-----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, Q1aZZFiPmL/amxdu7mKY/pKIq/IE5RSXByrtOaduXU1z7CUeyKUaZijidJgBmHuE Ho+fL1aBQ2I4SCuVnpF0/Q== /in/edgar/work/0000891618-00-005123/0000891618-00-005123.txt : 20001116 0000891618-00-005123.hdr.sgml : 20001116 ACCESSION NUMBER: 0000891618-00-005123 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETRO CORP CENTRAL INDEX KEY: 0001087779 STANDARD INDUSTRIAL CLASSIFICATION: [3663 ] IRS NUMBER: 770395029 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26963 FILM NUMBER: 768702 BUSINESS ADDRESS: STREET 1: POST OFFICE BOX 3860 STREET 2: N FIRST ST CITY: SAN JOSE STATE: CA ZIP: 95134-1702 BUSINESS PHONE: 4082161500 MAIL ADDRESS: STREET 1: POST OFFICE BOX 3860 STREET 2: N FIRST ST CITY: SAN JOSE STATE: CA ZIP: 95134-1702 10-Q 1 f67073e10-q.txt FORM 10-Q PERIOD ENDED 9/30/00 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from _________ to _________ COMMISSION FILE NUMBER 000-23387 NETRO CORPORATION (Exact name of registrant as specified in its charter) CALIFORNIA 77-0395029 (State of incorporation) (IRS Employer Identification No.)
3860 NORTH FIRST STREET, SAN JOSE, CA 95134 (408) 216-1500 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) ------------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding of the Registrant's Common Stock as of November 7, 2000 was 51,297,630. ================================================================================ 2 INDEX
PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999............................... 3 Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2000 and September 30, 1999................ 4 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and September 30, 1999... 5 Notes to Condensed Consolidated Financial Statements.......... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk... 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................ 14 Item 2. Changes in Securities and Use of Proceeds.................... 14 Item 3. Defaults Upon Senior Securities.............................. 14 Item 4. Submission of Matters to a Vote of Security Holders.......... 14 Item 5. Other Information............................................ 14 Item 6. Exhibits and Reports on Form 8-K............................. 14 SIGNATURES ........................................................... 15 EXHIBIT INDEX ......................................................... 16
2 3 PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NETRO CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ------------ (unaudited) ASSETS Current Assets: Cash and cash equivalents ............................ $ 129,239 $ 7,450 Marketable securities ................................ 176,048 37,887 Trade accounts receivable, net ....................... 11,740 6,925 Inventory, net ....................................... 19,664 7,909 Prepaid expenses and other ........................... 2,170 814 --------- --------- Total current assets ............................ 338,861 60,985 Equipment and leasehold improvements ...................... 5,902 4,569 Long-term marketable securities ........................... 79,610 -- Other assets .............................................. 916 260 --------- --------- Total assets .................................... $ 425,289 $ 65,814 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt and capital leases ............................................. $ 6,374 $ 6,764 Trade accounts payable ............................... 10,497 5,064 Accrued liabilities .................................. 9,398 4,740 --------- --------- Total current liabilities ....................... 26,269 16,568 Long-term debt and capital leases, net of current portion ................................................. 1,722 3,633 Deferred facilities rent .................................. 45 57 --------- --------- Total liabilities ............................... 28,036 20,258 --------- --------- Commitments and contingencies (Note 4) Shareholders' equity: Common stock ......................................... 503,324 146,490 Note receivable from shareholder ..................... -- (800) Deferred stock compensation .......................... (2,506) (3,730) Accumulated other comprehensive income ............... 522 -- Accumulated deficit .................................. (104,087) (96,404) --------- --------- Total shareholders' equity ...................... 397,253 45,556 --------- --------- Total liabilities and shareholders' equity ...... $ 425,289 $ 65,814 ========= =========
See accompanying notes to condensed consolidated financial statements. 3 4 NETRO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------- ----------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Revenues ................................... $ 20,520 $ 5,156 $ 46,478 $ 10,494 Cost of revenues ........................... 15,034 4,077 34,675 8,248 -------- -------- -------- -------- Gross profit ............................... 5,486 1,079 11,803 2,246 -------- -------- -------- -------- Operating expenses: Research and development ............... 5,631 5,092 17,107 14,275 Sales and marketing .................... 2,771 1,332 7,341 3,895 General and administrative ............. 2,922 1,450 7,211 4,553 Amortization of deferred stock compensation ......................... 255 298 815 807 -------- -------- -------- -------- Total operating expenses ......... 11,579 8,172 32,474 23,530 -------- -------- -------- -------- Loss from operations ....................... (6,093) (7,093) (20,671) (21,284) Other income, net .......................... 6,299 102 12,988 4 -------- -------- -------- -------- Net income (loss) .......................... $ 206 $ (6,991) $ (7,683) $(21,280) ======== ======== ======== ======== Basic net earnings (loss) per share ........ $ 0.00 $ (0.27) $ (0.16) $ (1.52) ======== ======== ======== ======== Shares used to compute basic net earnings (loss) per share ............... 50,892 25,613 49,013 14,026 ======== ======== ======== ======== Diluted net earnings (loss) per share ...... $ 0.00 $ (0.27) $ (0.16) $ (1.52) ======== ======== ======== ======== Shares used to compute diluted net earnings (loss) per share ............... 55,999 25,613 49,013 14,026 ======== ======== ======== ======== Pro forma basic and diluted net loss per share ................................... $ (0.17) $ (0.55) ======== ======= Shares used to compute pro forma basic and diluted net loss per share .......... 41,561 38,932 ======== =======
See accompanying notes to condensed consolidated financial statements. 4 5 NETRO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
NINE MONTHS ENDED SEPTEMBER 30 ------------------------- 2000 1999 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ..................................................... $ (7,683) $ (21,280) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ............................. 1,844 2,221 Provision for doubtful accounts ........................... 700 28 Amortization of deferred stock compensation ............... 815 807 Non-cash issuance of preferred stock ...................... -- 328 Changes in operating assets and liabilities: Trade accounts receivable .............................. (5,515) (3,907) Inventory .............................................. (11,755) (2,498) Prepaid expenses and other ............................. (5,019) (742) Trade accounts payable and accrued liabilities ......... 10,079 4,078 --------- --------- Net cash used in operating activities .................. (16,534) (20,965) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of equipment and leasehold improvements ............ (3,177) (1,231) Purchases of marketable securities ........................... (291,659) (56,642) Maturities of marketable securities .......................... 77,417 35,099 --------- --------- Net cash used in investing activities .................. (217,419) (22,774) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of notes payable and sale-leaseback transactions ............................... 1,083 4,323 Payments on notes payable and capital leases ................. (3,384) (2,404) Proceeds from issuance of Preferred Stock, net of issuance costs ............................................ -- 16,673 Proceeds from issuance of Common Stock, net of issuance costs ..................................................... 357,274 42,434 Repayments of notes receivable from shareholder .............. 800 -- Repurchase of Common Stock ................................... (31) (4) --------- --------- Net cash provided by financing activities .............. 355,742 61,022 --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS ....................... 121,789 17,283 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .................. 7,450 6,094 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD ........................ $ 129,239 $ 23,377 ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest ....................................... $ 862 $ 792 ========= =========
See accompanying notes to condensed consolidated financial statements. 5 6 NETRO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. DESCRIPTION OF BUSINESS: Netro Corporation (collectively, with its subsidiaries, the "Company") was incorporated in California on November 14, 1994. Netro is a leading provider of broadband wireless access equipment to competitive communications service providers worldwide. Netro's AirStar broadband access system derives its price-performance benefits from dynamic bandwidth allocation and a point-to-multipoint architecture that provides integrated voice and high-speed packet data services. The Company operates in one business segment. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF PRESENTATION The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the rules and regulations of Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial statements at September 30, 2000 and September 30, 1999 have been included. The unaudited condensed consolidated financial statements include the accounts of Netro Corporation and its subsidiaries. Results of operations for the three and nine months ended September 30, 2000 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending December 31, 2000. These financial statements should be read in conjunction with the Company's audited consolidated financial statements and the accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999 filed with the Securities and Exchange Commission. The condensed balance sheet at December 31, 1999 is derived from audited financial statements as of that date. CASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIES Cash and cash equivalents consist of short-term, highly liquid investments with original maturities of less than three months. Investments with maturities greater than three months and less than one year are classified as short-term marketable securities. Investments with maturities greater than one year are classified as long-term marketable securities. The Company's investments, which mature at various dates through June 2002, consist of government and corporate debt securities and are classified as either "available-for-sale" or "held-to-maturity." "Available-for-sale" investments are stated at fair value, with unrealized gains and losses recorded in Accumulated Other Comprehensive Income in the balance sheet. "Held-to-maturity" investments are stated at amortized cost. INVENTORY Inventory includes materials and labor, is stated at the lower of cost (first-in, first-out) or market and consists of the following (in thousands):
SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------ ------------ Raw materials ..................... $ 8,479 $ 3,865 Work-in-process ................... 4,449 2,185 Finished goods .................... 6,736 1,859 ------- ------- $19,664 $ 7,909 ======= =======
6 7 NET EARNINGS (LOSS) PER SHARE AND PRO FORMA NET LOSS PER SHARE Basic and diluted net earnings (loss) per share has been computed using the weighted average number of shares of common stock outstanding. Potential common shares from the exercise of stock options and warrants are excluded from diluted net loss per share for periods in which there is a loss as they would be antidilutive. The total number of options and warrants excluded from diluted net loss per share computation for the nine months ended September 30, 2000 and the three and nine months ended September 30,1999 were as follows (in thousands):
2000 1999 ----- ----- Shares issuable pursuant to warrants to purchase common stock ..................................... 57 38 Shares issuable under stock option plans ............ 6,363 5,805 ----- ----- 6,420 5,843 ===== =====
On August 24, 1999, the Company completed its initial public offering of 5,750,000 shares of common stock. Simultaneous with the closing of the initial public offering, all of the Company's then outstanding convertible preferred stock was automatically converted into an aggregate of 29,902,283 shares of common stock. Pro forma basic and diluted net loss per share is calculated assuming the conversion of convertible preferred stock into an equivalent number of shares of common stock, as if the shares had converted on the dates of their issuance. The following table presents the calculation of basic and diluted and pro forma basic and diluted net loss per share (in thousands, except per share data):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------- ---------------------- 2000 1999 2000 1999 -------- -------- ------- -------- HISTORICAL: Net income (loss) ............................. $ 206 $ (6,991) $(7,683) $(21,280) ======== ======== ======= ======== Weighted average shares of common stock outstanding ........................... 50,892 25,905 49,013 14,627 Less: Weighted average shares of common stock subject to repurchase .......... -- (292) -- (601) -------- -------- ------- -------- Basic weighted average shares outstanding ................................. 50,892 25,613 49,013 14,026 ======== ======== ======= ======== Basic net earnings (loss) per share ........... $ 0.00 $ (0.27) $ (0.16) $ (1.52) ======== ======== ======= ======== Dilutive adjustments to basic weighted average shares outstanding: Dilutive effect of employee stock options ................................... 5,107 -- -- -- -------- -------- ------- -------- Diluted weighted average shares outstanding ................................. 55,999 25,613 49,013 14,026 ======== ======== ======= ======== Diluted net earnings (loss) per share ......... $ 0.00 $ (0.27) $ (0.16) $ (1.52) ======== ======== ======= ======== PRO FORMA: Net loss ...................................... $ (6,991) $(21,280) ======== ======== Shares used above ............................. 25,613 14,026 Pro forma adjustment to reflect weighted average effect of assumed conversion of convertible preferred stock ....................................... 15,948 24,906 -------- -------- Weighted average shares used to compute pro forma basic and diluted net loss per share .......................... 41,561 38,932 ======== ======== Pro forma basic and diluted net loss per share ................................... $ (0.17) $ (0.55) ======== ========
7 8 COMPREHENSIVE INCOME Comprehensive income includes unrealized gains and losses on available-for-sale equity securities that have been excluded from net income and reflected instead in shareholders' equity. For the periods presented, comprehensive income is calculated as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ----------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Net income (loss) ........................... $ 206 $ (6,991) $ (7,683) $(21,280) Unrealized gains on securities .............. 522 -- 522 -- -------- -------- -------- -------- Comprehensive income (loss) ................. $ 728 $ (6,991) $ (7,161) $(21,280) ======== ======== ======== ========
2. SHAREHOLDERS' EQUITY: PUBLIC OFFERING On August 24, 1999, the Company completed its initial public offering of 5,750,000 shares of common stock at a public offering price of $8.00 per share. The offering resulted in net proceeds to the Company of $41.6 million after payment of the underwriter's commission and deduction of offering expenses. Simultaneously with the closing of the initial public offering, all of the Company's then outstanding convertible preferred stock was automatically converted into an aggregate of 29,902,283 shares of common stock. On March 17, 2000, the Company completed a public offering for the sale of 6,000,000 shares of common stock at a price of $82.50 per share. Of the 6,000,000 shares offered, the Company sold 4,504,111 shares and selling shareholders sold 1,495,889 shares. The offering resulted in net proceeds to the Company of $352.3 million after payment of the underwriter's commission and other offering expenses. 3. DEBT AND CAPITAL LEASES: The following table summarizes obligations under long-term debt and capital leases:
(IN THOUSANDS) ---------------------------- SEPTEMBER 30, DECEMBER 31, 2000 1999 -------- -------- Borrowings under bank line of credit ........ $ 3,568 $ 4,338 Secured note payable to lender, due in monthly installments of $90,942 with interest at 12.5% ........................ 1,213 1,882 Capital leases, due through 2003 ............ 3,315 4,177 -------- -------- Total long-term debt and capital leases ..... 8,096 10,397 Less: current portion ...................... (6,374) (6,764) -------- -------- $ 1,722 $ 3,633 ======== ========
In January 1998, the Company entered into a bank line of credit under which up to $6,000,000 is available for borrowings and letters of credit. This arrangement was renewed in September 1999 and expires in January 2001. Borrowings are limited to an aggregate amount equaling approximately 80% and 90% of domestic and foreign eligible trade accounts receivables, respectively, and 50% of eligible foreign inventories. The line of credit is secured by the Company's outstanding trade accounts receivable and inventory. The borrowings under the line are due in January 2001 8 9 and accrue interest at the 30-day LIBOR rate plus 2.25% or the bank's prime rate, at the Company's option. Under the agreement, the Company must comply with certain financial and other covenants. As of September 30, 2000, borrowings outstanding under this agreement were $3,568,000 and amounts utilized for outstanding letters of credit were $240,000. In June 1999, the Company entered into an equipment lease agreement, under which the Company can finance equipment purchases of up to $3,000,000. As of September 30, 2000, the Company had borrowed approximately $2,335,000 under this agreement. The Company's right to make additional borrowings under this lease line expired in June 2000. 4. COMMITMENTS AND CONTINGENCIES: COMMITMENTS The Company has outstanding a standby letter of credit for $320,000 to secure certain of the Company's warranty obligations to one customer. The letter of credit is secured by a certificate of deposit for $80,000. The letter of credit is subject to draw if the Company fails to meet its obligations to the customer. 5. SEGMENT REPORTING: In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company adopted SFAS No. 131 in fiscal 1998. SFAS No. 131 establishes standards for disclosures about operating segments, products and services, geographic areas and significant customers. The Company is organized and operates as one operating segment: the design, development, manufacturing, marketing and selling of broadband wireless point-to-multipoint access systems. 6. RECENT ACCOUNTING GUIDANCE: In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 and related interpretations summarize the SEC's view in applying generally accepted accounting principles to selected revenue recognition issues. We are required to apply the guidance in SAB No. 101 to our financial statements no later than our fourth quarter of fiscal 2000. We currently are reviewing the impact of SAB No. 101 on our revenue recognition policy and the related impact on our consolidated financial statements. At this time, we do not believe SAB No. 101 will have a material impact on our financial position or results of operations. In March 2000, the FASB issued FASB Interpretation No. 44 "Accounting for Certain Transactions involving Stock Compensation--an interpretation of APB Opinion No. 25" (FIN 44). FIN 44 is effective July 1, 2000. The interpretation clarifies the application of APB Opinion No. 25 for certain issues, specifically, (a) the definition of an employee, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) fixed stock option or award, and (d) the accounting for an exchange or stock compensation awards in a business combination. We do not anticipate that the adoption of FIN 44 will have a material impact on our financial position or results of operations. 7. SUBSEQUENT EVENTS: In October 2000, the Company finalized and signed an agreement for the creation of a majority-owned subsidiary in Israel, pursuant to which the Company has invested $3.75 million in such subsidiary. This subsidiary will conduct research and development and will be consolidated into the company's financial results. The Company is obligated to invest up to an additional $26.25 million in the subsidiary upon achievement of certain milestones. Also in October 2000, the Company experienced a theft of approximately $2 million of inventory. This theft is believed to be fully covered by insurance. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This Management's Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Form 10-Q contain forward-looking statements that involve risks and uncertainties. The statements contained in this report that are not purely historical are forward-looking statements, including statements regarding our expectations, beliefs, intentions or strategies regarding the future, including regarding gross margins, research and development, sales and marketing, general and administrative, and liquidity and capital resources. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our actual results could differ substantially from those described in our forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the Management's Discussion and Analysis of Financial Condition and Results of Operations and the Risk Factors section of our Registration Statement on Form S-1 declared effective on March 17, 2000 by the Securities and Exchange Commission (File No. 333-30738) and those discussed in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the fiscal year ended December 31, 1999. The following discussion should be read together with our consolidated financial statements and related notes included elsewhere in this Form 10-Q. OVERVIEW We are a leading provider of wireless broadband access equipment used by telecommunications service providers to provide businesses with high-speed voice and data access. The Company's product, the AirStar system, allows multiple subscribers to communicate with a single base station radio in a point-to-multipoint architecture using packet based technology. We began initial sales of an early 26 GHz AirStar system in Europe in early 1998. With the successful trial shipments of the AirStar system, we discontinued AirMAN, a predecessor product, in September 1998. We shipped the first trial AirStar systems for 26 GHz in the third quarter of 1998. We then shipped a trial version of a 10 GHz AirStar product in November 1998. Based on our success in field trials and the receipt of limited quantities of AirStar subsystems from our contract manufacturers, we made the 26 GHz AirStar product commercially available in January 1999 and the 10 GHz AirStar product commercially available in October 1999. However, the products were, and continue to be, available only in limited quantities due to manufacturing and capacity constraints. Additionally, we shipped a trial version of a 38 GHz product in September 1999 and a trial version of a 28 GHz AirStar product in June of 2000. RESULTS OF OPERATIONS THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 Revenues. Current revenues primarily consist of product revenues from the sale of the AirStar system. Revenues increased to $20.5 million for the three months ended September 30, 2000 from $5.2 million for the same period in 1999. Sales to one customer represented 81% of revenues for the three months ended September 30, 2000. Sales to two customers represented 67% and 20% of revenues for the three months ended September 30, 1999. For the nine months ended September 30, 2000 our revenues increased to $46.5 million from $10.5 million for the same period in 1999. Sales to one customer represented 86% of revenues for the nine months ended September 30, 2000. Sales to three customers represented 64%, 12% and 10% of revenues for the nine months ended September 30, 1999. The increase in revenues for each of the comparative periods was a result of increasing unit sales of the AirStar products. Substantially all of the revenues for these periods were generated from installations in international locations. Gross Profit. Gross profit increased to $5.5 million for the three months ended September 30, 2000 from $1.1 million for the same period in 1999. Gross profit for the nine months ended September 30, 2000 was $11.8 million compared to a gross profit of $2.2 million for the same period in 1999. Gross profit, as a percentage of revenues, improved from 21% to 27% for the three months ended September 30, 1999 and 2000, respectively, and from 21% to 25% for the nine months ended September 30, 1999 and 2000, respectively. The increase in gross profit on a percentage basis was primarily due to lower unit costs associated with the implementation of design and manufacturing related cost reduction efforts, offset in part by increasing fractions of customer premise equipment as a percentage of overall shipments. We are pursuing cost reductions in our products but also expect continued decreases in the average sales prices of our products. It is anticipated that these future price decreases could offset, partially or entirely, any cost 10 11 reductions that we achieve. The customer sales mix and product sales mix also influence our gross profit margin. Sales to indirect (OEM) customers generate lower gross profit margins than sales to direct customers. Base station sales generate more favorable gross profit margins than subscriber sales. We expect that the introduction of new customers, the introduction of new products to volume manufacturing, channel mix and product mix will result in fluctuations in our gross profit margin in future quarters. Research and Development. Research and development expenses consist of compensation costs, the cost of some software development tools, consultant fees and prototype expenses related to the design, development and testing of our products. Research and development expenses increased to $5.6 million for the three months ended September 30, 2000 from $5.1 million for the same period in 1999. Research and development expenses increased to $17.1 million for the nine months ended September 30, 2000 from $14.3 million for the same period in 1999. These increases in research and development expenses were primarily due to an increase in research and development personnel, an increase in the number of development projects and related third-party design charges. These projects primarily consisted of the development of the AirStar system at 28, 26, 10 and 38 GHz. With continued investments in these areas and the introduction of the Israeli research and development subsidiary, we expect research and development expenses to continue to increase on an absolute basis during future periods. Sales and Marketing. Sales and marketing expenses consist primarily of compensation costs, commissions, travel and related expenses for marketing, sales, customer advocacy and field service support personnel, as well as product management, trade show and promotional expenses. Sales and marketing expenses increased to $2.8 million for the three months ended September 30, 2000 from $1.3 million for the same period in 1999. Sales and marketing expenses increased to $7.3 million for the nine months ended September 30, 2000 from $3.9 million for the same period in 1999. These increases in sales and marketing expenses were primarily due to an increase in personnel to support both the pre-sale and post-sale activities associated with the AirStar system. We expect sales and marketing expenses to continue to increase in future periods as we expand our sales, marketing, technical assistance and field capabilities necessary to support increased sales and product offerings. General and Administrative. General and administrative expenses consist primarily of compensation costs and related expenses for executive, finance, management information systems, human resources and administrative personnel. These expenses also include professional fees, facilities and other general corporate expenses. General and administrative expenses increased to $2.9 million for the three months ended September 30, 2000 from $1.5 million for the same period in 1999. General and administrative expenses increased to $7.2 million for the nine months ended September 30, 2000 from $4.6 million for the same period in 1999. The increases were primarily due to increased costs associated with being a public company and growth in our infrastructure. General and administrative expenses for 1999 included a reserve to settle an arbitration claim from a contract manufacturer of the discontinued AirMan system. This dispute was subsequently resolved resulting in a payment within the reserved amount. We expect the growth of our business and operation as a public company will require additional personnel and costs resulting in increases in our general and administrative expenses. Amortization of Deferred Stock Compensation. Amortization of deferred stock compensation arises from employee stock options with exercise prices per share determined to be below the estimated fair values per share of our common stock at dates of grant. The deferred compensation that results is being amortized to expense over the vesting periods of the individual options, generally four years. A total of $4.8 million of deferred stock compensation was recorded in 1998 and 1999. Other Income, net. Other income, net, consists primarily of interest income earned on low-risk investments and interest paid on outstanding debt. Other income, net increased to $6.3 million for the three months ended September 30, 2000 from $102,000 for the same period in 1999. Other income, net increased to $13.0 million for the nine months ended September 30, 2000 from $4,000 for the same period in 1999. The increases were primarily due to greater interest earned as a result of higher average cash balances resulting from the proceeds of the public offerings. Net Income(Loss). Net income of $206,000 for the three months ended September 30, 2000 improved compared to a net loss of $7.0 million for the same period in 1999. Net loss decreased to $7.7 million for the nine months ended September 30, 2000 from $21.3 million for the same period in 1999. The improvements over the prior year were primarily due to an increase in gross profit and interest income, which were partially offset by increases in operating expenses. We believe that period-to-period comparisons of our operating results are not necessarily meaningful. You should not rely on them to predict future performance. The amount and timing of our operating expenses may fluctuate 11 12 significantly in the future as a result of a variety of factors. We face a number of risks and uncertainties encountered by early stage companies, particularly those in rapidly evolving markets such as the telecommunications and data communications equipment industries. We may not be able to address these risks and difficulties successfully. In addition, although we have experienced revenue growth recently, our revenue growth may not continue, and we may not maintain profitability in the future. Our quarterly and annual operating results have fluctuated in the past and are likely to fluctuate significantly in the future. It is likely that in some future quarter our operating results will fall below the expectations of securities analysts and investors. In this event, the market price of our common stock could significantly decline. Some of the factors that could affect our quarterly or annual operating results include: - Our ability to reach the required production volumes and quality levels for our products; - Our ability to obtain sufficient supplies of sole source or long lead-time components for our products; - Our ability to achieve cost reductions; - The size, timing and frequency of network buildouts, which are typically large and infrequent; - The timing and amount of, or cancellation or rescheduling of, orders for our products, particularly large orders from system integrators; - Our ability to introduce and support new products and to manage product transitions; - A decrease in the average selling prices of our products; and - Changes in the product and channel mix of our product shipments. Our sales cycle, which is typically between six and twelve months, contributes to fluctuations in our quarterly operating results. Further, the emerging and evolving nature of the market for systems such as AirStar may lead prospective customers to postpone their purchasing decisions. Most of our expenses, such as employee compensation and lease payments for facilities and equipment, are relatively fixed in the near term. In addition, our expense levels are based, in part, on our expectations regarding future revenues. As a result, any shortfall in revenues relative to our expectations could cause significant changes in our operating results from quarter to quarter. Due to the foregoing factors, we believe period-to-period comparisons of our revenue levels and operating results are not meaningful. You should not rely on our quarterly revenues and operating results to predict our future performance. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2000, cash and cash equivalents were $129.2 million, short-term marketable securities were $176.0 million and long-term marketable securities were $79.6 million. We have a $6.0 million bank line of credit. As of September 30, 2000, borrowings outstanding were $3.6 million and amounts utilized for outstanding letters of credit were $240,000 under this agreement. The line of credit is secured by eligible outstanding accounts receivable and inventory. The borrowings under the line are due in January 2001 and accrue interest at the 30-day LIBOR plus 2.25% or the bank's prime rate, at our option. We are currently negotiating the terms and conditions of an extension to this facility. See note 3 of notes to condensed consolidated financial statements. In March 2000 the Company completed a public offering. Of the 6,000,000 shares of common stock offered , the Company sold 4,504,111 shares and selling shareholders sold 1,495,889, at a price of $82.50 per share. We received net aggregate proceeds of approximately $352.3 million after deducting underwriting discounts and commission and estimated offering costs. Cash used in operating activities was $16.5 million for the nine months ended September 30, 2000 and $21.0 million for the same period in 1999. Cash used for operations for the nine months ended September 30, 2000 was primarily due to the net loss and increases in inventory, trade accounts receivable and prepaid expenses, partially offset by an increase in trade accounts payable and non-cash charges. Cash used for operations for the nine months ended September 30, 1999 was primarily due to the net loss, partially offset by non-cash charges. 12 13 Cash used in investing activities was $217.4 million for the nine months ended September 30, 2000 and $22.8 million for the same period in 1999. Cash used in investing activities for both periods was primarily due to excess cash invested in marketable securities, partially offset by maturities of marketable securities. Cash provided by financing activities was $355.7 million for the nine months ended September 30, 2000 and $61.0 million for the same period in 1999. Cash provided by financing activities for both periods were primarily due to the issuance of preferred and common stock. In August 2000, the Company signed an extension of the company's manufacturing agreement with Microelectronics Technology Inc., in which the Company committed to purchase approximately $50 million worth of radios from July 2000 through December 2001. In addition, we provide six or twelve-month forecasts to our other contract manufacturers. We generally commit to purchase products to be delivered within the most recent 60 days covered by these forecasts with cancellation fees. As of September 30, 2000, we had committed to make purchases totaling $15.6 million from these manufacturers in the next 60 days. Additionally, in specific instances we may agree to assume liability for limited quantities of specialized components with lead times beyond this 60-day period. We have also committed to purchase approximately $6 million of equipment from one of our contract manufacturers in the event we don't place orders to utilize this equipment. Our future capital requirements will depend upon many factors, including the timing of research and product development efforts and expansion of our marketing efforts. We expect to continue to expend significant but smaller amounts on property and equipment related to the expansion of our facilities, and on research and development laboratory and test equipment, as the capital required for volume manufacturing is being committed by our contract manufacturers. In future periods, we generally anticipate significant increases in our working capital needs on a period-to-period basis primarily as a result of planned increased product revenues. In conjunction with the expected increases in revenues, we expect higher levels of inventory and trade accounts receivable. While we also expect an increase in trade accounts payable and other liabilities, we do not expect that they will offset the increases in inventory and trade accounts receivable. We believe that our cash and cash equivalents balances, short-term and long-term marketable securities and funds available under our existing line of credit will be sufficient to satisfy our cash requirements for at least the next twelve months. Our management intends to invest our cash in excess of current operating requirements in interest-bearing, investment-grade securities. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Currency Hedging Instruments. We transact business in various foreign currencies and, accordingly, we are subject to exposure from adverse movements in foreign currency exchange rates. To date, the effect of changes in foreign currency exchange rates on revenues and operating expenses have not been material. Substantially all of our revenues are earned in U.S. dollars. Operating expenses incurred by our German, French, and Israeli subsidiaries are denominated primarily in European currencies. We currently do not use financial instruments to hedge these operating expenses. We intend to assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis. We do not use derivative financial instruments for speculative trading purposes. Fixed Income Investments. Our exposure to market risks from changes in interest rates relates primarily to corporate debt securities. We place our investments with high credit quality issuers and, by policy, limit the amount of the credit exposure to any one issuer. Our general policy is to limit the risk of principal loss and ensure the safety of invested funds by limiting market and credit risk. All highly liquid investments with a maturity of less than three months at the date of purchase are considered to be cash equivalents; all investments with maturities of three months or greater and less than one year are considered to be short-term marketable securities; all investments with maturities greater than one year are considered to be long-term marketable securities. All investments are classified as either "available for sale" or "held-to-maturity" and consist of government and corporate debt securities. 13 14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. From time to time, the Company is involved in various legal proceedings in the ordinary course of business. The Company is not currently involved in any litigation which, in management's opinion, would have a material adverse effect on its business, operating results or financial condition, however there can be no assurance that any such proceeding will not escalate or otherwise become material to the Company's business in the future. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULT UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits.
EXHIBIT DESCRIPTION NO. ------- ---------------------------------------------- 10.1 Preferred Stock Purchase Agreement between the Company and Bungee Communications, Inc., dated October 27, 2000 10.2 Option Agreement among the Company, Bungee Communications, Inc., and SSY, LLP, dated October 27, 2000 10.3* Amendment Agreement to the manufacturing and Engineering Services Agreement between the Company and Microelectronics Technology, Inc., dated August 29, 2000 27.1 Financial Data Schedule
- ---------------- * Confidential treatment requested. (b) Reports on Form 8-K. No reports on Form 8-K were filed by Netro Corporation during the quarter ended September 30, 2000. 14 15 NETRO CORPORATION SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NETRO CORPORATION Date: November 13, 2000 By: /s/ SANJAY K. KHARE --------------------------------------------- Sanjay K. Khare Vice President, Finance and Administration, Chief Financial Officer and Assistant Secretary (Principal Financial Officer) By: /s/ MICHAEL T. EVERETT --------------------------------------------- Michael T. Everett Former Executive Vice President, Finance, Chief Financial Officer and Assistant Secretary By: /s/ LISA A. EVINS --------------------------------------------- Lisa A. Evins Vice President of Finance (Principal Accounting Officer) 15 16 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ------- ---------------------------------------------- 10.1 Preferred Stock Purchase Agreement between the Company and Bungee Communications, Inc., dated October 27, 2000 10.2 Option Agreement between the Company and Bungee Communications, Inc., dated October 27, 2000 10.3* Amendment Agreement to the manufacturing and Engineering Services Agreement between the Company and Microelectronics Technology, Inc., dated August 29, 2000 27.1 Financial Data Schedule
- ------------------- * Confidential treatment requested. 16 EX-10.1 2 f67073ex10-1.txt EXHIBIT 10.1 1 EXHIBIT 10.1 BUNGEE COMMUNICATIONS, INC. PREFERRED STOCK PURCHASE AGREEMENT OCTOBER 27, 2000 2 BUNGEE COMMUNICATIONS, INC. PREFERRED STOCK PURCHASE AGREEMENT This Preferred Stock Purchase Agreement (this "Agreement") is made as of the _____ day of October, 2000 by and between Bungee Communications, Inc., a Delaware corporation (the "Company") and the investors listed on Exhibit A hereto (each a "Purchaser" and together the "Purchasers"). The parties hereby agree as follows: 1. PURCHASE AND SALE OF PREFERRED STOCK. 1.1 SALE AND ISSUANCE OF SERIES A PREFERRED STOCK. (a) The Company shall adopt and file with the Secretary of State of the State of Delaware on or before the initial Series A Closing (as defined below) the Amended and Restated Certificate of Incorporation in the form attached hereto as Exhibit B-1 (the "Restated Certificate"). (b) Subject to the terms and conditions of this Agreement, each Purchaser agrees to purchase at the Series A Closings and the Company agrees to sell and issue to each Purchaser at the Series A Closings that number of shares of Series A Preferred Stock set forth opposite each such Purchaser's name on Exhibit A hereto at a purchase price of $0.60 per share, in the aggregate purchase price of $5,250,000 in the initial Series A Closing, and an additional $3,750,000 in a subsequent Series A Closing. The shares of Series A Preferred Stock issued to the Purchaser pursuant to this Agreement shall be hereinafter referred to as the "Series A Stock". 1.2 SERIES A CLOSINGS; DELIVERY. (a) Each closing of the purchase and sale of Series A Stock (each, a "Series A Closing") shall take place at such time and place as the Company and the Purchasers mutually agree upon, orally or in writing, such agreement to be made within five days after each of the applicable closing conditions set forth in Sections 4 and 5 below are satisfied or waived, and if such agreement is not reached within such time, each Series A Closing shall take place at the offices of Venture Law Group, 2800 Sand Hill Road, Menlo Park, California, at 2:00 p.m. on the first business day following such five-day period. (b) At the initial Series A Closing, the Company shall deliver to each initial Purchaser a certificate representing the Series A Stock being purchased thereby against payment of the purchase price therefor of an aggregate of $5,250,000, by any combination of the following: (i) check payable to the Company; (ii) wire transfer to the Company's bank account; (iii) conversion of outstanding convertible debt; or (iv) cancellation of outstanding indebtedness of the Company to a Purchaser under that certain License Agreement in substantially the form hereto as Exhibit D. 3 (c) At the subsequent Series A Closing (the "Second A Closing"), the Company shall deliver to each subsequent Purchaser a certificate representing the Series A Stock being purchased thereby against payment of the purchase price therefor of an aggregate of $3,750,000, by any combination of the following: (i) check payable to the Company; (ii) wire transfer to the Company's bank account; (iii) conversion of outstanding convertible debt; or (iv) cancellation of outstanding indebtedness of the Company to a Purchaser. 1.3 SALE AND ISSUANCE OF SERIES B PREFERRED STOCK. (a) The Company shall adopt and file with the Secretary of State of the State of Delaware on or before the initial Series B Closing (as defined below) an Amended and Restated Certificate of Incorporation in the form attached hereto as Exhibit B-2, as amended to reflect the number of shares of Series B Stock (as defined below) to be sold and the price per share as determined in accordance with this Agreement (as so amended and restated, the "Series B Certificate"). (b) Subject to the terms and conditions of this Agreement, Netro Corporation ("Netro") agrees to purchase at the Series B Closings and the Company agrees to sell and issue to Netro at the Series B Closings shares of Series B Preferred Stock in an amount and at a purchase price calculated as set forth in Section 1.3(c) below, in the aggregate purchase price of $5,000,000 in the initial Series B Closing, and an additional $5,000,000 in a subsequent Series B Closing. The shares of Series B Preferred Stock issued and sold pursuant to this Agreement shall be hereinafter referred to as the "Series B Stock". At any time prior to the initial or subsequent Series B Closing, Netro may elect to designate other parties, subject to the approval of the Company (which approval shall not be unreasonably withheld or delayed), to purchase a portion or all of the Series B Stock at such Series B Closing, and any such party shall be joined to this Agreement as a purchaser of Series B Stock by execution of a signature page to this Agreement by such party. Any purchaser of Series B Stock pursuant to this Agreement (including Netro) shall be referred to hereinafter as a "Series B Purchaser". (c) The price per share of the Series B Stock shall be equal to the Post A Valuation multiplied by the B Multiplier, divided by the Pre B Common. The following definitions apply: (i) "Post A Valuation" means the valuation of the Company immediately following the Second A Closing, calculated as follows: Outstanding Common immediately following the Second A Closing multiplied by the purchase price per share of the Series A Stock in the Second A Closing. (ii) "Outstanding Common" means the number of all shares of Common Stock of the Company then outstanding, assuming (i) the conversion and exercise of all outstanding securities convertible or exercisable into Common Stock of the Company and (ii) the issuance and exercise of all available options and stock purchase rights for Common Stock of the Company reserved for issuance under any stock plan of the Company. -2- 4 (iii) "Pre B Common" means the number of Outstanding Common immediately prior to the initial Series B Closing. (iv) "B Multiplier" means: (A) 4.0, if the milestones set forth in Section I of Attachment 1 have been achieved by the Company; (B) 1.5, if the milestones set forth in Section I of Attachment 1 have not been achieved, but milestones set forth in Section II of Attachment I have been achieved by the Company; or (C) Notwithstanding anything else in this Agreement, if the milestones in Section II of Attachment 1 have not been achieved, then the Series B Purchasers shall not be obligated to purchase Series B Stock at any price; provided however, that the Company shall remain obligated to sell Series B Stock to the Series B Purchasers in accordance with this Agreement, and in the event that the Series B Purchasers elect to purchase Series B Stock, the B Multiplier shall equal 0.8, or such other value as is mutually agreed by the parties. 1.4 SERIES B CLOSINGS; DELIVERY. (a) Each closing of the purchase and sale of Series B Stock (each, a "Series B Closing") shall take place at such time and place as the Company and the Series B Purchasers mutually agree upon, orally or in writing, such agreement to be made within five days after each of the closing conditions set forth in Sections 4 and 5 below are satisfied or waived, and if such agreement is not reached within such time, each Series B Closing shall take place at the offices of Venture Law Group, 2800 Sand Hill Road, Menlo Park, California, at 2:00 p.m. on the first business day following such five-day period. (b) At the initial Series B Closing, the Company shall deliver to the Series B Purchasers a certificate representing the Series B Stock being purchased thereby against payment of the purchase price therefor of an aggregate of $5,000,000 by any combination of the following: (i) check payable to the Company; (ii) wire transfer to the Company's bank account; (iii) conversion of outstanding convertible debt; or (iv) cancellation of outstanding indebtedness of the Company to a Purchaser. (c) At the subsequent Series B Closing (the "Second B Closing"), the Company shall deliver to each subsequent Series B Purchaser a certificate representing the Series B Stock being purchased thereby against payment of the purchase price therefor of an aggregate of $5,000,000, by any combination of the following: (i) check payable to the Company; (ii) wire transfer to the Company's bank account; (iii) conversion of outstanding convertible debt; or (iv) cancellation of outstanding indebtedness of the Company to a Purchaser. 1.5 SALE AND ISSUANCE OF SERIES C PREFERRED STOCK. -3- 5 (a) The Company shall adopt and file with the Secretary of State of the State of Delaware on or before the Series C Closing (as defined below) an Amended and Restated Certificate of Incorporation in the form attached hereto as Exhibit B-3, as amended to reflect the number of shares of Series C Stock (as defined below) to be sold and the price per share as determined in accordance with this Agreement (as so amended and restated, the "Series C Certificate"). (b) Subject to the terms and conditions of this Agreement, Netro agrees to purchase at the Series C Closing and the Company agrees to sell and issue to Netro at the Series C Closing shares of Series C Preferred Stock in an amount and at a purchase price calculated as set forth in Section 1.5(c) below, in the aggregate purchase price of $12,500,000. The shares of Series C Preferred Stock issued and sold pursuant to this Agreement shall be hereinafter referred to as the "Series C Stock". At any time prior to the Series C Closing, Netro may elect to designate other parties, subject to the approval of the Company (which approval shall not be unreasonably withheld or delayed), to purchase a portion or all of the Series C Stock at such Series C Closing, and any such party shall be joined to this Agreement as a purchaser of Series C Stock by execution of a signature page to this Agreement by such party. Any purchaser of Series C Stock pursuant to this Agreement (including Netro) shall be referred to hereinafter as a "Series C Purchaser". (c) The price per share of the Series C Stock shall be equal to the Post B Valuation multiplied by the C Multiplier, divided by the Pre C Common. The following definitions apply: (i) "Post B Valuation" means the valuation of the Company immediately following the Second B Closing, calculated as follows: Outstanding Common immediately following the Second B Closing multiplied by the purchase price per share of the Series B Stock in the Second B Closing. (ii) "Outstanding Common" has the meaning set forth in Section 1.3(c)(ii) above. (iii) "Pre C Common" means the number of Outstanding Common immediately prior to the initial Series C Closing. (iv) "C Multiplier" means (subject to subsection (d) below): (A) 4.0, if the milestones set forth in Section I of Attachment 2 have been achieved by the Company; (B) 1.5, if the milestones set forth in Section I of Attachment 2 have not been achieved, but milestones set forth in Section II of Attachment 2 have been achieved by the Company; or -4- 6 (C) Notwithstanding anything else in this Agreement, if the milestones in Section II of Attachment 2 have not been achieved, then the Series C Purchasers shall not be obligated to purchase Series C Stock at any price; provided however, that the Company shall remain obligated to sell Series C Stock to the Series C Purchasers in accordance with this Agreement, and in the event that the Series C Purchasers elect to purchase Series C Stock, the C Multiplier shall equal 0.8, or such other value as is mutually agreed by the parties. (d) In the event that the B Multiplier is less than 4.0, the parties agree to work together in good faith to determine what milestones, if any, can be added to Attachment 2 which, upon their achievement, would result in a C Multiplier with a value greater than 4.0. 1.6 SERIES C CLOSINGS; DELIVERY. (a) The closing of the purchase and sale of Series C Stock (the "Series C Closing") shall take place at such time and place as the Company and the Series C Purchasers mutually agree upon, orally or in writing, such agreement to be made within five days after each of the closing conditions set forth in Sections 4 and 5 below are satisfied or waived, and if such agreement is not reached within such time, the Series C Closing shall take place at the offices of Venture Law Group, 2800 Sand Hill Road, Menlo Park, California, at 2:00 p.m. on the first business day following such five-day period. (b) At the Series C Closing, the Company shall deliver to the Series C Purchasers a certificate representing the Series C Stock being purchased thereby against payment of the purchase price therefor of an aggregate of $12,500,000 by any combination of the following: (i) check payable to the Company; (ii) wire transfer to the Company's bank account; (iii) conversion of outstanding convertible debt; or (iv) cancellation of outstanding indebtedness of the Company to a Purchaser. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The term "Closing" hereinafter shall refer to the pending Series A Closing, Series B Closing or Series C Closing, as applicable. The Company hereby represents and warrants to each Purchaser in the Closing that as of the date hereof and as of the date of the Closing, except as set forth on a Schedule of Exceptions attached hereto as Exhibit C, which exceptions shall be deemed to be representations and warranties as if made hereunder: 2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of the Company and its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. The Company and each of its subsidiaries is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would have a material adverse effect on its business or properties. 2.2 CAPITALIZATION. The authorized capital of the Company consists, or will consist, immediately prior to the Closing, of: -5- 7 (a) 12,500,000 shares of Preferred Stock, all of which shares have been designated Series A Preferred Stock, none of which are issued and outstanding immediately prior to the Closing. The rights, privileges and preferences of the Preferred Stock are as stated in the Restated Certificate. (b) 25,000,000 shares of Common Stock, 2,500,000 shares of which are issued and outstanding immediately prior to the Closing. All of the outstanding shares of Common Stock have been duly authorized, fully paid and are nonassessable and issued in compliance with all applicable federal and state securities laws. (c) The Company has reserved 10,000,000 shares of Common Stock for issuance to officers, directors, employees and consultants of the Company pursuant to its 2000 Stock Plan duly adopted by the Company's Board of Directors and approved by the Company stockholders (the "Stock Plan"). No shares or options therefor have been issued under the Stock Plan, and all of such reserved shares remain available for issuance to officers, directors, employees and consultants pursuant to the Stock Plan. (d) Except for an outstanding convertible note issued to Netro, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, for the purchase or acquisition from the Company of any shares of its capital stock. There are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, for the purchase or acquisition from any subsidiary of the Company of any shares of the capital stock of such subsidiary. 2.3 SUBSIDIARIES. The Company does not currently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity, except as set forth on the Schedule of Exceptions. With respect to each such subsidiary set forth on the Schedule of Exceptions, all of its issued and outstanding shares of capital stock are validly issued, fully paid and nonassessable, and are held of record and owned beneficially by the Company, free and clear of any liens or other restrictions on transfer. 2.4 AUTHORIZATION. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the License Agreement in the form attached hereto as Exhibit D (the "License Agreement"), the Investors' Rights Agreement, in the form attached hereto as Exhibit E (the "Rights Agreement"), the Right of First Refusal and Co-Sale Agreement in the form attached hereto as Exhibit F (the "Co-Sale Agreement"), the Voting Agreement in the form attached hereto as Exhibit G (the "Voting Agreement") and the Option Agreement in the form attached hereto as Exhibit H (the "Option Agreement", and collectively with this Agreement, the Rights Agreement, Co-Sale Agreement, Voting Agreement and Option Agreement, the "Agreements"), the performance of all obligations of the Company hereunder and thereunder and the authorization, issuance and delivery of the securities to be issued at the Closing (the "Stock") and the Common Stock issuable upon conversion of the Stock (together with the Stock, the "Securities") has been taken or will be taken prior to the Closing, and the Agreements, when -6- 8 executed and delivered by the Company, shall constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of general application affecting enforcement of creditors' rights generally, as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, or (ii) to the extent the indemnification provisions contained in the Rights Agreement may be limited by applicable federal or state securities laws. 2.5 VALID ISSUANCE OF SECURITIES. The Stock that is being issued to the Purchasers hereunder, when issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under this Agreement, the Rights Agreement and applicable state and federal securities laws. Based in part upon the representations of the Purchasers in this Agreement and subject to the provisions of Section 2.6 below, the Stock will be issued in compliance with all applicable federal and state securities laws. The Common Stock issuable upon conversion of the Stock has been duly and validly reserved for issuance, and upon issuance in accordance with the terms of the Restated Certificate, shall be duly and validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under this Agreement, the Rights Agreement and applicable federal and state securities laws and will be issued in compliance with all applicable federal and state securities laws. 2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company or any of its subsidiaries is required in connection with the consummation of the transactions contemplated by this Agreement, except for filings pursuant to Section 25102(f) of the California Corporate Securities Law of 1968, as amended, and the rules thereunder, other applicable state securities laws and Regulation D of the Securities Act of 1933, as amended (the "Securities Act"). 2.7 LITIGATION. There is no action, suit, proceeding or investigation pending or, to the Company's knowledge, currently threatened against the Company or any of its subsidiaries that questions the validity of the Agreements or the right of the Company to enter into them, or to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in any material adverse changes in the assets, condition or affairs of the Company, financially or otherwise, or any change in the current equity ownership of the Company or any of its subsidiaries, nor is the Company aware that there is any basis for the foregoing. Neither the Company nor any of its subsidiaries is a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company or any of its subsidiaries currently pending or which the Company or any of its subsidiaries intends to initiate. 2.8 INTELLECTUAL PROPERTY. The Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, tradenames, copyrights, trade secrets, licenses, -7- 9 information and proprietary rights and processes necessary for its business without any conflict with, or infringement of, the rights of others. Neither the Company nor any of its subsidiaries has received any communications alleging that the Company or any of its subsidiaries has violated or, by conducting its business, would violate any of the patents, trademarks, service marks, tradenames, copyrights, trade secrets or other proprietary rights or processes of any other person or entity. The Company is not aware that any of its or its subsidiaries' employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of such employee's best efforts to promote the interest of the Company or that would conflict with the Company's business. Neither the execution or delivery of this Agreement, nor the carrying on of the Company's business by the employees of the Company and its subsidiaries, nor the conduct of the Company's business as proposed, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated. The Company does not believe it is or will be necessary to use any inventions of any of its employees (or persons it currently intends to hire) made prior to their employment by the Company or its subsidiaries. Set forth in Section 2.8 of the Schedule of Exceptions is a listing of all patents, trademarks and licenses of the Company and its subsidiaries. 2.9 COMPLIANCE WITH OTHER INSTRUMENTS. (a) Neither the Company nor any of its subsidiaries is in violation or default of any provisions of its Certificate of Incorporation or Bylaws or (with respect to subsidiaries) similar organizational documents, or of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound or, of any provision of any applicable federal or state statute, rule or regulation. The execution, delivery and performance of the Agreements and the consummation of the transactions contemplated hereby or thereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company or its subsidiaries. (b) Each of the Company and its subsidiaries has avoided every condition, and has not performed any act, the occurrence of which would result in the Company's or any subsidiary's loss of any right granted under any license, distribution agreement or other agreement. 2.10 AGREEMENTS; ACTION. (a) Neither the Company nor any of its subsidiaries has entered into any agreements, understandings or proposed transactions with any of its officers, directors, affiliates, or any affiliate thereof. (b) Except for agreements explicitly contemplated by the Agreements, there are no agreements, understandings, instruments, contracts or proposed transactions to -8- 10 which the Company or any of its subsidiaries is a party or by which it is bound that involve (i) obligations (contingent or otherwise) of, or payments to, the Company or any of its subsidiaries in excess of, $25,000, (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company or any of its subsidiaries, or (iii) the grant of rights to manufacture, produce, assemble, license, market, or sell its products to any other person or affect the Company's or any subsidiary's exclusive right to develop, manufacture, assemble, distribute, market or sell its products. (c) Neither the Company nor any of its subsidiaries has (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or incurred any other liabilities individually in excess of $25,000 or in excess of $100,000 in the aggregate, (iii) made any loans or advances to any person, other than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. (d) The Company has not engaged in the past three (3) months in any discussion (i) with any representative of any corporation or corporations regarding the merger of the Company with or into any such corporation or corporations, (ii) with any representative of any corporation, partnership, association or other business entity or any individual regarding the sale, conveyance or disposition of all or substantially all of the assets of the Company or a transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company would be disposed of, or (iii) regarding any other form of liquidation, dissolution or winding up of the Company. 2.11 DISCLOSURE. The Company has fully provided the Purchasers with all the information that the Purchasers have requested for deciding whether to acquire the Stock and all information that the Company believes is reasonably necessary to enable the Purchasers to make such a decision, including certain of the Company's projections describing its proposed business (collectively, the "Business Materials"). No representation or warranty of the Company contained in this Agreement and the exhibits hereto, any certificate furnished or to be furnished to Purchasers at the Closing, or the Business Materials (when read together) contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. To the extent the Business Materials were prepared by management of the Company, the Business Materials and the financial and other projections contained in the Business Materials were prepared in good faith; however, the Company does not warrant that it will achieve such projections. 2.12 NO CONFLICT OF INTEREST. Neither the Company nor any of its subsidiaries is indebted, directly or indirectly, to any of its officers or directors or to their respective spouses or children, in any amount whatsoever other than in connection with expenses or advances of expenses incurred in the ordinary course of business or relocation expenses of employees. To the Company's knowledge, none of the officers or directors of the Company or its subsidiaries, or any members of their immediate families, are, directly or indirectly, indebted to the Company or -9- 11 any of its subsidiaries (other than in connection with purchases of the Company's stock) or have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company except that officers, directors and/or stockholders of the Company may own stock in (but not exceeding two percent of the outstanding capital stock of) any publicly traded companies that may compete with the Company. To the Company's knowledge, none of the officers or directors of the Company and its subsidiaries or any members of their immediate families are, directly or indirectly, interested in any material contract with the Company or any of its subsidiaries. Neither the Company nor any of its subsidiaries is a guarantor or indemnitor of any indebtedness of any other person, firm or corporation. 2.13 RIGHTS OF REGISTRATION AND VOTING RIGHTS. Except as contemplated in the Rights Agreement, neither the Company nor any of its subsidiaries has granted or agreed to grant any registration rights, including piggyback rights, to any person or entity. To the Company's knowledge, except as contemplated in the Voting Agreement, no stockholder of the Company has entered into any agreements with respect to the voting of capital shares of the Company. 2.14 TITLE TO PROPERTY AND ASSETS. Each of the Company and its subsidiaries owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens which arise in the ordinary course of business and do not materially impair the Company's or such subsidiary's ownership or use of such property or assets. With respect to the property and assets it leases, each of the Company and its subsidiaries is in compliance with such leases and, to it's the Company's knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances. 2.15 FINANCIAL STATEMENTS. The Company has made available to each Purchaser its unaudited consolidated financial statements (including balance sheet, income statement and statement of cash flows) as of the most recent available balance sheet date (such date, the "Balance Sheet Date", and such financial statements collectively, the "Financial Statements"). The Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated, except that the unaudited Financial Statements may not contain all footnotes required by generally accepted accounting principles. The Financial Statements fairly present the financial condition and operating results of the Company and its subsidiaries as of the dates, and for the periods, indicated therein, subject to normal year-end audit adjustments. Except as set forth in the Financial Statements, neither the Company nor any of its subsidiaries has any material liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to the Balance Sheet Date and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Financial Statements, which, in both cases, individually or in the aggregate are not material to the financial condition or operating results of the Company. -10- 12 2.16 CHANGES. Since the Balance Sheet Date, there has not been: (a) any change in the assets, liabilities, financial condition or operating results of the Company or any of its subsidiaries from that reflected in the Financial Statements, except changes in the ordinary course of business that have not been, in the aggregate, materially adverse; (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the business, properties, prospects, or financial condition of the Company or any of its subsidiaries; (c) any waiver or compromise by the Company or any of its subsidiaries of a valuable right or of a material debt owed to it; (d) any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by the Company or any of its subsidiaries, except in the ordinary course of business and that is not material to the business, properties, prospects or financial condition of the Company; (e) any material change to a material contract or agreement by which the Company or any of its subsidiaries or any of their respective assets is bound or subject; (f) any material change in any compensation arrangement or agreement with any employee, officer, director or stockholder; (g) any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets; (h) any resignation or termination of employment of any officer or key employee of the Company or any of its subsidiaries; and the Company is not aware of any impending resignation or termination of employment of any such officer or key employee; (i) any mortgage, pledge, transfer of a security interest in, or lien, created by the Company or any of its subsidiaries, with respect to any of their respective material properties or assets, except liens for taxes not yet due or payable; (j) any loans or guarantees made by the Company or any of its subsidiaries to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business; (k) any declaration, setting aside or payment or other distribution in respect to any of the Company's or any of its subsidiary's capital stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by the Company or any of its subsidiaries; -11- 13 (l) to the Company's knowledge, any other event or condition of any character that might materially and adversely affect the business, properties, prospects or financial condition of the Company; or (m) any arrangement or commitment by the Company or any of its subsidiaries to do any of the things described in this Section 2.16. 2.17 EMPLOYEE BENEFIT PLANS. Neither the Company nor any of its subsidiaries has any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974. 2.18 TAX RETURNS AND PAYMENTS. Each of the Company and its subsidiaries has filed all tax returns and reports as required by law. These returns and reports are true and correct in all material respects. The Company has paid all taxes and other assessments due on behalf of itself and each of its subsidiaries. 2.19 INSURANCE. The Company has in full force and effect fire and casualty insurance policies, with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its and each of its subsidiaries properties that might be damaged or destroyed. 2.20 LABOR AGREEMENTS AND ACTIONS. Neither the Company nor any of its subsidiaries is bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of the Company, has sought to represent any of the employees, representatives or agents of the Company or any of its subsidiaries. There is no strike or other labor dispute involving the Company or any of its subsidiaries pending, or to the knowledge of the Company threatened, which could have a material adverse effect on the assets, properties, financial condition, operating results, or business of the Company, nor is the Company aware of any labor organization activity involving its employees. The employment of each officer and employee of the Company and each of its subsidiaries is terminable at the will of the Company. The Company and each of its subsidiaries has complied in all material respects with all applicable state and federal equal employment opportunity laws and with other laws related to employment. 2.21 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENTS. Each employee, consultant and officer of the Company and each of its subsidiaries has executed an agreement regarding confidentiality and proprietary information substantially in the forms attached as Exhibit I. The Company is not aware that any of the employees or consultants of the Company or any of its subsidiaries is in violation thereof, and the Company will use its best efforts to prevent any such violation. 2.22 PERMITS. The Company and each of its subsidiaries has all franchises, permits, licenses and any similar authority necessary for the conduct of its business, the lack of which could materially and adversely affect the business, properties, prospects, or financial -12- 14 condition of the Company. Neither the Company nor any of its subsidiaries is in default in any material respect under any of such franchises, permits, licenses or other similar authority. 2.23 CORPORATE DOCUMENTS. The Restated Certificate and Bylaws of the Company, and equivalent organizational documents with respect to the Company's subsidiaries, are in the form provided to counsel for the Purchasers. The copy of the minute books of the Company and its subsidiaries provided to the Purchasers' counsel contains minutes of all meetings of directors and stockholders and all actions by written consent without a meeting by the directors and stockholders since the date of incorporation and reflects all actions by the directors (and any committee of directors) and stockholders with respect to all transactions referred to in such minutes accurately in all material respects. 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser (such term to refer to the Series B Purchasers with respect to each Series B Closing, and to the Series C Purchasers with respect to the Series C Closing) hereby represents and warrants to the Company that as of the date hereof and as of the date of the Closing: 3.1 AUTHORIZATION. Such Purchaser has full power and authority to enter into this Agreement. The Agreements, when executed and delivered by the Purchaser, will constitute valid and legally binding obligations of the Purchaser, enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors' rights generally, and as limited by laws relating to the availability of a specific performance, injunctive relief, or other equitable remedies, or (b) to the extent the indemnification provisions contained in the Rights Agreement may be limited by applicable federal or state securities laws. 3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with the Purchaser in reliance upon the Purchaser's representation to the Company, which by the Purchaser's execution of this Agreement, the Purchaser hereby confirms, that the Securities to be acquired by the Purchaser will be acquired for investment for the Purchaser's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Purchaser further represents that the Purchaser does not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. The Purchaser has not been formed for the specific purpose of acquiring the Securities. 3.3 DISCLOSURE OF INFORMATION. The Purchaser has had an opportunity to discuss the Company's business, management, financial affairs and the terms and conditions of the offering of the Stock with the Company's management and has had an opportunity to review the Company's facilities. The Purchaser understands that such discussions, as well as the Business Materials and any other written information delivered by the Company to the -13- 15 Purchaser, were intended to describe the aspects of the Company's business which it believes to be material. 3.4 RESTRICTED SECURITIES. The Purchaser understands that the Securities have not been, and will not be, registered under the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Purchaser's representations as expressed herein. The Purchaser understands that the Securities are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Purchaser must hold the Securities indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. The Purchaser acknowledges that the Company has no obligation to register or qualify the Securities for resale except as set forth in the Rights Agreement. The Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Securities, and on requirements relating to the Company which are outside of the Purchaser's control, and which the Company is under no obligation and may not be able to satisfy. 3.5 NO PUBLIC MARKET. The Purchaser understands that no public market now exists for any of the securities issued by the Company, and that the Company has made no assurances that a public market will ever exist for the Securities. 3.6 LEGENDS. The Purchaser understands that the Securities and any securities issued in respect of or exchange for the Securities, may bear one or all of the following legends: (a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933." (b) Any legend set forth in the other Agreements. (c) Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented by the certificate so legended. 3.7 ACCREDITED INVESTOR. The Purchaser is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act. 3.8 FOREIGN INVESTORS. If the Purchaser is not a United States person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended), such Purchaser hereby represents that it has satisfied itself as to the full observance of the laws of its -14- 16 jurisdiction in connection with any invitation to subscribe for the Stock or any use of this Agreement, including (i) the legal requirements within its jurisdiction for the purchase of the Stock, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Stock. Such Purchaser's subscription and payment for and continued beneficial ownership of the Stock, will not violate any applicable securities or other laws of the Purchaser's jurisdiction. 4. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The obligations of each Purchaser, Series B Purchaser and Series C Purchaser to the Company under this Agreement are subject to the fulfillment, on or before the Closing, of the following conditions, unless otherwise waived: 4.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in Section 2 shall be true and correct on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing. Prior to Closing, the Company shall have delivered an updated Schedule of Exceptions or confirm that the current Schedule of Exceptions remains complete and accurate. 4.2 PERFORMANCE. The Company shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 4.3 COMPLIANCE CERTIFICATE. The President of the Company shall deliver to the Purchasers at the Closing a certificate certifying that the conditions specified in Sections 4.1 and 4.2 have been fulfilled. 4.4 QUALIFICATIONS. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Stock pursuant to this Agreement shall be obtained and effective as of the Closing. 4.5 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. The Company and each of its employees shall have entered into the Company's standard form Confidential Information and Invention Assignment Agreement, in substantially the form attached as Exhibit I. 4.6 CHANGE IN STRATEGIC DIRECTION. There shall not have been, (a) any material adverse change in the business, financial condition, operations, results of operations or future prospects of the Company, or (b) a determination by the holders of a majority of the then outstanding shares of Preferred Stock of the Company that the then current product plan for the Company would result in inapplicable, obsolete or non-strategic products. Notwithstanding the foregoing, the occurrence of either event in the preceding sentence will not relieve the Purchasers of their obligations to perform at a Closing unless (x) after working together in good faith for at least thirty (30) days, the Purchasers and the Company have been unable to revise the product -15- 17 plan for the Company in a way that ameliorates such adverse change or product deficiency in a way that is mutually satisfactory to the Company and the Purchasers, and (y) such Purchasers shall have purchased the required securities in at least one Closing that took place after the expiration of the period specified in the foregoing clause (x). 4.7 INITIAL SERIES A CLOSING CONDITIONS. The following closing conditions shall apply only to the initial Series A Closing: (a) The Company shall have filed the Restated Certificate with the Secretary of State of Delaware, which shall continue to be in full force and effect as of the date of the initial Series A Closing. (b) As of the Closing, the Company's Board of Directors (the "Board"), as well as the Board of Directors of each subsidiary of the Company, shall be comprised of Shlomo Yariv (the "Founder") and Gideon Ben-Efraim, with one vacancy. (c) Within ten days prior to the Closing, the Board shall have approved a detailed product specification for the Company's current product. (d) The Company and Netro shall have executed and delivered the License Agreement in substantially the form attached as Exhibit D. (e) The Company, each Purchaser and the Founder shall have executed and delivered the Rights Agreement in substantially the form attached as Exhibit E. (f) The Company, each Purchaser and the Founder shall have executed and delivered the Co-Sale Agreement in substantially the form attached as Exhibit F. (g) The Company, each Purchaser and the Founder shall have executed and delivered the Voting Agreement in substantially the form attached as Exhibit G. (h) The Company and Netro shall have executed and delivered the Option Agreement in substantially the form attached as Exhibit H. (i) The Company and Netro shall have entered into the OEM Agreement Term Sheet substantially in the form attached as Exhibit J. 4.8 SECOND A CLOSING CONDITIONS. The following closing conditions shall apply only to the Second A Closing: (a) The milestones set forth on Attachment 3 shall have been achieved. (b) Each of the Agreements shall continue to be in full force and effect and the Company shall not have breached any material term thereof, which breach has not been cured with thirty (30) days following notice thereof. -16- 18 4.9 INITIAL SERIES B CLOSING CONDITIONS. The following closing conditions shall apply only to the initial Series B Closing: (a) The milestones set forth on Attachment 1 (either Section I or Section II) shall have been achieved. (b) Each of the Agreements shall continue to be in full force and effect and the Company shall not have breached any material term thereof, which breach has not been cured with thirty (30) days following notice thereof. (c) The Rights Agreement and Co-Sale Agreement shall be amended and restated to join the Series B Purchasers as parties and provide them with rights and obligations pari passu with holders of the Series A Stock. (d) The Company shall have filed the Series B Certificate with the Secretary of State of Delaware, which shall continue to be in full force and effect as of the date of the initial Series B Closing. (e) The Company and Netro shall have entered into the agreement contemplated by the OEM Agreement Term Sheet. 4.10 SECOND B CLOSING CONDITIONS. The following closing conditions shall apply only to the Second B Closing: (a) The milestones set forth on Attachment 4 hereto shall have been achieved. (b) Each of the Agreements shall continue to be in full force and effect and the Company shall not have breached any material term thereof, which breach has not been cured with thirty (30) days following notice thereof. 4.11 SERIES C CLOSING CONDITIONS. The following closing conditions shall apply only to the Series C Closing: (a) The milestones set forth on Attachment 2 (either Section I or Section II) shall have been achieved. (b) The Rights Agreement and Co-Sale Agreement shall be amended and restated to join the Series C Purchasers as parties and provide them with rights and obligations pari passu with holders of the Series A Stock and Series B Stock. (c) The Company shall have filed the Series C Certificate with the Secretary of State of Delaware, which shall continue to be in full force and effect as of the date of the Series C Closing. -17- 19 5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of the Company to each Purchaser under this Agreement are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived: 5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of such Purchaser contained in Section 3 shall be true and correct on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 5.2 PERFORMANCE. All covenants, agreements and conditions contained in this Agreement to be performed by such Purchaser on or prior to the Closing shall have been performed or complied with in all material respects. 5.3 QUALIFICATIONS. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Stock pursuant to this Agreement shall be obtained and effective as of the Closing. 5.4 AGREEMENTS. Each of the Agreements shall continue to be in full force and effect and such Purchaser shall not have breached any material term thereof, which breach has not been cured with thirty (30) days following notice thereof. 6. COVENANTS. The Company and Netro agree as set forth in this Section 6 with respect to the period between execution of this Agreement through the initial Closing and further until such time as Netro ceases to own a majority of the outstanding voting securities of the Company: (a) Netro will undertake in good faith to provide the benefit of certain of its human resources to the Company as follows, provided there has been no determination as set forth in Section 4.6(b) above: (i) marketing and business development assistance through a number of mutually agreed upon Netro employees, (ii) limited, temporary technical development assistance from selected Netro employees who are not required for ongoing development of Netro's AirStar product line, and (iii) operational and manufacturing assistance, as appropriate, such assistance not to impair Netro's operations or Netro employees' ability to perform their other responsibilities to Netro. (b) The Company agrees that it will not undertake any sales and marketing activities, joint or otherwise, without the prior consent of Netro. Particular support and joint marketing activities shall be identified and mutually agreed, including local inspection and -18- 20 testing of AirStar products, co-location of sales facilities, and other functions of similar range and expense. (c) The Company will cooperate in all financial and accounting matters with the Netro in order to enable Netro to meet its financial reporting requirements as a company subject to the Exchange Act of 1934, as amended. The Chief Financial Officer of Netro will have substantial oversight over the financial affairs of the Company, including approval of: (i) monthly and annual budgets of the Company, (ii) expenditures in excess of the monthly and annual budgets, by more than 10% with respect to any line item or 20% in the aggregate, or (iii) any individual expenditure in excess of $100,000. (d) The Company will establish an advisory board consisting of senior industry professionals who can provide the Company with technical, financial and marketing contacts. Netro will assist in the identification and recruitment of advisory board members. (e) In connection with the initial Series B Closing, the Company will effect, and Netro will consent to, an increase in the maximum aggregate number of shares available for issuance pursuant to the Stock Plan, such that the number of shares of such increase equals 3.5% of the Outstanding Common (as defined in Section 1.3(c)(ii) above and including such increase) following the initial Series B Closing. (f) In connection with the Series C Closing, the Company will effect, and Netro will consent to, an increase in the maximum aggregate number of shares available for issuance pursuant to the Stock Plan, such that the number of shares of such increase equals 1.0% of the Outstanding Common (as defined in Section 1.3(c)(ii) above and including such increase) following the Series C Closing. (g) In the event that the Company is obligated to perform in any Closing (other than the initial Series A Closing) and Netro is not obligated to purchase in such Closing by reason (and for no other reason) of failure of any of the conditions set forth in Sections 4.6, 4.8(a), 4.9(a), 4.10(a) or 4.11(a), then Netro shall provide reasonable support and assistance in the Company's efforts to obtain alternate sources of funding. In the case of a public offering of the Company's securities, such reasonable support shall include the following: (i) conversion of securities of the Company held by Netro into Common Stock of the Company; (ii) sale of a portion of securities of the Company held by Netro sufficient to reduce Netro's holdings of the Company's securities immediately following such offering to less than fifty percent (50%) of the Company's Outstanding Common immediately following such offering; (iii) compliance with request for information and shareholder consents reasonably required in connection with such offering; and -19- 21 (iv) agreement with underwriters of such offering and the Company's accountants, on customary terms and conditions. Netro acknowledges that its obligations under this subsection (g) run to the Founder as well as the Company, and in the event that the Company does not elect to require performance of Netro's obligations under this subsection (g), the Founder may elect to require such performance; provided that the Founder is employed by the Company at the time performance of this paragraph is sought. 7. MISCELLANEOUS. 7.1 DETERMINATION OF MILESTONE ACHIEVEMENT. For purposes of this Agreement, in order to determine whether a particular milestone has been achieved, the Company will present its assessment of milestone accomplishment to Netro together with such equipment and supporting data as is reasonably necessary to evaluate such claims. Netro personnel will provide the Company with notice within fifteen (15) business days following such presentation of whether it agrees or disagrees with the Company's assessment. In the event that the Company and Netro disagree with one another, and are unable to resolve such disagreement after good faith discussions between the parties, including discussions between the respective presidents of the two organizations, then the matter will be submitted to a three (3) person panel for determination. One (1) member of such panel will be selected by the Company, one (1) member of such panel will be selected by Netro and the third panel member will be selected by the mutual agreement of the initial panel members. No panel member will be an employee of or consultant to the Company or Netro, but each panel member will be technically knowledgeable regarding fixed-wireless system development. Any fees and costs of such panel members shall be borne equally by the Company and Netro. 7.2 SURVIVAL OF WARRANTIES. Unless otherwise set forth in this Agreement, the warranties, representations and covenants of the Company and the Purchasers contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing. 7.2 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective 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. 7.4 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 Delaware, without giving effect to principles of conflicts of law. -20- 22 7.5 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. 7.6 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. 7.7 NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by telegram or fax, or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party's address as set forth on the signature page or Exhibit A hereto, or as subsequently modified by written notice. 7.8 FINDER'S FEE. Each party represents that it neither is nor will be obligated for any finder's fee or commission in connection with this transaction. Each Purchaser agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which each Purchaser or any of its officers, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless each Purchaser from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 7.9 FEES AND EXPENSES. The Company shall pay the reasonable fees and expenses of Venture Law Group, the counsel for the Purchasers, incurred with respect to this Agreement, the documents referred to herein and the transactions contemplated hereby and thereby, provided such fees and expenses do not exceed $20,000. 7.10 ATTORNEY'S FEES. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of any of the Agreements, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 7.11 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended or waived only with the written consent of the Company and the holders of at least a majority of the Common Stock issued or issuable upon conversion of the then outstanding Stock. Any amendment or waiver effected in accordance with this Section 7.11 shall be binding upon the Purchasers and each transferee of the Stock (or the Common Stock issuable upon conversion thereof), each future holder of all such securities, and the Company. 7.12 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 the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Agreement, (b) the balance of -21- 23 the Agreement shall be interpreted as if such provision were so excluded and (c) the balance of the Agreement shall be enforceable in accordance with its terms. 7.13 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative. 7.14 ENTIRE AGREEMENT. This Agreement, and the documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements relating to the subject matter hereof existing between the parties hereto are expressly canceled. 7.15 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT. 7.16 CONFIDENTIALITY. Each party hereto agrees that, except with the prior written permission of the other party, it shall at all times keep confidential and not divulge, furnish or make accessible to anyone any confidential information, knowledge or data concerning or relating to the business or financial affairs of the other parties to which such party has been or shall become privy by reason of this Agreement, discussions or negotiations relating to this Agreement, the performance of its obligations hereunder or the ownership of Stock purchased hereunder. The provisions of this Section 7.16 shall be in addition to, and not in substitution for, the provisions of any separate nondisclosure agreement executed by the parties hereto with respect to the transactions contemplated hereby. 7.17 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that it is not relying upon any person, firm or corporation, other than the Company and its officers and directors, in making its investment or decision to invest in the Company. Each Purchaser agrees that no Purchaser nor the respective controlling persons, officers, directors, partners, agents, or -22- 24 employees of any Purchaser shall be liable to any other Purchaser for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the purchase of the Securities. [Signature Pages Follow] -23- 25 The parties have executed this Preferred Stock Purchase Agreement as of the date first written above. COMPANY: BUNGEE COMMUNICATIONS, INC. By: /s/ Shlomo Yariv --------------------------------------------- Name: Shlomo Yariv ------------------------------------------- (print) Title: President ------------------------------------------ Address: PURCHASERS: NETRO CORPORATION By: /s/ Gideon Ben-Efraim --------------------------------------------- Name: Gideon Ben-Efraim ------------------------------------------- (print) Title: Chairman and Chief Executive Officer ------------------------------------------ Address: SIGNATURE PAGE TO PREFERRED STOCK PURCHASE AGREEMENT EX-10.2 3 f67073ex10-2.txt EXHIBIT 10.2 1 EXHIBIT 10.2 OPTION AGREEMENT THIS OPTION AGREEMENT (this "Agreement") is made and entered into as of October 27, 2000 ("Effective Date") by and among Bungee Communications, Inc., a Delaware corporation (the "Company"), Netro Corporation, a California corporation ("Netro") and SSY LLC and its beneficial owner, Shlomo Yariv (collectively, the "Founder"). RECITALS The Founder currently owns, beneficially and of record, all of the Securities (as defined below) of the Company outstanding on the date hereof, other than Securities held by Netro. Netro is purchasing Securities and is committing, under certain conditions, to purchase additional Securities, pursuant to a Preferred Stock Purchase Agreement of even date herewith (the "Purchase Agreement"). The Company desires to grant Netro an option to purchase all of the outstanding capital stock, and assume all outstanding rights to purchase capital stock, of the Company, on the terms and subject to the conditions set forth herein. In consideration of the mutual promises, covenants and agreements contained herein, the parties agree as follows: 1. Definitions. "Option Period" means the period beginning on the date of the Second A Closing until the earlier of: (a) the date that is three (3) months following the date on which the milestones set forth on Section 1 of Exhibit A hereto have been achieved within the time period initially scheduled for such achievement, and (b) January 1, 2004. "Option Exercise Date" means the date Netro gives written notice to the Company of its election to exercise the Option (as defined below). "Option Expiration" means the expiration of the Option at the end of the Option Period without the Option having been exercised by Netro or the termination of the Option under the terms of this Agreement. "Securities" means all Common Stock and Preferred Stock of the Company, all options, warrants, convertible notes, rights of conversion and other rights to acquire stock of the Company, and all shares issuable upon exercise or conversion of the Preferred Stock, options, warrants, convertible notes, rights of conversion and other rights to acquire stock of the Company, whether or not then currently vested, exercisable or convertible, excluding only the Option. Capitalized terms not otherwise defined herein shall have the meaning given them in the Purchase Agreement. 2 2. Option to Purchase Company. (a) Option. The Company and each Securityholder hereby grant to Netro an exclusive right, at any time during the Option Period, to purchase all, but not less than all, of the outstanding capital stock and assume all, but not less than all, of the outstanding rights, including unvested rights, to purchase capital stock of the Company (other than Securities held by Netro and options to purchase the Company's capital stock held by employees of the Company pursuant to stock plans or other compensatory agreements approved by the Company's Board of Directors), on the terms set forth herein (the "Option"). (b) Purchase Price. The aggregate purchase price to be paid by Netro for the Securities (the "Purchase Price") shall be determined and payable as set forth below. (i) In the event the Option is exercised prior to the Second B Closing, the Purchase Price shall be: (A) $230,000,000, if all of the milestones set forth on Attachment 1, Section I, of the Purchase Agreement have been achieved as of the Option Exercise Date; (B) $50,000,000, if some or all of the milestones set forth on Attachment 1, Section I, of the Purchase Agreement have not been achieved, but all of the milestones set forth on Attachment 1, Section II, of the Purchase Agreement have been achieved as of the Option Exercise Date; or (C) $20,000,000, if some or all of the milestones set forth on Attachment 1, Section II, of the Purchase Agreement have not been achieved as of the Option Exercise Date. (ii) In the event the Option is exercised after the Second B Closing and prior to the Series C Closing, the Purchase Price shall be: (A) $280,000,000, if all of the milestones set forth on Attachment 2, Section I, of the Purchase Agreement have been achieved as of the Option Exercise Date; (B) $75,000,000, if some or all of the milestones set forth on Attachment 2, Section I, of the Purchase Agreement have not been achieved, but all of the milestones set forth on Attachment 2, Section II, of the Purchase Agreement have been achieved as of the Option Exercise Date; or (C) $30,000,000, if some or all of the milestones set forth on Attachment 2, Section II, of the Purchase Agreement have not been achieved as of the Option Exercise Date. -2- 3 (iii) In the event the Option is exercised after the Series C Closing and prior to the date of the Option Expiration, the Purchase Price shall be: (A) $350,000,000, if all of the milestones set forth on Section I of Exhibit A hereto have been achieved as of the Option Exercise Date; (B) $125,000,000, if some or all of the milestones set forth on Section I of Exhibit A hereto have not been achieved, but all of the milestones set forth on Section II of Exhibit A hereto have been achieved as of the Option Exercise Date; or (C) $50,000,000, if some or all of the milestones set forth on Section I and Section II of Exhibit A hereto have not been achieved, but all of the milestones set forth on Section III of Exhibit A hereto as of the Option Exercise Date. (c) Terms of Purchase. (i) Allocation of Purchase Price. The Purchase Price shall be allocated among all holders of Company Securities in accordance with the terms and conditions of such securities and the Company's then-effective Certificate of Incorporation. (ii) Form of Purchase Price. The Purchase Price may be paid, at the election of Netro, in cash or in shares of Netro Common Stock, valued based on the average closing price of such Common Stock on the Nasdaq National Market over the thirty (30) trading days immediately preceding and ending on the Option Exercise Date (the "Netro Average Price"). Notwithstanding the foregoing, in the event that (1) the acquisition is being completed pursuant to Section 2(b)(i)(A), 2(b)(ii)(A) or 2(b)(iii)(A), above, and (2) the Netro Average Price is greater than $500.00 per share (as adjusted for any stock splits, dividends or the like that occur after the date hereof), then the Purchase Price shall be required to be paid in shares of Netro Common Stock and the number of shares of Netro Common Stock to be issued as Purchase Price will be the lesser of (x) the Purchase Price divided by $500.00 per share (as adjusted for any stock splits, dividends or the like that occur after the date hereof) and (y) $500,000,000 divided by the Netro Average Price. (iii) Treatment of Options, Warrants. All options and warrants to purchase Common Stock or Preferred Stock of the Company will be converted into options and/or warrants to purchase Common Stock of Netro. The number of shares subject to such securities and the applicable exercise price per share will be adjusted at the applicable conversion ratio as determined in accordance with subsection (i) above. There will be no change in the vesting or exercisability restrictions on such options or warrants as a result of such acquisition. (iv) Tax Treatment. To the extent possible on commercially reasonable terms, the acquisition will be structured so as to qualify as a tax-free reorganization under the U.S. Internal Revenue Code and any similar Israeli tax provisions. (v) Representations and Warranties. In connection with the acquisition, the Company will make customary representations regarding the business, assets, -3- 4 financial statements and prospects of the Company. Such representations and warranties will terminate upon the closing of the acquisition, provided, however, that Netro will have full recourse against the Securityholders of the Company in the event of any willful or fraudulent breach of any such representation or warranty. (vi) Registration of Securities. In the event that the Purchase Price is paid by Netro in Netro Common Stock, such securities will be registered pursuant to a Registration Statement on Form S-4 (or such appropriate international analog or successor form). (vii) Other Terms and Conditions. Other terms of such acquisition which are not specifically provided for in this Agreement shall be mutually agreed upon, in good faith, by the Company and Netro. (d) Exercise of Option. Netro may exercise the Option by delivering written notice of such exercise to the Company at any time during the Option Period. In the event Netro exercises the Option, the parties will use their best efforts to enter into a definitive reorganization agreement, which contains the terms set forth in Section 2(c) and other mutually agreed upon terms, within twenty (20) days after the Option Exercise Date. The Company and the Founder agree to use their best efforts to cause all Securityholders to become parties to such reorganization agreement or otherwise ensure that Netro acquires all Securities (other than options to purchase the Company's capital stock held by employees of the Company pursuant to stock plans or other compensatory agreements approved by the Board). 3. Put Option. Following the Series C Closing, if all of the milestones set forth on Section I of Exhibit A hereto have been achieved on or before the date that is six months following the date such milestones were originally scheduled to be achieved, then the Company may request that Netro purchase all, but not less than all, of the Securities (other than Securities held by Netro and options to purchase the Company's capital stock held by employees of the Company pursuant to stock plans or other compensatory agreements approved by the Board). Upon such a request, Netro may either: (a) agree to acquire the Company pursuant to the terms of Section 2(c) above at a purchase price of $280,000,000. In connection with any such transaction, the "Option Exercise Date" shall be the effective date of the Company's notice to Netro; or (b) agree to support an initial public offering or other financing of the Company as set forth in Section 6(g) of the Purchase Agreement. 4. Confidentiality. Each party hereto agrees that, except with the prior written permission of the other party, it shall at all times keep confidential and not divulge, furnish or make accessible to anyone any confidential information, knowledge or data concerning or relating to the business or financial affairs of the other parties to which such party has been or shall become privy by reason of this Agreement, discussions or negotiations relating to this Agreement, the performance of its obligations hereunder or the existence of this Agreement. The provisions of this paragraph shall be in addition to, and not in substitution for, the provisions of any separate nondisclosure agreement executed by the parties hereto with respect to the -4- 5 transactions contemplated hereby. The obligations in this paragraph shall survive the Option Expiration and any termination of this Agreement. 5. Determination of Milestone Achievement. For purposes of this Agreement, in order to determine whether a particular milestone has been achieved, within five (5) business days following the Option Exercise Date, the Company will present its assessment of milestone accomplishment to Netro together with such equipment and supporting data as is reasonably necessary to evaluate such claims. Netro personnel will provide the Company with notice within fifteen (15) business days following such presentation of whether it agrees or disagrees with the Company's assessment. In the event that the Company and Netro disagree with one another, and are unable to resolve such disagreement after good faith discussions between the parties, including discussions between the respective presidents of the two organizations, then the matter will be submitted to a three (3) person panel for determination. One (1) member of such panel will be selected by the Company, one (1) member of such panel will be selected by Netro and the third panel member will be selected by the mutual agreement of the initial panel members. No panel member will be an employee of or consultant to the Company or Netro, but each panel member will be technically knowledgeable regarding fixed-wireless system development. 6. Cooperation of Founder. The Founder agrees to use its best efforts to effect any transactions required to be consummated hereby. Such assistance will include, but not be limited to, voting all Company Securities held by the Founder in furtherance of such transaction and soliciting the cooperation and votes of other Securityholders with respect to such a transaction. 7. Miscellaneous. (a) Entire Agreement; No Conflicts. This Agreement, the Purchase Agreement and the documents referred to herein and therein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements existing between the parties hereto are expressly canceled. In the event of any conflict between this Agreement and any other Agreement between or among the parties, the terms of this Agreement shall control. Further, in the event of any conflict between the terms of this Agreement and the organizational documents of the Company, the Company and the Founder shall use their best efforts to amend such documents in order to effect the consummation of the transactions contemplated by this Agreement. (b) 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 California, without giving effect to principles of conflicts of law. (c) Non-assignability and Binding Effect. No party's rights and obligations under this Agreement may be transferred or assigned directly or indirectly without the prior written consent of the other parties, except that a party may transfer or assign its rights and obligations under this Agreement to a person or entity into which it is merged or which has otherwise succeeded to all or substantially all of its business and assets by merger, reorganization or otherwise, and which has assumed in writing or by operation of law its obligations under this -5- 6 Agreement. Subject to the foregoing sentence, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns. The Founder shall not transfer any of its Securities to any party unless such party agrees in writing to be bound by the terms of this Agreement. (d) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (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. (f) Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by telegram or fax, or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party's address as set forth on the signature page hereto, or as subsequently modified by written notice. (g) Attorney's Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. (h) Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company, Netro and the Founder. (i) 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 the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Agreement, (b) the balance of the Agreement shall be interpreted as if such provision were so excluded and (c) the balance of the Agreement shall be enforceable in accordance with its terms. (j) Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and -6- 7 shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative. [Signature pages follow] -7- 8 The parties have executed this Option Agreement as of the date first above written. COMPANY: NETRO: BUNGEE COMMUNICATIONS, INC. NETRO CORPORATION By: /s/ Shlomo Yariv By: /s/ Gideon Ben-Efraim ----------------------------- ------------------------------------ Name: Shlomo Yariv Name: Gideon Ben-Efraim --------------------------- ---------------------------------- (print) (print) Title: President Title: Chairman and Chief Executive Off. -------------------------- --------------------------------- Address: Address: FOUNDER: SSY LLC By: /s/ Shlomo Yariv ----------------------------- Name: Shlomo Yariv --------------------------- (print) Title: Managing Partner -------------------------- Address: SHLOMO YARIV /s/ Shlomo Yariv - -------------------------------- Address: EX-10.3 4 f67073ex10-3.txt EXHIBIT 10.3 1 EXHIBIT 10.3 This Amendment Agreement ("Amendment") is the Second Amendment to the Manufacturing and Engineering Services Agreement dated January 11, 1999 between Netro Corporation ("Netro") and Microelectronics Technology, Inc. ("MTI") (the "Agreement") The parties desire to amend and supplement the Agreement as set forth in this Amendment and accordingly agree as follows: 1. Effective Dates This Amendment shall govern purchases by Netro from MTI for the period from July 1, 2000 to December 31, 2001 (the "Commitment Period"). It is expressly applicable retroactively to all purchase orders placed by Netro since July 1, 2000. 2. Purchase Commitment Netro agrees to order a minimum of 25,000 units of Products during the Commitment Period for delivery within the lead times specified in Section 5 of the Amendment. This commitment shall be represented by a blanket purchase order to be issued by Netro within two weeks following the signing of this Amendment (the "Blanket Purchase Order"). Releases of Product shall be subject to the issuance of specific releases subject to the Blanket Purchase Order and the terms of this Amendment. In the event unforeseen market conditions result in a shortfall in releases by Netro on December 31, 2001 (the occurrences of which shall be reasonably proved by Netro with written records) Netro shall have up to an additional three months to release the committed quantity. In case there is still a shortfall after this extension, Netro is liable for compensation to MTI for reasonable unmitigated all costs and expenses incurred to satisfy the Blanket Purchase Order, including but not limited to the un-consumed inventory resulting from the unreleased quantity. 3. Pricing Pricing for AirStar 26GHz radios shall be as follows:
Quantity Price per Unit -------- -------------- Up to 3,000 units $**** 3,001 to 10,000 units $**** 10,001 to 20,000 units $**** 20,001 to 25,000 units $****
For purposes of calculating quantities pursuant to the above schedule, sales of radios of all frequencies, including both complete radios and radio units that are substantially complete except for packaging shall be included. These prices shall apply to both BRU's and SRU's in all antenna polarizations and configurations. In the case of Slimline versions, the price will be adjusted by an amount to be mutually agreed between the parties reflecting only the change in material costs between AirStar and Slimline packages to MTI. **** Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission. 2 The above prices shall be fixed for the volumes specified during the Commitment Period. Variances of any kind, including production and material variances, will be borne by MTI, and MTI shall enjoy the benefit of any cost reductions initiated by MTI, including the cost reduction plan submitted to Netro on June 27, 2000. However, savings from engineering changes initiated by Netro will be deducted from the price specified on a dollar for dollar basis, provided that these engineering charges are presented to MTI for review and assessment of cost and schedule impacts prior to release. Prices for the first 1,000 units of each frequency (aggregating all polarizations and configurations of that frequency) other than 26 GHz shall be the same as the initial price for 26GHz radios (i.e. $****), but Netro will also pay to MTI the amount per unit specified below as a non-recurring engineering expense:
Frequency NRE per unit --------- ------------ 10GHz $**** 28GHz $**** 38GHZ $****
Upon the completion of sale of 700 units of Product in any of the above frequencies, the parties shall negotiate in good faith for 30 days to establish volume pricing of that Product beyond the 1,000 unit level based on pricing for the 26GHz Products, adjusted either up or down only for actual cost differences to MTI between that Product and the 26GHz Products. In the event the parties are unable to agree on such price, the issue shall be submitted for mediation by a neutral third party agreed upon by the parties. If after mediation no agreement is reached on volume pricing for frequencies other than 26GHz, Netro shall have the option to reduce its purchase commitment pursuant to Section 2 on an equitable basis reflecting the exclusion of the frequencies for which no agreement on volume pricing has been reached. In such event the minimum commitment shall be at least 15,000 units, however. 4. Changes in Configuration Netro shall have the right at any time and without charge or expense to change the mix of frequencies, configurations and antenna polarizations ("Changes") reflected in the Blanket Purchase Order for which releases have not yet been issued; provided that such Changes made by Netro are pursuant to Section 4.a and 4.b of the Agreement. Netro shall at all times release at least the next 2-month's worth of Product deliveries under the Blanket Purchase Order. With respect to Products for which a release has been issued, Netro shall have the right to request changes among frequencies, configurations and antenna polarizations, and MTI shall use its best efforts to comply with any such changes on the same schedule as originally ordered. However, Netro shall be liable for any additional costs and expenses incurred as a result Changes to released Products so requested by Netro. In **** Confidential treatment has been requested for the redacted portions. The confidential redacted portions have been filed separately with the Securities and Exchange Commission. 3 addition, releases may be rescheduled pursuant to the terms of Section 4.b(iv) of the Agreement 5. Lead Times Provided that releases of Products pursuant to the Blanket Purchase Order are reflected in the latest Netro forecast (including a flex plan of up to 30%) delivered pursuant to Section 4.a of the Agreement, MTI agrees to deliver Products within four weeks of the date of release of such Products by Netro. 6. First Articles With respect to approximately 25 units of 28GHz Products and 20 units of 39 GHz Products designated as first articles, Netro agrees to pay to MTI an additional amount to be mutually agreed between the parties for non-recurring engineering expenses and purchase price variances. Both parties understand that MTI has purchased limited quantities of 28 and 39 Ghz material at lower volume and higher cost and has proposed an additional purchase price variance to Netro. This proposed variance will be settled by both parties negotiating in good faith within two weeks after the signing of this Amendment. 7. Non Compete The quantities specified in this Amendment are agreed to be sufficient to require MTI to comply with the provisions of Section 14 of the Agreement. 8. Capitalized Terms Capitalized terms used in this Amendment shall have the meanings specified in the Agreement. 9. Effect on Agreement Except as expressly amended by this Amendment, the Agreement shall remain in full force and effect. The parties have signed this Agreement as of the date indicated in the preamble. Netro Corporation Microelectronics Technology, Inc. By: /s/ Michael T. Everett By: /s/ Chi C. Hsieh --------------------------------- --------------------------------- Michael T. Everett Dr. Chi. C. Hsieh Executive Vice President Vice Chairman and Chief Financial Officer /s/ Gideon Ben-Efraim /s/ Wesley Huang --------------------------------- --------------------------------- EX-27.1 5 f67073ex27-1.txt FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 129,239 176,048 12,248 508 19,664 338,861 16,191 10,289 425,289 26,269 0 0 0 503,324 (106,071) 425,289 46,478 46,478 34,675 32,474 0 0 (12,988) (7,683) 0 (7,683) 0 0 0 (7,683) (0.16) (0.16)
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