8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (date of earliest event reported): August 2, 2006

TERABEAM, INC.

(Exact name of registrant as specified in its charter)

Delaware	000-29053	04-2751645
(State or other jurisdiction of incorporation)	(Commission file number)	(IRS employer identification no.)

2115 O’Nel Drive, San Jose, CA	95131
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (408) 731-2700

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01. Entry into a Material Definitive Agreement.

Employment and Stock Option Agreements with Brian J. Sereda

On August 2, 2006, Brian J. Sereda signed a letter employment agreement with Terabeam, Inc. for Mr. Sereda to be Terabeam’s Chief Financial Officer and Treasurer effective immediately. He will also serve in similar positions for Proxim Wireless Corporation and selected other subsidiaries of Terabeam. The employment agreement establishes an at-will employment relationship.

Mr. Sereda will initially report to Robert Fitzgerald, Terabeam’s Chief Executive Officer. His principal office location will be at Terabeam’s headquarters in San Jose, California, but he may be expected to travel from time to time. Mr. Sereda’s annual base salary is set at $200,000 subject to future adjustment. Mr. Sereda is eligible to receive an annual bonus with a target annual bonus of $50,000. Mr. Sereda is also entitled to participate in Terabeam’s normal benefit programs. Mr. Sereda has signed our standard employee agreement for confidential and proprietary information, intellectual property, non-competition, and non-solicitation.

The letter employment agreement contemplates Mr. Sereda being granted an option to purchase 25,000 shares of Terabeam’s common stock with an exercise price equal to the fair market value of Terabeam’s stock on the date of grant. The options were granted by Terabeam on August 2, 2006 with an exercise price of $1.98 per share, the fair market value of Terabeam’s common stock on that date. The options were granted pursuant to Terabeam’s standard incentive stock option agreement for executive officers. The options vest over three years with 34% of the grant vesting on the first annual anniversary of the date of grant and thereafter as to 8 ¼% on the first day of each January, April, July, and October until the option has vested in full. The option agreement provides that, upon a change of control, 50% of all unvested stock options will automatically vest. The options have a five year term.

The foregoing description of the letter employment agreement and stock option agreement with Mr. Sereda does not purport to be complete and is qualified in its entirety by the terms and conditions of that letter employment agreement, a copy of which is filed as Exhibit 10.1 to this Form 8-K, and of the stock option agreement, a form of which is filed as Exhibit 10.2 to this Form 8-K, and each of which is incorporated by reference.

Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

As described in Item 1.01 above, effective August 2, 2006, Brian J. Sereda, 45, became Terabeam’s Chief Financial Officer and Treasurer. In those roles, he will serve as Terabeam’s principal financial officer and principal accounting officer. The terms of his employment agreement are described above under Item 1.01. There is no family relationship between Mr. Sereda and any of Terabeam’s directors or other executive officers.

Mr. Sereda had been Acting Chief Financial Officer and Acting Treasurer for the company since June 2006 and was Vice President of Finance and Corporate Controller of the company since May 2006. From February 2005 to April 2006, he was Vice President of Finance, Corporate Controller for Portal Software, a leading worldwide provider of billing and revenue management solutions for the global communications and media markets. From April 2002 to October 2004, he was Vice President of Finance, Corporate Controller for Credence Systems Corp., a leading semiconductor test equipment manufacturer. From April 2001 to April 2002, he was Director of Finance and Corporate Treasurer of Handspring Inc., a former leader in handheld computing that was acquired by Palm Inc.

Item 9.01 Financial Statements and Exhibits.

(c) Exhibits

See Exhibit Index.

2

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	TERABEAM, INC.
Dated: August 4, 2006	By:	/s/ David L. Renauld
		David L. Renauld
		Vice President

EXHIBIT INDEX

Number	Title
10.1	Letter Employment Agreement between the Registrant and Brian J. Sereda dated August 2, 2006.
10.2	Form of Incentive Stock Option Agreement for Executive Officers.

3

EX-10.1

Exhibit 10.1

August 2, 2006

Dear Brian:

I am pleased that you have accepted our offer to serve as Chief Financial Officer and Treasurer for Terabeam, Inc. In that position, you will also serve as Chief Financial Officer and Treasurer of Terabeam’s subsidiary Proxim Wireless Corporation and selected other subsidiaries from time to time. You will initially report to the Chief Executive Officer of Terabeam. Your primary work location will be Terabeam’s headquarters in San Jose, California but you may be expected to travel from time to time due to your job responsibilities.

Your compensation package will consist of a base starting salary of $200,000 annually to be paid bi-weekly, less deductions authorized or required by law. You will be eligible for enrollment in our benefit programs as well as participation in an executive bonus program. Your target bonus will be $50,000 annually.

A recommendation will be made to the Board of Directors of Terabeam that you be granted an option to purchase an additional 25,000 shares of Terabeam's common stock.  The exercise price will be set on the date the option grant is approved.  Any award will be subject to all the terms and conditions of Terabeam's applicable Stock Plan and the stock option agreement given to you.

Terabeam offers a co-paid health, dental, and visual medical coverage plan for you and your family members, if applicable, as well as other benefits such as vacation, holiday pay, 401(k), all of which are outlined in our Employee Handbook. A Human Resources representative will be contacting you about enrollment in such program.

As an employee of Terabeam, you will have access to certain company confidential information and you may during the course of your employment develop certain information or inventions, which will be the property of Terabeam. Thus, to protect the interests of Terabeam, as a condition to your employment, you will be required to sign our standard employee agreement for confidential and proprietary information and intellectual property. This agreement must be signed without modification (“as is”). If desired, a copy is available for review prior to signing your offer letter. You also will be subject to the other policies and procedures of Terabeam applicable to its other employees as in effect from time to time. For example, you will have to provide employment eligibility verification and your employment may require drug testing some time in the future.

Your employment with Terabeam is “at will.” It is for no specified period and may be terminated by you or Terabeam at any time, with or without cause or advance notice. Further, Terabeam may change your compensation, duties, assignments, responsibilities, or location of your position at any time to adjust to the changing needs of our dynamic company.

Offer to: Brian Sereda

August 2, 2006

Page 2

Terabeam may provide you with one or more types of equipment to help you perform your duties for the company, including, but not limited to, computers, cellular telephones, and wireless messaging devices. Please understand that it is your obligation to take proper care of all such equipment during your employment and to return such equipment to Terabeam in good working order immediately upon the termination of your employment with Terabeam for any reason.

This letter agreement and the other agreements referred to above constitute the entire agreement between you and Terabeam or Proxim regarding the terms and conditions of your employment with Terabeam or Proxim, and these agreements supersede all prior negotiations, representations, or agreements, whether written or verbal, between you and any other party, if any. This agreement cannot be modified or amended except by a document signed by the CEO of Terabeam.

We are very excited that you have accepted our offer of employment and look forward to a long and prosperous relationship. I have no doubt that your experience, skill and professionalism will mutually benefit both you and Terabeam. Please sign in the space below to formalize your acceptance and return this letter to Human Resources by hand or via fax at (408) 392-4264. I look forward to hearing from you as soon as possible.

Sincerely,

/s/ Robert E. Fitzgerald

Robert E. Fitzgerald

Chief Executive Officer

I agree to and accept employment with Terabeam, Inc. on the terms and conditions set forth in this letter.

/s/ Brian J. Sereda	August 2, 2006
Name: Brian J. Sereda	Start Date

EX-10.2

Exhibit 10.2

INCENTIVE STOCK OPTION AGREEMENT

THIS INCENTIVE STOCK OPTION AGREEMENT is made as of ___________________ between TERABEAM, INC., a corporation organized under the laws of the State of Delaware (hereinafter called the “Corporation”), and ______________________ (hereinafter referred to as the “Employee”).

WHEREAS, the Employee is in the employ of the Corporation or one of its affiliates and the Corporation considers it desirable and in its best interests to encourage the Employee as an eligible employee under its 2004 Stock Plan (the “Plan”) to remain in such employ and to motivate the Employee to exert the Employee’s best efforts on behalf of the Corporation and its affiliates;

NOW, THEREFORE, it is agreed as follows:

1.Grant of Option. The Corporation hereby grants to the Employee as of the date of this Agreement (“Date of Grant”) the right, privilege and option to purchase not more than _____________shares (the “Grant Number”) of the Common Stock of the Corporation, par value $.01 per share, as constituted on the date of this Agreement pursuant to the terms, provisions and conditions of the Plan which is incorporated herein and made a part hereof by reference as if fully set forth herein at length and subject to the terms, provisions and conditions set forth below.

2.Option Price. The option price per share of Common Stock as constituted on the date of this Agreement, as determined in accordance with the Plan, shall be $____per share.

3. Time of Exercise; Acceleration. This option will vest as to thirty-four percent (34%) of the Grant Number on the first annual anniversary of the Date of Grant and then as to eight and one-quarter percent (8.25%) of the Grant Number on the first day of each January, April, July, and October after the first annual anniversary of the Date of Grant until the option has vested in full (the day on which any options are scheduled to vest under this Agreement is referred to in this Agreement as a “Vesting Date”); provided, however, that upon the event of (i) the completion of a merger or consolidation of the Corporation with any other entity (other than a merger or consolidation which would result in the shareholders of the Corporation immediately prior thereto continuing to own (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) more than 50% of the combined voting power of the voting securities of the Corporation or such surviving entity (or its parent) outstanding immediately after such merger or consolidation), (ii) the sale of substantially all of the Corporation’s assets to another entity, or (iii) the sale of more than 50% of the outstanding capital stock of the Corporation to an unrelated person or group of persons acting collectively in one or a series of transactions, fifty percent (50%) of the unvested options that would have vested on each Vesting Date (rounded down to the nearest whole number if necessary) will be immediately vested. Notwithstanding the foregoing sentence, (a) the number of options that will vest on each Vesting Date, if other than a whole number, will be rounded

down to the nearest whole number and (b) any fractional options resulting from the preceding clause will vest on the ninth Vesting Date.

Only vested stock options may be exercised. This option may be exercised in whole or in part as to shares which have vested for not in excess of the difference between (i) the total number of shares then vested and (ii) the total number of shares as to which the option has been previously exercised. No partial exercise of this option within any year may be for less than 100 shares (or the remaining shares purchasable under this option if less than 100 shares).

4.Method of Exercise. This option shall be exercisable from time to time as provided above by written notice in the form of Exhibit “A”, signed by the person entitled to exercise the option, setting forth in terms of shares of Stock as constituted on the date of this Agreement, the number of shares as to which this option is being exercised. Such notice shall be delivered to the Corporation at its principal place of business or as otherwise directed by the Corporation and be accompanied by the purchase price. Alternatively, the person entitled to exercise the option may exercise the option and pay the purchase price by any other method that may be authorized by the Corporation from time to time. The Corporation shall make prompt delivery of the shares of Stock as to which the option is exercised against payment of the purchase price; provided, however, that if any law or regulation requires the Corporation to take any action with respect to the Stock before the issuance thereof, then the date of delivery of the Stock shall be extended for the period necessary to take such action.

5.Further Limitations on Exercise.

A.Termination of Employment.

(i)If Employee’s employment with or service to the Corporation terminates other than by reason of death or Disability, (a) no further vesting of this option will occur subsequent to the date of termination, and (b) this option will terminate on the date three months after the date of termination or on the option’s specified expiration date, if earlier. Nothing in this Agreement will be deemed to give the Employee the right to continued employment with the Corporation.

(ii)If Employee’s employment or other service to the Corporation is terminated due to the Employee’s death or Disability, this option may be exercised, up to that portion of the option which the Employee could have exercised on the date of death or Disability, by the Employee, or in the case of death, the Employee’s estate, personal representative or any beneficiary who has acquired the option by will or by the laws of descent and distribution, at any time prior to the earlier of the specified expiration date of this option or one year after the Employee’s death or Disability.

B.Condition to Exercise. As a condition of the Corporation's obligation to issue Stock upon exercise of this option, the Employee or other person entitled to exercise this option, if requested by the Corporation, shall concurrently with the exercise of this option execute an Agreement Not to Compete with the Corporation (in such form as adopted by the

2

Corporation from time to time), which obligates the Employee to refrain from certain activities (if the person exercising the option has not already executed such an agreement).

C.Payment. The option price shall be paid as follows: (i) by check, and/or (ii) to the extent the Stock is publicly traded, by delivery to the Corporation by the Employee of Stock already owned by such Employee, properly endorsed and having a fair market value equal to the purchase price (if permitted by the Corporation) and/or (iii) in any other manner permitted by the Corporation from time to time. For purposes of this Section 5(C), the market value of such stock to be delivered to the Corporation in payment of the option price shall be determined in accordance with the Plan.

D.Non-Transferability. This option is not transferable by the Employee, except by will or by laws of descent and distribution, and is exercisable during the Employee's lifetime only by the Employee.

E.Adjustment. If a dividend is declared upon the Stock payable in Stock, then the shares of Stock then subject to this option (and the number of shares reserved for issuance) shall be increased proportionately without any change in the aggregate purchase price. If the outstanding Stock is changed into or exchanged for a different number or class of shares of stock of the Corporation or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, merger or consolidation, then (i) there shall be substituted for each such share of Stock then subject to this option (and for each share reserved for issuance) the number and class of shares of Stock into which each outstanding share of Stock is so changed or exchanged, all without any change in the aggregate purchase price for the shares then subject to this option and (ii) the vesting schedule set forth in Section 3 above shall also be adjusted proportionately to reflect the impact of such reorganization, recapitalization, stock split-up, combination of shares, merger or consolidation.

F.Withholding Taxes. Whenever under this Agreement Stock is to be issued, the Corporation shall have the right to require the recipient to remit to the Corporation an amount sufficient to satisfy federal, state and local withholding tax requirements prior to delivery of any certificate or certificates representing the Stock.

6.Stock Ownership. An optionee shall be entitled to the privilege of stock ownership only as to such shares of Stock as are issued upon exercise of this option.

7.Requirements of Law. The granting of this option and issuance of shares of Stock upon the exercise of this option, and the Corporation’s obligations relating thereto, shall be subject to compliance with all of the applicable requirements of law with respect to the granting of this option and issuance and sale of such shares (including, without limitation, having an effective registration statement relating to such shares in force with the Securities and Exchange Commission). The Corporation shall not be required to take any action pursuant to this Agreement that would violate any applicable federal, state, local, or foreign law or require the Corporation to qualify to do business in, obtain any certifications or approvals from, or make any filings with any state, local, or foreign jurisdiction.

3

8.Expiration Date. This option and all rights granted in this Agreement shall, in all events, expire five (5) years from the Date of Grant.

9.Legend. The Employee hereby agrees that the stock certificates delivered upon exercise of this option may bear a legend or legends in the form designated by the Corporation to ensure compliance with legal or contractual restrictions.

10. Definitions. Unless otherwise defined in this Agreement, the terms used in this Agreement shall have the same meanings as in the Plan. The term “Stock” shall mean shares of Common Stock of the Corporation as constituted on the date of this Agreement and such other stock as shall be substituted therefor or issued thereon as provided in Section 5(E) above or as shall be substituted for or issued upon or in exchange for Stock issued pursuant to the options.

11. Disposition of Stock. The Employee acknowledges that the “incentive stock option” rules set forth in Section 422 of the Internal Revenue Code of 1986, as amended, will not be applicable to any Stock issued to the Employee pursuant to this Agreement if such Stock is disposed of either within two (2) years of the Date of Grant or within one (1) year of the issuance of such Stock to the Employee. The Employee shall give the Corporation prompt notice of a Disqualifying Disposition.

12. Notices. All notices under this Agreement shall be sufficient if in writing and delivered in hand or mailed, registered or certified mail, postage prepaid, and addressed to the Corporation at TERABEAM, INC., 2115 O’Nel Drive, San Jose, CA 95131, Attn: Chief Financial Officer or to the Employee at the most recent address of the Employee set forth in the personnel records of the Corporation. Either party may change the address to which notices shall be delivered by like notice given at least ten (10) days before the effective date of such change of address.

13. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Corporation, its successors and assigns, and the Employee, his legal representatives, heirs, legatees and assigns.

14. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware, U.S.A.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date and year first above written.

TERABEAM, INC.	Employee
By:_________________________________	_____________________________________
Name:
Title:

4

EXHIBIT A

(date)

TERABEAM, INC.

2115 O’Nel Drive

San Jose, CA 95131

Ladies and Gentlemen:

I wish to exercise my option to purchase ____________ shares of common stock, par value $.01 per share (the “Securities”) at a price of $_____ per share pursuant to the Incentive Stock Option Agreement dated as of ____________________ (the “Agreement”) under the Corporation’s 2004 Stock Plan.

Check one of the following boxes:

oI enclose herewith my check for $_____________________ (the exercise amount).

o I am paying the exercise price by the following means which has been approved by the Corporation: ___________________________________________________

____________________________________________________________________________________________.

I understand that prior to exercising any options I must have signed an Agreement Not to Compete with the Corporation (if requested by the Corporation) in the form adopted by the Corporation from time to time.

I further agree that I will not make any sales or other transfers or dispositions of the securities covered by this letter during the time period following the closing of any public offering by the Corporation of its securities requested by the underwriter or, in the absence of such request, ninety (90) days.

	Very truly yours,
_______________________________________________	____________________________________________________________
Employee Social Security Number	Employee Signature (on line above)
	Employee Name (printed):____________________________

Employee’s Home Address: Address to which certificates are to be sent (complete ONLY if different than home address):

5