-----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, Nj5ZeCmiat3YTTtyfgYPLRtgGWazx5KkolwNy9u/u8/IQ+OD8idSgja1elunhAth vpPzviqc9tj/k67Lt0NDWA== 0000914317-01-000234.txt : 20010329 0000914317-01-000234.hdr.sgml : 20010329 ACCESSION NUMBER: 0000914317-01-000234 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELAXIS COMMUNICATIONS CORP CENTRAL INDEX KEY: 0000712511 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 042751645 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-29053 FILM NUMBER: 1582586 BUSINESS ADDRESS: STREET 1: 20 INDUSTRIAL DRIVE EAST CITY: SOUTH DEERFIELD STATE: MA ZIP: 01373 BUSINESS PHONE: 4136658551 MAIL ADDRESS: STREET 1: 20 INDUSTRIAL DRIVE EAST STREET 2: P O BOX 109 CITY: SOUTH DEERFEILD STATE: MA ZIP: 013730109 FORMER COMPANY: FORMER CONFORMED NAME: MILLITECH CORP DATE OF NAME CHANGE: 19990913 10-K 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 000-29053 Telaxis Communications Corporation ----------------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-2751645 -------------------------------- --------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 20 Industrial Drive East South Deerfield, MA 01373 --------------------------------------- (Address of principal executive offices) (413) 665-8551 -------------- (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Name of each exchange Title of each class on which registered Common Stock, $.01 Par Value Nasdaq National Market 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 Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Company's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. As of February 28, 2001, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Company was $22,034,565. Shares of voting and non-voting common equity held by each executive officer, key employee and director identified in Item 10 below and by each person who beneficially owns 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The aggregate market value has been computed based on a price per share of $1.63, which is the average of the high and low sales prices on February 28, 2001. On such date, the Company had 16,742,023 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the registrant's 2001 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K. PART I This Annual Report on Form 10-K contains forward-looking statements as defined by federal securities laws. Forward-looking statements are predictions that relate to future events or our future performance and are subject to known and unknown risks, uncertainties, assumptions, and other factors that may cause actual results, outcomes, levels of activity, performance, developments, or achievements to be materially different from any future results, outcomes, levels of activity, performance, developments, or achievements expressed, anticipated or implied by these forward-looking statements. Forward-looking statements should be read in light of the cautionary statements and important factors described in this Form 10-K, including Item 7--Management's Discussion and Analysis of Financial Condition and Results of Operations, Safe Harbor for Forward-Looking Statements. We undertake no obligation to update or revise any forward-looking statement to reflect events, circumstances or new information after the date of this Form 10-K or to reflect the occurrence of unanticipated events. Item 1. Business. Overview We develop and supply broadband wireless access products. Using our products, network service providers can bridge the "last mile" between the telecommunications backbone and a subscriber's premises wirelessly to deliver high-speed integrated voice, video and data services to their customers. To date, we have developed our products for use in point-to-multipoint wireless access systems. In this structure, a single base station (or hub) provides two-way connectivity to the customer premises equipment (or CPE) located at multiple subscribers' premises out to a range of approximately two to three miles. This structure allows a network service provider to enter markets quickly and economically and then expand its network efficiently as the number of subscribers grows. We have recently expanded the scope of our business to include products for use in point-to-point wireless access systems. We were formed as a Massachusetts corporation in January 1982 under the name "Millitech Corporation." In 1995, we began focusing on the broadband wireless access market. In August 1999, we decided to focus all of our resources on this market and to dispose of our historical millimeter-wave products business. That disposition occurred in February 2000, shortly after the initial public offering of our stock. See Item 7--Management's Discussion and Analysis of Financial Condition and Results of Operations, Overview and Item 8-Financial Statements and Supplementary Data, Note 2 to Financial Statements. In December 1999, we changed our name to "Telaxis Communications Corporation" to reflect our new focus on the broadband wireless access market. Industry Background The Growing Demand for Broadband Communications The amount of data being transmitted over the Internet and private communications networks is increasing rapidly due to the growing number of users accessing these networks and the increasing range of data-intensive activities for which they use these networks. Businesses increasingly use the Internet to enhance their reach to customers and suppliers with applications such as electronic commerce, supply chain management, web hosting, global marketing and customer support. Businesses are also using the Internet to create data networks among corporate sites, remote offices and telecommuters in order to facilitate employee communications, e-mail, file sharing, and research and analysis. Consumers use the Internet to communicate, collect and publish information, conduct retail purchases and access online entertainment. These network-based business and consumer activities require the transmission of increasingly large amounts of data quickly and reliably. As a result, broadband access is becoming increasingly important. 2 Deregulation and Competition are Driving Deployment of Broadband Access Technologies Global telecommunications deregulation is creating significant competition among providers of advanced communications services, thereby accelerating the deployment of broadband access technologies. In the United States, incumbent telephone companies such as BellSouth, SBC Communications, US West (now a part of Qwest Communications International), and Verizon were, until recently, the exclusive providers of the copper wire connections between their network backbones and subscribers. The federal Telecommunications Act of 1996 intensified the competitive environment in the United States by requiring telephone companies to lease portions of their networks, including the last mile, to competing carriers. Additionally, telephone companies and cable operators are seeking to expand their service offerings by entering each others' markets. Similar deregulation and competition are occurring in many regions of the world. To compete in this environment, many network service providers seek to differentiate themselves and maximize revenue per subscriber by offering integrated voice, video and data services, which require broadband access. Developing Regions are Installing Communications Infrastructure In many parts of the world, communication services are either inadequate or non-existent due to the lack of existing infrastructure. A number of countries, such as Argentina and Colombia, in developing regions have privatized their state-owned telecommunications monopolies and opened their markets to competitive network service providers. In constructing new networks, many network service providers deploy broadband access technologies to expand the services they offer and maximize revenue. Traditional Network Access Solutions Have Limitations To meet the growing demand for high-speed data transmission, many network service providers have installed high-speed fiber optic transmission equipment, switches and routers in the Internet backbone and in interoffice networks. While the network backbone is capable of delivering data at very high speeds, a bottleneck exists in the last mile, which was originally built to provide traditional analog telephone service. Along the fiber optic network backbone, data moves at speeds up to 10 billion bits per second, or 10 Gbps, over a single channel of a Dense Wavelength Division Multiplexed, or DWDM, optical fiber, each of which can accommodate many such channels. Subscribers have traditionally connected to the backbone using dial-up analog modems, which transmit data at rates up to 56.6 thousand bits per second, or 56.6 Kbps, or using integrated services digital network, or ISDN, modems, which transmit data at rates up to 128 Kbps. At these modem speeds, several minutes are often required to access a media-rich web site, and several hours may be required to transfer or download large files. This bottleneck frustrates subscribers and limits the capability of network service providers to satisfy the demand for high-speed Internet access, multimedia entertainment, real-time telecommuting and branch office inter-networking. Additionally, the continued growth in both the number of analog modem users and their time spent connected to the Internet compounds the congestion experienced on many networks. Where subscribers require higher-speed connections, network service providers have traditionally deployed copper-based T1 services in the United States and E1 services internationally. A T1 line is a high-capacity, dedicated telecommunications line which can support data transmission rates of up to 1.5 million bits per second, or 1.5 Mbps, which is 26.5 times the speed of analog modems. An E1 line can support data transmission rates of up to 2.0 Mbps, or 35 times the speed of analog modems. Although T1 and E1 services have met the broadband access needs of many large businesses, these services are either unavailable to or prohibitively expensive for many small businesses, remote offices, telecommuters and consumers. Alternative Access Solutions are Emerging Because analog and ISDN modem technologies do not satisfy the high-speed access needs of many subscribers, and T1 or E1 access is often unavailable or prohibitively expensive, alternative access solutions have been developed such as: 3 Digital Subscriber Line. Digital subscriber line, or DSL, technology improves the data transmission rate of a telephone company's existing copper wire network. However, most deployments offer either high-speed asymmetrical services or slower symmetrical services. Asymmetrical data rates provide higher transmission speeds from the network to the subscriber and lower speeds from the subscriber to the network. Symmetrical data rates provide equal transmission speeds to and from the subscriber. Digital subscriber line transmission rates are limited by the length and quality of available copper wires and by the number of wires in a bundle that are used for data transmission. As the number increases, interference among the wires in the bundle also increases. Cable. Two-way cable modems enable data services (typically asymmetrical) to be delivered over a network originally designed to provide television service to residential subscribers. Cable networks connect to the home using coaxial cable, which has greater transmission capacity than the copper wires used by telephone companies. However, these networks often are costly to upgrade for two-way data services and few businesses have coaxial cable connections. The data rate available to each subscriber in a service area typically decreases as the number of subscribers increases. Fiber Optic Cable. Fiber offers the highest data transmission rate of any access solution, but is the most costly to deploy. Corporations and institutions use fiber connections where critical operations require these data rates. Satellite. Broadband satellite solutions enable asymmetrical, two-way access services. These solutions use broadcast satellite technology for high-speed transmissions from the network service provider to the subscriber, but generally use slower wire-based connections to transmit data from the subscriber to the network service provider. The data rate available to each subscriber in a service area decreases as usage increases. Point-to-Point Wireless. Point-to-point wireless technology enables symmetrical data services using a dedicated link between a subscriber and a network. However, the network service provider must install dedicated equipment at each end of a link for each new subscriber. Therefore, economies of scale, in this case the ability to reduce installation costs as the number of subscribers increases, are limited. Laser. Like point-to-point wireless technology, laser technology enables symmetrical data services using a dedicated link between a subscriber and a network. However, laser technology transmits data by means of beams of light. In addition to the need for dedicated equipment at each end of a link for each new subscriber, lasers typically operate only over short distances, require very precise aiming of the equipment, and experience degradation of the transmission in inclement weather. Broadband Point-to-Multipoint Wireless. Point-to-multipoint wireless technology enables a single hub to support multiple CPEs rather than requiring dedicated equipment at each end of a link for each new subscriber. Broadband point-to-multipoint wireless access technology enables network service providers to enter a market economically and quickly using a single hub and a small number of CPEs without the need to install wire, cable or fiber. They can then add subscribers rapidly and cost-effectively, as each installed hub can support multiple CPEs. Mass Deployment of Broadband Point-to-Multipoint Solutions Presents Challenges Broadband point-to-multipoint wireless access equipment typically must be tailored for frequency requirements that vary from country to country and within each country. A further complication is caused by the lack of universal standards for equipment specifications and protocols. As a result, suppliers of broadband point-to-multipoint wireless access equipment face challenges in achieving economies of scale and developing cost-effective products suitable for deployment to many subscribers. Conventional industry practice traditionally has been to build broadband point-to-multipoint wireless access equipment using multiple modules connected by small metal pipes and wires. This approach requires considerable hand assembly and tuning and is not well suited to automated manufacturing. Therefore, assembly is often outsourced to low-cost labor environments, which greatly reduces the ability to deliver tailored products in a timely fashion. 4 An opportunity exists to substantially reduce the cost of broadband point-to-multipoint wireless access equipment by integrating the functionality of multiple conventional modules onto printed circuit boards, thereby enabling the use of low-cost manufacturing processes. However, major technical difficulties have plagued the development and production of printed circuit boards that operate at high frequencies and at high data rates because they typically generate distorted or unwanted signals. Strategy Our objective is to be the leading worldwide provider of radio frequency, or RF, products for broadband wireless access systems. Our strategy to accomplish this objective is to: Expand our position in the global market for point-to-multipoint RF products with our next-generation planar products. Our strategy is to secure new customer relationships by delivering next-generation planar RF products to network system integrators to meet their performance requirements while reducing equipment size and cost. These next-generation, planar products take advantage of our years of experience in developing and shipping thousands of planar products to arrive at a more highly integrated, planar architecture than we have used in the past. This architecture enables automated pick and place assembly and interconnection of planar circuit elements on a single, die-cast metal plate with no internal connectors or wires and with a minimum of specialty electronic components. The architecture also enables automated functional and thermal testing of completed products. Use our next-generation, planar architecture to develop RF products for high-data-rate, point-to-point wireless access systems. A rapidly growing segment of the wireless access industry is for point-to-point radios that provide high data rates of 155 Mbps or greater and that operate at frequencies up to 40 gigahertz, or GHz. These systems are addressing a need for broadband access at data rates that are generally not available except with fiber optic cable or lasers. The RF equipment historically incorporated into these systems uses relatively expensive, modular architectures with high material and labor costs. Opportunity exists to reduce the cost of point-to-point wireless access equipment by applying our printed circuit board technology developed for point-to-multipoint wireless access products. This product technology and the associated manufacturing equipment and processes can be applied to point-to-point products, which should enable improved margins or more competitive pricing for suppliers of these systems. Exploit our recently announced Virtual Fiber Radio(TM) to expand our product offerings beyond our traditional RF products. Our new Virtual Fiber Radio(TM), or VFR, will enable us to address a new segment of the wireless access market in the millimeter-wave spectrum above 40 GHz. By using the large amounts of unallocated spectrum above 40 GHz, the VFR is less complex than traditional millimeter-wave radios that are constrained to limited amounts of spectrum in licensed bands below 40 GHz. As a result, we expect that the VFR will be smaller and lower cost than traditional point-to-point, millimeter-wave radios. Expand strategic relationships with network system integrators. We believe successful deployment of broadband wireless access equipment requires close working relationships with network system integrators. We have established relationships with Alacatel and Marconi for product development and supply. Our relationships with key industry leaders offer us insight into market requirements and deployment trends, which shapes development of our long-term product strategy. We intend to build upon our existing relationships and establish new relationships with network system integrators to increase distribution of our products and build brand awareness. Establish brand identity. We intend to establish brand awareness with network service providers and to build upon our position in the broadband point-to-multipoint wireless access equipment market. Historically, our products have been sold primarily under private label by prominent network system integrators. In the future, we intend to increasingly brand or co-brand our products to build name recognition. In addition, we plan to invest in a broad range of marketing programs, including participation in trade shows, advertising in print publications, direct marketing to major customers and web-based marketing. 5 Products We presently develop and supply RF hub and CPE products for point-to-multipoint wireless access networks. Our products operate at various frequencies ranging from 24 GHz to 44 GHz and are available with a range of interfaces, including hybrid fiber coax, or HFC, and Digital Audio-Visual Council, or DAVIC. Initially, we developed and supplied products using a flexible, modular architecture, consistent with conventional industry practice. The advantage of this approach was that it allowed us to deliver a tailored solution very rapidly for network service provider site demonstrations and initial stages of deployment. However, this type of product was fairly expensive. Therefore, we have focused our efforts on developing RF products based on a planar, printed circuit board architecture. The advantage of this approach is that it results in lower cost products. However, developing planar products is technically challenging and tends to take longer than for modular products. We are also developing our Virtual Fiber RadioTM and anticipate the adaptation of our point-to-multipoint, planar technology to the development of point-to-point wireless access products. Point-to-Multipoint CPE Products We have concentrated our development efforts on the CPE unit. Because multiple CPEs are supported by each hub in a point-to-multipoint deployment, cost reduction of the CPE has the most significant impact on the ability of a network service provider to deploy broadband access services to its customers on a cost-effective basis. Our next-generation, planar CPE is a highly integrated unit using single-board, planar architecture that enables highly automated, cost-effective manufacturing. Point-to-Multipoint Hub Products Each hub provides two-way connectivity to multiple CPEs out to a range of approximately two to three miles. For some customers, our planar hub consists of separate transmitter and receiver units that are deployed together to provide two-way connectivity. For other customers, our planar hub consists of a single unit that performs both transmit and receive functions. Like the planar CPEs, our planar hubs are highly integrated units using single-board, planar architecture that enables highly automated, cost-effective manufacturing. This design approach enables network service providers to lower their costs of deployment in commercial service buildouts. Point-to-Point Products Our point-to-multipoint printed circuit board technology can be adapted to develop RF products for point-to-point wireless access systems. The RF equipment historically incorporated into these systems uses relatively expensive, modular architectures with high material and labor costs. We believe that the technology and skill base we have acquired through our developing and supplying thousands of planar point-to-multipoint products will enable us to develop cutting-edge, cost-effective point-to-point RF products. Our plan is to adapt our point-to-multipoint CPE technology for use at each end of a point-to-point radio link, thereby providing a more cost effective RF product than is commonly used in point-to-point wireless access systems. Virtual Fiber Radio(TM) We are currently developing our Virtual Fiber Radio(TM) to operate at frequencies above 40 GHz. This patent-pending product is being designed to enable direct fiber optic connection to wireless transceiver units and transparently transmit fiber optic signals over a wireless link without the use of conventional modems. We are currently developing prototype Virtual Fiber Radios(TM) and expect to have the prototypes available in 2001. Customers We sell our products primarily to network system integrators, primarily Alcatel. The network system integrators in turn develop complete broadband network solutions for their customers, the network service providers. Occasionally, we sell our products directly to network service providers. 6 For the year ended December 31, 2000, sales to Alcatel represented 93% of sales. For the year ended December 31, 1999, sales to Alcatel (then known as Newbridge Networks) represented 88% of sales and sales to Convergence Communications represented 6% of sales. Our relationship with Alcatel began in 1998. In that year, we entered into product development and reseller agreements with Newbridge Networks. In those agreements, we agreed to develop, manufacture, and sell broadband wireless access products to Newbridge Networks. Newbridge Networks was acquired by Alcatel in May 2000. Following the acquisition, we continued to supply the same products to Alcatel for a period of time. However, in the fourth quarter of 2000, Alcatel changed the approval processes relating to product development and production from the approval processes used by Newbridge Networks prior to its acquisition by Alcatel. In addition, Alcatel stated it would not accept any additional products from us until the new approval processes had been completed. These changes caused us to suspend production of products for Alcatel. We are currently addressing the open issues with Alcatel. However, our relationship with Alcatel remains unsettled, and the timing of completion of the new approval processes and resumption of production remains uncertain. We cannot predict when, if at all, the open issues will be resolved and when, if at all, we will resume shipping products to Alcatel. We also have a relationship with Marconi. Marconi has chosen us to develop and supply 28 GHz point-to-multipoint hubs and CPEs for the European market, and we are in the process of developing those products. The relationship may be expanded to address other frequency bands, other markets, and different types of products (such as point-to-point products). We previously developed and supplied broadband wireless access products to Motorola. Motorola has informed us that it has decided to discontinue its efforts to develop, sell and deploy high-frequency point-to-multipoint wireless access networks. Therefore, we agreed with Motorola to cancel the remaining deliveries contemplated under our agreement with Motorola. We also previously developed and supplied broadband wireless access products to LG Information & Communications. Our agreement with LG Information & Communications for commercial deliveries of these products was conditional on LG Information & Communications being able to obtain satisfactory modems to work with our products. Since LG Information & Communications was not able to obtain satisfactory modems, our agreement with LG Information & Communications for commercial deliveries has been cancelled. We are currently negotiating with LG Information & Communications concerning the payment of the account receivable of approximately $950,000 arising from our delivery of prototype products to them. We have had a joint development program underway with Adaptive Broadband. The goal of that program was to create a product that combined the strengths of the two companies - the modem and lower frequency skills of Adaptive Broadband with our high frequency skills. Adaptive Broadband recently announced a restructuring of its business to concentrate on lower frequencies. Therefore, we believe that the joint development program will be discontinued. Manufacturing We have developed extensive expertise in automated assembly and testing of planar wireless access products that operate at high frequencies. In addition, we have installed an automated shop floor control system and an automated data collection and analysis system. We have focused these capabilities on the development of manufacturing strategies for high-volume production of cost-effective broadband wireless access products. We develop our automated manufacturing processes and automated test equipment concurrently with the design and development of our products. We use our internal final assembly and automated test facility to validate our manufacturing processes in a carefully controlled environment. For high-volume production, we are supplementing our manufacturing capacity by establishing relationships with manufacturing partners. We have signed an agreement with C-MAC Industries for them to manufacture our products for us. Given that we have suspended production of products for our major customer Alcatel, C-MAC Industries is not currently manufacturing any products for us. 7 Electronic components and raw materials used in our products are generally obtained from a large number of suppliers. Some components are standard items and others are manufactured to our specifications. We obtain certain components from a single source or limited number of sources. We typically do not have supply agreements of a term longer than one year with these vendors. In 2000, we experienced increasing demand for the components and raw materials used in our products, and in some cases we were put on allocation due to shortages. As a result, we purchased or committed to purchase quantities sufficient to meet our expected production requirements. However, our actual production requirements were lower than we had anticipated. This caused us to have substantial excess inventory on hand and to negotiate with numerous suppliers for the cancellation of open orders. See Item 7--Management's Discussion and Analysis of Financial Condition and Results of Operations, Safe Harbor for Forward-Looking Statements. Marketing, Sales and Customer Service The global communications equipment industry is dominated by a limited number of network system integrators. As a result, we focus our marketing efforts on network system integrators and their customers, the network service providers. Our marketing activities target technical experts and product managers who heavily influence purchase decisions. We build brand awareness through several promotional programs, including participation in trade shows, speaking at industry forums, Web-based communication and promotion, and publication of press releases. Our sales approach is to start by establishing a technical relationship with a potential customer. We then assign an account manager to develop the relationship. The relationships typically involve product development and supply and supporting our customer in their efforts to sell wireless access systems using our products. A key element of our sales approach is to be highly responsive to customers' needs. We provide customer service in the following areas: o System engineering. We provide engineering support for system site demonstrations, site surveys, specification development, integration of third-party equipment, installation and follow-on test support. o Problem resolution. We provide prompt responses to customer problem reports, including telephone support, field service, and repair or replacement of equipment. o Field support. Our customer service personnel are on call to provide global field support. We provide field support primarily for site demonstrations and initial deployments. o Repairs. We maintain a repair center staffed with technicians who work directly with our quality assurance team to analyze failures and repair equipment. Currently, we conduct all customer support activities from our South Deerfield, Massachusetts headquarters. We may establish support centers closer to our major customer deployments. Customer support is ancillary to the sale of our products and is not currently considered to be a separate revenue-generating line of business. Additional description concerning our sales activities, including geographical sales information, is contained below in Item 7--Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 8--Financial Statements and Supplementary Data, Notes 1 and 16 to Financial Statements. 8 Research and Development The goal of our development activities is to reduce the cost and increase the functionality of our products, while adapting them to the frequency and interface specifications required for new markets. Our experience in millimeter-wave and microwave technologies enables us to develop cost-effective broadband wireless access products. As a result of our experience over the past three years in developing over twenty-five planar RF products, we are now developing the next generation of products that are more highly integrated than our previous products. We also are continuing to advance our core competencies and to extend these core competencies to meet rapidly changing market needs. For example, we are developing our Virtual Fiber RadioTM and anticipate the adaptation of our point-to-multipoint, planar technology to the development of point-to-point wireless access products. See Item 1--Business, Products above. Our multidisciplinary research and development team consists of engineers and scientists whose specialties include microwave engineering, millimeter-wave engineering, electrical engineering, mechanical engineering, chemistry, physics, computer science and materials science. We also maintain close working relationships with the University of Massachusetts and various technical organizations. We also have entered into relationships with other companies when we believe they have skills that could benefit us. We initially entered into a joint design and manufacturing agreement with California Amplifier. In this agreement, California Amplifier agreed to manufacture our existing CPEs, to assist us in designing improvements to lower the cost of our existing CPEs, and to manufacture the redesigned CPEs. In 2000, we replaced that agreement with an agreement by which we paid California Amplifier a one-time license fee and obtained rights to use the technology they had developed in any of our products. We continue to consider similar relationships in appropriate circumstances. Additional description concerning our research and development activities, including research and development expense for fiscal years 2000, 1999, and 1998 and customer-sponsored research activities, is contained below in Item 7--Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 8--Financial Statements and Supplementary Data, Note 1 to Financial Statements. Competition The market for broadband point-to-multipoint wireless access equipment is rapidly evolving and highly competitive. A number of large telecommunications equipment suppliers, such as Alcatel, Ericsson and Nortel Networks, as well as a number of smaller companies, have developed or are developing products that compete with ours. Many of our competitors are substantially larger than we are and have significantly greater financial, sales, marketing, distribution, technical, manufacturing and other resources. These competitors may make strategic acquisitions or establish cooperative relationships among themselves or with third parties to increase their ability to gain market share rapidly. We expect to face increasing competitive pressures from both current and future competitors in the markets we serve. The rapid technological developments within the network equipment industry result in frequent changes to our group of competitors. The principal competitive factors in our market include price; ability to manufacture and distribute products; product performance, features and inter-operability; product development speed; product availability; relationships with network system integrators and network service providers; technical support and customer service; and brand recognition. Broadband point-to-multipoint wireless access solutions are also competing with other high-speed solutions such as digital subscriber lines, cable, fiber, other high-speed wire, laser, satellite and point-to-point wireless technologies. Many of these alternative technologies can take advantage of existing installed infrastructure and have achieved significantly greater market acceptance and penetration than broadband point-to-multipoint wireless access technologies. We expect to face increasing competitive pressures from both current and future technologies in the broadband access market. 9 Intellectual Property We rely on a combination of patent, copyright, trademark, and trade secret laws, as well as confidentiality agreements, to establish and protect our proprietary rights. Our success depends to a significant degree upon the preservation and protection of our product designs and other proprietary technology. Although we employ a variety of intellectual property in the development and manufacturing of our products, we believe that none of our intellectual property is individually critical to our current operations. However, taken as a whole, we believe our intellectual property rights are significant. See Item 7--Management's Discussion and Analysis of Financial Condition and Results of Operations, Safe Harbor for Forward-Looking Statements. We have been granted one material United States patent, which relates to our antenna and transceiver designs and will remain in force until September 2018. In addition, we have eleven United States patent applications pending. We have been granted two counterpart foreign patents and have counterpart patents pending in ten international jurisdictions. We plan to continue to pursue intellectual property protection in foreign countries (primarily in the form of international patents) in instances where the technology covered is considered important enough to justify the added expense. We have eleven United States trademark applications pending. In addition, we have trademark applications pending in eleven international jurisdictions. Employees On February 28, 2001, we had 163 employees, including 54 in manufacturing, 66 in engineering, 11 in quality assurance, 7 in sales, marketing and customer service, and 25 in finance and administration. We are not a party to any collective bargaining agreement. We believe that relations with our employees are good. Item 2. Properties. We lease approximately 63,000 square feet of facilities comprised of two buildings in South Deerfield, Massachusetts. One building is used primarily for engineering and the second primarily for manufacturing. The term of the lease for the two buildings expires in October 2005. We also lease approximately 10,200 square feet in Richardson, Texas, which is used primarily for engineering. The term of the Texas lease expires in December 2006. Item 3. Legal Proceedings. We are not currently a party to any material legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of stockholders during the three months ended December 31, 2000. 10 PART II Item 5. Market for Company's Common Equity and Related Stockholder Matters. Market Information On February 2, 2000, we completed an initial public offering ("IPO") of our common stock. Our common stock is quoted on the Nasdaq Stock Market's National Market, under the symbol "TLXS". For all periods prior to the IPO, there was no established public trading market for our common stock. The following table shows the high and low bid prices of our common stock for each indicated fiscal period as reported by The Nasdaq Stock Market: Fiscal Year 2000 High Low - ---------------- ---- --- First Quarter (ended 3/31/00) $120.25 $43.563 Second Quarter (ended 6/30/00) $ 79.438 $17.063 Third Quarter (ended 9/30/00) $ 36.125 $ 4.063 Fourth Quarter (ended 12/31/00) $ 7.50 $ 0.688 As of February 28, 2001, the number of stockholders of record of our Common Stock was approximately 279. We have never declared or paid any cash dividends on any class of our common equity. We currently intend to retain any future earnings to fund the development and growth of our business. In addition, under our credit facilities, we generally cannot pay cash dividends without our creditors' consent. Therefore, we currently do not anticipate paying cash dividends in the foreseeable future. Recent Sales of Unregistered Securities We issued or sold the following unregistered securities in the three months ended December 31, 2000: o An aggregate of 62,500 shares of common stock at $1.00 per share in December 2000 to a warrant holder upon the exercise of warrants. The sale described above was completed without registration under the Securities Act in reliance upon the exemptions contained in Section 4(2) of the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act for transactions not involving a public offering. The sale of the securities described above did not involve the use of an underwriter, and no commissions were paid in connection with the sale of the securities described above. Use of Proceeds from Registered Offerings On February 1, 2000, the Securities and Exchange Commission declared effective a Form S-1 Registration Statement (File No. 333-87885) filed by us in connection with an initial public offering of 4,600,000 shares of our common stock, par value $.01 per share. The offering of common stock commenced on February 2, 2000 and closed on February 7, 2000 with all of the 4,600,000 shares sold at a price of $17.00 per share for an aggregate price of $78.2 million. All shares were sold by Telaxis; there were no selling stockholders. Credit Suisse First Boston was the lead managing underwriter of the offering, and Banc of America Securities LLC and CIBC World Markets Corp. were co-managers of the offering. The gross proceeds of the offering were approximately $78.2 million. We incurred approximately $7.1 million of expenses in connection with the offering, of which approximately $5.5 million represented underwriting discounts and commission, and $1.6 million represented offering costs, including legal fees, accounting fees, underwriters' out-of-pocket expenses and printing expenses. 11 We received approximately $71.1 million of net proceeds from the offering. Those net proceeds will be used for general corporate purposes. Pending such use, the net proceeds have been invested in short-term, interest-bearing, investment grade securities or direct or guaranteed obligations of the U.S. government. From the time of receipt through December 31, 2000, we have applied our net proceeds from the offering toward working capital, financing capital expenditures, and funding operating losses. Net cash used from the offering through December 31, 2000 for operating activities totaled $30.1 million. Item 6. Selected Financial Data. Set forth below is certain historical selected financial data with respect to the Company which has been derived from the audited financial statements of the Company for each of the respective years. We have never declared or paid any cash dividends.
Year Ended December 31, ------------------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- (in thousands, except per share data) Statement of Operations Data Sales ............................... $ 24,753 $ 9,720 $ 2,386 $ 1,733 $ 201 Loss from continuing operations ..... (37,634) (8,293) (11,253) (6,712) (2,239) Basic and diluted loss per share from continuing operations ............. (2.54) (13.68) (22.87) (14.16) (4.15) Year Ended December 31, ------------------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- (in thousands) Total assets ........................ $ 65,538 $ 25,297 $ 14,955 $ 20,059 $ 10,728 Long-term debt and capital lease obligations, net of current portion 3,225 2,385 1,047 1,690 3,257 Total liabilities ................... 15,439 11,925 6,753 9,632 7,823 Redeemable preferred stock .......... -- 47,793 32,793 25,425 12,465 Total stockholders' (deficit) equity 50,099 (34,421) (24,591) (14,998) (9,560)
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Overview We develop and supply broadband wireless access products used by network service providers to deliver integrated voice, video and data services to business and residential subscribers. We sell our products primarily to network system integrators, which include our products in broadband wireless systems sold to network service providers. Our planar products, based on a printed circuit board design, can be mass-produced using low-cost, highly automated manufacturing techniques. These planar products address a network service provider's need for cost-effective deployment to many subscribers. We commenced operations in 1982 and have derived the significant majority of our sales from our millimeter-wave products business segment prior to 1999. Millimeter waves are electromagnetic waves having wavelengths between one and ten millimeters. In August 1999, we adopted a plan to focus all of our resources on our broadband point-to-multipoint wireless access business segment and to dispose of the millimeter-wave products segment. We decided to dispose of this segment because it would have required us to reallocate financial and management resources from the more attractive broadband point-to-multipoint wireless access business segment. The segment was sold on February 8, 2000. As a result, we have presented the operations of the millimeter-wave products segment as a discontinued operation in our financial statements. The following management's discussion and analysis focuses on our ongoing broadband point-to-multipoint wireless access business. 12 We anticipate that network system integrators for point-to-point wireless access networks will accept the point-to-point RF products we intend to develop based on our point-to-multipoint wireless access product experience. We also anticipate that our recently announced Virtual Fiber RadioTM will become an important part of our business. Our first prototype broadband point-to-multipoint wireless access equipment was evaluated in a trial in 1995. Before receiving our first volume order for equipment in June 1999, virtually all of our shipments of products were for site demonstrations and initial commercial deployments. For the year ended December 31, 2000, approximately 93% of our sales were to a customer located in Canada and 4% of our sales were to customers located in the United States. For the year ended December 31, 1999, approximately 88% of our sales were to a customer located in Canada, and 12% of our sales were to customers located in the United States. For the year ended December 31, 1998, approximately 48% of our sales were to customers located in the United States, 30% of our sales were to a customer located in Canada, 12% of our sales were to a customer located in Ecuador, and 10% of our sales were to customers located in other countries, including South Korea, England and Australia. We expect that sales to customers located outside the United States will continue to be significant. Results of Operations The following table provides continuing operations data as a percentage of sales for the periods presented. The percentages may not add due to rounding.
Year Ended December 31, ----------------------- 2000 1999 1998 Sales ................................................... 100.0% 100.0% 100.0% Cost of Sales ........................................... 119.6 93.0 315.0 Charges relating to excess inventory on hand and on order 71.7 -- -- ------ ----- ------ Gross margin (loss) ..................................... (91.3) 7.0 (215.0) Operating expenses Research and development, net ......................... 34.8 50.1 209.3 Selling, general and administrative ................... 36.5 37.2 127.7 ------ ----- ------ Total operating expenses ............................ 71.3 87.3 337.1 Operating loss .......................................... (162.6) (80.3) (552.1) Other income (expense) .................................. 10.6 (5.0) 31.7 ------ ----- ------ Loss from continuing operations before income taxes ..... (152.0) (85.3) (520.3) Income tax benefit ...................................... -- -- (48.7) ------ ----- ------ Loss from continuing operations ......................... (152.0)% (85.3)% (471.6)% ====== ===== ======
Years Ended December 31, 2000, 1999 and 1998 Sales Sales increased 155% to $24.8 million in 2000 from $9.7 million in 1999. Sales increased 307% from $2.4 million in 1998 to $9.7 million in 1999. The increase in sales in each period primarily reflects an increase in shipments of our planar products to approximately $23.4 million in 2000 from $8.2 million in 1999 and $500,000 in 1998. Sales in units of our planar products were 13,709 in 2000, 3,755 in 1999 and 207 in 1998. Cost of Sales Cost of sales consists of component and material costs, direct labor costs, warranty costs, overhead related to manufacturing our products and customer support costs. Cost of sales increased $20.6 million to $29.6 million in 2000 from $9.0 million in 1999. Cost of sales increased $1.5 million to $9.0 million in 1999 from $7.5 million in 1998. The increase in cost of sales from 1999 to 2000 and from 1998 to 1999 was attributable primarily to 13 increased shipments of our planar products. Gross margins were a negative 91% in 2000, a positive 7% in 1999 and a negative 215% in 1998. The decline in gross margin from 1999 to 2000 was primarily a result of charges of $17.7 million related to excess inventory on hand and on order. These charges are the result of the ongoing evaluation of the relationship with a major customer, Alcatel. Excluding the effect of the charges related to excess inventory on hand and on order, gross margin for the year ended December 31, 2000 would have been negative 20%. This portion of the negative gross margin was principally due to increases in equipment and personnel to support the forecasted delivery requirements of our customers, the costs associated with qualification and initial production at our contract manufacturing location in Canada, and the effects of significant reductions in production volume in the second half of 2000. The improvement in gross margin from 1998 to 1999 resulted from increased efficiencies attributable to larger order and production volumes as the transition began to occur from trial and initial qualification to full scale network deployments. In the third quarter of 2000, we incurred a charge of $1.9 million to reserve for obsolete inventory which resulted from changes in product configuration and shifts in customer demand. In the fourth quarter of 2000, the $17.7 million charge related to excess inventory on hand and on order resulted from significant declines in requirements for Alcatel. Procurements and commitments for material placed earlier in 2000 were reviewed and evaluated in the context of the Alcatel relationship, resulting in a write down to their expected net realizable value. In 1998 we purchased various components and materials for certain equipment designs in advance of production in order to accelerate development and testing for rapid product deployment. Higher costs were incurred for low volume purchases and accelerated deliveries from suppliers to support the accelerated development schedules. During a review of the value of the total material costs for certain products compared to the estimated future selling prices, we reduced selected inventory amounts to their expected net realizable value. Research and Development Expenses Research and development expenses consist primarily of personnel and related costs associated with our product development efforts. These include costs for development of products and components, test equipment and related facilities. Gross research and development expenses increased 56% to $9.2 million in 2000 from $6.0 million in 1999. Our gross research and development expenses were $6.0 million in 1998. The increase from 1999 to 2000 reflects significant investments to further enhance our planar product design to accommodate low cost, high volume manufacturing and expand our designs for additional customer requirements. These activities required us to substantially increase the size of our research and development staff by 50% to 72 personnel at the end of 2000 from 48 at the end of 1999. Additionally, customer funding of development projects decreased 43% to $612,000 in 2000 compared to $1.1 million in 1999. From 1998 to 1999 we increased our research and development staff by 6 personnel. Partially offsetting this increase was a reassignment of 4 personnel to our customer support group and elimination of a senior management position. Some of our customers have provided funding to offset our development costs for specific products. Net of customer reimbursements, our research and development expenses increased 77% to $8.6 million in 2000 from $4.9 million in 1999 and decreased 2% from $5.0 million in 1998. Selling, General and Administrative Expenses Selling, general and administrative expenses consist primarily of employee salaries and associated costs for selling, marketing, customer support, information systems, finance, legal, and administration. Selling, general and administrative expenses increased 150% to $9.0 million in 2000 from $3.6 million in 1999. Selling and marketing expenses increased 19% to $3.6 million in 1999 from $3.0 million in 1998. These increases were primarily related to expenses to support the Company's growth and operation as a public company. The Company increased personnel in these functional areas by 10% to 56 in 2000 from 51 in 1999. The Company increased spending for travel, trade shows, and consulting in an effort to expand its customer base. Additionally, the Company incurred increased expenditures for recruitment of technical personnel and senior management positions. 14 Other Income (Expense) Other income (expense) consists of interest and dividends earned on cash, cash equivalents and marketable securities offset by interest expense and miscellaneous non-operating expenses. Total other income increased 641% to $2.6 million in income in 2000 from $484,000 in expense in 1999. Total other expense increased 164% to $484,000 in expense in 1999 from $757,000 in income in 1998. The change in other expense from 1999 to other income in 2000 was primarily due to interest and dividends earned on proceeds from the Company's initial public offering. Other income for 1998 included the recognition of $997,000 in income related to the termination of a development contract with a customer. Interest expense increased in 1999 by $283,000 to $756,000 in 1999 from $473,000 in 1998 primarily due to the amortization of $284,000 for a discount on subordinated promissory notes. Income Tax Benefit No tax benefit has been recorded in 2000 and 1999 due to the uncertainty in deducting current losses against future taxable income. We have recorded an income tax benefit in 1998 from continuing operations because the loss from continuing operations offsets income from discontinued operations. Liquidity and Capital Resources Since 1997, we have financed our operations primarily through the sale of redeemable preferred stock, from proceeds of our initial public offering in February 2000 and, to a much lesser extent, from cash generated by our discontinued operations. We have also issued subordinated notes and used equipment lease financing and bank lines of credit to provide cash. Our long term debt agreements in effect at December 31, 2000 contain certain financial covenants of which the most restrictive are the maintenance of a minimum debt-to-equity ratio and various profitability requirements. The 2000 events of default disclosed in the footnotes to the financial statements relate to the failure to meet a minimum sales revenue growth requirement, required under our line of credit facility in effect during 2000. The line of credit expired on November 30, 2000 and was not renewed by the Company. We raised net proceeds of $12.9 million in 1999 from the issuance of redeemable preferred stock. On February 7, 2000 the Company completed an initial public offering of 4,600,000 shares of its common stock at $17.00 per share under the terms and conditions contained in an underwriting agreement dated February 1, 2000 with various underwriters. We received net proceeds from our initial public offering of $71.1 million, after underwriting discounts and commission and offering costs, to be used primarily for general corporate purposes. At December 31, 2000, we had cash and cash equivalents of $27.9 million and marketable securities of $13.1 million. As of December 31, 2000, our line of credit facility, which was collateralized by substantially all of our assets, had expired and was not renewed by the Company. The agreement for the line of credit facility had required the Company to comply with certain covenants, including minimum working capital, minimum revenue growth, and tangible net worth. At December 31, 2000, we had approximately $1.7 million in long-term debt, of which $250,000 is due through June 2003 with an interest rate of 10%, and $1,487,000 is due through November 2003 with an interest rate of 12%. At December 31, 2000, we had approximately $3.6 million in capital lease obligations, which are due through 2003. Cash used in operating activities in 2000 was $30.4 million compared to $9.6 million in 1999 and $8.5 million in 1998. Cash used in operating activities has primarily represented funding of our net losses and inventory build to meet expected future production requirements. Cash used in investing activities in 2000 was $17.8 million compared to $2.5 million in 1999 and $3.7 million in 1998. In 2000, the amount principally related to the purchase of marketable securities and the purchase of equipment. In 1999 and 1998, these amounts related primarily to the purchase of equipment used in our manufacturing and research and development activities. 15 Cash provided by financing activities in 2000 was $69.5 million compared to $16.1 million in 1999 and $4.5 million in 1998. The financing activities in 2000 consisted primarily of the proceeds from our initial public offering. The financing activities for 1999 consisted primarily of the sale of redeemable preferred stock and the issuance of term notes collateralized by equipment. In 1998, financing activities consisted primarily of the issuance of redeemable preferred stock. Our future cash requirements will depend upon a number of factors, including the timing and level of research and development activities and sales and marketing campaigns, and our ability to significantly increase our sales orders and manufacturing volumes and improve our gross margin. We believe that our cash, cash equivalent and marketable securities balances at December 31, 2000 will provide sufficient capital to fund our operations for at least 12 months. Thereafter, we may require additional capital to fund our operations. In addition, from time to time we evaluate opportunities to acquire complementary technologies or companies. Should we identify any of these opportunities, we may need to raise additional capital to fund the acquisitions and our operations. There can be no assurance that additional financing will be available to us on favorable terms or at all. Disclosures About Market Risk The following discusses our exposure to market risk related to changes in interest rates, equity prices and foreign currency exchange rates. This discussion contains forward-looking statements that are exposed to risks and uncertainties, many of which are out of our control. Actual results could vary materially as a result of a number of factors, including those discussed below in "Safe Harbor for Forward-Looking Statements." As of December 31, 2000, we had cash and cash equivalents of $27.9 million. Substantially all of these amounts consisted of highly liquid investments with remaining maturities at the date of purchase of less than 90 days. As of December 31, 2000, we had marketable securities of $13.1 million which consisted of municipal and government bonds and commercial paper with maturities through June 2001. These investments are exposed to interest rate risk and will decrease in value if market interest rates increase. We believe a hypothetical increase or decrease in market interest rates by 10 percent from the December 31, 2000 rates would not cause the fair value of these investments to decline significantly, since the Company's investments mature within one year. Although an immediate increase in interest rates would not have a material effect on our financial condition or results of operations, declines in interest rates over time will reduce our interest income. At December 31, 2000, the Company's portfolio of marketable securities included a $2.5 million investment in commercial paper issued by Pacific Gas & Electric. Subsequent to the balance sheet date, the fair value of that investment has declined. The subsequent decline in fair market value was not recorded in the financial statements at December 31, 2000 because the Company believes the decline to be temporary. We do not own any material equity investments. Therefore, we do not currently have any direct equity price risk. Currently, all sales to international customers are denominated in United States dollars and, accordingly, we are not currently exposed to foreign currency exchange rate risks. Safe Harbor for Forward-Looking Statements This Annual Report on Form 10-K contains forward-looking statements as defined by federal securities laws which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, expectations, intentions, projections, developments, future events, performance or products, underlying assumptions and other statements which are other than statements of historical facts. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "contemplates," "believes," "estimates," "predicts," "projects," "potential," "continue," and other similar terminology or the negative of these terms. From time to time, we may publish or otherwise make available forward-looking statements of this nature. All such forward-looking statements, whether written or oral, and whether made by us or on our behalf, are expressly qualified by the cautionary statements described in this Form 10-K, including those set forth below, and any other cautionary statements which may accompany the forward- 16 looking statements. In addition, we undertake no obligation to update or revise any forward-looking statement to reflect events, circumstances or new information after the date of this Form 10-K or to reflect the occurrence of unanticipated events, and we disclaim any such obligation. We believe that the forward-looking statements included in this Form 10-K have a reasonable basis. However, forward-looking statements are only predictions that relate to future events or our future performance and are subject to known and unknown risks, uncertainties, assumptions, and other factors that may cause actual results, outcomes, levels of activity, performance, developments, or achievements to be materially different from any future results, outcomes, levels of activity, performance, developments, or achievements expressed, anticipated or implied by these forward-looking statements. As a result, we cannot guarantee future results, outcomes, levels of activity, performance, developments, or achievements, and there can be no assurance that our expectations, intentions, anticipations, beliefs or projections will result or be achieved or accomplished. In addition to other factors and matters discussed elsewhere in this Form 10-K, in our periodic reports and other filings made from time to time with the Securities and Exchange Commission, and in our other public statements from time to time (including, without limitation, our press releases), some of the important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include, without limitation, the following: o Relationship with Alcatel. One customer, Alcatel, accounted for 93% of our sales for the year ended December 31, 2000 and 88% of our sales for the year ended December 31, 1999. Our relationship with Alcatel began in 1998 when we agreed to develop and supply products for Newbridge Networks. Newbridge Networks was acquired by Alcatel in May 2000. Alcatel does produce products very similar to ours and could decide to stop procuring products from us. In the fourth quarter of 2000, Alcatel changed the approval processes relating to product development and production. As a result, we suspended production of products for Alcatel. We cannot predict when, if at all, we will resume volume production of products for Alcatel. Failure to resume production would have a negative impact on our expected sales and a negative impact on the value of the inventory we have procured to produce products for Alcatel, as well as a negative overall impact on our business. o Limited Number of Customers. Our customers are primarily a small number of network system integrators, and the loss of one or more of them could limit our ability to generate sales and adversely affect our business. We have no long-term purchase commitments or exclusive purchase agreements with these or any other customers. Because there are a relatively small number of network system integrators with the resources and technical expertise necessary to offer broadband wireless access systems, and because these network system integrators extensively test and evaluate products such as ours before making a purchase decision, we may be unable to replace our network system integrators quickly. Since we typically have to develop custom products for each customer, there is typically a period of months between the time we obtain a new customer and the time we start shipping production quantities of products to that customer. Moreover, because we may be able to supply only a few network system integrators due to capacity constraints, we may be unable to reduce our dependence on a few customers. o Limited Capital. Our operations to date have required substantial amounts of capital. As of the end of December 2000, we had approximately $41 million in cash, cash equivalents, and marketable securities. While we believe that our cash on hand will be sufficient to meet our working capital and capital expenditure needs for at least the next twelve months, we may need or want to raise additional capital. Our capital requirements will depend on numerous factors, including the commercial acceptance of our products, the demand for our products, potential changes in strategic direction, and the costs of our research and development efforts. Additional financing may not be available on favorable terms, if at all. If we cannot raise the additional capital we may need or want on acceptable terms, we may not achieve our business goals. If additional funds are raised through the issuance of equity securities, the percentage ownership of our current stockholders may be reduced, the value of their holdings of our 17 stock may be diluted, and such equity securities may have rights, privileges or preferences senior to those of our common stock. Alternatively, we may need to incur substantial debt or contingent obligations, which could adversely affect our cash flow, results of operations, financial condition, and business. Depending on the investors in any equity or debt offering, we may injure our existing business relationships with suppliers and customers. o Inability to Predict Date of Profitability. We have incurred substantial losses and may not be profitable in the future. We cannot predict when we will become profitable. Our failure to achieve profitability within the time frame investors expect may cause the market price of our stock to decline. o Fluctuation in Quarterly Results. Our sales and operating results are likely to fluctuate significantly and may fail to meet or exceed the expectations of securities analysts or investors, causing our stock price to fall. Factors that could cause our quarterly results to fluctuate include our relationship with Alcatel, the timing and size of orders for our products, the mix of our product sales (which we expect will shift over time generally toward our less profitable customer premises equipment), the hiring and loss of personnel, timing of expenditures for research and development activities, our lengthy sales cycle which makes it difficult to predict our future business operations and make plans for the future, our manufacturing capacity constraints and our ability to fulfill orders, our inability to obtain components and test and manufacturing equipment at the prices and times and in the quantities we need, the timing of our investments in additional manufacturing capacity, unexpected poor assembly or test yields for our products, price competition, new product introductions by us or by our competitors, disruptions in delivery of products manufactured by subcontractors or of components or subsystems provided by third-party suppliers, seasonal factors that may affect capital spending by customers, such as the varying fiscal year ends of customers, political instability, regulatory developments, conditions affecting the telecommunications industry generally or general economic conditions, acquisitions and other factors described in this section. o Stock Price Volatility. The market price of our common stock has been volatile and is likely to remain volatile. Potential reasons for volatility include our financial performance or the performance of our competitors, technological innovations or other trends in our industry, successes or failures at significant product evaluations or site demonstrations, the introduction of new products by us or our competitors, the arrival or departure of key personnel, acquisitions, strategic alliances or joint ventures involving us or our competitors, announcements by our customers, announcements by us concerning our relationship with our existing or new customers, changes in estimates of our performance or recommendations by securities analysts, decisions by major participants in the communications industry, decisions by investors to de-emphasize investment categories, groups or strategies that include our company or industry, and market conditions in the industry, the financial markets and the economy as a whole. o Qualified Personnel. Our success depends in part on our ability to attract, hire, train, retain and motivate qualified technical, production, management, marketing, sales, and other personnel with appropriate levels of capabilities. We believe that a significant level of expertise is required to develop and market our products effectively. Recruiting qualified personnel is an intensely competitive and time-consuming process. We compete for such personnel with a number of other companies, many of which have substantially greater resources than us. There can be no assurance that we will be successful in attracting and retaining the personnel we require to conduct and expand our business and operations successfully on a timely basis. Our ability to attract, hire, retain and motivate our personnel may be adversely impacted by our current business uncertainty, the recent reductions in the size of our workforce, and our lower stock price (since we grant many of our personnel options to buy our stock). The failure to attract, hire, train, retain and motivate qualified personnel in the future would have a material adverse effect on our business, financial condition and results of operations. 18 o Dependence on Key Personnel. Our performance is substantially dependent on the performance of our executive officers and other key employees. We have key-man life insurance only on John Youngblood. We do not currently have a succession plan in place. Loss of the services of any of our key executive officers or other key employees could have a material adverse effect on our business, financial condition and results of operations. o Reliance on Third-Party Suppliers. Our products include single-source and other critical components, and our inability to obtain these components at the prices we desire could halt production and could hurt our sales and lower our margins. Further, our inability to obtain these components in the quantities and at the times we desire could hurt our ability to expand our business as rapidly as we would like. We typically do not have any supply agreements of a term longer than one year with these vendors. Inability to develop alternative sources for these components or to obtain sufficient quantities of components could result in delays or reductions in product shipments. In the event of a reduction or interruption in the supply of a key component, a significant amount of time could be required to qualify alternative suppliers and receive an adequate flow of replacement components. Reconfiguration of our products to adapt to new components may also be required and could entail substantial time and expense. In addition, because the process of manufacturing certain of these components is extremely complex, our reliance on the suppliers of these components exposes us to potential production difficulties and quality variations, which could negatively affect the cost and timely delivery of our products. Given the reduction in our anticipated production in 2000, we had to negotiate with numerous suppliers concerning inventory we had ordered from them. This fluctuation in our business may make them unwilling or reluctant to supply components to us in the future. o Product Improvements. The market for telecommunications products and services is subject to rapid technological change, evolving industry standards, rapid changes in customer requirements and frequent product and service introductions and enhancements. We expect our competitors to continue to improve the performance of their current products and to introduce new products or new technologies that may supplant or provide lower-cost alternatives to our products. To be competitive, we must continue to invest significant resources in research and development, sales and marketing and customer support. We may be unable to achieve the continuing cost reductions and technological improvements required for our products to remain competitive. Market acceptance of our products, and our success, will depend in part on our ability to reduce the per-unit cost of our products. There can be no assurance that we will be able to keep pace with competitive pricing pressures or technological developments. o Difficulties in Developing New Products. We may be unable to develop new technology and new products (including, without limitation, our contemplated Virtual Fiber RadioTM and point-to-point RF products) with the features, performance, cost and other characteristics as currently contemplated or as desired by our customers or the market in general. Any new technology and new products we develop may not gain the market acceptance we anticipated. Development of new technology and new products may take longer than we expect, take more resources than we expect, and distract us from other portions of our business. o Difficulties in New Business Lines. We are contemplating the possible expansion of our business beyond just producing products for the broadband wireless point-to-multipoint market. For example, we are developing our Virtual Fiber RadioTM and contemplating the development of RF products for point-to-point wireless access systems. We may be unable to realize the anticipated benefits from expanding the scope of our business. We may be unable to successfully expand into new areas of business. We may incur unanticipated costs or liabilities in attempting to enter those new business areas. We may injure our existing business relationships with suppliers and customers by expanding the scope of our business. 19 o Delays in Development or Manufacture of Products. We may not be able to develop or manufacture our products as quickly as our customers require or would like. This manufacturing constraint could cause us to lose sales, damage our reputation, incur financial liabilities, and jeopardize our long-term prospects. o Difficulty in Estimating Costs. A large proportion of our sales are made pursuant to contracts that require delivery of products over several quarters or years. Typically the prices of products sold under these contracts are based largely on our estimate of our cost to develop and supply these products. Many times we need to make our estimates before we obtain experience in developing or manufacturing the products. If we incur higher costs than estimated in performing under these contracts, it could have a material adverse effect on our results of operation and financial condition. o Recent Focus on Current Business. We have only recently focused on the broadband wireless access market and, as a result, it is difficult to predict our future prospects in this market based on our limited history. Historically, our operations focused on a business segment that we discontinued in August 1999. The commercial market for our broadband wireless access products did not emerge until recently and is developing slower than we had initially anticipated. Therefore, there is limited financial data that can be used to evaluate our prospects in this market. o Intellectual Property Protection. Our future success will depend in part on our ability to protect our proprietary product and manufacturing process designs and other proprietary technology. Our intellectual property rights, and our ability to enforce those rights, may be inadequate to prevent others from using our technology or substantially similar technology they may independently develop. The use of that technology by others could eliminate any competitive advantage we have, cause us to lose sales and otherwise harm our business. A significant portion of our proprietary technology is know-how, and employees with know-how may depart before transferring their know-how to other employees. Moreover, the laws of other countries where we market our products may afford even less protection for our intellectual property. If we resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome and costly and divert the efforts of our technical and management personnel, even if we were to prevail. o Intellectual Property Infringement Claims. From time to time, third parties may assert patent, copyright, trademark and other intellectual property rights to technologies and in various jurisdictions that are important to our business. In addition, third parties may assert intellectual property right infringement claims against us. Any such assertions, with or without merit, could be costly and time-consuming, result in litigation (in which we may or may not prevail), divert the efforts of our technical and management personnel, cause product shipment delays, require us to develop new technology, or require us to enter into royalty or licensing agreements, any of which could have an adverse effect on our reputation, business, results of operations and financial condition. Royalty or licensing agreements, if required, may not be available on terms acceptable to us, if at all. In addition, we typically agree to indemnify our customers for any expenses or liabilities resulting from claimed infringements of patents, trademarks or copyrights of third parties. Any requirement for us to indemnify a customer could have a material adverse effect on our reputation, business, results of operations and financial condition. o Warranty and Product Liability Claims. Our business and financial condition could be adversely affected by warranty or product liability claims. Products as complex as ours frequently contain undetected errors, defects or failures, especially when first introduced or when new versions are released. The occurrence of such errors, defects or failures could result in product returns and other losses and liabilities for us or our customers. Such occurrence could also result in the loss of or delay in market acceptance of our products. Due to the relatively recent introduction of many of our products, we have limited experience with the problems that could arise with these products. 20 o Failure of Our Customers to Sell Complete Access Solutions. The failure of our network system integrators to develop and sell broadband wireless access solutions that include our products would harm our sales. Even if our products meet all of our network system integrator needs, other factors may impede the success of their broadband wireless access solutions. o Difficulty in Network Service Providers Obtaining Sufficient Funding. Ultimately, there must be a customer who wants and who can pay for our products or a system using our products. Many of the potential ultimate users of our products are emerging companies with unproven business models. We believe it has gotten more difficult for these companies to obtain the needed funds to purchase our products or a system using our products for at least two reasons. First, it is more difficult for companies like these to raise funds in the capital markets due to general economic conditions. Second, the large system integrators appear to be reducing the amount of vendor financing they are willing to extend. The inability of these emerging companies to succeed could have a material adverse impact on our business, results of operations and financial condition. o New Industry. The broadband wireless access industry is new, and its future is uncertain. If significant demand for this technology does not develop, we will not be able to generate significant sales. Many factors will influence the success or failure of broadband wireless access technology, including its capacity to handle growing demands for faster transmission of increasing amounts of video, voice and data, its cost-effectiveness and performance compared to other forms of broadband access, whose prices and performance continue to improve, its reliability and security, whether the products can be manufactured in sufficient volume, its suitability for a sufficient number of geographic regions, the availability of sufficient frequencies for network service providers to deploy products at commercially reasonable rates, the availability on reasonable terms of sufficient site locations for network service providers to install products at commercially reasonable rates, and safety and environmental concerns regarding broadband wireless transmissions. o Continued Industry Growth. Our future success is dependent in part upon the continued growth of the telecommunications industry, particularly with regard to the Internet, and of demand for high-speed telecommunications products. There can be no assurance that this growth will continue or that the deregulation, privatization and economic globalization of the worldwide telecommunications market that has resulted in increased competition and escalating demand for new technologies and services will continue in a manner favorable to us. Regulatory and legislative changes could adversely affect our business. o Competing Access Technologies. Many competing technologies may serve our target market, and if the broadband point-to-multipoint technology upon which our current products are based does not succeed as a solution for broadband access, we would not be able to sustain or grow our business. Other high-speed solutions include digital subscriber lines, cable, fiber, other high-speed wire, laser, satellite, and point-to-point wireless technologies. New products or new technologies may be developed that supplant or provide lower-cost alternatives to our products. o Competition. The broadband wireless access industry is intensely competitive, and our failure to compete effectively could hurt our sales and reduce our margins. A number of large telecommunications equipment suppliers, such as Alcatel, Ericsson and Nortel Networks, as well as a number of smaller companies, have developed or are developing products that compete with ours. Many of our competitors are substantially larger than we are and have significantly greater financial, sales, technical, manufacturing and other resources. o Government Regulation. Radio communications are subject to regulation by the United States and foreign laws and international treaties. Our products must conform to domestic and foreign requirements established to avoid interference among users of millimeter-wave frequencies. In addition, domestic and foreign authorities regulate the allocation of portions of the radio frequency spectrum. Products can be marketed in a specific jurisdiction only if permitted by specific frequency allocation 21 and regulations. As our customers enter new markets, we sometimes have to adapt our products rapidly to the frequency and regulatory requirements that exist in those markets, and we may incur significant costs making the necessary modifications. The governmental regulatory process may change or impose additional requirements on our products, which could require a revision to our products, a costly and time-consuming process. Future regulatory developments could also adversely affect our development and introduction of new products and technology. o Dependence on Third-Party Manufacturers. We expect to rely on independent manufacturers to provide full turnkey manufacturing of our products. We currently have qualified only one independent manufacturer for our products. We have only limited experience qualifying and dealing with this type of highly specialized, third-party manufacturer, and our failure to obtain satisfactory performance from third-party manufacturers could cause us to lose sales or expose us to product quality issues. Few third-party manufacturers have the technical capabilities to meet our quality standards and production goals. Therefore, it may be difficult and time-consuming to engage additional or replacement third-party manufacturer or manufacturers if our current manufacturer were to experience financial, operational, production, or quality assurance difficulties or allocate production resources to others in lieu of us or experience a catastrophic event that resulted in a reduction or interruption of that company's ability to provide manufacturing services to us. o International Issues. We expect to derive a substantial portion of our sales from international sources, and risks and difficulties associated with international operations could result in lower sales and less favorable terms with our customers. These difficulties and risks include licenses, tariffs and other trade barriers imposed on products such as ours, political and economic instability, currency fluctuation, and compliance with a wide variety of complex laws and treaties relating to telecommunications equipment. o Investment Risk. As of the end of December 2000, we had approximately $41 million in cash, cash equivalents and marketable securities. We have engaged investment managers to assist us with investing these funds. While we believe we have a conservative investment policy, events could occur that result in the value of our investments declining. In particular, we believe that the value of our investment in commercial paper of Pacific Gas & Electric has declined. o Accounts Receivable. We may, under certain circumstances, be unable to enforce a policy of receiving payment within a limited number of days of issuing invoices. For example, customers may be unwilling or unable to pay for products on a timely basis if they are dissatisfied with the product or if they are experiencing financial difficulty or if their customer cancelled their order. Any inability to timely collect our receivables could cause us to be short of cash to fund operations, could result in our having to negotiate for only a partial payment of certain accounts receivable, or could ultimately require us to write-off as uncollectible certain accounts receivable, which could have a material adverse effect on our business, results of operations and financial condition. In particular, we are currently negotiating with LG Information & Communications concerning the payment of the account receivable of approximately $950,000 arising from our delivery of prototype products to them. o Future Stock Sales. Future sales of common stock by our existing stockholders could cause our stock price to fall. In February 2000 we completed the initial public offering of our common stock. In connection with that initial public offering, substantially all of our pre-initial public offering stockholders signed an agreement not to transfer their securities for a period of 180 days after the initial public offering. That lock-up period expired in July 2000. We believe that a number of our pre-IPO stockholders have sold their shares, but that a number of pre-IPO stockholders continue to hold their shares. If those stockholders decided to sell their shares, a substantial amount of our common stock would become available for sale in the public market. This could cause the market price of our common stock to fall. Similarly the perception among investors that these sales will occur could produce the same effect. Sales of shares received upon exercise of our outstanding warrants will become available for sale in the public market pursuant to Rule 144. We have filed a registration statement on Form S-8 pursuant 22 to which we registered 3,729,724 shares of our common stock that may be issued pursuant to the exercise of our outstanding stock options and stock options that we may grant in the future. The exercise of some outstanding warrants and options will result in dilution to holders of our common stock. The sale of shares issued upon exercise of warrants or options could cause our stock price to fall. The sale of shares by our directors and officers could cause the market price of our common stock to fall. Similarly the perception among investors that these sales will occur could produce the same effect. o Anti-Takeover Defenses. We have anti-takeover defenses that could discourage, delay or prevent an acquisition of our company, which could depress our stock price or lessen any premium over market price that an acquirer might otherwise pay. o Acquisition and Investment Risk. As part of our business strategy, we expect to continue to review potential acquisitions and investment opportunities that could complement our current product offerings, augment our market coverage, enhance our technical capabilities or that may otherwise offer growth or synergistic opportunities. Our business and financial condition and the market price of our common stock may be adversely affected by our acquisition of, or significant investment in, companies, products or technologies that we believe are complementary. There can be no assurance that we would be successful in overcoming the risks and other issues typically encountered in any such transactions, including the difficulties associated with assimilating the personnel, technology and operations of acquired companies, the potential disruption of our ongoing business, diversion of management's attention from our business, the potential injury to existing business relationships with suppliers and customers, unanticipated costs or liabilities associated with the transactions, and the risks that we will otherwise not realize the expected benefits of the transactions. Furthermore, future transactions could result in the issuance of dilutive equity securities, the incurrence of debt or contingent liabilities, or amortization expenses related to goodwill and other intangible assets. The items described above, either individually or in some combination, could have a material adverse impact on our reputation, business, need for additional capital, current and contemplated products gaining market acceptance, development of new products and new areas of business, cash flow, results of operations, financial condition, stock price, viability as an ongoing company, results, outcomes, levels of activity, performance, developments, or achievements. Given these uncertainties, investors are cautioned not to place undue reliance on forward-looking statements. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. See Item 7--Management's Discussion and Analysis of Financial Condition and Results of Operations, Disclosures about Market Risk. Item 8. Financial Statements and Supplementary Data. INDEX TO FINANCIAL STATEMENTS Page ---- Report of Independent Accountants ......................................... 24 Balance Sheets ............................................................ 25 Statements of Operations and Comprehensive Loss ........................... 26 Statement of Changes in Stockholders' (Deficit) Equity .................... 27 Statements of Cash Flows .................................................. 28 Notes to Financial Statements ............................................. 29 23 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Telaxis Communications Corporation In our opinion, the financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Telaxis Communications Corporation (formerly known as Millitech Corporation, the "Company") at December 31, 2000, and 1999, and the results of its operations and its cash flows, for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICEWATERHOUSECOOPERS LLP ------------------------------ Hartford, Connecticut February 14, 2001 24
TELAXIS COMMUNICATIONS CORPORATION BALANCE SHEETS (in thousands, except share data) Pro Forma --------- December 31, December 31, December 31, 2000 1999 1999 ------------ ------------ ------------ (unaudited -see Note 1) Assets Current assets Cash and cash equivalents ..................................................... $ 27,865 $ 6,603 $ 6,603 Marketable securities ......................................................... 13,158 -- -- Trade accounts receivable, less allowance for doubtful accounts ($250 in 2000 and $57 in 1999) ...................................... 2,836 2,900 2,900 Other accounts receivable ..................................................... 297 -- -- Inventories ................................................................... 7,838 7,101 7,101 Net assets to be disposed of .................................................. -- 1,954 1,954 Other current assets .......................................................... 486 170 170 ------------ ------------ ------------ Total current assets ......................................................... 52,480 18,728 18,728 Property, plant and equipment, net ............................................ 12,751 6,444 6,444 Intangible assets, net of accumulated amortization ............................ 198 -- -- Other assets .................................................................. 109 125 125 ------------ ------------ ------------ Total assets ................................................................. $ 65,538 $ 25,297 $ 25,297 ============ ============ ============ Liabilities, Redeemable Preferred Stock and Stockholders' (Deficit) Equity Current liabilities Line of credit ................................................................ $ -- $ 500 $ 500 Accounts payable .............................................................. 8,156 4,305 4,305 Customer prepayments .......................................................... 218 285 285 Accrued expenses .............................................................. 1,770 2,319 2,319 Current maturities of long-term debt .......................................... 507 1,149 1,149 Current maturities of capital lease obligations ............................... 1,563 982 982 ------------ ------------ ------------ Total current liabilities .................................................... 12,214 9,540 9,540 Long-term debt ................................................................. 1,180 1,578 1,578 Capital lease obligations ...................................................... 2,045 807 807 ------------ ------------ ------------ Total liabilities ............................................................ 15,439 11,925 11,925 Commitments and contingencies Redeemable Preferred Stock Redeemable preferred stock, Class A, $.01 par value; $3.25 redemption value; authorized 0 shares (3,090,323 in 1999) ; issued and outstanding 0 shares (3,045,696 in 1999)........................................................... -- -- 9,899 Redeemable preferred stock, Class B, $.01 par value; $3.25 redemption value; authorized 0 shares (789,677 in 1999); issued and outstanding 0 shares (789,677 in 1999)............................................................. -- -- 2,566 Redeemable preferred stock, Class D, $.01 par value; $1.80 redemption value; authorized 0 shares (7,200,000 in 1999); issued and outstanding 0 shares (7,200,000 in 1999) .......................................................... -- -- 12,960 Redeemable preferred stock, Class E, $.01 par value; $2.25 redemption value; authorized 0 shares (11,000,000 in 1999); issued and outstanding 0 shares (9,941,508 in 1999) .......................................................... -- -- 22,368 ------------ ------------ ------------ -- -- 47,793 Stockholders' (Deficit) Equity Preferred stock, $.01 par value; authorized 4,500,000 shares in 2000 and 1999; none issued .................................................................. -- -- -- Common stock, $.01 par value; authorized 100,000,000 shares in 2000 and 1999; issued and outstanding 16,734,673 shares (843,872 shares in 1999) ............ 167 113 8 Additional paid-in capital .................................................... 124,740 48,912 1,224 Notes receivable .............................................................. (331) (281) (281) Accumulated deficit ........................................................... (74,318) (35,205) (35,205) Deferred stock compensation ................................................... (159) (167) (167) ------------ ------------ ------------ Total stockholders' (deficit) equity ......................................... 50,099 13,372 (34,421) ------------ ------------ ------------ Total liabilities, redeemable preferred stock and stockholders' (deficit) equity $ 65,538 $ 25,297 $ 25,297 ============ ============ ============
The accompanying notes are an integral part of these financial statements. 25
TELAXIS COMMUNICATIONS CORPORATION STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except per share data) Year ended December 31, ------------------------------------------- 2000 1999 1998 -------- -------- -------- Sales .............................................................. $ 24,753 $ 9,720 $ 2,386 Cost of sales ...................................................... 29,610 9,041 7,517 Charges relating to excess inventory on hand and on order .......... 17,744 -- -- -------- -------- -------- Gross margin (loss) ................................................ (22,601) 679 (5,131) Operating expenses Research and development, net ..................................... 8,623 4,870 4,993 Selling, general and administrative ............................... 9,029 3,618 3,048 -------- -------- -------- Total operating expenses ......................................... 17,652 8,488 8,041 -------- -------- -------- Operating loss ..................................................... (40,253) (7,809) (13,172) -------- -------- -------- Other income (expense) Interest and other expense ........................................ (624) (756) (473) Income from contract cancellation ................................. -- -- 997 Interest and other income ......................................... 3,243 272 233 -------- -------- -------- Total other income (expense) ..................................... 2,619 (484) 757 -------- -------- -------- Loss from continuing operations before income taxes ................ (37,634) (8,293) (12,415) Income tax benefit ................................................. -- -- (1,162) -------- -------- -------- Loss from continuing operations .................................... (37,634) (8,293) (11,253) -------- -------- -------- Discontinued operations: Income from operations of MMWP segment, net of taxes .............. -- 258 1,724 Loss on disposition of MMWP segment, including stock compensation expense of $2,848 for 2000 .......................... (1,479) (1,900) -- -------- -------- -------- Income (loss) from discontinued operations ......................... (1,479) (1,642) 1,724 -------- -------- -------- Net loss and comprehensive loss .................................... $(39,113) $ (9,935) $ (9,529) ======== ======== ======== Basic and diluted earnings (loss) per share from: Continuing operations ............................................. $ (2.54) $ (13.68) $ (22.87) -------- -------- -------- Discontinued operations ........................................... $ (0.10) $ (2.71) $ (3.50) -------- -------- -------- Net loss .......................................................... $ (2.64) $ (16.39) $ (19.37) ======== ======== ======== Shares used in computing basic and diluted earnings (loss) per share 14,816 606 492 ======== ======== ========
The accompanying notes are an integral part of these financial statements. 27
TELAXIS COMMUNICATIONS CORPORATION STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY (in thousands, except share data) Common Stock Additional -------------------- Paid-in Notes Deferred Stock Accumulated Shares Amount Capital Receivable Compensation Deficit Total ------ ------ ------- ---------- ------------ ------- ----- Balances, December 31, 1997...... 983,394 $ 10 $ 733 $ -- $ -- $ (15,741) $ (14,998) Exercise of common stock options......................... 4,526 -- 2 -- -- -- 2 Other ........................... -- -- (66) -- -- -- (66) Net loss ........................ -- -- -- -- -- (9,529) (9,529) ---------- ----- -------- ------ ------ --------- --------- Balances, December 31, 1998...... 987,920 10 669 -- -- (25,270) (24,591) Sale of common stock............. 229,074 2 522 (281) (225) -- 18 Issuance of preferred stock warrants ....................... -- -- 140 -- -- -- 140 Issuance of common stock warrants ....................... -- -- 266 -- -- -- 266 Exercise of common stock options ........................ 427,526 4 219 -- -- -- 223 Exercise of warrants ............ 39,150 -- 19 -- -- -- 19 Amortization of deferred stock compensation ................... -- -- -- -- 58 -- 58 Offering costs .................. -- -- (780) -- -- -- (780) Other ........................... -- -- 161 -- -- -- 161 Net loss ........................ -- -- -- -- -- (9,935) (9,935) Reverse stock split ............. (839,798) (8) 8 -- -- -- -- ---------- ----- --------- ------ ------ --------- --------- Balances, December 31, 1999...... 843,872 8 1,224 (281) (167) (35,205) (34,421) Sale of common stock ........... 4,600,000 46 78,154 -- -- -- 78,200 Exercise of common stock options ........................ 507,101 5 721 (67) -- -- 659 Exercise of warrants ............ 295,295 3 130 -- -- -- 133 Amortization of deferred stock compensation ................... -- -- -- -- 56 -- 56 Offering costs .................. -- -- (6,330) -- -- -- (6,330) Other ........................... -- -- 3,153 17 (48) -- 3,122 Conversion of preferred stock .......................... 10,488,405 105 47,688 -- -- -- 47,793 Net loss ........................ -- -- -- -- -- (39,113) (39,113) ---------- ----- --------- ------ ------ --------- --------- Balances, December 31, 2000 ..... 16,734,673 $ 167 $ 124,740 $ (331) $ (159) $ (74,318) $ 50,099 ========== ===== ========= ====== ====== ========= =========
The accompanying notes are an integral part of these financial statements. 27
TELAXIS COMMUNICATIONS CORPORATION STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, ------------------------------------ 2000 1999 1998 -------- -------- -------- Cash flows from operating activities Net loss ...................................................................... $ (39,113) $ (9,935) $ (9,529) Adjustments to reconcile net loss to net cash utilized by operating activities: Depreciation and amortization ................................................ 3,644 2,808 2,076 Loss (gain) on disposition of MMWP segment ................................... (1,369) 1,900 -- Non-cash compensation expense ................................................ 3,161 290 -- Loss (gain) on the disposal of property and equipment ........................ (5) 21 -- Provision for excess inventory on hand and on order .......................... 17,744 -- -- Changes in assets and liabilities Accounts receivable ......................................................... 64 (1,198) (269) Other accounts receivable ................................................... (297) -- -- Contracts in progress ....................................................... -- 40 (54) Inventories ................................................................. (13,486) (6,557) 69 Other current assets ........................................................ (361) (28) (1) Accounts payable and accrued expenses ....................................... (360) 2,721 32 Customer prepayments ........................................................ (67) 328 (824) Income taxes payable ........................................................ -- (2) (13) -------- -------- -------- Net cash utilized by operating activities ................................... (30,445) (9,612) (8,513) -------- -------- -------- Cash flows from investing activities Purchase of marketable securities ............................................. (24,529) -- -- Sale of marketable securities ................................................. 11,371 -- -- Proceeds from sale of discontinued operations ................................. 1,990 -- -- Additions to property and equipment ........................................... (6,342) (2,409) (3,706) Reduction (addition) to intangible and other assets ........................... (246) (104) 20 -------- -------- -------- Net cash utilized by investing activities ................................... (17,756) (2,513) (3,686) -------- -------- -------- Cash flows from financing activities Proceeds from note payable .................................................... -- 2,000 -- Net (repayment) borrowing under line of credit ................................ (500) 500 (1,500) Proceeds from long-term debt .................................................. -- 2,401 -- Repayments of long-term debt and capital lease obligations .................... (2,716) (1,217) (1,264) Issuance of common stock upon exercise of options and warrants ................ 792 242 2 Issuance of redeemable preferred stock ........................................ -- 13,000 7,368 Issuance of common stock ...................................................... 78,200 -- -- Stock issuance costs .......................................................... (6,330) (833) (66) Repayment of notes receivable ................................................. 17 -- -- -------- -------- -------- Net cash provided by financing activities ................................... 69,463 16,093 4,540 -------- -------- -------- Net increase (decrease) in cash and cash equivalents ........................... 21,262 3,968 (7,659) Cash and cash equivalents at beginning of period ............................... 6,603 2,635 10,294 -------- -------- -------- Cash and cash equivalents at end of period ..................................... $ 27,865 $ 6,603 $ 2,635 ======== ======== ======== Supplemental disclosure of cash flow information Cash paid during period for interest .......................................... $ 555 $ 361 $ 240 Non-cash investing and financing activities: Equipment acquired under capital leases ...................................... 3,474 1,164 689 Conversion of redeemable preferred stock ..................................... 47,793 -- -- Issuance of preferred stock for subordinated promissory note ................. -- 2,000 -- Notes receivable for issuance of common stock ................................ 67 281 -- Commitments recorded in accounts payable for inventory on order .............. 4,995 -- --
The accompanying notes are an integral part of these financial statements. 28 TELAXIS COMMUNICATIONS CORPORATION NOTES TO FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies We develop and supply broadband wireless access products used by network service providers to deliver integrated voice, video and data services to business and residential customers. We sell our products primarily to network system integrators that include our products in broadband wireless systems sold to network service providers. We commenced operations in 1982 and have derived the significant majority of our sales from our millimeter-wave products business segment. In August 1999, we adopted a plan to focus all of our resources on our broadband point-to-multipoint wireless access business segment and to dispose of the millimeter-wave products segment. As a result, we have presented the operations of the millimeter-wave products segment as a discontinued operation in our financial statements (see Note 2). On October 13, 1999, the stockholders voted to change the name of the Company from Millitech Corporation to Telaxis Communications Corporation. The stockholders also voted to amend the automatic conversion provisions for the Class A Preferred Stock, Class B Preferred Stock and Class D Preferred Stock by reducing the minimum public offering price upon an initial public offering of the Company's stock required to trigger automatic conversion to common stock from $9.75 per share to $4.50 per share. Pro Forma Balance Sheet (Unaudited) The outstanding shares of the Company's preferred stock Class A, B, D and E automatically convert to common stock upon a public offering resulting in gross proceeds of at least $15,000,000 and with an offering price of at least $4.50 per share. All of our outstanding preferred stock converted into common stock upon the closing of our initial public offering on February 7, 2000. These conversions have been reflected in the unaudited pro forma balance sheet as of December 31, 1999. Cash and Cash Equivalents The Company considers highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Marketable Securities The Company has invested the proceeds from its initial public offering in accordance with its corporate cash management policy. Marketable securities are classified as available-for-sale and are carried at cost plus accrued interest, which approximates fair value. The Company's investments consist of municipal and government bonds, and commercial paper. At December 31, 2000, all of the Company's securities matured within to twelve months. The carrying value of the Company's investments by major security type, as of December 31, 2000, consisted of the following (in thousands): Description 2000 - ----------- ------- Auction Rate Preferred ................................... $ 1,003 Municipal Bonds .......................................... 2,000 U.S. Government Securities ............................... 10,155 ------- $13,158 ======= 29 Revenue Recognition Sales under short-term contracts and for stock items are recognized when deliveries are made. Sales under cost-reimbursement contracts are recorded as costs are incurred and include estimated earned fees in the proportion that costs incurred to date bear to total estimated costs. Sales under certain fixed-price and fixed-price incentive contracts are recorded utilizing the percentage of completion method, in which costs and estimated gross margin are recorded as the work is performed. Income is accrued based upon the percentage that costs incurred to date bear to estimated total costs after giving effect to the most recent estimates of costs and funding at completion. Fees under certain contracts may be increased or decreased under cost or performance incentive provisions which measure actual performance against established targets or specific criteria. Incentive fee awards or penalties are included in sales or cost of sales at the time the amounts can be reasonably determined. As some contracts extend over one or more years, revisions in cost and profit estimates during the course of the work are reflected in the accounting period in which the facts which require the revision become known. At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss on the contract is accrued. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, marketable securities and trade accounts receivable. The Company places its cash investments with high-quality financial institutions. The Company extends credit to its customers based on an evaluation of the customer's financial condition and history and generally does not require collateral. The Company has historically incurred minimal credit losses. At December 31, 2000 and 1999 approximately 75% and 92%, respectively, of accounts receivable was due from one customer. Investments are placed in instruments with institutions that have "Investment Grade" ratings or better. The Company has established policies for investment of its cash that attempt to maintain safety and liquidity. The Company has not realized any significant losses on cash equivalents or marketable securities. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Comprehensive Income Effective January 1, 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income. For the years ended December 31, 2000, 1999 and 1998 comprehensive loss equaled net loss. Research and Development The Company incurs research and development costs in the exploration of commercially viable applications of its millimeter-wave and microwave technology. The Company also incurs research and development costs under customer-funded contracts. Costs of approximately $1,788,000, $1,156,000 and $1,727,000 are recorded net of the associated customer funding of approximately $612,000, $1,068,000 and $986,000 for the years ended December 31, 2000, 1999 and 1998, respectively. Significant terms of customer-funded research and development arrangements include granting the customer a non-exclusive, royalty-free right and license to use and distribute the product and its related sales and technical literature that is developed by the Company under the agreement. The Company is not obligated to repay any of the funds received under these contracts. 30 Inventories Inventories are stated at the lower of cost (standard cost, which approximates actual) or market. As of December 31, 2000 and 1999, the Company had recorded inventory reserves of $1,640,000 and $1,797,000, respectively, to reserve for obsolete inventory. During 2000, the Company recorded a charge of approximately $17,744,000 to adjust inventory to its expected net realizable value. Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method based upon the estimated useful lives of the assets as follows: Asset Life ----- ---- Machinery and equipment 3 to 7 years Furniture and fixtures 7 to 10 years Leasehold improvements 3 to 10 years Equipment under capital leases 3 to 7 years Leasehold improvements and equipment under capital leases are amortized over the lesser of the life of the lease or the useful lives of the improvements or equipment. When assets are sold or retired, the related cost and accumulated depreciation are removed from their respective accounts and any resulting gain or loss is included in income. Intangible Assets Intangible assets are recorded at cost and are amortized using the straight-line method over their expected useful life, which is five years. Intangible assets as of December 31, 2000 consisted of the following (in thousands): 2000 ------- Proprietary technology $ 216 Less: accumulated amortization (18) ------- $ 198 ======= Under Financial Accounting Standards Board ("FASB") Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the Company reviews long-lived assets and certain identifiable intangibles for impairment at each reporting date based on the expected future cash flows of the assets compared to the carrying value of the asset. To the extent that such carrying value exceeds expected future cash flows, a writedown in intangibles is recorded. Income Taxes Deferred tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. In the accompanying statement of operations for the year ended December 31, 1998, the Company has recorded an income tax expense attributable to discontinued operations based upon its pretax income. Since the Company's continuing losses exceed its income from discontinued operations, an income tax benefit has been recorded against continuing operations only to the extent of the income tax expense attributable to discontinued operations in accordance with SFAS No. 109, Accounting for Income Taxes. Tax expense also includes the impact of any changes in deferred tax assets and liabilities. 31 Reverse Stock Split On December 16, 1999, the stockholders voted to effect a one for two reverse split of the Company's outstanding common stock effective as of that date. The terms of the then-outstanding preferred stock, preferred stock warrants, common stock options and common stock warrants provide for a similar one for two adjustment on their conversion and exercise amounts and prices, respectively. The December 31, 1999 balance sheet and the accompanying shares outstanding, the per share earnings (loss) amounts for the years ended December 31, 1998 and 1999 and the footnote disclosures related to common stock warrants and options have been adjusted to reflect this reverse stock split. Earnings Per Share Earnings per share has been computed by dividing the loss from continuing operations, income (loss) from discontinued operations and net loss by the weighted average common shares outstanding. No effect has been given to the exercise of common stock options, stock warrants, convertible notes, and redeemable preferred stock, since the effect would be antidilutive on continuing operations for all reporting periods. The following table presents the calculation of historical per share amounts (in thousands, except per share data):
Year Ended December 31, ------------------------------------- 2000 1999 1998 Historical: Loss from continuing operations ........................... $ (37,634) $ (8,293) $ (11,253) ========= ======== ========= Weighted average shares of common stock outstanding ....... 14,816 606 492 ========= ======== ========= Basic and diluted loss per share from continuing operations $ (2.54) $ (13.68) $ (22.87) ========= ======== ========= Income (loss) from discontinued operations ................ $ (1,479) $ (1,642) $ 1,724 ========= ======== ========= Weighted average shares of common stock outstanding ....... 14,816 606 492 ========= ======== ========= Basic and diluted income (loss) per share from discontinued operations ............................................... $ (0.10) $ (2.71) $ 3.50 ========= ======== ========= Net loss .................................................. $ (39,113) $ (9,935) $ (9,529) ========= ======== ========= Weighted average shares of common stock outstanding ....... 14,816 606 492 ========= ======== ========= Basic and diluted net loss per share ...................... $ (2.64) $ (16.39) (19.37) ========= ======== =========
Derivative Instruments In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards for derivative instruments and hedging activities. The statement requires recognition of all derivatives at fair value in the financial statements. FASB Statement No. 137, Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133, an amendment of FASB Statement No. 133, defers implementation of Statement No. 133 until fiscal years beginning after June 15, 2000. Implementation of the standard will not have a significant effect on the Company's financial statements. Reclassification Certain prior years amounts have been reclassified to conform to the current year's presentation. 32 2. Discontinued Operations In August 1999, the Board of Directors voted and authorized management to dispose of the Company's millimeter-wave products (MMWP) business segment. This segment consisted of the development and manufacture of millimeter-wave components and assemblies, including antennas and quasi-optical products, multiplexer products, and passive waveguide products. On February 8, 2000 the Company completed the sale of substantially all of the assets of the MMWP segment to Millitech, LLC for approximately $3.6 million. Accordingly, the Company has restated its historical financial statements to present the MMWP segment's operating results as a discontinued operation. The results of the MMWP operations have been segregated from continuing operations and reported as a separate line item in the statement of operations and comprehensive loss. As a result of the sale, the Company received proceeds of $2.0 million and a subordinated note for $1.2 million with interest on the principal at 12%. The principal is payable in five equal semi-annual payments of $50,000 beginning on July 1, 2002 through July 1, 2004. On December 31, 2004, the entire remaining principal balance of $960,000 plus accrued interest is due. Interest is payable semi-annually on the first days of January and July of each year during the term of the note, beginning July 1, 2000. The Company has fully reserved this subordinated note. For the year ended December 31, 2000, the Company recorded stock compensation expense of $2.8 million as a result of the accelerated vesting of incentive stock options for employees who left the Company and were hired by Millitech, LLC, and a gain on disposition of approximately $1,369,000 as a result of reassessing the net realizable value of certain assets and liabilities related to the divestiture. The assets and liabilities of the MMWP segment at December 31, 1999, consisting primarily of accounts receivable, inventories, equipment, accounts payable and accrued expenses, have been segregated as net assets to be disposed of in the amount of $1,954,000 in the accompanying balance sheet. Sales for the MMWP segment were $770,000, $8,312,000 and $12,211,000 for the years ended December 31, 2000, 1999 and 1998, respectively. The provision for income taxes was $0, $0 and $1,162,000 for the years ended December 31, 2000, 1999 and 1998, respectively. 3. Inventories Inventories consist of the following (in thousands): December 31, ------------------------- 2000 1999 ------ ------ Finished goods ............................. $1,405 $ 95 Parts and subassemblies .................... 4,960 3,257 Work in process ............................ 1,473 3,749 ------ ------ $7,838 $7,101 ====== ====== 33 4. Property, Plant and Equipment Property, plant and equipment consist of the following (in thousands): December 31, ------------------------ 2000 1999 -------- -------- Machinery and equipment .......................... $ 15,952 $ 9,803 Furniture and fixtures ........................... 820 679 Leasehold improvements ........................... 2,117 1,970 Equipment under capital leases ................... 6,624 3,469 -------- -------- 25,513 15,921 Less accumulated depreciation and amortization ... (12,762) (9,477) -------- -------- $ 12,751 $ 6,444 ======== ======== The net book value of all equipment under capital leases was approximately $3,728,000 and $1,677,000 at December 31, 2000 and 1999, respectively. Depreciation expense for the years ended December 31, 2000, 1999 and 1998 was approximately $3,515,000, $2,482,000 and $1,903,000, respectively. 5. Accrued Expenses Accrued expenses consist of the following (in thousands): December 31, ------------------- 2000 1999 ------ ------ Accrued payroll, commissions and related expenses .... $1,071 $ 978 Accrued warranty expense ............................. 412 530 Accrued contract costs ............................... -- 168 Deferred revenue ..................................... 94 -- Accrued liabilities on discontinued operations ....... -- 350 Other accrued expenses ............................... 193 293 ------ ------ $1,770 $2,319 ====== ====== 6. Lines of Credit In August 1999, the Company entered into a revolving line of credit agreement with a bank. The agreement provided for an initial borrowing of up to $1,000,000, which was increased by $500,000 upon the Company's raising an additional $3,000,000 in stockholders' equity and increased by $500,000 upon receipt of a machinery and equipment appraisal, for a total amount available of $2,000,000. On June 9, 2000, the Company revised the agreement with the bank to increase the line of credit to $5,000,000 and extend the expiration of the line from August 19, 2000 to November 30, 2000. Interest was payable on the outstanding balance of the line at prime plus 1%. Prime was 8.5% at December 31, 1999. The line was collateralized by substantially all of the assets of the Company. The Company was not in compliance with certain covenants of the line during the year ended December 31, 2000 and obtained waivers from the bank. The line of credit expired on November 30, 2000 and was not renewed by the Company. 34 In connection with the revolving line of credit agreement, the bank received a warrant to purchase 44,445 shares of the Company's Class E preferred stock at $2.25 per share (see Note 13). The warrants were recorded at their fair market value of $71,699 resulting in debt issuance costs of $71,699. These costs were amortized over the term of the line of credit. The warrant was exercised on August 11, 2000. 7. Notes Payable In April 1999, the Company received $1,000,000 in proceeds from subordinated promissory notes to certain preferred stockholders, common stockholders, officers and directors as bridge financing. The notes bore interest at 9.75% and were to be paid in full at the earlier of December 31, 1999 or the sale of the Company's equity securities having an aggregate sales price of at least $5,000,000. The note holders received warrants for the purchase of 100,000 shares of the Company's common stock at an exercise price of $1.00 per share (see Note 13). The warrants were recorded at their fair value of $72,012 resulting in a discount to the notes of $72,012. This discount was fully amortized as interest expense when the notes were refinanced in September 1999. The remaining outstanding warrants expire in July 2007. In July 1999, the Company received an additional $1,000,000 in proceeds from subordinated promissory notes issued to certain preferred stockholders, common stockholders, officers and directors as bridge financing. The notes bore interest at 9.75% and were to be paid in full on the earlier of December 31, 1999 or the sale of the Company's equity securities having an aggregate sales price of at least $5,000,000. The note holders received warrants for the purchase of 100,000 shares of the Company's common stock at an exercise price of $1.00 per share (see Note 13). The warrants were recorded at their fair value of $178,712 resulting in a discount to the notes of $178,712. This discount was fully amortized as interest expense when the notes were refinanced in September 1999. The remaining outstanding warrants expire in July 2007. The subordinated promissory notes required repayment on the earlier of December 31, 1999 or at the time of sale of at least $5,000,000 of equity securities. In September 1999, at the noteholders' election, $2,000,000 of such notes were repaid through the issuance of $2,000,000 of Class E preferred stock (888,889 shares with a value of $2.25 per share), which converted to 444,444 shares of common stock upon the Company's initial public offering on February 7, 2000 (see Note 1). 35 8. Long-Term Debt Long-term debt consists of the following (in thousands):
December 31, -------------------- 2000 1999 ------- ------- Uncollateralized subordinated note, due December 2000, quarterly principal payments of $87,500 with interest at 10% ................ $ -- $ 612 Uncollateralized subordinated note, due June 2003, monthly principal payments of $8,333 with interest at 10% (see Note 14) ............. 250 350 Collateralized equipment notes, due April 2003 and November 2003, monthly principal and interest payments of $48,612, with interest at 12% ................................................... 1,487 1,836 ------- ------- 1,737 2,798 Less unamortized debt discount ..................................... (50) (71) Less current portion ............................................... (507) (1,149) ------- ------- $ 1,180 $ 1,578 ======= =======
The maturities of long-term debt outstanding are as follows (in thousands): December 31, 2000 ------ 2001 ................ $ 528 2002 ................ 583 2003 ................ 626 ------ $1,737 ====== In May 1999, the Company entered into a senior loan and security agreement which provides for the issuance of up to $2,000,000 in promissory notes. As of December 31, 2000 and 1999, $1,487,000 and $1,836,000, respectively, in promissory notes were outstanding against this agreement. The notes are collateralized by machinery, equipment, intangible and other assets of the Company. The notes require an additional interest compensation payment at the end of the term of the notes. The payment, at the option of the Company, is either 12.5% of the original principal of the note, or six months of payments in the amount of 2.43% of the original principal of the note. In conjunction with these notes, the Company issued 44,445 Class E preferred stock warrants (see Note 13). The warrants were recorded at their fair value of $68,787 resulting in a discount to the notes of $68,787. This discount will be amortized over the term of the notes of four years and amounted to $17,196 and $10, 747 during 2000 and 1999, respectively. The warrants were exercised on July 31, 2000. In June 1999, the Company paid the balance of its uncollateralized subordinated note due June 1999 and issued a new uncollateralized subordinated note due June 2003 to the same lender totaling $400,000. The previous note due June 1999 required monthly payments of $5,833 with interest at 10%. In conjunction with the new note due June 2003, the Company issued 20,000 common stock warrants that expire July 2007 (see Note 13). The warrants were recorded at their fair value of $14,977 resulting in a discount to the note of $14,977. This discount will be amortized over the term of the note of four years and amounted to $3,744 and $2,028 during 2000 and 1999, respectively. The Company also extended the duration of the lender's outstanding Class A preferred stock warrants to June 2003 (see Note 13). The subordinated notes contain various covenants, including a debt-to-equity ratio. In 1999, the lenders permanently modified certain covenant requirements. The Company was in compliance with all revised covenants as of and for the year ended December 31, 2000. 36 9. Leases The Company leases its operating facility and certain equipment under operating and capital leases which extend through 2006. Certain leases include renewal options. Future minimum annual lease payments under these lease agreements at December 31, 2000 are as follows (in thousands):
Operating Capital Year ending Leases Leases 2001 ......................................... $ 586 $ 1,827 2002 ......................................... 568 1,682 2003 ......................................... 568 493 2004 ......................................... 594 -- 2005 ......................................... 469 -- 2006 ......................................... 88 -- ------ ------- Future minimum lease payments ................ $ 2,873 $ 4,002 ======== Less amount representing interest ............ (394) ------- Present value of net minimum lease payments .. 3,608 Less current portion ......................... (1,563) ------- Long-term portion............................. $ 2,045 =======
The Company has a five-year operating lease for its primary operating facility which extends through October 2005 and contains a five year renewal option. The building lease requires the Company to pay utilities, insurance, maintenance costs and real estate taxes. The building is leased from an affiliate of stockholders of the Company. In addition, the Company leases equipment under various leases for periods ranging from one to five years. Some of these leases contain options to purchase the equipment at the termination of the lease at a price equal to fair market value. Total rental expense charged to operations under operating leases was approximately $581,000, $650,000 and $624,000 for the years ended December 31, 2000, 1999 and 1998, respectively. 10. Incentive Compensation Plan The Company maintains an incentive compensation plan. All payouts are at the Board of Directors' discretion. The Company recorded compensation expense of approximately $518,000 for the year ended December 31, 2000. No compensation expense was recognized under this plan for the years ended December 31, 1999 and 1998. 37 11. Income Taxes The provision for income taxes consists of the following (in thousands):
Year ended December 31, ------------------------------------ 2000 1999 1998 -------- -------- -------- Continuing operations: Current tax expense (benefit): Federal ............................................. $ (8,212) $ (3,071) $ (4,998) State ............................................... (2,095) (551) (1,032) -------- -------- -------- (10,307) (3,622) (6,030) -------- -------- -------- Deferred tax expense (benefit): Federal ............................................. 8,212 3,071 4,110 State ............................................... 2,095 551 758 -------- -------- -------- 10,307 3,622 4,868 -------- -------- -------- Income tax benefit related to continuing operations .... -- -- (1,162) Discontinued operations: Current tax expense: Federal ............................................. $ -- $ (508) $ 888 State ............................................... -- (148) 274 -------- -------- -------- -- (656) 1,162 -------- -------- -------- Deferred tax expense: Federal ............................................. -- 508 -- State ............................................... -- 148 -- -------- -------- -------- Income tax expense related to discontinued operations . -- 656 1,162 -------- -------- -------- Total income tax expense ............................... $ -- $ -- $ -- ======== ======== ========
The provision for income taxes differs from the amount computed utilizing the federal statutory rate of 34% as follows: Year ended December 31, ------------------------------- 2000 1999 1998 ---- ---- ---- Federal Statutory rate ................. (34.0)% (34.0)% (34.0)% State taxes, net of federal effect ..... (6.3) (6.0) (7.6) Other .................................. 0.0 0.3 (2.2) Change in valuation allowance .......... 40.3 39.7 43.8 ----- ----- ---- 0.0% 0.0% 0.0% ===== ===== ==== 38 The tax effects of temporary differences that give rise to deferred tax assets (liabilities) at December 31, 2000 and 1999 are as follows (in thousands):
2000 1999 --------------------- ---------------------- Current Noncurrent Current Noncurrent ------- ---------- ------- ---------- Inventory reserves $ 8,963 $ -- $ 1,504 $ -- Discontinued operations -- -- 759 -- Vacation liability 248 -- 200 -- Warranty 166 -- 212 -- Allowance for doubtful accounts 101 -- 108 -- Accrued contract costs -- -- 40 -- Unearned compensation 21 -- 23 -- Deferred revenue 38 -- -- -- Other 148 (85) 85 (85) Investment -- (173) -- (173) Depreciation/Amortization -- 58 -- 196 Tax credit carryovers -- 1,272 -- 612 Net operating loss carryforwards -- 19,202 -- 10,318 -------- --------- ------- --------- Gross deferred tax benefit 9,685 20,274 2,931 10,868 Valuation allowance (9,685) (20,274) (2,931) (10,868) -------- --------- ------- --------- $ -- $ -- $ -- $ -- ======== ========= ======= =========
At December 31, 2000, the Company has approximately $48,725,000 ($26,667,000 in 1999) of net operating loss carryforwards and $540,000 ($348,000 in 1999) of investment and research and development tax credit carryforwards available for federal income tax purposes. There are approximately $44,302,000 of net operating losses ($22,224,000 in 1999) and approximately $732,000 in investment and research and development tax credit carryforwards available in 2000 ($266,000 in 1999) for state tax purposes. Expiration of these carryforwards commenced in 1999 and will continue through 2015. It is possible that the net operating loss carryforward amounts that may be used in a single year may be limited. 12. Preferred Stock On February 7, 2000 the Company completed an initial public offering of 4,600,000 shares of its common stock at $17.00 per share. The offering resulted in net proceeds to the Company of $71.1 million after deducting underwriters commission and 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 10,488,405 shares of common stock. As of December 31, 1999 the Company had issued and outstanding Class A, B, D and E preferred stock (see Note 1). Each of the classes had redemption rights, a liquidation preference, conversion rights, and dividend rights as of December 31, 1999: o Each Class A, B, D and E share may be converted at the option of the holder into a share of common stock at a ratio of two shares of preferred to one share of common. Conversion would occur automatically upon a public offering of common stock resulting in gross proceeds of at least $15,000,000 and with an offering price of at least $4.50 per share. Each Class D and E share would automatically be converted into common stock upon the conversion of 90% or more of the authorized stock of the class. o The Class A, B, D and E shares have a liquidation preference in the amount of $3.25, $3.25, $1.80 and $2.25, respectively, plus all declared and unpaid dividends. 39 o The holders of Class A, B, D and E shares are entitled to receive, when and as declared by the Board of Directors, non-cumulative annual cash dividends of $.26, $.26, $.144 and $.18 per share, respectively. No dividends have been declared by the Board of Directors. o Certain of the classes of preferred stock have liquidation rights, voting rights and cash dividend rights in preference to the other preferred stock. o The Company shall offer to redeem the Class A and Class B preferred shares at the rate of 20% per year at $3.25 per share, plus an amount equal to all declared and unpaid dividends. All Class A and Class B redemptions can be waived at the option of two-thirds of the respective Class A or Class B preferred stockholders. As part of the agreement in 1998 to issue Class E preferred stock, the Class A and Class B preferred stockholders elected to postpone their redemption rights until 2003. o On October 21, 2003 and on the first and second anniversaries thereof, the Company shall offer to redeem from each Class D and Class E preferred holder, a maximum of one-third, two-thirds and one hundred percent, respectively, of the total number of shares held by each stockholder at a price equal to the greater of $1.80 and $2.25, respectively, plus all declared and unpaid dividends, or the fair market value as determined by the Board of Directors. The Class D preferred stockholders agreed to postpone their redemption from 2002 to 2003 as part of the 1998 Class E preferred stock issuance. During 1998, the Company issued 3,274,841 shares of Class E preferred stock at $2.25 per share for an aggregate of $7,368,000. In September 1999, the Company issued 6,666,667 shares of Class E preferred stock with a value of $15,000,000. Cash proceeds were $13,000,000 and $2,000,000 of subordinated promissory notes were retired through the issuance of $2,000,000 (888,889 shares at a value of $2.25 per share) of Class E preferred stock. The Company recorded all of its outstanding Class A, B, D, and E redeemable preferred stock at the maximum redemption amount as of each balance sheet date presented. 40 13. Stock Warrants The Company has issued stock warrants for its preferred and common stock as follows:
Class A Class E Preferred Stock Preferred Stock Common Stock ---------------------- ------------------------ ---------------------- Exercise Exercise Exercise Number of Price Per Number of Price Per Number of Price Per Shares Share Shares Share Shares Share ------ ----- ------ ----- ------ ----- Exercisable at December 31, 1997 28,000 $ 3.25 -- $ -- 962,500 $ 1.00 Granted ........................ -- -- -- -- -- -- ------- -------- ------- -------- --------- -------- Exercisable at December 31, 1998 28,000 3.25 -- -- 962,500 1.00 Granted ........................ -- -- 88,890 2.25 220,000 1.00 Exercised ...................... -- -- -- -- (19,575) 1.00 ------- -------- ------- -------- --------- -------- Exercisable at December 31, 1999 28,000 3.25 88,890 2.25 1,162,925 1.00 Reverse stock split ............ (14,000) 6.50 (44,445) 4.50 -- -- Exercised ...................... -- -- (44,445) 4.50 (264,404) 1.00 Conversion ..................... (14,000) 6.50 -- -- 14,000 6.50 ------- -------- ------- -------- --------- -------- Exercisable at December 31, 2000 -- $ -- -- $ -- 912,521 $ 1.08 ======= ======== ======= ======== ========= ========
The Company issued 20,000 common stock warrants during 1999 in conjunction with a subordinated note of $400,000 (see Note 8). In addition, 200,000 common stock warrants were issued during the year ended December 31, 1999 in conjunction with the bridge financing (see Note 7). The outstanding common stock warrants have an exercise price of $1.00 and expire as follows: Expiration Number of Warrants Date ------------------ ---- 14,000 ............................. June 2003 630,464 ............................. September 2006 268,057 ............................. July 2007 14. Stock Options and Common Stock Issued The Company has stock option plans that provide for the granting of options to employees, directors and consultants. The plans permit the granting of options to purchase a maximum of 3,460,359 shares of common stock at various prices and require that the options be exercisable at the prices and at the times as determined by the Board of Directors, not to exceed ten years from date of issuance. As of December 31, 2000, 687,002 options are available for issuance under these plans. Employee stock options granted prior to September 2000 generally have a vesting requirement of four years whereby 20% of the options granted vest at the time of issuance and the remainder vest at a rate of 20% per year on the anniversary date of the issuance. Employee stock options granted in September 2000 and thereafter provide for vesting in the amount of 25% of the grant upon the first anniversary of the date of grant and quarterly vesting in the amount of 6.25% of the grant on the first day of each January, April, July and October following the first anniversary of the date of grant until the option has fully vested. 41 The aggregate stock option activity for these plans is as follows:
Weighted Number of average exercise Shares price --------- -------- Balance, December 31, 1997 (372,850 exercisable) ... 652,100 $ 1.00 Granted ........................................ 940,387 1.00 Exercised ...................................... (2,263) 1.00 Canceled or expired ............................ (352,864) 1.00 --------- -------- Balance, December 31, 1998 (677,503 exercisable) ... 1,237,360 1.00 Granted ........................................ 801,735 5.02 Exercised ...................................... (213,763) 1.04 Canceled or expired ............................ (78,569) 1.08 --------- -------- Balance, December 31, 1999 (834,498 exercisable) ... 1,746,763 2.83 Granted ........................................ 1,556,346 7.92 Exercised ...................................... (372,101) 1.43 Canceled or expired ............................ (157,651) 8.55 --------- -------- Balance, December 31, 2000 (845,652 exercisable) ... 2,773,357 $ 5.55 ========= ========
The following table summarizes information about stock options outstanding at December 31, 2000:
Options Outstanding Options Exercisable ---------------------------------------------- -------------------------------- Number Weighted Average Outstanding Remaining Number Weighted at Contractual Life Weighted Average Exercisable at Average Exercise Price 12/31/00 (years) Exercise Price 12/31/00 Exercise Price -------------- -------- ------- -------------- -------- -------------- $ 1.00 - $ 2.50 1,857,658 8.2 $ 1.41 628,787 $ 1.29 $ 4.47 - $ 6.83 522,403 9.0 $ 6.07 68,577 $ 4.50 $ 8.00 - $ 12.60 193,468 9.0 $ 11.10 83,072 $ 11.20 $ 28.50 - $ 31.28 75,356 9.6 $ 30.26 37,944 $ 30.82 $ 40.25 116,972 9.3 $ 40.25 25,772 $ 40.25 $ 61.50 7,500 9.1 $ 61.50 1,500 $ 61.50
The weighted average contractual life of options outstanding at December 31, 2000 is 8.5 years. During the year ended December 31, 1999, the Company issued 112,500 shares of restricted common stock at $2.50 per share to an officer in exchange for a note receivable. The note bears interest at 6.25% and matures in September 2009. In the event the individual is no longer employed by the Company, the Company retains the right to repurchase the shares. This repurchase right expires at a rate of 20% upon issuance and 20% per year each anniversary date of the issuance. The Company recognized $225,000 in unearned compensation for the difference between the fair value of the stock and the purchase price in this transaction. For the years ended December 31, 2000 and 1999 respectively, the Company recognized approximately $45,000 and $58,000 in compensation expense. The Company recognized $257,000 in non-cash compensation expense during the year ended December 31, 2000 as a result of accelerated vesting of stock options on the retirement of an employee. The Company granted options to non-employees during the year ended December 31, 1999 and accordingly recognized $212,000 in non-cash compensation expense. The Company applies APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its stock-based compensation plans. Had compensation cost for the Company's stock option plans been determined under SFAS No. 123, Accounting for Stock-Based Compensation, the Company's pro forma net loss and net loss per share would have been as follows: 42 Year ended December 31, --------------------------------------- 2000 1999 1998 --------- -------- -------- (in thousands, except per share data) Net loss: As reported .......... $ (39,113) $ (9,935) $ (9,529) Pro forma ........... (40,939) (10,533) (9,662) Net loss per share As reported .......... (2.64) (16.39) (19.37) Pro forma ............ (2.76) (17.38) (19.64) The above pro forma effects may not be representative of the effects for future years, as option grants typically vest over several years and additional options are generally granted each year. The fair value of each option grant has been estimated on the date of grant using the minimum value pricing model with the following weighted average assumptions: 2000 1999 1998 ---- ---- ---- Risk-free interest rate .. 5.54% 6.12% 5.58% Expected life ............ 6 years 6 years 8 years Volatility ............... 100% 28% 0% Dividend yield ........... -- -- -- The weighted average fair value of those options granted in 2000, 1999 and 1998 was $3.92, $3.17 and $0.18, respectively. 15. Common and Preferred Stock Reserved As a result of the outstanding stock warrants, and stock option plans, the Company has reserved 4,230,131 shares of common stock at December 31, 2000 and 15,708,284 shares of common stock, 28,000 shares of Class A preferred stock, and 88,890 shares of Class E preferred stock as of December 31, 1999. During the year ended December 31, 1999, the stockholders voted to authorize 4,500,000 shares of preferred stock $.01 par value, to increase the authorized shares of the Class E preferred stock to 11,000,000 and to increase the authorized shares of common stock to 100,000,000. No additional shares were authorized during the year ended December 31, 2000. 16. Segment Information During 1998, the Company adopted the provisions of FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. FASB Statement No. 131 establishes standards for disclosures about operating segments, products and services, geographic areas and major customers. Prior to the Company's decision to discontinue its millimeter-wave products (MMWP) business segment (see Note 2), the Company developed and manufactured products in two business segments, the MMWP and broadband wireless access (BWA) segments. As a result of this decision, the Company now operates in only the BWA segment. Products of the BWA segment include hub and customer premises equipment. The BWA segment's sales by country are (in thousands): Year ended December 31, ----------------------------------- 2000 1999 1998 -------- ------- ------- United States .............. $ 1,020 $ 1,156 $ 1,153 Canada...................... 22,999 8,560 713 Other countries ............ 734 4 520 -------- ------- ------- $ 24,753 $ 9,720 $ 2,386 ======== ======= ======= The Company's research and production facilities and accompanying long-lived assets are located in the United States. 43 Sales to individual customers in excess of 10% of total BWA segment revenues are presented in the following table (in thousands):
Year ended December 31, -------------------------------- 2000 1999 1998 -------- -------- -------- Individual customers in excess of 10% of revenues: Customer A ........................... $ -- $ -- $ 296 Customer B ........................... -- -- 614 Customer C ........................... 22,999 8,560 713 -------- -------- -------- 22,999 8,560 1,623 Other customers ........................... 1,754 1,160 763 -------- -------- -------- Total sales ........................... $ 24,753 $ 9,720 $ 2,386 ======== ======== ========
17. Employee Savings and Profit-Sharing Plan The Company sponsors an employee savings and profit-sharing plan for all employees. Full-time employees become eligible for participation after one-half year of service. The Company provides a 60% (50% in 1998) matching of employee contributions, up to a maximum of $2,000. An additional contribution is determined at the discretion of the Board of Directors. The Company's contributions to this plan for matching of employee contributions amounted to approximately $235,000, $236,000 and $191,000 for the years ended December 31, 2000, 1999 and 1998, respectively. 18. Related-Party Transactions The Company had sales to a stockholder of approximately $186,000, $1,355,000 and $953,000 during 2000, 1999 and 1998, respectively. Included in accounts receivable at December 31, 1999 are approximately $343,000 due from these sales. These transactions comprise subcontracts associated with the stockholder's contracts with the U.S. Government, and are contracted under federal contracting guidelines. The sales and related accounts receivable from this customer are included in discontinued operations. The Company held a promissory note receivable of $250,000 as the result of a 1996 license and sales agreement with a limited liability company ("LLC") established and partly owned by a former stockholder/employee. The Company also owns a 19.9% interest in the LLC. At December 31, 2000 and 1999, the Company has reserved for the entire amount due on the note receivable of approximately $200,000, and has no value assigned to its 19.9% interest in the LLC. The Company has obtained a judgment against the LLC in the amount of approximately $378,000. In October 1999, the Company renegotiated that transaction with the LLC and involved Millivision, L.L.C., a joint venture between the LLC and one other entity. The Company released the LLC and the former stockholder/employee from substantially all claims, including the $378,000 judgment, and the LLC released any claims to the intellectual property relating to the Company's contraband detection systems business. Millivision agreed to pay the Company royalties in the minimum amount of $200,000. The LLC, Millivision and the former stockholder/employee also agreed not to compete with the Company with respect to broadband wireless telecommunications equipment. 19. Contingencies The Company is subject to potential liability under contractual and other matters and various claims and legal actions which are pending or may be asserted. These matters arise in the ordinary course and conduct of the business of the Company. While the outcome of all of the pending and potential claims and legal actions against the Company cannot be forecast with certainty, management believes that such matters should not result in any liabiltiy which would have a material adverse effect on the Company's financial position, results of operations, or cash flows. 44 20. Selected Quarterly Financial Data (unaudited) The following tables present unaudited quarterly financial information for the eight quarters ended December 31, 2000 (in thousands, except per share data). The statement of operations data have been derived from our unaudited financial statements. In management's opinion, these statements have been prepared on substantially the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information in accordance with generally accepting accounting principles. The results for any quarter are not necessarily indicative of results for any future period.
Quarter Ended -------------------------------------------------- March 31, June 30, Sept. 30, Dec. 31, 2000 2000 2000 2000 -------- -------- -------- -------- Sales ............................................ $ 6,316 $ 8,731 $ 8,095 $ 1,611 Cost of sales .................................... 6,514 8,543 10,225 4,328 Charges relating to excess inventory on hand and on order ................................... -- -- -- 17,744 Gross margin (loss) .............................. (198) 188 (2,130) (20,461) Loss from continuing operations .................. (3,583) (4,569) (5,896) (23,586) Income (loss) from discontinued operations ....... (2,848) 496 534 339 Net loss ......................................... (6,431) (4,073) (5,362) (23,247) Basic and diluted loss per share from continuing operations ........................... (0.37) (0.28) (0.36) (1.41) Basic and diluted income (loss) per share from discontinued operations .................... (0.29) 0.03 0.03 0.02 Basic and diluted net loss per share ............. (0.66) (0.25) (0.32) (1.39) Quarter Ended -------------------------------------------------- March 31, June 30, Sept. 30, Dec. 31, 1999 1999 1999 1999 -------- -------- -------- -------- Sales ............................................ $ 1,177 $ 1,585 $ 2,742 $ 4,216 Cost of sales .................................... 1,650 1,162 2,291 3,938 Charges relating to excess inventory on hand and on order ................................... -- -- -- -- Gross margin (loss) .............................. (473) 423 451 278 Loss from continuing operations .................. (2,148) (1,720) (2,079) (2,346) Income (loss) from discontinued operations ....... 358 (1,891) (109) -- Net loss ......................................... (1,790) (3,611) (2,188) (2,346) Basic and diluted loss per share from continuing operations ........................... (4.34) (3.44) (3.44) (2.86) Basic and diluted income (loss) per share from discontinued operations .................... 0.72 (3.78) (0.18) (0.00) Basic and diluted net loss per share ............. (3.62) (7.22) (3.62) (2.86)
21. Subsequent Event At December 31, 2000, the Company's portfolio of marketable securities included a $2.5 million investment in commercial paper issued by Pacific Gas & Electric. Subsequent to the balance sheet date, the fair value of the investment has declined. The subsequent decline in fair market value has not been recorded in the financial statements at December 31, 2000 because the Company believes the decline to be temporary. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. 45 PART III Item 10. Directors and Executive Officers of the Company. Information appearing under the captions "Board of Directors, Executive Officers and Key Employees" and "Section 16(a) Beneficial Ownership Reporting Compliance" in our definitive proxy statement for our 2001 Annual Meeting of Stockholders (the "2001 Proxy Statement") is hereby incorporated by reference. Item 11. Executive Compensation. Information appearing under the caption "Executive Compensation" in our 2001 Proxy Statement is hereby incorporated by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. Information appearing under the caption "Security Ownership of Certain Beneficial Owners and Our Directors and Management" in our 2001 Proxy Statement is hereby incorporated by reference. Item 13. Certain Relationships and Related Transactions. Information appearing under the caption "Material Relationships and Related Party Transactions" in our 2001 Proxy Statement is hereby incorporated by reference. 46 PART IV Item 14. Financial Statements, Schedules, Reports on Form 8-K and Exhibits. (a) Documents filed as part of this Form 10-K: 1. Financial Statements See Index to Financial Statements under Item 8--Financial Statements and Supplementary Data. 2. Financial Statement Schedule Schedule II--Valuation and Qualifying Accounts All other financial statement schedules have been omitted because they are not required, not applicable, or the information to be included in the financial statement schedules is included in the financial statements or the notes thereto. 3. Exhibits See Exhibit Index. (b) Reports on Form 8-K We did not file any reports on Form 8-K during the three months ended December 31, 2000. 47
TELAXIS COMMUNICATIONS CORPORATION VALUATION AND QUALIFYING ACCOUNTS For the years ended December 31, 1998, 1999 and 2000 (in thousands) Column C Column A Column B Additions Column D Column E - ------------------------------- ---------- ---------------------- ----------- ---------- Balance at Charged to Charged to Balance at Beginning Costs and Other End of Description Of Period Expenses Accounts Deductions Period ----------- --------- -------- -------- ---------- ------ 1998 Inventory reserve ............. $ 786 $ 1,492 $ -- $ (45) $ 2,233 Allowance for doubtful accounts 210 176 -- (18) 368 Warranty reserve .............. 342 284 -- (134) 492 ------- ------- ------- ------- ------- $ 1,338 $ 1,952 $ -- $ (197) $ 3,093 ======= ======= ======= ======= ======= 1999 Inventory reserve ............. $ 2,233 $ 420 $ (625) $ (231) $ 1,797 Allowance for doubtful accounts 368 104 (415) -- 57 Warranty reserve .............. 492 38 -- -- 530 ------- ------- ------- ------- ------- $ 3,093 $ 562 $(1,040) $ (231) $ 2,384 ======= ======= ======= ======= ======= 2000 Inventory reserve ............. $ 1,797 $ 1,895 $ (2,052) $ -- $ 1,640 Allowance for doubtful accounts 57 193 -- -- 250 Warranty reserve .............. 530 180 (298) -- 412 ------- ------- ------- ------- ------- $ 2,384 $ 2,268 $(2,350) $ -- $ 2,302 ======= ======= ======= ======= =======
48 EXHIBIT INDEX Exhibit Number Description - -------------------------------------------------------------------------------- 2.1 Asset Purchase Agreement, dated as of February 8, 2000, between the Company and MMW Acquisition, LLC.* 3.1 Restated Articles of Organization of the Company, as amended.*** 3.2 Amended and Restated By-laws of the Company.** 4.1 Form of certificate evidencing ownership of Common Stock of the Company.*** 10.1 1986 Stock Plan of the Company. 10.2 1987 Stock Plan of the Company. 10.3 1988 Stock Plan of the Company. 10.4 1996 Stock Plan of the Company. 10.5 1997 Stock Plan of the Company. 10.6 1999 Stock Plan of the Company. 10.7 Employment Agreement by and between the Company and John L. Youngblood dated as of December 19, 2000.***** 10.8 Employment Agreement by and between the Company and Ransom D. Reynolds dated as of December 19, 2000.***** 10.9 Employment Agreement by and between the Company and Dennis C. Stempel dated as of December 19, 2000.***** 10.10 Employment Agreement by and between the Company and David L. Renauld dated as of December 19, 2000.***** 10.11 Employment Agreement by and between the Company and Kenneth R. Wood dated as of December 19, 2000.***** 10.12 Reseller Agreement by and between the Company and Newbridge Networks Corporation dated August 7, 1998.+ 10.13 Professional Services Agreement by and between the Company and Newbridge Networks Corporation dated August 7, 1998.+ 10.14 Supplemental Agreement between the Company and Alcatel Networks Corporation dated September 14, 2000.++ 10.15 Agreement and License between the Company and California Amplifier, Inc. dated as of August 25, 2000.**** 10.16 Lease by and between the Company and O'Leary-Vincunas LLC dated November 1, 2000.***** 10.17 Fourth Amended and Restated Registration Rights Agreement dated September 17, 1999.** 10.18 Registration Rights Agreement by and between the Company and Boston Federal Savings Bank dated August 20, 1999. 10.19 Purchase Agreement by and between the Company and Massachusetts Technology Development Corporation dated June 1988.** 10.20 First Amendment to the Purchase Agreement by and between the Company and Massachusetts Technology Development Corporation dated December 28, 1988.*** 10.21 Second Amendment to the Purchase Agreement by and between the Company and Massachusetts Technology Development Corporation dated June 17, 1999.*** 10.22 Employee Stock Purchase Agreement by and between the Company and Mervyn Fitzgerald dated September 16, 1999.*** 49 Exhibit Number Description - -------------------------------------------------------------------------------- 10.23 Tax Agreement by and between the Company and Mervyn Fitzgerald dated September 16, 1999.*** 10.24 Form of Indemnification Agreement, a substantially similar version of which was entered between the Company and each of Mssrs. Doyle, Fleming, Paladino, Norbury, Youngblood, Renauld, Reynolds, and Stempel on September 18, 2000 and between the Company and Ms. Armitage on October 31, 2000.**** 23.1 Consent of PricewaterhouseCoopers LLP.***** 27.1 Financial Data Schedule.***** - -------- All non-marked Exhibits listed above are incorporated herein by reference to the exhibits to Form S-1 filed with the Commission on September 27, 1999 (File No. 333-87885). * Incorporated herein by reference to the exhibits to Form 8-K filed with the Commission on February 11, 2000. ** Incorporated herein by reference to the exhibits to Amendment No. 1 to Form S-1 filed with the Commission on October 15, 1999 (File No. 333-87885). *** Incorporated herein by reference to the exhibits to Amendment No. 2 to Form S-1 filed with the Commission on December 21, 1999 (File No. 333-87885). **** Incorporated herein by reference to the exhibits to Form 10-Q filed with the Commission on November 14, 2000. ***** Filed herewith. + Incorporated herein by reference to the exhibits to Amendment No. 3 to Form S-1 filed with the Commission on January 11, 2000 (File No. 333-87885). Certain portions of this Exhibit have been omitted pursuant to a request for confidential treatment filed with the Commission. ++ Incorporated herein by reference to the exhibits to Form 10-Q filed with the Commission on November 14, 2000. Certain portions of this Exhibit have been omitted pursuant to a request for confidential treatment filed with the Commission. 50 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Telaxis has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Telaxis Communications Corporation By: /s/John L. Youngblood --------------------- John L. Youngblood, President and Chief Executive Officer Date: March 27, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Telaxis and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- By: /s/John L. Youngblood President, Chief Executive Officer March 27, 2001 --------------------- and Director John L. Youngblood By: /s/Dennis C. Stempel Vice President, Chief Financial March 27, 2001 -------------------- Officer, Principal Financial Officer Dennis C. Stempel and Principal Accounting Officer By: /s/Albert E. Paladino Director March 27, 2001 --------------------- Albert E. Paladino By: /s/Carol B. Armitage Director March 27, 2001 -------------------- Carol B. Armitage By: /s/ Allan M. Doyle, Jr. Director March 27, 2001 ----------------------- Allan M. Doyle, Jr. By: /s/ Robert C. Fleming Director March 27, 2001 --------------------- Robert C. Fleming By: /s/ David A. Norbury Director March 27, 2001 -------------------- David A. Norbury 51 EX-10.7 2 0002.txt YOUNGBLOOD EMPLOYMENT AGREEMENT Exhibit 10.7 EMPLOYMENT AGREEMENT PARTIES This Employment Agreement (this "Agreement") dated as of December 19, 2000 --------- is entered into by and between Telaxis Communications Corporation, a Massachusetts corporation having its principal place of business at 20 Industrial Drive East, South Deerfield, Massachusetts 01373 (the "Company") and ------- John L. Youngblood, an individual with an address at 29366 Duberry Ridge, Boerne, Texas 78015 (hereinafter called "Employee"). -------- TERMS OF AGREEMENT In consideration of this Agreement and the continued employment of the Employee by the Company, the parties agree as follows: 1. Employment. The Company hereby employs Employee, on a full-time basis, ---------- to act as President and Chief Executive Officer of the Company at the principal place of business of the Company shown above during the Employment Period and to perform such acts and duties and furnish such services to the Company in connection with and related to that position as is customary for persons with similar positions in like companies, as the Company's Board of Directors shall from time to time reasonably direct. Employee hereby accepts said employment. Employee shall use his best and most diligent efforts to promote the interests of the Company; shall discharge his duties to the best of his ability; and shall devote his full business time and his best business judgment, skill and knowledge to the performance of his duties and responsibilities hereunder. Employee shall report to the Board of Directors of the Company. 2. Employment Period. The period of Employee's employment under this ------------------ Agreement shall commence on the date of this Agreement and shall continue for a period of twenty-four (24) months thereafter. At the end of the initial twenty-four (24) month period and any extension period thereafter, the period of Employee's employment under this Agreement, in the absence of any other express agreement between the parties, shall automatically be extended for an additional period of three (3) months. The employment period described above is subject to earlier termination pursuant to Section 3.6, 4 or 5. The period of Employee's employment under this Agreement (including all quarterly extension periods) is referred to as the "Employment Period." 3. Compensation and Benefits; Disability. ------------------------------------- 3.1 Salary. During the Employment Period, the Company shall pay Employee a ------ salary at an annualized rate equal to $255,216.00 payable in equal installments pursuant to the Company's customary payroll policies in force at the time of payment (but in no event less frequently than monthly), less required payroll deductions. The Employee's salary may be adjusted upward from time to time in the sole discretion of the Board of Directors of the Company, except that the Employee, if a Director, shall not be entitled to vote thereon. 3.2 Discretionary Bonus. During the Employment Period, the Employee may -------------------- participate in such bonus plan or plans of the Company as the Board of Directors, acting through its Compensation Committee, may approve for the Employee. Nothing contained in this Section 3.2 shall be construed to require the Board of Directors to approve a bonus plan or in any way grant to Employee the right to receive bonuses not otherwise approved. 3.3 Company Automobile. During the Employment Period, the Company shall ------------------- provide Employee with a full-sized Company automobile which shall be replaced promptly after (a) the expiration of every three (3) year period after the date hereof or (b) the automobile reaches 60,000 miles, whichever occurs first. 3.4 Insurance Benefits. During the Employment Period, the Employee shall ------------------- receive such health insurance, disability insurance, life insurance and other benefits as customarily provided to other officers and management employees of the Company. 3.5 Vacation. Employee may take four (4) weeks of paid vacation during each -------- year at such times as shall be consistent with the Company's vacation policies and (in the Company's judgment) with the Company's vacation schedule for officers and other management employees. Employee shall also be entitled to paid legal and religious holidays, sick days, and personal days in accordance with the Company's normal policies in effect from time to time. 3.6 Disability. If during the Employment Period, Employee shall become ill, ---------- disabled or otherwise incapacitated so as to be unable to perform his usual duties (a) for a period in excess of one hundred twenty (120) consecutive days or (b) for more than one hundred eighty (180) days in any consecutive twelve (12) month period, then the Company shall have the right to terminate Employee's employment under this Agreement, subject only to applicable laws, on thirty (30) days' written notice to Employee. Termination pursuant to this Section 3.6 shall not affect any rights Employee may otherwise have under any disability insurance policies in effect at the time of such termination. 3.7 Severance Pay. ------------- 3.7.1 Termination By Company. In the event the Company terminates ------------------------ Employee's employment under this Agreement pursuant to Section 5, the Company shall provide to Employee, in exchange for a release as to any and all claims Employee may have against the Company, the Severance Benefits for (a) a twelve (12) month period after termination if termination shall occur (i) at any time prior to any Change in Control, (ii) after any Approved Change in Control, or (iii) more than one (1) year after an Unapproved Change in Control, or (b) a twenty-four (24) month period after termination if termination shall occur within one (1) year after an Unapproved Change in Control. 3.7.2 Termination by Employee For Good Reason. After a Change in Control ---------------------------------------- and provided Employee has Good Reason, Employee may terminate his employment under this Agreement upon fifteen (15) days written notice to the Company and the Company shall provide to Employee, in exchange for a release as to any and all claims Employee may have against the Company, the Severance Benefits for (a) a twelve (12) month period after termination if 2 termination shall occur within one (1) year after an Unapproved Change in Control or (b) an initial six (6) month period, and thereafter until the earlier to occur of the end of one (1) additional six (6) month period or Employee obtaining regular employment or consulting work, if termination shall occur (i) after any Approved Change of Control or (ii) more than one (1) year after an Unapproved Change in Control. 3.7.3 Definitions. For purposes of this Section 3.7, ----------- (a) a "Change in Control" shall mean: (i) The completion of a merger or consolidation of the Company with any other entity (other than a merger or consolidation in which the Company is the surviving entity and is owned at least 50% collectively by persons who were stockholders of the Company before the transaction), the sale of substantially all of the Company's assets to another entity, the sale of more than 50% of the outstanding capital stock of the Company to an unrelated person or group of persons acting collectively in one or a series of transactions, or any change in "control" [as defined in Rule 12b-2 adopted under the Securities Exchange Act of 1934, as amended (the "Exchange Act")] of the Company which would be required to be reported under either Section 13 or 14 of the Exchange Act whether or not the Company is then subject to said Act, including a change whereby (A) any "person" [as such term is used in Sections 13(d) and 14(d) of the Exchange Act] becomes a "beneficial owner" (as defined in Rule 13d-adopted under the Exchange Act) of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; or (B) there ceases to be a majority of the Board of Directors comprised of individuals described in subsection (iv) below. (ii) An "Approved Change in Control" of the Company shall mean a Change in Control that is approved by at least a majority of the Company's Board of Directors. (iii) An "Unapproved Change in Control" of the Company shall mean any Change in Control that is not an Approved Change of Control. (iv) For the purposes of Sections 3.7.3(a)(i) and (ii), "Board of Directors" shall mean: (i) individuals who, on the date hereof, constituted the Board of the Company, and (ii) any successors to those directors whose nomination for election or election was approved by a majority of the directors in office at the time of such nomination or election. (b) "Good Reason" shall mean the occurrence after a Change in Control of any of the following circumstances without the Employee's written consent unless, in the case of paragraphs (A), (B), (C) or (H), such circumstances constitute an isolated, insubstantial and inadvertent action not taken in bad faith and which are fully remedied by the Company prior to the Employee's last day of employment: 3 (A) the assignment to the Employee of any duties inconsistent with the highest position in the Company that the Employee held at any time during the 90-day period immediately preceding the Change in Control of the Company, or a significant adverse alteration in the nature or status of the Employee's responsibilities or the conditions of the Employee's employment from those in effect at any time during the 90-day period immediately preceding such Change in Control; (B) any violation of Section 1 or Section 3.1 through 3.5 of this Agreement; (C) the failure by the Company to provide the Employee with the greatest number of vacation days to which the Employee is entitled in accordance with the Company's normal vacation policy in effect at any time during the 90-day period immediately preceding the Change in Control; (D) any requirement by the Company or of any person in control of the Company that the location at which the Employee perform the Employee's principal duties for the Company be (1) outside a radius of 50 miles from the location at which the Employee performed such duties immediately prior to the Change in Control, or (2) more than 25 miles in commuting distance further than the Employee's commuting distance to the location at which the Employee performed such duties immediately prior to the Change in Control; (E) the failure by the Company to pay to the Employee any portion of the Employee's current compensation within seven (7) days after such compensation is due; (F) any requirement by the Company or any person in control of the Company that the Employee travel on an overnight basis to an extent not substantially consistent with the Employee's business travel obligations immediately prior to the Change in Control; (G) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform the Agreement, as contemplated in Section 9.3; or (H) any purported termination of the Employee's employment which is not effected pursuant to the requirements of Section 5 and 8, which purported termination shall not be effective for purposes of this Agreement. The Employee's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. For purposes of this Section 3.7.3(b), any good faith determination of "Good Reason" made by the Employee shall be conclusive. 4 (c) "Severance Benefits" shall mean (i) Employee's base salary at the highest level in effect during the 90-day period immediately preceding the date of termination, payable in equal installments pursuant to the Company's customary payroll policies in force at the time of payment (but in no event less frequently than monthly), less required payroll deductions and (ii) the continuation of all health, welfare and other fringe benefits (other than the Company automobile allowance) which are provided to Employee pursuant to this Agreement on the date of termination except to the extent the continuation of any such benefits is not permitted by applicable law or the terms of any benefit documentation (provided, however, if the continuation of medical/health insurance, dental insurance, disability insurance, and/or life insurance is not permitted, the Company shall pay Employee, at the beginning of the period during which he is entitled to receive Severance Benefits, an amount equal to the amount the Company would have had to pay to provide those insurances to Employee if Employee had remained an employee of the Company for the period during which he is entitled to receive Severance Benefits under this Agreement). Notwithstanding the foregoing, if Employee begins regular employment or consulting work prior to the end of the period during which he is entitled to receive Severance Benefits from the Company under this Agreement, the amount Employee shall be entitled to receive pursuant to clause (i) of this definition of "Severance Benefits" shall be reduced to the amount, if any, by which Employee's base salary described in clause (i) above exceeds Employee's base salary from his new regular employment or consulting work. Employee agrees to notify the Company if he begins regular employment or consulting work prior to the end of the period during which he is entitled to receive Severance Benefits from the Company under this Agreement. 4. Discharge for Cause. The Company may discharge Employee and terminate ------------------- his employment under this Agreement for cause without further liability to the Company by a majority vote of the Board of Directors of the Company except that the Employee, if a Director, shall not be entitled to vote thereon. As used in this Section 4, "cause" shall mean any or all of the following: (a) gross or willful misconduct of Employee during the course of his employment; (b) conviction of a fraud or felony or any criminal offense involving dishonesty, breach of trust or moral turpitude during the Employment Period; or (c) Employee's breach of any of the material terms of this Agreement which, if curable, is not cured within thirty (30) days of written notice to the Employee. 5. Termination Without Cause. Upon thirty (30) days prior written notice, ------------------------- the Company may terminate Employee's employment under this Agreement without cause without further liability to the Company (except as set forth in Section 3.7 above) by a majority vote of the Board of Directors of the Company except that the Employee, if a Director, shall not be entitled to vote thereon. 5 6. Expenses. Pursuant to the Company's customary policies in force at the -------- time of payment, Employee shall be promptly reimbursed, against presentation of vouchers or receipts therefor, for all authorized expenses properly incurred by him on the Company's behalf in the performance of his duties hereunder. 7. Additional Agreements. Upon execution of this Agreement, the Employee --------------------- shall execute and deliver to the Company, unless previously delivered, a Confidential and Proprietary Information Agreement (the "Proprietary Agreement") and an Agreement Not to Compete (the "Noncompetition Agreement") in the standard forms signed by other management employees of the Company. 8. Notices. Any notice or communication given by any party hereto to the ------- other party or parties shall be in writing and personally delivered or mailed by certified mail, return receipt requested, postage prepaid, to the addresses provided above. All notices shall be deemed given when actually received. Any person entitled to receive notice (or a copy thereof) may designate in writing, by notice to the other, such other address to which notices to such person shall thereafter be sent. 9. Miscellaneous. ------------- 9.1 Entire Agreement. This Agreement contains the entire understanding of ---------------- the parties in respect of its subject matter and supersedes all prior agreements and understandings between the parties with respect to such subject matter; provided, however that nothing in this Agreement shall affect the Employee's obligations under the Proprietary Agreement and Noncompetition Agreement. 9.2 Amendment; Waiver. This Agreement may not be amended, supplemented, ------------------ cancelled or discharged, except by written instrument executed by the party affected thereby. No failure to exercise, and no delay in exercising, any right, power or privilege hereunder shall operate as a waiver thereof. No waiver of any breach of any provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision. 9.3 Binding Effect, Assignment. Employee's rights or obligations under this -------------------------- Agreement may not be assigned by Employee; except that Employee's right to compensation to the earlier of date of death or termination of actual employment shall pass to Employee's executor or administrator. The rights and obligations of this Agreement shall bind and inure to the benefit of the Company and its successors and assigns. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such successor had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 9.4 Headings. The headings contained in this Agreement are for reference -------- purposes only and shall not affect the meaning or interpretation of this Agreement. 6 9.5 Governing Law; Interpretation. This Agreement shall be construed in ------------------------------ accordance with and governed for all purposes by the laws and public policy of the Commonwealth of Massachusetts applicable to contracts executed and to be wholly performed within such Commonwealth. Service of process in any dispute shall be effective (a) upon the Company, if service is made on any officer of the Company other than the Employee; or (b) upon the Employee, if served at Employee's residence last known to the Company with an information copy to the Employee at any other residence, or care of a subsequent employer, of which the Company may be aware. 9.6 Further Assurances. Each of the parties agrees to execute, acknowledge, ------------------ deliver and perform, or cause to be executed, acknowledged, delivered and performed, at any time, or from time to time, as the case may be, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be necessary or proper to carry out the provisions or intent of this Agreement. 9.7 Severability. If any one or more of the terms, provisions, covenants or ------------ restrictions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. If, moreover, any one or more of the provisions contained in this Agreement shall for any reason be determined by a court of competent jurisdiction to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed, by limiting or reducing it, so as to be enforceable to the extent compatible with then applicable law. 10. Replacement Agreement. This Agreement replaces in its entirety the ---------------------- Employment Agreement, dated as of January 25, 1994, between the Company and Employee. EXECUTION The parties executed this Agreement as a sealed instrument as of the date first above written, whereupon it became binding in accordance with its terms. TELAXIS COMMUNICATIONS CORPORATION By: /s/ David L. Renauld --------------------------------------- Name: David L. Renauld Title: Vice President /s/ John L. Youngblood --------------------------------------- Name: John L. Youngblood 7 EX-10.8 3 0003.txt REYNOLDS EMPLOYMENT AGREEMENT Exhibit 10.8 EMPLOYMENT AGREEMENT PARTIES This Employment Agreement (this "Agreement") dated as of December 19, 2000 --------- is entered into by and between Telaxis Communications Corporation, a Massachusetts corporation having its principal place of business at 20 Industrial Drive East, South Deerfield, Massachusetts 01373 (the "Company") and ------- Ransom D. Reynolds, an individual with an address at 147 Parker Road, Framingham, Massachusetts 01701 (hereinafter called "Employee"). -------- TERMS OF AGREEMENT In consideration of this Agreement and the continued employment of the Employee by the Company, the parties agree as follows: 1. Employment. The Company hereby employs Employee, on a full-time basis, ---------- to act as Senior Vice President, Account Management of the Company at the principal place of business of the Company shown above during the Employment Period and to perform such acts and duties and furnish such services to the Company in connection with and related to that position as is customary for persons with similar positions in like companies, as the Company's Board of Directors shall from time to time reasonably direct. Employee hereby accepts said employment. Employee shall use his best and most diligent efforts to promote the interests of the Company; shall discharge his duties to the best of his ability; and shall devote his full business time and his best business judgment, skill and knowledge to the performance of his duties and responsibilities hereunder. Employee shall report to the Chief Executive Officer/President of the Company. 2. Employment Period. The period of Employee's employment under this ------------------ Agreement shall commence on the date of this Agreement and shall continue for a period of twenty-four (24) months thereafter. At the end of the initial twenty-four (24) month period and any extension period thereafter, the period of Employee's employment under this Agreement, in the absence of any other express agreement between the parties, shall automatically be extended for an additional period of three (3) months. The employment period described above is subject to earlier termination pursuant to Section 3.6, 4 or 5. The period of Employee's employment under this Agreement (including all quarterly extension periods) is referred to as the "Employment Period." 3. Compensation and Benefits; Disability. ------------------------------------- 3.1 Salary. During the Employment Period, the Company shall pay Employee a ------ salary at an annualized rate equal to $173,264.00 payable in equal installments pursuant to the Company's customary payroll policies in force at the time of payment (but in no event less frequently than monthly), less required payroll deductions. The Employee's salary may be adjusted upward from time to time in the sole discretion of the Board of Directors of the Company, except that the Employee, if a Director, shall not be entitled to vote thereon. 3.2 Discretionary Bonus. During the Employment Period, the Employee may -------------------- participate in such bonus plan or plans of the Company as the Board of Directors, acting through its Compensation Committee, may approve for the Employee. Nothing contained in this Section 3.2 shall be construed to require the Board of Directors to approve a bonus plan or in any way grant to Employee the right to receive bonuses not otherwise approved. 3.3 Company Automobile Allowance. During the Employment Period, the Company ---------------------------- shall provide Employee with an automobile allowance at an annualized rate not less than $7,800 payable in equal installments pursuant to the Company's customary payroll policies in force at the time of payment (but in no event less frequently than monthly), less required payroll deductions. 3.4 Insurance Benefits. During the Employment Period, the Employee shall ------------------- receive such health insurance, disability insurance, life insurance and other benefits as customarily provided to other officers and management employees of the Company. 3.5 Vacation. Employee may take four (4) weeks of paid vacation during each -------- year at such times as shall be consistent with the Company's vacation policies and (in the Company's judgment) with the Company's vacation schedule for officers and other management employees. Employee shall also be entitled to paid legal and religious holidays, sick days, and personal days in accordance with the Company's normal policies in effect from time to time. 3.6 Disability. If during the Employment Period, Employee shall become ill, ---------- disabled or otherwise incapacitated so as to be unable to perform his usual duties (a) for a period in excess of one hundred twenty (120) consecutive days or (b) for more than one hundred eighty (180) days in any consecutive twelve (12) month period, then the Company shall have the right to terminate Employee's employment under this Agreement, subject only to applicable laws, on thirty (30) days' written notice to Employee. Termination pursuant to this Section 3.6 shall not affect any rights Employee may otherwise have under any disability insurance policies in effect at the time of such termination. 3.7 Severance Pay. ------------- 3.7.1 Termination By Company. In the event the Company terminates ------------------------ Employee's employment under this Agreement pursuant to Section 5, the Company shall provide to Employee, in exchange for a release as to any and all claims Employee may have against the Company, the Severance Benefits for (a) a twelve (12) month period after termination if termination shall occur (i) at any time prior to any Change in Control, (ii) after any Approved Change in Control, or (iii) more than one (1) year after an Unapproved Change in Control, or (b) a twenty-four (24) month period after termination if termination shall occur within one (1) year after an Unapproved Change in Control. 3.7.2 Termination by Employee For Good Reason. After a Change in Control ---------------------------------------- and provided Employee has Good Reason, Employee may terminate his employment under this Agreement upon fifteen (15) days written notice to the Company and the Company shall provide to Employee, in exchange for a release as to any and all claims Employee may have against the 2 Company, the Severance Benefits for (a) a twelve (12) month period after termination if termination shall occur within one (1) year after an Unapproved Change in Control or (b) an initial six (6) month period, and thereafter until the earlier to occur of the end of one (1) additional six (6) month period or Employee obtaining regular employment or consulting work, if termination shall occur (i) after any Approved Change of Control or (ii) more than one (1) year after an Unapproved Change in Control. 3.7.3 Definitions. For purposes of this Section 3.7, ----------- (a) a "Change in Control" shall mean: (i) The completion of a merger or consolidation of the Company with any other entity (other than a merger or consolidation in which the Company is the surviving entity and is owned at least 50% collectively by persons who were stockholders of the Company before the transaction), the sale of substantially all of the Company's assets to another entity, the sale of more than 50% of the outstanding capital stock of the Company to an unrelated person or group of persons acting collectively in one or a series of transactions, or any change in "control" [as defined in Rule 12b-2 adopted under the Securities Exchange Act of 1934, as amended (the "Exchange Act")] of the Company which would be required to be reported under either Section 13 or 14 of the Exchange Act whether or not the Company is then subject to said Act, including a change whereby (A) any "person" [as such term is used in Sections 13(d) and 14(d) of the Exchange Act] becomes a "beneficial owner" (as defined in Rule 13d-adopted under the Exchange Act) of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; or (B) there ceases to be a majority of the Board of Directors comprised of individuals described in subsection (iv) below. (ii) An "Approved Change in Control" of the Company shall mean a Change in Control that is approved by at least a majority of the Company's Board of Directors. (iii) An "Unapproved Change in Control" of the Company shall mean any Change in Control that is not an Approved Change of Control. (iv) For the purposes of Sections 3.7.3(a)(i) and (ii), "Board of Directors" shall mean: (i) individuals who, on the date hereof, constituted the Board of the Company, and (ii) any successors to those directors whose nomination for election or election was approved by a majority of the directors in office at the time of such nomination or election. (b) "Good Reason" shall mean the occurrence after a Change in Control of any of the following circumstances without the Employee's written consent unless, in the case of paragraphs (A), (B), (C) or (H), such circumstances constitute an isolated, insubstantial and inadvertent action not taken in bad faith and which are fully remedied by the Company prior to the Employee's last day of employment: 3 (A) the assignment to the Employee of any duties inconsistent with the highest position in the Company that the Employee held at any time during the 90-day period immediately preceding the Change in Control of the Company, or a significant adverse alteration in the nature or status of the Employee's responsibilities or the conditions of the Employee's employment from those in effect at any time during the 90-day period immediately preceding such Change in Control; (B) any violation of Section 1 or Section 3.1 through 3.5 of this Agreement; (C) the failure by the Company to provide the Employee with the greatest number of vacation days to which the Employee is entitled in accordance with the Company's normal vacation policy in effect at any time during the 90-day period immediately preceding the Change in Control; (D) any requirement by the Company or of any person in control of the Company that the location at which the Employee perform the Employee's principal duties for the Company be (1) outside a radius of 50 miles from the location at which the Employee performed such duties immediately prior to the Change in Control, or (2) more than 25 miles in commuting distance further than the Employee's commuting distance to the location at which the Employee performed such duties immediately prior to the Change in Control; (E) the failure by the Company to pay to the Employee any portion of the Employee's current compensation within seven (7) days after such compensation is due; (F) any requirement by the Company or any person in control of the Company that the Employee travel on an overnight basis to an extent not substantially consistent with the Employee's business travel obligations immediately prior to the Change in Control; (G) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform the Agreement, as contemplated in Section 9.3; or (H) any purported termination of the Employee's employment which is not effected pursuant to the requirements of Section 5 and 8, which purported termination shall not be effective for purposes of this Agreement. The Employee's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. For purposes of this Section 3.7.3(b), any good faith determination of "Good Reason" made by the Employee shall be conclusive. 4 (c) "Severance Benefits" shall mean (i) Employee's base salary at the highest level in effect during the 90-day period immediately preceding the date of termination, payable in equal installments pursuant to the Company's customary payroll policies in force at the time of payment (but in no event less frequently than monthly), less required payroll deductions and (ii) the continuation of all health, welfare and other fringe benefits (other than the Company automobile allowance) which are provided to Employee pursuant to this Agreement on the date of termination except to the extent the continuation of any such benefits is not permitted by applicable law or the terms of any benefit documentation (provided, however, if the continuation of medical/health insurance, dental insurance, disability insurance, and/or life insurance is not permitted, the Company shall pay Employee, at the beginning of the period during which he is entitled to receive Severance Benefits, an amount equal to the amount the Company would have had to pay to provide those insurances to Employee if Employee had remained an employee of the Company for the period during which he is entitled to receive Severance Benefits under this Agreement). Notwithstanding the foregoing, if Employee begins regular employment or consulting work prior to the end of the period during which he is entitled to receive Severance Benefits from the Company under this Agreement, the amount Employee shall be entitled to receive pursuant to clause (i) of this definition of "Severance Benefits" shall be reduced to the amount, if any, by which Employee's base salary described in clause (i) above exceeds Employee's base salary from his new regular employment or consulting work. Employee agrees to notify the Company if he begins regular employment or consulting work prior to the end of the period during which he is entitled to receive Severance Benefits from the Company under this Agreement. 4. Discharge for Cause. The Company may discharge Employee and terminate ------------------- his employment under this Agreement for cause without further liability to the Company by a majority vote of the Board of Directors of the Company except that the Employee, if a Director, shall not be entitled to vote thereon. As used in this Section 4, "cause" shall mean any or all of the following: (a) gross or willful misconduct of Employee during the course of his employment; (b) conviction of a fraud or felony or any criminal offense involving dishonesty, breach of trust or moral turpitude during the Employment Period; or (c) Employee's breach of any of the material terms of this Agreement which, if curable, is not cured within thirty (30) days of written notice to the Employee. 5. Termination Without Cause. Upon thirty (30) days prior written notice, -------------------------- the Company may terminate Employee's employment under this Agreement without cause without further liability to the Company (except as set forth in Section 3.7 above) by a majority vote of the Board of Directors of the Company except that the Employee, if a Director, shall not be entitled to vote thereon. 5 6. Expenses. Pursuant to the Company's customary policies in force at the -------- time of payment, Employee shall be promptly reimbursed, against presentation of vouchers or receipts therefor, for all authorized expenses properly incurred by him on the Company's behalf in the performance of his duties hereunder. 7. Additional Agreements. Upon execution of this Agreement, the Employee ---------------------- shall execute and deliver to the Company, unless previously delivered, a Confidential and Proprietary Information Agreement (the "Proprietary Agreement") and an Agreement Not to Compete (the "Noncompetition Agreement") in the standard forms signed by other management employees of the Company. 8. Notices. Any notice or communication given by any party hereto to the ------- other party or parties shall be in writing and personally delivered or mailed by certified mail, return receipt requested, postage prepaid, to the addresses provided above. All notices shall be deemed given when actually received. Any person entitled to receive notice (or a copy thereof) may designate in writing, by notice to the other, such other address to which notices to such person shall thereafter be sent. 9. Miscellaneous. ------------- 9.1 Entire Agreement. This Agreement contains the entire understanding of ---------------- the parties in respect of its subject matter and supersedes all prior agreements and understandings between the parties with respect to such subject matter; provided, however that nothing in this Agreement shall affect the Employee's obligations under the Proprietary Agreement and Noncompetition Agreement. 9.2 Amendment; Waiver. This Agreement may not be amended, supplemented, ------------------ cancelled or discharged, except by written instrument executed by the party affected thereby. No failure to exercise, and no delay in exercising, any right, power or privilege hereunder shall operate as a waiver thereof. No waiver of any breach of any provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision. 9.3 Binding Effect, Assignment. Employee's rights or obligations under this -------------------------- Agreement may not be assigned by Employee; except that Employee's right to compensation to the earlier of date of death or termination of actual employment shall pass to Employee's executor or administrator. The rights and obligations of this Agreement shall bind and inure to the benefit of the Company and its successors and assigns. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such successor had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 6 9.4 Headings. The headings contained in this Agreement are for reference -------- purposes only and shall not affect the meaning or interpretation of this Agreement. 9.5 Governing Law; Interpretation. This Agreement shall be construed in ------------------------------ accordance with and governed for all purposes by the laws and public policy of the Commonwealth of Massachusetts applicable to contracts executed and to be wholly performed within such Commonwealth. Service of process in any dispute shall be effective (a) upon the Company, if service is made on any officer of the Company other than the Employee; or (b) upon the Employee, if served at Employee's residence last known to the Company with an information copy to the Employee at any other residence, or care of a subsequent employer, of which the Company may be aware. 9.6 Further Assurances. Each of the parties agrees to execute, acknowledge, ------------------ deliver and perform, or cause to be executed, acknowledged, delivered and performed, at any time, or from time to time, as the case may be, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be necessary or proper to carry out the provisions or intent of this Agreement. 9.7 Severability. If any one or more of the terms, provisions, covenants or ------------ restrictions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. If, moreover, any one or more of the provisions contained in this Agreement shall for any reason be determined by a court of competent jurisdiction to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed, by limiting or reducing it, so as to be enforceable to the extent compatible with then applicable law. EXECUTION The parties executed this Agreement as a sealed instrument as of the date first above written, whereupon it became binding in accordance with its terms. TELAXIS COMMUNICATIONS CORPORATION By: /s/ John L. Youngblood --------------------------------------- Name: John L. Youngblood Title: President and CEO /s/ Ransom D. Reynolds --------------------------------------- Name: Ransom D. Reynolds 7 EX-10.9 4 0004.txt STEMPEL EMPLOYMENT AGREEMENT Exhibit 10.9 EMPLOYMENT AGREEMENT PARTIES This Employment Agreement (this "Agreement") dated as of December 19, 2000 --------- is entered into by and between Telaxis Communications Corporation, a Massachusetts corporation having its principal place of business at 20 Industrial Drive East, South Deerfield, Massachusetts 01373 (the "Company") and ------- Dennis C. Stempel, an individual with an address at 18 Independence Road, Feeding Hills, Massachusetts 01030 (hereinafter called "Employee"). -------- TERMS OF AGREEMENT In consideration of this Agreement and the continued employment of the Employee by the Company, the parties agree as follows: 1. Employment. The Company hereby employs Employee, on a full-time basis, ---------- to act as Vice President, Chief Financial Officer and Treasurer of the Company at the principal place of business of the Company shown above during the Employment Period and to perform such acts and duties and furnish such services to the Company in connection with and related to that position as is customary for persons with similar positions in like companies, as the Company's Board of Directors shall from time to time reasonably direct. Employee hereby accepts said employment. Employee shall use his best and most diligent efforts to promote the interests of the Company; shall discharge his duties to the best of his ability; and shall devote his full business time and his best business judgment, skill and knowledge to the performance of his duties and responsibilities hereunder. Employee shall report to the Chief Executive Officer/President of the Company. 2. Employment Period. The period of Employee's employment under this ------------------ Agreement shall commence on the date of this Agreement and shall continue for a period of twenty-four (24) months thereafter. At the end of the initial twenty-four (24) month period and any extension period thereafter, the period of Employee's employment under this Agreement, in the absence of any other express agreement between the parties, shall automatically be extended for an additional period of three (3) months. The employment period described above is subject to earlier termination pursuant to Section 3.6, 4 or 5. The period of Employee's employment under this Agreement (including all quarterly extension periods) is referred to as the "Employment Period." 3. Compensation and Benefits; Disability. ------------------------------------- 3.1 Salary. During the Employment Period, the Company shall pay Employee a ------ salary at an annualized rate equal to $157,497.60 payable in equal installments pursuant to the Company's customary payroll policies in force at the time of payment (but in no event less frequently than monthly), less required payroll deductions. The Employee's salary may be adjusted upward from time to time in the sole discretion of the Board of Directors of the Company, except that the Employee, if a Director, shall not be entitled to vote thereon. 3.2 Discretionary Bonus. During the Employment Period, the Employee may -------------------- participate in such bonus plan or plans of the Company as the Board of Directors, acting through its Compensation Committee, may approve for the Employee. Nothing contained in this Section 3.2 shall be construed to require the Board of Directors to approve a bonus plan or in any way grant to Employee the right to receive bonuses not otherwise approved. 3.3 Company Automobile Allowance. During the Employment Period, the Company ---------------------------- shall provide Employee with an automobile allowance at an annualized rate not less than $7,800 payable in equal installments pursuant to the Company's customary payroll policies in force at the time of payment (but in no event less frequently than monthly), less required payroll deductions. 3.4 Insurance Benefits. During the Employment Period, the Employee shall ------------------- receive such health insurance, disability insurance, life insurance and other benefits as customarily provided to other officers and management employees of the Company. 3.5 Vacation. Employee may take four (4) weeks of paid vacation during each -------- year at such times as shall be consistent with the Company's vacation policies and (in the Company's judgment) with the Company's vacation schedule for officers and other management employees. Employee shall also be entitled to paid legal and religious holidays, sick days, and personal days in accordance with the Company's normal policies in effect from time to time. 3.6 Disability. If during the Employment Period, Employee shall become ill, ---------- disabled or otherwise incapacitated so as to be unable to perform his usual duties (a) for a period in excess of one hundred twenty (120) consecutive days or (b) for more than one hundred eighty (180) days in any consecutive twelve (12) month period, then the Company shall have the right to terminate Employee's employment under this Agreement, subject only to applicable laws, on thirty (30) days' written notice to Employee. Termination pursuant to this Section 3.6 shall not affect any rights Employee may otherwise have under any disability insurance policies in effect at the time of such termination. 3.7 Severance Pay. ------------- 3.7.1 Termination By Company. In the event the Company terminates ------------------------ Employee's employment under this Agreement pursuant to Section 5, the Company shall provide to Employee, in exchange for a release as to any and all claims Employee may have against the Company, the Severance Benefits for (a) a twelve (12) month period after termination if termination shall occur (i) at any time prior to any Change in Control, (ii) after any Approved Change in Control, or (iii) more than one (1) year after an Unapproved Change in Control, or (b) a twenty-four (24) month period after termination if termination shall occur within one (1) year after an Unapproved Change in Control. 3.7.2 Termination by Employee For Good Reason. After a Change in Control ---------------------------------------- and provided Employee has Good Reason, Employee may terminate his employment under this Agreement upon fifteen (15) days written notice to the Company and the Company shall provide to Employee, in exchange for a release as to any and all claims Employee may have against the 2 Company, the Severance Benefits for (a) a twelve (12) month period after termination if termination shall occur within one (1) year after an Unapproved Change in Control or (b) an initial six (6) month period, and thereafter until the earlier to occur of the end of one (1) additional six (6) month period or Employee obtaining regular employment or consulting work, if termination shall occur (i) after any Approved Change of Control or (ii) more than one (1) year after an Unapproved Change in Control. 3.7.3 Definitions. For purposes of this Section 3.7, ----------- (a) a "Change in Control" shall mean: (i) The completion of a merger or consolidation of the Company with any other entity (other than a merger or consolidation in which the Company is the surviving entity and is owned at least 50% collectively by persons who were stockholders of the Company before the transaction), the sale of substantially all of the Company's assets to another entity, the sale of more than 50% of the outstanding capital stock of the Company to an unrelated person or group of persons acting collectively in one or a series of transactions, or any change in "control" [as defined in Rule 12b-2 adopted under the Securities Exchange Act of 1934, as amended (the "Exchange Act")] of the Company which would be required to be reported under either Section 13 or 14 of the Exchange Act whether or not the Company is then subject to said Act, including a change whereby (A) any "person" [as such term is used in Sections 13(d) and 14(d) of the Exchange Act] becomes a "beneficial owner" (as defined in Rule 13d-adopted under the Exchange Act) of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; or (B) there ceases to be a majority of the Board of Directors comprised of individuals described in subsection (iv) below. (ii) An "Approved Change in Control" of the Company shall mean a Change in Control that is approved by at least a majority of the Company's Board of Directors. (iii) An "Unapproved Change in Control" of the Company shall mean any Change in Control that is not an Approved Change of Control. (iv) For the purposes of Sections 3.7.3(a)(i) and (ii), "Board of Directors" shall mean: (i) individuals who, on the date hereof, constituted the Board of the Company, and (ii) any successors to those directors whose nomination for election or election was approved by a majority of the directors in office at the time of such nomination or election. (b) "Good Reason" shall mean the occurrence after a Change in Control of any of the following circumstances without the Employee's written consent unless, in the case of paragraphs (A), (B), (C) or (H), such circumstances constitute an isolated, insubstantial and inadvertent action not taken in bad faith and which are fully remedied by the Company prior to the Employee's last day of employment: 3 (A) the assignment to the Employee of any duties inconsistent with the highest position in the Company that the Employee held at any time during the 90-day period immediately preceding the Change in Control of the Company, or a significant adverse alteration in the nature or status of the Employee's responsibilities or the conditions of the Employee's employment from those in effect at any time during the 90-day period immediately preceding such Change in Control; (B) any violation of Section 1 or Section 3.1 through 3.5 of this Agreement; (C) the failure by the Company to provide the Employee with the greatest number of vacation days to which the Employee is entitled in accordance with the Company's normal vacation policy in effect at any time during the 90-day period immediately preceding the Change in Control; (D) any requirement by the Company or of any person in control of the Company that the location at which the Employee perform the Employee's principal duties for the Company be (1) outside a radius of 50 miles from the location at which the Employee performed such duties immediately prior to the Change in Control, or (2) more than 25 miles in commuting distance further than the Employee's commuting distance to the location at which the Employee performed such duties immediately prior to the Change in Control; (E) the failure by the Company to pay to the Employee any portion of the Employee's current compensation within seven (7) days after such compensation is due; (F) any requirement by the Company or any person in control of the Company that the Employee travel on an overnight basis to an extent not substantially consistent with the Employee's business travel obligations immediately prior to the Change in Control; (G) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform the Agreement, as contemplated in Section 9.3; or (H) any purported termination of the Employee's employment which is not effected pursuant to the requirements of Section 5 and 8, which purported termination shall not be effective for purposes of this Agreement. The Employee's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. For purposes of this Section 3.7.3(b), any good faith determination of "Good Reason" made by the Employee shall be conclusive. 4 (c) "Severance Benefits" shall mean (i) Employee's base salary at the highest level in effect during the 90-day period immediately preceding the date of termination, payable in equal installments pursuant to the Company's customary payroll policies in force at the time of payment (but in no event less frequently than monthly), less required payroll deductions and (ii) the continuation of all health, welfare and other fringe benefits (other than the Company automobile allowance) which are provided to Employee pursuant to this Agreement on the date of termination except to the extent the continuation of any such benefits is not permitted by applicable law or the terms of any benefit documentation (provided, however, if the continuation of medical/health insurance, dental insurance, disability insurance, and/or life insurance is not permitted, the Company shall pay Employee, at the beginning of the period during which he is entitled to receive Severance Benefits, an amount equal to the amount the Company would have had to pay to provide those insurances to Employee if Employee had remained an employee of the Company for the period during which he is entitled to receive Severance Benefits under this Agreement). Notwithstanding the foregoing, if Employee begins regular employment or consulting work prior to the end of the period during which he is entitled to receive Severance Benefits from the Company under this Agreement, the amount Employee shall be entitled to receive pursuant to clause (i) of this definition of "Severance Benefits" shall be reduced to the amount, if any, by which Employee's base salary described in clause (i) above exceeds Employee's base salary from his new regular employment or consulting work. Employee agrees to notify the Company if he begins regular employment or consulting work prior to the end of the period during which he is entitled to receive Severance Benefits from the Company under this Agreement. 4. Discharge for Cause. The Company may discharge Employee and terminate ------------------- his employment under this Agreement for cause without further liability to the Company by a majority vote of the Board of Directors of the Company except that the Employee, if a Director, shall not be entitled to vote thereon. As used in this Section 4, "cause" shall mean any or all of the following: (a) gross or willful misconduct of Employee during the course of his employment; (b) conviction of a fraud or felony or any criminal offense involving dishonesty, breach of trust or moral turpitude during the Employment Period; or (c) Employee's breach of any of the material terms of this Agreement which, if curable, is not cured within thirty (30) days of written notice to the Employee. 5. Termination Without Cause. Upon thirty (30) days prior written notice, -------------------------- the Company may terminate Employee's employment under this Agreement without cause without further liability to the Company (except as set forth in Section 3.7 above) by a majority vote of the Board of Directors of the Company except that the Employee, if a Director, shall not be entitled to vote thereon. 5 6. Expenses. Pursuant to the Company's customary policies in force at the -------- time of payment, Employee shall be promptly reimbursed, against presentation of vouchers or receipts therefor, for all authorized expenses properly incurred by him on the Company's behalf in the performance of his duties hereunder. 7. Additional Agreements. Upon execution of this Agreement, the Employee ---------------------- shall execute and deliver to the Company, unless previously delivered, a Confidential and Proprietary Information Agreement (the "Proprietary Agreement") and an Agreement Not to Compete (the "Noncompetition Agreement") in the standard forms signed by other management employees of the Company. 8. Notices. Any notice or communication given by any party hereto to the ------- other party or parties shall be in writing and personally delivered or mailed by certified mail, return receipt requested, postage prepaid, to the addresses provided above. All notices shall be deemed given when actually received. Any person entitled to receive notice (or a copy thereof) may designate in writing, by notice to the other, such other address to which notices to such person shall thereafter be sent. 9. Miscellaneous. ------------- 9.1 Entire Agreement. This Agreement contains the entire understanding of ---------------- the parties in respect of its subject matter and supersedes all prior agreements and understandings between the parties with respect to such subject matter; provided, however that nothing in this Agreement shall affect the Employee's obligations under the Proprietary Agreement and Noncompetition Agreement. 9.2 Amendment; Waiver. This Agreement may not be amended, supplemented, ------------------ cancelled or discharged, except by written instrument executed by the party affected thereby. No failure to exercise, and no delay in exercising, any right, power or privilege hereunder shall operate as a waiver thereof. No waiver of any breach of any provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision. 9.3 Binding Effect, Assignment. Employee's rights or obligations under this -------------------------- Agreement may not be assigned by Employee; except that Employee's right to compensation to the earlier of date of death or termination of actual employment shall pass to Employee's executor or administrator. The rights and obligations of this Agreement shall bind and inure to the benefit of the Company and its successors and assigns. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such successor had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 6 9.4 Headings. The headings contained in this Agreement are for reference -------- purposes only and shall not affect the meaning or interpretation of this Agreement. 9.5 Governing Law; Interpretation. This Agreement shall be construed in ------------------------------ accordance with and governed for all purposes by the laws and public policy of the Commonwealth of Massachusetts applicable to contracts executed and to be wholly performed within such Commonwealth. Service of process in any dispute shall be effective (a) upon the Company, if service is made on any officer of the Company other than the Employee; or (b) upon the Employee, if served at Employee's residence last known to the Company with an information copy to the Employee at any other residence, or care of a subsequent employer, of which the Company may be aware. 9.6 Further Assurances. Each of the parties agrees to execute, acknowledge, ------------------ deliver and perform, or cause to be executed, acknowledged, delivered and performed, at any time, or from time to time, as the case may be, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be necessary or proper to carry out the provisions or intent of this Agreement. 9.7 Severability. If any one or more of the terms, provisions, covenants or ------------ restrictions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. If, moreover, any one or more of the provisions contained in this Agreement shall for any reason be determined by a court of competent jurisdiction to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed, by limiting or reducing it, so as to be enforceable to the extent compatible with then applicable law. EXECUTION The parties executed this Agreement as a sealed instrument as of the date first above written, whereupon it became binding in accordance with its terms. TELAXIS COMMUNICATIONS CORPORATION By: /s/ John L. Youngblood --------------------------------------- Name: John L. Youngblood Title: President and CEO /s/ Dennis C. Stempel --------------------------------------- Name: Dennis C. Stempel 7 EX-10.10 5 0005.txt RENAULD EMPLOYMENT AGREEMENT Exhibit 10.10 EMPLOYMENT AGREEMENT PARTIES This Employment Agreement (this "Agreement") dated as of December 19, 2000 --------- is entered into by and between Telaxis Communications Corporation, a Massachusetts corporation having its principal place of business at 20 Industrial Drive East, South Deerfield, Massachusetts 01373 (the "Company") and ------- David L. Renauld, an individual with an address at 133 Turkey Hill Road, Florence, Massachusetts 01373 (hereinafter called "Employee"). -------- TERMS OF AGREEMENT In consideration of this Agreement and the continued employment of the Employee by the Company, the parties agree as follows: 1. Employment. The Company hereby employs Employee, on a full-time basis, ---------- to act as Vice President, Legal and Corporate Affairs, Secretary and Clerk of the Company at the principal place of business of the Company shown above during the Employment Period and to perform such acts and duties and furnish such services to the Company in connection with and related to that position as is customary for persons with similar positions in like companies, as the Company's Board of Directors shall from time to time reasonably direct. Employee hereby accepts said employment. Employee shall use his best and most diligent efforts to promote the interests of the Company; shall discharge his duties to the best of his ability; and shall devote his full business time and his best business judgment, skill and knowledge to the performance of his duties and responsibilities hereunder. Employee shall report to the Chief Executive Officer/President of the Company. 2. Employment Period. The period of Employee's employment under this ------------------ Agreement shall commence on the date of this Agreement and shall continue for a period of twenty-four (24) months thereafter. At the end of the initial twenty-four (24) month period and any extension period thereafter, the period of Employee's employment under this Agreement, in the absence of any other express agreement between the parties, shall automatically be extended for an additional period of three (3) months. The employment period described above is subject to earlier termination pursuant to Section 3.6, 4 or 5. The period of Employee's employment under this Agreement (including all quarterly extension periods) is referred to as the "Employment Period." 3. Compensation and Benefits; Disability. ------------------------------------- 3.1 Salary. During the Employment Period, the Company shall pay Employee a ------ salary at an annualized rate equal to $153,774.40 payable in equal installments pursuant to the Company's customary payroll policies in force at the time of payment (but in no event less frequently than monthly), less required payroll deductions. The Employee's salary may be adjusted upward from time to time in the sole discretion of the Board of Directors of the Company, except that the Employee, if a Director, shall not be entitled to vote thereon. 3.2 Discretionary Bonus. During the Employment Period, the Employee may -------------------- participate in such bonus plan or plans of the Company as the Board of Directors, acting through its Compensation Committee, may approve for the Employee. Nothing contained in this Section 3.2 shall be construed to require the Board of Directors to approve a bonus plan or in any way grant to Employee the right to receive bonuses not otherwise approved. 3.3 Company Automobile Allowance. During the Employment Period, the Company ---------------------------- shall provide Employee with an automobile allowance at an annualized rate not less than $7,800 payable in equal installments pursuant to the Company's customary payroll policies in force at the time of payment (but in no event less frequently than monthly), less required payroll deductions. 3.4 Insurance Benefits. During the Employment Period, the Employee shall ------------------- receive such health insurance, disability insurance, life insurance and other benefits as customarily provided to other officers and management employees of the Company. 3.5 Vacation. Employee may take four (4) weeks of paid vacation during each -------- year at such times as shall be consistent with the Company's vacation policies and (in the Company's judgment) with the Company's vacation schedule for officers and other management employees. Employee shall also be entitled to paid legal and religious holidays, sick days, and personal days in accordance with the Company's normal policies in effect from time to time. 3.6 Disability. If during the Employment Period, Employee shall become ill, ---------- disabled or otherwise incapacitated so as to be unable to perform his usual duties (a) for a period in excess of one hundred twenty (120) consecutive days or (b) for more than one hundred eighty (180) days in any consecutive twelve (12) month period, then the Company shall have the right to terminate Employee's employment under this Agreement, subject only to applicable laws, on thirty (30) days' written notice to Employee. Termination pursuant to this Section 3.6 shall not affect any rights Employee may otherwise have under any disability insurance policies in effect at the time of such termination. 3.7 Severance Pay. ------------- 3.7.1 Termination By Company. In the event the Company terminates ------------------------ Employee's employment under this Agreement pursuant to Section 5, the Company shall provide to Employee, in exchange for a release as to any and all claims Employee may have against the Company, the Severance Benefits for (a) a twelve (12) month period after termination if termination shall occur (i) at any time prior to any Change in Control, (ii) after any Approved Change in Control, or (iii) more than one (1) year after an Unapproved Change in Control, or (b) a twenty-four (24) month period after termination if termination shall occur within one (1) year after an Unapproved Change in Control. 3.7.2 Termination by Employee For Good Reason. After a Change in Control ---------------------------------------- and provided Employee has Good Reason, Employee may terminate his employment under this Agreement upon fifteen (15) days written notice to the Company and the Company shall provide to Employee, in exchange for a release as to any and all claims Employee may have against the 2 Company, the Severance Benefits for (a) a twelve (12) month period after termination if termination shall occur within one (1) year after an Unapproved Change in Control or (b) an initial six (6) month period, and thereafter until the earlier to occur of the end of one (1) additional six (6) month period or Employee obtaining regular employment or consulting work, if termination shall occur (i) after any Approved Change of Control or (ii) more than one (1) year after an Unapproved Change in Control. 3.7.3 Definitions. For purposes of this Section 3.7, ----------- (a) a "Change in Control" shall mean: (i) The completion of a merger or consolidation of the Company with any other entity (other than a merger or consolidation in which the Company is the surviving entity and is owned at least 50% collectively by persons who were stockholders of the Company before the transaction), the sale of substantially all of the Company's assets to another entity, the sale of more than 50% of the outstanding capital stock of the Company to an unrelated person or group of persons acting collectively in one or a series of transactions, or any change in "control" [as defined in Rule 12b-2 adopted under the Securities Exchange Act of 1934, as amended (the "Exchange Act")] of the Company which would be required to be reported under either Section 13 or 14 of the Exchange Act whether or not the Company is then subject to said Act, including a change whereby (A) any "person" [as such term is used in Sections 13(d) and 14(d) of the Exchange Act] becomes a "beneficial owner" (as defined in Rule 13d-adopted under the Exchange Act) of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; or (B) there ceases to be a majority of the Board of Directors comprised of individuals described in subsection (iv) below. (ii) An "Approved Change in Control" of the Company shall mean a Change in Control that is approved by at least a majority of the Company's Board of Directors. (iii) An "Unapproved Change in Control" of the Company shall mean any Change in Control that is not an Approved Change of Control. (iv) For the purposes of Sections 3.7.3(a)(i) and (ii), "Board of Directors" shall mean: (i) individuals who, on the date hereof, constituted the Board of the Company, and (ii) any successors to those directors whose nomination for election or election was approved by a majority of the directors in office at the time of such nomination or election. (b) "Good Reason" shall mean the occurrence after a Change in Control of any of the following circumstances without the Employee's written consent unless, in the case of paragraphs (A), (B), (C) or (H), such circumstances constitute an isolated, insubstantial and inadvertent action not taken in bad faith and which are fully remedied by the Company prior to the Employee's last day of employment: 3 (A) the assignment to the Employee of any duties inconsistent with the highest position in the Company that the Employee held at any time during the 90-day period immediately preceding the Change in Control of the Company, or a significant adverse alteration in the nature or status of the Employee's responsibilities or the conditions of the Employee's employment from those in effect at any time during the 90-day period immediately preceding such Change in Control; (B) any violation of Section 1 or Section 3.1 through 3.5 of this Agreement; (C) the failure by the Company to provide the Employee with the greatest number of vacation days to which the Employee is entitled in accordance with the Company's normal vacation policy in effect at any time during the 90-day period immediately preceding the Change in Control; (D) any requirement by the Company or of any person in control of the Company that the location at which the Employee perform the Employee's principal duties for the Company be (1) outside a radius of 50 miles from the location at which the Employee performed such duties immediately prior to the Change in Control, or (2) more than 25 miles in commuting distance further than the Employee's commuting distance to the location at which the Employee performed such duties immediately prior to the Change in Control; (E) the failure by the Company to pay to the Employee any portion of the Employee's current compensation within seven (7) days after such compensation is due; (F) any requirement by the Company or any person in control of the Company that the Employee travel on an overnight basis to an extent not substantially consistent with the Employee's business travel obligations immediately prior to the Change in Control; (G) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform the Agreement, as contemplated in Section 9.3; or (H) any purported termination of the Employee's employment which is not effected pursuant to the requirements of Section 5 and 8, which purported termination shall not be effective for purposes of this Agreement. The Employee's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. For purposes of this Section 3.7.3(b), any good faith determination of "Good Reason" made by the Employee shall be conclusive. 4 (c) "Severance Benefits" shall mean (i) Employee's base salary at the highest level in effect during the 90-day period immediately preceding the date of termination, payable in equal installments pursuant to the Company's customary payroll policies in force at the time of payment (but in no event less frequently than monthly), less required payroll deductions and (ii) the continuation of all health, welfare and other fringe benefits (other than the Company automobile allowance) which are provided to Employee pursuant to this Agreement on the date of termination except to the extent the continuation of any such benefits is not permitted by applicable law or the terms of any benefit documentation (provided, however, if the continuation of medical/health insurance, dental insurance, disability insurance, and/or life insurance is not permitted, the Company shall pay Employee, at the beginning of the period during which he is entitled to receive Severance Benefits, an amount equal to the amount the Company would have had to pay to provide those insurances to Employee if Employee had remained an employee of the Company for the period during which he is entitled to receive Severance Benefits under this Agreement). Notwithstanding the foregoing, if Employee begins regular employment or consulting work prior to the end of the period during which he is entitled to receive Severance Benefits from the Company under this Agreement, the amount Employee shall be entitled to receive pursuant to clause (i) of this definition of "Severance Benefits" shall be reduced to the amount, if any, by which Employee's base salary described in clause (i) above exceeds Employee's base salary from his new regular employment or consulting work. Employee agrees to notify the Company if he begins regular employment or consulting work prior to the end of the period during which he is entitled to receive Severance Benefits from the Company under this Agreement. 4. Discharge for Cause. The Company may discharge Employee and terminate ------------------- his employment under this Agreement for cause without further liability to the Company by a majority vote of the Board of Directors of the Company except that the Employee, if a Director, shall not be entitled to vote thereon. As used in this Section 4, "cause" shall mean any or all of the following: (a) gross or willful misconduct of Employee during the course of his employment; (b) conviction of a fraud or felony or any criminal offense involving dishonesty, breach of trust or moral turpitude during the Employment Period; or (c) Employee's breach of any of the material terms of this Agreement which, if curable, is not cured within thirty (30) days of written notice to the Employee. 5. Termination Without Cause. Upon thirty (30) days prior written notice, -------------------------- the Company may terminate Employee's employment under this Agreement without cause without further liability to the Company (except as set forth in Section 3.7 above) by a majority vote of the Board of Directors of the Company except that the Employee, if a Director, shall not be entitled to vote thereon. 5 6. Expenses. Pursuant to the Company's customary policies in force at the -------- time of payment, Employee shall be promptly reimbursed, against presentation of vouchers or receipts therefor, for all authorized expenses properly incurred by him on the Company's behalf in the performance of his duties hereunder. 7. Additional Agreements. Upon execution of this Agreement, the Employee ---------------------- shall execute and deliver to the Company, unless previously delivered, a Confidential and Proprietary Information Agreement (the "Proprietary Agreement") and an Agreement Not to Compete (the "Noncompetition Agreement") in the standard forms signed by other management employees of the Company. 8. Notices. Any notice or communication given by any party hereto to the ------- other party or parties shall be in writing and personally delivered or mailed by certified mail, return receipt requested, postage prepaid, to the addresses provided above. All notices shall be deemed given when actually received. Any person entitled to receive notice (or a copy thereof) may designate in writing, by notice to the other, such other address to which notices to such person shall thereafter be sent. 9. Miscellaneous. ------------- 9.1 Entire Agreement. This Agreement contains the entire understanding of ---------------- the parties in respect of its subject matter and supersedes all prior agreements and understandings between the parties with respect to such subject matter; provided, however that nothing in this Agreement shall affect the Employee's obligations under the Proprietary Agreement and Noncompetition Agreement. 9.2 Amendment; Waiver. This Agreement may not be amended, supplemented, ------------------ cancelled or discharged, except by written instrument executed by the party affected thereby. No failure to exercise, and no delay in exercising, any right, power or privilege hereunder shall operate as a waiver thereof. No waiver of any breach of any provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision. 9.3 Binding Effect, Assignment. Employee's rights or obligations under this -------------------------- Agreement may not be assigned by Employee; except that Employee's right to compensation to the earlier of date of death or termination of actual employment shall pass to Employee's executor or administrator. The rights and obligations of this Agreement shall bind and inure to the benefit of the Company and its successors and assigns. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such successor had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 6 9.4 Headings. The headings contained in this Agreement are for reference -------- purposes only and shall not affect the meaning or interpretation of this Agreement. 9.5 Governing Law; Interpretation. This Agreement shall be construed in ------------------------------ accordance with and governed for all purposes by the laws and public policy of the Commonwealth of Massachusetts applicable to contracts executed and to be wholly performed within such Commonwealth. Service of process in any dispute shall be effective (a) upon the Company, if service is made on any officer of the Company other than the Employee; or (b) upon the Employee, if served at Employee's residence last known to the Company with an information copy to the Employee at any other residence, or care of a subsequent employer, of which the Company may be aware. 9.6 Further Assurances. Each of the parties agrees to execute, acknowledge, ------------------ deliver and perform, or cause to be executed, acknowledged, delivered and performed, at any time, or from time to time, as the case may be, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be necessary or proper to carry out the provisions or intent of this Agreement. 9.7 Severability. If any one or more of the terms, provisions, covenants or ------------ restrictions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. If, moreover, any one or more of the provisions contained in this Agreement shall for any reason be determined by a court of competent jurisdiction to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed, by limiting or reducing it, so as to be enforceable to the extent compatible with then applicable law. EXECUTION The parties executed this Agreement as a sealed instrument as of the date first above written, whereupon it became binding in accordance with its terms. TELAXIS COMMUNICATIONS CORPORATION By: /s/ John L. Youngblood ---------------------------------------------- Name: John L. Youngblood Title: President and CEO /s/ David L. Renauld ---------------------------------------------- Name: David L. Renauld EX-10.11 6 0006.txt WOOD EMPLOYMENT AGREEMENT Exhibit 10.11 EMPLOYMENT AGREEMENT PARTIES This Employment Agreement (this "Agreement") dated as of December 19, 2000 --------- is entered into by and between Telaxis Communications Corporation, a Massachusetts corporation having its principal place of business at 20 Industrial Drive East, South Deerfield, Massachusetts 01373 (the "Company") and ------- Kenneth R. Wood, an individual with an address at 14 Rocky Hill Road, Hadley, Massachusetts 01035 (hereinafter called "Employee"). -------- TERMS OF AGREEMENT In consideration of this Agreement and the continued employment of the Employee by the Company, the parties agree as follows: 1. Employment. The Company hereby employs Employee, on a full-time basis, ---------- to act as Vice President, Engineering of the Company at the principal place of business of the Company shown above during the Employment Period and to perform such acts and duties and furnish such services to the Company in connection with and related to that position as is customary for persons with similar positions in like companies, as the Company's Board of Directors shall from time to time reasonably direct. Employee hereby accepts said employment. Employee shall use his best and most diligent efforts to promote the interests of the Company; shall discharge his duties to the best of his ability; and shall devote his full business time and his best business judgment, skill and knowledge to the performance of his duties and responsibilities hereunder. Employee shall report to the Chief Executive Officer/President of the Company. 2. Employment Period. The period of Employee's employment under this ------------------ Agreement shall commence on the date of this Agreement and shall continue for a period of twenty-four (24) months thereafter. At the end of the initial twenty-four (24) month period and any extension period thereafter, the period of Employee's employment under this Agreement, in the absence of any other express agreement between the parties, shall automatically be extended for an additional period of three (3) months. The employment period described above is subject to earlier termination pursuant to Section 3.6, 4 or 5. The period of Employee's employment under this Agreement (including all quarterly extension periods) is referred to as the "Employment Period." 3. Compensation and Benefits; Disability. ------------------------------------- 3.1 Salary. During the Employment Period, the Company shall pay Employee a ------ salary at an annualized rate equal to $153,961.60 payable in equal installments pursuant to the Company's customary payroll policies in force at the time of payment (but in no event less frequently than monthly), less required payroll deductions. The Employee's salary may be adjusted upward from time to time in the sole discretion of the Board of Directors of the Company, except that the Employee, if a Director, shall not be entitled to vote thereon. 3.2 Discretionary Bonus. During the Employment Period, the Employee may -------------------- participate in such bonus plan or plans of the Company as the Board of Directors, acting through its Compensation Committee, may approve for the Employee. Nothing contained in this Section 3.2 shall be construed to require the Board of Directors to approve a bonus plan or in any way grant to Employee the right to receive bonuses not otherwise approved. 3.3 Company Automobile Allowance. During the Employment Period, the Company ---------------------------- shall provide Employee with an automobile allowance at an annualized rate not less than $7,800 payable in equal installments pursuant to the Company's customary payroll policies in force at the time of payment (but in no event less frequently than monthly), less required payroll deductions. 3.4 Insurance Benefits. During the Employment Period, the Employee shall ------------------- receive such health insurance, disability insurance, life insurance and other benefits as customarily provided to other officers and management employees of the Company. 3.5 Vacation. Employee may take four (4) weeks of paid vacation during each -------- year at such times as shall be consistent with the Company's vacation policies and (in the Company's judgment) with the Company's vacation schedule for officers and other management employees. Employee shall also be entitled to paid legal and religious holidays, sick days, and personal days in accordance with the Company's normal policies in effect from time to time. 3.6 Disability. If during the Employment Period, Employee shall become ill, ---------- disabled or otherwise incapacitated so as to be unable to perform his usual duties (a) for a period in excess of one hundred twenty (120) consecutive days or (b) for more than one hundred eighty (180) days in any consecutive twelve (12) month period, then the Company shall have the right to terminate Employee's employment under this Agreement, subject only to applicable laws, on thirty (30) days' written notice to Employee. Termination pursuant to this Section 3.6 shall not affect any rights Employee may otherwise have under any disability insurance policies in effect at the time of such termination. 3.7 Severance Pay. ------------- 3.7.1 Termination By Company. In the event the Company terminates ------------------------ Employee's employment under this Agreement pursuant to Section 5, the Company shall provide to Employee, in exchange for a release as to any and all claims Employee may have against the Company, the Severance Benefits for (a) a twelve (12) month period after termination if termination shall occur (i) at any time prior to any Change in Control, (ii) after any Approved Change in Control, or (iii) more than one (1) year after an Unapproved Change in Control, or (b) a twenty-four (24) month period after termination if termination shall occur within one (1) year after an Unapproved Change in Control. 3.7.2 Termination by Employee For Good Reason. After a Change in Control ---------------------------------------- and provided Employee has Good Reason, Employee may terminate his employment under this Agreement upon fifteen (15) days written notice to the Company and the Company shall provide to Employee, in exchange for a release as to any and all claims Employee may have against the 2 Company, the Severance Benefits for (a) a twelve (12) month period after termination if termination shall occur within one (1) year after an Unapproved Change in Control or (b) an initial six (6) month period, and thereafter until the earlier to occur of the end of one (1) additional six (6) month period or Employee obtaining regular employment or consulting work, if termination shall occur (i) after any Approved Change of Control or (ii) more than one (1) year after an Unapproved Change in Control. 3.7.3 Definitions. For purposes of this Section 3.7, ----------- (a) a "Change in Control" shall mean: (i) The completion of a merger or consolidation of the Company with any other entity (other than a merger or consolidation in which the Company is the surviving entity and is owned at least 50% collectively by persons who were stockholders of the Company before the transaction), the sale of substantially all of the Company's assets to another entity, the sale of more than 50% of the outstanding capital stock of the Company to an unrelated person or group of persons acting collectively in one or a series of transactions, or any change in "control" [as defined in Rule 12b-2 adopted under the Securities Exchange Act of 1934, as amended (the "Exchange Act")] of the Company which would be required to be reported under either Section 13 or 14 of the Exchange Act whether or not the Company is then subject to said Act, including a change whereby (A) any "person" [as such term is used in Sections 13(d) and 14(d) of the Exchange Act] becomes a "beneficial owner" (as defined in Rule 13d-adopted under the Exchange Act) of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; or (B) there ceases to be a majority of the Board of Directors comprised of individuals described in subsection (iv) below. (ii) An "Approved Change in Control" of the Company shall mean a Change in Control that is approved by at least a majority of the Company's Board of Directors. (iii) An "Unapproved Change in Control" of the Company shall mean any Change in Control that is not an Approved Change of Control. (iv) For the purposes of Sections 3.7.3(a)(i) and (ii), "Board of Directors" shall mean: (i) individuals who, on the date hereof, constituted the Board of the Company, and (ii) any successors to those directors whose nomination for election or election was approved by a majority of the directors in office at the time of such nomination or election. (b) "Good Reason" shall mean the occurrence after a Change in Control of any of the following circumstances without the Employee's written consent unless, in the case of paragraphs (A), (B), (C) or (H), such circumstances constitute an isolated, insubstantial and inadvertent action not taken in bad faith and which are fully remedied by the Company prior to the Employee's last day of employment: 3 (A) the assignment to the Employee of any duties inconsistent with the highest position in the Company that the Employee held at any time during the 90-day period immediately preceding the Change in Control of the Company, or a significant adverse alteration in the nature or status of the Employee's responsibilities or the conditions of the Employee's employment from those in effect at any time during the 90-day period immediately preceding such Change in Control; (B) any violation of Section 1 or Section 3.1 through 3.5 of this Agreement; (C) the failure by the Company to provide the Employee with the greatest number of vacation days to which the Employee is entitled in accordance with the Company's normal vacation policy in effect at any time during the 90-day period immediately preceding the Change in Control; (D) any requirement by the Company or of any person in control of the Company that the location at which the Employee perform the Employee's principal duties for the Company be (1) outside a radius of 50 miles from the location at which the Employee performed such duties immediately prior to the Change in Control, or (2) more than 25 miles in commuting distance further than the Employee's commuting distance to the location at which the Employee performed such duties immediately prior to the Change in Control; (E) the failure by the Company to pay to the Employee any portion of the Employee's current compensation within seven (7) days after such compensation is due; (F) any requirement by the Company or any person in control of the Company that the Employee travel on an overnight basis to an extent not substantially consistent with the Employee's business travel obligations immediately prior to the Change in Control; (G) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform the Agreement, as contemplated in Section 9.3; or (H) any purported termination of the Employee's employment which is not effected pursuant to the requirements of Section 5 and 8, which purported termination shall not be effective for purposes of this Agreement. The Employee's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. For purposes of this Section 3.7.3(b), any good faith determination of "Good Reason" made by the Employee shall be conclusive. 4 (c) "Severance Benefits" shall mean (i) Employee's base salary at the highest level in effect during the 90-day period immediately preceding the date of termination, payable in equal installments pursuant to the Company's customary payroll policies in force at the time of payment (but in no event less frequently than monthly), less required payroll deductions and (ii) the continuation of all health, welfare and other fringe benefits (other than the Company automobile allowance) which are provided to Employee pursuant to this Agreement on the date of termination except to the extent the continuation of any such benefits is not permitted by applicable law or the terms of any benefit documentation (provided, however, if the continuation of medical/health insurance, dental insurance, disability insurance, and/or life insurance is not permitted, the Company shall pay Employee, at the beginning of the period during which he is entitled to receive Severance Benefits, an amount equal to the amount the Company would have had to pay to provide those insurances to Employee if Employee had remained an employee of the Company for the period during which he is entitled to receive Severance Benefits under this Agreement). Notwithstanding the foregoing, if Employee begins regular employment or consulting work prior to the end of the period during which he is entitled to receive Severance Benefits from the Company under this Agreement, the amount Employee shall be entitled to receive pursuant to clause (i) of this definition of "Severance Benefits" shall be reduced to the amount, if any, by which Employee's base salary described in clause (i) above exceeds Employee's base salary from his new regular employment or consulting work. Employee agrees to notify the Company if he begins regular employment or consulting work prior to the end of the period during which he is entitled to receive Severance Benefits from the Company under this Agreement. 4. Discharge for Cause. The Company may discharge Employee and terminate ------------------- his employment under this Agreement for cause without further liability to the Company by a majority vote of the Board of Directors of the Company except that the Employee, if a Director, shall not be entitled to vote thereon. As used in this Section 4, "cause" shall mean any or all of the following: (a) gross or willful misconduct of Employee during the course of his employment; (b) conviction of a fraud or felony or any criminal offense involving dishonesty, breach of trust or moral turpitude during the Employment Period; or (c) Employee's breach of any of the material terms of this Agreement which, if curable, is not cured within thirty (30) days of written notice to the Employee. 5. Termination Without Cause. Upon thirty (30) days prior written notice, -------------------------- the Company may terminate Employee's employment under this Agreement without cause without further liability to the Company (except as set forth in Section 3.7 above) by a majority vote of the Board of Directors of the Company except that the Employee, if a Director, shall not be entitled to vote thereon. 5 6. Expenses. Pursuant to the Company's customary policies in force at the -------- time of payment, Employee shall be promptly reimbursed, against presentation of vouchers or receipts therefor, for all authorized expenses properly incurred by him on the Company's behalf in the performance of his duties hereunder. 7. Additional Agreements. Upon execution of this Agreement, the Employee ---------------------- shall execute and deliver to the Company, unless previously delivered, a Confidential and Proprietary Information Agreement (the "Proprietary Agreement") and an Agreement Not to Compete (the "Noncompetition Agreement") in the standard forms signed by other management employees of the Company. 8. Notices. Any notice or communication given by any party hereto to the ------- other party or parties shall be in writing and personally delivered or mailed by certified mail, return receipt requested, postage prepaid, to the addresses provided above. All notices shall be deemed given when actually received. Any person entitled to receive notice (or a copy thereof) may designate in writing, by notice to the other, such other address to which notices to such person shall thereafter be sent. 9. Miscellaneous. ------------- 9.1 Entire Agreement. This Agreement contains the entire understanding of ---------------- the parties in respect of its subject matter and supersedes all prior agreements and understandings between the parties with respect to such subject matter; provided, however that nothing in this Agreement shall affect the Employee's obligations under the Proprietary Agreement and Noncompetition Agreement. 9.2 Amendment; Waiver. This Agreement may not be amended, supplemented, ------------------ cancelled or discharged, except by written instrument executed by the party affected thereby. No failure to exercise, and no delay in exercising, any right, power or privilege hereunder shall operate as a waiver thereof. No waiver of any breach of any provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision. 9.3 Binding Effect, Assignment. Employee's rights or obligations under this -------------------------- Agreement may not be assigned by Employee; except that Employee's right to compensation to the earlier of date of death or termination of actual employment shall pass to Employee's executor or administrator. The rights and obligations of this Agreement shall bind and inure to the benefit of the Company and its successors and assigns. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such successor had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 6 9.4 Headings. The headings contained in this Agreement are for reference -------- purposes only and shall not affect the meaning or interpretation of this Agreement. 9.5 Governing Law; Interpretation. This Agreement shall be construed in ------------------------------ accordance with and governed for all purposes by the laws and public policy of the Commonwealth of Massachusetts applicable to contracts executed and to be wholly performed within such Commonwealth. Service of process in any dispute shall be effective (a) upon the Company, if service is made on any officer of the Company other than the Employee; or (b) upon the Employee, if served at Employee's residence last known to the Company with an information copy to the Employee at any other residence, or care of a subsequent employer, of which the Company may be aware. 9.6 Further Assurances. Each of the parties agrees to execute, acknowledge, ------------------ deliver and perform, or cause to be executed, acknowledged, delivered and performed, at any time, or from time to time, as the case may be, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be necessary or proper to carry out the provisions or intent of this Agreement. 9.7 Severability. If any one or more of the terms, provisions, covenants or ------------ restrictions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. If, moreover, any one or more of the provisions contained in this Agreement shall for any reason be determined by a court of competent jurisdiction to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed, by limiting or reducing it, so as to be enforceable to the extent compatible with then applicable law. EXECUTION The parties executed this Agreement as a sealed instrument as of the date first above written, whereupon it became binding in accordance with its terms. TELAXIS COMMUNICATIONS CORPORATION By: /s/ John L. Youngblood ----------------------------------------------- Name: John L. Youngblood Title: President and CEO /s/ Kenneth R. Wood ----------------------------------------------- Name: Kenneth R. Wood 7 EX-10.16 7 0007.txt LEASE AGREEMENT Exhibit 10.16 LEASE ----- THIS LEASE made the 1st day of November, 2000, between O'LEARY-VINCUNAS LLC, a Massachusetts limited liability company, having a principal place of business at c/o Development Associates, P.O. Box 528, 630 Silver Street, Unit 3C, Agawam, Massachusetts 01001, hereinafter referred to as the "Landlord" and TELAXIS COMMUNICATIONS CORPORATION, a Massachusetts corporation with a principal place of business at 20 Industrial Drive East, P.O. Box 109, South Deerfield, Massachusetts, hereinafter referred to as the "Tenant". W I T N E S S E T H 1. DEMISED PREMISES. ---------------- 1.1 Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, upon and subject to the terms and provision of this Lease, the land and building commonly known as a free-standing building (Building 1) consisting of approximately 31,395 square feet of floor space located on a parcel of land on the south side of East Site Access Road, Deerfield Industrial Park, South Deerfield, Massachusetts known as Lot 9 containing approximately 3.096 acres ("Parcel 1") and a second free-standing building ("Building 2") consisting of approximately 31,200 square feet of floor space located on a parcel of land on the south side of East Site Access Road, Deerfield Industrial Park, South Deerfield, Massachusetts known as Lot 8 containing approximately 2 acres ("Parcel 2"). Parcels 1 and 2 are more particularly described on Exhibit A. Building 1 and Building 2 and Parcels 1 and 2 are hereafter referred to as the "Demised Premises." 2. TERM OF LEASE. ------------- (a) This Lease will commence on November 1, 2000 (the "Commencement Date") and continue until October 31, 2005 (the "Expiration Date")and each of the fiscal years between those dates, commencing on November 1 and ending on October 31 shall be referred to herein as a Lease Year. (b) Provided that Tenant has provided notice thereof at least one hundred eighty (180) days prior to the expiration of the lease term, Tenant shall have the right to extend the term of this lease (and the date of the Expiration Date) for an additional five (5) year term upon and subject to the provisions of this Lease; provided however, Tenant and Landlord will negotiate in good faith to set the Minimum Annual Rent for the extended term at then-current market rates. Provided, further, if no agreement has been reached by the Expiration Date set forth herein, the Tenant shall pay the holdover rent set forth in Section 14.1. 3. RENT. ---- 3.1 Tenant agrees to pay to Landlord, at such place or places as Landlord may by notice in writing to Tenant from time to time direct, Minimum Annual Rent at the following rates and times: (a) For the first Lease Year at the yearly rate of $422,516.25, payable in equal monthly installments of $35,209.68 in advance on the first day of each and every calendar month during said first Lease Year. (b) For the second Lease Year, at the yearly rate of $430,966.57, payable in equal monthly installments of $35,913.88 in advance on the first day of each and every calendar month during said second Lease Year. (c) For the third Lease Year at the yearly rate of $439,585.90, payable in equal monthly installments of $36,632.15 in advance on the first day of each and every calendar month during said third Lease Year. (d) For the fourth Lease Year at the yearly rate of $448,377.62 per year, payable in equal monthly installments of $37,364.80 in advance on the first day of each and every calendar month during said fourth Lease Year. (e) For the fifth Lease Year at the yearly rate of $457,345.17 payable in equal monthly installments of $38,112.09 in advance on the first day of each and every calendar month during said fifth Lease Year. 3.2 ADDITIONAL RENT. --------------- (a) It is the intention of the Landlord and the Tenant that the rent to be paid pursuant to this Lease shall be net to the Landlord in each year during the term of this Lease and that all costs, expenses, and obligations of every kind relating to the Demised Premises (except as otherwise specifically provided in this Lease) which may arise or become due during the term of this Lease shall be paid by the Tenant, and that the Landlord shall be indemnified by the Tenant against such costs, expenses, and obligations. All rent shall be paid to the Landlord without notice or demand and without abatement, deduction, or set off. The following costs, expenses, and obligations shall be deemed to be additional rent payable according to the terms of this paragraph (a): (i) The Tenant shall promptly pay all real estate taxes, assessments, water and sewer charges, and other governmental levies against the Demised Premises, and also any occupancy tax and tax on rents, all of which are herein called "impositions". The phrase "tax on rents" shall mean any tax levied, assessed, or imposed in connection with the receipt of rent under 2 this Lease for the use and occupancy of the Demised Premises, in lieu of, in whole or in part, any real estate or personal property tax upon the Demised Premises. The Tenant may pay any imposition in installments, if payment may be so made without penalty. All impositions for the tax year in which this Lease shall terminate shall be apportioned between the Tenant and the Landlord, except that any imposition which the Tenant has elected to pay in installments shall be paid in full by the Tenant at least sixty (60) days prior to the expiration of the lease term; (ii) Upon request by the Landlord, the Tenant shall pay as additional rent on the first day of each month in advance one-twelfth (1/12) of any tax that may be imposed in connection with the rental and use of the personal property included in the Demised Premises, and the Landlord shall remit such payment to the proper governmental authority together with any required return. The Tenant shall also pay any gross receipts tax imposed on the Landlord in connection with the receipt by the Landlord of rents for the rental and use of the personal property; and (iii) The Tenant shall pay all expenses in the operation of the Demised Premises, except (1) any interest and amortization on mortgages encumbering the fee title at any time, (2) rentals payable by the Landlord as tenant under any superior lease, and (3) any estate, inheritance, income, or other personal taxes of the Landlord. (b) The Tenant shall furnish to the Landlord official receipts or other satisfactory proof of payment for all items required to be paid within a reasonable time after demand by the Landlord; (c) The Tenant may contest the amount or validity of any imposition by appropriate proceedings. However, the Tenant shall promptly pay such imposition unless (i) such proceedings shall operate to prevent or stay the collection of the imposition so contested and (ii) the Tenant shall have deposited with the Landlord (or with Landlord's mortgagee if so required) the amount so contested and unpaid, together with a sum sufficient to cover all charges that may be assessed against the Demised Premises in such proceedings. Upon the termination of such proceedings, the Tenant shall deliver to the Landlord proof of the amount of the imposition as finally determined, and thereupon the Landlord shall, out of the sums so deposited with it by the Tenant, pay such imposition, and shall refund the balance to the Tenant. If the sums deposited with the Landlord shall be insufficient to pay the full amount of such imposition and other charges, the Tenant shall forthwith pay any deficiency. If, at any time during such proceedings, the Landlord shall deem the amount deposited with it insufficient, the Tenant shall, upon demand, deposit with the Landlord (or with mortgagee) such additional sums as the Landlord may reasonably request. The Landlord, at the Tenant's sole expense, shall join in any such contestation proceedings if any law 3 shall so require. Any sums deposited hereunder with the Landlord (or with mortgagee) shall be held in a trust account; (d) The Landlord appoints the Tenant the attorney-in-fact of the Landlord for the purpose of making all payments to be made by the Tenant pursuant to any of the provisions of this Lease to persons other than the Landlord. In case any person to whom any sum is directly payable by the Tenant under any of the provisions of this Lease shall refuse to accept payment of such sum from the Tenant, the Tenant shall thereupon give written notice of such fact to the Landlord and shall pay such sum directly to the Landlord, who shall thereupon pay such sum to such person; (e) In the event that the Tenant shall fail to deliver to the Landlord any certificate of insurance as required by this Lease, the Landlord may cause such insurance to be issued and bills for the premiums therefor shall be rendered by the Landlord to the Tenant at such times as the Landlord may elect, and shall be due from and payable by the Tenant when rendered and the amount thereof shall be deemed to be, and paid as, additional rent; and (f) All taxes, charges, costs, and expenses which the Tenant is required to pay hereunder, together with all interest and penalties that may accrue thereon in the event of the Tenant's failure to pay such amounts, and all damages, costs, and expenses which the Landlord may incur by reason of any default of the Tenant or failure on the Tenant's part to comply with the terms of this Lease, shall be deemed to be additional rent and, in the event of nonpayment by the Tenant, the Landlord shall have all the rights and remedies with respect thereto as the Landlord has for the nonpayment of the Minimum Annual Rent. 4. USE OF PREMISES. --------------- 4.1 Tenant agrees that during the term of this Lease the Demised Premises will be used and occupied for the following purposes and for no other purposes without the written consent of Landlord: office and design, research, development and manufacturing facility for wireless and other telecommunications devices. Tenant shall not use or permit the Demised Premises to be used for any purpose other than as specified herein and shall not use or permit the Demised Premises to be used for any use or occupation which would be in conflict with the provisions of the Zoning Ordinance of the Town of Deerfield, Massachusetts, applicable to the use and occupancy of said Demised Premises or which would violate the restrictions applicable to the use of the Demised Premises in the Deerfield Industrial Park (the "Park Restrictions"). 4.2 Tenant agrees that during the term of this Lease that: (a) no nuisance will be permitted on or about the Demised Premises; (b) nothing shall be done upon or about the Demised Premises 4 which shall be unlawful or contrary to any law, ordinance, regulation or requirement of any public authority of insurance inspection or rating bureau or similar organization having jurisdiction, or which may be injurious to or adversely affect the Demised Premises; (c) the Demised Premises will not be overloaded, damaged or defaced; (d) Tenant will procure all licenses and permits which may be required for any use made of the Demised Premises; (e) Tenant will not permit the emission of any objectionable noise or odor from the Demised Premises except as allowed by law, regulation or permit; (f) all waste and refuse will be kept at locations approved by Landlord and will be removed from the Demised Premises at Tenant's expense; (g) the Demised Premises will be kept attractive in appearance and appealing to customers; and (h) Tenant will not do, or suffer to be done, or keep, or suffer to be kept, or omit to do anything in, upon or about the Demised Premises or on any property therein any act or acts which may void any insurance or which may create any extra premiums or increased rate of such insurance unless paid by Tenant. 4.3 The Tenant agrees that no hazardous wastes, materials or oil (the "Hazardous Substances") as so classified by any law or regulation shall be stored in or about the Demised Premises, except in accordance with such laws or regulations. The Tenant herewith indemnifies and agrees to defend and hold the Landlord harmless from and against any and all loss, damage, or claims arising out of the storage, handling, discharge or disposal of the Hazardous Substances by Tenant. Prior to the expiration of the term of this Lease, the Landlord may cause to be prepared an environmental site analysis of the Demised Premises and Landlord's Property, prepared by an environmental analyst. If such analysis reveals the existence of any such Hazardous Substances or materials in excess of amounts permitted by applicable law in or about the Demised Premises caused by the Tenant, Tenant shall pay for the cost of such analysis and remove the Hazardous Substances, without injury to Landlord's Property, in accordance with the requirements of all Federal and State law and regulations. The indemnity contained herein shall survive the termination of this Lease. 5. UTILITIES, REPAIRS AND ALTERATIONS. ---------------------------------- 5.1 Tenant agrees to furnish and pay all charges for heat, air conditioning, sanitary sewer, water, gas, electricity, power and other utilities used by the Demised Premises ("Operating Expenses"). If a separate meter or check meter for water shall be installed by Landlord, Tenant shall pay for water consumption and the sewer use charge resulting therefrom and in such event such charges shall be eliminated from Operating Expenses. Tenant agrees that it will at all times keep sufficient heat in the Demised Premises to prevent the pipes therein from freezing. 5.2 Landlord agrees to make all necessary repairs or alterations to the property which Landlord is required to maintain, as hereinafter set forth. The property which Landlord is required 5 to maintain are the Common Areas, the foundation, roof, exterior walls, structural columns, structural beams, conduits, drains, water mains and sewers of the Demised Premises. Notwithstanding the foregoing, but subject to Section 12 of this Lease, if any of said repairs or alterations shall be necessary by reason of the fault or negligence of Tenant by anyone claiming under Tenant, by reason of default in the performance or observance of any agreements, conditions or other provisions on the part of Tenant to be performed or observed or by reason of any special use at which the Demised Premises may be put, Tenant shall make all such repairs or alterations as may be necessary. As used in this Lease, the expression "exterior walls of the Demised Premises" does not include glass, windows, doors, window sashes or frames or door frames. 5.3 Tenant agrees that it will during the term of this Lease make all repairs and replacements to the Demised Premises, as hereinafter set forth, and which may be necessary to maintain the same in good repair and condition or which may be required by any laws, ordinances, regulations or requirements of any public authorities having jurisdiction, and that Tenant will upon the expiration or other termination of the term of this Lease remove its property, to the extent permitted by this Lease, and that of all persons claiming under it and will yield up peaceably to Landlord the Demised Premises and all property therein (which term shall include replacements thereto), broom clean and in good repair and condition, subject to reasonable wear and tear and damage by other casualty. The property which Tenant is required to maintain is the Demised Premises and every part thereof including but without limitation, all walls, floors and ceilings, fixtures and equipment within the Demised Premises, all meters and all other fixtures and equipment within or appurtenant to the Demised Premises, and all signs (interior and exterior), all glass, windows, doors, window sashes and frames and door frames, but in no event shall Tenant be required to maintain any property which is Landlord's responsibility under Section 5.2. Notwithstanding the foregoing, the Tenant shall not be obligated to retrofit or upgrade the Demised Premises in order to comply with the Americans with Disabilities Act or the Massachusetts Access Barrier Board Regulations or any other new or similar law if the retrofit or upgrade would be treated as a fixture when completed and has a useful life which exceeds the term of this lease including all renewal options. 5.4 The Tenant shall have the right, from time to time, to make nonstructural alterations and improvements to, and decoration of, the interior and exterior of the Demised Premises as shall be reasonably necessary or appropriate in the Tenant's judgment for the Tenant's conduct thereon of its business, provided that prior to the commencement of any such alterations or improvements the Landlord shall in each case have approved in writing the plans and specifications thereof, which approval will not be unreasonably withheld or conditioned. If within thirty (30) days after such plans and specifications are submitted by 6 the Tenant to the Landlord for such approval the Landlord shall not have given the Tenant notice of disapproval thereof, stating the reason such disapproval, such plans and specifications shall be considered approved by the Landlord. 5.5 Tenant agrees that it will procure all necessary permits before making any repairs, installations, alterations, additions, improvements or removals. Landlord agrees it will cooperate with Tenant in obtaining such permits provided Landlord is reimbursed for any expense incidental thereto. Tenant agrees that all repairs, installations, alterations, improvements and removals done by it or anyone claiming under it shall be done in a good and workmanlike manner, that the same shall be done in conformity with all laws, ordinances and regulations of all public authorities and all insurance inspection or rating bureaus having jurisdiction, that the structure of the Demised Premises will not be endangered or impaired and that Tenant will repair any and all damage caused by or resulting from any such repairs, installations, alterations, additions, improvements or removals, including, but without limitation, the filling of holes. Tenant agrees to pay promptly when due all charges for labor and materials in connection with any work done by Tenant or anyone claiming under Tenant upon the Demised Premises so that the Demised Premises shall at all times be free of liens created by Tenant's action or inaction. Tenant agrees to save Landlord harmless from, and indemnify Landlord against, any and all claims for injury, loss or damage to person or property caused by or resulting from the doing of any such work. 6. INSURANCE. --------- 6.1 The Tenant shall keep the Demised Premises insured throughout the term of this lease against the following: (a) Loss or damage by fire and such other risks as may be included in the broadest form of extended coverage insurance from time to time available in amounts sufficient to prevent the Landlord or the Tenant from becoming a coinsurer within the terms of the applicable policies, and in any event, in an amount not less than one hundred (100%) percent of the full insurable value of the buildings and appurtenances located on the Demised Premises; (b) Loss or damage from leakage of sprinkler systems if installed in the building on the leased property in an amount not less than one hundred (100%) percent of the full insurable value; (c) Loss or damage by explosion of steam boilers, pressure vessels, or similar apparatus, now or hereafter installed in the building on the leased property, in such limits with respect to any one accident as may be reasonably requested by the Landlord from time to time; 7 (d) Claims for bodily injury and property damage, under a policy of general public liability insurance, with such limits as may reasonably be requested by the Landlord from time to time but with a combined single limit of not less than Two Million ($2,000,000) DOLLARS; and (e) Against such other hazards and in such amounts as the holder of any mortgage may reasonably require from time to time. 6.2 The term "full insurable value" shall mean the actual replacement cost, excluding foundation and excavation costs of the Building and appurtenances located at the Demised Premises. Full insurable value shall be determined from time to time whenever reasonably requested by the Landlord, by a qualified appraiser selected and paid by the Landlord and acceptable to the Tenant. The finding of such appraiser shall not be binding without the written approval of the Landlord and the Tenant, which approval shall not be unreasonably withheld. 6.3 All insurance provided for in this lease shall be effected under enforceable policies issued by insurers of recognized responsibility licensed to do business in the Commonwealth of Massachusetts. At least fifteen (15) days prior to the expiration date of any policy, the original renewal policy for such insurance shall be delivered by the Tenant to the Landlord. Within fifteen (15) days after the premium on any policy shall become due and payable, the Landlord shall be furnished with satisfactory evidence of its payment. 6.4 All policies of insurance shall name the Landlord and the Tenant as the insureds, as their respective interests may appear and a certificate thereof shall be furnished to Landlord prior to the Commencement Date. At the request of the Landlord, any insurance policy shall be made payable to the holders of any mortgages to which this Lease is at any time subordinate, as the interest of such holders may appear, pursuant to a standard clause for holders of mortgages. All policies shall contain an agreement by the insurers that such policies shall not be canceled or materially altered except upon thirty (30) days prior written notice to the Landlord and to the holders of any mortgages to whom loss may payable. 6.5 If the Tenant provides any insurance required by this Lease in the form of a blanket policy, the Tenant shall furnish satisfactory proof that such blanket policy complies in all respects with the provisions of this Lease, and that the coverage thereunder is at least equal to the coverage which would be provided under a separate policy covering only the Demised Premises. 6.6 Except to the extent Tenant is entitled to indemnification under Section 6.7, Tenant agrees to save Landlord harmless from, and indemnify Landlord against, to the extent permitted by law, any and all injury, loss or damage and any and all claims 8 for injury, loss or damage, of whatever nature (l) caused by or resulting from any act, omission or negligence of Tenant or anyone claiming under Tenant (including, but without limitation subtenants and concessionaires of Tenant and, employees and contractors of Tenant or its subtenants or concessionaires), while in the course of his employment, or (2) occurring upon the Demised Premises. This indemnity and hold harmless agreement shall include indemnity against all costs, expenses, and liabilities incurred in connection with any such injury, loss or damage or any such claim, or any proceeding brought thereon or the defense thereof. If Tenant or anyone claiming under Tenant or the whole or any part of the property of Tenant or anyone claiming shall be injured, lost or damaged by theft, fire, water or steam or in any other way or manner, whether similar or dissimilar to the foregoing, no part of said injury loss or damage is to be borne by Landlord or its agents unless the same shall be caused by or result from the fault or negligence of Landlord or its agents. Tenants agree that Landlord shall not be liable to Tenant or anyone claiming under Tenant for any injury, loss or damage that may be caused by or result from the fault or negligence of any persons occupying adjoining premises or any other part of the Demised Premises. 6.7 Landlord agrees to save Tenant harmless from, and indemnify Tenant against, to the extent permitted by law, any and all injury, loss or damage and any and all claims for injury, loss or damage, of whatever nature caused by or resulting from any act, omission or negligence of Landlord or any agent or employee of Landlord. This indemnity and hold harmless agreement shall include indemnity against all costs, expenses, and liabilities incurred in connection with any such injury, loss or damage or any such claim, or any proceeding brought thereon or the defense thereof. Landlord agrees that Tenant shall not be liable to Landlord or anyone claiming under Landlord for any injury, loss or damage that may be caused by or result from the fault or negligence of any persons occupying adjoining premises. 7. ACCESS TO PREMISES. ------------------ 7.1 Landlord shall have the right to enter upon the Demised Premises or any part thereof without charge at all reasonable times, after reasonable notice, and in case of emergency, at any time, to inspect the same, to show the Demised Premises to prospective purchasers or tenants, to make or facilitate any repairs, alterations, additions or improvements to the Demised Premises including, but without limitation, to install and maintain in, and remove from, the Demised Premises pipes, wires and other conduits (but nothing in this Article shall obligate Landlord to make any repairs, alterations, additions or improvements); and Tenant shall not be entitled to any abatement or reduction of rent or damages by reason of any of the foregoing. Such entries shall be (a) conducted in such a way to maintain the confidentiality of Tenant's business and affairs, and (b) conducted in such a way to not unreasonably interfere with the conduct 9 of Tenant's business and affairs. No forcible entry shall be made by Landlord unless such entry shall be reasonably necessary to prevent serious injury, loss or damage to person or property. Landlord shall repair any damage to property of Tenant or anyone claiming under Tenant caused by or resulting from Landlord's making any such repairs, alterations, additions or improvements except only such damage as shall result from the making of such repairs, alterations, additions or improvements which Landlord shall make as a result of the default, fault or negligence of Tenant or anyone claiming under Tenant. For the period commencing twelve (12) months prior to the expiration of the original or any extended term of this Lease, Landlord may maintain "For Rent" signs on the front or any part of the exterior of the Demised Premises, except any area used by the Tenant for display purposes. 8. CASUALTY. -------- 8.1 If the Demised Premises shall be damaged or destroyed by casualty, Tenant shall give notice thereof to Landlord, and, except as hereinafter otherwise provided, Landlord shall, within a reasonable time thereafter, repair, or restore the Demised Premises to substantially the same condition they were in prior to the casualty. If the damage to the Demised Premises should be so extensive as to render the whole or any part thereof untenantable and unsuitable for use and occupation by Tenant, a just proportion of the Minimum Annual Rent, according to the nature and extent of the injury to the Demised Premises shall be suspended or abated until the Demised Premises shall be repaired or restored as aforesaid. It is agreed and understood that if at any time the Demised Premises shall be damaged or destroyed as aforesaid to the extent of twenty-five (25%) percent or more of its insurable value, either Tenant or Landlord, at its election, may terminate the term of this Lease by a notice to the other party within thirty (30) days after such damage or destruction. In the event of any termination of the term of this Lease pursuant to the provisions of this Article, the termination shall become effective on the day of such damage or destruction, a just proportion of the Minimum Annual Rent, according to the nature and extent of the injury to the Demised Premises, shall be suspended or abated until the time of termination, and shall be apportioned as of the time of termination. 9. EMINENT DOMAIN. -------------- 9.1 If after the execution of this Lease and prior to the expiration of the term of this Lease the whole of the Demised Premises shall be taken under the power of eminent domain, then the term of this Lease shall cease as of the time when Landlord shall be divested of its title in the Demised Premises, and Minimum Annual Rent and all Additional Rent shall be apportioned and adjusted as of the time of termination. 10 9.2 If any part of the Demised Premises shall be taken under the power of eminent domain, and if as a result thereof the remaining floor area of the Demised Premises shall not be reasonably adequate for the operation of the business conducted in the Demised Premises prior to the taking, Tenant may, at its election, terminate the term of this Lease by giving the other party notice of the exercise of such election within twenty (20) days after Tenant shall receive notice of such taking, and the termination shall be effective as of the time that possession of the part so taken shall be required for public use and Minimum Annual Rent and Additional Rent shall be apportioned and adjusted as of the time of termination. If only a part of the Demised Premises shall be taken under the power of eminent domain and if the term of this Lease shall not be terminated as aforesaid, then the term of this Lease shall continue in full force and effect and Landlord shall, within a reasonable time after possession is required for public use, repair and rebuild what may remain of the Demised Premises so as to put the same into condition for use and occupancy by Tenant, and a just proportion of the Minimum Annual Rent and Additional Rent according to the nature and extent of the injury to the Demised Premises shall be suspended or abated until what may remain of the Demised Premises shall be put into such condition by Landlord, and thereafter a just proportion of the Minimum Annual Rent and Additional Rent according to the nature and extent of the part so taken shall be abated for the balance of the term of this Lease. (a) Landlord reserves to itself, and Tenant assigns to Landlord, all rights to damages accruing on account of any taking under the power of eminent domain or by reason of any act of any public or quasi public authority for which damages are payable. Tenant agrees to execute such instruments of assignment as may be reasonably required by Landlord in any proceeding for the recovery of such damages if requested by Landlord, and to turn over to Landlord any damages that may be recovered in such proceeding. Notwithstanding the foregoing, the Tenant reserves all rights to make a claim for its personal property which may be deemed to be fixtures and/or a claim for relocation or moving expenses. 10. EVENTS OF DEFAULT AND REMEDIES. ------------------------------ 10.1 The following shall be Events of Default under this Lease: (a) Tenant shall default in the payment of rent or other payments required of Tenant and such failure shall continue for fifteen (15) days; (b) Tenant shall default in the performance or observance of any other agreement or condition on its part to be performed or observed under this Lease and shall not cure such default within thirty (30) days after due written notice thereof to Tenant; provided, however, if such default is of such a nature that the same cannot be completely cured within the thirty (30) day cure period, the cure period shall be extended for as long as Tenant shall be proceeding with reasonable diligence and good faith to cure the default; 11 (c) As a result of action or inaction by Tenant, any person shall levy upon, or take this leasehold interest or any part thereof upon execution, attachment or other process of law, and such levy shall not be discharged within sixty (60) days; (d) Tenant shall make an assignment of its property for the benefit of creditors; (e) any order for relief under the United States Bankruptcy Act is entered with respect to Tenant; and not discharged within sixty (60) days; or (f) a receiver, trustee or assignee shall be appointed and not removed within sixty (60) days for the whole or any part of Tenant's property. 10.2 Upon the occurrence of an Event of Default the Landlord may do any one or more of the following: (a) Perform for the account of Tenant any such default of Tenant and immediately recover as additional rent any expenditures made and the amount of any obligations incurred in connection therewith plus interest of two (2%) percent per annum above the Prime Rate of interest of Fleet Bank (the "Lease Interest Rate") for such expenditures from the date of any such expenditure and a late charge for payments of rent past due at the Lease Interest Rate applied from the due date of each rent installment to the date of payment; (b) At its option, Landlord may serve upon Tenant either (i) notice that this Lease is terminated or (ii) a Summary Process Complaint, and thereupon this Lease and the term hereof granted, as well as the right, title and interest of the Tenant hereunder, shall wholly cease and expire and become void (except as to Tenant's liability). Thereupon, Tenant shall immediately quit and surrender to Landlord the Demised Premises, and Landlord may enter into and repossess the Demised Premises and remove all occupants thereof and, at Landlord's option, any property thereon without being liable to prosecution or damages therefor. No such expiration or termination of this Lease shall relieve Tenant of its liability and obligations under this Lease. (c) Re-enter and repossess the Demised Premises and any part thereof and attempt in its own name, as agent for Tenant if this Lease not be terminated or in its own behalf if this Lease be terminated, to relet all or any part of such Demised Premises for and upon such terms and to such persons, firms or corporations and for such period or periods as Landlord, in its sole discretion, shall determine, including the term beyond the termination of this Lease; and Landlord shall not be required to 12 accept any tenant offered by Tenant or observe any instruction given by Tenant about such reletting or do any act or exercise any care or diligence with respect to such reletting or to the mitigation of damages. For the purpose of such reletting, Landlord may decorate or make repairs, changes, alterations or additions in or to the Demised Premises to the extent deemed by Landlord desirable or convenient; and the cost of such decoration, repairs, changes, alterations or additions shall be charged to and be payable by Tenant as additional rent hereunder, as well as any reasonable brokerage and legal fees expended by Landlord; and any sums collected by Landlord from any new tenant obtained on account of the Tenant shall be credited against the balance of the rent due hereunder as aforesaid. Tenant shall pay to Landlord monthly, on the days when the rent would have been payable under this Lease, the amount due hereunder less the amount obtained by Landlord from such new tenant; and (d) If upon the occurrence of an Event of Default by the Tenant, the Landlord shall employ the services of counsel to enforce any provisions of this Lease, the Tenant shall pay (as additional rent), on demand, the Landlord's costs thereof and any other expenses of the collection of any amounts due hereunder. (e) In case of any such termination, Tenant will indemnify Landlord each month against all loss of rent and all obligation which Landlord may incur by reason of any such termination between the time of termination and the expiration of the term of the Lease; or at the election of Landlord, exercised at the time of the termination or at any time thereafter, Tenant will indemnify Landlord each month until the exercise of the election against all loss of rent and other obligations which Landlord may incur by reason of such termination during the period between the time of the termination and the exercise of the election, and upon the exercise of the election Tenant will pay to the Landlord as damages such amount as at the time of the exercise of the election represents the amount by which the rental value of the Demised Premises for the period from the exercise of the election until the expiration of the term shall be less than the amount of rent and other payments provided herein to be paid by Tenant to Landlord during said period. It is understood and agreed that at the time of the termination or at any time thereafter Landlord may rent at a fair rental the Demised Premises, and for a term which may expire after the expiration of the term of this Lease, provided, however, that if said premises are rented as aforesaid then the amount of rent received in such case shall be applied to reduce Tenant's liability for rent under this Lease; that Tenant shall be liable for any reasonable expenses incurred by Landlord in connection with obtaining possession of the Demised Premises, with removing from the Demised Premises property of Tenant and persons claiming under it (including warehouse charges), with putting the Demised Premises into good condition for reletting, and with any reletting, including, but without limitation, reasonable attorneys' fees and brokers' fees, and that any monies collected from any reletting shall be applied 13 first to the foregoing expenses and then to the payment of rent and all other payments due from Tenant to Landlord. 11. SUBORDINATION AND NOTICE TO MORTGAGEE. ------------------------------------- 11.1 Tenant agrees that upon the request of Landlord it will subordinate this Lease and the lien hereof to the lien of any present or future bank or insurance company mortgage or mortgages upon the Demised Premises or any property of which the Demised Premises are a part, irrespective of the time of execution or times of recording of any such mortgage or mortgages. Tenant agrees that it will upon the request of Landlord execute, acknowledge and deliver any and all instruments deemed by Landlord necessary or desirable to give effect to or notice of such subordination but Tenant shall not be required to execute such subordination unless Tenant shall receive an agreement from such mortgagee agreeing to recognize this lease and agreeing not to disturb the Tenant's rights hereunder in the event of foreclosure. Tenant also agrees that if it shall fail at any time to execute, acknowledge or deliver any such instruments requested by Landlord, Landlord may, in addition to any other remedies available to it, execute, acknowledge and deliver such instrument as the attorney in fact of Tenant and in Tenant's name; and Tenant hereby makes, constitutes and irrevocably appoints Landlord as its attorney in fact for that purpose. The word "mortgage" as used herein includes mortgages, deed of trust or other similar instruments and modifications, consolidations, extensions, renewals, replacements and substitutes thereof. 11.2 Tenant agrees that in the event of any act or omission of Landlord which would give Tenant the right, immediately or after lapse of a period of time, to cancel or terminate this Lease, or to claim a partial or total eviction, Tenant shall not exercise such right (1) until it has given written notice of such act or omission to Landlord and the holder of each superior mortgage whose name and address shall previously have been furnished to Tenant in writing, and (2) unless such act or omission shall be one which is not capable of being remedied by Landlord or such mortgage holder within a reasonable period of time, until a reasonable period for remedying such act or omission shall have elapsed following the giving of such notice and following the time when such holder or Landlord shall have become entitled under such superior mortgage or superior lease, as the case may be, to remedy the same (which reasonable period shall in no event be less than the period to which Landlord would be entitled under this Lease or otherwise, after similar notice to effect such remedy), provided such holder or Landlord shall with due diligence given Tenant written notice of intention to, and commence and continue to remedy such act or omission. 11.3 Tenant shall at any time and from time to time within ten (10) days following written request from Landlord or any mortgagee, execute, acknowledge and deliver to Landlord or mortgagee a written statement certifying that this Lease is in full 14 force and effect and unmodified (or, if modified, stating the nature of such modification), certifying the date to which the rent reserved hereunder has been paid, and certifying that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed. Any such statement may be relied upon by any prospective purchaser or mortgagee of all or any part of the Demised Premises. Tenant's failure to deliver such statement within said ten (10) day period shall be conclusive upon Tenant that this Lease is in full force and effect and unmodified, and that there are no uncured defaults in Landlord's performance hereunder. 11.4 At the option of any mortgagee of the Demised Premises, such mortgagee shall have the right to subordinate this Lease to its mortgage, provided, however, that Tenant shall receive notice of such subordination at least seven (7) days prior thereto and shall receive an agreement from such mortgagee agreeing to recognize this Lease and agreeing not to disturb Tenant's rights hereunder in the event of foreclosure. The recording of an instrument of subordination in the Land Records in which Landlord's Property is located as executed by said mortgagee shall act to subordinate this Lease to said mortgage without the necessity of consent by Tenant. 12. WAIVER OF SUBROGATION. --------------------- 12.1 Tenant hereby releases Landlord, to the extent of Tenant's insurance coverage from any and all liability for any loss or damage caused by fire or any of the extended coverage casualties, even if such fire or other casualty shall be brought about by the fault or negligence of Landlord or its agents, provided, however, this release shall be in force and effect only with respect to loss or damage occurring during such time as Tenant's policies of fire and extended coverage insurance shall contain a clause to the effect that this release shall not affect said policies or the right of Tenant to recover thereunder. Tenant agrees that its fire and extended coverage insurance policies will include such a clause so long as the same is includable without extra cost, or if extra cost is chargeable therefor, so long as Landlord pays such extra cost. 12.2 Landlord hereby releases Tenant, to the extent of Landlord's insurance coverage, from any and all liability for any loss or damage caused by fire or any of the extended coverage casualties, even if such fire or other casualty shall be brought about by the fault or negligence of Tenant or its agents, provided, however, this release shall be in force and effect only with respect to loss or damage occurring during such time as Landlord's policies of fire and extended coverage insurance shall contain a clause to the effect that this release shall not affect said policies or the right of Landlord to recover thereunder. Landlord agrees that its fire and extended coverage insurance 15 policies will include such a clause so long as the same is includable without extra cost, or if extra cost is chargeable therefore, so long as Tenant pays such extra cost. If extra cost is chargeable therefore, Landlord will advise Tenant thereof and of the amount thereof. 13. ASSIGNMENT. ---------- 13.1 Tenant agrees that it will not assign, mortgage, pledge or otherwise encumber this Lease or any interest therein, or sublet the whole or any part of the Demised Premises without obtaining on each occasion the written consent of the Landlord. Notwithstanding the foregoing, Tenant may assign this Agreement to a successor in interest without obtaining such consent in the event of a merger, sale, acquisition, change of control, or sale of all or substantially all of the assets of Tenant, provided that Tenant can prove to the reasonable satisfaction of Landlord that such successor in interest is at least as creditworthy as Tenant. Notwithstanding any assignment or sublease, Tenant shall remain fully liable on this Lease for the balance of the term or period of extension or renewal, if any, then so remaining. 13.2 If Tenant requests Landlord consent to an assignment of the Lease or subletting of all or any portion of the Premises, it shall submit to Landlord in writing, the name of the proposed assignee(s) or subtenant(s) the terms of the proposed lease and the nature and character of the business of the proposed assignee or subtenant. Landlord shall have the option (to be exercised within 30 days from the submission of Tenant's written request) to cancel the within Lease with respect to the portion proposed to be subleased as of the commencement date stated in the above mentioned sublet or assignment and enter into a direct lease with such subtenant. If Landlord elects to cancel the within Lease as stated, then, the term, tenancy, and occupancy of the said premises under this Lease or otherwise shall cease, determine, expire, and come to an end as though the cancellation date was the original termination date of the within Lease. 13.3 If the Landlord shall not exercise its option within the terms set forth above, its consent to any such proposed assignment or subletting shall not be unreasonably withheld provided that Tenant shall remain liable under all terms and conditions of this Lease. In the event of default by Tenant under the terms and conditions of this Lease at such time that all or part of the Premises are then sublet or assigned, Landlord may collect directly from the sublessee(s) all rents becoming due to Tenant under the sublease(s) or assignment(s) and apply such rents against any sums due to Landlord by Tenant under this Lease, and Tenant hereby authorizes and directs such sublessee(s) to make such payments of rent to Landlord upon receipt of notice from Landlord. Such collection of rent by Landlord shall not 16 constitute a novation or a release of Tenant from its liability under the terms and conditions of this Lease. 14. HOLDING OVER. ------------ 14.1 If Tenant or anyone claiming under Tenant shall remain in possession of the Demised Premises or any part thereof after the expiration of the term of this Lease or any extension thereof without any agreement in writing between Landlord and Tenant with respect thereto, prior to acceptance of rent by Landlord the person remaining in possession shall be deemed a tenant at will, subject to the provisions of this Lease insofar as the same may be made applicable to a tenancy at will; provided, however, that if Minimum Annual Rent shall be payable during the term of this Lease at different rates at different times, Minimum Annual Rent during such period as such person shall continue to hold the Demised Premises or any part thereof shall be payable the highest rate payable during the term hereof plus twenty (20%) percent. 15. WAIVERS. ------- 15.1 Failure of either the Landlord or the Tenant to complain of any act or omission on either the part of the Landlord or the Tenant, no matter how long the same may continue, shall not be deemed to be a waiver by either Landlord or Tenant of any of its rights hereunder. No waiver by Landlord or Tenant at any time, express or implied, of any breach of any provision of this Lease shall be deemed a waiver of a breach of any other provision of this Lease or a consent to any subsequent breach of the same or any other provision. If any action by Landlord shall require Tenant's consent or approval, Tenant's consent or approval of such action on any one occasion shall not be deemed a consent to or approval of said action on any subsequent occasion or a consent to or approval of any other action on the same or any subsequent occasion. If any action by Tenant shall require Landlord's consent or approval, Landlord's consent to or approval of such action on any one occasion shall not be deemed a consent to or approval of said action on any subsequent occasion or a consent to or approval of any other action on the same or any subsequent occasion. No payments by Tenant or acceptance by Landlord, or payments by Landlord accepted by Tenant of a lesser amount than shall be due from each other shall be deemed to be anything but payment on account and the acceptance by either Landlord or Tenant of a check for a lesser amount with an endorsement or statement thereon or upon a letter accompanying said check that said lesser amount is payment in full shall not be deemed an accord and satisfaction, and Landlord or Tenant may accept said check without prejudice to recover the balance due or pursue any other remedy. Any and all rights and remedies which Landlord or Tenant may have under this Lease or by operation of law, either at law or in equity, upon any breach, shall be distinct, separate and cumulative and shall not be deemed inconsistent with each other; and no one of them, whether exercised by Landlord or Tenant or not, shall be deemed to be in exclusion of any other; and any two 17 or more of all rights and remedies may be exercised at the same time. 16. LANDLORD'S TITLE, ETC. --------------------- 16.1 Landlord agrees that it is fully authorized and empowered to make, execute and deliver this Lease, and that it is lawfully seized of the Demised Premises as shown on said plans and specifications and that it owns the same in fee simple absolute, and that there are no liens or encumbrances thereon of any kind whatsoever except those of record and leases with other tenants. 16.2 Landlord agrees that upon Tenant's paying the rent and performing and observing the agreements, conditions, and other provisions on its part to be performed and observed, Tenant shall and may peaceably and quietly have, hold and enjoy the Demised Premises during the term of this Lease without any manner of hindrance or molestation. 17. BROKERAGE. --------- 17.1 Tenant warrants and represents to Landlord that Tenant has dealt with no broker or third person with respect to this Lease or the Demised Premises, Tenant's agent, Colebrook Realty, which agent shall be paid by Tenant alone. Tenant covenants and agrees to indemnify Landlord against any brokerage claims by third persons claiming to have dealt with Tenant or to have brought the Demised Premises or Landlord to the attention of Tenant, and in furtherance thereof, at Landlord's request, to enter and defend, in Landlord's name and behalf, any action or proceeding commenced against Landlord to establish any such brokerage claim. The indemnification hereunder shall include Landlord's reasonable attorneys' fees in resisting any such brokerage claim. 18. SECTION OMITTED. --------------- 19. LIMITATION ON LIABILITY. Notwithstanding any contrary intent expressed in ----------------------- this Lease, neither the Landlord or its partners, nor any beneficiary, trustee, officer, or stockholder of any successor thereto shall be personally liable for the obligations of Landlord or for any damages accruing under this Lease, it being further agreed that, only the Landlord's interest in Landlord's Property and the real and personal property thereon shall be subject to the claims of the Tenant. 20. DEFINITIONS AND INTERPRETATIONS. ------------------------------- 20.1 The words "Landlord" and "Tenant" and the pronouns referring thereto, as used in this Lease, shall mean, where the context requires or admits, the persons or company named herein as Landlord and as Tenant, respectively, and their respective heirs, legal representatives, successors and assigns, irrespective of whether singular or plural, masculine, feminine or neuter. The word "Landlord" as used herein, means only the owner for 18 the time being of Landlord's interest in this Lease, that is, in the event of any transfer of Landlord's interest in this Lease the transferor shall cease to be liable, and shall be released from all liability for the performance or observance of any agreements or conditions on the part of Landlord to be performed or observed subsequent to the time of said transfer, it being understood and agreed that from and after said transfer the transferee shall be liable for the performance and observance of said agreements and conditions. 20.2 For the purposes of this Lease, a business organization shall be deemed to be affiliated with Tenant (l) if such business organization controls Tenant either directly by ownership of a majority of its voting stock or of such minority thereof as to give it substantial control of Tenant, or indirectly by ownership of such a majority or minority of the voting stock of another business organization so controlling Tenant, (2) if said business organization is so controlled by another business organization so controlling Tenant. 20.3 It is agreed that if any provisions of this Lease shall be determined to be void by any court of competent jurisdiction then such determination shall not affect any other provisions of this Lease, all of which other provisions shall remain in full force and effect; and it is the intention of the parties hereto that if any provision of this Lease is capable of two constructions, one of which would render the provision void and the other of which would render the provision valid, then the provision shall have the meaning which renders it valid. 20.4 This Lease contains the entire and only agreement between the parties, and no oral statements or representations or prior written matter not contained in this Lease shall not have any force or effect. This Lease shall not be modified in any way except by a writing subscribed by both parties. 20.5 If Tenant shall accept possession of the Demised Premises prior to the Commencement Date, Tenant shall be subject to all the provisions of this Lease during the period between the acceptance of said possession and the Commencement Date as if said period were part of the term of this Lease. 20.6 Wherever in this Lease provision is made for the doing of any act by any person it is understood and agreed that said act shall be done by such person at its own cost and expense unless a contrary intent is expressed. 21. TENANT'S REPRESENTATIONS AND WARRANTIES. --------------------------------------- 21.1 Tenant represents that it is a duly organized Massachusetts corporation qualified to conduct business in the Commonwealth of Massachusetts, in good standing and that the execution and delivery of the Lease has been duly authorized by all necessary corporate action. 19 22. NOTICES. ------- 22.1 All notices and other communications authorized or required hereunder shall be in writing and shall be given either by mailing the same by certified or registered mail, return receipt requested postage prepaid, or by personal delivery of the same or by recognized overnight delivery service. If given to Tenant by mail the same shall be mailed to Tenant at 20 Industrial Drive East, P.O. Box 109, South Deerfield, MA 01373-0109 or to such other person or at such other address as Tenant may hereafter designate by notice to Landlord; and if given to Landlord, by mail, the same shall be mailed to Landlord at 630 Silver Street, Unit 3C, P.O. Box 528, Agawam, Massachusetts 01001 or to such other person or at such other address as Landlord may hereafter designate by notice to Tenant. If given by personal delivery the same shall be delivered, if to a corporation, to any officer of the corporation, if to an individual, to the individual or if to an unincorporated association, to any member of the association. 23. SECTION OMITTED. --------------- 24. UNFORESEEN DELAY. ---------------- 24.1 The provisions of this paragraph shall be applicable if there shall occur, during the term hereof, or any renewal or extension thereof, any strike, lockout, or labor dispute; inability to obtain labor or materials or reasonable substitutes therefor; inability or difficulty in obtaining fuel, electricity, services or supplies from the sources from which they are normally obtained; or act of God, governmental restriction, regulation, or control, enemy or hostile governmental action, civil commotion, insurrection, revolution, sabotage, or fire or other casualty or any other condition or cause beyond the reasonable control of the Landlord. If the Landlord shall, as the result of such event, fail punctually to perform any obligation required herein, then such obligation shall be punctually performed as soon as practicable after such event shall abate. If the Landlord shall, as a result of such event, be unable to exercise any right or option within any time limit provided therefor in this Lease, such time limit shall be deemed extended for a period equal to the duration of such event. 25. PARAGRAPH TITLE. --------------- 25.1 The paragraph titles used as headings for the various articles of this Lease are used only as a matter of convenience for reference, and are not to be considered a part of this Lease or to be used in determining the intent of the parties to this Lease. 20 SIGNATURES ---------- EXECUTED as a sealed instrument on the day and year first above written. LANDLORD: O'LEARY-VINCUNAS LLC ___________________________ By: /s/Raymond M. Vincunas ---------------------- Witness Raymond M. Vincunas, Class A Manager /s/Marie F. O'Leary By: /s/Edward J. O'Leary - ------------------- -------------------- Witness Edward J. O'Leary, Class B Manager TENANT: TELAXIS COMMUNICATIONS CORPORATION /s/David L. Renauld By: /s/Dennis C. Stempel - ------------------- -------------------- Witness Name: Dennis C. Stempel Title: Vice President & CFO 21 EXHIBIT A --------- LEASE BETWEEN O'LEARY-VINCUNAS LLC AND TELAXIS COMMUNICATIONS CORPORATION The land situated in South Deerfield, Franklin County, Massachusetts shown as Lots 8 and 9 on a certain plan titled "Deerfield Industrial Park Disposition Parcels and Easements" recorded in Franklin County Registry of Deeds in Book of Plans 57, Page 93. EX-23.1 8 0008.txt EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-30450) of Telaxis Communications Corporation of our report dated February 14, 2001, relating to the financial statements and financial statement schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP - ------------------------------ Hartford, Connecticut March 27, 2001 EX-27 9 0009.txt
5 1,000 12-MOS DEC-31-2000 DEC-31-2000 27,865 13,158 3,383 (250) 7,838 52,480 25,513 12,762 65,538 12,214 0 0 0 167 49,932 65,538 24,753 24,753 29,610 47,354 17,652 0 624 (37,634) 0 (37,634) (1,479) 0 0 (39,113) (2.64) (2.64)
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