of any such Confidential Information to anyone (including subcontractors) except employees of such party to whom disclosure is necessary for the purposes set forth above. Each party shall appropriately notify such employee that the disclosure is made in confidence and shall be kept in confidence in accordance to this Agreement. Each party also agrees that it will make requests for Confidential Information of the other only if necessary to accomplish the purposes set forth in this Agreement. The receiving party agrees that Confidential Information shall be handled with the same degree of care which the receiving party applies to its own Confidential Information but in no event less than reasonable care. 4. Each party agrees that in the event permission is granted by the other to copy such Confidential Information, each such copy shall contain and state the same confidential or proprietary notices or legends, if any, which appear on the original. Nothing herein shall be construed as granting to either party any right or license under any copyrights, inventions, or patents now or hereafter owned or controlled by the other party. 5. Upon termination of this Agreement for any reason or upon request of the disclosing party, all Confidential Information, together with copies of same as may be authorized herein, shall be returned to the disclosing party or certified destroyed by the receiving party upon the request of the disclosing party. The requirements of use and confidentiality set forth herein shall survive the termination of this Agreement. 6. The obligations imposed in this Agreement shall not apply to any information that: (a) is already in the possession of or is independently developed by the receiving party; or (b) is or becomes publicly available through no fault of the receiving party; or (c) is obtained by the receiving party from a third person who is under no obligation of confidence to the party whose Confidential Information is disclosed; or (d) is disclosed without restriction by the disclosing party. 7. Except for the obligations of use and confidentiality imposed in this Agreement no obligation of any kind is assumed or implied against either party by virtue of the party's meetings or conversations with respect to whatever Confidential Information is exchanged. Each party further acknowledges that this Agreement and any meetings and communications of the parties relating to the same subject matter shall not: (a) constitute an offer, request, or contract with the other to engage in any research, development or other work; (b) constitute an offer, request or contract involving a buyer-seller relationship, venture, teaming or partnership relationship between the parties; and (c) impair or restrict the parties' right to make, procure or market any products or services, now or in the future, which may be competitive with those offered by the disclosing party, or which are the subject matter of this Agreement. The parties expressly agree that any money, expenses or losses expended or incurred by each party in preparation for, or as a result of this Agreement or the parties meetings and communications, is at each party's sole cost and expense provided, however, that notwithstanding anything to the contrary in the Agreement, neither party's rights shall be limited in law or equity to enforce the confidentiality and use obligations imposed under this Agreement. 8. Without prior consent of the other party, neither party shall disclose to any third person the existence or purpose of this Agreement, the terms or conditions hereof, the fact that discussions are taking place or that Confidential Information is being shared, except as may be required by law and then only after first notifying the other party of such required disclosure. The parties also agree that neither party shall use any trade name, service mark, or trademark of the other or refer to the other party in any promotional activity or material without first obtaining the prior written consent of the other party. 9. Neither this Agreement nor any rights hereunder in whole or in part shall be assignable or otherwise transferable by either party and the obligations contained in this Agreement shall survive and continue after termination of this Agreement, provided, that either party may assign or transfer this Agreement and rights hereunder to any current or future affiliates or successor company if such assignee agrees in writing to the terms and conditions herein. 10. The foregoing shall apply to any subsequent meetings or any communications between the parties relating to the same subject matter unless this Agreement is modified in writing and such writing is signed by each party. 11. This Agreement shall be governed and construed by the laws of the State of Delaware. 12. Each party shall comply with all applicable U.S. and foreign 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 any foreign country. 13. Any notice to be given under this Agreement by either party to the other, shall be in writing and shall be deemed given when sent by Certified mail. If either party changes its address during the term of this Agreement, it shall so advise the other party in writing as provided in this Agreement and any notice thereafter required to be given shall be sent by Certified mail to such new addresses. 14. In the event that this Agreement is translated into any other language, the English version hereof shall take precedence and govern. 15. This Agreement, together with any and all exhibits incorporated herein, constitutes the entire Agreement between the parties with respect to the subject matter of this Agreement. No provision of this Agreement shall be deemed waived, amended, or modified by either party, unless such waiver, amendment or modification is made in writing and signed by both parties. This Agreement supersedes all previous Agreements between Metawave and Recipient relating to the subject matter in this Agreement. IN WITNESS WHEREOF, the parties have caused their duly authorized representatives to sign this Agreement as of the Effective Date. METAWAVE COMMUNICATIONS CORP. TELEFONICA CELULAR DEL PARAGUAY, S.A. /s/ Kathryn Surace-Smith /s/ Mario Zenotti - -------------------------- --------------------------- (Signature) (Signature) Kathryn Surace-Smith Mario Zenotti - -------------------------- --------------------------- (Print Name) (Print Name) General Counsel General Manager - -------------------------- --------------------------- (Title) (Title) 12/10/97 January 29, 1998 - -------------------------- --------------------------- (Date) (Date) EXHIBIT G: PRODUCT MAINTENANCE PROGRAM TO THE PURCHASE AGREEMENT BETWEEN METAWAVE AND TELECEL DEL PARAGUAY Metawave Communications Corporation 8700 148th Avenue NE Redmond, WA 98052 USA Tel. 425 702-5600 Fax 425 702-5970 http://www.metawave.com - -------------------------------------------------------------------------------- This document and the information in it is the proprietary and confidential information of Metawave Communications Corporation and is provided by Metawave under an agreement of nondisclosure to the Customer for internal evaluation purposes only and is protected by applicable copyright and trade secret law. This document may only be disclosed or disseminated to those employees of the Customer who have a need to use it for evaluation purposes; no other use or disclosure can be made by Customer without Metawave's consent. (C)1997, Metawave Communications Corporation CONFIDENTIAL PROPRIETARY - -------------------------------------------------------------------------------- PRODUCT MAINTENANCE PROGRAM TABLE OF CONTENTS 1. Introduction............................................................ 3 2. Hardware Maintenance Program............................................ 3 3. Software Maintenance Program............................................ 4 ANNEX A A Metawave Customer Support Center....................................... 7 B Return Material Authorization (RMA).................................... 7 C Return Address......................................................... 7 D Packing Instructions................................................... 7 E Purchase Orders........................................................ 7 F Pricing and Invoicing.................................................. 8 G Emergency Expedite Service............................................. 8 H Loaner and Pre-exchange Orders......................................... 9 I Freight................................................................ 9 J Duties and Taxes....................................................... 9 K Non-compliance......................................................... 9 L Conflicting Terms...................................................... 9
EX-10.11 8 PURCHASE AGREEMENT DATED MARCH 4, 1998 EXHIBIT 10.11 Certain information in this Exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request. EXHIBIT 10.11 METAWAVE COMMUNICATIONS CORPORATION PURCHASE AGREEMENT THIS PURCHASE AGREEMENT (this "Agreement") is made as of this 4th day of March, 1998 (the "Effective Date") between Metawave Communications Corporation, a Delaware corporation ("Seller"), and ALLTEL Supply Inc., a Delaware 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 from time to time by submitting a Purchase Order to Seller, the Products and Services identified on Exhibit A to this Agreement in accordance with the specifications and the terms and conditions hereof and at the Purchase Prices set forth in Exhibit A. 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: "Acceptance Test Procedure" or "ATP" shall mean the testing procedures and protocols described and administered for each Product as set forth in Exhibit C and Exhibit E. "Affiliate" shall mean any partnership, corporation or other entity (i) in which Customer, directly or indirectly, owns more than fifty percent (50%) of the voting shares, or (ii) which owns more than fifty percent (50%) of the voting shares of Customer. "Certificate of Conditional Acceptance" shall mean Customer's certification of Seller's completion of the Acceptance Test Procedure in the form set forth in Exhibit C. "Certificate of Final Acceptance" shall mean , for the [***],Customer's certification of the Products' satisfaction of the Performance Criteria set forth in Exhibit E. [***] 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. "Change Order" shall mean any subsequent change to a Purchase Order initiated by either Seller or Customer, including but not limited to, changes in Site configuration and Products and Services needed for the Site project, which is mutually agreed to by both parties. "Conditional Acceptance" shall mean, [***] Initial Spectrum Clearing Order and Follow-on Orders, the [***] of (i) the [***] Certificate of Conditional Acceptance [***] or (ii) the [***] which a Product has [***]. "Final Acceptance" shall mean (i) for Products in the Initial Spectrum Clearing Order, the date on which Customer has executed a Certificate of Final Acceptance for the Products, and all Punchlist items have been resolved and (ii) for Products in Follow-on Orders, the date on which all Punchlist items for a Product have been resolved. "Follow-on Order" shall mean any Products (and any associated Services) [***] Initial Spectrum Clearing Order [***] of this Agreement. "Initial Spectrum Clearing Order" shall mean Customer's initial purchase of a number of Products (and any associated Services)for widespread deployment in a single market which shall be ordered together on one Purchase Order pursuant to the terms and conditions of this Agreement. "Performance Criteria" shall mean the [***] of the Products in the Initial Spectrum Clearing Order [***] Performance Evaluation Period set forth in Exhibit E. "Performance Evaluation Period" shall mean [***] specified in Exhibit E [***] Products in the Initial Spectrum Clearing Order [***] with Exhibit E. "Product" shall mean the Spotlight(TM) antenna system described in Exhibit B hereto or any additional products set forth in Exhibit B or any amendments thereto as may be subsequently agreed to from time to time by Seller and Customer. "Punchlist" shall mean the list provided by Customer to Seller at Conditional Acceptance which sets forth those mutually agreed items relating to a Product, if any, to be resolved by Seller within ten (10) working days of Conditional Acceptance of such Product. "Purchase Order" shall mean any purchase order Customer may deliver to Seller for the purchase of the Products and Services which incorporates 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 on 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. [***] 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. "Services" shall mean the engineering services set forth in Exhibit A or any additional services set forth 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 at which a Product is installed. "Software" shall mean the (i) object-code computer programs embedded in the Product which control and monitor the operation of the Product ("Embedded Software"), and (ii) the Lamplighter PC-based graphical user interface computer program for the Product, and all Features, Major Releases, Point Releases, and Software Patches (as such terms are defined in Exhibit H), other updates and modifications to such Software (the "Software Updates") and any documentation in support thereof. "Software License" shall mean the software license for the Software and Software Updates to be delivered to Customer for use with the Products as set forth in Exhibit D. "Specifications" shall mean the specifications for the Products set forth in Exhibit B and incorporated herein. 3. PURCHASE ORDERS; PRICING; CANCELLATIONS a. Customer shall order Products and Services pursuant to this Agreement by submitting a Purchase Order to Seller at least ninety (90) days prior to date of delivery for such Products and Services. b. Upon receipt of the Purchase Order, Seller shall have [***] to confirm or reject its acceptance of the Purchase Order in writing to the Customer, subject to completion of Site survey for each Product to be completed no later than [***] prior to the date of delivery specified on the Purchase Order. If Seller fails to reject acceptance within [***] after receipt of the Purchase Order, the Purchase Order will be deemed accepted. c. If the Site Survey reveals that the Products configurations set forth in the Purchase Order must be changed in order to implement and install the Products, Seller shall notify Customer immediately with a written proposal for changes. In no event shall Seller's notification and submission of a written proposal for changes exceed [***] from the date of completion of Site survey. d. Customer shall have [***] to accept the written proposal for changes upon receipt of the proposal. If accepted, Seller and Customer shall execute a written Change Order at which time such Change Order shall become binding on Seller and Customer subject to Section 3(e) below. If rejected, Customer may either inform the Seller in writing to proceed with the original Purchase Order or cancel the Purchase Order subject to section 3(e) below. [***] 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. e. Customer may cancel delivery of a Product prior to Seller's shipment of the Product provided that if Customer directs such cancellation with less than [***] written notice from the delivery date specified in Purchase Order, Customer shall pay to Seller any nonrecurring losses associated with such cancellation and which are documented in writing by Seller, provided, however, that any such losses shall not exceed [***] of the Purchase Price of each Product included in such cancellation. f. Within thirty days following Customer's completion of its seminannual budget, Customer shall give Seller, for planning purposes, a non-binding forecast of its estimated requirements for the Products and Services for the forthcoming [***]. 4. SHIPPING; TITLE; RISK OF LOSS a. Unless otherwise instructed by Customer, and subject to section 3, Seller shall ship all Products to the destination designated in a Purchase Order on or before the delivery date(s) specified in a Purchase Order and render invoices in accordance with Section 6 below. Customer is responsible for the payment of all reasonable shipping charges, except as noted in Section 4(b) below, and any exceptional shipping charges required to fulfill a Purchase Order shall be agreed to in advance with Customer. b. Products shall be packed by Seller, at no additional charge to Customer, in containers adequate to prevent damage during shipping, handling and storage. c. Unless otherwise specified herein, title to Products sold by Seller to Customer shall vest in Customer on shipment of Product to Customer (except title to Software shall remain with Seller pursuant to the terms of the Software License attached as Exhibit D hereto). d. Risk of loss or damage to any Product supplied hereunder shall pass to Customer upon Conditional Acceptance, except for Products installed by Customer, in which case risk of loss or damage shall pass to Customer on shipment of Product to Customer. 5. WARRANTY a. Seller warrants for a period [***] (the "Warranty Period") that (i) all Products furnished hereunder will be free from defects in materials, workmanship and title, (ii) all Products will conform in all material respects to the documentation and specifications provided by the Seller herein, (iii) the media on which the Software is contained will be free from defects in material and workmanship under normal use, and (iv) the Software will conform in all material respects to the documentation provided by Seller. The warranties in this Agreement are given in [***] 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. lieu of all other warranties express or implied which are specifically excluded, including, without limitation, implied warranties of merchantibility and fitness for a particular purpose. b. If Customer believes that there is a claim under the warranty set forth herein, Customer shall follow the procedures set forth in Exhibit H hereto (Product Maintenance). If Seller is unable to repair or replace the Product so that it conforms to Specifications, 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 for Software and a ten (10) year period for non-Software Products. The actions taken by Seller under the Product Maintenance Program procedures set forth in Exhibit H shall be the full extent of Seller's liability and Customer's exclusive remedy with respect to a claim under this section 5. c. This warranty does not apply to any claim which arises out of any one 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, such approval not to be unreasonably withheld (a current list of approved parts is set forth in Exhibit A); (v) the Product is not maintained pursuant to Seller 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 described in Exhibit G; (vi) an event of Force Majeure has occurred; (vii) the failure of third party antennas, lines or interconnection facilities at the Site; and (viii) damage which occurs during shipment of equipment from Customer to Seller. 6. INVOICES AND PAYMENT a. For the Products in the Initial Spectrum Clearing Order only, the payment schedule shall be as follows: 1. Seller [***] for [***] of the Purchase Price of the Products and [***] of the Purchase Price of the Services [***] Products [***] of a Certificate of Final Acceptance for such Products. 2. Seller [***] for the [***] of the Purchase Price for the Products upon Final Acceptance of such Products. 3. [***] Final Acceptance for the Products in the Initial Spectrum Clearing Order [***], Customer [***] (i) [**] of the Products [***] Seller [***] or (ii) [***] Products to the Seller, Seller [***] such Products at Seller's [***] to Customer [***] Purchase at Seller's [***] to Customer [***] Purchase Price [***] for Products and Services [***] [***] such Products. Seller shall [***] of [***] of the Products [***]. [***] 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. b. For Products and Services in all Follow-on Orders, Seller [***] as follows: (i) [***] of the Purchase Price of each Product upon [***] Product to Customer, (ii) [***] of the Purchase Price of each Product and [***] of [***] Services [***] Conditional Acceptance of such Product, and (iii) [***] of the Purchase Price of each Product promptly following Final Acceptance Follow-on Order, Seller [***] of the Purchase Price of each Product [***] Product to Customer and [***] Conditional Acceptance and Final Acceptance. c. All invoices shall be computed on the basis of the prices set forth in Exhibit A [***] and shall identify and show separately quantities of Products, type of Services, total amounts for each item, shipping charges, applicable sales or use taxes and total amount due. Customer shall promptly pay Seller the amount due within 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. d. Customer shall be responsible for the payment of all sales, use and any other taxes applicable to the Products and Services provided by the Seller pursuant to this Agreement. When Seller is required by law to collect such taxes, 100% thereof will be added to invoices as separately stated charges and paid by Customer in accordance with this section. e. If Customer disputes any invoices rendered or amount paid, Customer will so notify Seller, and the parties will use their reasonable efforts to resolve such dispute expeditiously. [***]. 7. OBLIGATIONS OF CUSTOMER In addition to performing the other obligations set forth in this Agreement, Customer shall: a. procure from appropriate regulatory authorities all necessary permits and station licenses as may be required to install and operate the system incorporating the Products; [***] 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. b. maintain adequate property insurance for each Site, including coverage for each Product at a Site during the period of installation and operation prior to Conditional Acceptance; and c. comply with its obligations set forth in Exhibit F. 8. INFRINGEMENT INDEMNITY a. Seller shall indemnify and hold harmless Customer and its Affiliates 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 and its Affiliates 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 this Agreement, 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 its 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 specifications contained in this Agreement and Exhibits, and, if neither of the foregoing alternatives is available on terms which 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 not supplied by Seller, (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. INDEPENDENT CONTRACTOR Seller hereby declares and agrees that Seller is engaged in an independent business and will perform its obligations under this Agreement as an independent contractor and not as the agent or employee of Customer and has no authority to represent Customer as to any matters. Seller shall be solely responsible for payment of compensation to its personnel and for injury to them in the course of their employment except to the extent that any intentional or negligent act of Customer is solely and directly responsible for any such injury . Seller is responsible for payment of all federal, state, or local taxes or contributions imposed or required under unemployment insurance, social security and income tax laws for persons employed by Seller to perform Seller's obligations under this Agreement. 10. INDEMNIFICATION 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 sole 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 (i) is given prompt notice of any such claim or suit and (ii) full opportunity to assume control of the defense or settlement. Neither Seller nor Customer shall not be liable to the other for indirect or consequential damages, including but not limited to lost profits. 11. TERM AND TERMINATION The term of this Agreement shall be three (3) years from the Effective Date. 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 cancel this Agreement. In addition, a party may cancel this Agreement if a petition in bankruptcy or under any insolvency law is filed by or against the other party and is not dismissed within sixty (60) days of the commencement thereof. 12. ASSIGNMENT a. Any assignment by Seller of this Agreement or any other interest hereunder without Customer's prior written consent, shall be void, except assignment to [***] 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. a person or entity who acquires all or substantially all of the assets, business or stock of Seller, whether by sale, merger or otherwise. b. Customer reserves the right to assign this Agreement or any portion hereof to any present or future Affiliate. Notwithstanding the foregoing, without the prior written consent of Seller, (i) the Software license granted to Customer in the form of Exhibit D (Software License), may not be sublicensed, assigned or otherwise transferred by Customer except to Affiliates; (ii) the Products may not be transported, relocated, sold or otherwise transferred outside the United States and (iii) no assignment may be made to an entity which Seller considers to be a competitor. 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. 13. [***] PRODUCT Seller [***] to Customer an [***] in the Product to [***] Product (the "[***] Product"). This [***] Product will [***] in Exhibit B, Section 4.1, in a [***] in Exhibit B, Section 2.2.7 ([***]). Seller [***] to make [***] for [***] Customer on [***] on the terms and conditions set forth in Exhibit A. 14. 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 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 ALLTEL Supply Inc. 8700 148th Avenue NE 6625 The Corners Parkway Redmond WA 98052 Norcross, GA 30092 Attn: VP, Sales Attn.: H.S. Fisher, Jr. Copy to: General Counsel Copy to: Mark Kelso Fax: 425 702 5976 Fax: (770) 368-1449 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 14. [***] 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. 15. COMPLIANCE WITH LAWS Seller shall comply with all applicable federal, state and local laws, regulations and codes, including the procurement of permits and licenses when needed, in the performance of this Agreement. 16. 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; or (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. 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 45 days, either party may terminate the Purchase Order affected by the event by providing written notice. 17. GOVERNING LAW; DISPUTE RESOLUTION a. This Agreement and each Purchase Order shall be construed in accordance with the internal laws of the State of Washington, without regard to its choice of law provisions. b. Any and all disputes arising between the parties shall be resolved in the following order: (i) by good faith negotiation between representatives of Customer and Seller who have authority to fully and finally resolve the dispute to commence within ten (10) days of the request of either party; (ii) in the event that the parties have not succeeded in negotiating a resolution of the dispute within ten (10) days after the first meeting, then the dispute will be resolved by nonbinding mediation to be held in a mutually agreed location in the United States, using a mutually agreed upon non-affiliated neutral party having experience with or knowledge in the wireless communications equipment industry to be chosen within twenty (20) days after written notice by either party demanding mediation (the costs therefor to be shared equally); and (iii) if within sixty (60) days of the initial demand for mediation by the parties, the dispute cannot be resolved by mediation, then a party may institute litigation in a court having subject matter jurisdiction, and the parties expressly consent and submit themselves to the personal jurisdiction of such court. 18. DELAY PENALTIES a. The parties agree that damages for delay are difficult to calculate accurately, and, therefore, agree that penalties will be paid for late performance of certain of Seller's obligations under this Agreement. b. [***] c. [***]. [***] 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. 19. GENERAL PROVISIONS a. All information, data and materials provided by either party under this Agreement shall be subject to the terms and conditions of the Non-Disclosure Agreement between the parties dated April 10, 1996. b. Seller and Customer may 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, not to be unreasonably withheld. c. Waiver by either party of any obligation or default by the other party shall not be deemed a waiver by such party of any other obligation or default. d. Any rights of cancellation, termination or other remedies prescribed in this Agreement are cumulative and are not intended to be exclusive of any other remedies to which the injured party may be entitled at law or equity (including but not limited to the remedies of specific performance and cover) in case of any breach or threatened breach by the other party of any provision of this Agreement, unless such other remedies which are not prescribed in this Agreement are specifically limited or excluded by this Agreement. The use of one or more available remedies shall not bar the use of any other remedy for the purpose of enforcing the provisions of this Agreement; provided, however, that a party shall not be entitled to retain the benefit of inconsistent remedies. e. 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. f. This Agreement, including all Exhibits attached to or referenced in this Agreement, shall constitute the entire agreement between Customer and Seller with respect to the subject matter hereof. g. No provision of this Agreement shall be deemed waived, amended or modified by any party hereto, unless such waiver, amendment or modification is in writing and signed by a duly authorized representative of each of the parties. h. This Agreement applies only to sales of Products and Services in the United States. i. Each party shall comply with all applicable U.S. and foreign 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 any foreign country. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives. Metawave Communications Corporation ALLTEL Supply Inc. By: /s/ Richard Henderson By: /s/ H.S. Fisher, Jr. ----------------------------------- --------------------------- Name: Richard Henderson Name: H.S. Fisher, Jr. ----------------- ---------------- Title: Vice President of Sales and Marketing Title: Senior Vice President, ------------------------------------- ---------------------- Operations ---------- EXHIBITS ATTACHED: A Product and Services Pricing B Performance Specifications C Site Acceptance Test Procedure (ATP) D Software License E System Acceptance Test Procedure (ATP) F Installation and Optimization G Training H Product Maintenance Program EXHIBIT A: PRODUCTS AND SERVICES PRICING TO THE AGREEMENT BETWEEN METAWAVE COMMUNICATIONS CORP. ("SELLER") AND ALLTEL SUPPLY, INC. ("CUSTOMER") Metawave Communications Corporation 8700 148/th/ Avenue NE Redmond, WA 98052 USA Tel. 425 702-5600 Fax 425 702-5970 http://www.metawave.com - ------------------------------------------------------------------------------- This document and the information in it is the proprietary and confidential information of Metawave Communications Corporation and is provided by Metawave under an agreement of nondisclosure to the Customer for internal evaluation purposes only and is protected by applicable copyright and trade secret law. This document may only be disclosed or disseminated to those employees of the Customer who have a need to use it for evaluation purposes; no other use or disclosure can be made by Customer without Metawave's consent. (C) 1998, METAWAVE COMMUNICATIONS CORPORATION CONFIDENTIAL PROPRIETARY - -------------------------------------------------------------------------------- CONFIDENTIAL AND PROPRIETARY FINAL Products and Services Pricing ================================================================================ PRODUCTS AND SERVICES PRICING For the purposes of uniformity and brevity, references to Agreement or to an Exhibit shall refer to the Purchase Agreement to which this document is Exhibit A and to the other Exhibits to that Agreement. All definitions set forth in the Agreement shall apply hereto unless otherwise expressly defined herein. 1. Introduction This Exhibit A lists the Products and Services pricing and the Product quantity discounts as of the Effective Date of the Agreement and throughout the term of this Agreement. All payments for the Products and Services shall be made according to the terms set forth in the Agreement. The prices included herein are for products installed and services performed in the U.S.A. 2. SpotLight Pricing
[***] - -------------------------------------------------------------------------------- SPOTLIGHT UNITS (BY NO. OF CHANNELS) [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - --------------------------------------------------------------------------------
LPA CONFIGURATION PRICING - -------------------------------------------------------------------------------- Configuration [***] [***] - -------------------------------------------------------------------------------- 4 LPA Module Assy. [***] [***] - -------------------------------------------------------------------------------- 16 LPA Module Assy. [***] [***] - --------------------------------------------------------------------------------
* SpotLight Tx/Rx includes all of the hardware and software as described in Section 2 of Exhibit B except those items identified as optional or supplied by Customer. [***] 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. Products and Services Pricing ================================================================================ [***]
4. SpotLight Spares Pricing SPOTLIGHT RECOMMENDED SPARES KIT - -------------------------------------------------------------------------------- PART NUMBER DESCRIPTION [***] [***] [***] - -------------------------------------------------------------------------------- 250-0035-XX Tx Driver [***] [***] [***] - -------------------------------------------------------------------------------- 250-0042-XX Voice LNA [***] [***] [***] - -------------------------------------------------------------------------------- 250-0044-XX LNA Alarm [***] [***] [***] - -------------------------------------------------------------------------------- 250-0082-XX LNA Power [***] [***] [***] - -------------------------------------------------------------------------------- 250-0083-XX External I/O card [***] [***] [***] - -------------------------------------------------------------------------------- 270-0002-XX RX SMU Assy. [***] [***] [***] - -------------------------------------------------------------------------------- 270-0026-XX TX SMU Assy. [***] [***] [***] - -------------------------------------------------------------------------------- LPA module [***] [***] [***] - -------------------------------------------------------------------------------- TOTALS: - --------------------------------------------------------------------------------
Notes: 1. The SpotLight Recommended Spares Kit list is for SpotLight configurations supporting up to 90 channels. 2. Metawave recommends to maintain an inventory of one spares kit for every four SpotLight systems installed. [***] 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. Products and Services Pricing ================================================================================
5. CDMA Product Feature Packages - -------------------------------------------------------------------------------- INITIAL RELEASE DESCRIPTION [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - --------------------------------------------------------------------------------
Notes: 1. [***] 2. [***]
6. Engineering Services Pricing ENGINEERING SERVICES - -------------------------------------------------------------------------------- DESCRIPTION [***] - -------------------------------------------------------------------------------- [***] [***] - -------------------------------------------------------------------------- [***] [***] - --------------------------------------------------------------------------
Notes: 1. [***] 2. [***] 3. [***] 4. [***] 7. Software Licensing Fee The Software licensing fees for the most current versions of LampLighter and SpotLight embedded system Software (available at the time of purchase of SpotLight) are included in the Purchase Price of each SpotLight unit purchased. Software Updates are available under the SMP described in Exhibit H or for additional licensing fees. [***] 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. Products and Services Pricing ================================================================================ Maintenance Fees Software Maintenance Program (SMP) Fees The SMP annual fee for LampLighter software and the SpotLight embedded system software is [***] per each RF analog channel supported by SpotLight not to exceed [***] per "Host System" per year where a Host System is defined herein as that group of SpotLight units serving cellular RF infrastructure equipment connected to a common Mobile Switching Center. Hardware Maintenance Program (HMP) Fees Seller and Customer agree to negotiate in good faith the HMP fee prior to the end of the Warranty Period. 9. General Conditions For Order: 1. Customer shall provide the local air-time for all drive testing at no charge to Seller. 2. If Seller's Services are delayed for reasons beyond the control of Seller or if additional Services are required by Customer, the Services shown herein shall be adjusted accordingly, as mutually agreed upon by both parties. 3. Towers and transmission lines to the towers and antennas, or any costs associated with the preparation of towers and the site, not covered in Exhibit F, including the installation of antennas and adequate electrical power, are not included in the prices shown herein and are the responsibility of Customer. 4. Performance of the Services set forth herein is dependent upon Customer and or Seller obtaining any and all necessary licenses, permits and governmental approvals required to perform the Services set forth herein. Seller shall not be held liable for any non- performance due to delays by Customer in obtaining any of the above documentation and or approvals. [***] 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. Products and Services Pricing ================================================================================
SPOTLIGHT 2.0 FIELD REPLACEABLE UNIT (FRU) PRICE LIST - -------------------------------------------------------------------------------- PART NUMBER PART DESCRIPTION PRICE - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - -------------------------------------------------------------------------------- [***] [***] [***] - --------------------------------------------------------------------------------
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[***] 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. EXHIBIT B: PERFORMANCE SPECIFICATIONS TO THE PURCHASE AGREEMENT SPOTLIGHT MULTIBEAM ANTENNA PLATFORM 2.0 TRANSMIT/RECEIVE (for use with Motorola HDII Base Station Equipment) Metawave Communications Corporation 8700 148/th/ Avenue NE Redmond, WA 98052 USA Tel. 425 702-5600 Fax 425 702-5970 http://www.metawave.com - -------------------------------------------------------------------------------- This document and the information in it is the proprietary and confidential information of Metawave Communications Corporation and is provided by Metawave under an agreement of nondisclosure to the Customer for internal evaluation purposes only and is protected by applicable copyright and trade secret law. This document may only be disclosed or disseminated to those employees of the Customer who have a need to use it for evaluation purposes; no other use or disclosure can be made by Customer without Metawave's consent. (C)1998, Metawave Communications Corporation CONFIDENTIAL PROPRIETARY - -------------------------------------------------------------------------------- FINAL SpotLight Multibeam Antenna Platform Performance Specifications ================================================================================ TABLE OF CONTENTS 1. Introduction....................................................... 3 2. System Description................................................. 3 2.1. Introduction................................................ 4 2.2. General System Overview..................................... 4 2.2.1. Operational Overview................................. 5 2.2.2. SIG/SCAN............................................. 6 2.2.3. Remote Access........................................ 6 2.2.4. Antennas............................................. 6 2.2.5. Lightning Arrestor................................... 7 2.2.6.Rack Mounted Components......................................... 7 2.2.7. Interfaces........................................... 8 2.3. SpotLight Specifications.................................... 9 2.3.1. RF Performance....................................... 9 2.3.2. Electrical Specifications............................ 9 2.3.3. Environmental Specifications......................... 10 2.3.4. Physical Specifications.............................. 10 2.3.5. Alarming............................................. 10 2.3.6. Reset................................................ 10 2.3.7. SMAP Frequency Reference............................. 10 2.4. RF Performance.............................................. 10 2.4.1. Angular Diversity.................................... 10 2.4.2. Transmit Output Power................................ 11 2.4.3. Transmit Spurious Emissions.......................... 11 2.5. System Software............................................. 12 2.5.1. LampLighter Software................................. 12 2.5.2. Embedded System Software............................. 12 2.6. Software Performance........................................ 12 2.6.1. Program Upgrades..................................... 12 2.6.2. Programming and Development Standards................ 12 2.6.3. Built-In-Self-Test................................... 13 2.6.4. Response Times....................................... 13 3. Regulatory Requirements............................................ 13 3.1 US............................................................. 13 4. Optional SpotLight Platform CDMA Features.......................... 13 4.1 CDMA/AMPS/NAMPS Integration Feature............................... 13 4.2 RF Sector Synthesis Feature....................................... 13 4.3 CDMA Base Stations Supported...................................... 14
SpotLight Multibeam Antenna Platform Performance Specifications ================================================================================ PERFORMANCE SPECIFICATIONS For purposes of uniformity and brevity, references to Agreement or to an Exhibit shall refer to the Products and Services Purchase Agreement to which this document is Exhibit B and to the other Exhibits to that Agreement. All definitions set forth in the Agreement shall apply hereto. Introduction The purpose of this document is to describe and specify Metawave's SpotLight(TM) 2.0 Multibeam Antenna Platform including: . System operation . Hardware and elements of the SpotLight equipment . Interconnect between SpotLight equipment and the base station equipment While the specifications contained in this document are based on the most current information available, such information is based on cell site specific data and may not apply to all cell sites contained within a system. Metawave reserves the right to make changes to any design, specification, manufacturing techniques and/or product testing procedures provided those new specifications meet the minimum requirements contained in this Exhibit, Exhibit G and Exhibit H. The new specifications shall be provided to Customer at least 60 days prior to the date of general availability of the Products. ACRONYMS AND TERMS DEFINITION ----------------------------- C/I Carrier to Interference Ratio FRU Field Replaceable Unit LNA Low Noise Amplifier LPA Linear Power Amplifier RCU Radio Channel Unit (P/O Motorola Cell Equipment) RF Radio Frequency Rx Receive SMAP Spotlight Multibeam Antenna Platform SMU Spectrum Management Unit Tx Transmit TxCD Transmit Combiner Driver SpotLight Multibeam Antenna Platform Performance Specifications ================================================================================ 2. System Description [***] [***] 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. 3. Regulatory Requirements This section specifies requirements which are set primarily by local and/or national governing bodies, consortiums and standards committees. The SpotLight system complies with appropriate US FCC regulations (includes both RF and EMI). Specifically, the SMAP shall comply with the resolutions defined in CFR47 part 22 and part 15. The SpotLight system is UL listed. 4. [***] [***] 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. EXHIBIT C: SITE ACCEPTANCE TEST PROCEDURE (ATP) TO THE AGREEMENT BETWEEN METAWAVE COMMUNICATIONS CORP. ("SELLER") AND ALLTEL SUPPLY INC. ("CUSTOMER") Metawave Communications Corporation 8700 148/th/ Avenue NE Redmond, WA 98052 USA Tel. 425 702-5600 Fax 425 702-5970 http://www.metawave.com - -------------------------------------------------------------------------------- This document and the information in it is the proprietary and confidential information of Metawave Communications Corporation and is provided by Metawave under an agreement of nondisclosure to the Customer for internal evaluation purposes only and is protected by applicable copyright and trade secret law. This document may only be disclosed or disseminated to those employees of the Customer who have a need to use it for evaluation purposes; no other use or disclosure can be made by Customer without Metawave's consent. (C)1998, Metawave Communications Corporation CONFIDENTIAL PROPRIETARY - -------------------------------------------------------------------------------- FINAL SpotLight Multibeam Antenna Platform Site Acceptance Test Procedure ================================================================================ TABLE OF CONTENTS 1. Introduction............................................................ 3 2. Acceptance Tests........................................................ 3 2.1. LampLighter Installation Test.................................... 4 2.2. System Configuration Test........................................ 5 2.3. Transmit Effective Radiated Power (Tx ERP) Test.................. 6 2.4. Receive Sensitivity Test......................................... 8 2.5. Alarm Functionality Test......................................... 9 2.6. Call Processing Test............................................. 11
SpotLight Multibeam Antenna Platform Site Acceptance Test Procedure ================================================================================ SITE ACCEPTANCE TEST PROCEDURE [***] [***] 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. SOFTWARE LICENSE AGREEMENT -------------------------- EXHIBIT D TO THE PURCHASE AGREEMENT BETWEEN METAWAVE COMMUNICATIONS CORPORATION ("SELLER") AND ALLTEL SUPPLY, INC. ("CUSTOMER") 1. DEFINITIONS "Agreement" shall mean the Purchase Agreement between Seller and Customer executed concurrently herewith, and the Exhibits attached thereto, including this Exhibit E (Software License). "Software" shall mean the (i) object-code computer programs embedded in the Spotlight Unit which control and monitor the operation of the Spotlight Unit ("Embedded Software"), and (ii) the Lamplighter(TM) PC-based graphical user interface computer program for the Spotlight Unit, and all Features, Major Releases, Point Releases, Software Patches, SP Software (as such terms are defined in Exhibit H), other updates and modifications ("Software Updates") and any documentation in support thereof . "Spotlight Unit" shall mean the Spotlight(TM) antenna system described in Exhibit B. Any terms not defined herein shall have the same meanings as in the Agreement and the Exhibits thereto. 2. SCOPE Pursuant to the Agreement, Software will be delivered by Seller to Customer for use with a Spotlight Unit 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. Such use shall apply only to operate a Spotlight Unit delivered under the Agreement. 3.2 The licensing fees for the current versions of the Embedded Software and of Lamplighter(TM) Software are included in the Purchase Price for the Spotlight Unit. Software Updates are available under the Software Maintenance Program described in Exhibit H or for additional licensing fees. SpotLight Multibeam Antenna Platform Site Acceptance Test Procedure ================================================================================ 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 Spotlight Unit existing within the site specified in the Purchase Order ("Designated Spotlight Unit"). 4.2 Customer may use the Software to perform the activities listed in section 2.5 of Exhibit B and those activities available in future enhancements or features. Under no condition shall the Software be used for any other purpose, including, but not limited to, substituted Spotlight Units, or Spotlight Units not owned by Customer, or Spotlight Units located at a location other than the site specified in the Purchase Order. 4.3 The License granted to Customer in Section 2 is personal and may not be transferred to another Spotlight or site or another entity without the written consent of Seller. 4.4 The Software is subject to laws protecting patents, trade secrets, know-how, confidentiality and copyright. 4.5 Customer shall not translate, modify, adapt, decompile, disassemble, or reverse engineer the Software or any portion thereof. 4.6 Unless otherwise expressly agreed 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). 4.7 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. 4.8 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 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 shall be in existence at any one time without the prior written consent of Seller, other than copies electronically resident in the Spotlights. 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. SpotLight Multibeam Antenna Platform Site Acceptance Test Procedure ================================================================================ 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 Exhibit 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 it may have, seek temporary or permanent injunctive relief without the need to prove actual harm in order to protect Seller's interests. 7. TERM Unless otherwise terminated pursuant to Section 8 hereof, or in the event that Customer is required to return the Software pursuant to section 8(b) of the Purchase Agreement, the term of the license granted pursuant to Section 2 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 Exhibit D (Software License Agreement) , 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 SpotLight Multibeam Antenna Platform Site Acceptance Test Procedure ================================================================================ 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 2 herein and for a period of one (1) year after expiration or termination, Seller, and where applicable, its licensor(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 Agreement, 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 E are intended to inure to the benefit of Seller and its licensors and their respective successors in interest. Customer acknowledges that Seller or its licensors have the right to enforce these provisions against Customer, whether in Seller's or its licensor's name. 10. LIMITATIONS ON SOFTWARE Customer understands that errors occur in Software and Seller makes no warranty that the Software will perform without error. Customer agrees that it is Customer's responsibility to select and test the Software to determine that is meets Customer's needs. Customer accepts the Software "as is" subject to the warranty set forth in Section 5 of the Purchase Agreement. 11. [***] [***] 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. SpotLight Multibeam Antenna Platform Site Acceptance Test Procedure ================================================================================ 12. ENTIRE UNDERSTANDING 12.1 This Exhibit D (Software License) 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 Exhibit B and this Exhibit D set forth the entire understanding and obligations regarding use of Software, implied or expressed. EXHIBIT E: SYSTEM ACCEPTANCE TEST PROCEDURE (ATP) TO THE AGREEMENT BETWEEN METAWAVE COMMUNICATIONS CORP. ("SELLER") AND ALLTEL SUPPLY, INC. ("CUSTOMER") Metawave Communications Corporation 8700 148th Avenue NE Redmond, WA 98052 USA Tel. 425 702-5600 Fax 425 702-5970 http://www.metawave.com CONFIDENTIAL PROPRIETARY FINAL - -------------------------------------------------------------------------------- This document and the information in it is the proprietary and confidential information of Metawave Communications Corporation and is provided by Metawave under an agreement of nondisclosure to the Customer for internal evaluation purposes only and is protected by applicable copyright and trade secret law. This document may only be disclosed or disseminated to those employees of the Customer who have a need to use it for evaluation purposes; no other use or disclosure can be made by Customer without Metawave's consent. (c)1998, Metawave Communications Corporation CONFIDENTIAL PROPRIETARY - -------------------------------------------------------------------------------- SpotLight Multibeam Antenna Platform Site Acceptance Test Procedure ================================================================================ Table of Contents
1. Introduction ERROR! BOOKMARK NOT DEFINED. 2. System (ATP)......................................................................................... 3 2.1. Network Planning Phase..................................................................... 3 2.2. Baseline Performance Collection Phase...................................................... 5 2.3. SpotLight Installation and Site ATP Phase.................................................. 7 2.4. SpotLight Network Optimization Phase....................................................... 7 2.5 SpotLight Performance Collection, Evaluation and Sign-off Phase................................. 8
SpotLight Multibeam Antenna Platform Site Acceptance Test Procedure ================================================================================ SPECTRUM CLEARING SYSTEM ATP [***] [***] 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. EXHIBIT F: SPOTLIGHT IMPLEMENTATION, INSTALLATION AND SITE COMMISSIONING TO THE PURCHASE AGREEMENT BETWEEN ("SELLER") AND ("CUSTOMER") Metawave Communications Corporation 8700 148/th/ Avenue NE Redmond, WA 98052 USA Tel. 425 702-5600 Fax 425 702-5970 http://www.metawave.com - -------------------------------------------------------------------------------- This document and the information in it is the proprietary and confidential information of Metawave Communications Corporation and is provided by Metawave under an agreement of nondisclosure to the Customer for internal evaluation purposes only and is protected by applicable copyright and trade secret law. This document may only be disclosed or disseminated to those employees of the Customer who have a need to use it for evaluation purposes; no other use or disclosure can be made by Customer without Metawave's consent. (c)1997, Metawave Communications Corporation CONFIDENTIAL PROPRIETARY - -------------------------------------------------------------------------------- FINAL Implementation, Installation and Commissioning ============================================================================ TABLE OF CONTENTS 1. Scope........................................................... 3 2. Commencement of Work............................................ 3 3. Schedule A: Implementation Engineering.......................... 3 4. Schedule B: Cell Site Installation.............................. 4 5. Schedule C: Site Commissioning.................................. 5 6. Acceptance Test Procedure (ATP)................................. 5 7. Customer Responsibilities....................................... 5 8. Invoices & Payment.............................................. 6 9. Right to Subcontract............................................ 6 10. Supervision..................................................... 6 11. Extra Work...................................................... 7 12. Special Transportation.......................................... 7
Implementation, Installation and Commissioning ================================================================================ SPOTLIGHT IMPLEMENTATION, INSTALLATION AND SITE COMMISSIONING For purposes of uniformity and brevity, references to Agreement or to an Exhibit shall refer to the Products and Services Purchase Agreement to which this document is Exhibit F and to the other Exhibits to that Agreement. All definitions set forth in the Agreement shall apply hereto. 1. SCOPE 1.1 THIS EXHIBIT INCLUDES A DESCRIPTION OF THE ENGINEERING SERVICES REQUIRED TO PLACE A SPOTLIGHT PLATFORM INTO COMMERCIAL SERVICE: . Schedule A: Implementation . Schedule B: Installation . Schedule C: Site Commissioning 1.2 CUSTOMER AGREES TO ACCEPT SCHEDULES A, B AND C ACCORDING TO THE TERMS AND CONDITIONS OF THIS EXHIBIT AND TO PAY TO METAWAVE THE PRICES SET FORTH IN EXHIBIT A FOR SUCH SERVICES. 2. COMMENCEMENT OF WORK 2.1 IMPLEMENTATION ENGINEERING SHALL COMMENCE IN ACCORDANCE WITH THE PROJECT SCHEDULE AS SET FORTH IN A PURCHASE ORDER. 2.2 INSTALLATION AND COMMISSIONING SHALL COMMENCE WITHIN A REASONABLE TIME AFTER ARRIVAL OF THE PRODUCTS AT THE SITE AND IN ACCORDANCE WITH THE PROJECT SCHEDULE AS SET FORTH IN A PURCHASE ORDER. 3. SCHEDULE A: IMPLEMENTATION ENGINEERING 3.1 SITE APPRAISAL AND INSTALLATION ANALYSIS In accordance with the project schedule as set forth in a Purchase Order, Metawave and Customer shall conduct a site walk to appraise the Site and perform an installation analysis. The information gathered at the site walk will be used to develop a Scope of Work. The following information is examined and recorded during a Site walk: . dimensions of cell site and available space, . primary power availability and distribution, . Customer supplied equipment, . number of channels, Implementation, Installation and Commissioning ================================================================================ . current antenna configuration, . current system traffic statistics. 3.2 SCOPE OF WORK Seller shall prepare a Scope of Work (SOW) document from the information collected during the Site walk. The SOW, shall be mutually agreed upon by both Seller and Customer. The SOW document will contain the materials and resources required from Seller and Customer to perform the installation and shall contain the Network Plan required to complete the commissioning of each cell site. 4. SCHEDULE B: CELL SITE INSTALLATION 4.1 ALL INSTALLATION WILL BE PERFORMED IN ACCORDANCE WITH THE INSTRUCTIONS AND TECHNIQUES AS DESCRIBED IN THE SERVICE MANUALS SUPPLIED WITH THE EQUIPMENT. 4.2 UPON THE COMPLETION OF THE CELL SITE INSTALLATION(S), METAWAVE WILL PROVIDE THE FOLLOWING DOCUMENTATION FOR EACH CELL SITE: . Site Walk with documentation, . Scope of Work (SOW), . Floor plan, . SpotLight-to-HDII Channel Mapping documentation, . LampLighter Settings document, . Antenna Sweep records, . Installation Verification Test Data sheets, . Configuration and Integration Test Data sheets, . Link Budget spread sheet/Tx Path Attenuator Calculations, . Sig/Scan Installation diagram. 4.3 INSTALLATION TEST SCHEDULE (REFER TO SPOTLIGHT SYSTEMS MANUAL, CHAPTERS 7 AND 8) [***] [***] 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. Implementation, Installation and Commissioning ================================================================================ 5. SCHEDULE C: Site Commissioning UPON COMPLETION OF THE SPOTLIGHT INSTALLATION, METAWAVE WILL INFORM CUSTOMER THAT SPOTLIGHT IS READY FOR COMMISSIONING (BASED ON THE NETWORK PLAN IN THE SOW). COMMISSIONING INCLUDES THE FOLLOWING ACTIVITIES: [***] 6. ACCEPTANCE TEST PROCEDURE (ATP) Within 24 hours after Seller has advised Customer that installation and commissioning are complete, Customer shall furnish representative to witness the Acceptance Test Procedure (ATP) as set forth in Exhibit C (Acceptance Test Procedure). The representatives shall then be available on a continuous basis to witness the ATP. 7. CUSTOMER RESPONSIBILITIES 7.1 ANY CHANGES TO THE SOW MUST BE MUTUALLY AGREED UPON BY BOTH SELLER AND CUSTOMER, IN WRITING, AND SHALL BECOME AN ATTACHMENT TO THE PURCHASE AGREEMENT. 7.2 CUSTOMER IS RESPONSIBLE FOR OBTAINING ANY REQUIRED OPERATING AUTHORITY AND ALL REQUIRED APPROVALS AND PERMITS TO INSTALL AND OPERATE THE WIRELESS NETWORK. 7.3 INFORMATION, DOCUMENTATION, FACILITIES AND SERVICES UNDER CUSTOMER'S CONTROL OR REASONABLY OBTAINABLE BY CUSTOMER SHALL BE FURNISHED BY CUSTOMER IN A TIMELY MANNER IN ORDER TO FACILITATE THE ORDERLY PROGRESS OF THE WORK. INCLUDED, WITHOUT IMPLIED LIMITATION, SHALL BE: ACCESS AND RIGHT OF ENTRY TO ALL SITES; REGULATORY FILING [***] 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. Implementation, Installation and Commissioning ================================================================================ INFORMATION; FLOOR PLANS; AND ANY SUPPORTING DOCUMENTS WHICH MAY AFFECT SITE ENGINEERING OR INSTALLATION ANALYSIS. 7.4 IN THE EVENT THAT CUSTOMER HAS NOT MADE PERMANENT SITES AVAILABLE TO RECEIVE THE EQUIPMENT BY THE SITE AVAILABILITY DATE AS SET FORTH IN THE SOW, METAWAVE, AT ITS OPTION, MAY SHIP THE EQUIPMENT TO A WAREHOUSE IN OR NEAR THE SITE, AND CUSTOMER SHALL BEAR THE COSTS OF INSURANCE, WAREHOUSING, RELOADING, TRANSPORTING, OFF-LOADING AND MOVING THE EQUIPMENT ONTO THE PERMANENT SITE WHEN SUCH SITE BECOMES AVAILABLE AS WELL AS BEAR THE RESPONSIBILITY FOR SAFEKEEPING AND WAREHOUSING OF THE EQUIPMENT IN ENVIRONMENTAL CONDITIONS AS SET OUT IN THE SPECIFICATIONS. 7.5 CUSTOMER SHALL MAKE EACH SITE AVAILABLE TO SELLER FOR WORK 24 HOURS PER DAY, SEVEN DAYS PER WEEK. SITE ACCESS INCLUDES PROVIDING METAWAVE WITH KEYS, PASS CODES, SECURITY CLEARANCES, ESCORT, ETC., NECESSARY TO GAIN ENTRANCE TO AND EXIT FROM THE WORK AREA. WAIVER OF LIABILITY OR OTHER RESTRICTIONS SHALL NOT BE IMPOSED AS A SITE ACCESS REQUIREMENT. 7.6 CUSTOMER IS AT ALL TIMES RESPONSIBLE FOR MAINTAINING PROPER ENVIRONMENTAL CONDITIONS AT EACH SITE. TEMPERATURE, HUMIDITY, DUST, ETC., SHALL BE MONITORED AND CONTROLLED WITHIN THE RECOMMENDED RANGES SET FORTH IN THE EQUIPMENT SPECIFICATIONS. 7.7 CUSTOMER IS RESPONSIBLE FOR TOWER SPECIFICATIONS FOR THE LOADING OF THE SPOTLIGHT ANTENNAS AND TRANSMISSION LINES. 7.8 ALL CUSTOMER-PROVIDED CABLES AND WIRING SHALL BE RUN TO THE IMMEDIATE AREA OF THE METAWAVE-SUPPLIED EQUIPMENT. 7.9 CUSTOMER SHALL GROUND SELLER EQUIPMENT AND PROVIDE LIGHTING PROTECTION FOR THE RF SYSTEM. 7.10 CUSTOMER SHALL PROVIDE SELLER WITH THE HARDWARE REVISION AND SOFTWARE LOAD OF EACH BASE STATION THAT SELLER'S PRODUCTS ARE TO BE INTERFACED TO. 7.11 CUSTOMER SHALL PROVIDE, AT SELLER'S REQUEST AND IN A TIMELY FASHION, DATABASE INFORMATION, INCLUDING BUT NOT LIMITED TO, NETWORK STATISTICS AND FREQUENCY INFORMATION BEFORE AND AFTER THE INSTALLATION OF SELLER'S PRODUCTS. 8. INVOICES & PAYMENT Invoices and payment for implementation, installation and commissioning shall be made in accordance with the Agreement. 9. RIGHT TO SUBCONTRACT Seller shall have the right to subcontract the implementation, installation and commissioning work in whole or in part. Implementation, Installation and Commissioning ================================================================================ 10. SUPERVISION Seller shall appoint a Program Manager to supervise the implementation, installation and commissioning of the Products. Customer shall appoint a Program Manager who shall have authority to make changes that may be required during the performance of such services. 11. EXTRA WORK Extra work to be performed by Seller not specified in this Exhibit but required to complete installation or commissioning shall be authorized in writing by Customer prior to the commencement of such work. If mutually agreed-upon, such work shall be performed by Seller at its then prevailing rates. 12. SPECIAL TRANSPORTATION Special transportation required to gain access to a Site shall be supplied by Customer. Seller shall, if directed in writing, furnish the special transportation and invoice Customer for such services. EXHIBIT G TO THE PURCHASE AGREEMENT BETWEEN SELLER AND CUSTOMER TRAINING -------- For purposes of uniformity and brevity, references to Purchase Agreement ("Agreement") or to an Exhibit shall refer to that Agreement to which this document is Exhibit G and to the other Exhibits to that Agreement. All definitions set forth in the Agreement shall apply hereto. 1. OVERVIEW Seller's sponsored courses include the SpotLight System Maintenance and Operations course as described below. The SpotLight System Maintenance and Operation course is offered at Seller's offices in Redmond, WA [***]. Upon Customer's request, Seller will provide the SpotLight System Maintenance and Operation course at a location chosen by Customer. In the event that Seller provides the training at a Customer chosen location, Customer will pay the instructor's airfare, per diem expenses and any and all equipment shipping charges to provide the class at Customer's chosen location. Metawave training courses are copyrighted by Metawave Communications Corporation. No reproduction rights for these training courses will be granted. Metawave reserves the right to change courses without notifying Customer beforehand. 2. SPOTLIGHT SYSTEM MAINTENANCE AND OPERATION COURSE OBJECTIVE SpotLight System Maintenance and Operation is a one day course designed for Cellular Technicians, and assumes no prior background with Smart Antenna systems. At the successful completion of this course, technicians will be certified by Seller to maintain, troubleshoot, and replace Field Replaceable Units (FRU) as needed to sustain site operation. The technician will also become familiar with the LampLighter user interface, and be able to configure and monitor SMUs (Spectrum Management Units) either on-site or remotely, view system performance statistics, and perform SpotLight system verification. Upon completion of the course, all students will receive a SpotLight System Manual, a LampLighter User Guide, copies of the presentation materials as site reference material and a course certificate of completion. [***] 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. EXHIBIT H: PRODUCT MAINTENANCE PROGRAM TO THE PURCHASE AGREEMENT BETWEEN METAWAVE COMMUNICATIONS CORP. ("SELLER") AND ALLTEL SUPPLY, INC. ("CUSTOMER") Metawave Communications Corporation 8700 148th Avenue NE Redmond, WA 98052 USA Tel. 425 702-5600 Fax 425 702-5970 http://www.metawave.com - -------------------------------------------------------------------------------- This document and the information in it is the proprietary and confidential information of Metawave Communications Corporation and is provided by Metawave under an agreement of nondisclosure to the Customer for internal evaluation purposes only and is protected by applicable copyright and trade secret law. This document may only be disclosed or disseminated to those employees of the Customer who have a need to use it for evaluation purposes; no other use or disclosure can be made by Customer without Metawave's consent. 1998, Metawave Communications Corporation CONFIDENTIAL PROPRIETARY - -------------------------------------------------------------------------------- METAWAVE COMMUNICATIONS CORPORATION PRODUCT MAINTENANCE PROGRAM 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) (refer to Exhibit A for the most current list of FRUs). In this Exhibit H, 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 2.1.1 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 THE PRODUCT REPAIRED ON A TIME-AND-MATERIALS BASIS AT THE REPAIR RATES LISTED IN ANNEX A, SECTION F FOR THE DURATION OF THE TERM OF THE AGREEMENT AND THEREAFTER AT SELLER'S THEN CURRENT REPAIR RATE. 2.2 Seller shall: 2.2.1 IN THE EVENT 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 [***] OF RECEIPT OF A DEFECTIVE FRU FROM CUSTOMER, SHIP A REPAIRED OR REPLACEMENT FRU TO CUSTOMER. EQUIPMENT NOT MANUFACTURED BY SELLER WILL BE REPAIRED OR REPLACED AS PROMPTLY AS ARRANGEMENTS WITH THE MANUFACTURERS OR VENDORS THEREOF PERMIT. 2.2.4 ISSUE A RETURN MATERIAL AUTHORIZATION ("RMA") NUMBER TO CUSTOMER PRIOR TO CUSTOMER'S RETURN OF THE DEFECTIVE FRU. 2.2.5 PAY ALL TRANSPORTATION CHARGES FOR THE RETURN OF THE REPAIRED OR REPLACEMENT FRU TO CUSTOMER. [***] 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. 2.2.6 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, CUSTOMER AGREES TO INSURE AND 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 before dispatch of personnel. 2.5 Service Limitations 2.5.1 SELLER SHALL HAVE NO RESPONSIBILITY TO REPAIR OR REPLACE FRUS WHICH HAVE BEEN REPAIRED IN AN UNAUTHORIZED MANNER OR WHICH HAVE HAD THE BARCODE, 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 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 3.3.5 SELLER SHALL PROVIDE, AT A SELLER AUTHORIZED REPAIR DEPOT, SUCH THROUGH CALLING SELLER'S CUSTOMER SUPPORT. SERVICE AS IS NECESSARY TO CORRECT SOFTWARE DEFECTS IN ACCORDANCE WITH THE APPLICABLE DOCUMENTATION. SUCH SERVICE WILL BE PROVIDED BY SELLER SEVERITY OF THE PROBLEM. 3.3.6 AS SOON AS IS POSSIBLE AND ON A PRIORITY BASIS ACCORDING TO THE 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. [***] 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. 3.3.8 SELLER SHALL HAVE NO OBLIGATION TO SUPPORT ANY SOFTWARE WHICH 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. ANNEX A: PROCEDURES FOR METAWAVE'S HARDWARE MAINTENANCE PROGRAM A. METAWAVE'S CUSTOMER SUPPORT Customer Support can be reached by call the following numbers: Domestic phone: 888-642-2455 International phone: 425-702-6550 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 cost. 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 8700 148th Avenue N.E. Redmond, WA 98052 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 requests Emergency Expedite Service. 2. When Customer returns our of warranty FRUs for repair. 3. When Seller sends pre-exchange FRU to Customer prior to the defective FRU being received by Seller. Under these circumstances, a facsimile copy of the purchase order may be transmitted to be followed up by a confirming hard copy in the mail. The terms and conditions of the Agreement between Seller and the Customer shall prevail notwithstanding any variance with the terms and conditions of any purchase orders submitted by Customer. F. PRICING AND INVOICING: Emergency Expedite Request (Under Initial HMP or Extended HMP): --------------------------------------------------------------- Seller does not charge an Emergency Expedite Fee for FRUs covered under the Initial HMP or Extended HMP.. Emergency Expedite Request (Under Time-and -Materials): ------------------------------------------------------ Seller charges an Emergency Expedite Fee of $300 per FRU (plus the standard time-and-materials repair rates shown below) plus freight for emergency service for FRUs not covered under the Initial HMP or Extended HMP. Repair and Return Shipment of FRUs (Under Initial HMP or Extended ----------------- ----------------------------------------------- HMP): --- Seller does not charge for the repair or return shipment of FRUs covered under the Initial or Extended HMP. Time-and-Material Repair Services (not covered under Initial HMP or ------------------------------------------------------------------- Extended HMP): ------------- All repairs not covered under either the Initial HMP or Extended HMP will be calculated on a time-and-materials basis at $100 for the first hour and $50 per hour for each additional hour thereafter. If the estimated cost to repair the defective FRU exceeds 50% of the price of a new FRU, Seller will call Customer to inform them prior to repairing defective FRU. Loaner Fees: ----------- Seller charges a loaner fee, not to exceed $200 per FRU, when Customer requests a loaner FRU in support of FRUs not covered under either Initial HMP or Extended HMP. Invoices: -------- Invoices are payable in accordance with the terms of the Agreement between Seller and Customer. G. EMERGENCY EXPEDITE SERVICE: Within 24 hours of notification from Customer of an Emergency, Seller will ship a replacement FRU. Customer must either provide Seller with a new repair purchase order (a facsimile copy of the purchase order may be transmitted to be followed up by a confirming hard copy in the mail) or have already provided Seller with a blanket purchase order if an out of warranty item (s). H FREIGHT: 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. Repair Services on a Time-and-Material basis: -------------------------------------------- Customer shall ship the FRU to Seller on a prepaid basis and Seller will prepay and invoice 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. K. CONFLICTING TERMS: In the event that the terms contained herein conflict with the terms of the Agreement between Seller and Customer, the terms of the Agreement shall govern. EX-10.12 9 PURCHASE AGREEMENT DATED MARCH 5, 1998 EXHIBIT 10.12 Certain information in this Exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request. EXHIBIT 10.12 METAWAVE COMMUNICATIONS CORPORATION PRODUCT PURCHASE AGREEMENT THIS PRODUCT PURCHASE AGREEMENT (this "Agreement") is made as of this 5th day of March, 1998 (the "Effective Date") between Metawave Communications Corporation, a Delaware corporation ("Seller"), and OJSC St. Petersburg Telecom with offices at Nevsky Prospect 54 - 10, St. Petersburg 191011 Russia, a Russian corporation ("Customer"), a subsidiary of Millicom International Cellular S.A., a Luxembourg corporation ("Millicom"). 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 TO PURCHASE Seller agrees to sell to Customer, and Customer agrees to purchase, the Products identified in Section 4 of Exhibit A to this Agreement in accordance with the specifications and the terms and conditions hereof at the price (net of VAT) set forth in Section 4 of Exhibit A ("Purchase Commitment"). 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 the Purchase Commitment 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, invoice, Change 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: "Acceptance Date" shall mean the date, following the installation of the Products at the Sites in Russia, that the Certification of Conditional Acceptance of the Products occurs. "Acceptance Test Procedure" or "ATP" shall mean the testing procedures and protocols set forth in Exhibit F. "Affiliate" shall mean any partnership, corporation or other entity (i) in which Customer, directly or indirectly, owns a controlling interest or (ii) which owns a controlling interest in Customer. "Certificate of Conditional Acceptance" shall mean [***] Acceptance Test Procedure as set forth in Exhibit F. "Certification of Final Acceptance" shall mean, Customer's certification of the resolution of all Punchlist items, which shall not be unreasonably withheld. [***] 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. "Change Order" shall mean any subsequent change to the Purchase Commitment initiated by either Seller or Customer, including but not limited to, changes in Site configuration, pricing and delivery date, which is mutually agreed to by both parties. "Conditional Acceptance" shall mean [***] Products at the [***] Certification of Conditional Acceptance [***] as set forth in Exhibit F. "Equipment Authorizations" shall mean all telecommunication equipment certifications required for the installation and operation of the Products in Russia by the Russian Ministry of Posts and Telecommunications, the City of Saint Petersburg and other authorities (including any temporary waivers needed to operate the Products prior to the receipt of such certifications). "Final Acceptance" shall [***] Conditional Acceptance, [***] Punchlist [***]. "Products" shall mean the products listed in Exhibit A hereto or any additional products set forth in any amendments to Exhibit A as may be subsequently agreed to from time to time by Seller and Customer. "Punchlist" shall mean the list provided by Customer to Seller upon Conditional Acceptance of a Product which sets forth those mutually agreed items relating to a Product, if any, to be resolved by Seller using best efforts within ten (10) working days of such Conditional Acceptance of a Product. "Site" shall mean each of the Customer cell site locations at which a Product is installed. "Software" shall mean the object-code computer programs, including firmware object code, licensed by Seller for use solely with the Products which enables the Products to perform its functions and processes. "Software License" shall mean the software license for the software to be delivered to Customer for use with the Products as set forth in Exhibit C. "Specifications" shall mean the specifications for the Products set forth in Exhibit B and incorporated herein. 3. SHIPPING AND PURCHASE COMMITMENT a. The Products identified in the Purchase Commitment shall be shipped on or before [***] or on a later date mutually agreed upon by the parties in a Change Order which shall not be later than [***]. At its sole option, Seller may decline to fulfill the Purchase Commitment 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 [***] 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. Products would contravene Section 17(h) of this Agreement; or (iii) Seller's personnel may be exposed to unsafe conditions. b. The Product configurations set forth in Exhibit A hereto are subject to change following the completion of a Site walk by Seller. A change to such configurations may result in a change in the Purchase Commitment or in the delivery date. Any such change shall be agreed to in a written Change Order executed by both parties. c. Promptly following execution of this Agreement, Customer shall give Seller, for planning purposes, a non-binding forecast of its estimated requirements for the Products for the forthcoming [***] and such forecast shall be updated on a quarterly basis. d. Customer may, by written notice, no less than 30 days prior to Seller's shipment of a Product, make a change to a Site destination provided the new Site destination is in Russia. Customer shall provide the address of the new Site destination to Seller in a written Change Order. e. Customer may, by written notice no less than 45 days prior to delivery date agreed upon by the parties pursuant to Section 3(a) hereof, delay the delivery schedule, provided that such delay does not extend beyond June 30th 1998. f. Customer may, by written notice no later than 30 days prior to Seller's shipment of a Product, cancel delivery of a Product. g. In the case of non-delivery of the Products to the Delivery Destination by June 30, 1998, Seller shall return to Customer all funds received from Customer as prepayment for such Products within not more than one hundred and eighty (180) calendar days from the date when the prepayment was made. h. Seller shall pay to Customer (or credit against amounts owed to Seller by Customer) a charge, for every [***] of delay in the Acceptance Date, equal to the rate of [***] of the Purchase Commitment (or that portion thereof) which has been delayed, provided, however, that such charge shall not apply to any delay caused by an act set forth in Section 15 hereof or for failure of Customer to perform the obligations set forth in Section 7 hereof or the conditions and obligations of the sale are not met as set forth in Exhibit A or Exhibit G. Such charges shall not exceed [***] of the Purchase Commitment. 4. SHIPPING; TITLE; RISK OF LOSS a. Subject to Section 3(a) hereof and this Section 4, Seller shall ship all Products CIP (INCOTERMS 1990) to the delivery destination specified in subsection (f) hereof (the "Delivery Destination") and render invoices in accordance with Section 6 (Invoices and Payments). [***] 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. b. Products shall be packed by Seller, at no additional charge to Customer, in containers adequate to prevent damage during normal international shipping, handling and storage. Seller shall adequately insure Products during shipment from Seller's facility to Delivery Destination. c. In connection with the delivery of the Products to the Delivery Destination, Seller shall arrange (for the account of Customer) the following items: freight, insurance transportation documentation and export licenses, if any. Customer shall reimburse Seller at cost for such items, including all shipping costs, insurance costs, customs clearance charges, duties, levies and any other charges that may be incurred by Seller in connection with the sale of the Products and their delivery to the Delivery Destination. Seller shall separately invoice Customer for such charges in accordance with Section 6 hereof. Customer shall directly pay for all freight, customs clearance charges, duties, levies, storage fees and any other charges that may be incurred at and from the Delivery Destination to the Site. d. Unless otherwise specified herein, risk of loss or damage to any Product supplied hereunder shall pass to Customer upon delivery of the Product to the Delivery Destination. e. Title to the Products supplied hereunder shall pass to Customer upon delivery to a carrier at Metawave's factory in Redmond WA, USA (except title to Software shall remain with Seller pursuant to the terms of the Software License attached as Exhibit C hereto). f. "Delivery Destination" of the Products in Russia: Pulkova Customs Pulkovskaya Tamozhnya SVA Avia Terminal Service LIC 057/10 Pilotov St. 9 Office 20, St. Petersburg, Russia 196210 5. WARRANTY a. Seller warrants that for a period of [***] from the date of Certification of Final Acceptance for each Product (the "Warranty Period"), (i) all Products furnished hereunder will conform in all material respects with the requirements of this Agreement and the Specifications, (ii) all Products are free from defects in materials, workmanship and title, (iii) the media on which the Software is contained will be free from defects in material and workmanship under normal use and (iv) the Software will substantially conform to the documentation provided by Seller. The warranties in this Agreement are given in lieu of all other warranties express or implied which are specifically excluded, including, without limitation, implied warranties of merchantibility and fitness for [***] 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. a particular purpose. Such warranty may be extended by increments of ninety (90) days at the mutual agreement of both parties. b. If Customer believes that there is a breach of any warranty set forth herein, Customer shall follow the procedures set forth in Exhibit E hereto (Product Maintenance). The actions taken by Seller under the Product Maintenance Program procedures set forth in Exhibit E shall be the full extent of Seller's liability and Customer's exclusive remedy hereunder. c. This warranty does not apply to any claim which arises out of any one 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; (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 unapproved parts have been used in or with the Product; (v) the Product is not maintained pursuant to Seller maintenance programs or under the supervision of a person who has been certified by Seller through completion of a Seller-sponsored training course to provide such maintenance service; (vi) an event of Force Majeure has occurred; (vii) the failure of third party antennas, lines or interconnection facilities at the Site; and (viii) damage which occurs during shipment of equipment from Customer to Seller. The above limitations include, without limitation, the modification, removal or obliteration of the bar code, serial number or other identifying mark of the equipment through the action or inaction of the Customer. d. If the returned equipment falls outside of the warranty set forth above, Seller may elect to return the equipment unrepaired, repair the equipment at the then current flat rate repair charge or repair the equipment on a time and materials basis. 6. INVOICES AND PAYMENT a. Seller [***] to Customer for [***] of the Purchase Commitment, as set forth in Exhibit A, [***] prior to the [***]. Seller [***] such Product [***] from Customer by [***]. b. [***] Conditional Acceptance, Seller [***] for the [***] of the Purchase Commitment set forth in Exhibit A. The foregoing notwithstanding, all payments must occur on or before June 30, 1998. c. All invoices sent by Seller to Customer shall be computed on the basis of the prices (which are net of VAT) set forth in Exhibit A and Exhibit E and any Change Orders or amendments and shall identify and show separately quantities [***] 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. of Products, total amounts for each item, shipping charges, other charges, applicable sales or use taxes and total amount due. For invoices rendered pursuant to subsection (b) hereof, Section 4(c) and Exhibit E (Product Maintenance Program), Customer shall promptly pay Seller by wire transfer (to Seller's bank account designated in subsection (g) hereof) in U.S. Dollars the amount due within forty- five (45) days of the date of the 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 is late. d. Customer shall be responsible for the payment of all sales, use, VAT and any other taxes applicable to the Purchase Commitment outside the United States provided by the Seller pursuant to this Agreement. When Seller is required by law to collect such taxes, 100% thereof will be added to invoices as separately stated charges and paid by Customer in accordance with this Section 6. e. If Customer disputes any invoices rendered or amount paid, Customer will so notify Seller, and the parties will use their reasonable efforts to resolve such dispute expeditiously. Provided that Customer so notifies Seller of a disputed invoice and there is a good faith basis for such dispute, the time for paying the portion of the invoice in dispute shall be extended by a period of time equal to the time between Seller's receipt of such notice from Customer and the resolution of such dispute. f. If financing to fund Customer's purchase of Products pursuant to this Agreement has been arranged, Customer may utilize such financing in making payments in accordance with the terms of this Agreement and as required under this subsection. The parties agree that the foregoing does not constitute an offer by Seller to make available such financing, or to arrange such financing for Customer and any such financing is subject to agreement of the parties and the negotiation and execution of separate documentation. g. Except as otherwise specified in this Agreement, all payments from one party to the other shall be made by wire transfer into the following accounts: TO SELLER: Metawave Communications Corporation [***] [***] 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. TO CUSTOMER: St. Petersburg Telecom [***] The bank account designated above may be changed by written notice given by such party to the other pursuant to Section 13 (Notices). 7. OBLIGATIONS OF THE PARTIES In addition to performing the other obligations set forth in this Agreement: a. Customer shall procure from appropriate regulatory authorities and other persons all necessary permits and station licenses as may be required to install and operate the cellular network system incorporating the Products; and b. Customer shall assist Seller in obtaining any required type acceptances, permits and licenses (including all Equipment Authorizations) which shall include providing to Seller the assistance of Customer's employees or agents in Russia for such purpose. 8. INFRINGEMENT INDEMNITY a. Seller shall defend Customer against (or, at its option, settle) a claim that the Products supplied hereunder infringe a United States patent or copyright 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 this Agreement, Seller shall indemnify and hold harmless Customer from all payments, which by final judgments in such suits, 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. b. Customer agrees that if the Products become, or in Seller's opinion are likely to become, the subject of such a claim, Customer will permit Seller, at its option and expense, either to procure the right for Customer to continue using such Products [***] 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. or to replace or modify same so that they become non-infringing, and, if neither of the foregoing alternatives is available on terms which are acceptable to Seller, Customer shall at the written request of Seller, return the infringing or potentially infringing Products. Customer shall receive a refund of the prorated undepreciated portion of the price actually paid by Customer to Seller for the returned portion of the Products. The price shall be depreciated over a seven (7) year period. c. Seller shall have no obligation to Customer with respect to any claim of patent or copyright infringement which is based upon or related to (i) adherence to customized specifications, designs or instructions furnished by Customer, (ii) the interconnection or interface of any Products supplied hereunder with base station products or software not approved by Seller (such products approved by Seller are set forth in Exhibit B, Section 2.2.7.), (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 subsequently altered release of the Software that is provided to Customer. 9. INDEPENDENT CONTRACTOR Seller hereby declares and agrees that Seller is engaged in an independent business and will perform its obligations under this Agreement as an independent contractor and not as the agent or employee of Customer. 10. INDEMNIFICATION Seller shall indemnify Customer, its employees and directors, and each of them, against any loss, cost, damage, claim, expense or liability, including but not limited to liability as a result of injury to or death of any person or damage to or loss or destruction of any property arising out of, as a result of, or in connection with the performance of this Agreement and directly caused, in whole or in part, by the acts or omissions, negligent or otherwise, of Seller or a contractor or an agent of Seller or an employee of anyone of them, except where such loss, cost, damage, claim, expense or liability arises from the sole negligence or willful misconduct of Customer 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 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 (i) is given prompt notice of any such claim or suit and (ii) full opportunity to assume control of the defense or settlement. Seller shall not be liable to Customer for indirect or consequential damages, including but not limited to lost profits. 11. TERM AND TERMINATION The term of this Agreement shall be the earlier of (i) performance of all obligations by the parties under this Agreement or (ii) 180 days following Seller's shipment of the Purchase Commitment. If either party is in material default of any of its obligations under this Agreement [***] 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. and such default continues for thirty (30) days after written notice thereof by the party not in default, the nondefaulting party may cancel this Agreement. In addition, a party may cancel this Agreement if a petition in bankruptcy or 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 agreements between the parties pursuant to the terms and conditions of Exhibit E hereto (Product Maintenance Program) and the rights and obligations of the parties under Sections 5, 6, 7, 8, 10, 12, 13, 15, 16, and 17 shall survive the termination of this Agreement. 12. ASSIGNMENT a. Any assignment by either party of this Agreement or any other interest hereunder without the other party's prior written consent, shall be void, except assignment to an Affiliate. b. The Software license granted to Customer in the form of Exhibit C (Software License), may not be sublicensed, assigned or otherwise transferred by Customer without the prior consent of Seller, except to an Affiliate. 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. 13. 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 sent 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 OJSC St. Petersburg Telecom 8700 148th Avenue NE 12 Kantemirovskaya St. Redmond WA 98052 St. Petersburg, 197042, Russia Attn.: VP, Sales Attn.: Technical Director Copy to: General Counsel Copy to: Fax: 425 702 5976 Fax: 7-812-119-5802 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 13 (Notices). 14. COMPLIANCE WITH LAWS Subject to Sections 3(a)(ii) and 7(b), Seller shall comply with all applicable laws, regulations and codes, including the procurement of required type acceptance, permits and licenses for the Products, [***]. [***] 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. 15. FORCE MAJEURE Except for obligations of confidentiality agreed to by the parties, 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, natural disaster, 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) a 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 personnel) except that Customer shall not be liable for delays in the payment of, or failure to pay, moneys due to Seller for Products only as a result of an act set forth in subsection (a). 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. 16. Governing Law; dispute resolution a. This Agreement and the Purchase Commitment shall be construed in accordance with the internal laws of the State of New York, without regard to its choice of law provisions. b. Any and all disputes arising between the parties shall be resolved in the following order: (i) by good faith negotiation between representatives of Customer and Seller who have authority to fully and finally resolve the dispute to commence within ten (10) days of the request of either party; (ii) in the event that the parties have not succeeded in negotiating a resolution of the dispute within ten (10) days after the first meeting, then the dispute will be resolved by nonbinding mediation in a mutually agreed location and to be conducted in English by a mutually agreed upon non-affiliated neutral party having experience with or knowledge in the wireless communications equipment industry to be chosen within twenty (20) days after written notice by either party demanding mediation(the costs therefor to be shared equally); and (iii) if within sixty (60) days of the initial demand for mediation by one of the parties, the dispute cannot be resolved by mediation, then the dispute shall be submitted by the parties to final and binding arbitration under the then current arbitration rules of the International Chamber of Commerce to be conducted in English by three (3) arbitrators having experience with or knowledge in the wireless telecommunications industry to be held in a mutually agreeable location (the costs therefor to be shared equally). 17. GENERAL PROVISIONS a. All information, data and materials provided by either party under this Agreement or prior to the Effective Date of this Agreement shall be subject to the terms and conditions of the Non-Disclosure Agreement to be executed by the parties concurrently with this Agreement and attached hereto as Exhibit D. The parties shall not disclose the financial value of this Agreement to third parties unless the parties mutually agree to disclose such information or such disclosure is required by law. b. Seller and Customer may 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, not to be unreasonably withheld. c. Waiver by either party of any obligation or default by the other party shall not be deemed a waiver by such party of any other obligation or default. d. Any rights of cancellation, termination or other remedies prescribed in this Agreement are cumulative and are not intended to be exclusive of any other remedies to which the injured party may be entitled at law or equity (including but not limited to the remedies of specific performance and cover) in case of any breach or threatened breach by the other party of any provision of this Agreement, unless such other remedies which are not prescribed in this Agreement are specifically limited or excluded by this Agreement. The use of one or more available remedies shall not bar the use of any other remedy for the purpose of enforcing the provisions of this Agreement; provided, however, that a party shall not be entitled to retain the benefit of inconsistent remedies. e. 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 or Seller and Customer shall be construed and enforced accordingly. f. This Agreement, including all Exhibits attached thereto and the Non- Disclosure Agreement shall constitute the entire agreement between Customer and Seller with respect to the subject matter hereof and supersedes all prior discussions, agreements and representations, whether oral or written. g. No provision of this Agreement shall be deemed waived, amended or modified by any party hereto, unless such waiver, amendment or modification is in writing and signed by a duly authorized representative of each of the parties. h. Each party shall comply with all applicable U.S. and foreign 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 any foreign country. i In the event that this Agreement is translated into any other language, the English version hereof shall take precedence and govern. j. All costs incurred for translating this Agreement, including all Exhibits attached hereto and any other documents produced in connection with the execution and performance of this Agreement, into another language shall be borne by Customer. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives. METAWAVE COMMUNICATIONS CORPORATION OJSC ST. PETERSBURG TELECOM By: /s/ Richard Henderson By: /s/ Michael Koeho ------------------------- -------------------------- Name: Richard Henderson Name: Michael Koeho ------------------------- Title: Vice President of Sales and Marketing Title: General Director ------------------------- EXHIBITS ATTACHED: A Product Pricing B Performance Specifications C Software License D Nondisclosure Agreement E Product Maintenance Program F Acceptance Test Procedure G Responsibility Matrix H Project Schedule EXHIBIT A: PRODUCT PRICING TO THE PRODUCT PURCHASE AGREEMENT BETWEEN METAWAVE COMMUNICATIONS CORP. ("SELLER") AND ST. PETERSBURG TELECOM ("CUSTOMER") Metawave Communications Corporation 8700 148th Avenue NE Redmond, WA 98052 USA Tel. 425 702-5600 Fax 425 702-5970 http://www.metawave.com - -------------------------------------------------------------------------------- This document and the information in it is the proprietary and confidential information of Metawave Communications Corporation and is provided by Metawave under an agreement of nondisclosure to the Customer for internal evaluation purposes only and is protected by applicable copyright and trade secret law. This document may only be disclosed or disseminated to those employees of the Customer who have a need to use it for evaluation purposes; no other use or disclosure can be made by Customer without Metawave's consent. (C)1998, METAWAVE COMMUNICATIONS CORPORATION CONFIDENTIAL PROPRIETARY - -------------------------------------------------------------------------------- CONFIDENTIAL AND PROPRIETARY 2/10/98 Product Pricing ================================================================================ PRODUCT PRICING For the purposes of uniformity, references to Agreement or to an Exhibit shall refer to the Product Purchase Agreement to which this document is Exhibit A and to the other Exhibits to that Agreement. All definitions set forth in the Agreement shall apply hereto unless otherwise expressly defined herein. 1. INTRODUCTION This Exhibit A lists the Product pricing as of the Effective Date of the Agreement. All payments for the Products shall be in U.S. dollars and in accordance with the payment terms set forth in the Agreement. SPOTLIGHT RECOMMENDED SPARES KIT
Part Number DESCRIPTION QTY. PRICE PRICE (30W LPA) (50W LPA) - ------------------------------------------------------------------------------------------ 250-0035-XX Tx Driver [***] [***] [***] - ------------------------------------------------------------------------------------------ 250-0042-XX Voice LNA [***] [***] [***] - ------------------------------------------------------------------------------------------ 250-0044-XX LNA Alarm [***] [***] [***] - ------------------------------------------------------------------------------------------ 250-0082-XX LNA Power [***] [***] [***] - ------------------------------------------------------------------------------------------ 250-0083-XX External I/O card [***] [***] [***] - ------------------------------------------------------------------------------------------ 270-0002-XX RX SMU Assy. [***] [***] [***] - ------------------------------------------------------------------------------------------ 270-0026-XX TX SMU Assy. [***] [***] [***] - ------------------------------------------------------------------------------------------ 275-0000-XX 30 Watt LPA module [***] [***] [***] - ------------------------------------------------------------------------------------------ TOTALS: [***] [***] - ------------------------------------------------------------------------------------------
Notes: 1. The SpotLight Recommended Spares Kit list is for SpotLight configurations supporting up to 90 channels. 2. Seller recommends to maintain an inventory of one Recommended Spares Kit for every SpotLight unit installed. 3. SpotLight Recommended Spares Kits are not discountable. 2. SOFTWARE LICENSING FEE The software licensing fees for the most current version of LampLighter and embedded system software (available at the time of purchase of SpotLight) are included in the purchase price of each SpotLight unit purchased. The software licensing fees for subsequent upgrades of LampLighter and embedded system software will depend on the enhancements made to the software and the number and types of new features available with each new software release. 3. MAINTENANCE FEES 3.1 Software Maintenance Program (SMP) Fees The SMP annual fee for LampLighter software and the SpotLight embedded system software is [***] per each RF analog channel support by SpotLight not to exceed [***] per "Host System" per year where a Host System is defined herein as that group of SpotLight units serving cellular RF infrastructure equipment connected to a common Mobile Switching Center. [***] 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. Product Pricing ================================================================================ 3.2 Hardware Maintenance Program (HMP) Fees The HMP annual fee planning price is [***] per each RF analog channel supported by a SpotLight system not to exceed [***] of all SpotLight units covered under the HMP program. Seller and Customer agree to negotiate in good faith the HMP fee prior to the end of the Warranty Period. 4. PURCHASE COMMITMENT PURCHASE COMMITMENT PRICING (USD)
Product Description UNIT PRICE NO. OF EXTENDED LIST UNITS PRICE - ---------------------------------------------------------------------------------------- [***] [***] [***] [***] - ---------------------------------------------------------------------------------------- [***] [***] [***] [***] - ---------------------------------------------------------------------------------------- [***] [***] [***] [***] - ---------------------------------------------------------------------------------------- [***] [***] [***] [***] - ---------------------------------------------------------------------------------------- PURCHASE COMMITMENT PRICE [***] - ----------------------------------------------------------------------------------------
5. GENERAL CONDITIONS FOR THE PURCHASE COMMITMENT: 1. All payments shall be in U.S. dollars. 2. Shipment and delivery of the Products set forth herein is dependent upon obtaining all necessary licenses, permits, governmental approvals and customs clearances for the Products. Seller shall not be held liable for any non-performance due to delays in obtaining any of the above documentation, approvals and clearances, provided that Seller has made a reasonable attempt to provide such documentation. 3. Customer shall provide assistance to Seller in obtaining all necessary licenses, permits, government approvals, customs clearances and any other required documentation required for the importation of and operation of the SpotLight systems. 4. Customer shall be responsible for payment of all shipping and delivery charges, all sales, use, VAT, and any other taxes and all customs and duties payments applicable to the sale of the Products set forth herein. 5. In the event that Seller is unable to export Seller's test equipment out of Russia, Customer agrees to purchase such equipment. 6. All prices set forth in the Agreement and any Exhibits to the Agreement are net of all taxes including but not limited to VAT. 7. Customer shall provide the vehicle, driver, cellular phones and air-time for all drive testing at no charge to Seller. 8. Performance of Seller's obligations under the Agreement is dependent upon obtaining all necessary licenses, permits, government approvals, customs clearances and visas for Seller's Products and or personnel. Seller shall not be held liable for any non-performance due to delays in obtaining any of the above documentation, approvals and clearances, provided that Seller has made a reasonable attempt to provide such documentation. [***] 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.
SPOTLIGHT 2.0 FIELD REPLACEABLE UNIT (FRU) PRICE LIST - ------------------------------------------------------------------------------------------ PART NUMBER PART DESCRIPTION PRICE - ------------------------------------------------------------------------------------------ [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------ [***] [***] [***] - ------------------------------------------------------------------------------------------
CONFIDENTIAL AND PROPRITARY 2/10/98 [***] 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. Product Pricing =================================================== [***] [***] [***] - --------------------------------------------------- [***] [***] [***] - --------------------------------------------------- [***] [***] [***] - --------------------------------------------------- [***] [***] [***] - --------------------------------------------------- [***] [***] [***] - --------------------------------------------------- [***] [***] [***] - ---------------------------------------------------- [***] [***] [***] - ---------------------------------------------------- [***] [***] [***] - ---------------------------------------------------- [***] [***] [***] - ---------------------------------------------------- [***] [***] [***] - ---------------------------------------------------- [***] [***] [***] - ---------------------------------------------------- [***] [***] [***] - ---------------------------------------------------- [***] [***] [***] - ---------------------------------------------------- [***] [***] [***] - ---------------------------------------------------- [***] [***] 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. EXHIBIT B: PERFORMANCE SPECIFICATIONS TO THE PURCHASE AGREEMENT SPOTLIGHT MULTIBEAM ANTENNA PLATFORM 2.0 TRANSMIT/RECEIVE (for use with Motorola HDII Base Station Equipment) Metawave Communications Corporation 8700 148th Avenue NE Redmond, WA 98052 USA Tel. 425 702-5600 Fax 425 702-5970 http://www.metawave.com - -------------------------------------------------------------------------------- This document and the information in it is the proprietary and confidential information of Metawave Communications Corporation and is provided by Metawave under an agreement of nondisclosure to the Customer for internal evaluation purposes only and is protected by applicable copyright and trade secret law. This document may only be disclosed or disseminated to those employees of the Customer who have a need to use it for evaluation purposes; no other use or disclosure can be made by Customer without Metawave's consent. - -------------------------------------------------------------------------------- 01/13/98 SpotLight Multibeam Antenna Platform Performance Specifications ================================================================================ TABLE OF CONTENTS [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
[***] 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. SpotLight Multibeam Antenna Platform Performance Specifications ================================================================================ PERFORMANCE SPECIFICATIONS For purposes of uniformity and brevity, references to Agreement or to an Exhibit shall refer to the Products and Services Purchase Agreement to which this document is Exhibit B and to the other Exhibits to that Agreement. All definitions set forth in the Agreement shall apply hereto. 1. INTRODUCTION The purpose of this document is to describe and specify Metawave's SpotLight 2.0 Multibeam Antenna Platform including: . System operation . Hardware and software elements of the SpotLight equipment . Interconnect between SpotLight equipment and the base station equipment While the specifications contained in this document are based on the most current information available, such information is based on cell site specific data and may not apply to all cell sites contained within a system. The specifications contained in this document may change from cell site to cell site. Metawave reserves the right to make changes to any design, specification, manufacturing techniques and/or product testing procedures. ACRONYMS AND TERMS DEFINITION ----------------------------- C/I Carrier to Interference Ratio FRU Field Replaceable Unit LNA Low Noise Amplifier LPA Linear Power Amplifier RCU Radio Channel Unit (P/O Motorola Cell Equipment) RF Radio Frequency Rx Receive SMAP Spotlight Multibeam Antenna Platform SMU Spectrum Management Unit Tx Transmit TxCD Transmit Combiner Driver SpotLight Multibeam Antenna Platform Performance Specifications ================================================================================ 2. System Description [***] [***] 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. 3. REGULATORY REQUIREMENTS This section specifies requirements which are set primarily by local and/or national governing bodies, consortiums and standards committees. 3.1 US The SpotLight system complies with appropriate US FCC regulations (includes both RF and EMI). Specifically, the SMAP shall comply with the regulations defined in CFR 47 part 22 and part 15. The SpotLight system is UL Listed. EXHIBIT C: SOFTWARE LICENSE TO THE PURCHASE AGREEMENT BETWEEN METAWAVE COMMUNICATIONS CORP. ("SELLER") AND ST. PETERSBURG TELECOM ("CUSTOMER") Metawave Communications Corporation 8700 148th Avenue NE Redmond, WA 98052 USA Tel. 425 702-5600 Fax 425 702-5970 http://www.metawave.com - -------------------------------------------------------------------------------- This document and the information in it is the proprietary and confidential information of Metawave Communications Corporation and is provided by Metawave under an agreement of nondisclosure to the Customer for internal evaluation purposes only and is protected by applicable copyright and trade secret law. This document may only be disclosed or disseminated to those employees of the Customer who have a need to use it for evaluation purposes; no other use or disclosure can be made by Customer without Metawave's consent. 1998, Metawave Communications Corporation CONFIDENTIAL PROPRIETARY - -------------------------------------------------------------------------------- 12/5/97 Table of Contents 1. Scope................................................. 3 2. Licensing Grant....................................... 3 3. Limitations On Use Of Software........................ 3 4. Right To Copy, Protection And Security................ 4 5. Remedies.............................................. 4 6. Term.................................................. 5 7. Termination........................................... 5 8. Right Of The Parties.................................. 5 9. Limitations On Software............................... 6 10. Entire Understanding..................................
Software License ================================================================================ SOFTWARE LICENSE For purposes of uniformity and brevity, references to Agreement or to an Exhibit shall refer to the Purchase Agreement to which this document is Exhibit C and to the other Exhibits to that Agreement. All definitions set forth in the Agreement shall apply hereto. 1. SCOPE Pursuant to the above-identified Agreement, Software will be delivered by Seller to Customer for use with the Products according to the terms of the Agreement and this Exhibit. Customer shall then become a licensee with respect to such Software. 2. LICENSING GRANT 2.1 CONCURRENT WITH EXECUTION OF THE AGREEMENT, 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 IN ACCORDANCE WITH THE TERMS AND CONDITIONS SET FORTH HEREIN. 2.2 CUSTOMER AGREES TO PAY THE LICENSING FEES FOR THE RIGHT TO USE THE SOFTWARE AND FEATURES AND FOR ANY SUPPORT THEREOF AS SET FORTH IN EXHIBIT A (PRICING) OR IN AN AMENDMENT THERETO. THE LICENSING FEE IS A ONE TIME FEE WHICH GRANTS THE CUSTOMER THE RIGHT TO USE THE VERSION OF SOFTWARE LICENSED FOR AS LONG AS THE CUSTOMER OWNS THE PRODUCT. 3. LIMITATIONS ON USE OF SOFTWARE 3.1 WITHOUT THE PRIOR WRITTEN CONSENT OF SELLER, CUSTOMER SHALL ONLY USE THE SOFTWARE IN CONJUNCTION WITH A SINGLE PRODUCT EXISTING WITHIN THE SITE SPECIFIED IN THE PO ("DESIGNATED PRODUCT"). 3.2 CUSTOMER MAY USE THE SOFTWARE TO ROUTINELY OPERATE AND MAINTAIN THE DESIGNATED PRODUCT. FOR PURPOSES OF THIS SUBSECTION, "MAINTAIN" SHALL BE CONSTRUED TO MEAN PERFORMING DIAGNOSTIC TESTING CONSISTENT WITH CUSTOMER'S OBLIGATION TO PROVIDE THE FIRST LEVEL OF MAINTENANCE. UNDER NO CONDITION SHALL THE SOFTWARE BE USED FOR ANY OTHER PURPOSE, INCLUDING, BUT NOT LIMITED TO, SUBSTITUTED PRODUCTS, OR PRODUCTS NOT OWNED BY CUSTOMER, OR PRODUCTS LOCATED AT A LOCATION OTHER THAN THE SITE SPECIFIED IN THE PO. 3.3 THE LICENSE GRANTED TO CUSTOMER IN SECTION 2 IS PERSONAL AND MAY NOT BE TRANSFERRED TO ANOTHER PRODUCT OR SITE WITHOUT THE WRITTEN CONSENT OF SELLER. 3.4 TO THE EXTENT SPECIFIED IN EXHIBIT A OR AN AMENDMENT THERETO AND PROVIDED CUSTOMER HAS PAID ANY APPLICABLE LICENSING FEES, CUSTOMER SHALL HAVE THE RIGHT TO USE FEATURES IN ACCORDANCE WITH THE TERMS OF THIS EXHIBIT. CUSTOMER ACKNOWLEDGES THAT THE SOFTWARE MAY CONTAIN THEREIN SEVERAL ADDITIONAL FEATURES WHICH ARE EACH COVERED BY SEPARATE LICENSING FEES. CUSTOMER AGREES NOT TO USE, AND THE LICENSE SPECIFICALLY DOES NOT EXTEND TO, SUCH ADDITIONAL FEATURES UNLESS THEY ARE SPECIFIED IN EXHIBIT A OR AN AMENDMENT THERETO AND PROVIDED CUSTOMER HAS PAID THE APPLICABLE LICENSING FEES FOR SUCH ADDITIONAL FEATURES. 3.5 THE SOFTWARE IS SUBJECT TO LAWS PROTECTING TRADE SECRETS, KNOW-HOW, CONFIDENTIALITY AND COPYRIGHT. 3.6 CUSTOMER SHALL NOT TRANSLATE, MODIFY, ADAPT, DECOMPILE, DISASSEMBLE, OR REVERSE ENGINEER THE SOFTWARE OR ANY PORTION THEREOF. 3.7 UNLESS OTHERWISE EXPRESSLY AGREED 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). 3.8 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. RIGHT TO COPY, PROTECTION AND SECURITY 4.1 SOFTWARE PROVIDED HEREUNDER MAY BE COPIED (FOR BACK-UP PURPOSES 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 SHALL BE IN EXISTENCE AT ANY ONE TIME WITHOUT THE PRIOR WRITTEN CONSENT OF SELLER, OTHER THAN COPIES RESIDENT IN THE PRODUCTS. 4.2 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. 4.3 CUSTOMER AGREES TO KEEP CONFIDENTIAL, IN ACCORDANCE WITH THE TERMS OF THE AGREEMENT, 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. 4.4 SOFTWARE, INCLUDING FEATURES 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. 4.5 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. 5. REMEDIES Customer acknowledges that violation of the terms of this Exhibit or the Agreement shall cause Seller irreparable harm for which monetary damages may be inadequate, and Customer agrees that Seller may seek temporary or permanent injunctive relief without the need to prove actual harm in order to protect Seller's interests. Software License ================================================================================ 6. TERM Unless otherwise terminated pursuant to Section 7 herein, the term of the license granted pursuant to Section 2 herein shall be co-extensive with the term of any licensing and/or maintenance fees paid by Customer to Seller pursuant to Exhibit A or an Amendment thereto. 7. TERMINATION 7.1 THE LICENSE GRANTED HEREUNDER MAY BE TERMINATED BY CUSTOMER UPON ONE (1) MONTH'S PRIOR WRITTEN NOTICE. 7.2 SELLER MAY TERMINATE THE LICENSE GRANTED HEREUNDER IF CUSTOMER IS IN DEFAULT OF ANY OF THE TERMS AND CONDITIONS OF THE AGREEMENT OR EXHIBITS, AND SUCH TERMINATION SHALL BE EFFECTIVE IF CUSTOMER FAILS TO CORRECT SUCH DEFAULT WITHIN TEN (10) DAYS AFTER WRITTEN NOTICE THEREOF BY SELLER. THE PROVISIONS OF SECTIONS 4 AND 5 HEREIN SHALL SURVIVE TERMINATION OF ANY SUCH LICENSE. 7.3 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. 8. RIGHTS OF THE PARTIES 8.1 NOTHING CONTAINED HEREIN SHALL BE DEEMED TO GRANT, EITHER DIRECTLY OR BY IMPLICATION, ESTOPPEL, OR OTHERWISE, ANY LICENSE UNDER ANY PATENTS OR PATENT APPLICATIONS OF SELLER; EXCEPT THAT CUSTOMER SHALL HAVE A NON-EXCLUSIVE, LICENSE UNDER SELLER'S PATENTS AND PATENT APPLICATIONS TO USE, IN SELLER-SUPPLIED EQUIPMENT ONLY, SOFTWARE SUPPLIED HEREUNDER, WHEN SUCH LICENSE IS IMPLIED OR OTHERWISE ARISES BY OPERATION OF LAW BY VIRTUE OF THE PURCHASE OF SUCH COPIES FROM SELLER. 8.2 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. 8.3 DURING THE TERM OF THE LICENSE GRANTED PURSUANT TO SECTION 2 HEREIN AND FOR A PERIOD OF ONE (1) YEAR AFTER EXPIRATION OR TERMINATION, SELLER, AND WHERE APPLICABLE, ITS LICENSOR(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 AGREEMENT, AND B) WHILE CONDUCTING SUCH INSPECTION, COPY 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. 8.4 CUSTOMER ACKNOWLEDGES THAT THE PROVISIONS OF THIS EXHIBIT C ARE INTENDED TO INURE TO THE BENEFIT OF SELLER AND ITS LICENSORS AND THEIR RESPECTIVE SUCCESSORS IN INTEREST. CUSTOMER ACKNOWLEDGES THAT SELLER OR ITS LICENSORS HAVE THE RIGHT TO ENFORCE THESE PROVISIONS AGAINST CUSTOMER, WHETHER IN SELLER'S OR ITS LICESNSOR'S NAME. Software License ================================================================================ 9. LIMITATIONS ON SOFTWARE Customer understands that errors occur in Software and Seller makes no warranty that the Software will perform without error. Customer agrees that it is Customer's responsibility to select and test the Software to be sure it meets Customer's needs. Customer agrees to accept Software in its current condition. Seller agrees to repair any service effecting Software defect promptly per the warranty terms during the Warranty Period. 10. ENTIRE UNDERSTANDING Notwithstanding anything to the contrary in other agreements, purchase orders or order acknowledgments; the Agreement and this Exhibit C set forth the entire understanding and obligations regarding use of Software, implied or expressed. Software License ================================================================================ [LOGO] NON-DISCLOSURE AGREEMENT ------------------------ This Non-Disclosure Agreement ("NDA"), effective February 4th, 1998 ("Effective Date"), is by and between OJSC St. Petersburg Telecom ("Recipient") having a place of business at Nevsky Prospect 54 - 10, St. Petersburg 191011 Russia, and Metawave Communications Corporation ("Metawave") having a place of business at 8700 148th Ave. NE, Redmond, WA 98052 U.S.A. 1. The purpose of this NDA is to allow each party to obtain from the other certain technical and business information related to wireless systems under terms that will protect the confidential and proprietary nature of such information. 2. As used in this NDA, "Confidential Information" shall mean any and all technical or business information furnished, in whatever form or medium, or disclosed by one party to the other including, but not limited to, product/service specifications, prototypes, computer programs, models, drawings, marketing plans, financial data, and personnel statistics, which are marked as confidential or proprietary by the disclosing party, or, for information which is orally disclosed, the disclosing party indicates to the other at the time of disclosure the confidential or proprietary nature of the information and confirms in writing to the receiving party within thirty (30) days after such disclosure that such information is confidential. Any technical or business information of a third person furnished or disclosed by one party to the other shall be deemed "Confidential Information" of the disclosing party unless otherwise specifically indicated in writing to the contrary. 3. Each party agrees to hold such Confidential Information in confidence for a period of three (3) years from the date of receipt of same unless otherwise agreed to in writing by the disclosing party, and that during such period each party will use such information solely for the purposes of this NDA unless otherwise allowed in this NDA or by written permission of the disclosing party. Each party agrees not to copy such Confidential Information of the other unless specifically authorized. Each party agrees that it shall not make disclosure of any such Confidential Information to anyone (including subcontractors) except employees of such party to whom disclosure is necessary for the purposes set forth above. Each party shall appropriately notify such employee that the disclosure is made in confidence and shall be kept in confidence in accordance to this NDA. Each party also agrees that it will make requests for Confidential Information of the other only if necessary to accomplish the purposes set forth in this NDA. The receiving party agrees that Confidential Information shall be handled with the same degree of care which the receiving party applies to its own Confidential Information but in no event less than reasonable care. 4. Each party agrees that in the event permission is granted by the other to copy such Confidential Information, each such copy shall contain and state the same confidential or proprietary notices or legends, if any, which appear on the original. Nothing herein shall be construed as granting to either party any right or license under any copyrights, inventions, or patents now or hereafter owned or controlled by the other party. 1 Software License ================================================================================ 5. Upon termination of this NDA for any reason or upon request of the disclosing party, all Confidential Information, together with copies of same as may be authorized herein, shall be returned to the disclosing party or certified destroyed by the receiving party upon the request of the disclosing party. The requirements of use and confidentiality set forth herein shall survive the termination of this NDA. 6. The obligations imposed in this NDA shall not apply to any information that: (a) is already in the possession of or is independently developed by the receiving party; or (b) is or becomes publicly available through no fault of the receiving party; or (c) is obtained by the receiving party from a third person who is under no obligation of confidence to the party whose Confidential Information is disclosed; or (d) is disclosed without restriction by the disclosing party. 7. Except for the obligations of use and confidentiality imposed in this NDA no obligation of any kind is assumed or implied against either party by virtue of the party's meetings or conversations with respect to whatever Confidential Information is exchanged. Each party further acknowledges that this NDA and any meetings and communications of the parties relating to the same subject matter shall not : (a) constitute an offer, request, or research, development or other contract with the other to work; engage in any (b) constitute an offer, request or contract involving a buyer-seller relationship, venture, teaming or partnership relationship between the parties; and (c) impair or restrict the parties' products or services, now or those offered by the NDA. right to make, procure or market in the future, which may be disclosing party, or which any competitive with are the subject matter of this The parties expressly agree that any money, expenses or losses expended or incurred by each party in preparation for, or as a result of this NDA or the parties meetings and communications, is at each party's sole cost and expense provided, however, that notwithstanding anything to the contrary in the NDA, neither party's rights shall be limited in law or equity to enforce the confidentiality and use obligations imposed under this NDA. 8. Without prior consent of the other party, neither party shall disclose to any third person the existence or purpose of this NDA, the terms or conditions hereof, the fact that discussions are taking place or that Confidential Information is being shared, except as may be required by law and then only after first notifying the other party of such required disclosure. The parties also agree that neither party shall use any trade name, service mark, or trademark of the other or refer to the other party in any promotional activity or material without first obtaining the prior written consent of the other party. 9. Neither this NDA nor any rights hereunder in whole or in part shall be assignable or otherwise transferable by either party and the obligations contained in this NDA Software License ================================================================================ shall survive and continue after termination of this NDA, provided, that either party may assign or transfer this NDA and rights hereunder to any current or future affiliates or successor company if such assignee agrees in writing to the terms and conditions herein. 10. The foregoing shall apply to any subsequent meetings or any communications between the parties relating to the same subject matter unless this NDA is modified in writing and such writing is signed by each party. 11. This NDA shall be governed and construed by the laws of the State of Delaware. 12. Each party shall comply with all applicable U.S. and foreign 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 any foreign country. 13. Any notice to be given under this NDA by either party to the other, shall be in writing and shall be deemed given when sent by Certified mail. If either party changes its address during the term of this NDA, it shall so advise the other party in writing as provided in this NDA and any notice thereafter required to be given shall be sent by Certified mail to such new addresses. 14. In the event that this NDA is translated into any other language, the English version hereof shall take precedence and govern. 15. This NDA, together with any and all exhibits incorporated herein, constitutes the entire NDA between the parties with respect to the subject matter of this NDA. No provision of this NDA shall be deemed waived, amended, or modified by either party, unless such waiver, amendment or modification is made in writing and signed by both parties. This NDA supersedes all previous NDAs between Metawave and Recipient relating to the subject matter in this NDA. IN WITNESS WHEREOF, the parties have caused their duly authorized representatives to sign this NDA as of the Effective Date. METAWAVE COMMUNICATIONS CORP. OJSC ST. PETERSBURG TELECOM Signature: _______________________ Signature: ________________________ Print Name: Kathy Surace-Smith Print Name: _______________________ Title: General Counsel Title: ____________________________ EXHIBIT E: PRODUCT MAINTENANCE PROGRAM TO THE PURCHASE AGREEMENT BETWEEN METAWAVE COMMUNICATIONS CORP. ("SELLER") AND ST. PETERSBURG TELECOM ("CUSTOMER") Metawave Communications Corporation 8700 148/th/ Avenue NE Redmond, WA 98052 USA Tel. 425 702-5600 Fax 425 702-5970 http://www.metawave.com - -------------------------------------------------------------------------------- This document and the information in it is the proprietary and confidential information of Metawave Communications Corporation and is provided by Metawave under an agreement of nondisclosure to the Customer for internal evaluation purposes only and is protected by applicable copyright and trade secret law. This document may only be disclosed or disseminated to those employees of the Customer who have a need to use it for evaluation purposes; no other use or disclosure can be made by Customer without Metawave's consent. (C)1998, METAWAVE COMMUNICATIONS CORPORATION CONFIDENTIAL PROPRIETARY - -------------------------------------------------------------------------------- Product Maintenance Program ================================================================================ Product Maintenance Program TABLE OF CONTENTS 1. Introduction......................................................... 3 2. Hardware Maintenance Program......................................... 3 3. Software Maintenance Program......................................... 4
ANNEX A A. Metawave Customer Support Center................................... 7 B. Return Material Authorization (RMA)................................ 7 C. Return Address..................................................... 7 D. Packing Instructions............................................... 7 E. Purchase Orders.................................................... 7 F. Pricing and Invoicing.............................................. 8 G. Emergency Expedite Service......................................... 8 H. Loaner and Pre-exchange Orders..................................... 9 I. Freight............................................................ 9 J. Duties and Taxes................................................... 9 K. Non-compliance..................................................... 9 L. Conflicting Terms.................................................. 9
Product Maintenance Program ================================================================================ METAWAVE COMMUNICATIONS CORPORATION PRODUCT MAINTENANCE PROGRAM 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 The following details Seller's Hardware Maintenance Program ("HMP"). For each Product purchased, the HMP is included at no charge during the initial period described in Section 2.1.1. 2.1 Term 2.1.1 DURING THE WARRANTY PERIOD (AS DEFINED IN SECTION 5 OF THE AGREEMENT) THE HMP IS INCLUDED IN THE PURCHASE PRICE OF EACH SPOTLIGHT UNIT PURCHASED. THEREAFTER, HARDWARE REPAIR SERVICES WILL BE PROVIDED BY SELLER TO CUSTOMER ON A TIME AND MATERIAL BASIS FOR A PERIOD OF [***] FROM THE DATE OF PRODUCT PURCHASE, UNLESS CUSTOMER ELECTS TO PURCHASE AN HMP AT THE FEES SET FORTH IN EXHIBIT A. SUCH HMP CAN ONLY BE PURCHASED DURING THE TERM OF THIS AGREEMENT. 2.2 Seller shall: 2.2.1 IN THE EVENT A DEFECT OCCURS, EITHER (I) REPAIR THE DEFECTIVE HARDWARE OR (II) REPLACE SAID HARDWARE WITH NEW OR REFURBISHED PRODUCT. ANY ITEM REPLACED WILL BE DEEMED TO BE ON AN EXCHANGE BASIS, AND ANY ITEM RETAINED BY SELLER THROUGH REPLACEMENT WILL 2.2.2 [***] OF RECEIPT OF A DEFECTIVE FIELD REPLACEABLE UNIT (FRU) FROM CUSTOMER, SHIP THE REPLACEMENT FRU TO CUSTOMER, OR WITHIN [***] OF RECEIPT OF A DEFECTIVE FRU FROM CUSTOMER, SHIP A REPAIRED FRU TO CUSTOMER. EQUIPMENT NOT MANUFACTURED BY SELLER WILL BE REPAIRED OR REPLACED AS PROMPTLY AS ARRANGEMENTS WITH THE MANUFACTURERS OR VENDORS THEREOF PERMIT. 2.2.3 ISSUE A RETURN MATERIAL AUTHORIZATION ("RMA") NUMBER TO CUSTOMER PRIOR TO CUSTOMER'S RETURN OF THE DEFECTIVE BOARD. 2.2.4 PAY ALL TRANSPORTATION CHARGES FOR THE RETURN OF THE REPAIRED OR REPLACEMENT FRU TO CUSTOMER. 2.2.5 PROVIDE TECHNICAL SUPPORT DURING BUSINESS HOURS, 8:00 A.M. TO 5:00 P.M. PACIFIC STANDARD TIME, MONDAY THROUGH FRIDAY AND PROVIDE PAGER SERVICE AFTER HOURS, WEEKENDS AND HOLIDAYS WITH A RESPONSE TIME OF WITHIN ONE HOUR. 2.3 Customer shall: 2.3.1 CONTACT SELLER VIA TELEPHONE, EMAIL OR FAX TO OBTAIN AN RMA PRIOR TO RETURNING A DEFECTIVE FRU. [***] 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. Product Maintenance Program ================================================================================ 2.3.2 PACKAGE FIELD REPLACEABLE UNIT IN A MANNER TO PREVENT DAMAGE DURING SHIPMENT. IDENTIFY RMA NUMBER ON OUTSIDE OF PACKAGE. 2.3.3 PACKAGE THE EQUIPMENT BEING RETURNED IN A MANNER NO LESS PROTECTIVE TO SUCH EQUIPMENT THAN THE MANNER IN WHICH EQUIPMENT IS PACKAGED BY SELLER. 2.3.4 SHIP THE DEFECTIVE FRU TO AN AUTHORIZED SELLER SERVICE CENTER DESIGNATED BY SELLER. 2.3.5 PAY ALL COSTS OF TRANSPORTATION FOR SENDING THE DEFECTIVE FRU TO SELLER. 2.3.6 IF SELLER HAS SHIPPED A FRU IN ADVANCE OF THE CUSTOMER RETURNING THE DEFECTIVE FRU TO SELLER, CUSTOMER AGREES TO INSURE AND PROVIDE CONFIRMATION OF SHIPMENT OF SUCH DEFECTIVE FRU, FREIGHT PREPAID, TO SELLER AT THE AFOREMENTIONED ADDRESS WITHIN 5 DAYS OF SHIPMENT FROM SELLER OF THE FRU. CUSTOMER AGREES TO PROMPTLY PAY SELLER'S INVOICE FOR THE THEN CURRENT PRICE OF THE FRU SHIPPED TO CUSTOMER IF THE DEFECTIVE FRU IS NOT RETURNED WITHIN THE SPECIFIED 5 DAY PERIOD. 2.3.7 BE RESPONSIBLE FOR THE INITIAL IDENTIFICATION OF PRODUCT PROBLEMS DOWN TO THE FRU LEVEL AND FOR THE REMOVAL, REPLACEMENT AND SHIPMENT OF THE MALFUNCTIONING FRU, PACKED IN A MANNER TO PREVENT DAMAGE TO 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 before dispatch of personnel. 2.5 Service Limitations 2.5.1 SELLER SHALL HAVE NO RESPONSIBILITY TO REPAIR OR REPLACE BOARDS WHICH HAVE BEEN REPAIRED IN AN UNAUTHORIZED MANNER OR WHICH HAVE HAD THE BARCODE, 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 WHICH HAVE NO DEFECTS OR FAILURES, SELLER MAY INVOICE CUSTOMER AT THE THEN CURRENT FEE FOR THE SERVICES RENDERED DURING THE EVALUATION PROCESS PROVIDED THAT SELLER'S TECHNICAL SUPPORT HAS NOT INSTRUCTED CUSTOMER IN WRITING THAT THE FRU BE REPLACED. 3. SOFTWARE MAINTENANCE PROGRAM The following details Seller's Software Maintenance Program ("SMP"). Annual SMP fees are shown on Exhibit A or an Amendment thereto. SMP is included in the Purchase Price of each SpotLight unit purchased for the Initial Term (Section 3.2.1 describes the Initial Term). 3.1 Definitions Terms which are capitalized have the meanings set forth below or, absent definition herein, as contained in the Purchase Agreement. Certification the approval by Seller that Customer's current Software is in acceptable condition for coverage under SMP. 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. Product Maintenance Program ================================================================================ Firmware Software in object-code form that is implanted/imbedded in hardware. 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. Rehosting the integration of Special Project (SP) Software into Customer's current release of Software. Software the object-code computer programs, licensed by Seller for use solely in conjunction with Seller's Products, which enables a Seller Product to perform its functions in accordance with the specifications set forth in Exhibit B (Performance Specifications). Software includes Major Releases, Point Releases and, if applicable, Features made available to Customer under SMP. Software Patch Software that corrects or removes a reproducible anomaly or "bug" in an existing Major Release. SP Software a Software Feature developed by Seller pursuant to a specific Customer request or Customer funding of accelerated development of a planned Software Feature. 3.2 Term 3.2.1 THE INITIAL TERM OF SMP IS [***] FROM THE DATE OF EXECUTION OF THE CERTIFICATE OF FINAL ACCEPTANCE FOR EACH PRODUCT ("INITIAL TERM"). THEREAFTER, SMP IS PROVIDED BY SELLER TO CUSTOMER PURSUANT TO THE TERMS HEREIN AND IS INCLUDED IN THE SMP ANNUAL FEE SET FORTH IN EXHIBIT A FOR A PERIOD OF [***]. 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 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 AVAILABLE AT AN ADDITIONAL CHARGE. OPTIONAL FEATURES SHALL BE CARRIED FORWARD FROM RELEASE TO RELEASE AND NEW RELEASES MAY INCLUDE FIXES AND ENHANCEMENTS TO OPTIONAL FEATURES. 3.3.3 CERTAIN OPTIONAL FEATURES SHALL BE SOLD ON A PER-PLATFORM BASIS AND MAY HAVE PRICE LEVELS THAT REFLECT PLATFORM CAPACITY. [***] 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. Product Maintenance Program ================================================================================ 3.3.4 SELLER SHALL ALSO, AT SELLER'S THEN CURRENT PRICE, REHOST CUSTOMER'S SP SOFTWARE INTO CUSTOMER'S CURRENT RELEASE OF SOFTWARE. SUCH REHOSTED SP SOFTWARE IS THEREAFTER PART OF CUSTOMER'S SOFTWARE FOR THAT RELEASE. 3.3.5 CUSTOMER WILL BE RESPONSIBLE FOR THE FIRST LEVEL OF MAINTENANCE, INCLUDING BUT NOT LIMITED TO 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. 3.3.6 SELLER SHALL PROVIDE, AT A SELLER AUTHORIZED REPAIR DEPOT, SUCH SERVICE AS IS NECESSARY TO CORRECT SOFTWARE DEFECTS IN ACCORDANCE WITH THE APPLICABLE DOCUMENTATION PROVIDED BY SELLER AS SOON AS IS POSSIBLE AND ON A PRIORITY BASIS ACCORDING TO THE SEVERITY OF THE PROBLEM. 3.3.7 SELLER SHALL PROVIDE TECHNICAL SUPPORT 24-HOUR A DAY, 7 DAYS A WEEK. ADDITIONALLY, SELLER SHALL PROVIDE TELEPHONE ASSISTANCE AND GUIDANCE DURING THE INSTALLATION OF NEW SOFTWARE. 3.3.8 SELLER SHALL SUPPORT THE CURRENT MAJOR RELEASE AS WELL AS THE TWO IMMEDIATELY PRECEDING MAJOR RELEASES. 3.3.9 SELLER SHALL HAVE NO OBLIGATION TO SUPPORT ANY SOFTWARE WHICH IS OLDER THAN THE TWO IMMEDIATELY PRECEDING MAJOR RELEASES. HOWEVER, ANY SUPPORT PROVIDED BY SELLER FOR SOFTWARE OLDER THAN THE IMMEDIATELY PRECEDING MAJOR RELEASE SHALL BE ON A TIME AND MATERIAL BASIS. AN OPEN PURCHASE ORDER WILL BE REQUIRED BEFORE ANY SUCH SERVICES ARE RENDERED. Product Maintenance Program ================================================================================ ANNEX A: PROCEDURES FOR METAWAVE'S HARDWARE MAINTENANCE PROGRAM A. METAWAVE'S CUSTOMER SUPPORT CENTER Services Center: ( 8:00 a.m.- 5:00 p.m. PST, Monday through Friday) after hours, weekends, and holidays via pager. Customer Support is available 365 days per year. Domestic phone: 888-642-2455 International phone: 425-702-6550 B. RETURN MATERIAL AUTHORIZATION (RMA): The Customer must contact the Customer Support Center 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 cost. The RMA number must be 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 8700 148/th/ Avenue NE Redmond, WA 98052 USA D. PACKING INSTRUCTIONS: Customer must pack all returned equipment (including loaners and pre-exchange equipment) in a manner no less protective to such equipment than the manner in which Seller packages similar equipment. E. Purchase Orders: Purchase orders are required in the following instances: 1. When the Customer requests Emergency Expedite Service for out of warranty equipment. 2. When the Customer returns out of warranty equipment for repair. 3. When Seller sends loaner or pre-exchange equipment to the Customer prior to the defective board being received at Seller and the equipment is out of warranty. Note: The purchase order will only be invoiced against if the Customer FRU to be exchanged for the loaner or the pre-exchange equipment is not returned Product Maintenance Program ================================================================================ within 5 days (19 days for international Customers) after the date Seller has shipped the repaired or replacement FRUs to Customer. Under these circumstances, a facsimile copy of the purchase order may be transmitted to be followed up by a confirming hard copy in the mail. The terms and conditions of the Purchase Agreement between Seller and the Customer shall prevail notwithstanding any variance with the terms and conditions of any purchase orders submitted by Customer. F. PRICING AND INVOICING: In Warranty Emergency Expedite Request: --------------------------------------- Seller does not charge an Emergency Expedite Fee for equipment covered under original warranty or covered by the Hardware Maintenance Program. Out of Warranty Emergency Expedite Request: ------------------------------------------ Seller charges an Emergency Expedite Fee of [***] per FRU (plus the standard Out of Warranty Repair rates shown below) plus freight for emergency service for equipment not covered under HMP. In Warranty Repair: ------------------ Seller does not charge for the repair or return shipment of equipment that is covered under original warranty. Out of Warranty Repair: ---------------------- All out of warranty repairs will be calculated on a time and materials basis at [***]. If the estimated cost to repair the defective FRU exceeds 50% of the price of a new unit, Seller will call Customer to inform them prior to repairing defective unit. Testing Fees: ------------ Seller charges a testing fee [***] per FRU when the Customer requests loaner Seller equipment in support of out of warranty equipment. Invoices: -------- Invoices are payable in accordance with the terms of the Purchase Agreement between Seller and Customer. G. EMERGENCY EXPEDITE SERVICE: Within 24 hours of notification from Customer of an Emergency, Seller will ship a replacement Field Replaceable Unit. Customer must either provide Seller with a new Purchase order (a facsimile copy of the purchase order may be transmitted to be followed up by a confirming hard copy in the mail) or have already provided Seller with a blanket Purchase Order if an out of warranty item (s). An "Emergency" will constitute at least one sector losing more than 50% of its nominal capacity. Emergency service Monday through Friday 8:00 a.m. to 5:00 p.m. PST will be handled by the Seller's Customer Support Center who can be reached at 888-642-2455 domestically or 425-702-6550 internationally. [***] 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. Product Maintenance Program ================================================================================ After Hours, weekends and holidays via pager with a response-time of within one hour. H. LOANER AND PRE-EXCHANGE ORDERS: Customer may request loaner equipment that may be used while Customer's equipment is being repaired. Loaners are Supplied at no cost to the Customer when equipment is covered by warranty. Seller charges a testing fee when the Customer requests loaner Seller equipment in Support of out of warranty equipment. Customer must ship defective equipment within 30 days of the date of Seller's shipment of loaner equipment to Customer and ship loaner equipment within 30 days of the date of Seller's shipment of the repaired equipment to Customer. I. FREIGHT: In Warranty: ------------ Customer shall ship the equipment to Seller on a prepaid basis and Seller will return the equipment to the Customer on a prepaid basis, not billing Customer for freight. Out of Warranty: --------------- Customer shall ship the FRU to Seller for repair on a prepaid basis and Seller will prepay and invoice the Customer for return freight. J. DUTIES AND TAXES: All duties, customs clearance fees and any and all taxes will be the responsibility of the Customer. K. NON-COMPLIANCE: Failure to comply with any of the procedures may result in delay or non-delivery of the equipment. L. CONFLICTING TERMS: In the event that the terms contained herein conflict with the terms of the Purchase Agreement between Seller and Customer, the terms of the Purchase Agreement shall govern. EXHIBIT F: ACCEPTANCE TEST PROCEDURE (ATP) (for the SpotLight Multibeam Antenna Platform) TO THE AGREEMENT BETWEEN METAWAVE COMMUNICATIONS CORP. ("SELLER") AND ST. PETERSBURG TELECOM ("CUSTOMER") Metawave Communications Corporation 8700 148th Avenue NE Redmond, WA 98052 USA Tel. 425 702-5600 Fax 425 702-5970 http://www.metawave.com - -------------------------------------------------------------------------------- This document and the information in it is the proprietary and confidential information of Metawave Communications Corporation and is provided by Metawave under an agreement of nondisclosure to the Customer for internal evaluation purposes only and is protected by applicable copyright and trade secret law. This document may only be disclosed or disseminated to those employees of the Customer who have a need to use it for evaluation purposes; no other use or disclosure can be made by Customer without Metawave's consent. (C)1998, METAWAVE COMMUNICATIONS CORPORATION - -------------------------------------------------------------------------------- SpotLight Multibeam Antenna Platform Acceptance Test Procedure ================================================================================ TABLE OF CONTENTS 1. Introduction............................................................. 3 2. Acceptance Tests......................................................... 3 2.1. LampLighter Installation Test....................................... 4 2.2. System Configuration Test........................................... 5 2.3. Transmit Effective Radiated Power (Tx ERP) Test..................... 6 2.4. Receive Sensitivity Test............................................ 8 2.5. Alarm Functionality Test............................................ 9 2.6. Call Processing Test................................................ 11
SpotLight Multibeam Antenna Platform Acceptance Test Procedure ================================================================================ SPOTLIGHT ACCEPTANCE TEST PROCEDURE [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] 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. Spotlight Multibeam Antenna Platform Acceptance Test Procedure ================================================================================ [***] [***] 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. EXHIBIT G: RESPONSIBILITY MATRIX TO THE PURCHASE AGREEMENT BETWEEN METAWAVE COMMUNICATIONS CORP. ("SELLER") AND ST. PETERSBURG TELECOM ("CUSTOMER") Metawave Communications Corporation 8700 148th Avenue NE Redmond, WA 98052 USA Tel. 425 702-5600 Fax 425 702-5970 http://www.metawave.com - -------------------------------------------------------------------------------- This document and the information in it is the proprietary and confidential information of Metawave Communications Corporation and is provided by Metawave under an agreement of nondisclosure to the Customer for internal evaluation purposes only and is protected by applicable copyright and trade secret law. This document may only be disclosed or disseminated to those employees of the Customer who have a need to use it for evaluation purposes; no other use or disclosure can be made by Customer without Metawave's consent. 1998, Metawave Communications Corporation (C) 1998, METAWAVE COMMUNICATIONS CORPORATION CONFIDENTIAL PROPRIETARY - -------------------------------------------------------------------------------- [***] [***] 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. EXHIBIT H: PROJECT SCHEDULE TO THE PURCHASE AGREEMENT BETWEEN METAWAVE COMMUNICATIONS CORP. ("SELLER") AND ST. PETERSBURG TELECOM ("CUSTOMER") Metawave Communications Corporation 8700 148th Avenue NE Redmond, WA 98052 USA Tel. 425 702-5600 Fax 425 702-5970 http://www.metawave.com - -------------------------------------------------------------------------------- This document and the information in it is the proprietary and confidential information of Metawave Communications Corporation and is provided by Metawave under an agreement of nondisclosure to the Customer for internal evaluation purposes only and is protected by applicable copyright and trade secret law. This document may only be disclosed or disseminated to those employees of the Customer who have a need to use it for evaluation purposes; no other use or disclosure can be made by Customer without Metawave's consent. 1997, Metawave Communications Corporation (C)1997, METAWAVE COMMUNICATIONS CORPORATION CONFIDENTIAL PROPRIETARY - -------------------------------------------------------------------------------- Product Maintenance Program ================================================================================ PROJECT SCHEDULE METAWAVE SHALL USE REASONABLE EFFORTS TO ACCELERATE THE ATTACHED SCHEDULE. PERFORMANCE OF THE ATTACHED SCHEDULE IS SUBJECT TO THE TERMS AND CONDITIONS OF THE AGREEMENT BETWEEN THE PARTIES. [No Schedule Attached] EX-10.16 10 MANUFACTURING AGREEMENT EXHIBIT 10.16 Certain information in this Exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request. EXHIBIT 10.16 METAWAVE COMMUNICATIONS CORPORATION MANUFACTURING AGREEMENT This agreement is made this 3rd day of September, 1998 between Metawave Communications Corporation, a Delaware corporation ("Customer") and Powerwave Technologies, Inc., a Delaware corporation ("Manufacturer"). RECITALS Customer desires to have certain products manufactured by Manufacturer for sale to Customer. Manufacturer has the capability of manufacturing such products and desires to do so for sale to Customer. AGREEMENT In consideration of the foregoing and the agreements contained herein, the parties agree as follows: 1. DEFINITIONS. (a) "Confidential Information" of a party shall mean any information disclosed by that party to the other pursuant to this Agreement which is in written, graphic, machine readable or other tangible form and is marked "Confidential," "Proprietary" or in some other manner to indicate its confidential nature. Confidential Information may also include oral information disclosed by one party to the other pursuant to this Agreement, provided that such information is designated as confidential at the time of disclosure and is reduced to writing by the disclosing party within a reasonable time (not to exceed thirty (30) days) after its oral disclosure, and such writing is marked in a manner to indicate its confidential nature and delivered to the receiving party. Notwithstanding any failure to so identify it, however, all Specifications shall be Confidential Information of Customer. (b) "Inventory" shall mean raw materials and supplies necessary for the manufacture of Products pursuant to this Agreement. (c) "Long-Lead Inventory" shall mean those items of Inventory identified in writing by Manufacturer to Customer prior to beginning manufacture of any particular type of Product that have a lead time from Manufacturer's supplier longer than ninety (90) days. (d) "Products" shall mean the products manufactured by Manufacturer in accordance with the Specifications pursuant to this Agreement, as set forth on Exhibit A attached hereto. (e) "Intellectual Property" shall mean (i) all rights held by Customer in its Confidential Information, including, but not limited to, patents, copyrights, authors' rights, trademarks, tradenames, know-how and trade secrets, irrespective of whether such rights arise under U.S. or international intellectual property, unfair competition or trade secret laws, and (ii) all rights held by Manufacturer in the Products and in its Confidential Information, including, but not limited to, patents, copyrights, authors' rights, trademarks, tradenames, know-how and trade secrets, irrespective of whether such rights arise under U.S. or international intellectual property, unfair competition or trade secret laws. (f) "Purchase Order" shall mean a Customer Purchase Order in the form provided by the Customer or in a form mutually agreed to by the parties. (g) "Specifications" shall mean the specifications for the Products as provided by Customer and accepted by Manufacturer which are set forth in Exhibit B, and may be revised from time to time upon mutual written agreement of the parties. 2. MANUFACTURE AND SUPPLY OF PRODUCTS. (a) SALE AND PURCHASE. Manufacturer agrees to sell to Customer such quantities of the Products meeting the Specifications as Customer may order in accordance herewith. Subject to the provisions of section 10 hereof, so long as this Agreement remains in effect, Manufacturer agrees to satisfy 100% of Customer's requirements for the Products under this Agreement. Manufacturer will be the sole supplier of Products to Customer which Customer purchases for resale in its antenna systems to its cellular network operator customers (hereinafter referred to as "Network Operators"), provided that Manufacturer offers the Product(s) for sale. The foregoing does not preclude (i) Customer from designing and selling to Network Operators antenna systems which use Products of another manufacturer if Manufacturer does not offer such Product for sale, and (ii) Network Operators from purchasing a Product directly from Manufacturer or from purchasing or utilizing the product of another manufacturer for use with Customer's antenna system. (b) AGREEMENT TO MANUFACTURE. Subject to section 2(a) of this Agreement, pursuant to Purchase Orders or changes to Purchase Orders issued by Customer and accepted by Manufacturer, Manufacturer agrees to procure Inventory, components and other supplies and to manufacture, test, assemble, and deliver the Products pursuant to the Specifications for each such Product and to deliver such Products to a location designated by Customer.. Manufacturer will not place its name or any other marking not approved by Customer anywhere on the exterior of the Products or their respective packaging material, except markings, if any, which are required by law. (c) FORECASTS. Manufacturer shall supply the quantities of Product meeting the Specifications on the Delivery Dates requested by Customer, provided the Delivery Dates conform to the Product lead times and Customer forecasts set forth herein. On the tenth (10th) day of each month, Customer shall provide Manufacturer with a rolling forecast in writing (the "Forecast") of Customer's estimated aggregate purchase requirements of Product for the subsequent twelve- month (12) period. Subject to section 2(d) hereof, the initial six (6) weeks of the Forecast shall be binding. Subject to these binding Forecast requirements, if the Forecast for any period is less than the previous Forecast supplied for the same period, the difference will be -2- considered canceled. Manufacturer shall use its best efforts to supply the number of Products set forth in the Forecast. (d) PURCHASE ORDERS. All orders for Product shall be submitted to Manufacturer in writing by mail or facsimile to the address set forth on the signature page to this Agreement, and shall conform to the binding Forecasts in accordance with Section 2(c). Customer shall submit such Purchase Orders to Manufacturer at least 30 business days prior to the date of requested delivery ("Delivery Date"), or such longer period of time as mutually agreed upon by the parties for Products incorporating Long-Lead Inventory. (e) ORDER FORECAST VARIATIONS. For each Purchase Order, Customer shall be entitled, without penalty, to: (i) upon forty-five (45) or more days' prior notice, reschedule the scheduled delivery date for one hundred percent (100%) of the quantity of Product ordered pursuant to such Purchase Order and/or (ii) upon more than forty-five (45) days prior notice, increase the quantity of Product ordered by an amount equal to an additional one hundred percent (100%) of the quantity of Product ordered. Such rescheduled Purchase Orders shall be submitted in writing to Manufacturer, by mail or facsimile, and shall supersede prior Purchase Orders to the extent such prior Purchase Orders conflict with the rescheduled Purchase Order. (f) ACCEPTANCE OR REJECTION OF PURCHASE ORDERS. Purchase Orders that conform to binding Forecasts delivered to Manufacturer for the relevant period shall be deemed accepted by Manufacturer upon receipt. All other Purchase Orders not rejected by Manufacturer within ten (10) working days of receipt by Manufacturer shall be deemed accepted by Manufacturer effective upon receipt of such Purchase Order. (g) ENGINEERING CHANGES. Customer may request at any time, with at least thirty (30) days' written notice, that Manufacturer incorporate an engineering change into the Product. Such request will include a description of the proposed change sufficient to permit Manufacturer to evaluate its feasibility. Manufacturer's evaluation shall be in writing and shall state the impact on delivery schedule and expected cost. Manufacturer will not be obligated to proceed with the engineering change until the parties have agreed in good faith on the changes to the Specifications, Delivery Dates and Pricing and upon the costs to be paid by Customer, including reassembly, retooling or cost of Inventory on-hand and on-order that becomes obsolete as a result of the Engineering Change. Manufacturer will use all reasonable efforts to return all unused Inventory for a full refund, to cancel pending orders and to take other actions to reduce such costs to be paid by Customer. 3. TOOLING. (a) TOOLING/NON-RECURRING EXPENSES. Manufacturer shall provide tooling that is not specific to the Product at its own expense. Customer shall pay for or obtain and consign to Manufacturer for its use any Product-specific tooling and other reasonably necessary non-recurring expenses specific to the Product, as set forth in Manufacturer's quotation, and approved in writing by Customer -3- 4. PRODUCT SHIPMENT AND INSPECTION. (a) SHIPMENTS. All Products delivered pursuant to the terms of this Agreement shall be suitably packed for shipment to avoid damage, marked for shipment to Customer's destination specified in the applicable Purchase Order, and Manufacturer shall use its best efforts to ensure that the Products are received by Customer 0 days late, or 5 days prior to the delivery date set forth on the Purchase Order (the "Delivery Date"). Shipment will be F.O.B. Manufacturer's factory, at which time risk of loss and title will pass to Customer. All freight, insurance and other shipping expenses, as well as any special packing expenses approved in writing by Customer and not included in the original price quotation for the Products will be paid by Customer. (b) CANCELLATION. Customer may not cancel any portion of an accepted Purchase Order without Manufacturer's prior written approval, which will not be unreasonably withheld. If the parties agree upon a cancellation, Customer will pay Manufacturer for Products and Inventory affected by the cancellation as follows: 100% of the cost of all Inventory in Manufacturer's possession and not returnable to the vendor or usable for other customers, whether in raw form or work in process.. Manufacturer will use reasonable commercial efforts, including the mutual involvement of Customer, to return unused Inventory for a full refund, net of restocking charges of such vendor and to cancel pending orders. Customer will be entitled to take delivery of all Products and Inventory to be paid for by Customer under this section, promptly following Manufacturer's receipt of payment therefor. 5. PAYMENT TERMS, ADDITIONAL COSTS AND PRICE CHANGES. (a) PAYMENT TERMS. Payment for any products, services or other costs to be paid by Customer hereunder are due thirty (30) days from the later of (i) the date of invoice for Products delivered to Customer, and (ii) the delivery of products to the Customer, and shall be made in lawful U.S. currency. (b) PRICING. The prices for the Products shall be as set forth on Exhibit C hereto and will be reviewed quarterly or as requested by Customer. Such prices are, and the price for each Product sold hereunder will be, as [***] as the [***] for by Manufacturer to [***] of the [***] to the [***]. For comparison purposes, Manufacturer may [***] sales. (c) ADDITIONAL COSTS. (i) DUTIES AND TAXES. All prices quoted are exclusive of federal, state and local excise, sales, use and similar duties and taxes, and Customer shall be responsible for all such items. (ii) EXPEDITING CHARGES. Customer shall be responsible for any expediting charges reasonably necessary because of a change in Customer's requirements. -4- Manufacturer shall obtain approval from Customer for expediting charges prior to incurring any such charge. (d) COST REDUCTIONS. Manufacturer may be requested by Customer to institute a cost reduction plan which will be reviewed quarterly pursuant to section 5(e) below. (e) QUARTERLY BUSINESS REVIEWS. During each quarter, the parties will have a quarterly business review to review the prices of the Products, cost reduction plans, quality, Forecasts and Delivery performance and to agree to any modifications that may be necessary. 6. LICENSE GRANTS; OWNERSHIP RIGHTS. (a) INTELLECTUAL PROPERTY RIGHTS. Each party shall retain sole ownership of, and all rights to, any Intellectual Property of any kind previously owned by that party or created solely by that party. The parties shall jointly own any Intellectual Property where both parties made substantial contributions documented in writing prior to the creation of the Intellectual Property. (b) TRADEMARKS. In consideration of the fees set forth herein, Customer further grants to Manufacturer a non-exclusive license to use the Trademarks on and in connection with the manufacture of the Products, and for this purpose to affix, subject to Customer's prior written approval, the Trademarks to or on the Products. Such trademark license shall expire or terminate upon the expiration or termination of this Agreement. The Trademarks may only be used in association with the manufacture and distribution of the Products pursuant to the terms of this Agreement. Any and all uses of the Trademarks shall be subject to the prior written approval of Customer. Manufacturer shall not remove trademark notices from any Product without the prior written consent of Customer. Manufacturer shall not use the name, Trademarks or logos associated with the Products in its business name. For purposes of the preceding paragraph, "Trademark" shall mean the trademarks that are associated with the Product which are approved by Customer for use by Manufacturer in the manufacture of the Products. 7. CONFIDENTIAL INFORMATION. (a) NONDISCLOSURE AND NONUSE. Each party shall treat as confidential all Confidential Information of the other party, shall not use such Confidential Information except as set forth in this Agreement, and shall use reasonable efforts not to disclose such Confidential Information to any third party. Without limiting the foregoing, each of the parties shall use at least the same degree of care which it uses to prevent the disclosure of its own confidential information of like importance to prevent the disclosure of Confidential Information disclosed to it by the other party under this Agreement. Each party shall disclose Confidential Information of the other party only to its directors, officers, employees, and consultants who are required to have such information in order for such party to carry out the transactions contemplated by this Agreement. Each party shall promptly notify the other party of any actual or suspected misuse or unauthorized disclosure of the other party's Confidential Information. Each party agrees to hold -5- such Confidential Information in confidence for a period of three (3) years from the date of receipt of same unless otherwise agreed to in writing by the disclosing party. (b) EXCEPTIONS. Notwithstanding the above, neither party shall have liability to the other with regard to any Confidential Information of the other which the receiving party can prove: (i) was in the public domain at the time it was disclosed or has entered the public domain through no fault of the receiving party; (ii) was known to the receiving party, without restriction, at the time of disclosure, as demonstrated by files in existence at the time of disclosure; (iii) is disclosed with the prior written approval of the disclosing party ; (iv) was independently developed by the receiving party without any use of the Confidential Information, as demonstrated by files created at the time of such independent development; (v) becomes known to the receiving party, without restriction, from a source other than the disclosing party without breach of this Agreement by the receiving party and otherwise not in violation of the disclosing party's rights; or (vi) is disclosed pursuant to the order or requirement of a court, administrative agency, or other governmental body; provided, however, that the receiving party shall provide prompt notice of such court order or requirement to the disclosing party to enable the disclosing party to seek a protective order or otherwise prevent or restrict such disclosure. (c) RETURN OF CONFIDENTIAL INFORMATION. Upon expiration or termination of this Agreement, each party shall promptly return all Confidential Information of the other party. In addition, each party shall, upon written request of the other party, return Confidential Information of such other party. (d) REMEDIES. Any breach of the restrictions contained in this Section is a breach of this Agreement which may cause irreparable harm to the nonbreaching party. Any such breach shall entitle the nonbreaching party to injunctive relief in addition to all legal remedies. (e) CONFIDENTIALITY OF AGREEMENT. Each party shall be entitled to disclose the existence of this Agreement, but agrees that the terms and conditions of this Agreement shall be treated as Confidential Information and shall not be disclosed to any third party; provided, however, that each party may disclose the terms and conditions of this Agreement: (i) as required by any court or other governmental body; (ii) as otherwise required by law; -6- (iii) to legal counsel of the parties; (iv) in confidence, to accountants, banks, and financing sources and their advisors; (v) in connection with the enforcement of this Agreement or rights under this Agreement; or (vi) in confidence, in connection with an actual or proposed merger, acquisition, or similar transaction. 8. INDEMNITY. (a) INDEMNIFICATION BY MANUFACTURER. Manufacturer agrees, at its own expense, to indemnify the Customer against any damages, costs (including attorneys' fees and costs) or other liability arising from any claim brought against them with respect to any Products manufactured by Manufacturer, and any reasonable out-of-pocket costs to Customer of any returned or failed Products manufactured by Manufacturer, including all costs incurred as a result of a Product withdrawal or recall (collectively "Customer Losses") to the extent such Customer Losses are caused by Manufacturer's failure to manufacture the Products in conformance with the Specifications and with Manufacturer's warranties as set forth in this Agreement, or by Manufacturer's misconduct or negligence; provided, with respect to any claim or action, that Customer provides (i) prompt written notice of such claim or action, (ii) sole control and authority over the defense or settlement of such claim or action and (iii) proper and full information and reasonable assistance to defend and/or settle any such claim or action. (b) INDEMNIFICATION BY THE CUSTOMER. Customer agrees, at its own expense, to defend or at its option to settle any claim or action brought against Manufacturer based on an allegation that the Specification provided by Customer for a Product manufactured by Manufacturer pursuant to this Agreement infringes any U.S. patent, or registered U.S. copyright, or registered U.S. trademark , trade secret, or other intellectual property right of any third party, and to indemnify Manufacturer against any and all damages and costs, including legal fees, that a court awards against Manufacturer under any such claim or action; provided that Manufacturer provides Customer with (i) prompt written notice of such claim or action, (ii) sole control and authority over the defense or settlement of such claim or action and (iii) proper and full information and reasonable assistance to defend and/or settle any such claim or action. Notwithstanding the foregoing, Customer assumes no liability for infringement claims with respect to any Product that is not manufactured in conformance with the Specifications and with Manufacturer's warranties as set forth in this Agreement. The foregoing states the entire liability and obligations of, and the exclusive remedy of, the parties, with respect to any alleged or actual infringement of patents, copyrights, trade secrets, trademarks or other intellectual property rights. (c) NO OTHER LIABILITY. NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, NEITHER PARTY NOR ITS AGENT(S), REPRESENTATIVE(S) OR -7- EMPLOYEE(S) SHALL BE LIABLE TO THE OTHER PURSUANT TO THIS AGREEMENT FOR AMOUNTS REPRESENTING LOSS OF REVENUES, LOSS OF PROFITS, LOSS OF BUSINESS OR INDIRECT, CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES OF THE OTHER PARTY, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE LIABILITY OF CUSTOMER, ITS AGENT(S), REPRESENTATIVE(S) AND EMPLOYEE(S) TO THE MANUFACTURER FOR DAMAGES OR ALLEGED DAMAGES WHETHER IN CONTRACT OR TORT (INCLUDING STRICT LIABILITY AND NEGLIGENCE) WITH RESPECT TO THIS AGREEMENT IS LIMITED TO AND SHALL NOT EXCEED THE AMOUNTS PAID BY CUSTOMER TO MANUFACTURER UNDER THIS AGREEMENT DURING THE TWELVE (12) MONTHS IMMEDIATELY PRECEDING THE EVENT AND/OR PRODUCT GIVING RISE TO THE DAMAGES. 9. WARRANTY AND DISCLAIMER. Manufacturer warrants that all Products will conform to the Specifications set forth herein (or as may otherwise be mutually agreed upon in writing), and will be free from defects in material and workmanship for a period of fifteen (15) months from date of shipment to Customer. In the case of shipments directly to a customer site, the warranty period shall also begin on the date of shipment from the Manufacturer. In the event of a failure under warranty, Manufacturer will repair or replace the Product(s), at it's option, within thirty (30) days notice of such non-compliance. Manufacturer shall bear the transportation charges for Products returned under these warranty conditions. If the Product is not found defective by Manufacturer, then Customer will bear the expense to return the Product to its facility. Except for the foregoing expressly stated warranties, manufacturer makes no express or implied warranties relating to the products covered by this agreement. Manufacturer expressly disclaims any implied warranties of merchantability or fitness for a particular purpose. 10. TERM AND TERMINATION. (a) TERM. This Agreement shall become effective on the date of this Agreement and shall continue for a period of eighteen (18) months; this Agreement shall be extended automatically at the end of the initial term or subsequent terms for an additional 18 month term, unless within thirty (30) days prior to the end of the initial term or a renewal term, a party gives written notice to the other party of its intention to terminate the Agreement. (b) TERMINATION FOR CONVENIENCE. This Agreement may be terminated at any time with or without cause by either party upon the giving of not less than one hundred eighty (180) days' written notice by registered mail to the other party. (c) TERMINATION FOR CAUSE. Either party may cancel this Agreement at any time if the other party breaches any term hereof and fails to cure such breach within ten (10) business days after notice of such breach or if the other party shall be or becomes insolvent, or if either party makes an assignment for the benefit of creditors, or if there are instituted by or against either party proceedings in bankruptcy or under any insolvency or similar law or for reorganization, receivership or dissolution. -8- (d) TERMINATION LIABILITY. Neither party shall be liable in any manner on account of the termination or cancellation of this Agreement. The rights of termination and cancellation as set forth herein are absolute. Both Customer and Manufacturer are aware of the possibility of expenditures necessary in preparing for performance hereunder and the possible losses and damages which may occur to each in the event of termination or cancellation. Both parties clearly understand that neither shall be liable for damages of any kind (including but not limited to special, incidental or consequential damages) by reason of the termination or cancellation of this Agreement. (e) OBLIGATIONS UPON TERMINATION. The termination or expiration of this Agreement shall in no way relieve either party from its obligations to pay the other any sums accrued hereunder prior to such termination or expiration. (f) SURVIVAL OF CERTAIN PROVISIONS. Notwithstanding anything to the contrary in this Agreement, the following sections shall survive termination of this Agreement: 1, 5, 6, 7, 8, 9, 10, and 11. 11. MISCELLANEOUS. (a) AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended or waived only with the written consent of the parties or their respective successors and assigns. Any amendment or waiver effected in accordance with this Section 11(a) shall be binding upon the parties and their respective successors and assigns. (b) SUCCESSORS AND ASSIGNS. Manufacturer or Customer shall not assign any of its rights, obligations or privileges (by operation of law or otherwise) hereunder without the prior written consent of the other party, which shall not be unreasonably withheld, except to a successor entity into which either party shall have sold or transferred all or substantially all its assets. Subject to the foregoing, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. (c) GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Washington, without giving effect to principles of conflicts of law. (d) COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. (e) TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. -9- (f) NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, or forty-eight (48) hours after being deposited in the regular mail as certified or registered mail (airmail if sent internationally) with postage prepaid, if such notice is addressed to the party to be notified at such party's address or facsimile number as set forth below, or as subsequently modified by written notice. -10- Customer: Metawave Communications Corporation PO Box 97069 10735 Willows Road NE Redmond, WA 98073 fax: (425) 702-5971 Attention: VP, Operations Copy to: General Counsel Manufacturer: Powerwave Technologies, Inc. 2026 McGaw Avenue Irvine, CA 92614 fax: (949) 757-6670 Attention: President and Chief Executive Officer Copy to: Chief Financial Officer (g) SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith, in order to maintain the economic position enjoyed by each party as close as possible to that under the provision rendered unenforceable. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms. (h) ENTIRE AGREEMENT. This Agreement is the product of both of the parties hereto, and constitutes the entire agreement between such parties pertaining to the subject matter hereof, and merges all prior negotiations and drafts of the parties with regard to the transactions contemplated herein. Any and all other written or oral agreements existing between the parties hereto regarding such transactions are expressly canceled. (i) INDEPENDENT CONTRACTORS. The relationship of Manufacturer and Customer established by this Agreement is that of independent contractors, and nothing contained in this Agreement will be construed (i) to give either party the power to direct and control the day-to-day activities of the other, (ii) to constitute the parties as partners, joint venturers, co-owners or otherwise as participants in a joint or common undertaking, or (iii) to allow either party to create or assume any obligation on behalf of the other for any purpose whatsoever. (j) FORCE MAJEURE. If the performance of this Agreement or any obligations hereunder is prevented, restricted or interfered with by reason of fire or other casualty or accident, strikes or labor disputes, war or other violence, any law, order, proclamation, regulation, ordinance, demand or requirement of any government agency, or any other act or condition beyond the reasonable control of the parties hereto, the party so affected upon giving -11- prompt notice to the other parties shall be excused from such performance during such prevention, restriction or interference. -12- The parties have executed this Agreement as of the date first set forth above. CUSTOMER: MANUFACTURER: METAWAVE COMMUNICATIONS POWERWAVE TECHNOLOGIES, INC. CORPORATION By: /s/ Robert H. Hunsberger By: /s/ Bruce C. Edwards ----------------------------- ----------------------------- Name: Robert H. Hunsberger Name: Bruce C. Edwards --------------------------- --------------------------- Title: Chief Executive Officer Title: President and Chief -------------------------- -------------------------- Executive Officer -13- EX-10.17 11 PURCHASE AGREEMENT DATED 9/8/1998 EXHIBIT 10.17 Certain information in this Exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request. EXHIBIT 10.17 METAWAVE COMMUNICATIONS CORPORATION/ GTE Wireless Inc. Purchase Agreement Document Number #1003-PA Metawave Communications Corporation 10735 Willows Road NE Redmond, WA 98073-9769 USA Tel. 425 702-5600 Fax 425 702-5970 http://www.metawave.com TABLE OF CONTENTS 1. AGREEMENT.............................................................. 3 2. DEFINITIONS............................................................ 3 3. PURCHASE ORDERS / CANCELLATIONS........................................ 5 4. SHIPPING, TITLE, RISK OF LOSS.......................................... 6 5. INVOICES AND PAYMENT................................................... 6 6. WARRANTY............................................................... 8 7. OBLIGATIONS OF CUSTOMER................................................ 9 8. INFRINGEMENT INDEMNITY................................................. 10 9. INDEMNIFICATION........................................................ 11 10. TERM AND TERMINATION................................................... 11 11. ASSIGNMENT............................................................. 11 12. NOTICES................................................................ 12 13. COMPLIANCE WITH LAWS................................................... 12 14. FORCE MAJEURE.......................................................... 12 15. GOVERNING LAW; DISPUTE RESOLUTION...................................... 13 16. CONFIDENTIALITY........................................................ 13 17. GENERAL PROVISIONS..................................................... 14 EXHIBIT A: PRODUCTS AND SERVICES PRICING EXHIBIT B: PRODUCT SPECIFICATIONS EXHIBIT C: PERFORMANCE ACCEPTANCE PROCEDURE EXHIBIT D: PRODUCT MAINTENANCE PROGRAM EXHIBIT E: SOFTWARE LICENSE EXHIBIT F: COMMISSIONING CERTIFICATE 2 METAWAVE COMMUNICATIONS CORPORATION PURCHASE AGREEMENT THIS PURCHASE AGREEMENT (this "Agreement") is made as of this eighth day of September, 1998 (the "Effective Date") between Metawave Communications Corporation, a Delaware corporation ("Seller"), and GTE Mobilnet of California Limited Partnership, by GTE Wireless Incorporated, its General Partner on its behalf and its Affiliates ("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 Customer Purchase Order to Seller, the Products and Services identified on Exhibit A to this Agreement in accordance with the specifications and the terms and conditions hereof and at the Purchase Prices set forth in Exhibit A. 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 different or inconsistent 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: "Affiliate" shall mean any partnership, corporation or other entity which is incorporated in the United States and in which GTE Wireless Incorporated, directly or indirectly, owns more than fifty percent (50%) of the voting shares, or owns a controlling interest. "Change Order" shall mean any subsequent change to a Purchase Order initiated by either party and mutually agreed to by both parties, including but not limited to, changes in Site configuration and Products and Services needed at the Site. "Commissioning" shall mean the procedures required to place the Product into commercial service at a particular Site as described in the Product system manual and the 3 completion of which for Follow-on Orders is shown by evidence of Customer's signature on the Commissioning Certificate attached hereto as Exhibit F. "Follow-on Order" shall mean any Purchase Order in excess of the Initial Order submitted by Customer. "Initial Order" shall mean Customer's initial purchase of one or more Products (and any associated Services) for deployment in the Customer's California market and ordered as a part of this Purchase Agreement and as described in Exhibit A. "Performance Acceptance" shall mean, for the Initial Order, Customer's written notification to Seller of the Certificate of Performance Acceptance specified in Exhibit C, that the Products satisfy the Performance Criteria set forth in Exhibit C. "Performance Acceptance Procedure" shall mean, for the Initial Order, the testing procedures and protocols used to determine Product performance levels as described in Exhibit C. "Performance Criteria" shall mean the [**] set forth in Exhibit C, Section 3.7.3. to be [**] for the [**] Products [**] Initial Order [**] Performance Evaluation Period. "Performance Evaluation Period" shall mean the [**] in Exhibit C 3.7.2.1. [**] Products will [**] in [**] Performance Criteria. "Products" shall mean the SpotLight(TM) 2000 spectrum management systems, consisting of hardware and Software, listed in Exhibit A hereto or any additional products 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 deliver to Seller for the purchase of the Products and/or Services which incorporates 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. "Services" shall mean the engineering services set forth in Exhibit A or any additional services set forth 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 at which a Product is installed. [***] 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. 4 "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 Product. "Software" shall mean the (i) object-code computer programs embedded in the Product which control and monitor the operation of the Product ("Embedded System Software"), and (ii) the Lamplighter/TM/ PC-based graphical user interface computer program for the Product, and all Features, Major Releases, Point Releases, and Software Patches (as such terms are defined in Exhibit D), other updates and modifications to such Software (the "Software Updates") and any documentation in support thereof. "Software License" shall mean the software license set forth in Exhibit E. "Specifications" shall mean the specifications for the Products set forth in Exhibit B and incorporated herein. 3. PURCHASE ORDERS/CANCELLATIONS a. When Customer wishes to purchase Products and Services pursuant to this Agreement, Customer shall notify the Designated Representative of Seller specified in Section 12 hereof. Seller's Designated Representative (or his agents) shall, with a representative of Customer, conduct a Site Survey for each Site to determine the configuration, Products, scope of Services and any other ancillary equipment required for each Site. The Designated Representative shall then develop an equipment list and price sheet for the Products and Services required for each Site using the prices set forth in Exhibit A (the "Quotation"). b. Following receipt of the Quotation, Customer shall order Products and Services by submitting a Purchase Order to which the Quotation shall be attached and made a part thereof. The Purchase Order shall also include the desired delivery date and whether partial deliveries are acceptable. Purchase Orders should be submitted by Customer to Seller at least 90 days prior to date of delivery for such Products and Services. Upon receipt of the Purchase Order, Seller shall have five (5) business days to accept or reject the Purchase Order in writing. c. In the event that the Customer submits a Purchase Order without a Quotation, such Purchase Order shall be subject to completion of a Site Survey by Seller. If following the completion of the Site Survey, Seller determines that Product configurations and or the Services set forth in the Purchase Order must be changed, Seller shall, within ten (10) days of completion of the Site Survey, notify Customer with a written proposal for changes to the Purchase Order. Upon receipt, Customer shall have five (5) 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 Change Order Customer may cancel the Purchase Order subject to Section 3(d) below. 5 d. Customer may cancel or delay delivery of a Product contained in any Purchase or Change Order prior to Seller's shipment of the Product subject to the terms herein. Any such cancellation or delay must be made by written notification. If Customer directs such cancellation or delay with less than 30 days written notice from the delivery date specified in Purchase Order or Change Order, Customer shall pay to Seller any reasonable costs associated with such cancellation or delay provided, however, that any such costs shall not exceed in the aggregate ten percent (10%) of the Purchase Price of each canceled or delayed Product. Customer shall not be obligated to pay any such costs if Customer timely exercises its cancellation rights under section 3(c) hereof. e. Within thirty days following execution of this Agreement, Customer shall give Seller a non binding forecast of Customer's estimated requirements for the Products and Services for the forthcoming twelve (12) months such forecast shall be updated by Customer on a monthly basis. 4. SHIPPING, TITLE, RISK OF LOSS a. Unless otherwise instructed by Customer, and subject to Section 3, Seller shall ship all Products to the destination designated in a Purchase Order on or before the delivery date(s) specified in a Purchase Order and render invoices in accordance with Section 5 below. Customer is responsible for the payment of all reasonable shipping charges, except as noted in Section 4(b) below. b. Products shall be packed by Seller, at no additional charge to Customer, 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. c. For the Initial Order, title to and risk of loss or damage to Products sold by Seller to Customer hereunder shall pass to Customer upon Performance Acceptance. For all Follow-on Orders title to and risk of loss or damage to Products sold by Seller to Customer hereunder shall pass to Customer upon shipment of Products to Customer. Title to Software shall remain with Seller in all cases pursuant to the terms of the Software License attached as Exhibit E hereto. 5. INVOICES AND PAYMENT a. For the Products in the Initial Order only, the payment schedule shall be as follows: 1. Seller shall render an invoice for one hundred percent (100%) of the Purchase Price of the Products and one hundred percent (100%) of the Purchase Price of the Services associated with such Products upon Performance Acceptance. 6 2. In the event that Performance Acceptance for the Products in the Initial Order does not occur and Seller has indicated in writing that it will no longer pursue Performance Acceptance, Customer shall have the option of either (i) completing the purchase of the Products in which case Seller shall render an invoice for the balance due or (ii) returning the Products to the Seller. If Customer chooses to return the Products to Seller, Seller shall de- install such Products at Seller's expense and repair any damage to or reverse any modifications to the Customer's equipment at the Site caused by Seller during installation of the Products and during the Performance Evaluation Period. Seller shall arrange for and pay the costs of shipping and assumes the risk of loss and damage to Products during shipment of the Products back to its headquarters in Redmond, Washington. b. For Follow-on Orders for Products, to be installed by Seller, Seller shall render invoices as follows: (i) [**] of the Purchase Price of each Product upon shipment of a Product to Customer, and (ii) [**] of the Purchase Price of each Product and one hundred percent (100%) of any associated Services promptly following the Commissioning of a Product. For Follow-on Orders, to be installed by Customer, Seller shall invoice Customer for one hundred percent (100%) of the Purchase Price of each Product upon shipment of Product to Customer. c. For Follow-on-Orders for Services only, Seller shall render invoices for 100% of the Purchase Price upon the completion of the Services, or on alternative milestones based upon mutual agreement of the parties. d. All invoices shall be computed on the basis of the prices set forth in Exhibit A (including any applicable discounts) and shall identify and show separately quantities of Products, type of Services, total amounts for each item, shipping charges, insurance charges, applicable sales or use taxes and total amount due. Customer shall promptly pay Seller the amount due within thirty (30) days of the date of receipt of the invoice, except for the Initial Order only which shall be due ninety (90) days of the date of receipt of the 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. e. Excluding income, business and licensing taxes, Customer shall be responsible for the payment of all sales, use and any other taxes applicable specifically to the sale of the Products and Services provided by the Seller pursuant to this Agreement. When Seller is required by law to collect such taxes, 100% thereof will be added to invoices as separately stated charges and paid by Customer in accordance with this section. f. If Customer disputes any invoices rendered or amount paid, Customer will so notify Seller, and the parties will use their reasonable efforts to resolve such [***] 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. 7 dispute expeditiously. Provided that Customer so notifies Seller of a disputed invoice and there is a good faith basis for such dispute, the time for paying the portion of the invoice in dispute shall be extended by a period of time equal to the time between Seller's receipt of such notice from Customer and the resolution of such dispute. 6. WARRANTY a. Seller warrants, for the Initial Order, for a period of [***] from the date of Performance Acceptance and for all Follow-on Orders, for a period of [***] from the shipment of a Product to Customer (the "Warranty Period") that (i) all Products furnished hereunder will be free from defects in materials, workmanship and title, (ii) all Products will conform in all material respects to the documentation and specifications provided by the Seller herein, (iii) the media on which the Software is contained will be free from defects in material and workmanship under normal use, and (iv) the Software will conform in all material respects to the documentation provided by Seller. The warranties in this Agreement are given in lieu of all other warranties express or implied which are specifically excluded, including, without limitation, implied warranties of merchantability and fitness for a particular purpose. b. Seller represents that, in connection with Calendar-Related data and Calendar-Related processing of Date Data or of any System Date, the Product will not malfunction, will not cease to function, will not generate incorrect data, and will not produce incorrect results. Seller further represents that, in connection with providing Calendar-Related data to and accepting Calendar-Related data from other automated, computerized, and/or software systems and users via user interfaces, electronic interfaces, and data storage, the Product represents dates without ambiguity as to century. Seller further represents that Seller has verified through testing that the Products are century compliant and that testing included, without limitation, each of the following specific dates and the transition to and from each date: December 31, 1998; January 1, 1999; September 9, 1999; September 10, 1999; December 31, 1999; January 1, 2000; February 28, 2000; February 29, 2000; March 1, 2000; December 31, 2000; January 1, 2001; December 31, 2004; and January 1, 2005. These representations survive the expiration or earlier termination of this Agreement. For purposes of this section, "Calendar-Related" refers to date values based on the Gregorian calendar, as defined in Encyclopedia Britannica, 15th edition, 1982, page 602, and to all uses in any manner of those date values, including without limitation manipulations, calculations, conversions, comparisons, and presentations; "Date Data" means any Calendar-Related data value in the inclusive range January 1, 1900 through December 31, 2094, which the Product uses in any manner; and "System Date" means any Calendar-Related data value in the inclusive range January 1, 1985 through December 31, 2094 (including the natural transition between such values), which the Product shall be able to use as its current date while operating. [***] 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. 8 c. Customer and Seller shall handle all warranty claims in accordance with the procedures set forth in Exhibit D hereto (Product Maintenance). The actions taken by Seller under the Product Maintenance Program procedures set forth in Exhibit D shall be the full extent of Seller's liability and Customer's exclusive remedy with respect to a claim under this Section 6. d. 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, Commissioned, 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 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. 7. OBLIGATIONS OF CUSTOMER In addition to performing the other obligations set forth in this Agreement, Customer shall: a. Procure from appropriate regulatory authorities all zoning approvals, necessary permits and station licenses as may be required to install and operate Customer's wireless system incorporating the Products prior to the date agreed by the parties for the commencement of installation of those Products; b. Prepare the Site for the installation of the Product and performance of the Services as specified in the Scope of Work to be mutually agreed by both parties for each Site prior to the date agreed by the parties for the commencement of installation of those Products; c. Agree with Seller on a date for the commencement of Services and in the event that the commencement of Services is delayed due to the failure of Customer to comply with the foregoing obligations, Seller shall be entitled to recover reasonable costs and expenses associated with mobilizing and compensating Seller personnel during the delay. d. Provide safe and secure access to the Sites for Sellers employees during the performance of Services. 9 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 this Agreement, 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 specifications contained in this Agreement and Exhibits, and, if neither of the foregoing alternatives is available on terms which 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 straight-line 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. 10 9. INDEMNIFICATION 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 sole 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 (i) is given prompt notice of any such claim or suit and (ii) full opportunity to assume control of the defense or settlement. Customer shall, at its discretion, have the right to reasonably participate in the defense and settlement of any claim asserted against Customer, including, but not limited to, choice of counsel and any settlement, but Seller shall have final authority to choose counsel and determine whether or not to settle a claim. Neither Seller nor Customer shall not be liable to the other for indirect or consequential damages, including but not limited to lost profits or revenue. 10. TERM AND TERMINATION The term of this Agreement shall be three (3) years from the Effective Date. 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 cancel this Agreement. In addition, a party may cancel this Agreement if a petition in bankruptcy or under any insolvency law is filed by or against the other party and is not dismissed within sixty (60) days of the commencement thereof. 11. ASSIGNMENT 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 person or entity who acquires all or substantially all of the assets, business or stock of Seller, whether by sale, merger or otherwise. b. Customer shall not (i) assign, sublicense or otherwise transfer the Software License set forth in Exhibit E, to any third party other than an Affiliate without the prior consent of the Seller, (ii) purchase a Product solely for the purpose of reselling or distributing it to another party, (iii) transport, relocate, or otherwise transfer the Products or the Software outside the United States, or (iv) permit its directors, officers, employees, agents or any other third person to modify, copy, decompile, disassemble or reverse engineer the Products or the Software. 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. 11 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 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 GTE Mobilnet of California Corporation 12677 Alcosta Blvd 10735 Willows Road NE Dept. 500, PO Box 5011 Redmond, WA 98073 San Ramon, CA 94583-0811 Attn.: Richard Henderson Attn.: Hal Horton, Manager VP, Sales Area Programs Copy to: Kathy Surace-Smith Copy to: Randy Golden General Counsel Regional Counsel Fax: 425 702 5976 Fax: 925 904 3624 Seller's Designated Representative for Section 3 shall be Mike Kavanagh or Mike Lewandowski. The address to which notices or communications may be given to either party or the names of the Designated Representatives may be changed by written notice given by such party to the other pursuant to this Section 12. 13. COMPLIANCE WITH LAWS Seller shall comply with all applicable federal, state and local laws, regulations and codes, including the procurement of permits and licenses when needed, in the performance of this Agreement. 14. 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; or (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. 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 12 such delay continues for 45 days, either party may terminate the Purchase Order affected by the event by providing written notice. 15. GOVERNING LAW; DISPUTE RESOLUTION a. This Agreement and each Purchase Order shall be construed in accordance with the internal laws of the State of California, without regard to its choice of law provisions. b. Any and all disputes arising between the parties shall be resolved in the following order: (i) by good faith negotiation between representatives of Customer and Seller who have authority to fully and finally resolve the dispute to commence within ten (10) days of the request of either party; (ii) in the event that the parties have not succeeded in negotiating a resolution of the dispute within ten (10) days after the first meeting, then the dispute will be resolved by nonbinding mediation to be held in a mutually agreed location in the United States, using a mutually agreed upon non-affiliated neutral party having experience with or knowledge in the wireless communications equipment industry to be chosen within twenty (20) days after written notice by either party demanding mediation (the costs therefor to be shared equally); and (iii) if within sixty (60) days of the initial demand for mediation by the parties, the dispute cannot be resolved by mediation, then a party may institute litigation in a court having subject matter jurisdiction, and the parties expressly consent and submit themselves to the personal jurisdiction of such court. If compliance with this section would result in expiration of any statute of limitations for the filing of a court action, the statute of limitations shall be tolled for the period of time required to comply with this section. 16. CONFIDENTIALITY a. During the term of this Agreement and thereafter it may be necessary for Seller and Customer to mutually exchange certain information, data and proprietary material relating to marketing, sales, technical, financial and other matters involving the Products, this Agreement or the relationship between the Seller and Customer. In order to be treated as confidential hereunder ("Confidential Information"), information disclosed in writing shall be marked as confidential or proprietary, and the disclosing party shall indicate the confidential nature of oral information at the time of disclosure and provide written confirmation thereof within fifteen (15) days following such disclosure. All Confidential Information shall: 1. Be received and retained in the strictest confidence by the parties and will be deemed to be proprietary information of the disclosing party and the recipient(s) agree(s) that it will not disclose it to third parties and further will treat such information, data or material as proprietary using the same degree of care that it (or they) would normally use in protecting its (or their) own proprietary information; and 13 2. Be used by the parties hereto solely for the purpose of implementing this Agreement. b. This provision shall not apply to any Confidential Information which: (i) is known by the receiving party prior to the date of disclosure by the disclosing party, and is not subject to or in violation of an obligation of confidentiality; (ii) is or become public knowledge other than by default of the receiving party; (iii) is obtained by the receiving party from a bona-fide third party having free right of disposal of such information; (iv) is wholly and independently developed by receiving party without reference to the Confidential Information; or (v) the receiving party is required to disclose pursuant to any law, regulation or a valid order of a court or other governmental body or any political subdivision thereof, provided, however, that the recipient of the information shall first have given notice to the disclosing party and made a reasonable effort to obtain a protective order requiring that the information and/or documents so disclosed be used only for the purposes for which the order was issued. c. Subject to the foregoing, this Agreement shall also be treated confidentially by all parties hereto. d. This section shall survive any termination of the Agreement for a period of three (3) years. 17. GENERAL PROVISIONS a. Seller and Customer may 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, 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 or 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. This Agreement, including all Exhibits which 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. 14 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. f. This Agreement applies only to sales of Products and Services in the United States. g. Each party shall comply with all applicable U.S. and foreign 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 any foreign country. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives. Metawave Communications Corporation GTE Mobilnet of California Limited Partnership by GTE Wireless, Inc., its General Partner By:/S/ Richard Henderson By: /S/ Annette M. Jacobs Name: Richard Henderson Name: Annette M. Jacobs Title: Vice President Sales Title: Area President, California and Marketing 15 SOFTWARE LICENSE AGREEMENT EXHIBIT E TO THE PURCHASE AGREEMENT BETWEEN METAWAVE COMMUNICATIONS CORPORATION ("SELLER") AND GTE ("CUSTOMER") 1. DEFINITIONS "Agreement" shall mean the Purchase Agreement between Seller and Customer executed concurrently herewith, and the Exhibits attached thereto, including this Exhibit E (Software License). "Software" shall mean the (i) object-code computer programs embedded in the SpotLight System which control the operation of the SpotLight System ("Embedded System Software"), and (ii) the LampLighter PC-based graphical user interface computer program used to monitor the operation of a SpotLight System and all Features, Major Releases, Point Releases, Software Patches (as such terms are defined in Exhibit D Product Maintenance Program), updates and modifications ("Software Updates") and any documentation in support thereof. "SpotLight System" shall mean a single SpotLight(TM) 2000 spectrum management system as described in Exhibit B. Any terms not defined herein shall have the same meanings as in the Agreement and the Exhibits thereto. 2. SCOPE Pursuant to the Agreement, Software will be delivered by Seller to Customer for use with a SpotLight System 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 SpotLight System with which the Software was delivered. 3.2 The Software licensing fees for the most current versions of the Embedded System Software and LampLighter Software (available at the time of purchase of a 1 of 4 SpotLight System) are included in the Purchase Price of a SpotLight System. Software Updates are available under the Software Maintenance Program described in Exhibit D 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 SpotLight System delivered to Customer under the terms of the Agreement. 4.2 The license granted to Customer in Section 3 is personal and may only be transferred to another SpotLight or site or another entity in accordance with Section 11(b) of the Agreement. 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 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). 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 only) in whole or in part, in printed or machine-readable form for Customer's internal use only, provided, however, that no more than three (3) printed copies and three (3) machine-readable copies shall be in existence at any one time without the prior written consent of Seller, other than copies electronically resident in SpotLight Systems. 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 2 of 4 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 Exhibit 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. 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 Exhibit E and such termination shall be effective if Customer fails to correct such default within thirty (30) days after written notice thereof by Seller, provided, however, that if such default cannot reasonably be cured within thirty (30) days after written notice by Seller, and Customer diligently commences to correct such default within such thirty (30) days of written notice, the termination by Seller shall become effective if Customer fails to correct such default within ninety (90) days of such written notice. The provisions of Sections 4 and 5 herein shall survive termination of any such license. 8.3 In the event that Customer is required to return the Software, pursuant to Section 8(b) of the Purchase Agreement, or in the event that Customer returns a SpotLight System pursuant to Section 5(a)(2) of the Purchase Agreement, this license shall terminate immediately upon such return of the Software or Product to Seller. 8.4 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. 3 of 4 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 licensor(s), or their representatives may, upon reasonable 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 Agreement, 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 E are intended to inure to the benefit of Seller and its licensors and their respective successors in interest. Customer acknowledges that Seller or its licensors have the right to enforce these provisions against Customer, whether in Seller's or its licensor's name. 10. LIMITATIONS ON SOFTWARE Customer understands that errors occur in Software and Seller makes no warranty that the Software will perform without error. Customer agrees that it is Customer's responsibility to select and test the Software to determine that is meets Customer's needs. Customer accepts the Software "as is" subject to the warranty set forth in Section 6 of the Purchase Agreement. 11. SOFTWARE OBJECT CODE AND DOCUMENTATION In the event Seller becomes insolvent, ceases to carry on business on a regular basis or fails to perform its maintenance obligations herein and Customer purchases Seller's annual Hardware and Software Product Maintenance Program, then Seller shall immediately furnish to Customer the latest version of Product object code and documentation, training materials and any necessary information to enable Customer to maintain such Products or contract with others for such work. 12. ENTIRE UNDERSTANDING 12.1 This Exhibit E 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 Exhibit B and this Exhibit E set forth the entire understanding and obligations regarding use of Software, implied or expressed. 4 of 4 EX-23.1 12 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 March 13, 1998, except for Note 13, as to which the date is April 28, 1998 and paragraphs 1 and 2 of Note 6 as to which the date is October , 1998, in Amendment No. 2 to Registration Statement (Form S-1 No. 333-59621) and related Prospectus of Metawave Communications Corporation. Seattle, Washington - ------------------------------------------------------------------------------- The foregoing consent is in the form that will be signed upon the completion of the reverse stock split described in paragraph 2 of Note 6 to the financial statements. ERNST & YOUNG LLP Seattle, Washington October 14, 1998 -----END PRIVACY-ENHANCED MESSAGE-----